Money Made Simple The Ultimate Guide to Personal Finance
Table of Contents Section 1 Back to Basics: What is Money? 5 Section 2 Clearing Out the Clutter. 17 Section 3 Where Does All My Money Go? 27 Section 4 Debt Freedom and Credit Basics 39 Section 5 Insurance Basics... 52 Section 6 Automobiles 65 Section 7 Homes and Mortgages 78 Section 8 Retirement and Workplace Benefits 90 Section 9 Saving and Investing 103 Section 10 Tax Basics 117 Additional Resources 133
About The Money Professors The Money Professors share a passion for the success of students in their personal, financial, and professional lives. In 2009 the three of us began working together at East Carolina University. We were acutely aware of the growing need for financial literacy both on and off the campus. After being sought after by outside organizations, reporters, and individuals for their expert advice, we formed The Money Professors. The Money Professors provide end-to-end resources for professional and financial success. The Money Professors consist of speaking and consulting for higher educational professionals, corporate events, college students and adult learners. We also offer a broad range of solutions for educators, college students, and parents. Len Rhodes is Director of Technology, Information and Operations in the College of Business at East Carolina University and a Teaching Instructor in the Department of Finance. He is passionate about helping students acquire the financial decision-making skills they need to achieve their personal and professional goals. Bill Pratt is the Business and Management Program Director and Assistant Professor of Business at Piedmont Virginia Community College. He left the financial industry to focus on helping students become personally and financially successful. Mark C. Weitzel is the founder and director of the Financial Wellness Institute at East Carolina University s College of Business. Throughout Mark s career he has advocated for increasing the financial capability of his clients and students.
Introduction Originally, we set out to write a guide to help ordinary people with everyday finances. We weren t looking to discover the next big thing on Wall Street or predict the future of the gold market. We just wanted to help people, like ourselves, who wanted to learn more about money. We realized there were many personal finance books available, but very few actually give the details that you need to make the right financial decisions for you. We decided the best approach to understanding personal finances was by creating this ultimate guide. This book will equip you with the type of real-life financial knowledge about credit and debt that was not taught in high school or college. What really got us started in the world of personal finance was our distaste for debt. We began studying ways to eliminate and minimize debt from literally hundreds of sources. If you have a lot of consumer debt, then you should be encouraged to know that there really is light at the end of the tunnel. While everyone s circumstances are different, most people (and we mean the overwhelming majority of people) should be able to be free of consumer debt in five (5) to seven (7) years, and be completely out of debt (including a mortgage) in as little as seven (7) to ten (10) years. Too many of us just go through life with lots of debt, thinking that is just the way it has to be. Hopefully, the people we can reach with this workbook will start a new trend towards living a life of financial freedom and independence from credit. 3
Introduction We have tried to use easy to understand examples and worksheets. Some of the worksheets are more involved than others, so take your time with them. You are even allowed to use a calculator if you want! Don t try to make any sense of the Factors from the Appendices in the back. They are used to help you calculate what is important without having to do any complex math. With that, good luck with your personal finances. This book should provide a solid foundation for you to begin your journey towards financial independence! Before you begin your journey through this guide, ask yourself the following question: What do I hope to get out of this guide? How will I be better off when I am done? 4
Section 2 Clearing Out the Clutter Getting Organized One of the keys to effectively managing your money and your life is organization. The more organized you are, the less chance of forgetting something (such as a payment that is due). Another key to making your financial life easier is by planning. If you don t know where you are going, you can t get there. Planning your finances is much like planning a trip. You have a starting point, a destination, perhaps a few stops along the way, and a map to follow. If you know where you are going and how to get there, all you have to do is sit back and follow your plan. The first step in planning is to know where you are now (your starting point). In the chart below, list your assets (things you own) and your liabilities (what you owe). 17
Section 2 Clearing Out the Clutter Assets $$ Liabilities $$ House Mortgage Car(s) Car loan(s) 401(k) Student Loan(s) IRA, other retirement Other Loan(s) Jewelry / Collectibles Credit Card(s) Other Other Total Assets Total Liabilities Net Worth (Total Assets minus Total Liabilities) If you are in your 20 s and have a negative Net Worth, don t feel bad, that s normal. If you are in your 30 s (or older) and have a negative Net Worth, then start working towards increasing your Net Worth by paying off some debt and increasing your savings. Next, list all of your sources of income (if you receive irregular income, such as from a seasonal job, take the total amount you normally receive in a year and divide by 12). Person 1 Person 2 Total Paycheck 1 Paycheck 2 Paycheck 3* Other* Other* Total Monthly Income * (Most households only have 2 paychecks from each person. However, some people have more than one job, or more than one source of income) On the next page is a Bill Payment Chart to keep from missing any payments. 18
Money Made Simple: The Ultimate Guide to Personal Finance Bill Payment Chart Date Name $$ Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Total Monthly Payments $ The Bill Payment Chart is designed as a guide to keep you from forgetting to pay any of your bills, and to help you remember to pay them on time! To use the chart, simply fill in the day of the month the bill is due (or you may want to fill in the day that you must send in the payment, such as seven (7) days in advance). Then enter the name of the creditor/service provider. You can also write the amount of the payment (for bills that change monthly, use the average payment amount). Each month, after you pay the bill, place a check mark or an X in the box for that month. www.themoneyprofessors.com 2016 19
Section 2 Clearing Out the Clutter If you want to include your savings account, simply write Savings in the Name column and either write a pre-set amount in the $$ column or write in the actual dollar amount in the Month column. You should also add the total amount of payments (from the $$ column) so you know how much of your income is going toward monthly payments. Below is a sample chart: Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Date Name $$ 1 st Rent 800 1 st Savings 100 110 12 th Credit Card 75 15 th Car Loan 250 Goal Setting Now that you know where you stand (Net Worth, Income, Monthly Payments), you can start planning your future goals. For this exercise you will establish short-term (one year or less) and long-term (more than one year) goals. We will save retirement for another chapter. Divide the total amount needed for your goal by the number of months until you wish to reach the goal. Example: $ 2,100 / 7(months) = $ 300 per month. Total the Monthly Savings Needed columns. Add the short-term and long-term Monthly Savings Needed to get Total Monthly. That is how much you would have to save each month to be on track to reach all of your goals. Of course you 20
Money Made Simple: The Ultimate Guide to Personal Finance don t have to save for everything at once. Perhaps you could save for one short-term goal at a time. If you still have debt, you may also want to wait until you are out of debt before focusing on some of your long-term goals, or you may want to delay some short-term goals. In chapter 4 you will learn how to get out of debt quickly. List your short-term goals (One year or less) Examples: Go on a cruise Save for taxes due Purchase a new TV Cost Months Until Goal Monthly Savings Needed (Example) Buy a large screen TV $ 2,100 7 $ 300 Total List your long-term goals (More than one year) Examples: Start a business Purchase a new refrigerator Purchase a new car Establish an emergency Fund Cost Months Until Goal Monthly Savings Needed Total Total short-term goal Total long-term goal Total Monthly www.themoneyprofessors.com 2016 21
Section 2 Clearing Out the Clutter Tracking Your Goals Like most people, you probably keep your money in a savings account. The problem is that we keep one savings account, while saving for multiple items. Below is a chart (plus a sample chart) so you can track your individual goals in a single savings account. Date Account Goal 1 Goal 2 Goal 3 Goal 4 Transaction (Totals) Vacation $1,250 New computer - $1,200 Emergency Fund - $2,500 DVD player $300 Balance Balance Balance Balance Balance 3/8/02 +75 75 +25 25 0 +50 50 0 3/22/02 +125 200 +25 50 +25 25 +50 100 +25 25 4/5/02 +125 325 +25 75 +25 50 +50 150 +25 50 4/9/02-100 225 called plumber -100 50 4/19/02 +125 350 +25 100 +25 75 +50 100 +25 75 Record your transaction with a brief description (if you withdraw any money). Remember, you don t have to save for every one of your goals at once. Date Account Goal 1 Goal 2 Goal 3 Goal 4 Transaction Balance Balance Balance Balance Balance 22
Money Made Simple: The Ultimate Guide to Personal Finance Organize Your Files Now that you know how to reach your goals, you need to keep your financial and other important papers organized in case you need them for emergencies. Keeping important documents organized can also save you lots of money. For instance, if you can find your warranty information when you need it, you may be able to have an item fixed for free instead of paying the service fee yourself. Also, you can rest easier knowing that in the event of an emergency you don t have to spend time searching. I would recommend having a file for the following categories Bank Savings (one file for each account) Bank Checking (one file for each account) Auto: Maintenance (one file for each vehicle) Auto: Loan (one file for each vehicle) Insurance: Home & Auto Insurance: Life & Disability Medical Insurance (policy and expense receipts) Retirement Account (one file for each account) Other Investments (one file for each account) Pay Stubs (one file for each job/person) Work related (one file for each job/person) Estate & Wills (most current copy) House: Purchases & Maintenance (Additions, improvements, repairs) House: Mortgage (mortgage contract, monthly statements, annual summaries) www.themoneyprofessors.com 2016 23
Section 2 Clearing Out the Clutter Taxes (State, federal, local and property taxes if you itemize your tax deductions) Warranties (keep the receipt with the warranty) Utilities (electric, gas, sewer, water, trash) Phone (main phone-line, additional lines, cell phones) Credit Card(s) (major credit cards, department store cards, gas cards, etc.) Loan(s) (one file for each account student loans, personal loans, etc.) Pet(s) (one file for each pet medical information, etc.) School/Child Care (one file for each child) Trashing the Clutter You should keep all of your papers for at least one year. Tax information should be kept for seven years. Housing documents should be kept until you sell the house. Car maintenance records and the statement that indicates you have paid off the loan on your car should be kept until you sell the car. Keeping Contact On the following page is a Professional Contact List. It is a good idea to keep any necessary emergency information together, somewhere that any family member can find it. You may want to make a couple of copies if you have more contacts and keep their information somewhere you will remember. 24
Money Made Simple: The Ultimate Guide to Personal Finance Professional Contact List Insurance Agent: (Type of insurance) Name: Company: Address: Phone: Fax: Insurance Agent: Name: Company: Address: Phone: Fax: Family Doctor Name: Address: Phone: Fax: Pastor/Priest/Rabbi Name: Address: Phone: Fax: Lawyer Name: Address: Phone: Fax: Accountant/CPA Name: Company: Address: Phone: Fax: Other Name: Address: Phone: Fax: www.themoneyprofessors.com 2016 25
Section 2 Clearing Out the Clutter What are some goals that you and/or your family want to achieve? List a goal amount, and date for each of your goals so you know how much and when you want to reach the goals. 26
Money Made Simple: A Complete Financial Workbook is designed to equip you with real-life financial knowledge across a broad spectrum of personal finance topics. The workbook uses easy to understand examples and worksheets. Money Made Simple provides you an overview of all of the major topics regarding your own personal financial life. After completing this workbook, you will be more informed when making important financial decisions. Topics include: Planning and Organizing Spending and Cash Flow Debt Freedom and Credit Basics Insurance Basics Automobiles Homes and Mortgages Retirement and Workplace Benefits Saving and Investing And more 1 Download Now at http://www.themoneyprofessors.com/mms
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Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h $12.95 The book every college student needs & every parent wants them to have. More than 1,000 students drop out of college every day due to financial pressure and students graduate with thousands of dollar of student loan and credit card debt. It's time to level the playing field by arming students with the information needed to succeed with credit cards, debit cards and student loans. Quantity discounts are available for bulk purchases. www.themoneyprofessors.com/books orders@themoneyprofessors.com 130
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Download Turn Your Debt Into Dollars and: You will have more money to spend every month You will have less stress, which will make you happier and more productive You will have a much more comfortable retirement You will control your money instead of letting it control you Your marriage/relationships will be better since you won't be fighting about money anymore You Will Get: The complete 10-step method to raising your credit score, paying off your debt and improving your life Practical tips to increase your credit score All four DebtorADE strategies explained in detail with examples Illustrations of how your debt will be turned into wealth instead of draining your income Want to know what credit really is and how it is used? Page 15 Want to know the most important aspect of the credit score? Page 21 Want to know why you should have a credit card? Page 27 Want to pay off debt without having to live like you are broke? Page 75 The best approach to paying off debt? Fully explained on Page 53 Why is getting out of debt so important? Page 38 A simple 10-step process to eliminate debt, and build wealth. Starts on Page 47 Turn your current debt payments into millions of dollars by the time you retire! Page 86 Download Now at http://www.themoneyprofessors.com/d2d/