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MyFinanceLab, IFC-1
Copyright, iv
About the Author, vi
Preface, xxi
Part 1. Financial Planning, 1
1. The Financial Planning Process, 2
Facing Financial Challenges, 3
The Personal Financial Planning Process, 5
Step 1: Evaluate Your Financial Health, 5
Step 2: Define Your Financial Goals, 5
Step 3: Develop a Plan of Action, 5
Step 4: Implement Your Plan, 6
Step 5: Review Your Progress, Reevaluate, and Revise Your Plan, 6
Establishing Your Financial Goals, 7
The Life Cycle of Financial Planning, 7
Thinking About Your Career, 11
Choosing a Major and a Career, 13
Getting a Job, 13
Being Successful in Your Career, 15
What Determines Your Income?, 15
Keeping a Perspective—Money Isn’t Everything, 16
Ten Principles of Personal Finance, 17
Principle 1: The Best Protection is Knowledge, 17
Principle 2: Nothing Happens Without a Plan, 18
Principle 3: The Time Value of Money, 18
Principle 4: Taxes Affect Personal Finance Decisions, 19
Principle 5: Stuff Happens, or the Importance of Liquidity, 19
Principle 6: Waste Not, Want Not—Smart Spending Matters, 20
Principle 7: Protect Yourself Against Major Catastrophes, 20
Principle 8: Risk and Return Go Hand in Hand, 20
Principle 9: Mind Games and Your Money, 22
Principle 10: Just Do It!, 22
Summary, 23
Review Questions, 24
Develop Your Skills—Problems and Activities, 24
Learn by Doing—Suggested Projects, 25
Be a Financial Planner—Discussion Case 1, 26
Be a Financial Planner—Discussion Case 2, 26
2. Measuring Your Financial Health and Making a Plan, 28
Using a Balance Sheet to Measure Your Wealth, 31
Assets: What You Own, 31
Liabilities: What You Owe, 33
Net Worth: A Measure of Your Wealth, 33
Sample Balance Sheet for Larry and Louise Tate, 34
Using an Income Statement to Trace Your Money, 34
Income: Where Your Money Comes From, 36
Expenditures: Where Your Money Goes, 37
Preparing an Income Statement: Louise and Larry Tate, 38
Using Ratios: Financial Thermometers, 38
Question 1: Do I Have Enough Liquidity to Meet Emergencies?, 38
Question 2: Can I Meet My Debt Obligations?, 41
Question 3: Am I Saving as Much as I Think I Am?, 42
Record Keeping, 42
Putting It All Together: Budgeting, 45
Developing a Cash Budget, 46
Implementing the Cash Budget, 47
Hiring a Professional, 48
What Planners Do, 48
Choosing a Professional Planner, 50
Summary, 51
Review Questions, 52
Develop Your Skills—Problems and Activities, 53
Learn by Doing—Suggested Projects, 55
Be a Financial Planner—Discussion Case 1, 56
Be a Financial Planner—Discussion Case 2, 56
3. Understanding and Appreciating the Time Value of Money, 58
Compound Interest and Future Values, 60
How Compound Interest Works, 60
The Future-Value Interest Factor, 61
The Rule of 72, 63
Compound Interest with Nonannual Periods, 63
Using an Online or Handheld Financial Calculator, 64
Compounding and the Power of Time, 66
The Power of Time, 66
The Importance of the Interest Rate, 67
Present Value—What’s It Worth in Today’s Dollars, 69
Annuities, 73
Compound Annuities, 73
Present Value of an Annuity, 75
Amortized Loans, 78
Perpetuities, 79
Summary, 80
Review Questions, 81
Develop Your Skills—Problems and Activities, 82
Learn by Doing—Suggested Projects, 83
Be a Financial Planner—Discussion Case 1, 84
Be a Financial Planner—Discussion Case 2, 84
Appendix, 86
4. Tax Planning and Strategies, 88
The Federal Income Tax Structure, 90
Marginal Versus Average Rates, 91
Effective Marginal Tax Rate, 93
Capital Gains and Dividend Income, 93
Filing Status, 94
Cost of Living Increases in Tax Brackets, Exemptions, and Deductions, 94
Paying Your Income Taxes, 95
Other Taxes, 95
Other Income-Based Taxes, 95
Non-Income-Based Taxes, 96
Calculating Your Taxes, 96
Step 1: Determining Gross or Total Income, 97
Step 2: Calculating Adjusted Gross Income (AGI), 98
Step 3: Subtracting Deductions, 98
Step 4: Claiming Your Exemptions, 101
Step 5: Calculating Your Taxable Income, and from That, Calculating Your Base Income Tax, 102
Step 6: Subtract Your Credits and Determine Your Taxes Due, 104
Other Filing Considerations, 105
Choosing a Tax Form, 105
Electronic Filing, 107
Filing Late and Amended Returns, 107
Being Audited, 108
Help in Preparing Taxes, 109
Model Taxpayers: The Taylors File Their 2004 Return, 110
Determining Gross or Total Income (line 22), 111
Subtracting Adjustments to Gross or Total Income and Calculating Adjusted Gross Income (line 37), 113
Subtracting Deductions (line 39), 113
Claiming Exemptions (line 42), 113
Calculating Total Tax (line 63), 113
Tax Strategies to Lower Your Taxes, 115
Maximize Deductions, 115
Look to Capital Gains and Dividend Income, 117
Shift Income to Family Members in Lower Tax Brackets, 117
Receive Tax-Exempt Income, 118
Defer Taxes to the Future, 118
Summary, 118
Review Questions, 119
Develop Your Skills—Problems and Activities, 120
Learn by Doing—Suggested Projects, 122
Be a Financial Planner—Discussion Case 1, 123
Be a Financial Planner—Discussion Case 2, 123
Be a Financial Planner—Continuing Case: Cory and Tisha Dumont, 125
Part 2. Managing Your Money, 131
5. Cash or Liquid Asset Management, 132
Managing Liquid Assets, 134
Automating Savings: Pay Yourself First, 134
Financial Institutions, 135
“Banks” or Deposit-Type Financial Institutions, 135
Nondeposit-Type Financial Institutions, 135
Online Banking, 136
What to Look for in a Financial Institution, 136
Cash Management Alternatives, 137
Checking Accounts, 137
Savings Accounts, 138
Money Market Deposit Account, 140
Certificates of Deposit, 140
Money Market Mutual Funds, 141
Asset Management Accounts, 142
U.S. Treasury Bills, or T-Bills, 143
U.S. Savings Bonds, 143
Comparing Cash Management Alternatives, 144
Comparable Interest Rates, 145
Tax Considerations, 146
Safety, 146
Establishing and Using a Checking Account, 147
Choosing a Financial Institution, 148
The Cost Factor, 148
Convenience Factor, 148
Consideration Factor, 149
Balancing Your Checking Account, 149
Other Types of Checks, 151
Electronic Funds Transfers, 152
Automated Teller Machines, 153
Debit Cards, 154
Smart Cards, 155
Stored Value Cards—Another Way to Carry Cash, 155
Fixing Mistakes—Theirs, Not Yours, 155
Summary, 156
Review Questions, 157
Develop Your Skills—Problems and Activities, 157
Learn by Doing—Suggested Projects, 158
Be a Financial Planner—Discussion Case 1, 159
Be a Financial Planner—Discussion Case 2, 160
6. Using Credit Cards: The Role of Open Credit, 162
A First Look at Credit Cards and Open Credit, 164
Interest Rates, 164
Calculating the Balance Owed, 165
Buying Money: The Cash Advance, 167
Grace Period, 167
Annual Fee, 168
Additional Fees, 168
The Pros and Cons of Credit Cards, 169
The Advantages of Credit Cards, 169
The Drawbacks of Credit Cards, 169
Choosing a Source of Open Credit, 170
Bank Credit Cards, 170
Bank Card Variations, 171
Travel and Entertainment Cards, 172
Single-Purpose Cards, 172
Traditional Charge Account, 172
The Choice: What’s Best for You, 173
Getting a Credit Card, 174
Credit Evaluation: The Five Cs of Credit, 175
The Key To Getting Credit: Your Credit Score, 176
Determining Creditworthiness, 176
Your Credit Score, 176
How Your Credit Score Is Computed, 177
What’s in Your Credit Report, 178
The Factors that Determine Your Credit Score, 179
Monitoring Your Credit Score, 179
Consumer Credit Rights, 180
The Credit Bureau and Your Rights, 180
If Your Credit Card Application Is Rejected, 181
Resolving Billing Errors, 181
Identity Theft, 183
How Do You Know If You’re a Victim of Identity Theft?, 183
Controlling and Managing Your Credit Cards and Open Credit, 183
Reducing Your Balance, 184
Protecting Against Fraud, 184
Trouble Signs in Credit Card Spending, 185
If You Can’t Pay Your Credit Card Bills, 186
Summary, 186
Review Questions, 187
Develop Your Skills—Problems and Activities, 188
Learn by Doing—Suggested Projects, 189
Be a Financial Planner—Discussion Case 1, 191
Be a Financial Planner—Discussion Case 2, 192
7. Using Consumer Loans: The Role of Planned Borrowing, 194
Consumer Loans—Your Choices, 195
First Decision: Single-Payment Versus Installment Loans, 196
Second Decision: Secured Versus Unsecured Loans, 196
Third Decision: Variable-Rate Versus Fixed-Rate Loans, 197
Fourth Decision: The Loan’s Maturity—Shorter Versus Longer Term Loans, 197
Understanding the Terms of the Loan: The Loan Contract, 198
Insurance Agreement Clause, 199
Acceleration Clause, 199
Deficiency Payments Clause, 199
Recourse Clause, 199
Special Types of Consumer Loans, 199
Home Equity Loans, 199
Student Loans, 200
Automobile Loans, 201
Cost and Early Payment of Consumer Loans, 202
Cost of Single-Payment Loans, 202
Payday Loans—A Dangerous Kind of Single-Payment Loans, 204
Cost of Installment Loans, 205
Early Payment of an Add-On Loan, 208
Getting the Best Rate on Your Consumer Loans, 210
Inexpensive Sources, 210
More Expensive Sources, 211
Most Expensive Sources, 211
Keys to Getting the Best Rate, 211
Should You Borrow or Pay Cash?, 212
Controlling Your Use of Debt, 213
Debt Limit Ratio, 213
Debt Resolution Rule, 213
Controlling Consumer Debt, 213
What To Do If You Can’t Pay Your Bills, 214
Chapter 13: The Wage Earner’s Plan, 216
Chapter 7: Straight Bankruptcy, 217
Summary, 218
Review Questions, 219
Develop Your Skills—Problems and Activities, 220
Learning by Doing—Suggested Projects, 221
Be a Financial Planner—Discussion Case 1, 222
Be a Financial Planner—Discussion Case 2, 223
8. The Home and Automobile Decision, 224
Smart Buying, 225
Step 1: Differentiate Want from Need, 226
Step 2: Do Your Homework, 226
Step 3: Make Your Purchase, 226
Step 4: Maintain Your Purchase, 226
Smart Buying in Action: Buying a Vehicle, 227
Step 1: Differentiate Want from Need, 228
Step 2: Do Your Homework, 229
Step 3: Make Your Purchase, 231
Step 4: Maintain Your Purchase, 236
Smart Buying in Action: Housing, 237
Your Housing Options, 237
Step 1: Differentiate Want from Need, 239
Step 2: Do Your Homework, 239
Renting Versus Buying, 243
Determining What You Can Afford, 245
Financing the Purchase—The Mortgage, 246
Conventional and Government-Backed Mortgages, 246
Fixed-Rate Mortgages, 248
Adjustable-Rate Mortgages, 249
Adjustable-Rate Versus Fixed-Rate Mortgages, 251
Specialty Mortgage Options, 252
A Word of Warning: Beware of Subprime Mortgages and Predatory Lending, 253
Mortgage Decisions: Length or Term of the Loan, 254
Coming Up with the Down Payment, 256
Prequalifying, 257
Step 3: Make Your Purchase, 257
Step 4: Maintain Your Purchase, 260
Summary, 261
Review Questions, 262
Develop Your Skills—Problems and Activities, 263
Learn by Doing—Suggested Projects, 265
Be a Financial Planner—Discussion Case 1, 266
Be a Financial Planner—Discussion Case 2, 266
Be a Financial Planner—Continuing Case: Cory and Tisha Dumont, 268
Appendix, 271
Part 3. Protecting Yourself with Insurance, 273
9. Life and Health Insurance, 274
The Importance of Insurance, 276
Why are Health and Life Insurance So Important?, 276
Why Is It So Costly?, 276
What Do These High Costs Mean for You?, 276
What About Those Who Have No Health Insurance?, 277
Determining Your Life Insurance Needs, 277
Do You Need Life Insurance?, 277
How Much Life Insurance Do You Need?, 278
Major Types of Life Insurance, 281
Term Insurance and Its Features, 282
Cash-Value Insurance and Its Features, 284
Term Versus Cash-Value Life Insurance, 286
Fine-Tuning Your Policy: Contract Clauses, Riders, and Settlement Options, 287
Contract Clauses, 287
Riders, 288
Settlement or Payout Options, 289
Buying Life Insurance, 290
Selecting an Agent, 291
Comparing Costs, 292
Making a Purchase: The Net or an Advisor, 292
Health Insurance, 293
Basic Health Insurance, 294
Dental and Eye Insurance, 295
Dread Disease and Accident Insurance, 295
Basic Health Care Choices, 296
Private Health Care Plans, 296
Government-Sponsored Health Care Plans, 300
Controlling Health Care Costs, 303
Flexible Spending Accounts, 303
Health Savings Accounts (HSAs), 303
COBRA and Changing Jobs, 304
Choosing No Coverage—or “Opting Out”, 304
Finding the Perfect Plan, 305
Important Provisions in Health Insurance Policies, 305
Disability Insurance, 307
Sources of Disability Insurance, 307
How Much Disability Coverage Should You Have?, 307
Disability Features That Make Sense, 308
Long-Term Care Insurance, 309
Summary, 311
Review Questions, 312
Develop Your Skills—Problems and Activities, 314
Learn by Doing—Suggested Projects, 315
Be a Financial Planner—Discussion Case 1, 316
Be a Financial Planner—Discussion Case 2, 317
10. Property and Liability Insurance, 318
Protecting Your Home, 320
Packaged Policies: HO’s, 320
Supplemental Coverage, 323
Your Insurance Needs, 325
Coinsurance and the “80 Percent Rule”, 325
The Bottom Line, 326
Keeping Your Costs Down—Insurance Credit Scoring, 326
Keeping Your Costs Down—Discounts and Savings, 328
Making Your Coverage Work, 329
Automobile Insurance, 331
Personal Automobile Policy, 331
No-Fault Insurance, 335
Buying Automobile Insurance, 336
Filing a Claim, 338
Summary, 339
Review Questions, 340
Develop Your Skills—Problems and Activities, 341
Learn by Doing—Suggested Projects, 343
Be a Financial Planner—Discussion Case 1, 344
Be a Financial Planner—Discussion Case 2, 345
Be a Financial Planner—Continuing Case: Cory and Tisha Dumont, 346
Part 4. Managing Your Investments, 349
11. Investment Basics, 350
Before You Invest, 351
Investing Versus Speculating, 351
Setting Investment Goals, 353
Financial Reality Check, 353
Starting Your Investment Program, 353
Fitting Taxes into Investing, 354
Investment Choices, 355
The Returns from Investing, 356
Market Interest Rates, 358
Nominal and Real Rates of Return, 358
Historical Interest Rates, 358
How Interest Rates Affect Returns on Other Investments, 359
A Look at Risk–Return Trade-Offs, 359
Historical Levels of Risk and Return, 359
Sources of Risk in the Risk–Return Trade-Off, 359
Diversification, 362
Understanding Your Tolerance for Risk, 363
The Time Dimension of Investing and Asset Allocation, 365
Meeting Your Investment Goals and the Time Dimension of Risk, 366
Asset Allocation, 367
What You Should Know About Efficient Markets, 371
Beating the Market, 372
Thinking Back to Principle 9: Mind Games and Your Money, 373
Summary, 374
Review Questions, 375
Develop Your Skills—Problems and Activities, 376
Learn by Doing—Suggested Projects, 377
Be a Financial Planner—Discussion Case 1, 378
Be a Financial Planner—Discussion Case 2, 379
12. Securities Markets, 380
Security Markets, 382
The Primary Markets, 382
Secondary Markets—Stocks, 383
Secondary Markets—Bonds, 386
International Markets, 386
Regulation of the Securities Markets, 387
How Securities Are Traded, 388
The Role of the Specialist, 388
Order Characteristics, 389
Types of Orders, 389
Short Selling, 390
Dealing with Brokers, 391
Brokerage Accounts, 392
Types of Brokers, 392
Cash Versus Margin Accounts, 393
Registration: Street Name or Your Name, 394
Joint Accounts, 394
Choosing a Broker, 395
The Cost of Trading, 396
Online Trading, 397
Sources of Investment Information, 398
Corporate Sources, 398
Brokerage Firm Reports, 399
The Press, 399
Investment Advisory Services, 400
Internet Sources, 400
Investment Clubs, 400
Summary, 402
Review Questions, 403
Develop Your Skills—Problems and Activities, 404
Learn by Doing—Suggested Projects, 405
Be a Financial Planner—Discussion Case 1, 406
Be a Financial Planner—Discussion Case 2, 407
13. Investing in Stocks, 408
Why Consider Stocks?, 410
The Language of Common Stocks, 411
Limited Liability, 412
Claim on Income, 412
Claims on Assets, 412
Voting Rights, 412
Stock Splits, 413
Stock Repurchases, 413
Book Value, 413
Earnings Per Share, 413
Dividend Yield, 414
Market-to-Book or Price-to-Book Ratio, 414
Stock Indexes: Measuring the Movements in the Market, 414
The Dow, 414
The S&P 500 and Other Indexes, 415
Market Movements, 416
Reading Stock Quotes Online and in the Newspaper, 416
General Classifications of Common Stock, 416
Valuation of Common Stock, 418
The Technical Analysis Approach, 418
The Price/Earnings Ratio Approach, 419
The Discounted Dividends Valuation Model, 419
Why Stocks Fluctuate in Value, 421
Stock Investment Strategies, 422
Dollar Cost Averaging, 422
Buy-and-Hold Strategy, 424
Dividend Reinvestment Plans (DRIPs), 424
Risks Associated with Common Stocks, 425
Another Look at Principle 8: Risk and Return Go Hand in Hand, 425
Summary, 429
Review Questions, 430
Develop Your Skills—Problems and Activities, 431
Learn By Doing—Suggested Projects, 433
Be a Financial Planner—Discussion Case 1, 434
Be a Financial Planner—Discussion Case 2, 435
14. Investing in Bonds and Other Alternatives, 436
Why Consider Bonds?, 438
Basic Bond Terminology and Features, 438
Par Value, 439
Coupon Interest Rate, 439
Indenture, 439
Call Provision, 439
Sinking Fund, 439
Types of Bonds, 440
Corporate Bonds, 440
Treasury and Agency Bonds, 441
Municipal Bonds, 442
Special Situation Bonds, 443
Evaluating Bonds, 444
Bond Ratings—A Measure of Riskiness, 444
Bond Yield, 445
Valuation Principles, 448
Bond Valuation, 449
Why Bonds Fluctuate in Value, 452
What Bond Valuation Relationships Mean to the Investor, 454
Reading Corporate Bond Quotes in the Wall Street Journal, 455
Preferred Stock—An Alternative to Bonds, 456
Features and Characteristics of Preferred Stock, 457
Valuation of Preferred Stock, 457
Risks Associated with Preferred Stock, 458
Investing in Real Estate, 458
Direct Investments in Real Estate, 459
Indirect Investments in Real Estate, 460
Investing in Real Estate: The Bottom Line, 460
Investing—Speculating—in Gold, Silver, Gems, and Collectibles, 460
Summary, 461
Review Questions, 462
Develop Your Skills—Problems and Activities, 463
Learn By Doing—Suggested Projects, 464
Be a Financial Planner—Discussion Case 1, 465
Be a Financial Planner—Discussion Case 2, 466
15. Mutual Funds: An Easy Way to Diversify, 468
Why Invest in Mutual Funds?, 470
Advantages of Mutual Fund Investing, 470
Disadvantages of Mutual Fund Investing, 472
Mutual Fund-Amentals, 473
Investment Companies, 474
Open-End Investment Companies or Mutual Funds, 474
Closed-End Investment Companies or Mutual Funds, 474
Unit Investment Trusts, 475
Real Estate Investment Trusts (REITs), 475
The Costs of Mutual Funds, 476
Load Versus No-Load Funds, 476
Management Fees and Expenses, 477
12b-1 Fees, 477
Calculating Mutual Fund Returns, 478
Types and Objectives of Mutual Funds, 479
Money Market Mutual Funds, 479
Stock Mutual Funds, 480
Balanced Mutual Funds, 482
Asset Allocation Funds, 482
Life Cycle and Target Retirement Funds, 483
Bond Funds, 483
ETFs or Exchange Traded Funds, 485
Mutual Funds Services, 486
Buying a Mutual Fund, 487
Step 1: Determining Your Goals, 488
Step 2: Meeting Your Objectives, 488
Step 3: Selecting a Fund, 489
Step 4: Making the Purchase, 492
Summary, 493
Review Questions, 494
Develop Your Skills—Problems and Activities, 495
Learn By Doing—Suggested Projects, 497
Be a Financial Planner—Discussion Case 1, 498
Be a Financial Planner—Discussion Case 2, 499
Be a Financial Planner—Continuing Case: Cory and Tisha Dumont, 500
Part 5. Life Cycle Issues, 503
16. Retirement Planning, 504
Social Security, 506
Financing Social Security, 506
Eligibility, 507
Retirement Benefits, 507
Disability and Survivor Benefits, 508
Employer-Funded Pensions, 509
Defined-Benefit Plans, 509
Cash-Balance Plans: The Latest Twist in Defined-Benefit Plans, 510
Plan Now, Retire Later, 511
Step 1: Set Goals, 512
Step 2: Estimate How Much You Will Need, 512
Step 3: Estimate Income at Retirement, 513
Step 4: Calculate the (Annual) Inflation-Adjusted Shortfall, 514
Step 5: Calculate How Much You Need to Cover This Shortfall, 515
Step 6: Determine How Much You Must Save Annually Between Now and Retirement, 515
Step 7: Put the Plan in Play and Save, 515
What Plan Is Best For You?, 515
Employer-Sponsored Retirement Plans, 518
Defined-Contributions Plans, 518
Retirement Plans for the Self-Employed and Small Business Employees, 520
Keogh Plan or Self-Employed Retirement Plan, 520
Simplified Employee Pension Plan, 520
Savings Incentive Match Plan for Employees, 520
Individual Retirement Arrangements (IRAs), 521
Traditional IRAs, 521
The Roth IRA, 522
Traditional Versus Roth IRA: Which Is Best for You?, 523
Saving for College: The Cloverdell Education Savings Accounts or ESA, 524
Saving for College: 529 Plans, 525
Facing Retirement—The Payout, 526
An Annuity, or Lifetime Payments, 526
A Lump-Sum Payment, 528
Tax Treatment of Distributions, 529
Putting a Plan Together and Monitoring It, 529
Saving for Retirement—Let’s Postpone Starting for One Year, 530
Summary, 531
Review Questions, 531
Develop Your Skills—Problems and Activities, 533
Learn by Doing—Suggested Projects, 534
Be a Financial Planner—Discussion Case 1, 535
Be a Financial Planner—Discussion Case 2, 536
Appendix, 538
17. Estate Planning: Saving Your Heirs Money and Headaches, 542
The Estate Planning Process, 544
Step 1: Determine the Value of Your Estate, 544
Step 2: Choose Your Heirs and Decide What They Receive, 545
Step 3: Determine the Cash Needs of the Estate, 545
Step 4: Select and Implement Your Estate Planning Techniques, 545
Understanding and Avoiding Estate Taxes, 546
Gift Taxes, 546
Unlimited Marital Deduction, 547
The Generation-Skipping Transfer Tax, 547
Calculating Estate Taxes, 548
Wills, 549
Wills and Probate, 549
Wills and Estate Planning, 550
Writing a Will, 550
Updating or Changing a Will—The Codicil, 551
Letter of Last Instructions, 551
Selecting an Executor, 551
Other Estate Planning Documents, 552
Avoiding Probate, 552
Joint Ownership, 552
Gifts, 554
Naming Beneficiaries in Contracts—Life Insurance and Retirement Plans, 555
Trusts, 555
Living Trusts, 556
Testamentary Trusts, 557
A Last Word on Estate Planning, 560
Summary, 560
Review Questions, 561
Develop Your Skills—Problems and Activities, 562
Learn by Doing—Suggested Projects, 564
Be a Financial Planner—Discussion Case 1, 564
Be a Financial Planner—Discussion Case 2, 565
Be a Financial Planner—Continuing Case: Cory and Tisha Dumont, 567
18. Fitting the Pieces Together, 570
The Ingredients of Success, 571
The Financial Life Cycle, 572
Women and Personal Finance, 572
Financial Life Events, 573
Life Event 1: Getting Started, 574
Life Event 2: Marriage, 575
Life Event 3: Buying a Home, 578
Life Event 4: Having a Child, 579
Life Event 5: Inheritances, Bonuses, or Unexpected Money, 581
Life Event 6: A Major Illness, 582
Life Event 7: Caring for An Elderly Parent, 583
Life Event 8: Retiring, 584
Life Event 9: Death of a Spouse, 585
Life Event 10: Divorce, 586
The Keys to Success: A Dozen Decisions, 588
Number 1: Become Knowledgeable, 588
Number 2: Don’t Procrastinate, 588
Number 3: Live Below Your Means, 589
Number 4: Realize You Aren’t Indestructible, 589
Number 5: Protect Your Stuff (and Look Out for Lawyers), 590
Number 6: Embrace the “B” Word (Budget), 590
Number 7: Reinvent and Upgrade Your Skills, 590
Number 8: Hide Your Plastic, 591
Number 9: Stocks Are Risky, but Not as Risky as Not Investing in Them, 591
Number 10: Exploit Tax-Favored Retirement Plans to the Fullest, 592
Number 11: Plan for the Number of Children You Want, 592
Number 12: Stay Married, 593
Tying Things Together: Debt and the Real World, 593
The Trap of Too Much Debt, 593
Successful Debt Management, 595
Getting Started: Just Do It, 598
Summary, 598
Review Questions, 599
Develop Your Skills—Problems and Activities, 600
Learn by Doing—Suggested Projects, 601
Be a Financial Planner—Discussion Case 1, 602
Be a Financial Planner—Discussion Case 2, 603
Appendix A. Compound Sum of $1, 604
Appendix B. Present Value of $1, 606
Appendix C. Compound Sum of an Annuity of $1 for n Periods, 608
Appendix D. Present Value of an Annuity of $1 for n Periods, 610
Appendix E. Monthly Installment Loan Tables ($1,000 loan with interest payments compounded monthly), 612
Index, 614

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