Financial decisions during these days of near

depression should include an emergency fund decision. This means having enough money to

mave, to find medical help, to recover from an illness, and more. There much more to financial planning.

and this page will share ideas for financial .planning. Besides, by the time our county government

employees get done stealing from families victimized by homicide, suicide, and unattended

death, families need an emergency fund.

 

Setting Up an Emergency Fund

Make your money work towards your future!

Question: Accessing your emergency savings for a new shirt is a need.
Correct. Needs are often things that we think we need but don’t need at all.


Question: Accessing your emergency fund to fix your car is a need.
Correct. There is a considerable need to fix your vehicle in order to get to and from work and the like.


Question: Accessing your emergency fund to go out to dinner with a friend is a need.
Correct. While eating is a basic need, the way in which you satisfy this need can differ greatly financially. Consider what the cost of dining out can be versus cooking at home.


Question: What is a good "first step" savings goal?

Setting Up an Emergency Fund

Emergency funds

Imagine your financial future with extra money and no longer living paycheck-to-paycheck. Imagine having $10,000 in the bank. How would that feel? You might think it's impossible, but all it takes is learning to make better choices. It's about learning to exercise the proper respect for your money.

Emergency funds are an absolute necessity for financial security because they give you funds to fall back on if you become ill or disabled and can't work, or if you or your spouse lose your job, incur large medical bills, or have an unexpected large bill such as a major car or home repair.

Building an emergency fund depends on your commitment to put away your money left over after expenses. It can be difficult for many people to avoid the temptation of digging into the emergency fund for non-emergencies. Many of the things that we think we need aren't needs at all.

Unforeseen things happen and it usually comes with some type of dollar figure attached. It's an expense that wasn’t in the "Fixed or Variable" category but is still very real. If you don't have a savings, it could make budgeting very challenging. A good first-step savings goal is to build up to an amount equal to three to six month’s worth of your living expenses.

If you don’t set up an emergency fund, it forces you to rely on credit for unforeseen expenses. Expenses made on your credit card end up costing more in the long run, and reduce your ability to maintain an emergency fund.

Open a savings account and start saving a set amount of your earnings; if you can, have the money deducted automatically out of your checking account. Take pride in saving your money; after all, you are working hard to earn it

The importance of financial decisions

We are bombarded daily by sales pitches for products and services advertised via the internet or media, the message generally implying that they have the product that is THE best choice for our hard earned money.

Each one of us has the ability and responsibility to make the best financial decisions for ourselves. Fortunately, financial concepts and tools (which will be presented in this course) enable us to sift through frivolous products and services, and choose those that meet our long-term financial goals.

This course is designed to highlight these key financial concepts, and walk you step-by-step through tools and resources that will help you make the best financial decisions for you and your family.

Question: This course is designed to:



Question: The responsibility to make wise financial choices and resist the pressure of the media (such as the internet and TV) can be accomplished by:

Each of us may choose and spend as we please with credit cards. We still have a responsibility to make the best financial decisions for ourselves. This means being able to resist pressure to purchase products offered by various forms of media by using basic financial tools offered in this course. Tools which will be taught include tracking your individual purchases and separating your wants from your needs.

hat to expect from this course

This course will challenge you to focus on your current finances, and teach you how set goals and plan for potential obstacles.

This course will help you:

Correct. Budgeting benefits people from all walks of life. People with and without money realize that budgeting is an effective financial action plan.

Correct. Many people have no idea where their finances stand from month to month. The fact is that most of us spend 10% more each month than we make

Importance of Budgeting

Budgets are not always easy to stick to, but can be rewarding and provide a sense of freedom when followed consistently. As you establish effective ways of keeping track of your finances, the benefits of your budget will quickly outweigh the effort that is involved.

As you get the hang of tracking your spending, your budget will start providing better information about where your money is being spent today, as well as what you will need for the future. When your budget provides better information, you develop better decision making skills when faced with routine spending decisions.

Remind yourself daily that a decision has to be made that you are in control of your finances and your finances don’t control you. When we are at the mercy of our spending, then our finances are in control. Choose to be in control!

Budgeting is
Correct. Budgeting is a discipline that takes getting used to, but if followed consistently, can be rewarding and provide financial freedom.

Importance of Budgeting

Budgets are not always easy to stick to, but can be rewarding and provide a sense of freedom when followed consistently. As you establish effective ways of keeping track of your finances, the benefits of your budget will quickly outweigh the effort that is involved.

As you get the hang of tracking your spending, your budget will start providing better information about where your money is being spent today, as well as what you will need for the future. When your budget provides better information, you develop better decision making skills when faced with routine spending decisions.

Remind yourself daily that a decision has to be made that you are in control of your finances and your finances don’t control you. When we are at the mercy of our spending, then our finances are in control. Choose to be in control!

Budgeting is
Correct. Budgeting is a discipline that takes getting used to, but if followed consistently, can be rewarding and provide financial freedom.


It is important to not only establish a budget, but also to make a habit out of sticking to your budget every day.

Question: Budgeting and tracking your spending over time provides better information regarding your spending patterns. Other than gaining knowledge about what you spend money on, another benefit of this information is:
Correct. As you get the hang of tracking your spending, your budget will start to provide better information about your spending patterns. As you track your money and refine your budget, you will start to develop better decision making skills when faced with those routine spending decisions.

Importance of Budgeting

Incomes for many individuals vary from month to month. Those who have commission-based jobs or own their own business may have different amounts coming in monthly. Incomes that vary from month to month can make accurate income budgeting more difficult in the beginning, but over time you should get a good idea of what amount of income you can realistically depend on each month. It is important to note that income is just one piece of the budgeting puzzle.

If your monthly income does vary due to periodic increases in your income such as commissions, bonuses, and business income, you should prorate conservative estimates of these periodic amounts into months.

Prorating into months simply means that you convert non-monthly income that you expect to receive, and convert the income into level monthly amounts. By prorating, you could either divide an annual amount of income into 12 months, or you could multiply income you receive twice a month by 2. Either way, you are converting non-monthly income into even monthly income amounts for budgetary purposes.

For example, if you are expected to receive an average of $12,000 in commission this year, prorating this into a monthly income would result in $1,000 (12,000 / 12) per month.

To know what you can spend, you must first know what you have at the time. The first step to successful budgeting is to determine what your monthly income is now, not what you 'could' or would like to earn in the future, but what you will 'probably' earn this year, or have earned in the past.

Question: You should budget based on:
Correct. Your budget should be based on what you consistently plan to earn from month to month; not what you could or hope to earn in the future. Budgets work best when based on conservative estimates, not on uncertain estimates of future income.


Question: If your income varies from month to month because a majority of your salary is based on commission or bonus, you should make a conservative estimate of your monthly income until you get a good feel for what you can depend on from month-to-month:
Correct. Incomes that vary from month to month can make accurate income budgeting difficult in the beginning. Overestimating your income at the start of your budget can lead you to believe you have more to spend than you actually do. Instead, you should start off with a conservative estimate of your average monthly income. By prorating a reasonable amount of income over 12 months, you allow yourself to use a reasonable monthly income to base your budget on.

mportance of Budgeting

What income should you make as part of your monthly income?

Once you determine your monthly income, you should next identify what your "net take home pay" would be. Net take home pay is what you "bring home" after your employer makes the appropriate payroll deductions.

Payroll deductions generally include things such as:

  • Payroll taxes
  • Social Security
  • Insurance amounts
  • Union dues
  • Retirement contributions

Your take home pay is the income left over after the deductions listed above.

Question: My take home pay is what I bring home after deductions.Correct. Your take home pay is simply what you bring home after factoring in deductions for taxes, healthcare premiums, union dues, and retirement contributions. Note: If you generally pay a large tax bill or receive a large tax refund at the end of the year, this might be a good opportunity to speak with your employer and evaluate your level of federal income tax withholding. Doing so could free up some monthly cash flow for and benefit your budget.

Determine What You Spend

Major Budget Categories: Fixed, Variable, and Periodic expenses

As you identify what your expenses are, separate them into major budget categories: "Fixed", "Variable", or "Periodic."

Fixed expenses are expenses which routinely occur each month and usually do not change in amount from month to month.

Examples of fixed items include:

  • Rent / mortgage payment
  • Auto payment
  • Health insurance premiums
  • Life insurance
  • Childcare
  • Student Loans
  • Cable and phone

Question: Which of the following would be considered a "fixed" expense?
Correct. Fixed expenses occur every month and do not change in amount. Expenses such as movie rentals and food, while they may both occur every month, do vary in amount. Expenses such as loan payments on a car or student loans are considered fixed expenses.


Question: Which of the following would NOT be considered a "fixed" expense?
Correct. Fixed expenses occur every month and do not change in amount. Expenses such as movie rentals and food, while they may both occur every month, do vary in amount. Expenses such as loan payments on a car or student loans are considered fixed expenses.

Determine What You Spend

Major Budget Categories: Fixed, Variable, and Periodic expenses

Variable expenses are those monthly expenses that normally change from month to month. Variable expenses are also items which you personally have more control over.

Examples of variable expenses include

  • Groceries
  • Coffee
  • Water and heat utilities
  • Entertainment
  • Dry-cleaning
  • Gifts
  • Other

Determine What You Spend

Major Budget Categories: Fixed, Variable, and Periodic expenses

Periodic Expenses are not monthly expenses as typical fixed and variable expenses are, but rather expenses that occur maybe once or twice a year, and could vary in amount from payment to payment. Periodic expenses are easy to forget about, but are important expenses to plan for.

Since periodic expenses may not occur every month, it would be wise to prorate the annual amounts into even monthly expenses. Just like prorating your periodic income into even monthly amounts, you can also prorate periodic expenses by taking the annual amount expected to be spent and dividing that by 12 months.

You can account for the expense in your budget as a "savings" item each month so you will be prepared to pay the bill when the time arrives.

Examples of periodic expenses include the following items listed below. Take a moment to estimate what you spend in each of these periodic categories each year. By dividing these expenses by 12 months, you will get a sense of how much you should save each month to budget for these periodic expenses.

Periodic Expense Annual Expense
   Monthly Expense
Property tax $ Divided by 12 = $
Auto repair / maintenance $ Divided by 12 = $
Home improvements $ Divided by 12 = $
Clothing $ Divided by 12 = $
Other $ Divided by 12 = $
* Monthly expenses are calculated to the nearest dollar.

*To keep your changes, please click "save"
before you leave this page.




Question: Which of the following would be considered a "periodic" expense?
Correct. Periodic expenses do not occur every month, and do not necessarily occur in the same amount. Periodic expenses that may vary in amount include home improvements and auto maintenance expenses. Periodic expenses that generally do not vary include property tax and home/renter’s insurance.


Question: A periodic expense is an expense that is:
Correct. Periodic payments occur maybe once or twice a year, and could vary in amount from payment to payment. Periodic expenses are easy to forget about, but are important expenses to plan for.

Determine What You Spend

Major Budget Categories: Fixed, Variable, and Periodic expenses

Setting effective sub-categories and spending limits is where your budget really pays off. Make sure you set up sub-categories that mean something to you. Simplify your budget by only setting up sub-categories and limits that benefit your budget and help you achieve your goals.

Beware that budging down to the fine details can make this a tedious and frustrating task. By setting realistic sub-categories, you will have the flexibility to spend money on a variety of products and services, without losing site of the overall spending limits you have set for yourself.

Note: While it is good to have some freedom within your budget, be careful not to over simplify! Sometimes there are very specific areas of our spending that would benefit from being separated into a separate sub-category such as habits you would like to reduce or eliminate from your life.

For example: If you have simplified your grocery budget to include everything you purchase from the grocery store, such as food, home supplies, and cigarettes (a habit you wish to break), it would make sense to separate this habit into its own sub-category and create a more restrictive spending limit that encourages you to eliminate the habit all together. The effort involved in budgeting down to this level pays off when doing so improves yourself and your financial condition.

As you get a good feel for your budget and past spending habits, take a close look at what you have spent in the past, and work to establish realistic limits for your budget. Adjustments might be necessary (especially with variable expenses) over time.

Question: Identifying if an expense is fixed, variable, or periodic allows you to prioritize.
Correct. Identifying if an expense is fixed, variable or periodic DOES allow you to prioritize the use of your income. Planning your future expenses whether they occur monthly, quarterly, semi-annually, or annually, allows you to plan to meet those future obligations.


Question: It is impossible to budget for every penny that you may spend. With this in mind you should:
Correct. It can be frustrating to budget every penny you may spend. After determining your expenditures as fixed, periodic, or variable, further categorize your expenditures by using sub-categories (i.e. clothing, entertainment, etc…) which make up the majority of your total monthly spending.

Setting Up an Emergency Fund

Emergency funds

Imagine your financial future with extra money and no longer living paycheck-to-paycheck. Imagine having $10,000 in the bank. How would that feel? You might think it's impossible, but all it takes is learning to make better choices. It's about learning to exercise the proper respect for your money.

Emergency funds are an absolute necessity for financial security because they give you funds to fall back on if you become ill or disabled and can't work, or if you or your spouse lose your job, incur large medical bills, or have an unexpected large bill such as a major car or home repair.

Building an emergency fund depends on your commitment to put away your money left over after expenses. It can be difficult for many people to avoid the temptation of digging into the emergency fund for non-emergencies. Many of the things that we think we need aren't needs at all.

Unforeseen things happen and it usually comes with some type of dollar figure attached. It's an expense that wasn’t in the "Fixed or Variable" category but is still very real. If you don't have a savings, it could make budgeting very challenging. A good first-step savings goal is to build up to an amount equal to three to six month’s worth of your living expenses.

If you don’t set up an emergency fund, it forces you to rely on credit for unforeseen expenses. Expenses made on your credit card end up costing more in the long run, and reduce your ability to maintain an emergency fund.

Open a savings account and start saving a set amount of your earnings; if you can, have the money deducted automatically out of your checking account. Take pride in saving your money; after all, you are working hard to ea

Watching where your money goes

Keeping Track of Your Money

There are several ways to track what you are spending from day to day. Some methods include saving paper receipts from purchases, or using your checkbook register to list where purchases were made and for how much.

Other methods include using low cost budgeting and record keeping software available at most office supply stores.

Regardless of what tracking method you choose, it's important to keep a record of the expense (food, clothing, entertainment, etc.) and be aware of how close you’ve come to your spending limits.

Question: Saving receipts allows me to keep track and be aware of my spending habits.
Correct. Tracking your expenses is just as vital to your budget as knowing what your income is from month to month. Saving receipts not only help you determine what you have left over at the end of the month, but also provides valuable information on your personal spending habits.

Watching where your money goes

Keeping Track of Your Money

There are several ways to track what you are spending from day to day. Some methods include saving paper receipts from purchases, or using your checkbook register to list where purchases were made and for how much.

Other methods include using low cost budgeting and record keeping software available at most office supply stores.

Regardless of what tracking method you choose, it's important to keep a record of the expense (food, clothing, entertainment, etc.) and be aware of how close you’ve come to your spending limits.

Question: Saving receipts allows me to keep track and be aware of my spending habits.
Correct. Tracking your expenses is just as vital to your budget as knowing what your income is from month to month. Saving receipts not only help you determine what you have left over at the end of the month, but also provides valuable information on your personal spending habits.

Watching where your money goes

Tracking makes you aware

Tracking your spending and assigning your transactions to appropriate budget sub-categories forces you to think about your purchases, and how it might impact your budget.

You've set your limits based on your individual financial situation. Now, track your spending daily to be sure you stay within those limits. If you skip this important part of budgeting, you will inevitably overspend and be short on funds. Give your financial predictions the winning edge - track spending daily.

At the end of the month, summarize your records by budget sub-category, and then compare the total amounts spent to your budget estimates. This exercise allows you to get a feel for how effective your budget actually is. If there is a large difference between your budget and actual spending, some adjustments may need to be made.

Note: It can take a few months of tracking your expenditures to your budget before you figure out what you are spending on average each month. It is common to have to make minor adjustments to your budget before you settle on a realistic budget that works for you.

Question: I should track my spending by creating a record at the end of each week.
Correct. Tracking purchase transactions daily gives you a clear picture of how much you have left to spend in each category at any given time. You've set your limits based on your individual financial information. Now, track your spending to be sure you stay within those limits. If you skip this important part of budgeting, you could overspend and be short on funds that could otherwise be used to meet your financial goals. Give your financial predictions the winning edge - track spending daily.


Question: I should track all of my actual expenditures, because these detailed expenditures, when summarized by sub-category, allow me to measure the effectiveness of my budget.
Correct. Tracking all of your actual expenditures is a valuable discipline. You could discover that those minor expenditures that occur throughout the month end up having a larger impact on your overall budget, than you had thought.

omparison shop for goods and services

Shopping for better products at lower prices

Comparison shopping helps take the impulse out of the purchase process, which often leads to overspending and debt. Comparison shopping can simply mean visiting a competitor's store that may sell the same item for less, or doing a bit of research using respected magazines and guides such as Consumer Reports.

Comparison shopping is very effective when buying big ticket items such as home appliances, computers, and vehicles. Large purchases such as these are not made by consumers as often as other smaller items such as groceries, thus businesses depend on bigger profits from each sale. Bigger profits mean there is usually some room for negotiating a lower purchase price for you, the buyer.

When comparison shopping for big ticket items such as appliances, computers and vehicles, you will find that the more patient you are, the better deals you are likely to find.

For example, it is very common to see large retail stores offer sale prices on home appliances multiple times a year. This way the business can give the impression that you the consumer are getting a better deal, while the business still makes a profit.

Question: Comparison shopping is effective when purchasing big ticket items because:

Comparison shop for goods and services

Shopping for better products at lower prices

Comparison shopping helps take the impulse out of the purchase process, which often leads to overspending and debt. Comparison shopping can simply mean visiting a competitor's store that may sell the same item for less, or doing a bit of research using respected magazines and guides such as Consumer Reports.

Comparison shopping is very effective when buying big ticket items such as home appliances, computers, and vehicles. Large purchases such as these are not made by consumers as often as other smaller items such as groceries, thus businesses depend on bigger profits from each sale. Bigger profits mean there is usually some room for negotiating a lower purchase price for you, the buyer.

When comparison shopping for big ticket items such as appliances, computers and vehicles, you will find that the more patient you are, the better deals you are likely to find.

For example, it is very common to see large retail stores offer sale prices on home appliances multiple times a year. This way the business can give the impression that you the consumer are getting a better deal, while the business still makes a profit.

Question: Comparison shopping is effective when purchasing big ticket items because:
Correct. Comparison shopping is very effective when buying big ticket items such as home appliances, computers, and vehicles. Large purchases such as these are not made by consumers as often as other smaller items such as groceries, thus businesses that sell these big items depend on big profits from each sale. Big profits mean there is usually some room for negotiating a lower purchase price for you the buyer.

Comparison shop for goods and services

Using the Internet to Comparison Shop

The internet far and away is the most effective tool to comparison shop for most consumer goods. The internet provides a convenient way to shop for hundreds of products at the same time. Some websites focus solely on comparison shopping for goods.

Just recently a news story highlighted the impact of comparison shopping on the internet, and the impact it has had on the price of high priced goods. With the infinite information and business on the internet, manufactures of once high priced items have been pressured to offer the same quality products at a lower price. There are simply no secrets with the internet; all the information regarding the true value of a product is available.

An example of comparison shopping is purchasing a used vehicle. Of course you are not able to test drive the vehicle over the internet, but you can use the internet to quickly get an idea of what cars are available in your state, or even multiple states, faster than you would be able to visit the dealerships in your area.

When considering large and important purchases such as a car, comparison shopping is essential. Starting out your comparison shopping on the internet will give you a good starting point idea of a fair price before making the purchase.

Question: The internet has mainly benefited consumers that comparison shop by:
Correct. The internet allows the consumer to shop nationwide for a wide variety of products at the touch of a button. By comparing so many offers, the consumer is able to sift out bad deals and easily narrow the offers to the businesses that sell the product or service at a fair price.

Maintain appropriate levels of insurance

Make your money work towards your future

Health Insurance Coverage

Health Maintenance Organizations (HMOs) offer cost effective health insurance coverage while generally providing effective health coverage. The cost of providing HMO health care is reduced by restricting members to a network of physicians. The efficiency of this network typically results in a lower premium health care plan than the typical PPO can offer.

Preferred Provider Organizations (PPOs) offer much more flexibility. Members have the freedom of choosing their own physician within or outside of the established network. This flexibility comes with a price; PPOs typically charge a higher premium than the more restrictive HMOs charge.

Question: Two types of Insurance Coverage include:
Correct. There is more than one type of organization for Health Insurance needs. The two main types of insurance coverage include Health Maintenance Organization (HMOs) and Preferred Provider Organization (PPOs). If necessary, review the section on Health Insurance.

Maintain appropriate levels of insurance

Make your money work towards your future

Health Insurance Coverage

Most healthcare plans provide basic medical coverage, but what might be a better plan for one family may not be the best plan for another family. When making the decision on your health plan, it is important to find out who would handle the following services:

  • Physical exams,
  • Services performed by specialists
  • Hospitalization,
  • Emergency care,
  • Prescription drugs,
  • Optical care, and
  • Dental services.

More specific questions to ask might include:

  • Mental health counseling
  • Substance abuse services
  • Obstetrical-gynecological care
  • Ongoing care for chronic (long-term) diseases, conditions, or disabilities.
  • Physical therapy
  • Home health, nursing home, and hospice care.
  • Chiropractic or alternative health care, such as acupuncture.
  • Experimental treatments.

Some plans offer members health education and preventive care, but services differ. Ask questions such as:

  • What preventive care is offered, such as immunizations for children?
  • What health screenings are given, such as breast exams and PAP tests for women?
  • Does the plan help people who want to quit smoking?

Maintain appropriate levels of insurance

Make your money work towards your future

Term Insurance Coverage

Term life insurance is sold to cover the insured for a limited number of years. The premiums you pay for this insurance do not accumulate in the form of savings or an investment, but simply represent the cost to maintain the coverage for the number of years purchased.

The attraction of term life insurance is that it tends to offer the best insurance coverage for the dollar.

The price of term life insurance is reflected in the premium payment required by the insurer. This premium payment is the monthly fixed amount that you must pay in order to maintain the coverage, and is determined by your age. The older you are the higher premium you will be expected to pay for the same coverage.

There are costs and benefits to term life insurance that must be considered. Tips to keep in mind before making this purchase include:

  • Buy only the amount of coverage that you will need.
  • Make sure to purchase a policy that is renewable to at least 100 years old.
  • Buy a policy that can not be canceled due to failing health.
  • Comparison shop 20 year policies with other types of insurance, such as whole life.

Maintain appropriate levels of insurance

Make your money work towards your future

Whole Life Insurance Coverage

Whole life insurance is purchased for a person’s lifetime with a set premium that does not change over time. Unlike term life insurance, whole life insurance accumulates a cash reserve from the premiums paid over time.

Whole life insurance plans accumulate cash and start to earn interest. Many insurance companies pay dividends to policy holders. This dividend can then be used to reduce the cost of the premiums.

The cost of whole life insurance starts at a higher annual rate that term life insurance, but the premiums will never increase.

This type of insurance may not be the best choice for young families, as the premiums can be very costly, and you may not be able to afford enough coverage for the amount of money you are required to spend on the premiums.

Maintain appropriate levels of insurance

Make your money work towards your future

Universal Life Insurance Coverage

Universal life insurance, also called complete or total life insurance, is a combination of term life insurance and a tax-deferred savings account that pays a variable market interest rate. The variable interest rate usually ends up being more attractive than offered by other types of policies.

Universal life insurance is separated into three components, a death benefit, administrative costs, and savings.

Premium costs can be paid at any time and for any amount above certain minimum requirements. Premiums may be fixed or variable. Down the road, premium payments may not be required at all as long as you have contributed enough towards the "savings" component of your policy.

This type of policy is sold based on how much you will accumulate by the age of 65 in the savings component of the policy. This type of policy markets life insurance as more of an 'investment' rather than simply coverage for your family.

This policy can be attractive to people that feel that they will definitely need life insurance when they are over the age of 65. Beware that there are also costs associated with this type of policy. For example, you will not be able to qualify for the return on the policy until you have been paying premium for 15 to 20 years. If you decide to cancel this type of policy, it will also cost you.

If you are considering whole life insurance, you might also want to consider the alternative of purchasing the lower cost term life insurance, then investing the premium savings in a separate tax deferred account.

Maintain appropriate levels of insurance

Make your money work towards your future

Life Insurance Coverage

When choosing how much life insurance to purchase, it is important to consider factors such as:

  • The standard of living you wish to maintain
  • Your household income
  • The age of your family members
  • Your spouses’ ability to earn income, and
  • Your current financial situation and debts.

The level of life insurance coverage you require will likely change throughout the lifetime of your family. Generally, you will require a higher dollar level of coverage when your children are young, and when your children leave the home.

With proper planning, when you and your spouse reach the age of 60, the amount of life insurance once necessary to secure your family’s future should begin to be replaced with the money you have available from your retirement and other debt free assets you have invested in over your lifetime.

Maintain appropriate levels of insurance

Make your money work towards your future

Disability Coverage

Disability insurance provides you with income in the event you are disabled and unable to work. Before you consider purchasing a policy, you should review your existing plans that may already offer you this protection.

If you pay Social Security taxes, you already have some disability coverage. Coverage through Social Security is based on your level of earnings over a number of years. One note to this coverage is that these benefits pay only if your disability is expected to last longer than one year.

Your employer might offer a form of disability protection through the employee group insurance plan. These benefits are typically paid as a percentage of your gross income. Many of the policies require that you be totally disabled before benefit payments are made. In some circumstances, a partial disability can be claimed.

When choosing a policy, it is important to know how the policy defines a disability. The best definition would be one that states that you are unable to perform the main duties of your occupation. Without a good understanding of how a policy defines a disability, you run the risk of being denied your benefit as a result of the fine print within the policy.

Other policy variables affect the cost of your premiums. One variable involves a provision for payment to begin after a 30 – 60 day waiting period. A second variable includes the time span you choose to collect your benefit over. You may choose to receive your disability benefit over two years, five years, or until the age of 65; the shorter the period of your disability coverage, the lower your premiums will be.

Auto Insurance

Auto insurance is a contract that protects your financial security in case of an accident. Regardless of the law, having good auto insurance is practical for a driver who wishes to avoid lawsuits or immense repair bills. Auto insurance is mandated by most states through minimum insurance laws, and is classified as a monthly fixed expense in our budget.

According to the Insurance Information Institute (III), a basic auto insurance policy is comprised of 6 basic types of coverage that will be covered in this section of the lesson. Some types of coverage are required by state law, while others are considered optional. The various types are:

  1. Bodily injury liability;
  2. Property damage liability;
  3. Medical payments, or Personal Injury Protection (PIP);
  4. Collision;
  5. Comprehensive; and
  6. Uninsured/Underinsured motorist.

ability Coverage

Liability coverage is required in most states. If you are at fault in an accident, your liability insurance will cover the cost of bodily injury and property damage caused to others involved in the accident, as well as the cost of your legal bills associated with the accident. It is important to note that liability coverage only covers the other party in the case of an accident in which you are at fault. For coverage or your own property and/or injuries, see the section on collision and comprehensive insurance.

1. Bodily injury liability coverage typically covers the cost of medical bills and lost wages of others involved in the accident, as well as your own related legal expenses.

2. Property damage liability coverage typically pays for any auto repairs, or replacement. Property damage liability usually repairs damage to the other driver’s vehicle, but can also cover damages to things such as lamp poles, fences, buildings, or anything else that your car may have struck.

Liability insurance is the foundation of most auto insurance policies. Practically every state that requires auto insurance requires the purchase of property damage liability. Florida is the only state that requires auto insurance but does not call for bodily injury liability.

When purchasing auto insurance, make sure to check on the minimum levels of required auto liability insurance in your state. Remember, if you cause a serious accident, minimum insurance may not cover you adequately. In most states, drivers are allowed to sue other drivers who injure them in car accidents. If your liability insurance does not cover all monetary damages from a lawsuit, you are personally responsible to make up the difference. This shortfall in coverage often makes it necessary to liquidate other assets in order to pay the remaining debt, such as savings, investments, and your home equity. For this reason you may consider buying more liability insurance than your state requires.

Medical payments, PIP, and no-fault coverage

3A. Medical payments (MedPay) coverage will pay for you and your passengers' medical expenses after an auto accident. These expenses can arise from accidents while you're driving your car, someone else's car (with their permission), and injuries you or your family members incur as pedestrians. The coverage will pay regardless of who is at fault, but if someone else is liable, your insurer may seek to recoup the expenses from him or her.

3B. Personal Injury Protection (PIP) coverage is an extended form of MedPay. PIP may cover other expenses that are related to injury which are not necessarily medical. These other expenses may include lost wages, childcare, and funeral costs. PIP coverage is currently required by 16 states.

If you have a good health insurance plan, there may be little need to buy more than the minimum required

PIP or MedPay coverage, if at all. In addition, if you already have disability insurance, there's little reason to purchase higher-than-minimum amounts of PIP.

Collision and comprehensive coverage

4. Collision coverage will pay to repair your vehicle if you cause an auto accident. This typically covers the actual cash value of your car, which is not the same as the car's replacement cost. Collision coverage is normally the most expensive component of auto insurance. By choosing a higher deductible (the amount you will cover out of pocket), say $500 or $1,000, you can reduce your monthly premium costs. Keep in mind that it’s fairly standard for you to pay the amount of your deductible before the insurance company will provide any money after an auto accident.

Insurance companies will often "total" your car if the repair costs exceed a certain percentage of the car's worth. The insurance companies analysis of what is "excessive damage" varies from company to company, typically ranging from 55-90 % of the actual cash value of the vehicle.

5. Comprehensive coverage will pay for damages to your car that weren't caused by an auto accident, such as theft, fire, vandalism, natural disasters, or hitting a deer. Comprehensive coverage also comes with a deductible, and your insurer will only pay up to the amount the car was worth at the time the car was damaged.

Because insurance companies normally will not pay you more than your car's book value, it's helpful if you have a rough idea of this amount. Check the Kelley Blue Book or the National Automobile Dealers Association. If your car is worth less than what you're paying for the coverage, you might determine it unnecessary.

Neither collision nor comprehension insurance is required by any of the states. However, some lenders, when the owner finances the car, may require the purchase of collision and comprehensive as part of the loan agreement. Even when it is not required, collision and comprehensive coverage is highly recommended by the insurance industry, so that in the unforeseen event of damage or theft, the owner of the car can avoid excessive bills. Theft of cars is not as unusual as some people may think. In 2004, a car was stolen in the United States every 26 seconds, and any car had a 1 in 190 chance of being stolen.

Uninsured/Underinsured motorist coverage

6a. Uninsured motorist (UM) coverage pays for your injuries if you are struck by a hit-and-run driver or someone who doesn't have auto insurance. It is required in many states.

6b. Underinsured motorist (UIM) coverage will pay out if the driver who hit you causes more damage than his or her liability coverage can cover. In some states, UM or UIM coverage will also pay for property damages.

Similarly, underinsured motorist insurance will cover any damage caused if you are struck by a driver who is not insured for a sufficient amount. If you are hit as a pedestrian, underinsured coverage will also cover those expenses. Uninsured motorist insurance is currently required by 20 states, and underinsured motorist coverage is required by only four: Connecticut, Minnesota, Maine, and Vermont. You may want to have UM/UIM to protect you in cases where there is difficulty in corresponding or dealing with the other driver and/or their insurance company. UM/UIM will provide certain coverage for pain-and-suffering damages during those times.

Add-on features

Several supplemental auto insurance coverage policies are available, either as separate ‘premium’ items or included in augmented policies. These items include:

  • Rental reimbursement is a common add-on which covers vehicle rentals required because your car is damaged or stolen.
  • Coverage for towing and labor charges in the case of a road breakdown is also common.
  • Gap coverage for your new car pays the difference between the actual cash value you receive for the car and the amount left on your car loan if your vehicle is totaled in an accident.

Basic auto insurance is required by virtually every state. Proof of insurance is required at different times throughout the life of a vehicle. You may be asked for proof of insurance at certain times, such as vehicle registration, at the time of an accident, and any time when driving a vehicle. It is suggested that the owner of the car keeps proof of insurance in the car at all times, instead of on his or her person, so that it can be available no matter who is driving.

Auto insurance is foundational to a good personal budget, and gives you the security and freedom to responsibly manage the rest of your personal finances. Any violations of state law regarding auto insurance could result in hefty fines, suspension of your driver’s license, and/or time in jail. The potential of long-term consequence and excessive costs of driving uninsured is not worth the short-term financial savings.

Identify good uses of credit, and alternatives

The cost of credit - Interest

Credit card companies send out credit card offers to thousands of households a year; sometimes the same offer is sent multiple times to the same household just waiting for a response. The truth about credit cards is that they are a necessary evil for those trying to establish credit history.

Credit cards, when used wisely, can help consumers establish creditability with creditors. Establishing creditability allows consumers to qualify to make those important investments, such as a house, down the road.

Simply put, interest is the "rent" that people pay to borrow money.

Other lending terms include:

  • APR – Annual Percentage Rate, the common term for interest
  • Principal – The original amount of money you receive from a lender

Interest is calculated based on your principal balance, plus your unpaid interest. It is important to note here that unless you pay off more than the minimum interest payments each month, your principal balance will not be reduced!

According to the American Bankers Association (ABA), the number of people making late payments or no payments at all on credit cards is rising. This means that the purchases people choose to make on credit are becoming increasingly more expensive over time.

Identify good uses of credit, and alternatives

The cost of credit - Interest

Calculating Credit Card Interest

Generally the average daily balance method is usually used to calculate the amount of interest charged each month on credit cards. Interest is charged by adding each of your daily balances for the billing period then dividing that total by the number of days in the billing period.

For example, if your daily balances on your credit card statement (over a 30-day period) totaled $30,000, your average daily balance would be $1,000 ($30,000 divided by 30 days). If the interest rate (APR) on your credit card was 12%, the periodic interest rate would be 1% (12% divided by 12 months). One percent of $1,000 equals $10. This would be the amount of interest you would expect to see on your credit card statement.

Identify good uses of credit, and alternatives

Keep credit balances low

Once you have established a budget you feel you can stick to, you need to determine how much extra money you can apply to your bills on a monthly basis.

Choose to overpay the debt which charges the highest rate of interest first. Make larger or extra payments towards that debt until it is completely paid off. Then choose the next highest rate of interest debt, and do the same.

Stick with one high interest bill at a time until it is paid off, don't try to "spread" the extra money over several bills at the same time. By sticking with one debt at a time, you will start to notice a snowball effect as your debts whittle down to nothing. It is encouraging to note that credit card debt can be reduced just as fast, if not faster, than they were created--if you are committed.

dentify good uses of credit, and alternatives

Unsecured VS. Secured debt

Unsecured Debt

Unsecured debt includes any debt not linked to an asset. Money freely lent to you based only on your promise to repay it is unsecured. Types of debts that typically fall under the unsecured category are credit cards not secured by property (most credit cards are unsecured), medical bills, and any other type of standard consumer credit line.

Secured Debt

Secured debts are linked to specific items of property such as your home. The property guarantees payment of the debts because if the debt is not paid, the creditor can take the property or sell the property to pay off the debt. Most secured debt you incur voluntarily, such as a mortgage or car loan. Others are imposed on you by creditors, such as judgment liens or tax liens.Installment Payments:

Most credit cards such as Visa and Master Card, can be paid by installment payments. Installment payments allow you to pay off a fraction of the principal over time, as well as the monthly interest each month.

Note: In general, installment payments are calculated as two to four percent of your outstanding principal balance. Often, installment payments represent more interest than principal.

Non-Installment Payments:

Non-installment payments are lump sum payments that are due. The American Express card used to require that the monthly balance be paid off each month.

Identify good uses of credit, and alternatives

Debt Warning Signs

If you were at the mall and saw a shirt you wanted to purchase but did not have the money with you, would you go to the bank and ask the banker for a loan?

On the surface, that may seem like a silly question, but when you use your credit card to make routine purchases, that is essentially what you are doing - taking out a loan for each item purchased on credit.

Credit cards are offered to just about anyone these days, and are accepted as a method of payment almost everywhere. Credit cards can be a very safe and convenient method of payment if used sparingly and wisely. Credit kept to a minimum also allows us to establish credibility with lenders for future big purchases such as a home or car.

If credit use becomes wide-spread though, it can quickly lead to stress and loss of control. Wide-spread use of credit cards often leads to abusive spending with a disregard to how or when you will be able to pay off the credit card balance. It does not take long to realize that a high credit card bill is something that can put your financial plan in jeopardy.

Some warning signs that your use of credit may be heading out of control:

  1. You have little or no savings;
  2. You only make the minimum payments on your credit cards;
  3. You are using your credit card for things you used to buy with cash, such as food;
  4. You are using more of you paycheck to pay off your debts; and
  5. You have more than three major credit cards.

    Identify good uses of credit, and alternatives

    Credit alternatives

    If you realize that you are in over your head, the sooner you act the better.

    Some options to consider when you have taken on too much debt and need to reduce your credit balance include:

    • Take out a loan with a family member
    • Consolidate your debt into a single unsecured loan
    • Take out a secured second mortgage or home equity loan on your home
    • Work with your lender/creditor to establish a reasonable re-payment plan

    Be careful when considering a second mortgage or home equity loan, as you will be required to use your home (your biggest need!) as collateral. It is important to know that when taking a loan out such as this, your home is the security the creditors use to pay the loan balance off when you are unable to make the required payments.

    Also beware of zero or no-equity loans, which enable you to borrow up to 125 percent of your home's value. These loans often come with higher interest rates and tougher qualifying standards.

    Identify good uses of credit, and alternatives

    Helpful credit tips

    There are several ways in which we can keep our use of credit to a minimum and contain our use of credit.

    Here is a list of 10 tips that lead to good use of credit:

    1. Limit yourself to two major credit cards.
    2. Shop around for a low interest rate.
    3. Resist cash advances – interest is generally higher.
    4. Read the fine print on any credit offer.
    5. Limit yourself to a low credit limit.
    6. Resist credit card offers to save 10% on today’s purchase.
    7. Only use your card for necessary big purchase items.
    8. Make your payments on time.
    9. Pay off your balance as quickly as possible.
    10. If you forget to make payments, set up automatic payments.

    check your Credit Rating

    Your credit report is the detailed rundown of your borrowing habits. Credit reports are provided by three major credit bureaus: Equifax, Experian, and TransUnion. The information in each is used to calculate your overall credit score.

    In general, reported data falls into four categories:

    Personal information -- Past home addresses and some employment history, in addition to the obvious stuff like name, address, and Social Security number.

    Credit history -- Open credit lines and installment loans, plus a record of all late payments (30 days or more) to anyone -- from phone company to mortgage holder.

    Public records -- Bankruptcies and other court judgments, like alimony agreements and tax liens.

    Inquiries -- A dated listing of all recent business requests to see your file. Requests by you to see your own credit file are not recorded or counted.

Identify good uses of credit, and alternatives

Consolidation Debt

Debt consolidation involves combining outstanding debt into one consolidated monthly payment. This is typically in the form of a secured loan. Remember a secured loan is tied to an asset, such as a home. A secured loan typically allows a lower interest rate since the borrower is agreeing to the sale of the secured asset should he or she default on the loan.

rn it.

Setting financial goals

Setting Financial Goals: Short-Term, Medium-Term & Long-Term

Now that you have outlined your income and expenses, it is important to set goals when deciding how to use your remaining income wisely.

  • Short-term goals are typically goals that you'd like to accomplish in less than one year.
  • Medium-term goals are typically goals you'd like to accomplish within three years.
  • Long-term goals are typically goals you'd like to accomplish in less than five years.

Setting goals can create a compelling future and motivate you to stay true to your budget. The key to setting short, medium, and long-term goals is to make sure they are specific, measurable and time sensitive.

Question: Goals can motivate me to stick to my budget.
Correct. Financial goals, just like other goals set in life, DO serve as a motivation to sticking to a budget.

Check your Credit Rating

Under the Federal Consumer Reporting Act you are entitled to a copy of all the information a credit agency has on you.

In March of 2001, the veil of credit-scoring secrecy was lifted. Using FICO (developed by Fair, Isaac & Co.), your number can range from 300 to 850. Anything above 720 is considered average.

Your credit score is used as a quick and objective assessment of consumer credit risk. In some instances, this single measure can determine whether you get a loan for that new home or car, and at what interest rate.

Check your Credit Rating

The three nationwide consumer reporting companies have set up one central website, toll-free telephone number, and mailing address through which you can order your free annual report.

Web: www.annualcreditreport.com

Call: 877-322-8228

Mail:

 Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

You can print the report from www.ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are only providing free annual credit reports through the contacts listed above.

The law allows you to order one free copy from each of the nationwide consumer reporting companies every 12 months.