PART 5:
LIFE CYCLE ISSUES
Chapter 18
Fitting the Pieces
Together
Learning Objectives
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Understand the importance of beginning your
financial planning early.
Understand that achieving financial security is more
difficult for women.
Recognize the “10 Financial Life Events” and
strategies to deal with them.
Understand and manage the keys to financial
success.
Deal with all kinds of debt in the real world.
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The Ingredients of Success
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It is impossible to succeed financially unless
you:
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Evaluate your financial health.
Plan and budget.
Manage your cash and credit.
Control your debt.
Make knowledgeable consumer decisions.
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The Ingredients of Success
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It is impossible to succeed financially unless
you:
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Have adequate health, life, property, and liability
insurance.
Understand investing principles.
Make investment decisions that reflect your goals.
Plan for retirement.
Plan for what happens to your accumulated
wealth and your dependents after your die.
18-4
The Financial Life Cycle
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Recent graduates make many financial
decisions after leaving college. They:
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May purchase a car and possibly a home.
Will establish credit and pay taxes.
May get married and begin a family.
Set up an emergency fund, start saving for
your goals, and begin a retirement account.
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The Financial Life Cycle
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At age 19, put $2000, earning 11%, in an IRA
for 7 years. Invest nothing thereafter, at 65
you will have more than $1.2 million.
Start at 25, make payments for 40 years, and
you’ll have less than $1.2 million.
Start at 30, make 35 payments, and end up
with less than $700,000.
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Women and Personal Finance
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While the basic principles of personal finance
don’t change whether you’re a man or a
woman, it is tougher for women to achieve
financial security.
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Women:
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Generally earn less
Are less likely to have pensions
Qualify for less Social Security
Live longer than men
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Women and Personal Finance
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Consider these facts:
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Over 90% of all women take sole responsibility for
their financial decisions at some point.
Nearly half of all women over 65 get 90% of their
income from Social Security, compared to 35% of
comparable men.
75% of women don’t know how much they need
to save for retirement.
Women tend to be more conservative in their
investments, so they earn less.
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Women and Personal Finance
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Consider these facts:
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Only 28% of women over 65 receive pension benefits,
compared to 45% of men, and the average men’s
pension was twice that of women.
At age 65, women outnumber men 3 to 2, by 85 they
outnumber them 5 to 2.
While 12% of the elderly live in poverty, 75% of them
are women.
In 2001, median personal income for 65 year-old
women was $11,313, while for 65 year-old men it was
$19,668.
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Women and Personal Finance
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How does a woman start to take
charge?
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Acquire knowledge.
Make things happen – create a plan.
See a financial planner about specific
concerns.
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Financial Life Events
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Life Event 1: Getting Started
Lay the groundwork – understand investments and
personal finance and assess current finances with
planning for the future:
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Expenses and a budget
Control debt
Establish an emergency fund
Insure yourself
Control your credit score
Keep current on personal finance
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Financial Life Events
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Life Event 1: Getting Started
Identify your goals:
– Identify and prioritize financial goals.
– Set a time frame.
– Identify the costs of your goals.
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Financial Life Events
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Life Event 1: Getting Started
Begin saving for your goals:
– Save more than you think you can.
– Make savings automatic.
– Don’t procrastinate.
– Catch your matches.
– ROTH.
– How much risk can you tolerate?
– Put together a strategy.
– Control your spending.
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Financial Life Events
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Life Event 2: Marriage
Get Organized – review and reorganize finances.
– Work together – discuss approaches to handling
money.
– Update financial records.
– Gain control of your debt and your credit score –
clear up debt issues to work towards getting a
mortgage.
– Merge finances to make good decisions.
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Financial Life Events
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Life Event 2: Marriage
Revisit Your Financial Goals – revisit both longand short-term goals
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Reexamine your financial goals.
Begin saving for new goals.
Make saving automatic.
Make sure you have an emergency fund.
Begin working towards retirement.
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Financial Life Events
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Life Event 2: Marriage
Reexamine your insurance and benefits: may
change beneficiaries, buy additional insurance, and
coordinate benefits.
– Review your beneficiaries.
– Include all family members.
– Review your insurance.
– Coordinate your benefits.
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Financial Life Events
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Life Event 2: Marriage
Reexamine your taxes: your tax status and the taxadvantaged benefits from your employer may change.
– Update W-4 form.
– Take advantage of tax breaks.
Make a will.
– Review your beneficiaries.
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Financial Life Events
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Life Event 3: Buying a Home
Does the purchase fit your financial plan?
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Keep track of your credit score.
Consider the tax implications.
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Take advantage of tax benefits.
Build tax benefits into your budget.
Reexamine your investments.
Update your employer records.
Know your state.
18-18
Financial Life Events
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Life Event 4: Having a Child
Survey your finances.
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Assess your current financial situation.
Reexamine your financial goals.
Revise your budget.
Plan for college.
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Estimate costs.
Automate your savings.
18-19
Financial Life Events
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Life Event 4: Having a Child
Reconsider your insurance needs.
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Update wills and trusts.
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Review and update insurance.
Update or make a will.
Update your retirement account beneficiary.
Take advantage of tax savings.
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Apply for Social Security number.
Update W-4.
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Financial Life Events
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Life Event 5: Inheritances, Bonuses,
or Unexpected Money
Examine the priorities of your goals.
Reexamine your goals.
Consider estate planning.
Examine the tax implications.
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Plan for tax implications.
Consider estate taxes.
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Financial Life Events
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Life Event 6: A Major Illness
Reexamine your finances.
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Assess current financial situation.
Emergency fund – adequate liquidity.
Reexamine financial goals.
Reexamine investment strategy.
Revise budget.
Take advantage of tax breaks.
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Understand the tax implications.
Explore flexible spending accounts (FSAs).
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Financial Life Events
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Life Event 6: A Major Illness
Alternatives to Finance Your Illness.
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Reverse mortgage
Life insurance
Disability insurance
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Financial Life Events
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Life Event 7: Caring for an Elderly Parent
Health care and estate planning concerns.
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Oversee your parents’ financial affairs.
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Understand their goals and budget.
Discuss long-term health care options.
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Talk to your parents.
Long-term health care insurance.
Estate planning.
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Discuss estate planning.
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Financial Life Events
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Life Event 8: Retiring
Develop a retirement income plan.
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Mental and financial preparation.
Plan how to use your retirement savings.
Manage your income in retirement.
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Withdrawal strategy.
Monitor your investments.
Emergency fund.
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Financial Life Events
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Life Event 8: Retiring
Review your insurance coverage and your will.
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Employer retiree health care.
Medicare and Medicare supplemental insurance.
Long-term health care insurance.
Homeowner’s insurance.
Review your will.
Keep track of important retirement planning dates.
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Financial Life Events
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Life Event 9: Death of a Spouse
Organize financial material.
Contact sources of survivor benefits.
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Insurers.
Social Security.
Past Employers.
If you are the executor, carry out your
responsibilities.
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Distribution of assets.
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Financial Life Events
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Life Event 9: Death of a Spouse
Change ownership or title to assets.
– Insurance policies.
– Automobiles.
– Bank accounts, stocks, bonds, and safe deposit
boxes.
– Credit cards.
– Determine if your benefits change.
– Review your insurance.
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Financial Life Events
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Life Event 10: Divorce
Nearly ½ of all marriages end in divorce and money
problems are a main cause.
Prepare for divorce.
– Pay down debt.
– Keep the costs down.
– Protect yourself with the help of a financial
planner.
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Financial Life Events
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Life Event 10: Divorce
Avoid Credit Damage.
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Revisit your financial goals.
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Late payments and your credit report.
Have your account re-aged.
Insurance coverage.
Child support and alimony.
Rework your budget.
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Retirement savings.
Reexamine your expenses.
18-30
Making Financial Success happen
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Wealthy Americans:
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Net worth from $1 million-$5 million, not inherited.
Most have incomes less than $100,000.
They own a home valued at $278,000.
They are self-employed or a partner.
In their original marriage, have 3 kids.
They are frugal – clip coupons, buy on sale or do
without.
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The Keys to Success:
A Dozen Decisions
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Number 1: Become Knowledgeable – avoid
financial pitfalls and bad advice, handle unwanted
financial surprises.
Number 2: Don’t Procrastinate - your financial
future starts now.
Number 3: Live below your means – don’t spend
at your level or earning.
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The Keys to Success:
A Dozen Decisions
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Number 4: Realize You Aren’t Indestructible consider life and health insurance, stay healthy.
Number 5: Protect Your Stuff – have insurance to
protect you from financial ruin.
Number 6: Embrace the “B” Word (Budget) – the
budget is a means to reach your goals.
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The Keys to Success:
A Dozen Decisions
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Number 7: Reinvent and Upgrade Your Skills –
prepare for job insecurity by having the right
skills.
Number 8: Hide Your Plastic – credit cards are a
dangerous threat to your financial well-being.
Number 9: Stocks Are Risky, But Not as Risky as
Not Investing in Them – invest long-term in
stocks and keep up with inflation.
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The Keys to Success:
A Dozen Decisions
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Number 10: Exploit Tax-Favored Retirement
Plans to the Fullest.
Number 11: Plan for the Number of Children You
Want.
Number 12: Stay Married.
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Successful Debt Management
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Key #1: The Obvious: Spend less than you
earn and budget your money.
Key #2: Know the costs.
Key #3: Understand the difference between
good and bad debt.
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Successful Debt Management
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Key #4: Make sure you can repay what you
borrow – set your own standards.
Key #5: Keep your credit score strong – it keeps
costs down and is a source of emergency money.
Key #6: Don’t live with bad (and expensive) debt.
18-37
Getting Started: Just Do It
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Start today – don’t procrastinate.
Begin with budgeting and planning.
Pay attention to managing your cash.
Rid yourself of bad debt.
Your safety net should be in order.
Start investing.
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