Personal Finance for
Everyone
…90 minutes that will change your future
While we wait for folks to log on, try looking up
the “expense ratios” of the funds you are
currently invested in.
Would you rather….
Have 3.5 million
dollars up front?
or
Start with a penny
and have your
balance double every
day for one month?
Who I am
Where my approach/advice comes from
Who I’m not (Disclaimer)
Although I have a passion for these topics, the views expressed
are not intended to serve as a forecast, a guarantee of future
results, investment recommendations or an offer to buy or sell
securities. This should not be interpreted as tax advice and
please consult your personal tax advisors if you have any
questions.
Housekeeping
Topics
 Behavioral Finance
 Understanding your current situation
 Credit Scores
 Retirement, the time value of money,
& 401k / 403b
 Investing 101
 Savings accounts & fees
 Love & Money
 Home ownership, mortgages, refinancing, & renting
 Tax strategy
 Life insurance / Health Insurance
 Tactical next steps
Why we need an automatic plan…
 People are not rational with financial decisions (susceptible
to framing, prospect theory, anchoring, choice architecture, & the default option)
 Study: the more often you check your portfolio the worse you do
 Google’s anchoring experiment (3% increase)
 “Save More Tomorrow” (12% vs 4%)
 Allocation decisions & the default option:
Scenario 1:
Scenario 2:
Scenario 3:
Fund A: Stocks
Fund B: Bonds
Fund A: Stocks
Fund B: ½ Bonds ½ Stocks
Fund A: ½ Bonds ½ Stocks
Fund B: Bonds
54% allocation to stocks
73% allocation to stocks
35% allocation to stocks
Prior to the webinar
20 mins - capture your “Net Worth” (all assets & debts)
Use Mint.com; connect banking & investment accounts, student/car
loans
 Include property (homes & cars)
 Homes: zillow.com
 Cars: edmunds.com
10 mins - understand your credit score
 Signup for CreditKarma
 Pull a free credit report from annualcreditreport.com; Experian in
Jan, TransUnion in Apr, Equifax in Aug
15 mins – analyze your current investments and get free
advice:
www.FutureAdvisor.com
(optional) 30 mins - create a spending plan (aka budget)
 Can be in Mint or even Excel
 Savings must be a part of your plan
Understanding your current
situation
 Check Mint often
 Spend < make
 Save xx% of your income
 “Pay yourself first” – schedule savings
 Debts
 Credit Cards & student loans
 BT offers
 Understand your current allocation & fees
Credit Scores
 Credit Scores have 5 components:
(300 850 scale, >720 is good)
1. On Time Payments: 35% (Use Auto-Pay)
2. Credit Utilization: 30% (use < 10%)
3. Length of history: 15% (keep old cards!)
4. Types of credit used: 10%
5. Recent inquiries: 10% (hard vs soft pulls)
 Credit Scores affect mortgage rates, auto
insurance, credit card rates, student loans,
apartment rentals
“I’ll worry about retirement later…”
 Time Value of Money is HUGE!
 Frick & Frack brothers
 The “Rule of 72”
 $$ saved from 25-35 > $$ saved 35
on
 Everyone should have a (ROTH) IRA
& 401k!
 Are you on-track?
 ~75% of ending salary per year
 Share this!
See handout 
Retirement Accounts
IRA
401(k) / 403(b)
• 2014 Limit: $5,500
• 2014 Limit: $17,500
• No matching
• May get matching
• Hold at any institution
• Hold at company’s chosen firm
• Thousands of investment options
• Limited choices
• Only contribute cash
• Only contribute from payroll
• Income limits
• Different for Roth vs Trad
• No income limits
• May get a Roth option
• Jan 1 – Apr 15 (of following year)
open period
• Jan 1 – Dec 31 open period
Uncle Sam will always get paid
Roth
• After-tax contributions (pay tax
now)
Traditional
• Pre-tax contributions (get a tax
break now)
•
• Earnings grow tax-free
• Roth IRA’s have no RMD’s
•
•
$120k salary, contribute max
amount of $17,500
Taxable income now $102,500
28% x $17,500 = $4,900
• Roth IRA income limit: < $114k
• Taxed on the way out
• “Backdoor Roth” option
• Traditional IRA’s have RMD’s
• Really depends on tax bracket now vs. retirement
• Beliefs on long-term tax brackets / code / law
• Solution: have some in each
Investing 101 & active vs. passive

Stocks, Mutual Funds, ETF’s, Bonds

Write down your financial principles / guidelines

20-25% for “fun” if you must

Active vs. Passive Investing:
research shows ~80-90% of
active funds underperform their
benchmark

8,000  2,000  500  125

20% most actively traded
accounts performed much worse
-men worse than women

Past fund performance has very little predictive power to future performance!

In fact, expense ratios are the best predictor
Expense Ratios (the enemy)
 Industry average (0.80%  2.50%)
 Low cost options (0.06%  0.50%)
 Get angry…it’s your money!
 Use the calculator
 Why “Rollover”

“It is difficult to get a man to
understand something, when
his salary depends on his not
understanding it.” – Upton Sinclair
Asset allocation & rebalancing
 With proper allocation, you should reduce risk (volatility)
and outperform the S&P 500

Rebalancing: meeting long-term policy target weights

Use it as a disciplined way of buying low and selling
high

“..shunning the loved & embracing the unloved. Most
people do the opposite.” (Swensen)

“Contrarian behavior lies at the heart of most
successful investing programs.” (Swensen)

Example: 1990-2012 portfolio: +0.5% difference in
return, -2% difference in volatility
My target allocation:
Precedence of Saving
1. Matching 401(k) or 403(b)– Max it!
2. Emergency fund (~6-9 months)
3. Pay down debt(s)
4. Roth IRA / Roth 401(k) or TSP
5. Taxable account
Invest in yourself too!
Savings accounts & fees
 ATM reimbursements
 Never pay monthly service
fees for savings/checking
 CapitalOne 360:
 doubled-ended bonus
 emergency fund
 “Direct deposit” & ACH pushes
Home ownership & mortgages
 Up to a $300/month because of credit score
 Real estate is a key component
 Consider NOT holding your mortgage with the same
bank as your investments
 Typically 20% down, qualify for a home 3x your annual
gross income
 Closing costs, points
 Refinancing
 Being a landlord can be tough!
Rent
 Rent : Income < 30% (rule of 36)
 Impact in high-rent markets (SF / NYC)
 Have rental package ready
 Credit pull
 Ask for a copy of credit report
 Security deposit & interest
 Zillow’s “zestimate”
Tax strategy
 Look for ways to reduce your taxes
 Traditional 401k / IRA
 Mortgage interest (& property management fees)
 Education expenses
 Consider capital gains (realize gains if you ever find yourself in the 10
or 15% tax bracket. 0% long term gains)
 IRA conversions
 Donate to charity with
appreciated stock
 Hire a professional – taxes
are “grey” – ask questions!
Life insurance
 Typically don’t need it until you have a family, but some
people “lock” it in while they are healthy
 Term vs. Whole
 $500k for $42/month
 Nice way to leave a gift
 Auto & Health
Other random advice…
 Never go without health insurance!
 “Exotic” or “alternative” asset classes
 Careful with your contracts
 Always look for discounts




Cell phone bills (15%-20%)
AAA, movies, restaurants, museums, parks
Driving habits
Avoid buying a new car
 Remember: smart investing
is not very exciting, but it is
very rewarding!
 Fatwallet Cash Back
Tactical next steps
 Automate your savings (pay yourself first)
 Open a (ROTH) IRA
 Enroll in your company’s 401k
 Stick to low-cost index funds
 Help a friend (ER) or 19 yr old cousin
 Company stock plans
 Don’t let inaction win!
Student loans vs. saving
 Paying down student loans vs. saving for retirement
 Max matching contributions
 Consider interest rates
loan rate: <2%  Invest
>10%  pay down
2%-10%  calculate




Both are urgent!
Save some to build the habit
Consider tax deduction
Windows are closed for good!
 Grandma’s inheritance
My favorite personal
finance resources
 Fatwallet Finance Forums
 Bogleheads
 Blogs: Mr. Money Mustache, Oblivious Investor
 Networth IQ
| Investopedia
*Bonus Material*
 Tax Loss Harvesting
 the Credit Card game
Questions?