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Contents
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Preface
Structure
Chapter 1
Personal Financial Planning
Introduction
1.1 Individual or “Micro” Factors That Affect Financial Thinking
LEARNING OBJECTIVES
Family Structure
Health
Career Choice
Age
KEY TAKEAWAYS
EXERCISES
[1] Based on data from http://www.careeroverview.com/salary-benefits.html (accessed November 21, 2009).
1.2 Systemic or “Macro” Factors That Affect Financial Thinking
LEARNING OBJECTIVES
Business Cycles
Employment Rate
Other Indicators of Economic Health
Currency Value
KEY TAKEAWAYS
EXERCISES
1.3 The Planning Process
LEARNING OBJECTIVES
Defining Goals
Assessing the Current Situation
Evaluating Alternatives and Making Choices
KEY TAKEAWAYS
EXERCISES
1.4 Financial Planning Professionals
LEARNING OBJECTIVES
References to Professional Organizations
KEY TAKEAWAYS
EXERCISES
Chapter 2
Basic Ideas of Finance
Introduction
2.1 Income and Expenses
LEARNING OBJECTIVES
Where Does Income Come From?
Where Does Income Go?
Opportunity Costs and Sunk Costs
KEY TAKEAWAYS
EXERCISES
2.2 Assets
LEARNING OBJECTIVES
Assets Store Wealth
Assets Create Income
Assets Reduce Expenses
KEY TAKEAWAYS
EXERCISES
2.3 Debt and Equity
LEARNING OBJECTIVES
The Costs of Debt and Equity
The Uses of Debt and Equity
The Value of Debt
KEY TAKEAWAYS
EXERCISES
2.4 Income and Risk
LEARNING OBJECTIVES
KEY TAKEAWAY
EXERCISE
Chapter 3
Financial Statements
Introduction
3.1 Accounting and Financial Statements
LEARNING OBJECTIVES
The Accounting Process
Income Statement
Cash Flow Statement
Balance Sheet
Net Worth and Bankruptcy
KEY TAKEAWAYS
EXERCISES
3.2 Comparing and Analyzing Financial Statements
LEARNING OBJECTIVES
Common-Size Statements
Common-Size Income Statement
Common-Size Cash Flow Statement
Common-Size Balance Sheet
Relating the Financial Statements
Ratio Analysis
Comparisons over Time
KEY TAKEAWAYS
EXERCISES
3.3 Accounting Software: An Overview
LEARNING OBJECTIVES
Collecting the Data
Reporting Results and Planning Ahead
Security, Benefits, and Costs
Software References
KEY TAKEAWAYS
EXERCISES
Chapter 4 Evaluating Choices: Time, Risk, and Value
Introduction
4.1 The Time Value of Money
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
4.2 Calculating the Relationship of Time and Value
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
4.3 Valuing a Series of Cash Flows
LEARNING OBJECTIVES
Life Is a Series of Cash Flows
Financial Calculations
KEY TAKEAWAYS
EXERCISES
4.4 Using Financial Statements to Evaluate Financial Choices
LEARNING OBJECTIVE
KEY TAKEAWAY
EXERCISES
4.5 Evaluating Risk
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
Chapter 5 Financial Plans: Budgets
Introduction
5.1 The Budget Process
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
5.2 Creating the Comprehensive Budget
LEARNING OBJECTIVES
Operating Budget: Recurring Incomes and Expenditures
Using Financial History
Using New Information and “Micro” Factors
Using Economics and “Macro” Factors
Capital Budget: Capital Expenditures and Investments
KEY TAKEAWAYS
EXERCISES
5.3 The Cash Budget and Other Specialized Budgets
LEARNING OBJECTIVES
The Cash Budget
Other Specialized Budgets
KEY TAKEAWAYS
EXERCISES
5.4 Budget Variances
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISE
5.5 Budgets, Financial Statements, and Financial Decisions
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISE
Chapter 6 Taxes and Tax Planning
Introduction
6.1 Sources of Taxation and Kinds of Taxes
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
6.2 The U.S. Federal Income Tax Process
LEARNING OBJECTIVES
Taxable Entities
Income
Schedule B: Interest and Dividend Income
Schedule C: Business Income
Schedule SE: Self-Employment Tax
Schedule D: Capital Gains (or Losses)
Schedule E: Rental and Royalty Income; Income from Partnerships, S Corporations, and Trusts
Schedule F: Farm Income
Other Taxable and Nontaxable Income
Deductions, Exemptions, and Credits
Payments and Refunds
KEY TAKEAWAYS
EXERCISES
6.3 Record Keeping, Preparation, and Filing
LEARNING OBJECTIVES
Keeping Records
Tax Preparation and Filing
Following Up
Filing Strategies
KEY TAKEAWAYS
EXERCISES
6.4 Taxes and Financial Planning
LEARNING OBJECTIVES
Tax Strategies and Life Stages
Tax Strategies and Personal Financial Planning
KEY TAKEAWAYS
EXERCISES
Chapter 7 Financial Management
Introduction
7.1 Your Own Money: Cash
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
7.2 Your Own Money: Savings
LEARNING OBJECTIVES
Savings Markets
Savings Institutions
Saving Instruments
Savings Strategies
KEY TAKEAWAYS
EXERCISES
7.3 Other People’s Money: Credit
LEARNING OBJECTIVES
Kinds of Credit
Costs of Credit
Measuring Risk: Credit Ratings and Reports
Using a Credit Card
Choosing a Credit Card
Installment Credit
Personal Loans
Credit Trouble and Protections
KEY TAKEAWAYS
EXERCISES
7.4 Other People’s Money: An Introduction to Debt
LEARNING OBJECTIVES
Costs of Debt
Default Risk
Interest Rate Risk
Uses of Debt
KEY TAKEAWAYS
EXERCISES
Chapter 8 Consumer Strategies
Introduction
8.1 Consumer Purchases
LEARNING OBJECTIVES
Before You Buy: Identify the Product
Before You Buy: Identify the Market
Before You Buy: Identify the Financing
As You Buy: The Purchase
After You Buy
Consumer Strategies
Scams: Caveat Emptor (Buyer Beware)
KEY TAKEAWAYS
EXERCISES
8.2 A Major Purchase: Buying a Car
LEARNING OBJECTIVES
Identify the Product
Identify the Market
Identify the Financing: Loans and Leases
Purchase and Postpurchase
KEY TAKEAWAYS
EXERCISES
Chapter 9 Buying a Home
Introduction
9.1 Identify the Product and the Market
LEARNING OBJECTIVES
Renting a Home
Assessing Attributes
Assessing Affordability
Searching for a Home
Identifying the Market
KEY TAKEAWAYS
EXERCISES
9.2 Identify the Financing
LEARNING OBJECTIVES
Down Payment
Monthly Payment
Mortgage Designs
Points
Closing Costs
KEY TAKEAWAYS
EXERCISES
9.3 Purchasing and Owning Your Home
LEARNING OBJECTIVES
The Purchase Process
Capital Expenditures
Early Payment
Refinancing
Default, Foreclosure, and Fraud
KEY TAKEAWAYS
EXERCISES
Chapter 10 Personal Risk Management: Insurance
Introduction
10.1 Insuring Your Property
LEARNING OBJECTIVES
Home Insurance Coverage
Home Insurance Coverage: The Benefit
Home Insurance Coverage: The Cost
Insuring Your Car
Auto Insurance Coverage
Auto Insurance Costs
KEY TAKEAWAYS
EXERCISES
10.2 Insuring Your Health
LEARNING OBJECTIVES
Health Insurance Coverage
Health Insurance Costs
Health Insurance and Health Care
Private Health Care Financing
Public Health Care Financing
Long-Term Care Insurance
KEY TAKEAWAYS
EXERCISES
10.3 Insuring Your Income
LEARNING OBJECTIVES
Disability Insurance
Life Insurance
Term Insurance
Whole Life Insurance
Choosing a Policy
Life Insurance as a Financial Planning Decision
KEY TAKEAWAYS
EXERCISES
Chapter 11 Personal Risk Management: Retirement and Estate Planning
Introduction
11.1 Retirement Planning: Projecting Needs
LEARNING OBJECTIVES
Estimating Annual Expenses
Estimating Length of Retirement
Estimating the Amount Needed at Retirement
Estimating the Annual Savings for Retirement
KEY TAKEAWAYS
EXERCISES
11.2 Retirement Planning: Ways to Save
LEARNING OBJECTIVES
Employer Retirement Accounts
U.S. Government’s Retirement Account
Individual Retirement Accounts
Self-Employed Individual Plans
KEY TAKEAWAYS
EXERCISES
11.3 Estate Planning
LEARNING OBJECTIVES
Wills
Trusts and Gifts
Estate Taxes
KEY TAKEAWAYS
EXERCISES
Chapter 12 Investing
Introduction
12.1 Investments and Markets: A Brief Overview
LEARNING OBJECTIVES
Bonds and Bond Markets
Stocks and Stock Markets
Commodities and Derivatives
Mutual Funds, Index Funds, and Exchange-Traded Funds
KEY TAKEAWAYS
EXERCISES
12.2 Investment Planning
LEARNING OBJECTIVES
Defining Return Objective and Risk
Defining Constraints
KEY TAKEAWAYS
EXERCISES
12.3 Measuring Return and Risk
LEARNING OBJECTIVES
Return
Risk
KEY TAKEAWAYS
EXERCISES
12.4 Diversification: Return with Less Risk
LEARNING OBJECTIVES
Steps to Diversification
Investment Strategies
KEY TAKEAWAYS
EXERCISES
Chapter 13 Behavioral Finance and Market Behavior
Introduction
13.1 Investor Behavior
LEARNING OBJECTIVES
Biases
Framing
Investor Profiles
KEY TAKEAWAYS
EXERCISES
13.2 Market Behavior
LEARNING OBJECTIVES
Limits of Arbitrage
Causes of Market Inefficiency
KEY TAKEAWAYS
EXERCISES
13.3 Extreme Market Behavior
LEARNING OBJECTIVES
Examples: The Internet Stock Boom and the Crash of 1929
KEY TAKEAWAYS
EXERCISE
13.4 Behavioral Finance and Investment Strategies
LEARNING OBJECTIVES
Market Timing and Technical Analysis
Financial Fraud
KEY TAKEAWAYS
EXERCISES
Chapter 14 The Practice of Investment
Introduction
14.1 Investment Information
LEARNING OBJECTIVES
Economic Indicators
Market Information
Industry and Company Information
Evaluating Sources of Information
KEY TAKEAWAYS
EXERCISES
14.2 Investing and Trading
LEARNING OBJECTIVES
Agents: Brokers and Dealers
Fees
Brokerage Accounts
Brokerage Orders
KEY TAKEAWAYS
EXERCISES
14.3 Ethics and Regulation
LEARNING OBJECTIVES
Professional Ethics
Regulation of Advisors, Brokers, and Dealers
Investor Protection
KEY TAKEAWAYS
EXERCISES
14.4 Investing Internationally: Risks and Regulations
LEARNING OBJECTIVES
Investment Information
Market, Economic, and Currency Risks
Political Risks
Foreign Regulatory Environments
KEY TAKEAWAYS
EXERCISES
Chapter 15 Owning Stocks
Introduction
15.1 Stocks and Stock Markets
LEARNING OBJECTIVES
Primary and Secondary Markets
Common, Preferred, and Foreign Stocks
KEY TAKEAWAYS
EXERCISES
15.2 Stock Value
LEARNING OBJECTIVES
KEY TAKEAWAYS
EXERCISES
15.3 Common Measures of Value
LEARNING OBJECTIVES
Return Ratios
Growth Ratios
Market Value Ratios
KEY TAKEAWAYS
EXERCISES
15.4 Equity Strategies
LEARNING OBJECTIVES
Long-Term Strategies
Short-Term Strategies
KEY TAKEAWAYS
EXERCISES
Chapter 16 Owning Bonds
Introduction
16.1 Bonds and Bond Markets
LEARNING OBJECTIVES
Bonds
Bond Markets
KEY TAKEAWAYS
EXERCISES
16.2 Bond Value
LEARNING OBJECTIVES
Bond Returns
Bond Risks
Yield Curve
KEY TAKEAWAYS
EXERCISES
16.3 Bond Strategies
LEARNING OBJECTIVES
Diversification Strategies
Matching Strategies
Life Cycle Investing
KEY TAKEAWAYS
EXERCISES
Chapter 17 Investing in Mutual Funds, Commodities, Real Estate, and Collectibles
Introduction
17.1 Mutual Funds
LEARNING OBJECTIVES
Structures and Types of Mutual Funds
Mutual Fund Fees and Returns
Mutual Fund Information and Strategies
KEY TAKEAWAYS
EXERCISES
17.2 Real Estate Investments
LEARNING OBJECTIVES
Direct Investments
Indirect Investments
KEY TAKEAWAYS
EXERCISES
17.3 Commodities and Collectibles
LEARNING OBJECTIVES
Gold, Silver, and Precious Metals
Commodity Indexes and Exchange-Traded Funds
Collectibles and Unique Investments
KEY TAKEAWAYS
EXERCISES
Chapter 18 Career Planning
Introduction
18.1 Choosing a Job
LEARNING OBJECTIVES
Macro Factors of the Job Market
Micro Factors of Your Job Market
KEY TAKEAWAYS
EXERCISES
18.2 Finding a Job
LEARNING OBJECTIVES
Finding a Job Market
Selling Yourself: Your Cover Letter and Résumé
Selling Yourself: Your Interview
Accepting an Offer
KEY TAKEAWAYS
EXERCISES
18.3 Leaving a Job
LEARNING OBJECTIVES
Leaving Voluntarily
Leaving Involuntarily
Employment Protection
KEY TAKEAWAYS
EXERCISES
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