Introduction

You’re probably not a personal finance expert, for good reason. Personal Finance 101 isn’t typically offered in our schools — not in high school and not even in the best colleges and graduate programs. It should be.

However, even if you got some financial education and acquired some financial knowledge over the years, you’re likely a busy person who doesn’t have enough hours in the day to get things done. Thus, you want to know how to diagnose your financial ­situation efficiently (and painlessly) to determine what you should do next. Unfortunately, after figuring out which financial strategies make sense for you, choosing specific financial products in the marketplace is often overwhelming. You have literally thousands of investment, insurance, and loan options to choose from. Talk about information overload!

To further complicate matters, you probably hear about most products through advertising that can be misleading, if not downright false. Of course, some ethical and outstanding firms advertise, but so do those that are more interested in converting your hard-earned income and savings into their profits. And they may not be here tomorrow when you need them.

Perhaps you’ve ventured online and been attracted to the promise of “free” advice. Unfortunately, discerning the expertise and background (and even identity) of those behind various blogs and websites is nearly impossible. And, as I discuss in this book, conflicts of interest (many of which aren’t disclosed) abound online.

Despite the development of new media and new financial products and services, folks keep making the same common financial mistakes — procrastinating and lack of planning, wasteful spending, falling prey to financial salespeople and pitches, failing to do sufficient research before making important financial decisions, and so on. This book can keep you from falling into the same traps and get you going on the best paths.

As unfair as it may seem, numerous pitfalls await you when you seek help for your financial problems. The world is filled with biased and bad financial advice. As a former practicing financial counselor and now as a writer, I constantly see and hear about the consequences of poor advice. All too often, financial advice ignores the big picture and focuses narrowly on investing. Because money is not an end in itself but a part of your whole life, this book helps connect your financial goals and challenges to the rest of your life. You need a broad understanding of personal finance that includes all areas of your financial life: spending, taxes, saving and investing, insurance, and planning for major goals like education, buying a home, and retirement.

Even if you understand the financial basics, thinking about your finances in a holistic way can be difficult. Sometimes you’re too close to the situation to be objective. Your finances may reflect the history of your life more than they reflect a comprehensive plan for your future.

You want to know the best places to go for your circumstances, so this book contains specific, tried-and-proven recommendations. I also suggest where to turn next if you need more information and help.

About This Book

You selected wisely in picking up a copy of Personal Finance For Dummies, 7th Edition! Over two million copies of prior editions of this book are in print, and as you can see from the quotes in the front of this edition, readers and reviewers alike have been pleased. This book also previously earned the prestigious Benjamin Franklin Award for best book of the year in business.

However, I never rest on my laurels. So the book you hold in your hands reflects more hard work and brings you the freshest material for addressing your personal financial quandaries. Here are some of the major updates you may notice as you peruse the pages of this book:

Updated coverage of the best ways to reduce, minimize the cost of, and eliminate consumer debt

Expanded information regarding smart ways to use credit and qualify for the best loan terms, as well as how to understand — and improve — your credit scores

A complete discussion on making the most of Internet resources, including smart shopping online, the dangers of “free” money websites, and investing online

Coverage of new and revised tax laws, pending and likely future tax law changes, and how to best take advantage of them

The latest information on what’s going on with government assistance programs, Social Security, and Medicare and what it means in terms of how you should prepare for and live in retirement

Updated investment recommendations — especially in the areas of exchange-traded funds, mutual funds, and real estate

Revised recommendations for where to get the best insurance deals, the impact of federal health insurance legislation, and expanded coverage on preparing for natural disasters

Expanded and updated coverage of how to use and make sense of the news and financial resources (especially online resources)

Aside from being packed with updated information, another great feature of this book is that you can read it from cover to cover if you want, or you can read each chapter and part without having to read what comes before, which is useful if you have better things to do with your free time. Handy cross-references direct you to other places in the book for more details on a particular subject.

Conventions Used in This Book

To help you navigate the waters of this book, I’ve set up a few conventions:

I use italics for emphasis and to highlight new words or terms that I define.

I use boldface text to indicate the action part of numbered steps and to highlight key words or phrases in bulleted lists.

I put all web addresses in monofont for easy identification.

What You Can Skip or Skim

I’ve written this book so you can find information easily and easily understand what you find. And although I’d like to believe that you want to pore over every last word between the two yellow and black covers, I actually make it easy for you to identify “skippable” material. This information is the stuff that, although interesting, isn’t essential for you to know:

Text in sidebars: The sidebars are the shaded boxes that appear here and there. They include helpful information and observations but aren’t necessary reading.

Anything with a Technical Stuff icon attached: This information is interesting but not critical to your understanding of the topic at hand.

Foolish Assumptions

In writing this book, I made some assumptions about you, dear reader:

You want expert advice about important financial topics — such as paying off and reducing the cost of debt, planning for major goals, making wise investments — and you want answers quickly.

Perhaps you want a crash course in personal finance and are looking for a book you can read cover-to-cover to help solidify major financial concepts and get you thinking about your finances in a more comprehensive way.

This book is basic enough to help novices get their arms around thorny financial issues. But advanced readers will be challenged, as well, to think about their finances in a new way and identify areas for improvement.

How This Book Is Organized

This book is organized into six parts, with each covering a major area of your personal finances. The chapters within each part cover specific topics in detail. Here’s a summary of what you can find in each part.

Part I: Assessing Your Financial Fitness and Setting Goals

This part explains how to diagnose your current financial health and explores common reasons for any missing links in your personal finance knowledge. We all have dreams and goals, so in this part, I also encourage you to think about your financial (and personal) aspirations and figure out how much you should be saving if you want to retire someday or accomplish other important goals.

Part II: Spending Less, Saving More

Most people don’t have gobs of extra cash. Therefore, this part shows you how to figure out where all your dollars are going and tells you how to reduce your spending. Chapter 5 is devoted to helping you get out from under the burden of high-interest consumer debt (such as credit card debt). I also provide specifics for reducing your tax burden.

Part III: Building Wealth through Investing

Earning and saving money are hard work, so you should be careful when it comes to investing what you’ve worked so hard to save (or waited so long to inherit!). In this part, I assist you with picking investments wisely and help you understand investment risks, returns, and much more. I explain all the major — and best — investment options. I recommend specific strategies and investments to use both inside and outside of tax-sheltered retirement accounts. I also discuss buying, selling, and investing in real estate, as well as other wealth-building investments.

Part IV: Insurance: Protecting What You Have

Insurance is an important part of your financial life. Unfortunately, for most people, insurance is a thoroughly overwhelming and dreadfully boring subject. But perhaps I can pique your interest in this esoteric topic by telling you that you’re probably paying more than you should for insurance and that you probably don’t have the right coverage for your situation. This part tells you all you ever wanted to know (okay, fine — all you never wanted to know but probably should know anyway) about how to buy the right insurance at the best price.

Part V: Where to Go for More Help

As you build your financial knowledge, more questions and issues may arise. In this part, I discuss where to go and what to avoid when you seek financial information and advice. I also discuss hiring a financial planner as well as investigating resources in print, on the air, and online.

Part VI: The Part of Tens

The chapters in this part can help you manage major life changes and protect yourself from the increasingly common problem of identity theft. You also can find a glossary in this part. The world of money is filled with jargon, so you’ll be happy to know that this book includes a comprehensive glossary of financial terms that are often tossed around but seldom explained.

Icons Used in This Book

The icons in this book help you find particular kinds of information that may be of use to you.

This nerdy-looking guy appears beside discussions that aren’t critical if you just want to understand basic concepts and get answers to your financial questions. You can safely ignore these sections, but reading them can help deepen and enhance your personal financial knowledge.

This target flags strategy recommendations for making the most of your money.

This icon highlights the best financial products in the areas of investments, insurance, and so on. These products can help you implement my strategy recommendations.

This icon points out information that you’ll definitely want to remember.

This icon marks things to avoid and points out common mistakes people make when managing their finances.

This icon alerts you to scams and scoundrels who prey on the unsuspecting.

This icon tells you when you should consider doing some additional research. I explain what to look for and what to look out for.

Where to Go from Here

This book is organized so you can go wherever you want to find complete information. Want advice on investing strategies, for example? Go to Part III for that. You can check out the table of contents to find broad categories of information and a chapter-by-chapter rundown of what this book offers, or you can look up a specific topic in the index.

If you’re not sure where you want to go, you may want to turn a few pages and start at the beginning with Part I. It gives you all the basic info you need to assess your financial situation and points to places where you can find more detailed information for improving it.