Finance 101
Cash
• Checking accounts – NOW accounts
• Money Market accounts
• CDs
Bonds – Fixed Income
• Savings Bonds
• Corporate Bonds
– A, AA, C – can default
– Ownership in companies
• Municipal Bonds
– City/state/government
– Funds schools/projects
• Treasury Bonds
– Full faith & credit of US Government
Bonds
• Principal remains the same
– Dividends are paid – quarterly
– $5,000 @ 5% - 3 years
• $5,000 purchase price
• $62.50 per quarter
• $5,000 @ maturity
• Treasury
– Purchased at discount
– $5,000 @ 5% - 3 years
• 4,250 purchase price
• $5,000 @ maturity
Stocks – Growth
• Individual stocks – ownership in
companies
– Proctor & Gamble
– Microsoft
• Mutual funds – ability to diversify holdings
– Fidelity – Peter Lynch/Magellan
– Morningstar rating
• REITS ( Real estate investment trust)
– Invest in real estate for minimum amounts
Stocks
• Dow Jones – 30 companies
• S&P 500 – 500 large cap
• Nasdaq – 5,000
– Value can increase/decrease
– Dividends paid quarterly
– High/low
– Long term investment
US Stock Market History
Proctor & Gamble
Other financial terms
• IRA – can open even while in 401(k)
• 401 (k) – payroll deduction/company
match.
• Estate – value of all you own when you
pass.
• Will – road map for disposition of assets
upon death.
• Trust – various uses during life and after.
Credit/Loans
• Credit cards
– Interest rates
– Minimum payment
• Auto loans
– Installment – e.g. $7,000 x 8.75% for 5 years = $173 per month
– Rates & terms determined if new car vs old car
• Mortgages
– Similar to installment loans – e.g. $100,000 @ 6.25% for 30
years = $615 per month
• Home Equity loans
– Lines of credit and installment loans
• Student loans
Credit,Capital,Capacity
• Credit
– Credit history – important all through life!
– Determines rate
• Capital
– Other assets
– Value of collateral – if offered
• Capacity
– Cash flow analysis – ability to repay
Cash flow analysis
• Example of loan
– $10,000 @ 8.75% for 4 years
• Cash flow analysis
– Income
• Annual salary = $50,000/12
• Investment income = $5,000 stock x 2%
TOTAL MONTHLY INCOME
$4,166.00
100.00
$4,266.00
– Expenses
• Rent
• Credit Card debt ($1,000 x 3.5%)
• Other debt – student loans etc.
TOTAL MONTHLY DEBT
DEBT/INCOME = 28% ACCEPTABLE RATIO
THIS EXAMPLE = $4,266/$1,535 = 35%
$1,000.00
35.00
500.00
$1,535.00
BUDGET
Total gross income
4,000.00
Total net income
2,800.00
Rent
1,000.00
Food
400.00
Insurance
100.00
Car loan
350.00
Credit card
35.00
Student loan
500.00
Gas
150.00
Miscellaneous
150.00
Total monthly expenses
Net - savings
2,685.00
115.00
Your financial health
• Take control
• Read more about finances
• Monitor your own accounts – (identity
theft)
• Seek advice
• Keep to budget
• Plan for future – 401(k) A MUST HAVE
Word of Wisdom
• The only way not to think about money is to
have a great deal of it….Edith Wharton
• Money frees you from doing things you dislike.
Since I dislike doing nearly everything, money is
handy…. Groucho Marx
• If you would be wealthy, think of saving as well
as getting….Benjamin Franklin
• We make a living by what we get, we make a life
by what we give….Sir Winston Churchill