2. An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott School

3. Benjamin Franklin Money can help you to get medicines but not health. Money can help you to get soft pillows, but not sound sleep. Money can help you to get material comforts, but not eternal bliss. Money can help you to get ornaments, but not beauty. Money will help you to get an electric earphone, but not natural hearing. Attain the supreme wealth, wisdom, and you will have everything. Source: www.quotedb.com/quotes/1016

4. A Perspective on Money I am satisfied that money is the root of more trouble in marriage than all other causes combined.” “ I am satisfied that money is the root of more trouble in marriage than all other causes combined.” “There would be fewer rash decisions, fewer unwise investments, fewer consequent losses, fewer bankruptcies if husbands and wives would counsel together on such matters and unitedly seek counsel from each other” Gordon B. Hinckley, Cornerstones of a Happy Home [pamphlet, 1984] Gordon B. Hinckley, Cornerstones of a Happy Home [pamphlet, 1984]

5. The Richest Man In Babylon 1.Start thy purse to fattening 2.Control thy expenditure 3.Make thy gold multiply 4.Guard thy treasures from loss 5.Make of thy dwelling a profitable investment 6.Insure a future income 7.Increase thy ability to earn George S. Clason

6. Health Insurance Health Insurance Life Insurance Life Insurance Wills and Trusts Wills and Trusts Other Insurance Other Insurance Rainy Day Fund Rainy Day Fund (Safe, liquid) (Safe, liquid) Tax-advantaged Retirement Fund Tax-advantaged Retirement Fund Other Investments Other Investments ( Index Funds) ( Index Funds) Self-Sufficiency Happiness Attitude Garbage : Consumer Debt Consumer Debt Gambling Derivatives Identity Theft Identity Theft Budget/Plan Taxes Home Buying Home Buying

7. Priorities While Balancing the Budget (behavior, relationships, values, human capital): 1.Manage the Misfortune (basic life, health, disability, auto, and home insurance), 2.Discharge the Debt (credit cards, bondage, FICO), 3.Anticipate the Adversity (rainy-day fund, will), 4.Snatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), 5.Fund the Favored (IRA, Roth IRA, 529, Annuities), 6.Stuff the Savings (diversify across assets and time), But Possess a Purpose and Preserve a Perspective

8. Money and Happiness Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of its filling a vacuum, it makes one. If it satisfies one want, it doubles and trebles that want another way. That was a true proverb of the wise man, rely upon it; "Better is little with the fear of the Lord, than great treasure, and trouble therewith.” - Benjamin Franklin Source: www.quotedb.com/quotes/463

9. Money and Happiness The conviction of the rich that the poor are happier is no more foolish than the conviction of the poor that the rich are. - Mark Twain Source: www.quotedb.com/quotes/1981

10. Money and Happiness Because gratification of a desire leads to the temporary stilling of the mind and the experience of the peaceful, joyful Self, it's no wonder that we get hooked on thinking that happiness comes from the satisfaction of desires. This is the meaning of the old adage, “Joy is not in things, it is in us.” - Joan Borysenko (a medical scientist and psychologist) Source: www.quoteland.com/author.asp?AUTHOR_ID=228

11. Money and Happiness

12. Old Definition: “Did you make the nails?” New Definition: “I teach them to contribute more than they consume.” Self-Sufficiency

13. Self-Sufficiency Human Capital Marketable skillsMarketable skills Invest in yourselfInvest in yourself Financial Capital Marketable assetsMarketable assets Invest in securitiesInvest in securities

14. Self-Sufficiency I think that much of the advice given to young men about saving money is wrong. I never saved a cent until I was forty years old. I invested in myself - in study, in mastering my tools, in preparation. Many a man who is putting a few dollars a week into the bank would do much better to put it into himself. - Henry Ford Source: www.quotedb.com/quotes/2899

15. Self-Sufficiency

16. Note: Data are 2007 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers. For updates go to: http://stats.bls.gov/emp/emptab7.htm Self-Sufficiency

17. Self-Sufficiency “Be like JoLene.” “But be like Grant, too.”

18. Self-Sufficiency—Human Capital “In times of change, learners inherit the earth while the learned find themselves beautifully equipped to work in a world that no longer exists.” Eric Hoffer

19. “Self-reliance, the height and perfection of man, is the reliance on God.” Ralph Waldo Emerson Self-Sufficiency

20. Attitude “Our attitude towards what has happened to us in life is the important thing to recognize. Once hopeless, my life is not hope-full, but it did not happen overnight. The last of human freedoms, to choose one's attitude in any given set of circumstances, is to choose one's own way.” “The last of the human freedoms is to choose one's attitudes.” -Victor Frankl Source: www.quoteland.com/author.asp?AUTHOR_ID=239

21. Money and Attitude Money can help you to get medicines but not health. Money can help you to get soft pillows, but not sound sleep. Money can help you to get material comforts, but not eternal bliss. Money can help you to get ornaments, but not beauty. Money will help you to get an electric earphone, but not natural hearing. Attain the supreme wealth, wisdom, and you will have everything. - Benjamin Franklin Source: www.quotedb.com/quotes/1016

22. Attitude “Now when Jesus heard these things, he said unto him, Yet thou lackest one thing: sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me. “And when he heard this, he was very sorrowful: for he was rich.” Luke 18:22-23

23. Money and Attitude A wise man should have money in his head, but not in his heart. - Jonathan Swift

24. Money and Attitude He is richest who is content with the least. - Socrates Source: www. quotedb.com/quotes/1582

25. Health Insurance Health Insurance Life Insurance Life Insurance Wills and Trusts Wills and Trusts Other Insurance Other Insurance Rainy Day Fund Rainy Day Fund (Safe, liquid) (Safe, liquid) Tax-advantaged Retirement Fund Tax-advantaged Retirement Fund Other Investments Other Investments ( Index Funds) ( Index Funds) Self-Sufficiency Happiness Attitude Garbage : Consumer Debt Consumer Debt Gambling Derivatives Identity Theft Identity Theft Budget/Plan Taxes Home Buying Home Buying

26. Inappropriate Debt Consumer GoodsConsumer Goods VacationsVacations Expensive CarsExpensive Cars Credit Card DebtCredit Card Debt

27. Self-Test: Do I have too Much Debt? Can I pay off my credit card balance completely each month?Can I pay off my credit card balance completely each month? Do I skip some bills to pay others?Do I skip some bills to pay others? If I lost my job today, do I have enough in liquid assets to pay living expenses for at least three months?If I lost my job today, do I have enough in liquid assets to pay living expenses for at least three months? Do my spouse and I often argue about money?Do my spouse and I often argue about money? Do I receive calls from creditors about overdue bills?Do I receive calls from creditors about overdue bills? Have I postponed medical or dental appointments because I can’t afford them right now?Have I postponed medical or dental appointments because I can’t afford them right now? Am I using an increasing percentage of my monthly income to pay off debts?Am I using an increasing percentage of my monthly income to pay off debts?

28. Sometimes we find ourselves in a financial pit By Patty Slade

29. We have to stop digging By Patty Slade

30. Mr. Ashton’s Debt Elimination Calendar May start with debt with highest interest rate or earliest payoff Currently owe minimums of $60, $70, $50, $75, and $235 Save and pay an extra $50 per month

31. Reducing Unproductive Debt Plastic surgeryPlastic surgery Reduce spendingReduce spending Use assets to pay off debtUse assets to pay off debt Reduce interest rateReduce interest rate –Consider a home equity loan –Use another lower cost source of borrowing Make a plan -- stick to itMake a plan -- stick to it Talk to a reputable credit counselor if neededTalk to a reputable credit counselor if needed

32. Credit Counseling Services National Foundation for Consumer CreditNational Foundation for Consumer Credit American Consumer Credit CounselingAmerican Consumer Credit Counseling American Debt Management ServicesAmerican Debt Management Services Debt Counselors of AmericaDebt Counselors of America

33. Q: How Many Payments?

34. A: With 21% APR, 103.2 payments or 8.6 years Stereo $999.74 Interest$1,167.56 Total$2,167.30

35. Reducing Your Balance

36. J. Reuben Clark on Interest (1938) Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours;... it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

37. Annual feeAnnual fee Over-limit feeOver-limit fee Late payment feeLate payment fee Cash advance feeCash advance fee Finance chargesFinance charges –About ¼ of credit cards don’t have grace period –If you don’t completely pay off previous month’s balance, the grace period doesn’t apply (the balance could be one penny) What are the Costs?

38. What Rate are the Paying? RC Willey Sears Old Navy Mervyns Dillards JC Penney Meier and Frank 21.00% 24.15% 19.80% 22.30% 24.15% 21.00% 21.60% Home Equity Loan Home Equity Line of Credit Visa Platinum Visa Gold 6.5% 7.0% 8.0% 12.25% Survey conducted on Dec. 13, 2005, rates on right column are from Utah Community Credit Union

39. Be careful where you borrow! Be careful where you borrow! Finance companiesFinance companies Credit cardsCredit cards BanksBanks Credit unionsCredit unions SavingsSavings

40. Credit Cards Interesting Tidbits An American typically carries from one to three credit cards, and owes $9,000.An American typically carries from one to three credit cards, and owes $9,000. An average household has eight credit cards.An average household has eight credit cards. Only 35% of cardholders pay off the total balance each month.Only 35% of cardholders pay off the total balance each month. Twenty-five percent of college students owe more than $10,000 on their cards.Twenty-five percent of college students owe more than $10,000 on their cards. 20 % of credit cards are maxed out.20 % of credit cards are maxed out. Seewww.cardweb.com See www.cardweb.comwww.cardweb.com

41. Credit Reports Three major credit reporting agencies (check all 3)Three major credit reporting agencies (check all 3) –Experian—www.experian.com (888-397-3742) –Equifax—www.equifax.com (800-685-1111) –TransUnion—www.transunion.com (800-916-8800) Almost ½ contain inaccurate infoAlmost ½ contain inaccurate info Free copy of report if denied creditFree copy of report if denied credit Dispute inaccuracies by requesting investigation (Agencies have 30 days to respond)Dispute inaccuracies by requesting investigation (Agencies have 30 days to respond) May file statement presenting your point-of-view (100 words)May file statement presenting your point-of-view (100 words) Fair Credit Act 1996 allows consumer law suitsFair Credit Act 1996 allows consumer law suits

42. Credit Reports, Continued Bankruptcy remains for 10 years, other negative information for 7 yearsBankruptcy remains for 10 years, other negative information for 7 years Pay off credit cards before closing accountPay off credit cards before closing account Be careful about retail store discount promotionsBe careful about retail store discount promotions Risk scoringRisk scoring Limit inquiriesLimit inquiries Credit repair services often encourage illegal activitiesCredit repair services often encourage illegal activities

43. Credit Reports, Continued Free Credit ReportFree Credit Report – www.AnnualCreditReport.com www.AnnualCreditReport.com –877-322-8228 Cheap FICO scoreCheap FICO score –myfico.com myfico.com Opt outOpt out –1-888-5OP-TOUT or 1-888-382-1222 Do Not CallDo Not Call –www.donotcall.gov www.donotcall.gov

44. Credit Reports, Continued FICO score (between 300 and 850, 725 average)FICO score (between 300 and 850, 725 average) Factors that determine risk score:Factors that determine risk score: –Payment History—What is your track record? –Amounts Owed—How much is too much? –Length of Credit History—How established is your? –New Credit—Are you taking on more debt? –Types of Credit Used—Do you have a healthy mix? Limit authorized inquires (prescreen by creditors has no impact)Limit authorized inquires (prescreen by creditors has no impact)

45. Gambling vs. Investing Investments: - positive expected return (stocks) or - eliminate or transfer existing risk (insurance) Gambling: - negative expected return or - creates a risk

46. Gambling vs. Investing Gambling makes a miserable investment, for example in roulette:Gambling makes a miserable investment, for example in roulette: –House has 5.26% edge –Statistical certainty: you will lose money over time Compare this to investing in stocks:Compare this to investing in stocks: –12.6% average return over last 50 years –High probability that you will earn money over time

48. Derivatives Examples: Options, futures, swapsExamples: Options, futures, swaps “Zero sum game”“Zero sum game” –Money-losing proposition over time Extremely volatileExtremely volatile Placing bets against the prosPlacing bets against the pros Appropriate use in hedgingAppropriate use in hedging

49. Derivatives Extremely complexExtremely complex Inappropriate for virtually all non-professional investorsInappropriate for virtually all non-professional investors Better idea: stick to what you knowBetter idea: stick to what you know Black-Scholes Options Pricing Model

50. Derivatives Different people understand different businesses. The important thing is to know which ones you do understand and when you’re operating within your circle of competence. Warren Buffett, Berkshire Hathaway Annual Meeting We view them as time bombs both for the parties that deal in them and the economic system... In our view... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. Warren Buffett, Chairman’s Letter, Berkshire Hathaway 2002 Annual Report

51. Hi, I’m Andrew L. Holmes...Hi, I’m Andrew Lee Holmes... I’m Andy! NO, I’m Andy! What the…Hey, I’m Andy! Believe me now! My name is Andy Holmes. Do not listen to this suit wearing man. He is a liar!! Want a second full- time Job? Get your identity stolen!!!

52. Identity theft occurs when someone uses: Your nameYour name AddressAddress Social Security number (SSN)Social Security number (SSN) Bank or credit card account numberBank or credit card account number Other identifying information without your knowledge to commit fraud or other crimesOther identifying information without your knowledge to commit fraud or other crimes A Word on Identity Theft: What is it?

53. How do they get your identity? From businessesFrom businesses - by stealing records or bribing an employee Rummage through trash, aka “dumpster diving”Rummage through trash, aka “dumpster diving” - including un-shredded pre-approved credit card apps!! Steal credit and debit card numbersSteal credit and debit card numbers - as your card is processed, aka “skimming” Pose at landlord or employer to obtain credit reportPose at landlord or employer to obtain credit report Pose as a legitimate business person or governmentPose as a legitimate business person or government official to obtain information (aka “Phishing”) official to obtain information (aka “Phishing”)

54. How do they get your identity? (cont.) Use personal information shared on the InternetUse personal information shared on the Internet - on unsecured sites Buy personal information from inside sourcesBuy personal information from inside sources Call credit card issuer, pretend to be you, and ask to change mailing address on accountsCall credit card issuer, pretend to be you, and ask to change mailing address on accounts Steal mail, then complete a change of addressSteal mail, then complete a change of address

55. …Then??? Establish phone or wireless service in your nameEstablish phone or wireless service in your name Open bank accounts in your name and write bad checksOpen bank accounts in your name and write bad checks Purchase vehicles by taking out auto loans in your namePurchase vehicles by taking out auto loans in your name Create counterfeit checks or authorize electronic transfers in your nameCreate counterfeit checks or authorize electronic transfers in your name File for bankruptcy in your name to avoid paying debts incurred in your name or to avoid evictionFile for bankruptcy in your name to avoid paying debts incurred in your name or to avoid eviction Get job or file fraudulent tax returns in your nameGet job or file fraudulent tax returns in your name

56. What should you do to prevent it? Protect your SSN (don’t carry SS card, don’t write it on checks)Protect your SSN (don’t carry SS card, don’t write it on checks) Minimize the number of credit card accounts openMinimize the number of credit card accounts open Check statements for unusual activity AnnualCreditReport.comCheck statements for unusual activity AnnualCreditReport.com Destroy, i.e. shred unwanted credit card offers before discarding themDestroy, i.e. shred unwanted credit card offers before discarding them Never give out personal information over the phone to someone you do not knowNever give out personal information over the phone to someone you do not know Have your mail stopped by the Post Office when leaving townHave your mail stopped by the Post Office when leaving town Use Passwords on Credit/Bank accounts (not obvious like birth date)Use Passwords on Credit/Bank accounts (not obvious like birth date) Never click on unsolicited e-mailsNever click on unsolicited e-mails

57. What if it happens to me? Contact the police and file reportContact the police and file report Call all your creditors (close tampered accounts)Call all your creditors (close tampered accounts) Call the Identity Theft Hotline 801-579-1400Call the Identity Theft Hotline 801-579-1400 Contact all major credit reporting agencies: TransUnion, Equifax, and Experian (place a “Fraud Alert”)Contact all major credit reporting agencies: TransUnion, Equifax, and Experian (place a “Fraud Alert”) Report theft to the Federal Trade Commission (www.ftc.gov/idtheft)Report theft to the Federal Trade Commission (www.ftc.gov/idtheft) State by State protection information is available: www.identity-theft-protection.com/states.htmState by State protection information is available: www.identity-theft-protection.com/states.htm www.identity-theft-protection.com/states.htm

58. Health Insurance Health Insurance Life Insurance Life Insurance Wills and Trusts Wills and Trusts Other Insurance Other Insurance Rainy Day Fund Rainy Day Fund (Safe, liquid) (Safe, liquid) Tax-advantaged Retirement Fund Tax-advantaged Retirement Fund Other Investments Other Investments ( Index Funds) ( Index Funds) Self-Sufficiency Happiness Attitude Garbage : Consumer Debt Consumer Debt Gambling Derivatives Identity Theft Identity Theft Budget/Plan Taxes Home Buying Home Buying

59. Rainy Day Fund “For age and want, save while you may; no morning sun lasts a whole day.” - Benjamin Franklin

60. Rainy Day Fund Insured but low interest rates Checking Account Savings Account and Money Market Deposit Acct. Certificates of Deposit Not insured and higher interest rates Money Market Mutual Funds -Treasury Bills -Certificates of Deposit -Commercial Paper

61. Rainy Day Fund—How Much? Salary Consideration The higher the salary, the bigger the rainy day fund (i.e., five month’s salary) Net Worth Consideration The higher your net worth, the smaller the rainy day fund (i.e., three month’s salary if you own stocks and bonds)

62. Rainy Day Fund A penny saved is a penny earned. - Benjamin Franklin Source: www.quotedb.com/quotes/977 A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain. - Robert Frost Source: www.quotedb.com/quotes/706

63. Retirement “Buying a lottery ticket every week doesn’t count as retirement planning.” Ric Edelman Ric Edelman

64. Prepare for Retirement Some Retirement Myths “I’ll live on Social Security benefits”“I’ll live on Social Security benefits” –SS will replace only 25% of your income “Someone else will take care of me”“Someone else will take care of me” “Better be safe and invest conservatively”“Better be safe and invest conservatively” “I can use my retirement“I can use my retirement funds for other things” funds for other things”

65. Sources of Retirement Money –Social Security 25% –Pensions21% –Real Assets13% –Financial Savings12% –TOTAL71%

66. Albert Einstein “Compound interest is the eighth wonder of the world.”

67. Start Early! AgeJackJill20$4,000$0 21$4,000$0 22$4,000$0 ::: 38$4,000$0 39$4,000$0 40$0$4,000 41$0$4,000 ::: 57$0$4,000 58$0$4,000 59$0$4,000 Amount Inv. $80,000$80,000 Value$1,541,270$229,100 $4,000 per year for 20 years

68. How Does This Work? Compound interest (interest on interest)Compound interest (interest on interest) Bill started earlier—compound interest has more time to work its miracleBill started earlier—compound interest has more time to work its miracle If the Manhattoes (who sold Manhattan to the Dutch West India company for trade goods worth $24) invest in an account in 1626 at 8% interest how much would the account have in it today? $24(1.08) 381If the Manhattoes (who sold Manhattan to the Dutch West India company for trade goods worth $24) invest in an account in 1626 at 8% interest how much would the account have in it today? $24(1.08) 381 $130,215,000,000,000 !!

69. How Much Will I Need in Retirement? Money Magazine Survey Estimates: 53% Actual: 71%Estimates: 53% Actual: 71% One third of retirees support children and grandchildren and many support parentsOne third of retirees support children and grandchildren and many support parents Health care costs generally higherHealth care costs generally higher Biggest regrets for retirees:Biggest regrets for retirees: –Didn’t take full advantage of tax deferred investments –Didn’t start earlier to save for retirement

70. Life Cycle Savings Save 20% Save 10% Borrowing Retirement Soc. Sec. & Pension To heirs (000’s) Age

71. What Should I Invest In? Principle: risk-return trade-offPrinciple: risk-return trade-off –High risk—high return –Low risk—low return What?What? –Stocks—ownership in a company (risky) –Bonds—loan to a company/government (less risky) –Deposit accounts— (insured, no risk) How?How? –Mutual funds –Tax-advantaged investing

72. How Much Will I Need? Use a worksheet to estimate how much you will need to save each month to achievement your retirement savings goal Use a worksheet to estimate how much you will need to save each month to achievement your retirement savings goal Link to retirement worksheet Link to retirement worksheet AARP Calculator AARP Calculator

73. Social Security—How much will I get? Annual SS report near birth dateAnnual SS report near birth date Benefit amounts vary depending on:Benefit amounts vary depending on: Lifetime earningsLifetime earnings Age at retirementAge at retirement Nonworking spouses get benefits equal to 50% of their working spouses benefitNonworking spouses get benefits equal to 50% of their working spouses benefit If both spouses worked, each is eligible for benefits based on own earnings or based on 50% of spouse’s benefit, whichever is greaterIf both spouses worked, each is eligible for benefits based on own earnings or based on 50% of spouse’s benefit, whichever is greater SS Benefits Calculator SS Benefits Calculator

74. When Can I Retire With Full Social Security Benefits?

75. SS Benefit Assuming You Are 62 And Retire At 65 1/2 (estimated in year-2003 dollars) The taxable maximum for 2003 was $87,000. See www.ssa.gov to estimate your benefits. www.ssa.gov

76. Vehicle vs. Engine IRAIRA SEPSEP KeoghKeogh SIMPLESIMPLE 401k401k StocksStocks BondsBonds Mutual FundsMutual Funds REITsREITs Important Distinction

77. Three Kinds of Retirement Plans Employer Funded Pension Plan (Defined Benefit Plan) Employer Sponsored Retirement Plan (Defined Contribution Plan) (Defined Contribution Plan) Individual Retirement Accounts

78. Defined Benefits Plan Employees don’t contribute to planEmployees don’t contribute to plan Employee receives promised or defined payout at retirementEmployee receives promised or defined payout at retirement Payout is generally based on formulaPayout is generally based on formula –Formula variables include: –Age at retirement –Salary level –Years of service

79. Example of Payout Formula (BYU) Calculate average of five highest annual salaries within the last ten yearsCalculate average of five highest annual salaries within the last ten years Multiply final “average” salary by 1.5% and by years in service (max 30)Multiply final “average” salary by 1.5% and by years in service (max 30) Ex: $60,000 x.015 x 25 yrs = $22,500 Ex: $60,000 x.015 x 25 yrs = $22,500 or 37.5% of final salary or 37.5% of final salary

80. Defined Contribution Plans Employer contributes to a fundEmployer contributes to a fund Generally employee also contributes to fundGenerally employee also contributes to fund Employer has no obligation to provide fixed amount when you retireEmployer has no obligation to provide fixed amount when you retire Pension is determined by:Pension is determined by: –How much is invested –How much it grows

81. Types of Defined Contribution Plans

82. Salary Reduction Plans [401(k), 403(b), & 457] 60 million employees participate in 401(k) plans60 million employees participate in 401(k) plans Employees contribute before tax dollars reducing their taxable incomeEmployees contribute before tax dollars reducing their taxable income Earnings accumulate tax deferredEarnings accumulate tax deferred

83. Employers may match employee contributionsEmployers may match employee contributions 89% of 401(k) plans have matching contributions89% of 401(k) plans have matching contributions Example:Example: Salary Reduction Plans (cont’)

84. Employees direct the funds into different investment options (you choose the engine) Fixed incomeFixed income EquitiesEquities Money marketMoney market Salary Reduction Plans (cont’)

85. Contribution Limits For a 401(k) plan the employee contribution cannot total over 25% of compensation (before and after tax).For a 401(k) plan the employee contribution cannot total over 25% of compensation (before and after tax). Before tax employee contribution cannot exceed $15,500 (2008) with a “catch-up” for those over age 50.Before tax employee contribution cannot exceed $15,500 (2008) with a “catch-up” for those over age 50.

86. 401(k) Tax Considerations Retirement income taxed as ordinary incomeRetirement income taxed as ordinary income 10% penalty rule applies for early withdrawals before 59 ½, with some exceptions10% penalty rule applies for early withdrawals before 59 ½, with some exceptions 20% tax withholding requirement20% tax withholding requirement Certain loan provisions may applyCertain loan provisions may apply Mandatory annual distributions begins after age 70 ½Mandatory annual distributions begins after age 70 ½ Possible high tax bracket (winners curse)Possible high tax bracket (winners curse)

87. Payout/Distribution Options Lump Sum DistributionLump Sum Distribution –Pro: Control over investing, spending, gifting –Con: Tax due immediately –Con: No assurance of lifetime income Annuity (can purchase contract inside or outside)Annuity (can purchase contract inside or outside) –Pro: Stable payments usually for life –Con: Generally no COLA –Con: Tax due on amount received each year

88. Payout/Distribution Options (cont’) Periodic PaymentsPeriodic Payments –Pro: Regular payments at regular intervals –Pro: Relatively large paymentts –Con: No assurance of lifetime income –Tax rate may be high due to high income IRA Rollover (Be careful, don’t touch funds)IRA Rollover (Be careful, don’t touch funds) –Pro: Defer taxes until you withdraw funds –Pro: Can direct investment –Pro: Enjoy tax deferred growth –Con: Begin withdrawals at 70 ½ or penalty

89. TraditionalRoth IRA Options Tax Deferred Retirement Plans Also consider SEP, Keogh, or SIMPLE plan for self-employed or small businesses or small businesses

90. What are the characteristics of traditional IRA’s? Contribution is often tax-deductibleContribution is often tax-deductible –income limits if you participate in ESP (e.g., 401k), $85,000 * joint AGI –income limits for spouse of ESP participant, $159,000 * joint AGI Choice of investment engineChoice of investment engine Contributions and gains are taxed when the money is withdrawn (Lower rate?)Contributions and gains are taxed when the money is withdrawn (Lower rate?) Maximum contribution is currently $5,000 (+ catch-up)Maximum contribution is currently $5,000 (+ catch-up) Not all are eligible (under 70½ w/ earned income or spouse)Not all are eligible (under 70½ w/ earned income or spouse) * Start of the phase-out

91. When can withdrawals be made? After 59 ½ for whatever purposeAfter 59 ½ for whatever purpose Prior to 59 ½ withdrawals are subject to federal penalties (10%) unless money is used for:Prior to 59 ½ withdrawals are subject to federal penalties (10%) unless money is used for: –Qualified education expenses –First-time home purchase ($10,000) –Death or disability –Annuity payments –Medical expenses greater than 7.5% of AGI Federal law requires that you begin withdrawals by April 1 st of the year after you reach 70 ½Federal law requires that you begin withdrawals by April 1 st of the year after you reach 70 ½

92. What are the characteristics of a Roth IRA? Contributions are not tax-deductibleContributions are not tax-deductible Can contribute if in ESP or over age 70½Can contribute if in ESP or over age 70½ Contributions can always be withdrawn tax and penalty free (Earnings if over 59½ and Roth >5 years)Contributions can always be withdrawn tax and penalty free (Earnings if over 59½ and Roth >5 years) Earnings grow tax-freeEarnings grow tax-free Pass tax-free to heirs (5-year required distribution)Pass tax-free to heirs (5-year required distribution) Avoids Winners Curse (70½)Avoids Winners Curse (70½)

93. Traditional vs. Roth IRA

94. IRA Tax Law Changes (Bush 2001 ) IRA annual contribution limit will increase as follows:IRA annual contribution limit will increase as follows: IRA IRA Contribution Contribution Year Limit 2007$4,000 2008$5,000 2009$5,000+index

95. Other Investments Investment options: Bank Savings Bills and Bonds Stocks Real Estate Annuities Mutual Funds (bills, bonds, stocks, & real estate) What can we learn from the past?

96. S&P 500Small CapT-bondT-billCPI 11.88%14.16%5.95%4.75%3.74%

97. Long-Term Return on the Stock Market The Long-term Return on the Stock Market Stock market risk-premium = market return - risk free return 7.13% = 11.88% - 4.75% 7.13% = 11.88% - 4.75% … but the U.S. in the last half-century has been “lucky” compared to other developed markets and time periods. Going forward, the expected stock market risk-premium is about 5.0 percent. With the risk-free rate at about 3.0 percent, the long-term expected return on stocks is about 8 percent per year (standard deviation of 20 percent per year)

98. Managing Stock Risk 1. Diversity Across Stocks 2. Diversity Across Time 3. Buy and Hold an Index Fund

99. Diversify Across Stocks It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket. Miguel de Cervantes

100. Diversify Across Stocks Average annual standard deviation (%) 49% - 24% - 19% - Total Risk Diversifiable Risk Nondiversifiable Risk Number of stocks in portfolio 1 10 20 25

101. Diversify Across Time Even a diversified portfolio is risky in a given month or year. However, given enough time, the probability of a loss becomes manageable

102. Diversify Across Time

103. Index Funds

104. Ten-Year Annualized Return on the 30 Largest Mutual Funds Investor return for calendar years 1995 to 2004; largest funds as of year-end 1994 Average mutual fund return: 10.78% Vanguard 500 Index fund return: 12.0% Funds outperforming the index: 9 out of 30 (30%)

105. Index Funds Have Low Fees Performance comes and goes, but costs roll on forever. - Jack Bogle Value of $100,000 investment 33% of your retirement to manager

106. Low Fees or Low Amounts Vanguard is a pioneer in low cost index funds (passively managed diversified mutual funds with fees often below 0.2% per year) www.vanguard.com Homestead Funds is a pioneer in managing small accounts (minimum of $200 for IRA and $500 for regular accounts—NO minimum if automatic scheduled investments) www.homesteadfunds.com

107. The Futility of Trying to Time the Market Period of Investment NYSE/AMEX/ NASDAQ Return Annualized Value of $10,000 Invested in Jan. 1985 January 2, 1985 - December 30, 2005 +12.48%$118,089 Less the 10 biggest days + 9.81% $71,389 Less the 20 biggest days +7.84%$48,827 Less the 30 biggest days +6.13%$34,854 Less the 40 biggest days +4.60%$25,695 Data Source: CRSP Value-Weighted Index with Dividends

108. Q: What Should I Invest In? A: What is your risk tolerance and investment horizon?

109. Asset Allocation Breakdown During the Early Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. 1926-19981964-1998 Stock/bond mix 80/20Stock/bond mix 80/20 Annual compound return 10.4%Annual compound return 11.6% Years with loss (out of 73) 19Years with losses(out of 35) 8 Bonds 20% Stocks 80%

110. Approaching Retirement – The Golden Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. 1926-19981964-1998 Stock/bond mix 60/40Stock/bond mix 60/40 Annual compound return 9.5%Annual compound return 10.8% Years with loss (out of 73) 16Years with losses(out of 35) 7 Stocks 60% Bonds 40%

111. During the Retirement Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. 1926-19981964-1998 Stock/bond/Treasury Bill mix 40/40/20Stock/bond/Treasury Bill mix 40/40/20 Annual compound return 8.0%Annual compound return 9.6% Years with loss (out of 73) 14Years with losses(out of 35) 6 Stocks 40% Bonds 40% Treasury Bills 20%

112. During the Late Retirement Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. Stocks 20% Bonds 60% 1926-19981964-1998 Stock/bond/Treasury Bill mix 20/60/20Stock/bond/Treasury Bill mix 20/60/20 Annual compound return 6.8%Annual compound return 8.7% Years with loss (out of 73) 12Years with losses(out of 35) 5 Treasury Bills 20%

113. Grant’s day-trading buddy –$500,000 in stocks X 2%$10,000 –250 days X 1 trade X $15- 3,750 –$0.125 X 100 shares X 250 trades- 3,125 –Gross Trading Profit 3,125 –Tax @ 39.6%- 1,237 –Net Profit$ 1,888

114. Grant’s day-trading buddy Trading Profit$1,888 10 hours/week X 52 weeks 520 hours Equals $3.63 per hour! Not to mention the costs of an office, computer, internet fee, real time data fee, and … …THE FACT THAT HE DIDN’T BEAT THE MARKET.

115. Health Insurance Health Insurance Life Insurance Life Insurance Wills and Trusts Wills and Trusts Other Insurance Other Insurance Rainy Day Fund Rainy Day Fund (Safe, liquid) (Safe, liquid) Tax-advantaged Retirement Fund Tax-advantaged Retirement Fund Other Investments Other Investments ( Index Funds) ( Index Funds) Self-Sufficiency Happiness Attitude Garbage : Consumer Debt Consumer Debt Gambling Derivatives Identity Theft Identity Theft Budget/Plan Taxes Home Buying Home Buying

116. Budgeting

117. Budgeting “Dear, you can’t save money by spending.” Grant McQueen

118. Budgeting Make Saving Easy Make Spending Hard

119. Budgeting - The root cause of most family financial problems is bad behavior, not bad math - Good governance, communication, and controls are essential - Budgeting is about values (priorities), not money

120. The Millionaire Next Door “The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.” (Stanley & Danko)“The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.” (Stanley & Danko) “Planning is typically found to be a strong habit among people who have demonstrated propensity to accumulate wealth.” (Stanley & Danko)“Planning is typically found to be a strong habit among people who have demonstrated propensity to accumulate wealth.” (Stanley & Danko)

121. Budgeting1,000,000 750,000 750,000 350,000 350,000 Scott Marsh’s Clients

122. Spending Traps Impulse Buying (checkout or end-of-aisle, not hungry, list, counter argue) Impulse Buying (checkout or end-of-aisle, not hungry, list, counter argue) Failure to Plan (Costco vs. convenience, raw vs. packaged) Failure to Plan (Costco vs. convenience, raw vs. packaged) Hidden Price Tags (computers need a screen, printer, software, internet) Hidden Price Tags (computers need a screen, printer, software, internet) Opportunity Costs (snowmobiles eat up time, energy, and emotions) Opportunity Costs (snowmobiles eat up time, energy, and emotions) Sales Tricks (assume “yes,” reciprocity, evaporating incentive) Sales Tricks (assume “yes,” reciprocity, evaporating incentive) Per Use Costs (RV used twice a year) Per Use Costs (RV used twice a year) Conspicuous Consumption (Polo ponies and Nike swooshes) Conspicuous Consumption (Polo ponies and Nike swooshes) Delayed Price (Disneyland, captive audience—breakfast and pictures) Delayed Price (Disneyland, captive audience—breakfast and pictures) Perfected Visions (Cruise—people get sick, it rains, not all are sexy) Perfected Visions (Cruise—people get sick, it rains, not all are sexy) Upgrades and Extras (time delayed start button with extended warranty) Upgrades and Extras (time delayed start button with extended warranty) Underestimating Adaptation (stereos) Underestimating Adaptation (stereos)

123. Budgeting Q: What is the cost of a soft drink at lunch? Q: What is the future value of investing $20 per month for 40 years at 8%? A: $20/month * 12 months/year * 40 years = $9,600 $9,600 ÷ (1-.4) = $16,000 before tax and tithing income $9,600 ÷ (1-.4) = $16,000 before tax and tithing income A: $69,820

124. Shaker Hymn ‘Tis the gift to be simple ‘Tis the gift to be free “Simple Gifts” by Joseph Brackett, Jr. in 1848 “Simple Gifts” by Joseph Brackett, Jr. in 1848 Who owns whom? Grant McQueen Grant McQueen George Fox

125. We’re Number one!

126. Available for Savings Personal Goals IncomeExpenses The Budgeting Process The Traditional Approach

127. The Budgeting Process A Better Approach Income Expenses Personal Goals OtherSavings PayYourself

128. Personal Balance Sheet Basic characteristics –Point in time –Assets Value of what you ownValue of what you own Ordered by level of liquidityOrdered by level of liquidity –Liabilities Debts you oweDebts you owe –Net worth Difference between assets and liabilitiesDifference between assets and liabilities

129. Personal Balance Sheet Continued

130. Income Statement Basic characteristics –Considers a period of time –How money has come and gone –Excellent monitoring mechanism –Difference between income & expenses provides opportunities for savings/investments

131. Income Statement Continued

132. Tax (Credit vs. Deduction) Tax Credit Dollar-for-dollar A $1 credit saves $1 in taxes i.e., $1,000 child tax credit is worth $1,000 Tax Deduction Percentage A $1 deduction saves $1 x t in taxes i.e., $3,000 charitable donation deduction is worth about $3,000 x.25 = $750 $3,000 x.25 = $750

133. Tax Ideas Itemize deductions (if > $10,900 standard deduction, joint in 2008)Itemize deductions (if > $10,900 standard deduction, joint in 2008) Child Tax Credit ($1,000 per child under 17)Child Tax Credit ($1,000 per child under 17) Hope and Lifetime Learning education creditsHope and Lifetime Learning education credits Tax preferred savings (i.e., IRA, Roth IRA, 401k, SEP)Tax preferred savings (i.e., IRA, Roth IRA, 401k, SEP) Donation of appreciated securitiesDonation of appreciated securities “Cafeteria Plans” (Flexible Spending Accounts: pay for heath, drugs, and childcare with pretax dollars)“Cafeteria Plans” (Flexible Spending Accounts: pay for heath, drugs, and childcare with pretax dollars) Education savings plans (i.e., 529 plan and Coverdell Ed. IRAs)Education savings plans (i.e., 529 plan and Coverdell Ed. IRAs) Estate Taxes (46 percent over $2.0 million until 2009) ($3.5 mill. after 2009)Estate Taxes (46 percent over $2.0 million until 2009) ($3.5 mill. after 2009)

134. Taxes (itemize deductions) Charitable Contributions (Red Cross, United Way, BYU!!!)Charitable Contributions (Red Cross, United Way, BYU!!!) Mortgage Interest (2 nd home, 2 nd mort., equity line of credit, points)Mortgage Interest (2 nd home, 2 nd mort., equity line of credit, points) State Income Taxes (or sales tax option in 2007 and perhaps beyond)State Income Taxes (or sales tax option in 2007 and perhaps beyond) Real Estate and Personal Property TaxesReal Estate and Personal Property Taxes Medical and Dental (> 7.5% of AGI, timing, limits)Medical and Dental (> 7.5% of AGI, timing, limits) Casualty and Theft Losses (>10% of AGI, after insurance)Casualty and Theft Losses (>10% of AGI, after insurance) Interest on qualified student loans (up to $2,500)Interest on qualified student loans (up to $2,500) NOT: social security tax, federal tax, sales tax, consumer interest, fees to governments, fees to lenders…NOT: social security tax, federal tax, sales tax, consumer interest, fees to governments, fees to lenders…

135. Taxes (education credits) HOPEHOPE –Up to $1,800 credit per eligible student –Only for first 2 years of postsecondary ed. –Only for 2 years per eligible student –At least ½-time for at least one semester Lifetime LearningLifetime Learning –Up to $2,000 credit per return –All years of postsecondary ed. –Unlimited number of years –For one or more courses Mutually exclusive in a given year

136. Taxes (529 “College” Savings Plans) State Tax IncentivesState Tax Incentives –Contributions are deductible ($3,240 for couples per child) for UT taxes –Earnings are exempt from state income tax (if used for qualified higher education expenses) Federal Tax Incentives (10% penalty for non-qualified withdrawals)Federal Tax Incentives (10% penalty for non-qualified withdrawals) –Earnings are exempt from federal income tax –Gift limit of $12,000 < College limit of $55,000 ( w/control) Rollover to other family members ( w/o penalty )Rollover to other family members ( w/o penalty ) Utah Ed. Savings Plan is OutstandingUtah Ed. Savings Plan is Outstanding –Nine investment options (Vanguard Funds) –Minimum payment per month of $25 Grandmas, Grandpas, Aunts, Uncles, FriendsGrandmas, Grandpas, Aunts, Uncles, Friends

137. Home Buying RentingRenting –Mobility and liquidity –Repairs and maintenance –Low initial cost –Low on going cost –Low price risk BuyingBuying –Permanence and pride –Payments for ownership –Control –Tax benefits –Property appreciation (?) –Leverage –Nicer neighborhood, school, and ward?

138. Home Buying Steps Develop a financial plan (pre-qualify vs. pre-approved, set limits) Develop a needs plan (location, size, features, age, condition, etc.) before driving around Take your time (rent for a while?) Search diligently (use the internet, drive around, realtors work for seller, follow plan, talk with people) Do your homework (inspections and appraisals)

139. Financing a Home Credit (income stability, debt-to-income, loan-to- value, history/FICO)Credit (income stability, debt-to-income, loan-to- value, history/FICO) –FICO score > 620, approved? –FICO score < 590, subprime? CashCash –Down payment (typically 3% to 20%) –Closing costs or fees ($2,000 to $3,000) –Minimum reserves (two months of payments, not gifted) Cash Flow (i.e., income)Cash Flow (i.e., income) –Mortgage payment –Mortgage insurance, property taxes, home insurance, etc…

140. Home Buying Fees Loan Origination Fee (points)Loan Origination Fee (points) Escrow FeesEscrow Fees Homeowner’s InsuranceHomeowner’s Insurance Legal Fees?Legal Fees? Private Mortgage InsurancePrivate Mortgage Insurance Document Preparation FeesDocument Preparation Fees Title InsuranceTitle Insurance Appraisal FeesAppraisal Fees Credit Report FeesCredit Report Fees Tax Service FeesTax Service Fees Survey Fees?Survey Fees? Property TaxesProperty Taxes Pest Inspection FeePest Inspection Fee Notary Public ChargeNotary Public Charge FedEx FeeFedEx Fee Ask for a so called “good faith” estimate of fees

141. How Much Can You Afford? Two Ratios: Front-end and Back-end Two Ratios: Front-end and Back-end (Must meet both, but a large down payment covers many sins) Front-end: House payment (PITI)/ gross income < 0.28Front-end: House payment (PITI)/ gross income < 0.28 –Principle, Interest, Taxes, & Insurance Back-end: PITI + other finance charges/ gross income < 0.36Back-end: PITI + other finance charges/ gross income < 0.36 –Car lease, student loans, minimum payment on credit cards Some lenders allow back-end ratios as high as 50%!Some lenders allow back-end ratios as high as 50%!

142. How Much Can You Afford? Here Comes a Really Important Slide Here Comes a Really Important Slide There is a Difference Between What You Can Get Finance and What you Can Afford! Pay Attention

143. Anatomy of a Mortgage SizeSize –Less than $360,00 is “conforming” by Federal National Mortgage Association (FNMA) standards Interest RateInterest Rate –APR (origination and discount points) –A 7 % interest rate may have a 7.3% APR –Fixed-Rate or Adjustable Rate Mortgage (ARM) Teaser rate, cap, adjustment frequency and maximumsTeaser rate, cap, adjustment frequency and maximums COFI, Hybrid (fixed for 3 yr’s then ARM), Two-step (5/25 * or 7/23)COFI, Hybrid (fixed for 3 yr’s then ARM), Two-step (5/25 * or 7/23) TermTerm –30 and 15 year most common –Balloon *Fixed rate for 5 years then a new fixed market rate for the next 25 years market rate for the next 25 years

144. Health Insurance Health Insurance Life Insurance Life Insurance Wills and Trusts Wills and Trusts Other Insurance Other Insurance Rainy Day Fund Rainy Day Fund (Safe, liquid) (Safe, liquid) Tax-advantaged Retirement Fund Tax-advantaged Retirement Fund Other Investments Other Investments ( Index Funds) ( Index Funds) Self-Sufficiency Happiness Attitude Garbage : Consumer Debt Consumer Debt Gambling Derivatives Identity Theft Identity Theft Budget/Plan Taxes Home Buying Home Buying

145. Insurance What insurance is:What insurance is: –A way to protect your assets from major unforeseen expenses What insurance isn’t:What insurance isn’t: –A service to pay for minor losses you could easily afford to pay yourself Multiple claims often lead to higher premiums or worseMultiple claims often lead to higher premiums or worse –Example: some insurers won’t renew your homeowner’s policy if you’ve had more than three claims in two years

146. Insurance rules of thumb –The more you earn, the more you need Take assets into consideration as wellTake assets into consideration as well –Higher deductibles can save a lot of money Make sure your “rainy day” savings are sufficient to cover any lossesMake sure your “rainy day” savings are sufficient to cover any lossesInsurance

147. Life Insurance Term life—pure death benefit –No savings component –About 1/10th the cost of cash value –Gets more expensive as you get older –Expires at age 65 or 70 (usually) –Provisions (renewability & convertability)

148. Life Insurance Cash value life—death benefit plus savings (bonds, stock market, etc.) –Builds cash value –Does not expire (“whole life” insurance) –Low but guaranteed minimum rate of return on cash value –Much more expensive relative to term –Types: Whole Life, Universal Life, Variable Life

149. Whole Life: Pros and Cons Budgeting premiumsBudgeting premiums No unaffordability and uninsurabililty problemsNo unaffordability and uninsurabililty problems Cash value (forced savings)Cash value (forced savings) Can borrow or withdraw cash valueCan borrow or withdraw cash value Earnings grow tax deferredEarnings grow tax deferred Expensive (less death benefit per premium dollar)Expensive (less death benefit per premium dollar) Poor returns on savings componentPoor returns on savings component High sales commission (over 100 % of first year premium and around 20% of lifetime premiumHigh sales commission (over 100 % of first year premium and around 20% of lifetime premium

150. Combines term insurance with tax-sheltered investment accounts earning money market ratesCombines term insurance with tax-sheltered investment accounts earning money market rates Many different typesMany different types Flexibility with changing death benefit and premiumsFlexibility with changing death benefit and premiums Selling point is that cash value will increase to a point to cover premiums for death benefit, however this is often not realized.Selling point is that cash value will increase to a point to cover premiums for death benefit, however this is often not realized. Premiums may be skipped if cash value is high enough however premiums may then increase in later yearsPremiums may be skipped if cash value is high enough however premiums may then increase in later years High commissionsHigh commissions Universal Life Insurance

151. Similar concept as universal life insurance but owner of policy can decide how to invest the money in the savings component.Similar concept as universal life insurance but owner of policy can decide how to invest the money in the savings component. There is no minimum return guaranteedThere is no minimum return guaranteed The amount of the death benefit is often related to policy investment returns.The amount of the death benefit is often related to policy investment returns. The insurance firm generally determines which funds (mutual funds) you can invest in.The insurance firm generally determines which funds (mutual funds) you can invest in. Earning grow tax-deferredEarning grow tax-deferred Variable Life Insurance

152. What Kind and How Much? Term insurance generally best to start offTerm insurance generally best to start off 6-10 times annual income6-10 times annual income Convertible term if you think you may want cash value insurance laterConvertible term if you think you may want cash value insurance later Group is least costly (but what if you leave?)Group is least costly (but what if you leave?) Have some for non-employed spouseHave some for non-employed spouse Children? At most a small amountChildren? At most a small amount

153. Your primary life insurance need is to replace income that is earned during your working years.Your primary life insurance need is to replace income that is earned during your working years. You have limited funds to purchase the level of protection that you need (e.g., 6 to 10 times annual salary).You have limited funds to purchase the level of protection that you need (e.g., 6 to 10 times annual salary). You have insurance protection needs that are easily quantifiable (e.g., mortgage, partnership buyout, etc.).You have insurance protection needs that are easily quantifiable (e.g., mortgage, partnership buyout, etc.). Grant likes term! (w/ renewability provisions)Grant likes term! (w/ renewability provisions) Term Insurance May Be Best If:

154. Your needs for life insurance are permanent or long term.Your needs for life insurance are permanent or long term. You have concerns regarding insurability and affordability later in life.You have concerns regarding insurability and affordability later in life. You intend to keep your coverage for a while and would not want premiums to increase with your age.You intend to keep your coverage for a while and would not want premiums to increase with your age. After bills are paid and savings are met, you still have disposable income.After bills are paid and savings are met, you still have disposable income. The concept of tax-deferred cash value accumulation appeals to you (Limits on IRAs and 401k).The concept of tax-deferred cash value accumulation appeals to you (Limits on IRAs and 401k). Cash Value Insurance May Be Best If:

155. Health Insurance Traditional Indemnity (Fee-for-Service) –Quite expensive, becoming less common in group plans –Most often seen today in individual plans

156. Health Insurance Managed Care –HMO: Health Maintenance Organization. Most restrictive, generally may use in-network services only.Most restrictive, generally may use in-network services only. –PPO: Preferred Provider Organization. Typically covers treatment anywhere, but with lower co- payments for in-network services.Typically covers treatment anywhere, but with lower co- payments for in-network services. –POS: Point of Service. A type of HMO plan with PPO features. In-network services typically cheaper than a PPO, out of network services covered, but with markedly higher co-payments.A type of HMO plan with PPO features. In-network services typically cheaper than a PPO, out of network services covered, but with markedly higher co-payments.

157. Property CoverageProperty Coverage –Can cover structures, attachments, personal property they contain, and personal property they contain, and “loss of use” expenses. Liability CoverageLiability Coverage –Protects you from liability for injuries that take place on insured property. CaveatsCaveats –Standard policies do not cover home-based businesses. –Don’t own your home? Your landlord is not liable for loss of your personal property. Renters insurance is available for this purpose. –Standard policies do not cover earthquakes or floods. Homeowners’ Insurance

158. Liability CoverageLiability Coverage –Pay others for bodily injury and property damage for which you are responsible Medical CoverageMedical Coverage –Covers medical bills for you and your passengers Uninsured Motorist CoverageUninsured Motorist Coverage –Pays what you would have received from another motorist had they had their own insurance Vehicle Damage CoverageVehicle Damage Coverage –Collision—pays for damage caused by collision or rollover –Comprehensive—pays for loss when car is stolen or damaged by vandalism, fire, etc. Auto Insurance

159. How much coverage do you need? –Typically more than the baseline state requirements –Commonly-recommended minimums: $100,000 per person/$300,000 per accident liability coverage$100,000 per person/$300,000 per accident liability coverage $5,000 medical coverage$5,000 medical coverage –even if you have health insurance, your passengers may not $50,000 property damage coverage$50,000 property damage coverage –Those with larger-than-average incomes or asset bases require more coverage Auto Insurance

160. Prepare a Will Especially if youEspecially if you –Have children –Have a complex family situation –Have significant assets Do this now: Holographic will for studentsDo this now: Holographic will for students –Done in own hand –Signed and dated –Deal with children and assets Why not have an attorney prepare your will?Why not have an attorney prepare your will?

161. You May Need a Trust Estate taxes: about 46% of assets above $2,000,000 per person (until 2008)Estate taxes: about 46% of assets above $2,000,000 per person (until 2008) Spouse may pass on unlimited amount to surviving spouseSpouse may pass on unlimited amount to surviving spouse BUT…then only one gets the $2.0 Mill. exemptionBUT…then only one gets the $2.0 Mill. exemption Need A/B trust (to get $4 mill. exemption)Need A/B trust (to get $4 mill. exemption) Consider life insurance trustConsider life insurance trust

162. Powers of Attorney Conventional, assign someone to :Conventional, assign someone to : –Handle specific financial affairs –i.e., sell car and pay bills while on mission Durable, appoint someone to:Durable, appoint someone to: –Make financial or medical decisions if incapacitated Living Will or Advance Directive to Physicians:Living Will or Advance Directive to Physicians: –Outlines medical procedures allowed –Authorizes termination of artificial life support

163. Documents For Safe Deposit Box Wills and Trusts (Husband and Wife)Wills and Trusts (Husband and Wife) Birth Certificates (Husband, Wife, Children, Adopted Children)Birth Certificates (Husband, Wife, Children, Adopted Children) Citizenship Papers and Passports (Husband, Wife, Children, Adopted Children)Citizenship Papers and Passports (Husband, Wife, Children, Adopted Children) Marriage CertificateMarriage Certificate Adoption PapersAdoption Papers Military Service PapersMilitary Service Papers Divorce PapersDivorce Papers Death CertificatesDeath Certificates Probate RecordsProbate Records Real Estate Deeds and PapersReal Estate Deeds and Papers Names/Phone Numbers for: Attorneys, Accountants, Investment Counselors, and Insurance AgentsNames/Phone Numbers for: Attorneys, Accountants, Investment Counselors, and Insurance Agents

164. Documents (continued) Living Wills (Husband and Wife) Living Wills (Husband and Wife) Durable Powers of Attorney (Husband and Wife) Durable Powers of Attorney (Husband and Wife) Healthcare Powers of Attorney (Husband and Wife) Healthcare Powers of Attorney (Husband and Wife) Organ Donor certificates (Husband and Wife) Organ Donor certificates (Husband and Wife) Prepaid Funeral Plans and burial plot deeds (Husband and Wife) Prepaid Funeral Plans and burial plot deeds (Husband and Wife) Obituary and Funeral Instructions (Husband and Wife) Obituary and Funeral Instructions (Husband and Wife) Federal and State Tax Returns (at least 3 years) Federal and State Tax Returns (at least 3 years) Investment and Insurance Records (Most Recent Year-End Statements) Investment and Insurance Records (Most Recent Year-End Statements) Personal Loan Documents, Service Contracts, and Warrantees Personal Loan Documents, Service Contracts, and Warrantees

165. Priorities While Balancing the Budget (behavior, relationships, values, human capital): 1.Manage the Misfortune (basic life, health, disability, auto, and home insurance), 2.Discharge the Debt (credit cards, bondage, FICO), 3.Anticipate the Adversity (rainy-day fund, will), 4.Snatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), 5.Fund the Favored (IRA, Roth IRA, 529, Annuities), 6.Stuff the Savings (diversify across assets and time), But Possess a Purpose and Preserve a Perspective