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Contents
1 Personal Financial Planning in Action 2
Your Life Situation and Financial Planning 3
Financial Planning in Our Economy 4
Financial Planning Activities 7
Developing and Achieving Financial Goals 9
Opportunity Costs and the Time Value of Money 11
Financial Opportunity Costs 11
A Plan for Personal Financial Planning 15
Step 1: Determine Your Current Financial Situation 15
Step 2: Develop Your Financial Goals 16
Step 3: Identify Alternative Courses of Action 16
Step 4: Evaluate Your Alternatives 17
Step 5: Create and Implement Your Financial Action Plan 19
Step 6: Review and Revise Your Plan 20
Career Choice and Financial Planning 22
Chapter 1 Appendix: Time Value of Money 32
A Successful Money Management Plan 45
Components of Money Management 45
A System for Personal Financial Records 46
Personal Financial Statements 48
Your Personal Balance Sheet: The Starting Point 48
Your Cash Flow Statement: Inflows and Outflows 51
A Plan for Effective Budgeting 54
Step 1: Set Financial Goals 54
Step 3: Budget an Emergency Fund and Savings 55
Step 4: Budget Fixed Expenses 55
Step 5: Budget Variable Expenses 56
Step 6: Record Spending Amounts 57
Step 7: Review Spending and Saving Patterns 57
Money Management and Achieving Financial Goals 60
Selecting a Saving Technique 60
Calculating Savings Amounts 62
3 Taxes in Your Financial Plan 74
Taxes in Your Financial Plan 75
The Basics of Federal Income Tax 77
Step 1: Determining Adjusted Gross Income 77
Step 2: Computing Taxable Income 77
Step 3: Calculating Taxes Owed 80
Step 4: Making Tax Payments 82
Step 5: Deadlines and Penalties 83
Filing Your Federal Income Tax Return 84
Which Tax Form Should You Use? 84
Completing the Federal Income Tax Return 84
How Do I File My State Tax Return? 87
How Do I File My Taxes Online? 87
What Tax Assistance Sources Are Available? 89
What If Your Return Is Audited? 92
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Education Deduction or Tax Credit? 94
Retirement and Education Plans 96
4 Financial Services: Savings Plans and Payment Accounts 106
Planning Your Use of Financial Services 107
Managing Daily Money Needs 107
Types of Financial Services 108
Financial Services and Economic Conditions 111
Sources of Financial Services 111
Comparing Financial Institutions 111
Types of Financial Institutions 112
Problematic Financial Businesses 114
Interest-Earning Checking Accounts 117
Money Market Accounts and Funds 117
Evaluating Checking and Payment Accounts 125
Managing Your Checking Account 126
5 Consumer Credit: Advantages, Disadvantages, Sources, and Costs 140
The Importance of Consumer Credit in Our Economy 141
Uses and Misuses of Credit 142
Summary: Advantages and Disadvantages of Credit 143
Sources of Consumer Credit 147
General Rules of Credit Capacity 151
Other Factors Considered in Determining Creditworthiness 157
What If Your Application Is Denied? 158
What Can You Do to Improve Your Credit Score? 158
Finance Charge and Annual Percentage Rate 160
Calculating the Cost of Credit 163
Billing Errors and Disputes 166
Identity Crisis: What to Do If Your Identity Is Stolen 166
Protecting Your Credit from Theft or Loss 167
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Protecting Your Credit Information on the Internet 167
Complaining about Consumer Credit 169
Consumer Credit Protection Laws 169
Consumer Financial Protection Bureau 171
Warning Signs of Debt Problems 171
Financial Counseling Services 172
Declaring Personal Bankruptcy 172
6 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles 186
Consumer Buying Activities 187
Practical Purchasing Strategies 187
Major Consumer Purchases: Buying Motor Vehicles 191
Phase 1: Preshopping Activities 191
Phase 2: Evaluating Alternatives 193
Phase 3: Determining Purchase Price 196
Phase 4: Postpurchase Activities 199
Resolving Consumer Complaints 201
Step 1: Initial Communication 202
Step 2: Communicate with the Company 202
Step 3: Consumer Agency Assistance 202
Legal Options for Consumers 203
Personal Consumer Protection 204
7 Selecting and Financing Housing 216
Evaluating Renting and Buying 217
Your Lifestyle and Your Choice of Housing 217
Renting versus Buying Housing 217
Step 1: Determine Home Ownership Needs 223
Step 2: Find and Evaluate a Home 225
Step 3: Price the Property 225
The Finances of Home Buying 227
Step 5: Close the Purchase Transaction 233
Preparing Your Home for Selling 235
Determining the Selling Price 235
Listing with a Real Estate Agent 236
8 Home and Automobile Insurance 246
Insurance and Risk Management 247
Planning an Insurance Program 249
Property and Liability Insurance in Your Financial Plan 252
Home and Property Insurance 253
Homeowner’s Insurance Coverages 254
Home Insurance Policy Forms 256
Home Insurance Cost Factors 260
How Much Coverage Do You Need? 260
Factors That Affect Home Insurance Costs 261
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Automobile Insurance Coverages 262
Motor Vehicle Bodily Injury Coverages 263
Motor Vehicle Property Damage Coverage 264
Other Automobile Insurance Coverages 265
Automobile Insurance Costs 266
Motor Vehicle Insurance Premium Factors 266
Reducing Vehicle Insurance Premiums 268
9 Health and Disability Income Insurance 282
Health Insurance and Financial Planning 283
Types of Health Insurance Coverage 286
Major Provisions in a Health Insurance Policy 289
Health Insurance Trade-Offs 290
Which Coverage Should You Choose? 291
Private Health Care Plans and Government Health Care Programs 292
Government Health Care Programs 296
Health Insurance and the Patient Protection and Affordable Care Act of 2010 298
The Affordable Care Act and the Individual Shared Responsibility Provision 301
The American Health Care Act of 2017 302
Disability Income Insurance 303
The Need for Disability Income 303
Sources of Disability Income 303
Disability Income Insurance Trade-Offs 304
Your Disability Income Needs 305
Why Does Health Care Cost So Much? 307
What Is Being Done about the High Costs of Health Care? 307
What Can You Do to Reduce Personal Health Care Costs? 308
10 Financial Planning with Life Insurance 318
The Purpose of Life Insurance 319
The Principle and Psychology of Life Insurance 320
Do You Need Life Insurance? 320
Estimating Your Life Insurance Requirements 321
Types of Life Insurance Companies and Policies 323
Types of Life Insurance Companies 323
Types of Life Insurance Policies 324
Selecting Provisions and Buying Life Insurance 327
Key Provisions in a Life Insurance Policy 327
Financial Planning with Annuities 336
11 Investing Basics and Evaluating Bonds 346
Preparing for an Investment Program 347
Establishing Investment Goals 347
Performing a Financial Checkup 348
Getting the Money Needed to Start an Investment Program 350
How the Time Value of Money Affects Your Investments 351
Factors Affecting the Choice of Investments 352
Components of the Risk Factor 354
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Factors That Reduce Investment Risk 356
Asset Allocation and Diversification 356
Your Role in the Investment Process 358
Conservative Investment Options: Government Bonds 361
The Psychology of Investing in Bonds 362
Government Bonds and Debt Securities 362
Conservative Investment Options: Corporate Bonds 364
Why Corporations Sell Corporate Bonds 365
Why Investors Purchase Corporate Bonds 366
A Typical Bond Transaction 368
The Decision to Buy or Sell Bonds 368
Financial Coverage for Bond Transactions 369
Current Yield Calculations 370
Other Sources of Information 372
Common and Preferred Stock 385
The Psychology of Stock Investing 385
Why Corporations Issue Common Stock 386
Why Investors Purchase Common Stock 386
Newspaper Coverage and Corporate News 393
Numerical Measures That Influence Investment Decisions 395
Why Corporate Earnings Are Important 395
Dividend Yield and Total Return 397
Other Factors That Influence the Price of a Stock 398
Making a Decision to Buy, Hold, or Sell a Stock—A Summary 400
Secondary Markets for Stocks 401
Brokerage Firms and Account Executives 402
Should You Use a Full-Service or a Discount Brokerage Firm? 403
Long-Term and Short-Term Investment Strategies 406
13 Investing in Mutual Funds 420
Why Investors Purchase Mutual Funds 421
The Psychology of Investing in Funds 422
Classifications of Mutual Funds 429
The Benefits of Portfolio Construction 432
Choosing the Right Fund for a Retirement Account 432
How to Make a Decision to Buy or Sell Mutual Funds 433
Managed Funds versus Index Funds 434
Professional Advisory Services 437
The Mutual Fund Prospectus and Annual Report 439
Financial Publications and Newspapers 440
The Mechanics of a Mutual Fund Transaction 441
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14 Starting Early: Retirement and Estate Planning 458
Planning for Retirement: Start Early 459
Saving Smart for Retirement: Even a Little Goes a Long Way 460
Conducting a Financial Analysis 462
Estimating Retirement Living Expenses 463
Living on Your Retirement Income 471
The Importance of Estate Planning 473
Legal Aspects of Estate Planning 474
A Education Financing, Loans, and Scholarships 492
B Developing a Career Search Strategy 502