Personal Finance Putting It All Together Bill Klinger

Personal Finance Review Estates Order of distribution of assets Types of wills Taxes What are the most important things you’ve gotten out of the course? What will you do differently?

Current View Income statement Balance sheet Create a savings target How much are you saving? Balance sheet How much are you worth? Create a savings target Minimum 15% Think 20%

Financial Plan Things Short-term Medium-term Long-term Emergencies Purchases E.g. car, refrigerator Medium-term E.g. home, business Long-term Retirement

Financial Plan Needs Short-term Medium-term Long-term Emergencies (~3 months of expenses) Purchases E.g. refrigerator, TV Medium-term E.g. home (down payment) Business Car (no loans) Long-term Retirement 8x using Fidelity estimate Could be 25x using 4% Rule

Financial Plan Investments Short-term Liquid Cash Medium-term Liquidity / return trade-off Long-term Know your risk level Establish and use asset allocation

Financial Planning Financing Credit cards Pay off! Loans Don’t borrow for things that go down in value Mortgage Read and understand it Know the financials

Financial Plan Where to invest? Build cash reserve first Use your planned asset allocation Get employer contribution in 401(k) Max out Roth IRA contribution Put additional in 401(k)

Protecting Your Assets Health insurance Auto / home insurance Life insurance

Retirement and Estate Plans Know your goal Track it Name beneficiaries Update Have a will Have a health care proxy

Financial Advice BE CAREFUL Advisor may have conflicts of interest May get commissions and fees for selling you things Ask if advisor is a ‘fiduciary’ Means they legally have to look out for your interests first Ask how advisor is compensated Flat fee is best Consider Certified Financial Planner, CFP Robo-advisor Lawyer for trusts

WSJ Rules on Personal Finance Ignore economic and financial forecasts. Ignore “expert” stock picks. Keep it simple. Buy individual stocks only as a gamble. Put most of your long-term portfolio into equities. Invest globally, not just in the U.S. Buy Treasuries, too: Never buy a lottery ticket. Know thyself. Buy high-deductible home and car insurance.

WSJ Rules on Personal Finance - 2 Protect yourself from disaster. Save early, save often. Use those free shelters. Make the most of what you have. Plan for a long life. Don’t carry a balance from month to month unless you are planning to default and file for bankruptcy. Cut the waste. Beware of buying your employer’s stock.

WSJ Rules on Personal Finance - 3 Tune out advertising. Don’t spend money showing off. Protect your nest egg. Teach your children about money. Value your money. Share.

Harold Pollack Prof. U. of Chicago

Financial Advice You know enough to be an intelligent investor. Don’t let someone else intimidate you.

In Class In groups of two Chapter 21 Review Questions, Financial Planning Exercises