Personal Finance Questions: Financial Life Events

Question: List the 10 'ingredients' in order to succeed financially.
- Evaluate your financial health.
- Plan and budget.
- Manage your cash and credit.
- Control your debt.
- Make knowledgeable consumer decisions.
- 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 you die.

Question: What are the two things that, if not eliminated, might jeopardize your future?
Delete Any Eyebrow-Raising Photos from Facebook and Other Social Media
- Because potential employers will look at Twitter, Instagram, Facebook, and other social media, photos of you drinking or having fun on spring break must go.
Eliminate FEAR! Don't Be Afraid to Invest in Yourself
- In a way, your largest financial asset is your 'human capital.' You'll most likely hold several jobs over your lifetime, so make sure your skill set grows over time.

Question: Why is it important for someone twenty five years old to start planning for retirement?
- When you are young your best friend is time
- With the time-value-of-money working for you, you can start saving a relatively small amount of money when you are young and accumulate a fairly large amount of money by the time you retire
- If you wait until later in life to start saving for retirement, you would need to save a dramatically larger amount to even come close to the younger saver
- This represents an opportunity cost of a lower standard of living for the older saver
- Starting early, consistently investing in the stock market, and taking advantage of the tax deferred retirement accounts is the smartest thing a young person can do.

Question: Why is it more challenging for women to become financially security?
because the woman stereotypically has responsibility to raise the children, this may interfere with their careers meaning they may earn less money and contribute less money to their own retirement accounts, especially when they are younger
- Statistically, women live longer than men so they are most likely to end up alone
- Because they live longer they run out of retirement monies and rely on Social Security only
- Many times they relied on their husbands to handle the family finances and they are naive as to what to do financially.

Question: List the main 'life events' as discussed in your textbook
- Getting started
- Marriage
- Buying a home
- Having children
- Inheritance, bonuses, or unexpected money
- A major illness
- Caring for an elderly parent
- Retiring
- Death of a spouse
- Divorce

Question: Discuss what is involved in Life Event 1: Getting started.
Before you can begin your life's journey, you need to figure out where you are now.
Creating an income statement and balance sheet is essential in determining your financial health and establishing a realistic budget
- You must establish an emergency fund and have adequate insurance in place to protect your long term savings and investments incase of an unplanned event
- Establishing and maintaining strong credit is essential to having access to affordable credit
- Establishing realistic goals and creating a plan to achieve them are next
- Without a plan in place, the odds of achieving your goals are low.

Question: Why is discussing personal finances with your significant other so important prior to getting married?
Personal finances become more challenging when their are two people involved.
Financial stress can lead to an unhappy marriage and divorce
- Understanding each other's perspectives and habits before you get into the marriage may help to prevent any future problems before they arise.
Their income, debt, saving and spending habits need to be known so that you can work together to establish common financial goals, budgets and priorities in life
- If you cant effectively communicate with each other over these issues before you get married then heaven help you afterwards!

Question: Buying a home is one of the smartest investments you can make - What are the proper steps necessary to make sure you do it right?
Part of financial planning is looking into the future for threats or opportunities that may arise
- Saving up the largest downpayment you can afford may take several years of planning and budgeting
- Establishing or repairing good, strong credit may also take several years to allow you to get approved for affordable financing
- Using the 28/36 rule to help you understand the impact of other debt payments like car and student loans will help you to properly manage and or eliminate some non-mortgage debt before you purchase the home
- Becoming aware of the tax implications associated with owning a home in your State is also beneficial.

Question: How should a family plan for having children from a personal financial perspective?
by being proactive, a family can plan for children financially making less of a financial impact and stress upon the birth of the children
- For a typical newlywed younger couple, they may have car loans, student loans and credit card debt from being single
- A good goal would be to pay off as much of this debt prior to having a family
- If they also plan on buying a home, possibly the increased expenses from owning a home and having children might be more than they can handle
- Delaying one of these major decisions until they have paid off debt, increased their savings or both might be a good idea
- Being properly insured is a must before the pregnancy and making sure their health coverage includes pregnancy expenses is key.

Question: How can someone plan for a major illness?
Part of financial planning is being prepared for the unplanned events that occur to most of us sooner or later
- Sound budgeting to make sure we have enough in an emergency fund to meet the liquidity ratios from chapter two is essential
- Keeping our debt ratios under 15% gives us options and flexibility in case something bad happens and we lose some income
- Being properly insured before we develop a pre-existing condition is vitally important
- You can't avoid a catastrophe but you can be proactive in managing and lessening it's financial impact.

Question: How can someone plan for a divorce?
- Hopefully you will only marry once and forever but the odds are not in your favor, unfortunately
- It is critically important for both spouses to be actively involved in and aware of the financial decisions for the family
- Maintaining your own personal credit during your marriage is essential
- Making sure that the joint assets are titled properly also protects you from possible harm in case of divorce
- Maintain your own checking and savings accounts and use a joint account for joint expenses makes sense and protects you from the other spouse having access without your knowledge
- Use joint credit sparingly and limit your debt limits accordingly
- Try to maintain communications and civility during the divorce to limit attorney fees
- Make sure insurance needs are met and change beneficiary designations accordingly
- If you are awarded alimony or child support payments, make sure the judge requires the payor to have adequate life insurance coverage where you are the policy owner and beneficiary.

Question: Why are stocks risky, but not as risky as not investing in them?
Stocks are risky due to the ups and downs experienced both in the individual stock as well as in the stock market in general
- They are indeed risky.
They are not as risky as not investing in them for the following reasons:
- Diversification will reduce the risk of owning individual stocks.
- The time dimension of planning will reduce the general market risks (fluctuations).
- You will be better able to keep ahead of inflation and taxes.

Question: Discuss why budgeting is so critical to financial success and what it forces you to do.
Budgeting is critical in allowing you to save more than you spend.
It forces you to do the following:
- Use restraint when purchasing items or obtaining/using credit.
- More carefully consider what you spend your money on.
- Live below your means.
- Be frugal.

Question: What does the phrase 'living below your means' really mean and how is it related to wealth building?
Living below your means is simply saving money by spending less than you earn.
This is related to wealth building in that, by practicing this method of living, you are getting out of the trap or tendency that many people have of spending to their level of earning (or beyond)
- It allows you to be realistic with respect to what you can really afford.


Question: Discuss the results of having debt marketed to adults the same way toys are marketed to children-
- Students and those with little capacity to repay are being given the opportunity to increase debts at will
- Many students only need a college ID to obtain a credit card
- These cards typically come with all types of free goodies to entice application.
- People are encouraged to borrow more than they should
- Borrowing is becoming part of our culture
- In a recent survey of those aged 30 and under, almost 60 percent do not pay off their credit card bills every month
- For those over 60, it falls to less than 15 percent.
- Bankruptcies have reached an all-time high
- Debt as a percent of disposable income has nearly doubled over the last 40 years
- In 1997 was the first year where over 1 million Americans filed for bankruptcy.

Question: Discuss why it is important to keep a clean credit record-
- It provides a source of funds that might not otherwise be available in the case of an emergency or crisis
- You might lose your job or become ill.
- It can significantly hurt you in getting a car loan, an apartment, and even a job.
- It significantly affects the rate that you pay when you borrow money
- Rates can be up to six percent higher on mortgage rates for those with poor credit.

Question: List the six keys to successful debt management-
- Budget and spend less than you earn.
- Know the costs.
- Understand the difference between good and bad debt.
- Make sure you can repay what you borrow; set your own standards.
- Keep a clean credit record; it is a source of emergency money.
- Do not live with bad (and expensive) debt.