personal finance B u I l D I N g Y O u R F u T u R E SECOND EDITION Robert B Walker I Kristy P Walker personal finance Building Your Future The McGraw-Hill Series in Finance, Insurance, and Real Estate Stephen A Ross, Consulting Editor Franco Modigliani Professor of Finance and Economics Sloan School of Management, Massachusetts Institute of Technology FINANCIAL MANAGEMENT Block, Hirt, and Danielsen Foundations of Financial Management Sixteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Twelfth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Second Edition Ross, Westerfield, and Jordan Essentials of Corporate Finance Ninth Edition Ross, Westerfield, and Jordan Fundamentals of Corporate Finance Eleventh Edition Shefrin Behavioral Corporate Finance: Decisions that Create Value First Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Eighth Edition White Financial Analysis with an Electronic Calculator Sixth Edition Brooks FinGame Online 5.0 INVESTMENTS Bruner, Eades, and Schill Case Studies in Finance: Managing for Corporate Value Creation Seventh Edition Bodie, Kane, and Marcus Essentials of Investments Tenth Edition Cornett, Adair, and Nofsinger Finance: Applications and Theory Third Edition Cornett, Adair, and Nofsinger M: Finance Third Edition Bodie, Kane, and Marcus Investments Tenth Edition Hirt and Block Fundamentals of Investment Management Tenth Edition Saunders and Cornett Financial Institutions Management: A Risk Management Approach Eighth Edition Saunders and Cornett Financial Markets and Institutions Sixth Edition INTERNATIONAL FINANCE Eun and Resnick International Financial Management Seventh Edition REAL ESTATE Brueggeman and Fisher Real Estate Finance and Investments Fifteenth Edition Ling and Archer Real Estate Principles: A Value Approach Fourth Edition FINANCIAL PLANNING AND INSURANCE Allen, Melone, Rosenbloom, and Mahoney Retirement Plans: 401(k)s, IRAs, and Other Deferred Compensation Approaches Eleventh Edition DeMello Cases in Finance Second Edition Jordan, Miller, and Dolvin Fundamentals of Investments: Valuation and Management Seventh Edition Grinblatt (Editor) Stephen A Ross, Mentor: Influence through Generations Stewart, Piros, and Heisler Running Money: Professional Portfolio Management Grinblatt and Titman Financial Markets and Corporate Strategy Second Edition Sundaram and Das Derivatives: Principles and Practice Second Edition Higgins Analysis for Financial Management Eleventh Edition FINANCIAL INSTITUTIONS AND MARKETS Kapoor, Dlabay, Hughes, and Hart Focus on Personal Finance: An Active Approach to Help You Achieve Financial Literacy Fifth Edition Rose and Hudgins Bank Management and Financial Services Ninth Edition Kapoor, Dlabay, Hughes, and Hart Personal Finance Eleventh Edition Rose and Marquis Financial Institutions and Markets Eleventh Edition Walker and Walker Personal Finance: Building Your Future Second Edition Ross, Westerfield, Jaffe, and Jordan Corporate Finance Eleventh Edition Ross, Westerfield, Jaffe, and Jordan Corporate Finance: Core Principles and Applications Fourth Edition Altfest Personal Financial Planning Second Edition Harrington and Niehaus Risk Management and Insurance Second Edition personal finance Building Your Future Robert B Walker University of Iowa Kristy P Walker University of Iowa personal finance building your future SENIOR VICE PRESIDENT, PRODUCTS & MARKETS: KURT L STRAND VICE PRESIDENT, GENERAL MANAGER, PRODUCTS & MARKETS: MARTY LANGE VICE PRESIDENT, CONTENT PRODUCTION & TECHNOLOGY SERVICES: KIMBERLY MERIWETHER DAVID MANAGING DIRECTOR: JAMES HEINE EXECUTIVE BRAND MANAGER: CHUCK SYNOVEC SENIOR DIRECTOR, PRODUCT DEVELOPMENT: ROSE KOOS PRODUCT DEVELOPERS: JENNIFER UPTON, NOELLE BATHURST, AND ADAM HUENECKE SENIOR DIRECTOR, DIGITAL CONTENT DEVELOPMENT: DOUGLAS RUBY DIGITAL PRODUCT DEVELOPER: TOBI PHILIPS MARKETING DIRECTOR: LYNN BREITHAUPT EXECUTIVE MARKETING MANAGER: MELISSA CAUGHLIN DIRECTOR, CONTENT DESIGN & DELIVERY: LINDA AVENARIUS PROGRAM MANAGER: MARK CHRISTIANSON PROJECT MANAGERS: HARVEY YEP (CORE) AND BRUCE GIN (ASSESSMENT) SENIOR BUYER: LAURA FULLER COVER AND INTERIOR DESIGNER: MATT DIAMOND CONTENT LICENSING SPECIALISTS: LORI HANCOCK (IMAGE) AND SHANNON MANDERSCHEID (TEXT) COVER IMAGE: © Monika Hallnowska/Getty Images TYPEFACE: 10/12 STIX Mathjax COMPOSITOR: APTARA, INC PRINTER: R R DONNELLEY PERSONAL FINANCE: BUILDING YOUR FUTURE Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10121 Copyright © 2017 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous edition © 2013 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper RMN 21 20 19 18 17 16 ISBN 978-0-07-786172-8 MHID 0-07-786172-8 Design Elements Dripping faucet: © Mipan/iStock/Getty Images RF; Pool balls: © Jan Pietruszka/iStock/Getty Images RF; Smartphone: © Alexsi/E+/Getty Images RF; Arrow: © Deliormanli/E+/Getty Images RF; piggy bank with coins: © Akirastock/iStock/Getty Images RF; three stacked piggy banks: © Henrik5000/iStock/Getty Images RF; four stacked piggy banks: © Lisa Thornberg/E+/Getty Images RF Library of Congress Cataloging-in-Publication Data Names: Walker, Robert B., author | Walker, Kristy P., author Title: Personal finance / Robert B Walker, Mount Mercy University, Kristy P Walker, University of Iowa Description: Second Edition | New York : McGraw-Hill Education, 2016 | Revised edition of the authors’ Personal finance, 2013 Identifiers: LCCN 2016006946| ISBN 9780077861728 (paperback : alk paper) | ISBN 0077861728 Subjects: LCSH: Finance, Personal | BISAC: BUSINESS & ECONOMICS / Personal Finance / General Classification: LCC HG179 W3124 2016 | DDC 332.024—dc23 LC record available at http://lccn.loc.gov/2016006946 www.mhhe.com dedication We dedicate this textbook to our children, Nate, Erin, and Clay, who always make us proud about the authors Robert B Walker Bob works at the University of Iowa, and is currently lead Sam M Walton Fellow for the UniTippie College of Business in the John Pappajohn Entrepreneurial Center, where he teaches students to pursue their passions and turn those passions into profit He received his bachelor’s degree in philosophy from Miami University, an MBA from the University of Iowa, and a PhD from Iowa State University He spent 18 years working in community banks before starting his own consulting practice During this time, he was the Executive Director of the East Central Iowa Chapter of the American Institute of Banking, a division of the American Bankers Association He taught for nine years at Kirkwood Community College as Banking and Finance Coordinator and for five years at Mount Mercy University as Department Chair before returning to the University of Iowa, his Alma mater Dr Walker served on the Associates Degree Board of Commissioners for the Accreditation Council for Business Schools & Programs (ACBSP) and was actively involved in Kirkwood Community College’s initial ACBSP accreditation He was a Sam M Walton fellow at Kirkwood Community College, starting the school’s Students in Free Enterprise (SIFE) team vi versity of Iowa’s Enactus team He is also faculty adviser at the University of Iowa for the Sigma Nu Tau entrepreneurial honors society and I-Envision, the University of Iowa’s student entrepreneurial organization Kristy P Walker Kristy is an Adjunct Associate Professor for the College of Public Health at the University of Iowa and the Director of Clinical Applications and Associate Director of the Department of Health Care Information Systems for University of Iowa Health Care She received her bachelor’s degree in computer science and an MBA from the University of Iowa She has contributed to a number of publications, including the Journal of American Medical Record Association and proceedings from the Health Information and Management Systems Society (HIMSS) and the American Medical Informatics Association (AMIA) She currently serves on the State of Iowa Electronic Health Information Advisory Council and as the Advocacy Chair on the Healthcare Information and Management Systems Society (HIMSS) Iowa Chapter Board ® Required=Results McGraw-Hill Connect® Learn Without Limits Connect is a teaching and learning platform that is proven to deliver better results for students and instructors Connect empowers students by continually adapting to deliver precisely what they need, when they need it, and how they need it, so your class time is more engaging and effective 88% of instructors who use Connect require it; instructor satisfaction increases by 38% when Connect is required Using Connect improves passing rates by 10.8% and retention by 16.4% Analytics Connect Insight® Connect Insight is Connect’s new one-of-a-kind visual analytics dashboard—now available for both instructors and students—that provides at-aglance information regarding student performance, which is immediately actionable By presenting assignment, assessment, and topical performance results together with a time metric that is easily visible for aggregate or individual results, Connect Insight gives the user the ability to take a just-in-time approach to teaching and learning, which was never before available Connect Insight presents data that empowers students and helps instructors improve class performance in a way that is efficient and effective Mobile Connect’s new, intuitive mobile interface gives students and instructors flexible and convenient, anytime–anywhere access to all components of the Connect platform Students can view their results for any Connect course Adaptive THE FIRST AND ONLY ADAPTIVE READING EXPERIENCE DESIGNED TO TRANSFORM THE WAY STUDENTS READ More students earn A’s and B’s when they use McGraw-Hill Education Adaptive products SmartBook® Proven to help students improve grades and study more efficiently, SmartBook contains the same content within the print book, but actively tailors that content to the needs of the individual SmartBook’s adaptive technology provides precise, personalized instruction on what the student should next, guiding the student to master and remember key concepts, targeting gaps in knowledge and offering customized feedback, and driving the student toward comprehension and retention of the subject matter Available on smartphones and tablets, SmartBook puts learning at the student’s fingertips—anywhere, anytime Over billion questions have been answered, making McGraw-Hill Education products more intelligent, reliable, and precise www.learnsmartadvantage.com preface This book offers students a comprehensive and engaging treatment of personal finance, while incorporating unique themes, an application-driven pedagogy, and a definitive action plan Unlike other texts on the market, it offers a frank and timely discussion of living within one’s means and incorporating personal values and priorities into a personal financial plan The intent is to help readers set priorities that guide their financial decisions, rather than the other way around This book establishes a path toward financial freedom that is less about accumulating wealth and more about building a future tailored to individual goals which can increase happiness and reduce stress As we move into our second edition, we have put much time, effort, and love into making this edition easy for students and instructors to use We reorganized the order of our chapters, moving up our discussion of planning and budgeting (now Chapter 2) and postponing the more challenging and math-heavy time value of money coverage until later, in Chapter We condensed five units into three more tightly cohesive units, to give students a better sense of related topics and their overall importance in financial planning Much of the book has been rewritten, and all of the examples and features are up-tothe-minute accurate, reflecting the constant changes we see in personal finance topics We hope that you will find this updated version of the text to be just the reference you need as you start out on your financial journey GOALS AND THEMES As we began to write, and throughout the development of the book, we focused on three main goals and themes: responsible financial decision making, alignment of personal and financial goals, and the importance of maintaining a personal financial plan Responsible Financial Decision-Making Almost every personal finance instructor has the same central goal: to help students become financially literate so they can take and keep control of their finances Before they can develop their own financial plan, however, it is crucial that students understand the key terms, concepts, and principles of financial planning To address that need, the text offers a comprehensive table of contents and pedagogical features, providing students with the foundation they need to make responsible financial decisions Extensive assessment tools built right into the book keep students on the right track toward mastering the material The central goal is to make this material relevant and easy to master so that ix www.downloadslide.net glossary A acceleration clause clause that allows the lender to demand full repayment of the loan amount if payments are past due (p 210) adjustable-rate mortgage (ARM) home loan in which the interest rate and payments can change based on the terms of the loan; also known as a variable-rate mortgage or a floating-rate mortgage (p 178) adjusted gross income (AGI) gross income from taxable sources minus allowable deductions (p 229) advance directive a legal document that expresses your wishes regarding medical treatment in the event of incapacitation (pp 265, 413) all-or-none order a trade request executed only if the broker has enough shares, as a block, to fill the order in a single transaction (p 342) alternative minimum tax (AMT) tax to be paid in addition to regular tax; designed to prevent high-income earners from avoiding tax responsibility (p 236) amortization the process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity (p 128) annual percentage rate (APR) the annual rate charged for borrowing or earned by investing, ignoring the effect of compounding (pp 85, 122) annual percentage yield (APY) effective yearly rate of return taking into account compounding interest (p 86) annual report a publication for shareholders including balance sheet and income statement information for the company, along with statements from the company’s leadership (p 339) annuity a series of equal payments made at equal intervals over time (day, month, year); financial product designed to accept and grow funds, and then pay out a stream of payments at a later point in time (pp 91, 404) annuity due stream of equal payments that occurs at the beginning of a period (p 96) asset money and other items of value that you own (p 34) asset allocation the diversification of the portfolio (p 289) attorney in fact a person who is given written authority to act on your behalf should you become incapacitated (p 413) average tax rate tax rate calculated by dividing the total income taxes paid by the total income (p 235) B back-end load a redemption fee or deferred sales charge that deducts a percentage when you take money out of the fund (p 315) balanced mutual funds funds with a combination of stocks, bonds, and cash (p 308) balloon-payment mortgage type of loan in which payments are amortized over a longer period than the actual loan period; at the end of the loan period, the remaining balance (the balloon payment) is due (p 180) Chapter 13 a reorganization bankruptcy, where the debtor proposes a plan of reorganization to keep his or her assets and pay creditors over an extended time period, usually three to five years (p 211) bankruptcy the legal process by which a person declares an inability to pay debts owed to others (p 211) charitable remainder trust a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity (p 412) bear market a period in which stock prices in general are consistently falling (p 331) beneficiary the person or persons who are entitled to the benefit of any trust arrangement (p 412) bond debt issued by the government or a company with a promise to repay the original amount plus interest by a given date (p 356) bond ladder a method of managing investments by buying bonds that mature in intervals (p 368) bracketed order a trailing-stop order with an upper price-limit trigger (p 344) brokers individuals or firms that act as an intermediary between a buyer and seller (p 330) budget an itemized summary of estimated income and expected expenditures in a given period (p 44) budget variance difference between a planned expenditure and the actual amount spent (p 45) bull market a period in which stock prices in general are consistently rising (p 331) bull run a period during which stock prices in general are consistently rising (p 302) bypass trust a trust that allows you to possibly bypass estate and inheritance taxes (p 412) C cafeteria plan a benefits plan that allows employees to select from a pool of choices, some or all of which may be tax-advantaged (p 241) call feature an option for the issuer of a bond to buy back the bond prior to its maturity date (p 357) capacity ability to repay debt based on income and other obligations (p 116) capital net worth (assets minus liabilities) (p 118) capital gain/loss a gain or loss on the sale of an investment asset like stock or real estate (p 237) cash inflow cash coming in (e.g., salary, gifts, and interest income) (p 36) cash outflow cash going out (e.g., rent, utilities, and groceries) (p 36) cash value (of life insurance) amount of funds received if the policy is canceled (p 35) certificate of deposit (CD) an instrument issued by a bank that guarantees the payment of a fixed interest rate for holding a sum of money until a designated time in the future; also called time deposits (p 56) Chapter 7 the quickest and simplest form of bankruptcy; the liquidation of assets with the proceeds distributed to the creditors (p 211) checking account an account that allows the holder to write checks against deposited funds and use automated cash machines, electronic debits, and debit cards (p 57) closed-end mutual funds publicly traded mutual funds that raise capital through an initial public offering (IPO); a limited number of shares are issued and no investment funds can be added (p 302) closing final steps in a home sale where documents are signed and recorded and ownership of the property is transferred (p 180) COBRA the Consolidation Omnibus Budget Reconciliation Act, which extends health insurance for a period of time after a job loss, death, divorce, or other transitional life event (p 262) coinsurance the percentage you must pay until you reach your maximum out-of-pocket expense amount (p 260) collateral asset of value that secures a loan; this item is given to the lender if the borrower defaults on the loan (p 117) collision insurance insurance that covers the payment of repairs to a vehicle damaged in a collision (p 254) commercial bank a financial institution that accepts deposits and uses the funds to provide private business loans and personal loans (p 63) commercial paper unsecured obligations issued by a corporation to finance its shortterm credit needs (p 307) common stock stock that carries voting rights, but in the event of bankruptcy, owners receive their funds after preferred stockholders (p 329) compounding process whereby the value of an investment increases exponentially over time due to earning interest on interest previously earned (p 86) comprehensive insurance insurance that covers an insured vehicle for damage other than collision such as fire, theft, weather, impacts with animals, or vandalism (p 253) contingent deferred sales load (CDSL) a fee triggered if fund shares are redeemed before a given number of years of ownership (p 317) convertible bonds debt securities that allow the holder to convert them into shares of common stock at an agreed-upon price (p 360) copayment the amount you pay before the insurer will pay for a particular visit, service, or drug (p 259) corporate bonds debt obligations issued by private and public corporations (p 360) GLOSSARY 457 www.downloadslide.net cosigner another person who signs your loan and assumes full responsibility for repayment (p 116) dividend yield annual return received from dividends if you purchase the stock and the dividend payments remain unchanged (p 335) financial intermediaries financial institutions that accept money for deposits and then lend the money to others (p 71) cost basis the original value of a purchased asset, usually the purchase price (p 312) dividends taxable payments declared by a company’s board of directors and distributed to its shareholders out of the company’s current or retained earnings (p 334) financial life stages periods throughout a lifetime representing different financial challenges, family status, and needs (p 10) coupon the interest payment of a bond (p 356) cramdown a bankruptcy court order in which the loan terms are altered in an attempt to keep the borrower from defaulting on secured loans, except for mortgages on a primary residence (p 207) credit a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest (p 112) credit risk risk that the company invested in may declare bankruptcy; also called default risk (p 284) credit union a nonprofit depository institution that serves members who have a common affiliation (p 63) current liability debt due within a short time, usually a year (p 36) current ratio an indicator of liquidity; calculated as short-term assets divided by shortterm liabilities (p 340) current yield the annual interest paid on the bond as a percentage of the bond’s current market price (p 365) D day order a stock trade request that expires at the end of a trading day (p 343) debit card transfers money from a checking account to the account of the retailer, usually through the Visa/MasterCard network (p 68) debt ratio a measurement of the proportion of total assets financed with debt; calculated as total debt divided by total assets (p 340) debt-to-income ratio monthly recurring debt payments divided by monthly gross income (p 116) declaration page the policy page that lists the insurance company’s name and address, the policyholder, the coverage dates, and the contracted coverage amounts (p 252) dollar-cost averaging an investment strategy designed to reduce volatility in which securities, typically mutual funds, are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving (pp 9, 310) domicile a place where an individual has a fixed and permanent home for legal purposes (p 412) downshifting reducing expenditures by deliberately cutting back income or expenditures or both, in the pursuit of financial independence (p 8) durable power of attorney for health care a power of attorney that becomes effective in the event that you become incompetent or unable to manage your affairs; often identified within an advance directive (p 413) fixed-rate/fixed-term mortgage a loan with a specified payment amount and a specified repayment schedule (p 178) flipping the process of buying, upgrading, and selling property over a short time period for a profit (p 382) earthquake insurance special insurance coverage to protect your home and property from damage sustained in an earthquake (p 256) flood insurance special insurance coverage to protect your home and property from damage sustained from a flood (p 256) 80-10-10 rule living on 80% of income, saving 10%, and giving away 10% (p 5) forbearance a temporary reduction or suspension of mortgage payments for three or four months, followed by a new repayment plan for the loan (p 209) enough point at which increased spending has a diminishing rate of fulfillment (p 4) equity the difference between what you own and what you owe (p 174) equity REIT a real estate investment trust that invests money directly in property (p 389) estate tax a tax imposed on an estate at the time of the owner’s death (p 410) exclusions stated items that are not covered by an insurance policy (p 260) executor the person who will tend to your estate according to the wishes outlined in your will (p 410) deed-in-lieu of foreclosure an arrangement whereby property is given to the lender in return for forgiveness of the mortgage balance (p 210) expense ratio the operating costs of a mutual fund, expressed as a percentage of the fund’s average net assets for a given time period (p 303) default risk risk that the company invested in may declare bankruptcy; also called credit risk (p 284) extended-hours order a stock trade request placed after the close of market (p 344) demand deposit account a transaction account that is payable on demand; commonly referred to as a checking account (p 63) F face value (of life insurance) amount of money the beneficiary receives when you die (p 35) discounting finding the present value of a future payment (p 94) FICO credit score a credit score method that reflects your credit risk based on a snapshot of your credit report at a particular point in time (p 144) diversification spreading assets among different investment options to reduce risk (p 289) financial independence passive income exceeds expenditures (p 6) 458 GLOSSARY 529 plan funds set aside for post-secondary education expenses as either prepaid tuition or college savings account; also called a qualified tuition plan (p 55) E deductions items that help reduce the income tax owed by reducing taxable income (p 229) discount a price below the face value of a bond (p 357) financial plan goal-based activity related to future income, spending, investment, protection, and giving (p 2) floating-rate mortgage loan in which the interest rate varies based on a benchmark plus an additional spread, called an ARM margin; also known as an adjustable-rate mortgage or a variable-rate mortgage (p 178) exemption a dollar amount allowed by law that reduces your adjusted gross income that would otherwise be taxed (p 230) direct tax fee levied directly on the person responsible for the tax (p 223) financial literacy ability to understand how money is earned, invested, and spent, and the risks and rewards of financial decisions (p 8) foreclosure legal process by which the lender can seek a court-ordered sale of the property due to nonpayment by the borrower; money from the sale of the property goes to paying off the debt of the mortgage (p 60) 401(k) retirement plan a form of retirement plan, wherein employees and employers can make tax-deferred contributions to a trust and direct the funds to be invested across a number of provided options, taking payment when they retire or leave employment (p 60) front-end load a fee charged as a percent of what you invest in a mutual fund (p 315) frugal avoiding waste; to be resourceful when fulfilling one’s need for goods and services (p 4) full coverage insurance that includes comprehensive and collision insurance (p 253) fund manager the person or people responsible for an investment fund, its investing strategy, and the management of its portfolio trading activities (p 302) future value projected value of an asset based on the interest rate and time in the account (p 91) future value interest factor (FVIF) factor based on the interest rate and time periods, multiplied by today’s amount to calculate the value at a future date (p 92) future value interest factor of an annuity (FVIFA) factor multiplied by the annuity (payment) to determine the amount in the account at a future date (p 97) www.downloadslide.net G global funds funds that invest in international and domestic companies (p 308) good-til-canceled (GTC) order a stock trade request that stays on the books until completely filled, canceled, or 60 calendar days have passed (p 343) gross income total income, including wages, bonuses, tips, interest earnings, dividends, and gains from selling investments (p 229) growth stocks stocks of companies that are growing at a fast rate (p 336) H health maintenance organization (HMO) a group of doctors and other medical professionals who offer care for a flat monthly rate with no deductibles (p 261) high-yield bonds corporate bonds issued by organizations that not qualify for investment-grade ratings (p 362) home equity market value of the house minus any loans secured by the house (p 60) home equity line of credit (HELOC) line of credit secured by a mortgage on a home; similar to a credit card (p 60) I identity theft the crime of obtaining the personal information of another and assuming that identity to commit theft or fraud (p 152) indirect tax fee levied on consumption or an expenditure, privilege, or right, but not on income or property (p 223) individual retirement arrangements (IRAs) funds set aside to be withdrawn after age 59½ (p 58) inflation the overall increase in the price of goods and services over time (p 282) inheritance tax a tax levied upon receiving property as heir or next of kin under the law of intestacy; the tax is measured by the value of the property received (p 411) initial public offering (IPO) a company’s first sale of stock to the public (p 302) insurance rider an addendum to your primary coverage to cover something specific that is not covered on your primary policy (p 257) interest rate risk risk undertaken when you lock into a fixed-rate investment for a specific length of time (p 284) interest rate spread the difference between the interest rate of deposits and the interest rate of loans (p 114) intermediate goal objective to be attained in one to five years (p 14) international funds funds that invest in companies from foreign (non-U.S.) countries (p 308) investment account outlay of money into a bank or stock with the objective of making a profit (p 9) irrevocable trust a trust for the benefit of others, because it allows the trustor to avoid paying estate taxes by moving assets out of an estate; provisions can never be revised (p 412) itemized deductions if total tax deductions are greater than the standard deduction allowed by the IRS, you can list (itemize) them on Form 1040, thus reducing your overall income tax bill (p 229) L lease a contract by which the landlord (lessor) gives to the tenant (lessee) the use and possession of lands, buildings, or property for a specified time and for fixed payments (p 380) letter of intent a letter to the heirs and executor outlining your wishes for your funeral arrangements, who to notify of your death, and other wishes (p 410) leverage the amount of debt you carry relative to your investment (p 392) liability debt or obligation that you owe (p 36) liability insurance insurance that only covers the driver’s legal responsibilities if they are at fault for an accident (p 253) limit order a trade with a guaranteed price but not a guaranteed execution (p 342) limited liability company (LLC) a company with limited personal liability that allows you to pass the income to your personal taxes or be taxed as a corporation (p 388) liquidation a sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors (p 211) liquidity the characteristic describing how quickly an asset can be turned into cash without substantial loss of value (p 34) liquidity risk risk of not being able to cash out an investment quickly enough to meet cash flow needs or to prevent a loss (p 287) living will a document that outlines your preferences or directions for the administration and the withdrawal or withholding of life- sustaining medical treatment in the event of terminal illness or permanent unconsciousness (pp 265, 415) loan-to-value (LTV) ratio ratio expressing the amount of your mortgage as a percentage of the total appraised value of the property (p 178) long-term goal objective to be reached in five or more years (p 14) loss payee in an insurance contract, the third-party lien holder who gets paid if there is a claim on the insurance (p 253) lump sum single, one-time payment (p 91) intestate without a valid will (p 410) M investment an outlay of money for a profit, where the risk exists that either some or the entire original amount may be lost (p 283) margin loan when money is borrowed to buy stocks or bonds and those stocks or bonds serve as the collateral (p 118) marginal income tax rate tax rate levied on your last dollar of taxable income (p 235) market maker a person who manages the buying and selling of stocks; also called a specialist (p 330) market order a trade with a guaranteed execution but not a guaranteed price (p 342) market risk risk that the value of your investment will decrease due to changes in the market (p 285) maturity the repayment date of bond debt (p 356) Medigap policies supplemental insurance policies sold by private insurance companies to fill “gaps” in the original Medicare plan coverage (p 262) mission a purpose of being (p 12) money personality the style and habits of money management to which you are most comfortable (p 3) mortgage a type of long-term loan used to buy property, where the property is held as collateral until the loan is paid in full; a legal document used to allow a lender to use real property as collateral (pp 60, 173) mortgage REIT a real estate investment trust that invests in mortgage loans that finance the development of properties (p 389) Multiple Listing Service (MLS) an arrangement among brokers who are real estate board members, through which brokers share information regarding their listings with one another (p 393) municipal bond a debt security issued by a state, municipality, or county to finance its capital expenditures (p 360) mutual fund an investment vehicle in which many people pool their funds for investing in stocks, bonds, money market instruments, and other assets; each fund is operated by a fund manager with a specific investment objective (p 302) N negotiable instrument an agreement that is dated, payable for a specific amount of money, signed by the person who owns the account, and payable to another party (p 64) net asset value (NAV) the dollar value of a single mutual fund share based on the value of the underlying assets of the fund, minus its liabilities, divided by the number of shares outstanding; calculated at the end of each business day (p 303) net cash flow cash inflows minus cash outflows for a specific time period (p 37) net worth amount left over if you sold all your assets and repaid all your debts (assets minus liabilities) (p 36) net worth statement a snapshot of your equity at a given point in time, derived from a summation of your assets and liabilities (p 34) network doctors, labs, clinics, and hospitals with whom an insurance plan has negotiated set prices (p 260) 90-10 rule saving 10% of income and living on 90% (p 5) GLOSSARY 459 www.downloadslide.net no-load mutual fund a fund offered to the public that carries no purchase fee (front-end load) or redemption fee (back-end load) (p 303) personal mission statement formal statement that reflects your strengths, passions, gifts, and stakeholders (p 12) O personal values the qualities and beliefs that are most important to you and to which you must be true to lead a happy and fulfilling life (p 4) odd lot any purchase or sale of less than 100 shares (p 342) open-end mutual funds mutual funds in which investors can buy shares at the net asset value of the fund (p 302) open outcry a method of public auction in which verbal bids and offers are made in the trading rings or pits (p 330) opportunity cost cost of an alternative that must be forgone in order to pursue another option (p 38) ordinary annuity stream of equal payments that occurs at the end of a period (p 96) phishing bogus marketing schemes by phone, mail, or e-mail designed to gain personal information for the purpose of stealing your identity (p 153) point-of-service (POS) plan the patient has a single primary care provider, but that provider can make referrals to providers both in and out of the network (p 261) points the initial fee charged by the lender in exchange for a lower interest rate; each point is equal to 1% of the amount of the loan (p 180) portfolio all the investments you hold (p 289) over-the-counter (OTC) stocks that trade via a dealer network rather than on a formal exchange (p 330) power of attorney a legal document that designates another person to act on your behalf should you become incapacitated (pp 265, 413) overdraft fee charge assessed by the financial institution for taking more money out of the account than is in it (p 65) predatory lending the act of lending money at an unreasonably high interest rate, making repayment excessively difficult or impossible for the borrower (p 130) P par the face value of a bond (p 357) partnership a voluntary contract between two or more persons to place their capital, labor, and skills in a business corporation with the understanding there will be a sharing of the profits and losses (p 387) passive income money received from investments and savings (p 7) PCP acronym for primary care physician; a licensed health care provider who acts as the first point of contact for medical care and provides ongoing general care for a patient (p 260) penny stock shares in a company that trade for less than $5.00; considered a high-risk investment (p 330) perma-debt the condition of having an outstanding balance on credit cards that is barely reducible over time because one is able to make only the minimum payments and is being charged a high annual rate (p 140) permanent life insurance an insurance account that builds up over time and is much more expensive than term life insurance (p 268) person of record the individual holding shares in the mutual fund on the day the fund distributes dividends and capital gains (p 311) personal cash flow statement document that measures your cash inflows and outflows in order to show your net cash flow for a specific time period (p 36) personal financial plan strategy to achieve financial goals based on an analysis of your liabilities, cash flows, savings, and investments (p 10) personal financial statement (or net worth statement) a snapshot of your equity at a given point in time, derived from a listing and total of your assets and of your liabilities (p 34) personal financial success achieving financial goals and living life in accordance with your values, vision, and mission (p 6) 460 GLOSSARY preferred provider organization (PPO) provides health care services at a reduced fee (p 261) preferred stock a stock that carries no voting rights but takes priority over common stock in the payment of dividends to stockholders and upon liquidation (p 329) premium (bond) a price above the face value of a bond (p 357) present value current value of an asset to be received in the future (p 91) present value interest factor (PVIF) factor based on interest rate and time periods, multiplied by a future amount to calculate the value today (p 94) present value interest factor of an annuity (PVIFA) factor based on interest rate and time periods, multiplied by the annuity (payment) to calculate the value of the annuity today (p 100) price-to-earnings (P/E) ratio an assessment tool for valuing a stock in which market value per share is divided by earnings per share (p 336) private banker customer service representative and/or loan officer trained to provide special services and help meet the financial needs of high net worth customers (p 73) private mortgage insurance (PMI) insurance for the lender if it needs to foreclose on the home, and the sale proceeds not cover the mortgage and the cost of the foreclosure (p 178) probate a process of proving in a court that a document is the last valid will and testament of a deceased person (p 413) progressive tax fee designed to help create equity among citizens; the wealthy are taxed at a higher rate than the poor (p 225) prospectus a legal document detailing the fund’s investment objectives, fees, risks, and major holdings; it is required to be sent to investors prior to investing so they can make an informed decision (p 302) public goods and services government-provided services that protect and support citizens; examples are services provided by the police, fire, library, and military (p 223) R real estate rental or owned property and land (p 380) real estate investment trust (REIT) a company that pools funds from a group of individuals and invests in real estate (p 381) regressive tax fee that is applied uniformly, imposing a greater burden (relative to resources) on the poor than on the rich (p 223) reinstatement a temporary solution to the risk of foreclosure that involves reestablishing a loan if the terms of a new agreement are met; this typically includes making back payments by a specific date (p 208) rent a stated payment for the temporary possession of a house, land, or other property, made usually at fixed intervals by the tenant to the owner (p 380) rental property housing, farm land, or commercial property that is rented or leased to others (p 380) rental reimbursement insurance to cover the cost of a rental vehicle if your vehicle is stolen or being repaired; usually involves a perday limit as well as a limit on the number of days (p 255) renter’s insurance insurance that covers your personal property in a structure you not own; generally there is liability insurance associated with this coverage, to cover the liability of accidents occurring within the rented property (p 257) repossess to take possession of an item that was used as collateral to secure a loan (p 118) repurchase agreements contracts whereby a seller of securities agrees to buy back the securities at a specified future time and price (p 308) return on investment (ROI) the ratio of money gained or lost on an investment relative to the amount of money invested (p 382) reverse mortgage a loan secured by the value of one’s home whereby the homeowner receives either a monthly or a lump sum from the lender (p 63) revocable living trust a trust over which the settler has retained the power of revocation (p 412) revolving lines of credit specific type of line of credit that replenishes, up to a set limit, when payments are made (p 114) risk premium compensation for taking a risk (p 284) roadside assistance insurance coverage to pay for towing if your vehicle is disabled (p 255) roll over extension of a loan (p 130) round lot a purchase or sale of 100 shares at a time (p 342) Russell 2000 a market-performance measurement index, derived from the stock of the 2,000 smallest companies on the U.S market (p 305) www.downloadslide.net S S corporation a regular corporation that has between and 100 shareholders and that passes net income or losses on to shareholders (p 388) stock equal parts or shares of a company’s capital; a method of sharing ownership of a company with other investors (p 328) stock market a public market for trading ownership shares (stock) of a company among investors (p 302) salvage value the value of a damaged vehicle if it were sold for scrap metal or to an individual or company for repair (p 254) stop order a trade request that automatically converts to a market order when a predetermined price (a stop price) is reached (p 342) savings money set aside for future use in a secure, no-risk instrument (p 282) sublease the transfer of a lease agreement to a new tenant (p 173) sector funds funds that invest in one identifiable sector of the economy (p 308) secured credit card a credit card linked to a savings account where the lender may claim the funds in the account in the event that payments are not made (p 113) securities tradable documents issued by a corporation, government, or other organization that show evidence of ownership (p 330) Securities and Exchange Commission (SEC) the primary federal regulatory agency for the securities industry; promotes full disclosure and protects investors against fraudulent and manipulative practices in the securities markets (p 303) share draft account the credit union equivalent of a demand deposit account (p 64) shares equal parts of a company’s capital stock; they provide a method for sharing ownership of a company among investors (p 302) short sale when a residential property cannot be sold for the full amount of the loan and the lender accepts the selling price as satisfying the mortgage (p 210) short-sell order a stock trade request that involves selling borrowed stocks (p 343) short-term goal objective to be reached in less than one year (p 14) signature loans unsecured loans, where guarantee of payment is based on your word (your signature on the written agreement) (p 113) simplified employee pension (SEP) plan a low-overhead retirement savings account in which employers make contributions to traditional IRAs set up for employees (including self-employed individuals) (p 403) skimming stealing information from a credit card by swiping it through a processing machine that gathers the information (p 155) SMART goal objective that is Specific, Measurable, Attainable, Realistic, and Timebound (p 16) specialist a person who manages the buying and selling of stocks; also called a market maker (p 330) spousal IRA traditional or Roth IRA established and funded by an individual for his or her spouse (p 404) SR-22 liability insurance liability insurance required by states for high-risk drivers (p 255) Standard & Poor’s 500 (S&P 500) a marketperformance measurement index, derived from the stock of 500 large companies on the U.S market; designed to be a leading indicator of U.S equities, it is meant to reflect the risk/return characteristics of the large-cap companies (p 305) T tax credits credits that reduce your tax liability, dollar for dollar (p 230) tax-deferred taxes are not paid on the money or interest earned until the year it is withdrawn; a delay in taxation, meaning that funds are taxed at the time of withdrawal; IRA and 401(k)s grow tax-deferred, but they are taxed when the retiree taps them (pp 59, 241) unearned income defined by the IRS as income from investments and savings (p 7) universal life insurance insurance that is similar to whole life insurance, except it does not have a guaranteed minimum return (p 269) unsecured credit card a credit card without collateral, where repayment is based on your promise to repay the borrowed amount (p 113) V value stocks underappreciated stocks in the market, typically with single-digit P/E ratios (p 336) variable-rate mortgage loan in which the interest rate varies based on a benchmark plus an additional spread, called an ARM margin; also known as an adjustable-rate mortgage or a floating-rate mortgage (p 178) taxable income adjusted gross income minus deductions and exemptions (p 230) vested when one has satisfied the terms of employment and thereby has access to pension benefits contributed by the employer (p 402) taxes fees charged by the government on a product, income, or activity (p 223) vision statement a picture of your desired future that provides a sense of purpose (p 12) term life insurance insurance that covers you for a fixed amount over a certain time period at a relatively low cost; when the term is over, payments to the insurance company stop and the insurance goes away (p 268) voluntary simplicity a simplified lifestyle, reducing unvalued consumption to focus on other priorities (p 4) 10K an extensive report filed each year with the SEC; covers a company’s operations and markets, disclosures, financial statements, and debt levels (p 339) 10Q a briefer version of the 10K, filed quarterly (p 339) testate having made a legally valid will (p 410) time value of money principle showing that a dollar now is worth more than a dollar in the future, taking into account interest earned (p 88) times interest earned ratio an indicator of financial leverage; calculated as earnings before interest and taxes (EBIT) divided by total interest payments (p 340) trailing-stop order a stock trade request that depends on a predetermined price (p 344) trustee a person who manages the money in a trust (p 412) trustor a person who puts money into a trust (p 412) W W-2 form form your employer sends to you and the IRS every year showing your earnings and the amount withheld for taxes (p 229) W-4 form form filled out when starting a new job that determines how much of one’s pay is withheld for income taxes (p 225) wage earner bankruptcy Chapter 13 bankruptcy for individuals with a regular source of income (p 212) weighted-average maturity (WAM) the length of time until the average security in a fund will mature or be redeemed by its issuer (p 307) whole life insurance insurance that provides a fixed amount of life insurance and also a cash value as long as you pay the premiums (p 269) will a legal declaration of your decision regarding the dispersion of your assets and the caring for your dependents following your death (p 409) turnover rate percentage of stocks bought and sold every year (p 313) withholdings taxes taken out of your paycheck before you actually get your paycheck (p 225) 12b-1 fee an extra fee charged by some mutual funds to cover promotion, distributions, marketing expenses, and sometimes commissions to brokers (p 303) Y U yield to call the interest rate you receive between now and the early repayment date (p 365) umbrella liability insurance a supplemental policy that provides high limits of additional liability coverage above the limits of a homeowner’s and auto policy (p 258) yield to maturity the rate of return you receive between the date you buy the bond and the date it is repaid, including all payouts, coupons, and capital gains/losses (p 365) yield the interest rate of a bond (p 365) GLOSSARY 461 www.downloadslide.net www.downloadslide.net index A Acceleration clause, 210 Account register (sample), 66 Account statement (sample), 65 Acorns app, 289 Actively managed mutual funds, 305 Adams, James Truslow, 424 Adams, Scott, 166 Adjustable-rate mortgages (ARMs), 60, 178–179 properties of, 179 Adjusted balance method, 121 Adjusted gross income (AGI), 229 Advance directives, 265–266, 413 Affordable Care Act (Obamacare), 244, 259, 263 After-sale activities, 172–173 All-or-nothing order, 342 Allen, Woody, 269, 288 Allocations, Allstate, 254 Alternative minimum tax (AMT), 236–237 avoiding the, 237 calculating and reporting, 236 Amazon.com, 224 American Express, 113, 119 American Opportunity credit, 243–244 American Recovery and Reinvestment Bill, 240 American Red Cross, 414 American Stock Exchange (AMEX), 330 America’s Cheapest Family (Economides), 425 Amortization, 129 Annual percentage rate (APR), 85, 89, 122 Annual percentage yield (APY), 86–87, 89 Annual report, 339 Annuity, 91, 404 future value of, 95–98 ordinary annuity, 96 present value of, 99–101 Annuity due, 96 Apple Pay, 153 Appreciation of rental property, 384 Arbitration, 119 Armour, Richard, 139 Asset(s), 34–35 appreciation of rental property, 384 diversification of, 289–290 Asset allocation, 289 Asset-allocation funds, 289–290 Assumption of loan, 210 ATM cards, 57, 68 ATM/debit card replacement fee, 75 Attorney in fact, 413 Auto insurance, 252–255 collision, 254 comprehensive coverage, 253 full coverage insurance, 253–255 liability insurance, 253 lowering costs of, 255 roadside assistance, 255 Auto loans, 58 leasing vs buying, 168–170 Auto purchase, 166–173 after-sale activities, 172–173 banks and credit unions, 171–172 car dealerships, 171 closing the deal, 172–173 comparison shopping, 170–171 dealer financing, 172 determining affordability, 167 doing your homework, 167–170 financing options, 171–172 insurance cost, 170 leasing vs buying, 168–170 needs vs wants, 166–167 negotiating the deal, 171 new cars, 168 price, 169–170 private sales, 171 process of, 166 reliability and service records, 170 test drive, 170–171 trade-ins, 171 used cars, 168 Automated Clearing House (ACH), 70 Automated teller machines (ATMs), 68–69 Automatic asset-allocation mutual funds, 289 Automatic bill payment, 101, 119 Automatic investing, 311 Average daily balance method, 121 Average tax rate, 234–235, 237 B Back-end load, 315 Balanced mutual funds, 308 Balloon mortgage, 60, 180 Balloon payment, 132 Balloon-payment loan, 185–186 Balloon-payment mortgages, 60, 180 Balloon rate loans, 60 Bank of America, 72, 119 Bank cards, 68 BankAmericard, 119 Bankrate Student Loans, 126 Bankruptcy, 210–214 Chapter 7, 211–212 Chapter 13, 212 consequences of, 213–214 counseling and education requirements, 212 life after, 214 means test, 212 moral and social consequences of, 213–214 types of, 211–212 Banks, for automobile loans, 171–172 Barber, B M., 346 Basic checking, 68–69 Bear market, 331 Behn, Aphra, 54 Beneficiary, 412 Bennett, Arnold, 215 Bennett, Dan, 242 Best Buy, 114 The Big Board, 330 Bill payment services, 57 BillGuard, 155 Billing inquiries, 123 Bogle, John C., 75 Bok, Derek, 124 Bond evaluation, 363–368 accounting for taxes, 368 bond value, 365–367 ratings, 363–364 researching bonds, 364–365 Bond ladder, 368 Bond mutual funds, 306–307 Bond ratings, 363–364 Bond value, 365–368 calculation of, 365–367 taxes and, 368 Bond(s), 356 basics of, 356–359 benefits and risks of, 368–370 buying bonds, 370–372 call features of, 357 convertible bonds, 360–362 corporate bonds, 360–362 government bonds, 361 high-yield (junk) bonds, 362 how they work, 357–359 municipal bonds, 360, 362 premium/discount, 357 strategy for, 370–371 Treasury bonds, bills, notes, and TIPS, 359 types of, 359–362 U.S savings bonds, 359 where to buy, 371–372 Bracketed order, 344 Brokers, 330, 341 types of, 341–342 Brookings Institution, 198 Brown, Abram, 283 Budget, 44 annual review, 427 cash allocations to, 41–42 envelope system, 201–202 increasing income and, 203 monthly review of, 427 realistic budgeting, 44–45, 201–202 reviewing and revising, 45–47 spreadsheet template, 44 steps in building of, 45 Budget plan, Budget variances, 45 Budgeted buckets, 41–42 Buffett, Warren, 6, 310, 316, 319, 329, 337, 346, 360 Bull market, 331 Bull run, 302 Buying a home, 173–174; see also Mortgage(s) affordable down payment, 178 closing costs, 180–182 finance shopping, 182 homeowners associations, 177 insurance, 177 location, 176 maintenance, 176 monthly mortgage payments, 178 mortgages, 173 price, 176 purchase price, 178–184 INDEX 463 www.downloadslide.net Buying a home—Cont real estate broker, 177 rent vs buy, 173–175 resale value, 177 school systems, 176 selection criteria, 176–177 taxes, 177 Bytrust trust, 412 C Cafeteria plan, 241 Call feature, 357 Call risk, 369 Campbell Soup, 412 Capacity, 117 Capital, 118 Capital gain/loss, 236–238, 311 Car dealerships, 171 Career choices, 17–19 education and, 17–18 happiness and, 17–19 information on, 18 Career goals, CarFax, 170–171 Carnegie, Andrew, 384 Cash, 34, 123 Cash allocations to budget, 41–42 Cash cards, 68 Cash dividend, 335 Cash flows, 10 Cash inflow, 36 Cash outflow, 36 Cash value (of life insurance), 35 CBS, 337–338 Center for Responsible Lending, 132 Centers for Disease Control and Prevention (CDC), 425 Central Source Annual Credit Report Request Service, 147–148 Certificates of deposit (CD), 56, 307 Chapter 7, 210–212 Chapter 13, 211–212 Character, 115–116 Charitable giving, 414–415 impact on taxes, 414–415 lifetime gifting, 415 selections, 414 Charitable remainder trust, 412 Charles Schwab, 341 Checking accounts, 56–57, 63 account register (sample), 66 account statement (sample), 65 balancing of, 65 basic checking, 68 free checking, 68 interest-bearing checking, 68 keeping track of transactions, 65, 67 overdraft protection, 69–70 reconciliation worksheet (sample), 67 reconciling account, 66 types of, 67 written check (example), 64 ChexSystems, 70 Chrysler, 118 Churchill, Sir Winston, 355 Cicero, 379 Citibank, 72 Closed-end mutual funds, 302 464 INDEX Closing, 180 Closing costs, 180–182 CNN Money, 310 COBRA (Consolidation Omnibus Budget Reconciliation Act), 262 Code of Hammurabi, 213 Coin counting fee, 75 Coinsurance, 260 Collateral, 58, 117 “College Degree Still Worth the Cost Despite the Risk” (Farrell), 198 College savings plans, 55–56, 292–293 Collision insurance, 254 Commercial bank, 62–63, 71–72 Commercial paper, 307 Commissions, 316 Common stock, 329 Commonwealth Fund Biennial Health Insurance Survey, 251 Company evaluation, 339–341 evaluation criteria, 340–341 financial reports/statements, 339 research, 339 Company savings plans, 402 401(k) plans, 402 Roth 401(k) plans, 402 simplified employee pension (SEP) plans, 403 Compound interest, 85–87 Compounding, 85–90 compound interest, 85–87 making it work, 88–89 power of, 85–87 Comprehensive insurance, 253 Conditions (economic conditions), 118 Consolidation Omnibus Budget Reconciliation Act (COBRA), 262 Consumer Federation of America (CFA), 132, 151 Consumer Financial Protection Bureau (CFPB), 130 Consumer protection, debt collection and, 205–206 Consumer Reports, 169–171, 253, 267 Consumers Union, 123 Contingent deferred sales load (CDSL), 317 Control, Convertible bonds, 360–362 Copayment, 259 Corporate bonds, 360–362 Cosigner, 117 Cost averaging, 312 Cost basis, 312 Costco, 170 Council on Disability Awareness, 266 Coupon, 356 Coverdell Education Savings Accounts (ESAs), 293 Cramdown, 206 Credit, 112 applying for, 115–118 basics of, 112–119 costly cash, 130–133 costs of, 122–123 establishing credit, 140–141 five Cs of credit decision, 115–118 limits of, 120 options for, 113–115 Credit application, 115–118 Credit builder, 119 Credit card(s), 59 advantages/disadvantages of, 119–120 automating payments, 119 charges and fees, 121–122 choosing a card, 123–124 comparison of, 121 credit limits, 120 debt management for, 201, 203–204 errors on your statement, 123 finance charges, 121 general purpose cards, 113 grace periods, 120 interest rates, 120 penalties, 122 purchases with, 142–143 secured credit card, 113 store credit cards, 114 tips on managing, 123 understanding of, 119–124 unsecured credit card, 113 zero percent deals, 122 Credit CARD Act of 2009, 140 Credit card fees, 122 Credit card penalties, 122 Credit costs, 122–123 Credit counseling services, 149, 204–205 Credit decision, five Cs of, 115–118 Credit limits, 120, 142 Credit options, 113–115 characteristics of, 113 depository institutions, 114 finance companies, 114–115 general purpose credit cards, 113–114 revolving lines of credit, 114 signature loans, 113 Credit report accessing of, 147–148 annual report request, 147–148 correcting errors on, 150–151 dispute letter (sample), 150 expunging negative information, 151 freezing of, 155 identifying missing accounts, 153 reading of, 141–144 reporting agencies, 141–142 reporting errors on, 150–151 sample payment history detail, 143 strengthening of, 148–149 websites for, 161 Credit reporting agencies, 141–142 Credit risk, 284 Credit score, 145 deriving the score, 144–147 FICO (Fair Isaac Corporation) score, 142–145 improving your score, 147–149 Credit unions, 62–63, 72 auto financing, 171–172 CreditKarma.com, 147, 153, 202 Cummings, E E., 45 Curb, The, 330 Current liabilities, 36 Current ratio, 340 Current yield, 365 D Day order, 343 Dealer financing, 172 Debit cards, 57, 68–69 www.downloadslide.net Debt making payments on time, 202 managing past credit card debt, 203–204 paying off of, 202 steps to get out of, 201–206 Debt collection, consumer protection and, 205–206 Debt consolidation, 204 Debt management, 157, 201, 203–204 financial life stages of, 157 Debt ratio, 340 Debt-settlement companies, 205 Debt-to-income ratio, 117–118 Declaration page, 252 Deductible, 254, 259 Deductions, 229–230, 239, 242 Deed-in-lieu of foreclosure, 210 Default interest rates, 128 Default risk, 284, 369 Deferment, 126 Demand deposit account, 62–63 Dependent care account, 242 Dependent life stage, 10–11 certificates of deposit, 56 debt management, 157 financial instruments for, 55–56 529 plans or college savings plans, 55–56 life insurance, 270 retirement planning and, 407 savings accounts, 55 stocks and, 346 Deposited item returned, 75 Depository institutions, 114 Depreciation risks, 384 Derivatives, 61 Diener, E., 17 Diners Club, 119 Direct stock-purchase plans, 345 Direct tax, 223 Dirksen, Everett, 415 Disability insurance, 265–266 lowering costs of, 267 Discount bond, 357 Discount brokers, 341–342 Discounting, 94–95 Discover, 113, 119 Disney, Walt, 12 Dispute letter (sample), 150 Dispute resolution, 387 Diversification, 289–290 automatic asset-allocation funds, 289–290 mutual funds, 308–312 reasons for, 289 targeted funds, 289–290 Dividend(s), 334–335 mutual funds and, 311 stocks and, 334–335 Dividend reinvestment plans (DRIPs), 345 Dividend yield, 335–336 Dole Foods, 328 Dollar-cost averaging, 8–9, 310–311 Domicile, 412 Dominguez, Joe, 4–5, 200 Dorrance, John, 412 Dow, Charles, 332 Dow Jones & Company, 332 Dow Jones Industrial Average (DJIA), 332–333 Down payment, 178 Downshifting, 8–9 Dun and Bradstreet, 120 Durable power of attorney for health care, 413 Dylan, Bob, Extended warranties, 119 Extraordinary expenses, 45 E F E*Trade, 339, 341 Early family life stage, 11, 59–61 debt management, 157 financial instruments for, 59–61 401(k) plan, 60 home equity loans and lines of credit, 60 home ownership, 175 investments, 61 life insurance, 271 mortgage loans, 60 portfolio evaluation and, 291–293 retirement planning and, 407 stocks and, 346 Earned income, 229 Earned Income Tax Credit (EITC), 244 Earthquake insurance, 256 Economides, Annette, 425 Economides, Steve, 425 Edmunds, 170 Education, career choices and, 17–18 Education credits, 243 Education deductions/credits, 243–244 Edward Jones, 341 80-10-10 rule, Einstein, Albert, 95 Electronic (online) banking, 57 Eliot, George, 414 Emergency fund, 196–197 Emmonds, R A., 17 Empty nest life stage, 11 debt management, 157 financial instruments for, 61–62 home ownership, 175–176 life insurance, 271 portfolio evaluation and, 293 retirement planning, 407–408 stocks and, 346–347 Encore careers, 61 Enough, 4–5 Envelope system, 201–202 Epictetus, 327 Equifax, 141 Equity, 174–175 Equity mutual funds, 305–306 Equity REIT, 389 Esar, Evan, 85 Estate plan, Estate planning, 409–414 advance directives, 413–414 estate and inheritance taxes, 410–412 important papers checklist, 410 legal documents of the estate, 410 power of attorney, 413 trusts, 412–413 wills, 409–410 Estate taxes, 224, 410 Exchange-traded funds (ETFs), 305 Excise taxes, 224 Exclusions, 260 Executor, 410 Exemption, 230, 239 Expense ratio (of a mutual fund), 303, 305 Experian, 141 Extended-hours order, 344 Face value (of life insurance), 35 Fair, Bill, 144 Fair Credit Billing Act, 123 Fair Credit Reporting Act, 150 Fair Debt Collection Practices Act (FDCPA), 205 Fair Housing Act, 387 Fair Isaac Corporation, 144 Family mission statements, 14 Family values credits, 243 Fannie Mae, 179 Farrell, Chris, 198 Federal Deposit Insurance Corporation (FDIC), 71–72, 282, 307 Federal Direct Loans, 126 Federal Direct Student Loan Program, 125 Federal Emergency Management Agency (FEMA), 223 Federal Family Education Loans, 125 Federal Housing Administration (FHA), 116 Federal Housing Finance Agency (FHFA), 206 Federal Reserve Bank, 85, 118 Federal Reserve Board, 407–408 Survey of Consumer Finances, 409 Federal Reserve Note, 85 Federal Student Aid, 126 Federal student loans, 125 Federal Trade Commission (FTC), 132, 147, 151–152, 155 Fees, 121, 315 FEMA (Federal Emergency Management Agency), 256 FICO (Fair Isaac Corporation) credit score, 142–145 activities that drive score, 146 amount owed, 146 applications for new credit, 146 by consumer age, 144 deriving the score, 144 length of credit history, 146 national distribution of, 145 payment history, 146 range, 145 score variables, 144–147 types of credit in use, 146 Fidelity, 316, 319, 341 Filing status, 228–229 head of household, 228 married filing jointly, 228 married filing separately, 228 qualified widow(er), 228 single, 228 Finance charges, 121 adjusted balance method, 121 average daily balance method, 121 minimum finance charge, 121 Finance companies, 114–115 Financial calculator, 93 Financial crisis of 2008, 61 Financial independence, 6–12 assessing methods for achievement, 6–8 augmenting income for, 8–9 controlling timeline to, downshifting to, paths to, 8–10 INDEX 465 www.downloadslide.net Financial institutions, 71–75 commercial banks, 71–72 convenience, 73 costs, 74–75 credit unions, 72 insured savings, 72–73 minimum balance, 74 overdraft fees, 75 products and service, 73–74 savings institutions, 72 transaction costs, 74–75 Financial intermediaries, 70–71 Financial life stages, 10–12; see also specific stage aligning financial instruments with, 55–63 debt management, 157 dependent stage, 10–11 early family stage, 11 empty nest stage, 11 home ownership and, 175–176 independent stage, 11 retirement stage, 12 Financial literacy, Financial plan, 2–3, 10 foundation of, 2, 7, 12–13 goal setting, 13–16 mission statement, 12–13 relationship with money, 2–6 trade-offs of, value-driven planning, vision for future, 12 Financial reports and statements, 339–340 Financial trouble, 195–197 forewarnings of, 195–195 red-flag warnings, 197 stopping little leaks, 198–200 yellow-flag warnings, 196 529 plans or college savings plans, 55–57, 292–293 Five Cs of credit decision, 115–118 capacity, 116–117 capital, 118 character, 115–116 collateral, 117–118 conditions, 118 Fixed interest rate, 120 Fixed payments, 45 Fixed rate, 120 Fixed rate mortgage, 60 Fixed-rate/fixed-term equity loan, 185 Fixed-rate/fixed-term mortgage, 178 Flipping, 382 Flipping real estate, 391–394 finding property, 393 fixing up and adding value, 393 flipping land, 394 reselling property, 393–394 ROI on flipping, 392 steps to success, 392–394 Flood insurance, 256 Flynn, Errol, 85, 141 Forbearance, 126, 209 Forbes, 283 Forbes, Malcolm, 413 Ford Federal Direct Student Loans, 125 Ford Motor Credit, 115 Foreclosure, 60, 173, 206–211 avoiding of, 206 long-term solutions, 209 mortgage problems, 206–208 466 INDEX pre-foreclosure process, 210 process of, 210–211 reinstatement, 208 selling a home, 209–210 short sale, 210 temporary solutions to, 208–209 Foreclosure sales, 393 Foreign stock exchanges, 330 Forever 21, 328 Form 1040, 232 Form 1040A, 232 Form 1040EZ, 231–232 Form 1099, 229 401(k) plan, 8, 60, 243, 292, 402 Francis, Brendon, 400 Frank, Robert, 14 Franklin, Benjamin, 2, 32, 56, 85, 146, 149, 195, 223, 282, 410, 425, 430 Freddie Mac, 179 Free application for federal student aid (FAFSA), 124–125 Free checking, 68–69 Front-end load, 315 Frugality, 4, 9, 425–426 FTSE (Financial Times Stock Exchange), 330 Full coverage, 253 Full-service brokerage houses, 341 Fund manager, 302 Future value (FV), 91 financial calculator method, 93 long-hand method, 91 of lump sum, 91–94 reference table method, 92 Future value of an annuity (FVA), 95–98 financial calculator method, 97–98 long-hand method, 96 reference table method, 97 Future value interest factor (FVIF), 92 Future value interest factor of an annuity (FVIFA), 96–97 Futures, 61 G GasBuddy, 167 Gates, Bill, General Motors, 118 General Motors Acceptance Corporation (GMAC), 115 Gift taxes, 224 GiveAShare.com Glickman, Louis J., 380 Global funds, 308 Global Positioning System (GPS), 131 Go app, 254 Goal setting, 13–16, 426 Goldbart, Stephen, 14 Good faith estimate, 182 Good-til-canceled (GTC) order, 343 Goodwill, 414 Google, 328 Google Finance, 310 Google Wallet, 153 GotIt!, 129 Government bonds, 361 Government health care plans, 261 Grace periods, 120 Gross income, 229 Growth stocks, 336 H Hale, Sarah J., 175 Haliburton, Thomas Chandler, 199 Hallmark Cards, 328 Harvard University, 124 Havner, Vance, 20 Head of household, 228 Health Affairs, 251 Health care premiums, 260 Health insurance, 259–264 basics of, 259–260 COBRA, 262–263 coinsurance, 260 considerations in selecting, 263 government health care plans, 261–262 lowering costs of, 263–264 managed care plans, 261 options for, 261 terms and costs, 259–260 types of plans, 262 Health maintenance organization (HMO), 261 Health savings accounts, 242 Hertzburg, Frederick, 18 Hesiod, 301 High-yield (junk) bonds, 362, 370 Holiday club accounts, 46 Holmes, Oliver Wendell, 391 Home equity, 60 Home equity line of credit (HELOC), 60, 63, 186 Home equity loans, 184–187 balloon-payment loan, 185–186 comparison shopping, 186 disadvantages of second mortgage, 186–187 fixed-rate/fixed-term loan, 185 home equity line of credit (HELOC), 60, 63, 186 types of, 185–186 Home equity loans and lines of credit, 60, 186 Home inventory, 257 Home ownership, 173–176; see also Buying a home advantages/disadvantages of, 175 increase in equity, 174 life stages and, 175–176 personal ownership, 174–175 refinancing, 184 rent vs buy, 173–175 tax advantages, 174 Homeowners associations, 177 Homeowner’s insurance, 256–258 basics of, 256 home inventory, 257 liability insurance, 257–258 lowering cost of, 258 personal property, 257–258 umbrella liability insurance, 258 Hope, Bob, 72 Horwitz, J., 17 “How to Pay for Your Vacation Getaway” (Martin), 383 Howard, Sidney, 172 Hubbard, Kin, 17, 290 Huffington Post, 127 www.downloadslide.net I Ibotta, 41 Ibsen, Henrik, 428 Identity theft, 152–156 defined, 152–153 protection/safeguards, 119 safeguarding against, 153–154 steps for victims, 155–156 strategies to protect against, 153–155 victims of, 155–156 Identity theft report, 156 Identity theft safeguard, 119 Inactive account fee, 75 Incentive stock options (ISOs), 238 Income, 45 Income augmentation, Independent life stage, 11, 57–68 auto loans, 58 checking accounts, 57 credit cards, 59 debt management, 157 electronic banking and bill payment services, 57–58 financial instruments for, 57–59 individual retirement arrangements, 58–59 life insurance, 271 portfolio evaluation and, 291 retirement planning and, 407 stocks and, 346 student loans, 58 Index market funds, 305 Indirect tax, 223 Individual retirement accounts (IRAs), 58–59, 403 annuities, 404 Roth IRAs, 58–59, 403 spousal IRAs, 404 traditional IRAs, 58–59, 403 Inflation, 282 impact on savings, 282–283 Inflation risk, 285–286, 369 Inheritance tax, 411 Initial public offering (IPO), 302, 328 Institutional share class, 317 Insurance; see also Auto insurance; Health insurance auto insurance, 170, 252–255 basics of, 251–252 disability and long-term care, 264–267 filing a claim, 258 health insurance, 259–264 home ownership, 177 homeowner’s and renter’s insurance, 256–258 importance of, 251–252 knowing policy terms, 252 landlording, 386 life insurance, 268–272 reassessment of, 428 selecting a company for, 252 Insurance plan, Insurance Research Council, 255 Insurance rider, 257 Insured savings, 72–73 Interest compounding of, 85–87 simple interest, 86 Interest-bearing checking, 68–69 Interest-free loans, 119 Interest-only loans, 182 “Interest-Only Loans Set the Bar High” (Martin), 182 Interest rate risk, 284–286, 369 Interest rate spread, 115 Interest rate(s) basics of, 112 credit cards, 120 default interest rates, 128 risk and, 118–119 Intermediate goals, 14–15 Internal Revenue Code, 415 Section 529, 56 Internal Revenue Service (IRS), 7, 59, 225, 229, 384 International funds, 308 Intestate, 410 Investment account, 8–9 Investment clubs, 344–345 Investment Company Institute, 304 Investment plan, Investment pyramid, 287–289 high-risk, high-potential return, 289 intermediate-risk, intermediate-return, 288–289 low-risk, low-return, 288 no-risk, known-return, 288 Investment strategies, mutual funds, 318–319 Investment(s), 61, 283 for passive income, 9–10 reassessment of, 428 risk and return, 284–287 savings vs., 282–284 timing income from, 242 IRAs, see Individual retirement accounts (IRAs) Irrevocable trusts, 412 Isaac, Earl, 144 Itemized deductions, 229, 239–240 J Jacobs, Sheldon, 307 J.D Power and Associates, 170 Jefferson, Thomas, 185 JPMorgan Chase, 72 Junk bonds, 362, 370 K Kelley Blue Book, 170–171 Knauerhase, Rob, 230 Kopchik, Jeff, 71 L Landlording, 385–387 advertising, 386 budgeting expenses, 386 communication, 387 dispute resolution, 387 home checklist, 387 insurance, 386 maintenance and repairs, 386 rules for tenants, 387 tenant screening, 385–386 written terms, 387 Lapham, Lewis H., 241 Larson, Doug, 177 Lauricella, Tom, 103 Lease, 380 Leases for automobiles, 168 leasing vs buying, 169–170 Lefèvre, Edwin, 307 Lehman bankruptcy, 313 Letter of intent, 410 Leverage, 392 Levi Strauss & Co., 328 Liability, 10, 36 Liability auto insurance, 253 Liability insurance, 253, 257–258 Liberty Mutual, 254 Life insurance, 268–272, 279 cash value of, 35 comparison of, 270 dependent life stage, 270 early family life stage, 271 empty nest life stage, 271 face value, 35 independent life stage, 271 lowering costs of, 272 personal finance life stages, 269–271 recommended amount of, 269 retirement life stage, 271 types of, 268–269 Life stages, 10–12; see also Financial life stages aligning financial instruments with, 55–63 dependent life stage, 55–56, 270 early family life stage, 59–61, 271 empty nest life stage, 61, 271 home ownership and, 175–176 independent life stage, 57–59, 271 portfolio evaluation and, 291–294 retirement life stage, 61–63, 271 retirement planning and, 407–509 stock ownership, 345–347 Lifetime gifting, 415 Lifetime giving, 415 Lifetime Learning credit, 243–244 Limited liability company (LLC), 387–389 Limited order, 342 Liquidation, 211 Liquidity, 34–35 mutual funds, 312 Liquidity risk, 287, 369 Livermore, Jesse, 348 Living will, 265, 413 Load share classes, 317 Loan modifications, 209 Loan payments, calculation of, 101–104 Loan-to-value (LTV) ratio, 178 Loans; see also Student loans interest-only loans, 182 payday loans, 130–131 title loans, 131–132 Locke, John, 427 Long-term capital gain, 238 Long-term care insurance, 266–267 lowering costs of, 267 Long-term goals, 14–15 Loss payee, 253 Lowe’s, 114 Lubbock, John, 30, 49 Lump sum, 91 Lyubomirsky, Sonja, 17 INDEX 467 www.downloadslide.net M Macy’s, 114 MAD Magazine, 118 Madoff, Bernie, Managed care plans, 261 Manufacturer Suggested Retail Price (MSRP), 169 Margin loan, 118 Marginal dollar of income, 235 Marginal income tax rates, 234–235, 237 Market makers, 330 Market order, 342 Market risk, 285 Married filed jointly, 228, 239 Married filing separately, 228 Martin, Anya, 182, 383 Marx, Julius Henry “Groucho,” 295 Mason, Jackie, 409 MasterCard, 68, 113, 119 Maturity, 356 Means test, 212 Medigap policies, 262 Merrill Lynch, 341 Minimum balance, 74 Minimum finance charge, 121 Mint Personal Finance, 37, 47 Mission statement, 12–15 Mobile payments, 71, 153 Modified adjusted gross income (MAGI), 259 Money; see also Time value of money allocations, 5–6 career and happiness, 17–19 personal relationships with, 2–6 stress and, 5, 46 time value of, 88 value and, 85 value identification and, 4–6 Money market mutual funds, 307–308 Money order/cashier checks, 75 Money personality, 2–4 Money relationship quiz, Morgan Stanley, 346 Morningstar, 306, 310, 313 Morningstar style box, 318–319 Mortgage(s), 60, 173 addressing mortgage problems, 206–208 adjustable-rate mortgages (ARMs), 178–179 affordable monthly payments, 178 balloon-payment mortgages, 180 fixed-rate/fixed-term mortgages, 178 forbearance, 126, 209 loan modifications, 209 mortgage shopping worksheet, 183 refinance break-even worksheet, 184 reinstatement, 208 summary of types, 181 Mortgage crisis of 2008, 182 Mortgage interest credit, 240 Mortgage loans, 60 Mortgage payments, 178 Mortgage REIT, 389 Motivation to Work, The (Hertzburg), 18 Motley Fool website, 229 MSN Money, 310 Multiple Listing Service (MLS), 177, 393 Municipal bonds, 241, 360–362 Mutual funds, 302, 308–312 actively managed funds, 305 468 INDEX automatic investment, 310–311 back-end load, 315 balanced funds, 308 benefits and risks of, 308–312 bond funds, 306–307 capital gains reinvestment, 311 characteristics of investors, 304 choosing and buying of, 318–320 commissions, 316 cost basis of, 312 costs and fees of, 303, 313, 315 diversification and, 308–309 dividends and, 311 ease of recordkeeping, 312 ease of researching, 310 ease of understanding, 309 equity mutual funds, 305–306 exchange-traded funds (ETFs), 305 front-end load, 315 global and international funds, 308 history of, 302–303 index market funds, 305 investment strategies, 318–319 liquidity of, 312 load share classes, 317 low initial investment, 310 money market funds, 307–308 no-load share classes, 317 price of, 313 professional fund manager, 308 regulation of, 303 risks and, 313 sector funds, 308 share classes, 316–317 types of, 304–305 variety of, 309 where to buy, 319–320 Mvelopes, 196 N NASDAQ, 330 National Association of Insurance Commissioners (NAIC), 252 National Association of Real Estate Investment Trusts, 390 National Auto Dealers Association (NADA), 170–171 National Credit Union Association (NCUA), 72, 282 National Credit Union Share Insurance Fund (NCUSIF), 72 National Federation for Credit Counseling (NFCC), 204 National Flood Insurance Program, 257 National Foundation of Credit Counseling, 149 NCUA (National Credit Union Association), 72, 282 Necessary vs nonessential spending, 198 Negotiable instrument, 57, 64 Nerdwallet.com, 112 Net asset value (NAV), 303, 312 Net cash flow, 37 Net worth, 36 Net worth statement, 34–35 Network, 261 New cars, 168 New York Times, 43, 156, 175 Nightingale, Earl, 21 Nikkei Stock Average, 330 90-10 rule, No-Load Fund Investor, The (Jacobs), 307 No-load mutual fund, 303 No-load share classes, 317 Nonrefundable credits, 230 NWS (News Corporation), 337 NYSE MKT, 330 O Obama, Barack, 127 Occupational Outlook Handbook (U.S Bureau of Labor Statistics), 18 Odd lot, 342 Odean, T., 346 Online bill paying, 58, 70 Online insurance calculators, 269 Open-end mutual fund, 302 Open outcry, 330 Oppenheimer, 319 Opportunity cost, 38–40 Options, 61 Ordinary annuity, 96 Out-of-pocket expense, 259 Overdraft fees, 75 Overdraft protection, 69–70 Over-the-counter (OTC) market, 330 P Par, 357 Partial claim, 209 Partnership, 387–388 Passive income, investing for, 9–10 rental property, 384 Pay As You Earn (PAYE), 127 Pay As You Earn (PAYE) loan forgiveness, 127 Pay yourself first, 41, 89 Payday loans, 130–132 calculating cost of, 131 Payment history, 142 PayPal, 70 PCP (primary care physician), 261 Penn, Jack, 208 Penny stocks, 330 Pension plans, 242 Perkins Loans, 124–125 Perma-debt, 140 Permanent life insurance, 268 Person of record, 311 Personal cash flow statement, 36–38 Personal finance life stages, 10 Personal financial management, 424–429 balance in, 424–425 reassessments, 427–428 sustainability, 425–426 Personal financial plan, 10 Personal financial statements, 34–38 assets, 34–36 liabilities, 36 net worth, 36 Personal financial success, 6–7 Personal life stages, stocks and, 345–347 Personal mission statement, 12–15 Personal net worth statement, 35 Personal property insurance, 257–258 www.downloadslide.net Personal relationship with money, 2–6 identifying values, 4–6 understanding of, 2–4 Personal values, Pew Charitable Trusts, 130–131 Phishing, 152 Pink sheets, 330 PLUS loans (Parent Loan for Undergraduate Students), 125 Point-of-service (POS) plan, 261 Points, 180 Pomplum, Kevin, 254 Porat, Ruth, 346 Portfolio, 289 Portfolio evaluation, 290–294 early family life stage, 291–293 empty nest life stage, 293–294 independent life stage, 291 life stages and, 291–294 maintaining balance, 290–291 retirement life stage, 294 Power of attorney, 265, 413 Pre-foreclosure process, 210 Predatory lending, 131–132 Preferred provider organization (PPO), 261 Preferred stock, 329 Prelec, Drazen, 201 Premium, 251, 259, 357 Premium bond, 357 Prepaid tuition plan, 56 Present value (PV), 91 financial calculator method, 95 long-hand method, 94 of lump sum, 94–95 reference table method, 94–95 Present value of an annuity (PVA), 99–101 financial calculator method, 101 long-hand method, 99–100 reference table method, 100–101 Present value interest factor (PVIF), 95 Present value interest factor of an annuity (PVIFA), 100–101 Price, 334 Price-to-earnings (P/E) ratio, 336–338 Price-to-earnings valuation process, 336 Private banker, 72–73 Private car sales, 171 Private companies, 328 Private mortgage, 178 Private mortgage insurance (PMI), 178 Private sales of automobiles, 171 Private student loans, 125 Probate, 412–413 Probate sales, 393 Professional fund manager, 308 Progressive tax, 225 Promissory notes, 114 Property taxes, 224 Prospectus, 302 Public companies, 328 Public goods and services, 223 Purchase protection, 119 Put Money in Your Pocket (Jacobs), 307 Q Qualified widow(er) with dependent children, 228 Quicken, 47 Quinn, Jane Bryant, 284 R Ramsey, Dave, 206 Real estate, 380 Real estate broker, 177 Real estate investment(s); see also Rental property basics of, 380–383 flipping properties, 382, 391–394 measuring return on investment (ROI), 382–383 real estate investment trusts (REITs), 381, 389–391 rental property, 380–381 shared ownership, 387–389 types of, 380–283 Real estate investment trusts (REITs), 381, 389–391 avoiding scams, 391 how to invest in, 390–391 Real Estate Settlement Procedures Act (RESPA), 182 Real property, 60 Realistic budgeting, 44–45, 201–202 Realtor.com, 381 Refinance break-even worksheet, 184 Refundable credits, 230 Refundable/nonrefundable credits, 230 Regressive taxes, 223–224 Reinstatement, 208 Reinvestments, 242 Rent, 380 Rent vs buy, 173–175 Rent-to-own, 132–133 Rental car coverage, 119 Rental property, 380, 383–389; see also Landlording advantages of, 383–384 asset appreciation, 384 depreciation risk, 384 disadvantages of, 384–385 failure to receive rent payments, 384–385 landlording, 385–387 passive income, 384 rent vs buy, 173–175 tax advantages of, 384 temporary rentals, 389 unoccupied property, 385 Rental reimbursement, 255 Renter’s insurance, 257–258 Renting, 173 advantages/disadvantages of, 174 Repayment plan, 209 Reporting agencies, 141–142 Repossession of auto, 118 Repurchase agreements, 308 Repurposing, 426 Resale value, 177 Research, 339–341 Retirement life stage, 12 financial instruments for, 61–63 home ownership, 176 life insurance, 271 portfolio evaluation and, 294 retirement planning, 409 stocks and, 347 Retirement planning, 401–409 company savings plans, 402 early family life stage, 407 empty nest life stage, 407 late dependent/independent life stages, 407 life stages and, 407–409 reasons for savings, 401 retirement fund comparison, 405 retirement life stage, 409 Social Security, 406–407 Retirement savings contributions credit, 239–240 Return on investment (ROI), 382 on flipping, 392 measurement of, 382–383 rental property, 380–381 risk, 284–287 Reverse default swaps, 61 Reverse mortgage, 62–63 Revocable living trust, 412–413 Revolving lines of credit, 59, 114–115 Rewards, 119 Right-sizing, 61 Riney, Earl, 368 Risk analyzing risk tolerance, 287 bonds and, 368–369 call risk, 369 default or credit risk, 284, 369 depreciation risks, 384 inflation risk, 285, 369 interest rate risk, 284–285, 369 interest rates and, 118–119 of investing, 283–284 liquidity risk, 287, 369 market risk, 285 of mutual funds, 313 return and, 284–287 Risk premium, 284 Risk tolerance, 287 Roadside assistance, 255 Robin Hood tax, 225 Robin, Vicki, 4–5, 200 Rockefeller, John D., Jr., 14 Rogers, Will, 222 Roll over, 131 Roosevelt, Franklin D., 406 Rosten, Leo, 291 Roth 401(k) plans, 58–59, 402–404 Roth IRA, 291 Round lot, 342 Rukeyser, Louis, 341 Russell 2000, 305 S S corporation, 388 Sales tax, 224 Sallie Mae Student Loans, 126 Salvage value, 254 Samsung Pay, 153 Samuelson, Paul, 370 Savings, 282 allocations to budgeted buckets, 41–42 compound interest, 85–87 impact of inflation on, 282–283 investments vs., 282–284 pay yourself first, 41, 89 stopping leaks, 42–43 INDEX 469 www.downloadslide.net Savings—Cont sustainable consumption, 43 ways to save, 41–43 Savings accounts, 55 Savings bonds, 359 Savings institutions, 72 Savings and loan associations (S&Ls), 72 Scaling back, Schiavo, Terri, 265 Scottrade, 341 Sea World, 42 Second homes, 383 Second mortgage loans, 60 Sector funds, 308 Secured credit card, 113 Securities, 330 Securities Act of 1933, 303 Securities Exchange Act of 1934, 303 Securities and Exchange Commission (SEC), 303, 328, 339 Investment Company Act, 307 Self-directed investment clubs, 344 Seriously delinquent loans, 206 Service records, 170 Shakespeare, William, 40 Shapiro, A., 201 Share draft account, 63–64 Share price, 303 Shared ownership, 387–389 Shares, 302 Shaw, George Bernard, 272 Short sale, 210 Short-sell order, 343 Short-term capital gain, 238 Short-term goals, 14–15 Short-term insurance policies, 268 Signature loans, 113 Simester, Duncan, 201 Simple interest, 86–87 Simplified employee pension (SEP) plans, 403 Single filing status, 228 Six Flags, 42 Skimming, 155 Sloan School of Management, 201 SMART goal, 16 Smartphone payments, 71 Smoothing an expense, 46 Social Security, 266, 406 Sowell, Thomas, 254 Specialist/market maker, 330 Specialized mutual funds, 308 Spending goals, Spending habits analysis of, 31–32 budgeted buckets, 41–42 keeping a journal, 33–34 necessary vs nonessential, 198 opportunity costs and, 38–40 pay yourself first, 4, 89 personal financial statements, 34–38 realistic budgeting, 44–47 stopping leaks/adjustments, 42–43, 198–200 sustainable consumption, 43 Spending journal, 33–34 Spousal IRA, 404 SR-22 liability insurance, 255 STA Travel, 45 Stafford Loans, 124–25 470 INDEX Standard & Poor’s 500 (S&P 500), 305, 319, 332 State Children’s Health Insurance Program (SCHIP), 262 State Farm, 254 Statutory prospectus, 318 summary prospectus, 318 Stock(s), 302, 328, 346 basics of, 328–330 buying directly, 345 buying and selling, 341–347 buying single shares, 345 common stock, 329 dependent life stage, 346 direct stock-purchase plans, 345 dividend reinvestment plans (DRIPs), 345 early family life stage, 346 empty nest life stage, 346–347 independent life stage, 346 investment clubs, 344–345 mechanics of trading, 342 personal life stages and, 345–347 preferred stock, 329 private and public companies, 328–329 retirement life stage, 347 types of, 329 types of brokers, 341–342 types of trades, 342–344 Stock dividend, 335 Stock evaluation, 331–338 company evaluation, 339–341 comparison of indexes, 332–334 dividend yield, 335–336 dividends, 334–335 expectations, 331 market and indexes, 331–332 price, 334 price-to-earnings (P/E) ratio, 336–338 stock quotes, 334–339 Stock exchanges, 329–330 foreign stock exchanges, 330 NASDAQ, 330 New York Stock Exchange (NYSE), 330 NYSE MKT, 330 over-the-counter (OTC) market, 330 Stock market, 302 Stock quotes, 334–339 Stop order, 342 Stop payment fee, 75 Stop price, 342 Store credit cards, 114 Stress management, 5, 46 Student debt, 198 Student loans, 58, 124–130 alternate payment options, 126 amortization tables, 128–129 calculating payments, 126–128 consolidation and refinancing, 126 default interest rates, 128 deferment, 126 Federal loans, 125 forbearance, 126 loans to parents, 125 pay as you earn (PAYE) loan forgiveness, 127 payment example, 128–129 private loans, 125 repaying loans, 125 shopping for, 126 subsidized vs unsubsidized, 125 Sublease, 173 Subprime mortgages, 285 Summary prospectus, 318 Sustainable consumption, 43 Syrus, Publilius, 165 T Target, 114 Targeted mutual funds, 289–290 Tax audits, 234–235 Tax Counseling for the Elderly (TCE), 233 Tax credits, 230, 242–244 earned income tax credit, 244 education deductions/credits, 243–244 family values credits, 243 other credits, 244 refundable/nonrefundable, 230 tax deduction vs., 242 Tax deductions vs credit, 242 Tax-deferred, 59, 241 Tax-deferred contribution, 59 Tax filing, 228–234 basics of, 228–230 filing status, 228–229 gross income, 229 Tax forms electronic and professional filing, 232–233 use of, 230–234 Tax liabilities exemptions and deductions, 239 fulfilling of, 225 itemizing, 239–240 mortgage interest credit, 240 retirement savings contributions credit, 239–240 strategies to minimize, 238–244 Tax preparer, 233 Tax rates, 235–238 alternative minimum tax (AMT), 236–237 average tax rate, 235 capital gains, 237–238 marginal income tax rates, 234–235, 237 Taxable income, 230 lowering of, 240–242 TaxAct, 233 TaxCut, 233 Taxes, 223 adjusted gross income, 229 bonds and, 368 charitable giving, 414 deductions, 229–230 estate and inheritance taxes, 410–412 exemptions, 230 filing taxes, 229–234 fulfilling liabilities, 224 gross income, 229 home ownership, 177 progressive/regressive taxes, 223–225 rental property, 384 types of, 223–228 using tax forms, 230–234 W-4 form, 225–227 TD Ameritrade, 341 Teaser rates, 74, 285 Teller fees, 75 Temporary rentals, 389 10K report, 339 www.downloadslide.net Tenant rules, 387 Tenant screening, 385–386 Term life insurance, 268 TerraCycle, 42 Test drive of auto, 170–171 Testate, 410 Time deposits, 56 Time value of money, 88, 91–104 Times interest earned ratio, 340 Title loans, 131–132 Todd, Mike, 271 Toyota Motor Credit, 115 Trade-ins, 171 Trades, types of, 342–344 Traditional IRAs, 58–59, 403 Trailing-stop order, 344 Transaction costs, 74–75 TransUnion, 141 Treasury bonds, bills, notes, and TIPS, 359 Treasury Department, 225 Trustee, 412 Trustor, 412 Trusts, 412 Truth-in-Lending Act, 122 Truth-in-Savings Act, 87 Tugend, Alina, 43 Turbo Tax, 232–233 Turnover rate, 313 Twain, Mark, 336 12b-1 fee, 303 TWX (Time Warner), 337, 339 U Umbrella liability insurance, 258 Unearned income, 7, 229 Uniform Commercial Code, 64 U.S Bureau of Labor Statistics, 18, 40 U.S Department of Education, 125, 129 U.S Department of Homeland Security, 223 U.S Department of Housing and Urban Development (HUD), 387 U.S Living Will registry, 266 United States Mint, 85 U.S savings bonds, 359 Universal life insurance, 269 University of Iowa Community Credit Union, 72 Unoccupied property, 385 Unsecured credit card, 113 Upcycling, 42 Used cars, 168 Usury laws, 131 Utility companies, 41 V Value Line, 310 Value stocks, 336 Vanguard 500 Index Fund Investor Shares (VFINX), 313 Vanguard Group, 75, 316, 319 VantageScore Solutions, 151 Variable interest rates, 120 Variable monthly expenses, 45 Vaughan, Bill, 423 Vehicle identification number (VIN), 170, 252 Vested, 402 Visa, 68, 113, 119 Voluntary simplicity, 4, 200 Volunteer Income Tax Assistance (VITA) program, 233 Wall Street Journal, The, 14, 103, 263, 310, 313, 332–333, 337–338, 383 Walt Disney Company (DIS), 333–335 Weighted-average maturity (WAM), 307 Wells Fargo, 72 Wells Fargo Securities, 341 Whole life insurance, 269 Wills, 409–410 Wilson, Earl, 142 Withholdings, 225–227 Workers’ compensation, 266 Y Yahoo Finance, 310, 333 Yield, 365 annual percentage yield (APY), 86–87, 89 Yield to call, 365 Yield to maturity, 365 YNAB (You Need A Budget) app, 203 Youngman, Henny, 84 Your Money or Your Life (Dominguez and Robin), 4–5, 200 Z Zero percent deals, 122 Zuckerberg, Mark, W W-2 form, 229 W-4 form, 225–227 Wage earner bankruptcy, 212 INDEX 471 ... and Insurance Second Edition personal finance Building Your Future Robert B Walker University of Iowa Kristy P Walker University of Iowa personal finance building your future SENIOR VICE PRESIDENT,... Dlabay, Hughes, and Hart Personal Finance Eleventh Edition Rose and Marquis Financial Institutions and Markets Eleventh Edition Walker and Walker Personal Finance: Building Your Future Second Edition... concepts of personal financeinbyWorksheet reading 1.5 tofeature alreadyEach have identified as yourAcvalues and yourtheir personal mission statement align personal goals with their finances the