1. Personal Finance Bob Donchez
CUBIC 2017 Day 2
Personal Finance
Bob Donchez
CUBIC Personal Finance

2. The Financial Planning Process Personal Finance Topics
Assessing financial position
Basics of personal taxes
Insurance
Managing personal debt
Setting and achieving goals
Retirement topics
Investment topics
Putting it all together

3. The Role of Insurance 4-1 Rationale for Insurance
Concept for Insurance: protecting the financial plan
Protects downside risk; provides cash flows when planned cash flows interrupted
Loss of income
Unexpected expenses
Comes at an unavoidable cost (premiums)
Going without insurance very risky; alternatives?

4. The Role of Insurance 4-2 A Review of Insurance
Emergency cash
3 – 6 months of cash savings
Savings, short term bonds, CD’s
Covers unexpected expenses such as job loss, medical problems
Available for unexpected positive opportunities
Buys time so you don’t have to sell securities when markets are down

5. The Role of Insurance 4-2 Auto/Homeowner/Renter Insurance
Auto insurance components
Part A: Liability
Part B: Medical expense
Part C: Uninsured motorist
Part D: Collision (damage to vehicle)
Premiums based on:
Car value
Coverage level
Deductible

6. The Role of Insurance 4-2 Auto/Homeowner/Renter Insurance
Homeowner’s insurance policy types
HO 3: “All risk” (except flood, earthquake, war, etc)
HO 4: Renters insurance (belongings, liability)
HO 6: Condo insurance
Premiums based on:
Property value
Coverage level
Deductible

7. Do you have medical/health insurance?
?? Question
Do you have medical/health insurance?
A. No
B. Yes, through my parents
C. Yes, through my work
D. Yes, on my own
E. Don’t know

8. What is the average total medical cost of a 3 day hospital stay?
?? Question
What is the average total medical cost of a 3 day hospital stay?
A. $5,700
B. $9,800
C. $12,000
D. $22,500
E. $30,000

9. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Key Features
Mandatory coverage or tax penalty
Standardized level of coverage (example: preventative care)
No pre-existing conditions
Subsidies (reduced premiums) for low income
Risks of NOT carrying health insurance
Increased health risks
Tax penalties
Wreck your financial plan
Wreck your family’s/parents financial plan

10. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Coverage options
On parents’ policy to age 26
Provided through work
Privately through an “exchange”
New: no pre-existing conditions exclusion
Required or tax penalty

11. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Key terms
Premium: regular payment for coverage
Deductible: amount you pay for covered service initially (for example $2,000 deductible, after which 80% is covered
Co-payment: fixed dollar amount paid for certain services at time of service (example $40 doctor visit)

12. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Key terms (continued)
Co-insurance: fixed percent charge paid (example, after deductible, insurance pays 80%, you pay 20%)
Out of pocket expense: maximum you pay before insurance pays 100% of allowed charges.
Current maximum is $6,350 for individual and $12,700 for families
Does not include premiums paid or non-allowed/non-covered charges

13. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
The lower the premium, the higher the out of pocket costs The higher the premium, the lower the out of pocket costs Below, the amount paid by plan providers; you pay balance:

14. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Comparing plans—example
Note: Rates may be lower for persons with lower incomes (through tax credits)
Bronze Plan
Silver Plan
Premium
$188/mo
$262/mo
Deductible
$5,750
$3,600
Co-pays
$30-$40
None
Co-insurance
30%
10%
Single OOP max
$6,350

15. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
Other providers of medical care
Workman’s compensation “workcomp”: state based payment for work related illness and injury
Medicare– medical insurance for age 65 up
Medicaid—medical insurance for low income
COBRA—medical coverage between jobs

16. The Role of Insurance 4-3 Health Insurance (ACA-Affordable Care Act)
On-line resources

17. A 30 year old has what chance of a 90+ day disability prior to age 65?
?? Question
A 30 year old has what chance of a 90+ day disability prior to age 65?
A. 20%
B. 40%
C. 50%
D. 70%

18. The Role of Insurance 4-4 Disability insurance
The case for disability insurance
Policy features
Waiting period (example: 3 or 6 months)
Coverage amount (example: 60% of gross income)
Coverage period (example: to age 65)
“your” (first 2 years) versus “any” (after 2 years) occupation
Methods to reduce premiums—get at work

19. Do you currently have life insurance?
?? Question
Do you currently have life insurance?
A. Yes, and I know amount and type
B. Yes, but I’m not sure about amount & type
C. No
D. I don’t know

20. The Role of Insurance 4-5 Life insurance
Basic types of insurance
Term life
Whole life
Universal/variable life

21. The Role of Insurance 4-5 A Review of Insurance
Life Insurance
Policy Type
Coverage Period
Annual Premium
Death Benefit
Cash Value
Term Life
Specified period 1-30 years
Least expensive
Fixed benefit
None
Whole Life
Permanent protection
Fixed premium
Fixed, based on policy
Variable Life
Fixed or variable premium
Flexible, based on investment account performance
Depends on investment account performance

22. The Role of Insurance 4-5 Life insurance
Strategies for use of life insurance—who needs it?
Married with single wage earner
Kids
Own a small business
Determining coverage amounts

23. The Role of Insurance 4-6 Bundling coverage to reduce cost
From work, get
Term life
Disability
Medical
From insurance carrier, get
Homeowner, Renter’s insurance
Car insurance

24. Go to Colorado Health Exchange link: http://connectforhealthco.com/
10/29/2017
Assessing Current Financial Position Exercise 2A: Select a personal health plan
Go to Colorado Health Exchange link:
Select and compare two health plans
Complete the table given for each plan and indicate which plan is preferable to you and why (link below).
Send completed for by attachment—be sure to include team number/names in .
Exercise Assignment
CUBIC Corporate Finance

25. Describe your debt situation:
?? Question )
Describe your debt situation:
A. I have virtually no debt
B. I have student loans
C. I have credit card balance(s)
D. I have a mortgage
E. I have a combination of the above

26. ?? Question
Have you ever gotten into trouble with credit cards? (couldn’t afford, missed payments, could only pay minimum)
A. No, never
B. No, but have had “close call”
C. Yes, in the past
D. Yes, currently

27. Managing Personal Debt 4-1 Types and Forms of Personal Debt
Average debt for students that have debt: $30,000

28. Managing Personal Debt 4-1 Types and Forms of Personal Debt
Revolving credit (credit cards)
No set pay off date
High variable interest rate
Variable payments
Secured by general credit worthiness

29. Managing Personal Debt 4-1 Types and Forms of Personal Debt
Installment credit (example: car loan)
Fixed pay off date (intermediate term, 3-7 years)
Fixed payment
Fixed interest rate
Secured by asset and credit worthiness, credit score

30. Managing Personal Debt 5-1 Types and Forms of Personal Debt
Home Mortgage
Long term pay off date (10 to 30 years)
Fixed or variable interest rate
Fixed or variable payments
Secured by asset and credit worthiness, credit score

31. Managing Personal Debt 5-2 Use and Role of Personal Debt
Our basic choice and trade-offs
Save and earn return, forego use of asset to later
Borrow and pay interest, have use of asset now
If debt is used, the choices are:
What kind of debt?
For what purpose?
How much is borrowed?
What is total expense?

32. Managing Personal Debt 5-2 Use and Role of Personal Debt
General recommendations
Avoid on-going credit card debt entirely, pay off monthly
Don’t use credit cards to “make ends meet”
Borrow only for “key” asset needs when affordable
Car, major appliances, furniture, house
Use fixed rate installment debt, mortgage
How much borrowing is sensible?

33. Managing Personal Debt 5-2 Use and Role of Personal Debt
Selecting good loans—characteristics:
Credit cards
Link to bank
No annual fee
No interest if paid monthly
Points/benefit program
Low APR if planning to have continuing balance
Installment debt
Consider your bank first

34. Managing Personal Debt 5-2 Use and Role of Personal Debt

35. Managing Personal Debt 5-3 Debt and Time Value of Money Problems
Borrowing creates RISK
Risk you can’t “perform”/pay on debt
Risk of loss of asset, foreclosure, repossession
Risk of opportunity cost
Funds borrowed now cannot be used for other purposes later

36. Managing Personal Debt 5-3 Debt and Time Value of Money Problems
Working with your calculator

37. ?? Question
You’re interested buying a car. If you can secure a loan for 48 months at 6% annual interest rate You have saved $3,000 for a down payment and can afford a payment of $200 per month. What’s the total price you can pay on the car?
A. $ 6,600
B. $ 8,500
C. $11,500
D. $14,500

38. ?? Question
You’re interested buying a car. The total cost of the car is $27,500 and you have saved $4,000 for a down payment. A loan proposal is for 60 months at 7% annual interest. What would your monthly payment be?
A. $ 356
B. $ 465
C. $ 785
D. $1,164

39. ?? Question
You’re considering buying a house. The total cost is $227,000 and you have saved $25,000 for a down payment. The mortgage is fixed rate 5.5% for 360 months. What would your monthly payment be?
A. $
B. $
C. $ 1,086
D. $ 1,147

40. Managing Personal Debt 5-4 Credit Reporting and Managing Debt
Credit file and your rating is important
Affects whether you get credit
Affects the cost of credit
Can affect employment
It’s important to run your own credit report regularly
What’s going on in report; catch fraud & ID theft
Check accuracy, correct mistakes
Who’s checking up on you; running your report

41. Managing Personal Debt 5-4 Credit Reporting and Managing Debt
Factors determining credit score

42. Managing Personal Debt 5-4 Credit Reporting and Managing Debt
Running your own credit report
Free report required to be provided annually
Services: Experian, Equifax, TransUnion
Consumer credit counseling:

43. Managing Personal Debt 5-4 Credit Reporting and Managing Debt
FICO SCORE
QUALITY
EXCELLENT
VERY GOOD
723
MEDIAN FICO SCORE
GOOD
687
AVERAGE FICO SCORE
NOT GOOD
POOR

44. Go to: http://annualcreditreport.com
10/29/2017
Assessing Current Financial Position Exercise 2B: Get your credit history
Go to:
Complete the form below and return by attachment. Be sure to include team number/names in .
Exercise Assignment
CUBIC Corporate Finance