Personal Finance Class
Mr. Morrow’s Lesson
ITEM
Vehicle (2008 GMC Yukon 35,000 miles –
32,250.00) If you decided to buy a vehicle for
22,500.00 at 4.9% interest with 60 months the
payment would be $423.57 per month)
Mortgage (house payment see above** or buy a 3
bedroom/2 bath $80,000.00 for 30 years at 5%
interest – this is a house in the Corning area. If
you move somewhere else. Experts will tell you
that you should not spend more than 20-25% of
you pay on housing.
Health Insurance
Cell Phone
Dish Network
Electricity (levelized billing)
Gas for heating (levelized billing)
Water
Vehicle insurance
Home insurance
Fuel (25 miles round trip to work – 22 days a week
at a gas price of $2.60
Personal Property Taxes
Internet
Total
1997.46 = about 2000.00
COST
607.00
429.46
135.00
100.00
101.00
150.00
150.00
25.00
50.00
85.00
85.00
30.00
50.00
Other areas Mr. Morrow did not discuss that might want to be considered when planning a budget.
Savings - were not included in the above plan.
Savings – Experts suggest you should save about
12% of your take home pay each check. Experts
suggest you start by saving 1% the first month,
then 2% the second month, 3% the third month
etc. until you are saving 12% by the 12th month.
You need this savings for emergencies.
Experts also say you should have at least a three
(3) month amount of living expenses saved in the
event that you become unemployed for whatever
reason. Hopefully, you will find new employment
within three months.
Religious contributions – were not included in the
above plan.
Religious contributions – Some people recognize
10% as being the amount of tithe they should
contribute to church. These decisions will be
based on your own personal values.
Most short term components: food, entertainment, clothing, personal
transportation, etc. were discussed, but not listed in the above budget because
with only $233.00 left to spend it was obvious that adjustments were going to
have to be made to the budget either on increasing income or decreasing
expenses.
Note: The house price is based on the Corning, AR area. If you move to a larger
city, you will have to check the cost of living for that city. The following cite will
allow you to easily check the cost of living in one city as compared to the cost of
living in another city. Not all cities are listed, but you can get close to your area of
interest. http://cgi.money.cnn.com/tools/costofliving/costofliving.html
If you have a career making $40,000.00 per year, you will take home about 26,800
per year. Taxes will be taken out of your check before you see the money- FICA
(Federal Insurance Contributions Act taxes support Social Security and
Medicare), federal income taxes, etc. Based on the above salary information
you should take home about 2,233.00 per month.
Experts will tell you that you should not have more than 50% of your take home
pay going to fixed expenses (those expenses that you will have every month). In
the above example, you have only 233.00 per month to buy food, clothes, WalMart, entertainment, doctor visits, eating out, credit card payments, college
loans, etc. In the above example, only 1,116.50 should be allocated to fixed
expenses not almost $2000.00.
As you can see from the example above, something will have to be adjusted
because you cannot live on 233.00 per month. You will need to make more
money or spend less money. You could live in a cheaper house, buy a cheaper
car, do without a cell phone or Internet, but something must be adjusted. You
could also find a career that makes more money so you can maintain the lifestyle
you would like to have in life.
**If you want to build a house, it will cost you about $100.00 a square foot. A
$150,000.00 – 30 year fixed interest at 5% would be a payment of $805.23 per
month.
Long-term components
Long-term components:
Estate planning, wills, disability insurance, education,
long-term care
Long-term components – were also not discussed in the budget above.
You will need to take these ideas into consideration. Once you have
acquired money, property, stocks, etc. you will want to contact a lawyer to
discuss estate planning. There are lawyers who specialize in estate
planning.
http://money.cnn.com/magazines/moneymag/money101/lesson21/
The following information was obtained from the above website.
ESTATE PLANNING
1. No matter your net worth, it's important to have a basic estate plan in place.
Such a plan ensures that your family and financial goals are met after you die.
2. An estate plan has several elements.
They include: a will; assignment of power of attorney; and a living will or health-care proxy (medical
power of attorney).
http://money.cnn.com/magazines/money
mag/money101/lesson21/index3.htm
Once you have children creating a will becomes very important so you can
name who will be in charge of the children in the event of your death. You
will also leave whatever assets (things you own that have value) that you
have left (after all bills are paid) to various people and/or institutions.
Why do I need a will?
If you don't have one, a court decides who gets your assets.
A will is a device that lets you tell the world whom you want to get your assets. Die without one, and
the state decides who gets what, without regard to your wishes or your heirs' needs.
So-called intestacy laws vary considerably from state to state. In general, though, if you die and
leave a spouse and kids, your assets will be split between your surviving mate and children. If you're
single with no children, then the state is likely to decide who among your blood relatives will inherit
your estate.
Making a will is especially important for people with young children, because wills are the best way
to transfer guardianship of minors.
You may amend your will at any time. In fact, it's a good idea to review it periodically and especially
when your marital status changes. At the same time, review your beneficiary designations for your
401(k), IRA, pension and life insurance policy since those accounts will be transferred automatically
to your named beneficiaries when you die.
A will is also useful if you have a trust. A trust is a legal mechanism that lets you put conditions on
how your assets are distributed after you die and it often lets you minimize gift and estate taxes. But
you still need a will since most trusts deal only with specific assets such as life insurance or a piece
of property, but not the sum total of your holdings.
Even if you have what known as a revocable living trusts in which you can put the bulk of your
assets, you still need what's known as a pour-over will. In addition to letting you name a guardian for
your children, a pour-over will ensures that all the assets you intended to put into the trust are put
there even if you fail to retitle some of them before your death.
Any assets that are not retitled in the name of the trust are considered subject to probate. As a
result, if you haven't specified in a will who should get those assets, a court may decide to distribute
them to heirs whom you may not have chosen.
POWER OF ATTORNEY
http://en.wikipedia.org/wiki/Power_of_attorney
A power of attorney (POA) or letter of attorney in common law systems or mandate in civil law systems
is an authorization to act on someone else's behalf in a legal or business matter. The person authorizing
the other to act is the principal, granter or donor (of the power), and the one authorized to act is the
agent, the attorney-in-fact,[1] or in many Common Law jurisdictions, simply the attorney.
and a living will or health-care proxy (medical power of attorney).
Living wills and health-care proxies
Making your medical wishes known now can save a lot of heartache later.
A living will (also known as an advance medical directive) is a statement of your wishes for the kind
of life-sustaining medical intervention you want, or don't want, in the event that you become
terminally ill and unable to communicate.
Most states have living will statutes that define when a living will goes into effect (for example, when
a person has less than six months to live). State law may also restrict the medical interventions to
which such directives apply.
Your condition and the terms of your directive also will be subject to interpretation. Different
institutions and doctors may come to different conclusions.
As a result, in some instances a living will may not be followed. Nevertheless, a patient's wishes are
taken very seriously, and an advance medical directive is one of the best ways to have a say in your
medical care when you can't express yourself otherwise.
You increase your chances of enforcing your directive when you have a health-care agent
advocating on your behalf.
You can name such an agent by way of a health-care proxy, or by assigning what's called a medical
power of attorney. You sign a legal document in which you name someone you trust to make
medical decisions on your behalf in the event that you can't do so for yourself.
A health-care proxy applies to all instances when you're incapacitated, not just if you're terminally ill.
Choose your health-care agent carefully. That person should be able to do three key things:
understand important medical information regarding your treatment, handle the stress of
making tough decisions, and keep your best interests and wishes in mind when making
those decisions.
For some people, a trust may also make sense. When putting together a plan, you must be mindful
of both federal and state laws governing estates.
3. Taking inventory of your assets is a good place to start.
Your assets include your investments, retirement savings, insurance policies, and real estate or
business interests. Ask yourself three questions: Whom do you want to inherit your assets? Whom
do you want handling your financial affairs if you're ever incapacitated? Whom do you want making
medical decisions for you if you become unable to make them for yourself?
4. Everybody needs a will.
A will tells the world exactly where you want your assets distributed when you die. It's also the best
place to name guardians for your children. Dying without a will -- also known as dying "intestate" -can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a
trust, you still need a will to take care of any holdings outside of that trust when you die.
5. Trusts aren't just for the wealthy.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be
distributed upon your death. They also allow you to reduce your estate and gift taxes and to
distribute assets to your heirs without the cost, delay and publicity of probate court, which
administers wills. Some also offer greater protection of your assets from creditors and lawsuits.
6. Discussing your estate plans with your heirs may prevent disputes or confusion.
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential
conflicts after you're gone.
7. The federal estate tax exemption -- the amount you may leave to heirs free of federal tax -changes regularly.
The estate tax hit $3.5 million in 2009, but was phased out completely in 2010, but only for a year.
Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 at $1
million.
8. You may leave an unlimited amount of money to your spouse tax-free, but this isn't always
the best tactic.
By leaving all your assets to your spouse, you don't use your estate tax exemption and instead
increase your surviving spouse's taxable estate. That means your children are likely to pay more in
estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough
decisions about the distribution of your assets until your spouse's death.
9. There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift
with your spouse). You may also pay an unlimited amount of medical and education bills for
someone if you pay the expenses directly to the institutions where they were incurred.
10. There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and
you can select the charities to which contributions are given both before and after you die.
http://en.wikipedia.org/wiki/Disability_insurance
Disability Insurance
Disability insurance is insurance which would provide some income in the
event you become disabled – talk to an insurance agent about disability
and long-term care insurance.
Disability Insurance, often called DI or disability income insurance, is a
form of insurance that insures the beneficiary's earned income against the
risk that disability will make working (and therefore earning) impossible. It
includes paid sick leave, short-term disability benefits, and long-term
disability benefits. Statistics show in the US a disabling accident occurs
every second.
Individual Disability Insurance
Those whose employers do not provide benefits, and self-employed
individuals who desire disability coverage, may purchase their own policies
on the open market. Premiums and available benefits for individual
coverage vary considerably between different companies, for individuals in
different occupations, and by State and Country. In general, premiums are
higher for policies that provided more monthly benefit, pay the benefit for a
longer period of time, and start payments for benefits more quickly
following a disability. Premiums also tend to be higher for policies that
define disability in broader terms, meaning the policy would pay benefits in
a wider variety of circumstances. There are many web based disability
insurance calculators to determine the disability insurance needed.
Long-term care insurance will provide money in the event you must enter
an assisted living or nursing home due to illness or injury. The current
nursing home prices are very expensive so you will want to protect your
assets with a long-term care policy. This type of policy pays money to the
nursing home so you do not have to sell your assets to pay the nursing
home bill. I purchased my (and my husband’s policy) when we were 40
years old. At that time, you had to be 40 before you could purchase a longterm care policy. I am not sure what the age is now (that was over 10
years ago) so you will want to talk to an insurance agent about this type of
policy.
http://en.wikipedia.org/wiki/Long_term_care_insurance
Long-term care insurance (LTC or LTCI), an insurance product sold in the
United States, helps provide for the cost of long-term care beyond a predetermined
period. Long-term care insurance covers care generally not covered by health
insurance, Medicare, or Medicaid.
Individuals who require long-term care are generally not sick in the traditional
sense, but instead, are unable to perform the basic activities of daily living (ADLs)
such as dressing, bathing, eating, toileting, continence, transferring (getting in and
out of a bed or chair), and walking.
Age is not a determining factor in needing long-term care. About 60 percent of
individuals over age 65 will require at least some type of long-term care services
during their lifetime.[1] About 40% of those receiving long-term care today are
between 18 and 64. Once a change of health occurs long-term care insurance may
not be available. Early onset (before age 65) Alzheimer's and Parkinson's disease
are rare but do occur.
Benefits
Long-term care insurance generally covers home care, assisted living, adult
daycare, respite care, hospice care, nursing home and Alzheimer's facilities. If
home care coverage is purchased, long-term care insurance can pay for home care,
often from the first day it is needed. It will pay for a visiting or live-in caregiver,
companion, housekeeper, therapist or private duty nurse up to 7 days a week, 24
hours a day (up to the policy benefit maximum).
Long-term care insurance rates are determined by six main factors: the person's
age, the daily (or monthly) benefit, how long the benefits pay, the elimination
period, inflation protection, and the health rating (preferred, standard, substandard). Most companies will give couple's and multi-life discounts on individual
policies. Some companies define “couples” not only to spouses, but also to two
people who meet criteria for living together in a committed relationship and
sharing basic living expenses.
The average age of purchasers has dropped from 68 years in 1990 to 61 years in
2005, and the number of purchasers who are under age 65 has increased
significantly.[5]
EDUCATION
You may also want to save money to continue your education or training
in your career field.
Also, you will want to save money for education/training for your
children.
Lifetime Earnings Soar with Education
Masters degree worth $2.5 million income over a lifetime
By Robert Longley, About.com Guide
Feb 13 2010
How much is higher education worth in
cold hard money? A college master's
degree is worth $1.3 million more in
lifetime earnings than a high school
diploma, according to a recent report
from the U.S. Census Bureau.
over an adult's working life, high school graduates can expect, on
average, to earn $1.2 million; those with a bachelor's degree,
$2.1 million; and people with a master's degree, $2.5 million.
Persons with doctoral degrees earn an average of $3.4 million
during their working life, while those with professional degrees do
best at $4.4 million.
"At most ages, more education equates with higher earnings, and
the payoff is most notable at the highest educational levels," said
Jennifer Cheeseman Day, co-author of the report.
The figures are based on 1999 earnings projected over a typical
work life, defined as the period from ages 25 through 64.
The report titled "The Big Payoff: Educational Attainment and
Synthetic Estimates of Work-Life Earnings" (.pdf) reveals that
Americans Staying In School Longer
Along with the financial data, the report also shows that more
Americans are staying in school longer than ever before. In 2000,
84 percent of American adults age 25 and over had at least
completed high school and 26 percent continued to earn a
bachelor's degree or higher, both all-time highs.
"Glass Ceiling" On Earnings Still Intact
The report also shows that while more American women than
men have received bachelor's degrees every year since 1982,
men with professional degrees may expect to cumulatively earn
almost $2 million more than their female counterparts over their
work lives. Glass ceiling aside, the U.S. Bureau of Labor Statistics
reports that women who graduated from college earned about 76
percent more than women with only a high school diploma in
2004.
Additional highlights from the report show:

In 1999, average annual earnings ranged from $18,900 for high
school dropouts to $25,900 for high school graduates, $45,400
for college graduates and $99,300 for the holders of
professional degrees (medical doctors, dentists, veterinarians
and lawyers).

Over a work life, earnings for a worker with a bachelor's degree
compared with one who had just a high school diploma increase
by about $1 million for non-Hispanic Whites and about
$700,000 for African Americans; Asians and Pacific Islanders;
and Hispanics.

Currently, almost 9-in-10 young adults graduate from high
school and about 6-in-10 high school seniors go on to college
the following year.
A separate report released last year,
"What's It Worth? Field of Training
and Economic Status: 1996," said
among people with bachelor's
degrees, those working full time in
engineering earned the highest
average monthly pay ($4,680), while
those with education degrees earned
the lowest ($2,802) in 1996.