Download Financial Life Events Life Event 2

PART 5:
LIFE CYCLE ISSUES
Chapter 18
Fitting the Pieces Together
The Ingredients of Success
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It is impossible to succeed financially unless you:
Evaluate your financial health.
 Plan and budget.
 Manage your cash and credit.
 Control your debt.
 Make knowledgeable consumer decisions.
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The Ingredients of Success
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It is impossible to succeed financially unless you:
Have adequate health, life, property, and liability
insurance.
 Understand investing principles.
 Make investment decisions that reflect your goals.
 Plan for retirement.
 Plan for what happens to your accumulated wealth
and your dependents after your die.
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The Financial Life Cycle
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Recent graduates make many financial decisions
after leaving college. They:
May purchase a car and possibly a home.
 Will establish credit and pay taxes.
 May get married and begin a family.
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Set up an emergency fund, start saving for your
goals, and begin a retirement account.
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The Financial Life Cycle
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At age 19, put away $2000 at the end of each
year for 7 years in an IRA that earns 11%, and
then nothing thereafter; at age 65 you will have
more than $1.2 million.
If you wait until you are 25 to start that IRA and
make payments every year for 40 years, you still
won’t catch up (you’ll have $1.164 million).
Start at 30, make 35 payments, and end up with
less than $700,000.
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Women and Personal Finance
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While the basic principles of personal finance
don’t change whether you’re a man or a woman,
it is tougher for women to achieve financial
security.
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Women:
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Generally earn less
Are less likely to have pensions
Qualify for less Social Security
Live longer than men
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Women and Personal Finance
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Consider these facts:
Over 90% of all women take sole responsibility for
their financial decisions at some point.
 Nearly half of all women over 65 get 90% of their
income from Social Security, compared to 35% of
comparable men.
 75% of women don’t know how much they need to
save for retirement.
 Women tend to be more conservative in their
investments, so they earn less.
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Women and Personal Finance

Consider these facts:
Only 28% of women over 65 receive pension benefits,
compared to 45% of men, and the average men’s pension
was twice that of women.
 At age 65, women outnumber men 3 to 2, by 85 they
outnumber them 5 to 2.
 While 12% of the elderly live in poverty, 75% of them are
women.
 In 2001, median personal income for 65 year-old women
was $11,313, while for 65 year-old men it was $19,668.
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Women and Personal Finance

How does a woman start to take charge?
 Acquire
knowledge.
 Make things happen – create a plan.
 See a financial planner about specific
concerns.
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Financial Life Events
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Life Event 1: Getting Started
Lay the groundwork – understand investments and
personal finance and assess current finances with
planning for the future:
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Expenses and a budget
Control debt
Establish an emergency fund
Insure yourself
Control your credit score
Keep current on personal finance
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Financial Life Events

Life Event 1: Getting Started
Identify your goals:
 Identify and prioritize financial goals.
 Set a time frame.
 Identify the costs of your goals.
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Financial Life Events

Life Event 1: Getting Started
Begin saving for your goals:
 Save more than you think you can.
 Make savings automatic.
 Don’t procrastinate.
 Catch your matches.
 ROTH.
 How much risk can you tolerate?
 Put together a strategy.
 Control your spending.
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Financial Life Events

Life Event 2: Marriage
Get Organized – review and reorganize finances.
Work together – discuss approaches to handling money.
 Update financial records.
 Gain control of your debt and your credit score – clear
up debt issues to work towards getting a mortgage.
 Merge finances to make good decisions.
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Financial Life Events
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Life Event 2: Marriage
Revisit Your Financial Goals – revisit both long- and
short-term goals
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Reexamine your financial goals.
Begin saving for new goals.
Make saving automatic.
Make sure you have an emergency fund.
Begin working towards retirement.
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Financial Life Events
Life Event 2: Marriage

Reexamine your insurance and benefits: may
change beneficiaries, buy additional insurance, and
coordinate benefits.
Review your beneficiaries.
 Include all family members.
 Review your insurance.
 Coordinate your benefits.
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Financial Life Events
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Life Event 2: Marriage
Reexamine your taxes: your tax status and the taxadvantaged benefits from your employer may
change.
Update W-4 form.
 Take advantage of tax breaks.
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Make a will.
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Review your beneficiaries.
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Financial Life Events
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Life Event 3: Buying a Home
Does the purchase fit your financial plan?
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Keep track of your credit score.
Consider the tax implications.
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Take advantage of tax benefits.
Build tax benefits into your budget.
Reexamine your investments.
Update your employer records.
Know your state.
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Financial Life Events
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Life Event 4: Having a Child
Survey your finances.
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Assess your current financial situation.
Reexamine your financial goals.
Revise your budget.
Plan for college.
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Estimate costs.
Automate your savings.
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Financial Life Events
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Life Event 4: Having a Child
Reconsider your insurance needs.
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Update wills and trusts.
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Review and update insurance.
Update or make a will.
Update your retirement account beneficiary.
Take advantage of tax savings.
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Apply for Social Security number.
Update W-4.
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Financial Life Events
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Life Event 5: Inheritances, Bonuses,
or Unexpected Money
Examine the priorities of your goals.
Reexamine your goals.
Consider estate planning.
Examine the tax implications.
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Plan for tax implications.
Consider estate taxes.
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Financial Life Events
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Life Event 6: A Major Illness
Reexamine your finances.
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Assess current financial situation.
Emergency fund – adequate liquidity.
Reexamine financial goals.
Reexamine investment strategy.
Revise budget.
Take advantage of tax breaks.
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Understand the tax implications.
Explore flexible spending accounts (FSAs).
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Financial Life Events
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Life Event 6: A Major Illness
Alternatives to Finance Your Illness.
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Reverse mortgage
Life insurance
Disability insurance
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Financial Life Events
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Life Event 7: Caring for an Elderly Parent
Health care and estate planning concerns.
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Oversee your parents’ financial affairs.
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Understand their goals and budget.
Discuss long-term health care options.
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Talk to your parents.
Long-term health care insurance.
Estate planning.
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Discuss estate planning.
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Financial Life Events
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Life Event 8: Retiring
Develop a retirement income plan.
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Mental and financial preparation.
Plan how to use your retirement savings.
Manage your income in retirement.
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Withdrawal strategy.
Monitor your investments.
Emergency fund.
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Financial Life Events
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Life Event 8: Retiring
Review your insurance coverage and your will.
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Employer retiree health care.
Medicare and Medicare supplemental insurance.
Long-term health care insurance.
Homeowner’s insurance.
Review your will.
Keep track of important retirement planning dates.
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Financial Life Events
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Life Event 9: Death of a Spouse
Organize financial material.
Contact sources of survivor benefits.
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Insurers.
Social Security.
Past Employers.
If you are the executor, carry out your responsibilities.
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Distribution of assets.
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Financial Life Events
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Life Event 9: Death of a Spouse
Change ownership or title to assets.
Insurance policies.
 Automobiles.
 Bank accounts, stocks, bonds, and safe deposit
boxes.
 Credit cards.
 Determine if your benefits change.
 Review your insurance.
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Financial Life Events
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Life Event 10: Divorce
Nearly ½ of all marriages end in divorce and
money problems are a main cause.
Prepare for divorce.
Pay down debt.
 Keep the costs down.
 Protect yourself with the help of a financial planner.
 Consider a prenuptial agreement.
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Financial Life Events
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Life Event 10: Divorce
Avoid Credit Damage.
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Revisit your financial goals.
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Late payments and your credit report.
Have your account re-aged.
Insurance coverage.
Child support and alimony.
Rework your budget.
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Retirement savings.
Reexamine your expenses.
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Making Financial Success
Happen
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Wealthy Americans:
Net worth from $1 million-$5 million, not inherited.
 Most have incomes less than $100,000.
 They own a home valued at $278,000.
 They are self-employed or a partner.
 In their original marriage, have 3 kids.
 They are frugal – clip coupons, buy on sale or do
without.
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The Keys to Success:
A Dozen Decisions
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Number 1: Become Knowledgeable – avoid
financial pitfalls and bad advice, handle unwanted
financial surprises.
Number 2: Don’t Procrastinate - your financial
future starts now.
Number 3: Live below your means – don’t spend at
your level or earning.
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The Keys to Success:
A Dozen Decisions
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Number 4: Realize You Aren’t Indestructible consider life and health insurance, stay healthy.
Number 5: Protect Your Stuff – have insurance to
protect you from financial ruin.
Number 6: Embrace the “B” Word (Budget) – the
budget is a means to reach your goals.
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The Keys to Success:
A Dozen Decisions
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Number 7: Reinvent and Upgrade Your Skills –
prepare for job insecurity by having the right skills.
Number 8: Hide Your Plastic – credit cards are a
dangerous threat to your financial well-being.
Number 9: Stocks Are Risky, But Not as Risky as
Not Investing in Them – invest long-term in stocks
and keep up with inflation.
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The Keys to Success:
A Dozen Decisions
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Number 10: Exploit Tax-Favored Retirement Plans
to the Fullest.
Number 11: Plan for the Number of Children You
Want.
Number 12: Stay Married.
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Successful Debt Management
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Key #1: The Obvious: Spend less than you earn
and budget your money.
Key #2: Know the costs.
Key #3: Understand the difference between
good and bad debt.
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Successful Debt Management
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Key #4: Make sure you can repay what you borrow
– set your own standards.
Key #5: Keep your credit score strong – it keeps
costs down and is a source of emergency money.
Key #6: Don’t live with bad (and expensive) debt.
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Getting Started: Just Do It
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Start today – don’t procrastinate.
Begin with budgeting and planning.
Pay attention to managing your cash.
Rid yourself of bad debt.
Your safety net should be in order.
Start investing.
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