SIMPLIFIED COURSE PACK (SCP) FOR SELF-DIRECTED LEARNING

BAE101 – Personal Finance

 By 2023, a recognized professional institution providing quality,
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economically accessible, and transformative education grounded on
the teachings of St. John Paul II.

Serve the nation by providing competent JPCean graduates through

quality teaching and learning, transparent governance, holistic
Mission student services, and meaningful community-oriented researches,
guided by the ideals of St.
John Paul II.

Respect Hard
Work
Core Values Perseverance
Self-Sacrifice
Compassion
Family Attachment

Inquisitive
Graduate Attributes Ingenious
Innovative
Inspiring
Course Code/Title BAE101-PERSONAL FINANCE
This course is designed to expose you on the functions of personal
finance. It will also provide you knowledge about financial plan,
Course Description economy, budgeting, personal taxes, banking, borrowing, insurance,
shopping, real estate, credit, retirement, and estate planning.

Course Requirement Critique Paper & Case Study

Time Frame 54 Hours

“Based 40” Cumulative Averaging Grading System

Grading System Periodical Grading = Attendance (5%) + Participation (10%)

+ Quiz (25%) + Exam (60%)
Final-Final Grade = Prelim Grade (30%) + Midterm Grade (30%) +
Final Grade (40%)
Contact Detail
Dean/Program Head Brian Shane M. Cortes, MBA (09291777303)
 Course Map

SCP-Topics: Prelim
Period
Wee
Good Financial Habits
k
1

Wee Determining Your

k2 Financial Worth

Wee Examining Your Credit

k Score and Reports
3

Wee Evaluating
k4 Investment Knowledge

Wee
Examining
k
Overspending
5

Wee
Prelim Examination
k
6

SCP- Topics: Midterm

Period
Wee
Prioritizing Savings
k
7 Goals

Saving for big

Wee
k8 purchases
and building
emergency reserves

Wee
Retirement building
k
blocks
9

Wee Using savings to reduce

k 10 your consumer debts.
Wee
Laws and Filing
k Bankruptcy
11

Week
Midterm Examination
12

SCP- Topics: Final Period

Week Budgeting to boast

13 your savings

Wee Curtailing personal

k 14 care costs

Cost of healthcare
Week
15 and managing
medical
expenses

Wee
Establishing your
k 16
Goals

Week Diversifying
17 your Investments

Week
Final Examination
18
 Welcome Aboard! This course covers topics on personal finance. This
includes subjects designed to expose you on the functions of personal finance.
Recognize the influence of one’s financial preferences in financial
decision-making. Examine personal habits, strengths, weaknesses and values
when it comes to money. Identify common financial situations where
decision-making may be influenced by external forces. Create a plan to create
good money habits based on personality type and common external forces.
Identify common situations where opposing financial preferences may result
in conflict. Explain the role of financial preferences in relationships to others.
You would be able to appreciate the importance of this course and its role in
the success of a business. With the proper understanding, practice and
application in the personal finance you will arrive on a quality output which
will equip you as a future business Entrepreneurs.

Week 1 Financial Habits

Lesson Title Good Financial Habits
Learning Analyze what you need to know to avoid being
Outcome(s) fooled in developing good financial habits.

I
LEARNING NTENT!
Terms to Ponder

This section provides meaning and definition of the terminologies that are
significant for better understanding of the terms used throughout the simplified
course pack of Personal Finance. As you go through the labyrinth of learning, in
case you will be confronted with difficulty of the terms refer to the defined terms
for you to have a clear picture of the learning concepts.

Financial Habit-A state of being wherein you have control over day-to-day,
month-to-month finances; have the capacity to absorb a financial shock; are
on track to meet your financial goals; and have the financial freedom to make
the choices that allow you to enjoy life.
Essential Content

Good Financial Habits You Need For Ultimate Financial Success

They didn’t fit the typical

millionaire profile.
They lived in a modest 1,800
square foot home. They both
drove Buick’s that were both
completely paid off.
He retired from a manufacturing
plant and she a grade school as
an English teacher.
Despite their simple ways, they
were both millionaires and were
one of the first clients I landed as
a financial advisor.
So what was the secret
sauce? Did he buy Apple stock a few decades ago? Was it some crazy pension
buy out? A salty family inheritance?
How about none of the above.
When I asked the husband what their secret was he shared the story about
how every time he received his paycheck he would ALWAYS take a portion and
purchase savings bonds (Remember: this was long before 401k plans).
That simple routine, which became a good flippin’ amazing financial habit, was
the catalyst for them becoming millionaires.

It doesn’t matter if your goal is to become debt free, increase your savings, or
become millionaires; all off them require you have good financial habits.

Everybody wants to be financially stable, but unless you have plan to get you
there, it’s not going to happen.

Here are 27 that will enable you to set (and reach) your financial goals.

1. Live Within Your Means

This strategy is the foundation of all

good financial habits. In fact, I’m not
exaggerating when I say there will be
no point in setting good financial
goals until and
unless you come to the point where you can live beneath your means.
Seriously, there’s nothing complicated or strategic about this habit. If you take
home $5,000 each month, you live on $4,500 – and bank the rest. As your
savings and investments grow, your financial situation will improve
dramatically.

2. Pay Yourself, You Deserve It

If you’re having trouble with the whole

concept of living beneath your means, it’s
time to pay yourself first. If you have a 401k
(or some other employer retirement
account) this is a simple way to automate the
process of saving money. Allocate a certain
percentage, or even a certain dollar amount,
to come out of your pay each pay period,
before you even see it.

Without you even noticing it, the money is transferred to savings and
investment accounts, and turns into real money as the years pass. If you don’t
have an employer sponsored plan like a 401k, see #17.

3. Give Yourself a Consistent

Raise

Good financial goals are more easily

achieved if you can build progress into
your savings and investment funding. You
can do this gradually by increasing your
payroll savings once each year.

You can do this almost painlessly by

increasing the savings payroll deduction –
whether it is for retirement or some other
savings or investment account – by
increasing your deduction by one
percentage point per year.
Let’s say you are participating in your company’s 401(k) plan with 6% of your
pay in order to take advantage of the company‘s 50% matching contribution.
In the coming year, increase your contribution to 7%. Plan on doing that each
year, until you meet the maximum contribution you’re allowed to make.

While this is a great start, the reality is you need to save at least 20% of your
income if you have any hope of retiring early (or at all). If you want to get
super ambitious and retire at 30, you can take a page out this guy’s playbook
and save over 50%.

When I encounter someone only saving around 5% I challenge to increase it

by 1% each quarter until they reach at least 10%. From there adjust I have
them adjust accordingly so they barely feel the extra amount deducted from
their paycheck.

4. Buy Value

By “buy value,” I mean you neither buy the

cheapest goods, nor the most expensive.
Instead, you look to buy the best value for the
money. Sometimes it’s worth it to cough up a
little extra dough for a product you know will
last, rather than paying bottom-dollar for
shoddy merchandise you’ll have to constantly
replace.

On the flip side, keep in mind not all products are better simply because
they’re more expensive – often they’re just more expensive because of
perception. Read reviews and shop around.
 5. If You Have to Borrow, You Can’t Afford It

Credit is an awesome thing when you’re buying

something big, like a house or a car. Very few people
have $150K sitting around in cash to buy a home, so
for those things, borrowing makes sense. But
adopting good financial habits means avoiding
schemes to stretch your paycheck. Credit cards are
probably the most common way to do this.

6. Pay Your Bills Ahead of Time

Paying bills late is another strategy to

stretch the paycheck. But it’s also kind
of like robbing Peter to pay Paul. All it
does is give you a false sense of how
much money you have, and then puts
you under tremendous pressure to
cover the difference later. By paying
your bills ahead of time, you will gain
more control over your finances, and
that will make it easier to adopt good
financial habits.

My wife is the queen at this! Instead of waiting until she receives our credit
card bill, she logs into our accounts and pays it off in the middle of the month.
There’s no way she’s allowing any interest to accrue!
7. Read One Financial Book Each Year If
you want to become financially
stable, you’ll have
to seek advice from the financial
masters. Easy to do, since nearly
every one of them has at least one
book available.

Take advantage of that

knowledge. If you only get
three or four bankable ideas from
reading a single book, think
about how many you’ll get from
reading a dozen or more.

Some of the personal finance books that I’ve enjoyed over the years include:
Dave Ramsey’s Total Money Makeover, David Bach’s Smart The Automatic
Millionaire, Ramit Sethi’s I Will Teach You to Be Rich. And…well there is of
course the book on the left:

8. Track Your Spending If you don’t have a budget, then you

probably don’t have even a remote
idea where all of your money is going.
This is one of those good financial
habits you absolutely must adopt you
if want to get control of your finances.

By tracking your spending, you will

be able to identify the areas of
excess. Eating out for 50% of your meals? Cut that back to even 25% and cook
or brown bag the rest, and you’ll have a nice chunk of change to contribute to
paying down debt or building up your savings.

Start tracking your spending now – you may be surprised to find where your
money is actually going.
9. Spend Less Time Watching TV
Don’t think watching TV has anything to do
with becoming financially stable? Guess what?
TV is nothing but a giant advertising venue, and
I’m not just talking about the commercials.
Even TV shows advertise certain wares through
a little thing called product placement.

It’s a place where “sponsors” come to peddle their wares, and often, to make
you feel insecure because you’re not buying what they’re selling.

Much of our spending, especially impulse spending, is driven by time spent in

front of the TV. The less time you spend watching it – and the ads it bombards
you with – the less money you’ll feel compelled to spend on things you don’t
need.

Plus, by watching less TV you can read more books!

10. Balance Your Checkbook

Regularly
With online banking, it’s easy to ignore
this step. After all, the balance is
available to be checked every day. But
the balance does not reflect upcoming
charges or outstanding checks. If you
aren’t fully aware of these, it could lead
to an undersized balance, or even bounced check fees. No bueno.

Balancing your checkbook helps you to avoid these pitfalls, so you know
exactly how much cash you have at all times.
11. Shop Without Your Credit Cards
Not only will this keep you from running up your credit card balances, but if
you have to use cash or
your debit card to make your purchases,
there’s a very good chance you will spend less
money than you would if you are shopping
with a credit card, because you can’t just pay it
off later.

It’s real money, being used right now, which helps you make a wiser decision
in the checkout line.

12. Pay More Than the Minimum on Your Credit Cards

And speaking of credit cards, if you want to
become financially stable, you will need to
get rid of those balances. If you haven’t been
successful in paying off your credit cards in
the past, then you should commit to paying
more than the minimum payment due.

On top of paying more than a minimum, you

should consider
consolidating your credit card debt under a single 0% balance transfer card.
Once you do this all those high interest cards will be under a since zero
interest card saving you money.

This will speed up the payoff of your credit cards without having to come up
with huge sums of money to do it. You will simply be accelerating the payoff,
and if you pay enough, it will happen more quickly than you think.

Pay attention to your credit card statements. They will often tell you how long
it will take to pay off your balance if you only pay the minimum payment, and
how long it will take if you pay a fixed amount slightly higher than the
minimum payment. Most of the time, there’s a difference of several years.

Yes, I said years.

13. Dust off that Business Idea you’ve been
putting off
Do you have a business idea you have been
putting off for quite awhile? You may want to
give it a serious try. The internet has made
starting and running a business easier and less
expensive than ever. Case in point example is my
buddy, Steve Chou, who was able to replace his
wife’s
$100k income by launching an online store.

Another example closer to home is my wife’s blog. She was able to replace her
full-time income from her corporate job after starting her blog in about a year.

Best of all, you can run a side business for as long as you like, and that can
provide you with an extra source of income. It’s important to set good financial
goals, but you also have to carry them through. Starting a business is one way
to do that – even if you only do it on a part-time basis

14. Learn to Say “No” to Yourself

This is important when you are shopping, or
just out and about. This is really about getting
control of impulse buying. You’re out
somewhere, and you see some item you like,
and you buy it because it doesn’t cost that
much. Even worse is the ability to purchase
things online nowadays and have it delivered to
your doorstep in just a few days. If you do that
several times a week, the
spending can really add up.

Making just 20 impulse purchases (or fancy coffees) per month at an average
of “only” $5, adds up to $100 spent on stuff you really don’t need. That’s $100
which isn’t going into savings or investments, or to paying down debt.
One trick is to enforce a “72 Hour Rule” on any purchases, especially online
items. If you really think you need to buy <fill in the blank>, after you add it to
your cart make yourself wait 72 hours before you purchase it. After 3 days you
should get a good feel whether you really need the item or if you just want it
(and don’t need it at all).

15. Learn to Say “No” to Your Kids

If you have children, learning to say “no” to
them is doubly important. First, kids being
kids, they always want something. And that
something tends to get more expensive as
they get older. You can save a lot of money by
learning to say “no” to the random things
they see and decide they can’t live without.

Keep in mind, I’m not telling you not to

give your kids birthday or Christmas gifts, or things they truly need. Rather, it’s
about their own impulse buying – seeing something and wanting it – but
instead, they’re using your money. Telling them “no” will keep more money in
your pocket.

But the second issue is even more important.

How you spend money, and particularly how you spend it on your children,
has important implications for the attitude they will have toward money when
they grow up. Though saying “no” isn’t always easy, it’s a way of teaching an
important financial lesson. It teaches your kids they can’t have all the candy
in the store, and that’s something they need to grasp in preparation for adult
life.
 16. Buy Term and Invest the
Difference
Everyone needs life insurance, but
everyone complains about how
expensive it is to buy it.

There is a better way. Buy term life

insurance. Because it costs only a
fraction of what whole life costs, you
not only save money on the premiums,
but you can buy
more coverage. And that money you save on the premiums can be invested to
build a large investment for the future, which by itself is its own form of
insurance.

17. Start a Retirement Savings Plan

Good financial habits can be elusive if you don’t have a retirement
savings plan of any kind. But if you don’t have a plan through your employer,
there are plenty of options. You can open up a self-directed traditional IRA or a
Roth IRA through tons of different platforms. Either will provide the type of
income tax deferral that is the essential to building a healthy nest egg for
retirement.

If you don’t have a retirement savings plan,

what are you waiting for? Set one up today, and
start funding it with any money you have available.

Seriously, it’s better to start contributing a little bit

now than to wait until you can contribute a lot.
You can even fund it
through payroll savings deductions through your employer. Our top choice is
Ally Invest with the rest of best options for IRA’s here.
 18. Refresh Your Emergency Fund on a Regular
Basis
There’s a lot of talk on the web about building an
emergency fund, but far less in regard to replenishing it
once you’ve taken money out of it. And if your living
expenses increase over the years, you can even find
your emergency fund is no longer adequate.

Take a look at your emergency fund at least once each year, and
determine if it is sufficient to cover at least 3 to 6 months of living expenses,
based on your current expense level. If it isn’t, set up a plan to refresh it as
needed. It’s hard to remain financially stable without a well-stocked
emergency fund.

19. Save For Specific Goals

A lot of people understand the importance of
saving money in an emergency fund, and for
retirement. But less well understood is saving for
specific goals. Those goals could include saving
money for your children’s college education, saving
money to replace your car without having to take a
loan, or saving money to make major repairs on
your .home.

This isn’t just about saving money – it’s also about becoming self- funding. That
means you pay cash for the kinds of major things other people borrow money
for.

I’m a huge believer in revisiting your goals every 90 days. I started this over 4
years ago and I’ve seen my revenue nearly triple while
taking more days off than I ever have. So yes,
I’m a HUGE advocate of goal setting. Here’s a
quick peak on my last quarters goals as well as
my goals for 2015.
20. Know What You’re Paying
A lot of people are not terribly concerned with investment fees, so long as
their portfolios are growing in value. But there’s more going on with
investment fees than people normally think. A difference of just 1% in
investment fees can make a substantial difference over time.

For example, let’s say you have a $20,000 investment account earning 10% per
year. If you pay 2% in investment fees, that will give you a net return of 8%.
Over a ten year period, the investment will grow to $43,179.

But let’s say you have the same investment, but you pay only 1% in investment
fees. That will give you a net annual return of 9%. After ten years, the
investment will grow to $47,347.

That’s a difference of well over $4,000 over ten years. The difference is even
more dramatic over 20, 30, or 40 years.

It’s also important to understand the type of investment you own and the fees
associated with it. Recently, I had a new prospective client that owned a
variable annuity. She didn’t understand how it worked or what she was paying
per year to own it. She actually thought she was only paying $50 per year to
own it when, in fact, she was paying over $3,500!

Moral of the story: investment fees matter!

21. Give to Others
This could donating your time to a charity or cause, tithing, or cooking a meal
for a friend in need. The point is to put others needs before yours.

It’s easy to put our own worries and concerns at the forefront but when you
start focusing on others, the payback is unmeasurable.

22. Become the Go To Guy/Girl at Work

Everybody wants a raise at work, but not everyone wants to do what it takes to
get one – especially in a tight job market. The same is true for promotions.

But if you want to fast-track your career, work to become the go-to guy or gal
in your office. That means taking on meatier work assignments and stepping
up to help management and coworkers when needed. It’s not easy, and it’s not
an immediate fix, but it can really payoff in the long run.

23. Get to Work 15 Minutes Early Each Day

By getting to work 15 minutes early each day, you can dramatically improve
your work performance, and even reduce your stress levels. Just taking the
extra time to organize your day, such as creating a to-do list that makes sure
you get the most important tasks completed first, can give you a jump on the
competition – your coworkers.

That can be an important part of improving both your productivity and your
visibility at work. And that can eventually lead to a bigger paycheck.

24. Cut Down on Your Spending Allowance

Even people who budget can sometimes be lax when it comes to their personal
spending allowance. That’s the money you use for entertainment, for casual
spending, and for that latte at Starbucks.

Everyone needs a certain amount of free-spending built into their budget, but
it’s equally important to make sure it doesn’t get out of control. Since it tends
to be spent in small amounts over long periods of time, it’s easy to get carried
away with spending on this front.
Start by giving yourself a fixed allowance for free-spending each month. Then
gradually begin cutting it down to a more manageable number.

25. Cut Down on Restaurant Meals

Eating in restaurants has become so common these days we hardly notice it.
But if you find yourself eating out three, four or more times per week, your
restaurant habit has become a major expense without you even realizing it.

Track the number of times you eat out each week, and begin reducing it. This
is an excellent way to save money painlessly. And it may force you to sharpen
your cooking skills. The Food Network is there to help you with that, should
you need it.

26. Drive Your Car a Few Years Longer

If you are accustomed to taking out five year loans on your cars, then replacing
them as soon as the loan is paid off, you need to realize that’s a very expensive
way to drive. The longer you drive it after the loan is paid off, the less
expensive your auto expense will be. That’s another of those good financial
habits that will point you in the right direction, and bring you to financial
stability more quickly.

The average age of a car in the US is now 11.4 years. That isn’t to say you
have to drive your car until it dies, but you should be able to drive it for as long
as 10 years. And for the love of man, repeat after me:

Reliable transportation does NOT mean you have to buy a brand new car.

If you are paying $500 a month for a car payment, and you can keep the car an
extra five years after, that will be an extra
$30,000 in your bank account ($500 X 60 months). You’ll lose some of that to
repair bills, but nothing close to $30,000.
 27. Learn to Love the House You Live In Some
people make it a practice to trade up on their
home every time they get a
promotion or a new job. If you want to
become financially stable, it’s critical you learn to
live beneath your means – which was the first
strategy on this list.

If you can keep your house payment stable while

your income rises, you can redirect the
additional income into savings, investments, and non-housing debt. That will
improve your financial situation a lot more quickly and efficiently than buying
a larger and more expensive home every few years.

So there you go – 27 good financial habits that you need to not go broke – and
to become financially stable. Pick just a few of them, and watch your finances
get better.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 2 Financial Habits
Lesson Title Determining Your Financial Worth
Justify that your net worth is important and useful only to you
Learning Outcome(s)
and your unique situation and goals in
determining your financial worth.

I
LEARNING NTENT!
Terms to Ponder

Net financial worth - is the difference between the stock of financial assets
and the stock of liabilities, measured at the end of each reporting period
(normally year or quarter). Financial assets and liabilities are valued at
market value, notably for debt securities, financial derivatives and shares and
other equity.

Essential Content

Net Worth of a Person Mean and How is it Calculated

Many of us wonder what we are worth. I’m not talking about what we’re worth
as people, which is an entirely different concept. I’m talking about what we are
worth in monetary terms.

In most cases, this is a fairly simple exercise. Net worth is determined by

subtracting your liabilities from your assets at a specific moment in time. If
you have more assets than liabilities, you have a positive net worth. If your
liabilities overwhelm your assets, your net worth is negative.

The goal is to work towards a positive net worth, which indicates that you can
pay off all your debts if you need to, or you’re already debt-free. In this way,
net worth can be one measure of your financial health and well-being.

How to Determine Your Net Worth

Determining your net worth is fairly straightforward. You list and add up all
your assets and all your liabilities. Then, you subtract your liabilities from your
assets. Since determining your net worth is similar to taking a financial
snapshot, you don’t consider your annual income, but rather how much money
you have “in the bank” right now. If you want your net worth to be higher,
calculate it immediately after you deposit your paycheck.

Below we’re going to show you how you can calculate your net worth by hand.
Alternatively, you could use Personal Capital. When you sync up all your
accounts, they will automatically calculate your net worth.
 Assets
Your assets can be defined as everything you own that has monetary value.
They may be liquid like a checking account or non-liquid like your home. If an
asset is liquid, it simply means you don’t have to sell it first to realize its
monetary value. A few general examples of assets are:

● The market value of your home.

● The market value of your vehicles.
● The money in your investment accounts (including your
retirement accounts and life insurance contracts).
● The amount you have in your checking and savings accounts, including
CDs and money market accounts.
● Notable items of value you own, such as artwork, furniture, fine jewelry,
or collectibles.
Since items like artwork and jewelry can be highly subjective, only include
them as assets if you have had them professionally appraised or have a good
sense of what someone would pay for them in today’s market.

Liabilities
Liabilities, unlike assets, represent a drain on your resources. These are
obligations you have to pay. Your total liabilities aren’t determined by monthly
payments owed, but rather by the entire debt you owe. Examples of liabilities
include:

● Mortgages
● Car loans
● Credit cards
● Student loans
● Outstanding medical bills
● Back taxes
● Liens and judgments against you
Many people find that they have a negative net worth, thanks mainly to their
mortgage debt and car loans. Credit card debt and student loans also have a
big impact on your overall net worth. Case in point, the student loans my
husband and I have are a big reason why our net worth is negative right now. If
you find that your net worth is negative due to your student loans, you might
want to think about refinancing with a company like SoFi.

Calculating Your Net Worth

Once you’ve listed all your assets and liabilities, you can calculate your net
worth by subtracting your liabilities from your assets. Here is an example:

Assets:

● Home market value: $180,000

● Vehicle 1 market value: $2,000
● Vehicle 2 market value: $15,000
● IRA: $7,000
● 401k: $11,000
● Other investment accounts: $5,000
● Emergency fund: $4,500
● Short-term savings: $1,000
● Checking: $2,000
● Other bank accounts: $2,000
Total Assets: $229,500
 Liabilities:

● Mortgage: $184,000
● Vehicle 2 loan: $10,000
● Total credit card balances: $1,000
● Student loans: $60,000
Total Liabilities: $255,000
Net Worth = $229,500 – $255,000 = -25,500

The net worth here is negative; this person owes $25,500 more than he or she
is “worth” in monetary terms.

Improving Your Finances with the Help of Net Worth

Your net worth is a snapshot of where you are at financially. It doesn’t offer
information about cash flow, or your monthly income and expenses. But it
does provide insight regarding how well you’re accomplishing your long-term
financial goals. Once you determine your net worth, you can more easily see
what items are holding you back.

In the example above, it appears that the home has decreased in value, so the
market value is less than what the homeowner owes on the loan. Hopefully
that situation will be remedied by a recovering housing market.

Additionally, student loans are a big liability for this person. Perhaps
examining the monthly budget more closely might yield areas to cut back in,
and thereby free up funds to devote to extra mortgage payments, student loan
payments, or additional investments that could offset debts in a net worth
calculation. Or, it could make sense help pay down debt by earning additional
income via passive investing strategies or a side gig like driving for DoorDash.
A look at the net worth statement also reveals that the less valuable of the cars
is paid off, and, if sold, could actually eliminate what remains of the credit card
debt. These kinds of observations can help you as you formulate a plan to
improve your finances and strive for positive net worth.

Tracking Your Net Worth

Every time you take this “snapshot,” look at the progress you’ve made. Figure
your net worth on the same day of each month or each quarter. By doing it at
the same time, you can make sure you are comparing apples to apples and can
make use of the results. Why? The patterns of your monthly budget will
interfere. You might have more money at the beginning of one month from a
paycheck just received than you had at the middle of another month after it
was spent paying bills. Instead of getting a true measure of your progress, you
end up with a skewed result that can’t help you assess your overall financial
situation.
 Designate one specific day every month or quarter as your “net worth day.”
Track and record your net worth over time (you can eventually graph it) or use
a free tool like Mint.com. This practice can be used to regularly gauge your
financial health and make sure you’re on track to meet your goals.

Final Word

Regularly calculating and tracking net worth is just one important item in your
financial toolbox. Complement net worth check ups with budget analysis and
tracking software, and have a financial plan in place that incorporates
short-term and long-term financial goals like buying a home and
retirement. Make a budget with Tiller or Personal Capital to accomplish these
goals and utilize net worth checkups to make sure you’re on track to meet
them.

Remember that net worth, while a valuable indicator, does not give you the
depth of information you need to fully assess your financial situation.
Someone who has a lot of low-interest student loan debt, for example, may be
in a far better financial situation than someone with half as much high interest
credit card debt, though their relative net worths may indicate otherwise.

Do you know what your net worth is? How are you using this number to track
and improve your financial health?

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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Money Crashers https://www.moneycrashers.com/calculate-personal- net-worth/

 Week 3 Personal Finance
Lesson Title Examining Your Credit Score and Reports
Understand that lenders examine your credit report and score
Learning Outcome(s)
before granting you a loan or credit line in
examining your credit score and reports.

I
LEARNING NTENT!
Terms to Ponder

Credit reports reflect your credit activity, while credit scores represent a
calculation of that activity. You may be able to get your credit score from your
bank or credit card issuer, but your credit report only comes from credit
bureaus
Essential Content

Understanding your Credit Report and your Credit Score

 Understanding your Credit Report and your Credit Score
When you apply for a credit card, car loan, personal loan or mortgage, the
lender will want to know your past history of borrowing in order to
understand the risk they might be taking by lending you money. The status of
your credit score will depend on how good you’ve been in the past at repaying
your debts. A bad credit history can affect the credit that’s made available to
you or even cause you to be denied credit completely. On the other hand, a
healthy credit report and a high credit score can mean better financial options
for you. To find out where you stand, a lender will go to a credit reporting
agency to get your credit report.
Credit Reporting Agencies
Credit reporting agencies collect an individual’s financial information, compile
it into a credit report and, for a fee, make it available to the individual and to
other authorized parties, including financial institutions. Generally when you
apply for a loan you give the lender permission to get a copy of your credit
report. Companies that lend money rely on credit reporting agencies and the
credit reports they generate to help them assess a customer’s ability to repay
what they borrow.

Although there are many local and regional credit bureaus throughout the
United States, most credit bureaus are either owned or under contract to the
nation's three major credit reporting agencies: Equifax, Experian (formerly
TRW) and TransUnion.
Credit Report
A credit report is a detailed history of a person’s borrowing habits and
consists of the following information:
● Identifying information such as your name, past and present addresses, date
of birth and employment history;
● Credit accounts submitted by lenders who have extended credit to you. This
includes the type of account (credit card, auto loan, mortgage, etc.), the date
the account was opened, the credit limit or loan amount, the account balance
and the payment history;
● Inquiries on the account for the last two years including voluntary inquiries,
when you apply for credit or a loan, and involuntary inquiries, when a lender
you are not aware of orders your report to see if they want to make you a
pre-approved credit offer;
● Public record and collection items including information from state and
county courts and collection agencies, and public record information like
bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments.

Credit Score
When a lender gets your credit report, they can also generally get your credit
score. A credit score is a mathematically calculated number based on the
information in a credit report. By comparing this information to hundreds of
thousands of other credit reports, credit reporting agencies come up with a
number that can be used to identify your level of future credit risk.

Credit scores are often called “FICO scores” because most scores are produced
from software developed by Fair Isaac Corporation also known as FICO. FICO
scores range from 300 to 850 – the higher the score, the lower the risk.
In order for a score to be calculated on your credit report, the report must
contain at least one account which has been open for at least six months. The
report must also contain at least one account that has been updated in the past
six months. This ensures that there is enough recent information in your
report on which to base a score.

Scores should be within a few points of each other. If they do differ by more
than a few points it should be a red flag that something is wrong and should be
further investigated.
 Can different agencies have different scores?
There are three different FICO scores developed at each of the three different
credit reporting agencies. FICO uses the same method to come up with each
score, but the score at each of the three agencies may not be exactly the same
because of the different ways lenders report information to the agencies. The
FICO score from Equifax is called BEACON, the score from Experian is called
the Experian Fair Isaac Risk Model and the score at TransUnion is known as
EMPIRICA.

Is FICO the only credit score that lenders use?

No. Many lenders use scoring systems that include the FICO score but may also
consider other information in your credit application including the customer’s
history with the institution. However, when purchasing a credit score for
yourself, make sure to get the FICO score, as this is the score most lenders will
look at in making credit decisions.

It is important to remember that no one piece of information or factor alone

will determine your score and while lenders use scores to help them make
lending decisions, every lender will have its own set of guidelines for a given
credit product.

What does a FICO score take into consideration?

Your FICO score only looks at information in your credit report and considers
both the positive and the negative information on the report including:

● Payment History – (accounts for about 35%)

● On-time payments on credit accounts including credit cards, retail accounts
(such as department store credit cards), installment loans (loans where you
make regular payments, like car loans) and mortgage loans.
● Late payments (delinquencies) on credit accounts including how late the
payments were, how much was owed, how recently the late payments
occurred and how many times payments were late.
● Public record and collection items including delinquency payments on utility
bills that are sent to collection agencies, bankruptcies, foreclosures, lawsuits,
wage attachments, liens and judgments. (Older items and items with small
amounts will count less than recent items or those with larger amounts.)
● Amount of credit – (accounts for about 30%)
● The total amount owed on each account, in addition to the overall amount you
owe.
● Having balances on certain accounts. (Having a very small balance without
missing a payment shows that you have managed credit responsibly, and may
be slightly better than carrying no balance at all.)
● The number of accounts that have balances. (A large number can indicate
higher risk of over-extension.)
Length of Credit History – (accounts for about 15%)

● The age of your oldest account and the average age of all of your accounts.
● How long it has been since you used certain accounts.
● New Credit – (accounts for about 10%)
● How many new accounts you have or how long it has been since you opened a
new account.
● How many requests for credit you have made in the last 12 months.
● How long it has been since a lender made a credit report inquiry.
● Whether you have repaired your credit history, following past
payment problems.
● Types of Credit - (accounts for about 10%)
● What type of credit accounts you have, and how many of each type. This
includes:
o Revolving credit – American Express, Visa, MasterCard, Discover Card, and
department store cards.
o Installment credit – Personal loans, car loans, student loans and mortgages.
 How Does the FICO Score Count Inquiries?
The FICO score counts inquiries or requests a lender makes for your credit
report or score when you apply for credit. Too many inquiries can have a
negative impact. Looking for a mortgage or an auto loan (rate shopping) may
cause multiple lenders to request your credit report within a short period of
time. The score counts multiple inquiries in any 14-day period as just one
inquiry. The score also ignores all inquiries made in the 30 days prior to
scoring. If you find a loan within 30 days, the inquiries won’t affect your score
while you’re rate shopping. One credit inquiry will usually take less than five
points off a score. Inquiries can have a greater impact if you have very few
accounts or a short credit history.

What FICO Scores Do Not Look At:

● Age, race, sex, religion, nationality, medical history, criminal
history, and marital status.
● Salary, occupation, title, employer, date employed or employment history.
● Interest rates being charged on a particular credit card or account.
● Support obligations, rental agreements or utility payments.
● Requests you make, requests from employers, and requests lenders make
without your knowledge.
● Information that is not found in your credit report.

Tips on Improving Your Credit Score

● Request and check your own credit report and your own FICO score once a
year. This won’t affect your score, as long as you order your credit report
directly from the credit reporting agency or FICO. While having credit cards
and managing them responsibly can lead to a high credit score, having no
credit cards can make you seem like a risk.
● Keep your balances low or, if possible, pay them off completely each month.
● Pay off debt instead of moving it around. Owing the same amount but having
fewer open accounts may lower your score.
● Don’t open credit cards that you don’t need just to increase your available
credit or because you want it to look like you have a better mix of credit.
● If you have only had credit for a short time, don’t open a lot of new accounts at
the same time. New accounts will lower your average account age, which will
affect your score if you don’t have a lot of other credit information.
● Shop for auto or mortgage loan rates for within a set period of time. FICO
scores distinguish between a search for a single loan and a search for many
new credit lines by the length of time over which inquiries occur.
● Don’t close credit cards to try to raise your score. Closed accounts show up on
your credit report.
● Repair your credit history if you have had problems. Open new accounts
responsibly and pay the bills on time.

Denials
If you have been turned down for credit, the Equal Credit Opportunity Act
(ECOA) gives you the right to find out why within 30 days. You are also entitled
to a free copy of your credit bureau report within 60 days, which you can
request from the credit reporting agencies.

When a lender receives your credit score, up to four “score reasons” are
included. These will explain the reason for your score. If the lender rejects
your request for credit, and your FICO score was part of the reason, these
reasons can help the lender tell you why you were rejected and can help you
determine how to improve your credit.
 Disputing Errors
The Fair Credit Reporting Act requires that incomplete or incorrect
information on your credit report must be corrected for free by the credit
reporting agency. If you find an error and ask that it be corrected, the credit
reporting agency has 30-45 days to investigate. Only inaccurate information
may be removed from your credit report; negative information that is accurate
will stay on your credit report as long as governing laws allow.

To submit a dispute:
● Inform both the credit reporting agency and the company that supplied the
information to the credit reporting agency that you believe your credit report
contains inaccurate information. The best way to do this is by writing each of
them a letter. If you don’t have the resources to write the letter, the credit
reporting agency may be willing to help you.
● In the letter, include your full name and address, the full name of the company
that supplied the disputed item and the account number of the disputed item
(from your credit report).
● Include copies of any documents that support your position (credit card
statement, court document, etc.).
● Identify each item in the report that you dispute, explain why you dispute the
information, and request deletion or correction. Enclose a copy of your report
with the items in question circled or highlighted.
● Keep copies of your dispute letter and any records you send along with it. Do
not send original documents.
● Send the letter by certified mail, return receipt requested.
The credit reporting agency will ask the party that generated the information
for their records. After the investigation you can expect the following from the
credit reporting agency:

● If the lender cannot find a record of the disputed information, the credit
reporting agency should delete the information from your credit report.
● If they find evidence that the information is inaccurate they will make a
correction to your report or add any missing information and will usually mail
you an updated copy of your report.
● At your request, they will send a ‘notice of correction’ to any creditor who has
checked your report in the last six months.
● The agency should also send the corrected information to the other credit
reporting agencies, but you should confirm that this has been done by
rechecking all of the reports.
If you feel that the credit reporting agency has not resolved your dispute you
can add a statement to your report that explains your side of the story. The
statement must be less than 100 words and will remain on your report for
seven years. It will be sent to anyone who requests a copy of your report.
Free Credit Freezes
The three major credit reporting agencies are required by federal law to offer
free credit freezes. A credit freeze (also called a security freeze) restricts
access to your credit file, making it difficult or impossible for identity thieves
or others to open an account or borrow money in your name using breached
or stolen information.

A freeze also prevents lenders and creditors from accessing your credit files to
review your history and, as a result, prevents new credit from being opened in
your name, unless you authorize the credit reporting agencies to lift the freeze
and allow access.

Parents and guardians of children under 16 years may also freeze a child's
credit file. The three major credit reporting agencies must offer free electronic
credit monitoring services to active duty military personnel.
You will have to temporarily or permanently lift or "thaw" the freeze if you are
applying for a loan or a credit card. Lifting a freeze is free. Many consumer
advocates and security experts recommend credit freezes as one of the best
ways to protect your credit information from fraud and prevent identity theft.
 The procedures for obtaining a freeze are different for each of the three credit
reporting agencies, and for a freeze to work you must place one with each of
the three agencies. Consumers should visit their websites to learn more about
how to freeze your file:

● www.equifax.com/personal/credit-report-services/
● www.experian.com/freeze/center.html
● www.transunion.com/credit-freeze
You can also call each agency (Equifax, 800-349-9960; Experian,
888-397-3742; TransUnion, 888-909-8872) to place the freeze.

Consumer Credit Reporting Agencies and Data Breaches

In response to a 2017 Equifax data breach, DFS issued a regulation that
requires consumer credit reporting agencies register with DFS, comply with
New York's separate first-in-the-nation cybersecurity regulation, subjects the
agencies to examinations by DFS, and prohibits them from engaging in certain
conduct, including unfair, deceptive or abusive acts or practices,
misrepresenting or omitting any material information in a credit report, or
failing to comply with the provisions of federal law relating to the accuracy of
the information in any consumer report.

For more information about credit freezes and other measures you can take to
protect your credit files, visit the Federal Trade Commission's Consumer
Information Credit Freeze FAQs.
 Free Annual Credit Report
You Are Entitled To A Free Copy Of Your Credit Report…
● Once every year.
● If you have been denied credit in the previous 60 days.
● If you have been denied employment or insurance in the previous 60 days.
● If you suspect someone has been fraudulently using your accounts or your
identity.
● If you are unemployed and plan on applying for employment within the next
60 days.
● If you are on public assistance.
(You are entitled to get your credit score free of charge from your lender when
applying for a mortgage.)
Request your free annual credit report from all three major agencies online at
annualcreditreport.com. You can also call (877) 322-8228 to request your
credit report by phone. You will go through a simple verification process over
the phone and your reports will be mailed to you.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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Understanding your Credit Report and your Credit

Scorehttps://www.dfs.ny.gov/consumers/banking_money/cred
it_report_score
 Week 4 Personal Finance
Lesson Title Evaluating Investment Knowledge
Learning Explain the concept of having credit cards
Outcome(s) and evaluating your investment knowledge.

I
LEARNING NTENT!
Terms to Ponder

Credit reports reflect your credit activity, while credit scores represent a
calculation of that activity. You may be able to get your credit score from your
bank or credit card issuer, but your credit report only comes from credit
bureaus
Essential Content

Market and Investment Evaluation Methods

Doing your homework
Before investing in publicly traded securities, it would be wise to do some
research--at least enough to understand just what you're investing in. An
educated investment decision involves some knowledge of the stock and bond
markets, the economy, and the companies issuing the securities. Because
investors must try to forecast whether prices will rise or fall, multiple theories
have been developed to assist with securities selection by explaining market
and price fluctuations.

Attempts to evaluate stocks and their price movements typically take one of
two approaches--the fundamental analysis approach or the technical analysis
approach. Whereas fundamental analysis presumes that company-specific
factors (such as its profitability) will govern prices, technical analysis asserts
that market trends can be used to project future prices. Many investors
combine the two approaches in evaluating a security.

Bond analysis generally depends on the creditworthiness of the issuer as well

as the direction of interest rates generally. Because bond prices fall when
interest rates rise, the actions of the Federal Reserve Board in managing the
nation's money supply and availability of credit can be very important.
Fundamental and technical analysis techniques also are sometimes employed
with bonds and other markets.

Market basics
Before getting into analytical approaches, it's important to define some basic
terms. "The stock market" is a general term referring to the organized trading
of securities through various exchanges and the over-the-counter market. The
query, "How did the market do today?" is often answered by a reference to the
Dow Jones Industrial Average (DJIA), which is composed of 30 stocks listed on
the New York Stock Exchange (NYSE). The DJIA is the best-known (though not
necessarily the most broadly applicable) indicator of how the market as a
whole performed on a given day. The DJIA changes from day to day with stock
price fluctuations.
A bull market refers to an overall trend of rising prices over a given period,
and a bear market refers to an overall trend of declining prices.

Caution: Remember that any investment approach or methodology involves

some type of risk, including the potential loss of principal, and there's no
guarantee that any investment strategy or technique, however
well-researched, will be successful.

Business basics
If you want to invest, become familiar with some financial terminology. The
more financial lingo you know, the better. At a bare minimum, you should
understand the following economic and financial terms:

● Gross Domestic Product (GDP): This may be defined as the final market
value of the goods and services produced in a country during a given
period (such as a year). Historically, during periods of prosperity, when
GDP is high, security prices as a whole have tended to rise.
● Leading economic indicators: The most widely cited overview of
statistics that foreshadow economic conditions is published by The
Conference Board, a nonprofit research organization, in its Leading
Economic Index®; the Commerce Department also publishes data in its
Survey of Current Business. Items considered include the number of
new businesses started, new orders for consumer goods and materials,
building permits for new homes, and the average work week for
manufacturing. Declines in the above numbers suggest that the level of
economic activity in the country is falling and that a recession could lie
ahead.
● Earnings: Earnings (or earnings per share) refers to the number of
dollars (net earnings) made on behalf of each outstanding share of
common stock. Net earnings are the profits that remain after a company
has paid operating expenses, interest payments on outstanding bonds,
taxes, and dividends on preferred stock. Typically, investors prefer
companies with higher earnings.
● Dividends: A dividend is a distribution of profits declared by a company
and paid to its stockholders on a per-share basis, usually quarterly. They
may be paid in cash or in additional full or fractional shares of stock.
Many investors believe that dividend payments represent a company's
strength.
 ● Stock splits: These occur when a corporation or mutual fund issues
additional stock to stockholders of record at a specified ratio. The
purpose of the split is to reduce the price per share, making the stock
more attractive or available to more investors. The number of stock
shares grows, but the total value of the company's stock does not.
● Index: A statistical composite used to represent the performance of an
economic force (such as inflation), an asset class (such as stocks) or a
specific financial market.
● Interest rate: This is the cost of using or borrowing money, expressed as
an annual percentage. The market prices of bonds and preferred stock
fluctuate inversely to changes in interest rates. Investors prefer high
rates of return, and borrowers prefer low interest rates.
● Commodities: This includes bulk goods such as oil, agricultural
products, and metals, many of which can affect the prices of other goods
and services.
● Yield: The interest paid by a bond divided by the bond's price is called
its yield. There are several types of yield, which tend to move in the
direction opposite price. Current yield represents the bond's annual
interest payments as a percentage of its current price. Yield to maturity
represents the return on a bond that is held until it matures.
● Premium: With bonds, a premium is the amount paid for a bond over
and above its face value. With stocks, it represents the amount by which
a stock's price exceeds those of comparable stocks.
● Asset class: A category of investment. For example, stocks, bonds, and
commodities all are examples of asset classes. How you divide your
assets among various asset classes is known as your asset allocation.

Fundamental analysis
Fundamental analysis is a means of forecasting price movements, often
contrasted with technical analysis. Fundamental analysis is based on the
premise that a company's fundamentals--financial statistics that indicate its
productivity and profitability--will ultimately govern a stock's price.
Forecasting the price of a particular security involves analysis of the economy
and of the relevant industry, as well as consideration of the particular
company, including a ratio analysis of its financial statements (explained
below).
Economic analysis
Before investing in a particular company, you should consider general
economic conditions. Changes in interest rates, in the level of employment,
inflation, and economic growth all can have an impact on the prices of
securities. You must forecast the economy's future before you can analyze a
firm's financial condition and potential for growth in that setting.

Economists often use the term "business cycle." The basic economic cycle
includes expansion to a peak (usually accompanied by inflation), followed by
decline to a trough (recession). Recessions involve rising unemployment and a
decline in national production. Although the length of expansionary and
recessionary periods may vary, the entire cycle itself repeats over time.
Business cycles can affect stock prices. During periods of economic prosperity,
the demand for goods and services may result in increased sales and profits,
so stock prices tend to rise. Recessionary times generally have the opposite
effect on the market as a whole, though individual securities may do well.

To a certain extent, monetary and fiscal policy can minimize drastic swings in
the economy. Monetary policy refers to the Federal Reserve's changes in the
supply of money and credit. When the Fed wants to contract the money supply,
for example, it sells government securities. This decreases the price of those
securities and increases overall interest rates. Fiscal policy, by comparison,
involves taxation, expenditures, and debt management by the federal
government in an attempt to influence price stability, employment, and
economic growth. Although securities prices can be affected by both monetary
and fiscal policy, economists differ as to which has more impact on the
economy.
Industry analysis
Industries typically go through a life cycle. Technological advances or changing
consumer desires can cause rapid growth in an industry that often slows as
the industry matures; eventually, an industry may decay as it gets outdated.
Obviously, the rapid growth period of the cycle generally has the most profit
potential; it's also important to know when an industry is on the decline. It
would have been a mistake, for instance, to keep your money in
phonograph-producing companies when word leaked out about compact-disc
technology.

In addition, be aware that some industries are cyclical (they move with the
direction of the economy), whereas others are more stable. Also, certain
industries are subject to extensive government regulation, labor relations
rules or labor needs, and financing requirements. These external factors can
affect securities prices.

Company analysis
You must also consider individual firms; what applies to the economy or the
industry might not apply to a particular firm. For example, even though most
airplane manufacturing firms might be doing pretty poorly in a given year, one
firm might be doing well. Engaging in ratio analysis is one way investors can
analyze individual companies.

Ratio analysis: an important subset of fundamental analysis

Ratios provide a quick way to measure a company's financial condition. Ratio
analysis is also used to compare a firm's performance with that of similar
companies over time. Each industry has different acceptable ratio levels. These
ratios are derived from information contained in a firm's income statement
and balance sheet. Although an accounting background is certainly useful for
understanding financial terms (e.g., "cost of goods sold") contained in the
financial statements, you can get by with ratio analysis if you have a general
idea of what the ratios mean, what direction they should be heading, and how
to compare different companies.
A cross-sectional ratio analysis involves the comparison of different firms'
financial ratios (within a particular industry) at the same point in time, and a
time-series analysis allows you to view one firm's performance over a period
of time.

Financial ratios are often divided into four categories: liquidity, activity (or
turnover), debt, and profitability.

Liquidity
The liquidity of a business is measured by its ability to satisfy its short-term
obligations as they become due. If a company can't pay its bills, it's in trouble.

Creditors and investors typically begin by reviewing a company's net working

capital. Net working capital equals a firm's current assets minus its current
liabilities. Current assets include cash, marketable securities, accounts
receivable, inventory, and other miscellaneous items. Current liabilities
include accounts payable, dividends payable, income taxes payable, current
maturities of long-term debt, and the like. In addition to net working capital,
two ratios are used to measure a firm's ability to pay bills in a timely manner:
the current ratio and the quick ratio.

● Current ratio: This measures a company's ability to pay current

liabilities. It equals current assets divided by current liabilities. The
current ratio should be neither too low (an indication of financial
weakness and potential inability to pay bills) nor too high (an indication
that the company is not using its current funds optimally). A current
ratio of 2:1 is often cited as acceptable. This means that there are two
dollars of current assets for every dollar of current liabilities. However,
acceptability really depends on the industry.
● Quick ratio: This ratio is also called the acid-test ratio. It equals current
assets minus inventory, divided by current liabilities. Sometimes it can
take several months for inventory to be sold and converted into cash.
Therefore, this ratio provides a better measure of overall liquidity when
a firm's inventory cannot easily be converted into cash. The quick ratio
will always be lower than the current ratio, owing to the exclusion of
inventory.
Activity ratios (or turnover)
Activity ratios can be used to assess the speed with which assets (e.g.,
inventory, accounts receivable) are converted into sales or cash. If two firms
have identical current ratios, activity ratios can help you determine which firm
is really more liquid. The higher the turnover to cash, the better position the
company is in to meet its current liabilities. Several ratios are used, including
the following:

● Average collection period: The average age of accounts receivable is

useful in evaluating how well a firm's credit and collection policies are
followed. It measures the speed with which receivables are collected.
The faster a company collects its accounts receivable, the faster it
accumulates cash (and the better able it is to pay current expenses). The
average collection period is determined by dividing the total accounts
receivable by the average sales per day.
● Receivables turnover: Like the average collection period, this ratio
measures how quickly a company collects its accounts receivable. The
formula is: annual sales divided by total accounts receivable. The larger
the receivables turnover ratio, the faster a company turns its sales into
cash.
● Fixed asset turnover: This measures productivity, or the efficiency with
which a firm has been using its fixed assets to generate sales. Fixed
assets consist of long-term assets such as property, plant, and
equipment. This ratio is computed by dividing a firm's total annual sales
by its net fixed assets, and it tells you the amount of sales generated for
every dollar invested in fixed assets.
● Inventory turnover: This measures the liquidity of a firm's inventory
(i.e., the speed with which inventory is sold). You must divide the cost of
goods sold by the inventory. Compared with industry averages, a low
inventory turnover might indicate that a company is carrying too much
inventory. This is viewed as a warning sign because the company may
then be vulnerable to falling prices.
Debt or leverage ratios
When analyzing a company's debt position, you consider the firm's degree of
indebtedness and ability to pay its debts. The more debt a firm uses, the
greater the potential for both risk and return.

● Debt ratio: This measures the proportion of total assets financed by the
firm's creditors. The debt ratio equals total liabilities divided by total
assets.
● Debt-equity ratio: The debt-equity ratio indicates the relationship
between the long-term funds provided by creditors and those provided
by the firm's owners. You must divide long-term debt by stockholders'
equity (the sum of common and preferred stock, retained earnings, and
other paid-in capital).

Profitability ratios
There are many ways to measure a firm's profitability. These ratios relate a
company's returns (earnings) to its sales, assets, equity, or share value.
Without profits, a firm has difficulty attracting outside capital and holding on
to current investors.

● Operating profit margin: This measures pure profits earned on each

sales dollar (i.e., profit before interest charges and taxes). The operating
profit margin equals operating profits (i.e., earnings before interest and
taxes) divided by total annual sales.
● Net profit margin: This is the percentage of each sales dollar remaining
after all expenses, including interest and taxes, have been deducted. The
net profit margin equals net profits after taxes divided by total annual
sales.
● Return on total assets (ROA): The ROA is also called the firm's return on
investment (ROI). It measures the overall effectiveness of management
in generating profits with available assets. It is computed by dividing net
profits after taxes by total assets.
● Return on equity (ROE): The ROE measures the return earned on the
owners' investment in the firm (both preferred and common
stockholders). It's calculated by dividing net profits after taxes by
stockholders' equity (the sum of common and preferred stock, retained
earnings, and other paid-in capital).
 ● Earnings per share (EPS): This figure represents the number of dollars
earned on behalf of each outstanding share of common stock (not the
earnings actually distributed to shareholders). It's considered an
important indicator of corporate success and is watched closely by
investors. You must divide the earnings available for common
stockholders by the number of shares of common stock outstanding.
● Price/earnings (P/E) ratio: The P/E ratio represents the amount
investors are willing to pay for each dollar of the firm's earnings. It
indicates the degree of confidence investors have in a firm's future
performance. You must divide the market price per share of common
stock by the earnings per share. Like earnings per share, the
price/earnings ratio is very important to potential investors.

Technical analysis
Technical analysis attempts to forecast securities prices and market trends by
analyzing past price and market trends. Because it charts price and volume
patterns and is unconcerned with outside factors such as industry strength
and a company's earnings, technical analysis is really the opposite of
fundamental analysis. Technicians believe that, for the most part, all
information necessary to forecast the movement of the market is contained in
the market itself. Charts and graphs of price movements can be used, the
volume of security transactions can be studied, or records of sales and
purchases by particular investors can be analyzed.

There are many different approaches to the purchase or sale of securities that
rely at least in part on some form of technical analysis. Some examples
include:

● Dow Theory: This theory is one of the oldest methods for predicting
overall stock market direction, and it is sometimes used to try to identify
the top of a bull market or the bottom of a bear market. Two of the Dow
Jones averages--the industrial and the transportation--are examined.
Dow Theory asserts that measures of stock prices tend to move together.
If the DJIA is rising, then the transportation average should also be
rising. These simultaneous price movements--when they reach new
highs--suggest a strong bull market. If the industrial average rises while
the transportation average is falling, however, it is likely that the
industrials may soon start to fall.
 ● Conventional theory: Conventional wisdom has it that rising inflation
and interest rates may be harbingers for falling securities prices, as
higher interest rates may lure investment capital that might otherwise
be used to purchase stocks. Rising interest rates also can affect bond
prices; as bond yields rise, bond prices fall.
● Confidence theory: This theory (also called Barron's confidence index)
asserts that, during periods of optimism, investors will be more willing
to bear risk. Thus, they'll move away from investments in higher-quality
debt into more speculative (but higher-yielding) securities. According to
this theory, when investors are confident, the difference between yields
on higher-quality debt and lower-quality debt will diminish, and
security prices will tend to rise.
● Odd-lot theory: This theory involves the purchase and sale of small
quantities of securities by small investors. It asserts that small investors
are frequently wrong, especially just prior to a change in the direction of
the market. Bearish behavior by small investors is taken as a bullish
sign, according to this theory.
● Contrarian opinion: This is based on the premise that investment
returns are maximized by going against prevailing opinion by buying
when everyone else is selling and selling when everyone else is buying.
The theory argues that if everyone believes a security is headed higher,
the supply of potential future buyers may soon be exhausted, and that
when there is no one left to buy, the price will begin to fall because of
that reduced demand. The same would be true in reverse; if everyone is
bearish about a security, at some point the demand will be so low that it
is likely to attract potential buyers. According to this theory, investors
can benefit from acting in a way that is contrary to the bulk of prevailing
opinions.
● Elliot wave theory: Based on the ebb and flow of collective mood, the
hypothesis is that a bull market is caused by our need to build a better
future based on material values, and a bear market is caused by our
need to take a rest. Bull markets and bear markets follow a predictable
pattern, which (when charted) appear as waves.

Other techniques are focused not on the overall market but on

security-specific indicators that may suggest when to buy and sell that
individual security. Example of such indicators include:
 ● Moving average: This is an average of security or stock prices computed
over time. Moving averages are used as trend indicators. The most
common is the 200-day moving average. When a stock price falls below
its own moving average, certain technicians tend to view it as a "sell"
signal. Likewise, a price movement above the average is viewed as a
"buy" signal. Moving averages smooth out chart patterns.
● Volume: Volume may be defined as the total number of shares traded in
a given period of time. A large deviation from normal volume may mean
a change in the demand for (or supply of) the stock.

Random walk theory

The random walk theory asserts that changes in securities prices are random
and unpredictable over time, thus making it impossible to accurately forecast
market direction. This is not to say that security prices are randomly
determined. On the contrary, they change in response to such factors as
earnings, interest rates, and the overall economic climate. The random walk
theory stipulates that those changes occur haphazardly.

The random walk theory is based on the idea that in an efficient market,
investors are highly informed and have access to all sorts of information about
a company and its securities. As a result, securities prices reflect all or most of
the information obtainable about companies and their securities, and change
quickly in response to any new information. If an investor thinks that a
company's security is priced too high, he or she will either sell it or choose not
to buy it. However, if an investor feels that a security is underpriced, he or she
will most likely purchase or continue to hold it. Competing beliefs among
investors results in a price that reflects what the universe of informed
investors think a security is worth, and price movements resemble a "random
walk" rather than a predictable pattern over time.

Evaluating various types of investments

Each type of investment product presents you with different issues. Your
analysis in each case will be guided by different tools and types of information
relevant to that type of product.
Cash alternatives
When analyzing cash alternatives, you are usually concerned with several
major factors:

● Financial strength of the issuer

● Maturity date of the instrument (if any)
● Early withdrawal penalties (if any)
● Yield
● Taxation
● Stability and protection of principal

These factors can help you evaluate issues such as default risk, liquidity,
return, and timing, and choose the cash equivalent that best suits you and your
portfolio. If, for instance, you need maximum liquidity and aren't concerned
about returns, then analysis of these factors will likely lead you to the
conclusion that a savings account would better suit your needs than a
certificate of deposit.

Some cash alternatives pool individual securities. Bear in mind that not all
cash alternatives carry the same protection for your principal.

Bonds
Evaluating a bond purchase is very different from researching an individual
stock. However, there are just as many factors to consider. Some of the
questions you'll need to consider include:

● Should I buy individual bonds or a bond fund?

● Do I plan to hold a bond to maturity, or will I sell it before it matures?
● Will taxable or tax-free bonds provide a better return?
● Should I buy a new issue or an existing bond?
● What level of risk does a particular bond involve?
● How does a specific bond pay interest?
● What is the bond's coupon rate? Its yield to maturity?
● Does the bond include a call feature?
● Can it be converted to shares of common stock?
● Is the bond selling at a discount or premium to its par value?

These factors can help you determine the potential risks and returns
associated with any particular bond as well as analyze timing and liquidity
issues associated with bond investing generally.
Stocks
Evaluating stocks to determine which ones you want to invest in can be a
daunting task. Most good investors understand why they're investing in a
particular stock and how it fits into their overall portfolio strategy.
Understanding how to evaluate stocks based on data rather than stock tips,
intuition, and guesswork can help you know when your reasons for investing
in a particular stock are no longer valid. Some of the concepts that can be
useful in helping you screen stocks and analyze their potential risks and
rewards include:

● Investing in stocks that you believe have the greatest potential for
growth
● Investing in value stocks that you believe are relative bargains
● Fundamental analysis (as discussed above)
● Technical analysis (as discussed above)

Real estate
There are several ways to invest in real estate. Buying and selling land is only
one option. You also have the choice of investing in entities that profit from
real estate activities. How you plan to invest will affect the information you
need in order to choose an individual real estate investment. For instance, if
you are investing in residential real estate, you will probably want to go out
and view the property. If, however, you are investing in a real estate
investment trust (REIT), then you may be more concerned with the experience
and reputation of the people running the trust.

Mutual funds
Mutual funds can be made up of almost any combination of other investment
types. Before investing in a mutual fund, it's important to analyze and carefully
consider a wide range of factors, including the fund's investment objective,
risks, fees, and expense. These can be found in the prospectus available from
the fund. Before investing, obtain a copy and read it carefully.
Determining how a fund achieved its returns can be just as important as
analyzing the returns themselves. Evaluating a fund properly not only helps
you compare it with other funds, but lets you see whether a fund matches your
investing needs and how it would complement your other investments. In
addition to the factors mentioned above, some of the considerations you'll
need to pay attention to include:

● A fund's investment objective (whether it focuses on growth, income,

capital preservation, or some combination)
● The type of securities it invests in, as well as whether it focuses on a
single type of investment or multiple asset classes
● Whether it is actively or passively managed
● Its past performance (though past performance is no guarantee of future
results) and how that compares to similar funds or an appropriate
benchmark
● The types of risks it incurs in trying to achieve its objective, and the level
of volatility involved
● The fees and expense you'll pay as an investor (including its expense
ratio and any sales charges) and any minimum investment requirements
● Tax considerations, such as whether it generates a lot of capital gains.

Insurance-based products,
Your first consideration should be the financial stability and commercial rating
of the company with whom you plan to do business. After that, issues of
primary importance may vary depending upon whether a whole life product, a
universal life product, or an annuity is what you're choosing for your portfolio.

International investments
Investing internationally presents additional challenges in considering the
factors that apply to an equivalent domestic investment. Language barriers,
accounting standards, inaccessible markets, political risk, and currency
fluctuations all make the analysis of foreign investments more difficult.
 Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 5 Personal Finance
Lesson Title Examining Overspending
Learning Classify what is overspending and how it being
Outcome(s) influenced by one’s desired and plans is.

I
LEARNING NTENT!
Terms to Ponder

Over Spending you spend more money than you can afford to. If an
organization or business has an overspend, it spends more money than was
planned or allowed in its budget.

Essential Content

Market and Investment Evaluation Methods

Spending and Borrowing

I am worried about paying my bills — what should I do?

You never know when something like a job loss or medical

emergency could upset the balance of your financial life. If you
already are living paycheck to paycheck, now is the time to adjust
your spending or
take action to relieve your debts.

Before you can figure out where to allocate your money, you need to know
your obligations. Sit down and write out all of your monthly bills and debt
payments, then add in any necessary spending.
There is a popular adage in the personal finance world that says to “pay
yourself first.” That means setting aside a portion of every paycheck to build
an emergency fund that will cover three to six months of expenses and then
set aside money for retirement. All luxury or unnecessary spending should
only happen after your monthly obligations, including saving, are met.

One of the biggest impacts you can make on your budget is reducing or
eliminating debt. Add up all of your debts to see how much you owe.

Because the debts with the highest interest rates cost the most money, one
strategy is to pay those off first. Just be sure to make at least minimum
monthly payments on every account. Then, once you’ve slayed the debt with
the highest interest rate, you can apply that portion of your monthly budget to
the debt with the next highest interest rate. By the time you get to the last
debt, you’ll have freed up a good bit of money to knock it out fast.
If you’ve already cut luxuries and still don’t have enough to make ends meet
and save or pay off debt, you will need to boost your income. Consider
negotiating your pay or picking up a side gig.

How can I pay off my debts?

The first step in paying off your debts is to get really clear on
exactly what you owe (and to whom). This will give you a total
picture of your debt. While this might seem scary, it also will give
you a “magic number” – this
is how much money it would take for you to be totally debt-free.
1. List your debts. Include any debt that you are responsible for paying back,
such as your mortgage, auto loans, student loans, medical bills, credit cards,
personal loans, payday loans and money owed to
family and friends.

For each creditor (each person or company to whom you owe money)
include the remaining balance, the minimum monthly payment and the
interest rate.

2. Which of these debts is critical to your family’s survival? For example,

paying your mortgage keeps a roof over your head, and paying your auto
loan enables you to go to work, so it likely is important to pay at least the
minimum monthly due on these debts before putting money to anything
else. If your mortgage or car loan is more than you can afford, you might
need to downsize to put more money toward your debt.

3. How much can you reasonably pay toward your total debts each month
(after you meet your critical needs)? Calculate how much you make each
month and subtract your essential monthly expenses such as rent or
mortgage, transportation, medicine and food.

Do not include any debt payments that are not critical to your current
survival. How much money do you have left over to put toward your debts
each month? If you have no money at all left over to put to your debt, you
need to somehow increase your income, cut back your expenses or consider
debt relief and possibly even bankruptcy.

4. Prioritize your debts to know which to pay off first. How you prioritize
paying back your debts is unique to your situation. Here are some
approaches:
● Option A: Start with the debt that is causing you the most stress.
Which debt is the most behind in payment? If you put all your leftover
money to it each month, how quickly could you pay it off? Sometimes a
relatively small debt creates a lot of tension. Even if this debt is to a family
member or friend, it could make sense to pay it first to ease your stress.
(However, be careful not to fall behind on other debts, which could start
the stress cycle all over again, and remember that paying back a family
member won’t help your credit score.)
 ● Option B: Start with the highest interest rate. Pay off the debt with the
highest interest rate first, as you continue to make minimum monthly
payments on the other debts. When you’ve paid off that first debt, move to
the second-highest interest rate and continue until you have paid off all
your debt. This creates a snowball effect because once you pay off the first
debt, you can add that money to the money you already are paying to the
next debt, and so on until you’ve paid off all your debts.
● Option C: Start with the smallest debt. Again, this might seem illogical,
but paying a debt off completely – even if it’s less than $100 – can give you
a feeling of accomplishment and create the momentum to move on to the
next debt on your list.
How can I repair my credit?

Your credit rating may have been damaged

because you missed payments or you were late in
making payments. While you can’t repair your credit
overnight — and you should be wary of companies that make
such promises — there are definite steps you can
take to get back to financial health.

● Stop adding new credit card debt or other debts (such as payday
loans). Continue to pay off your credit cards, but stop using them. Use
cash, a debit card (which automatically deducts the amount from your
checking account) or a prepaid card from an established financial
institution, such as a bank or a credit union. A prepaid card is different
from a credit card because you are not borrowing money, you are using
money that has been preloaded onto a card.
● Review your credit reports. You can order a free credit report each year
from the three main reporting agencies (Experian, TransUnion, Equifax)
through www.AnnualCreditReport.com. Examine the reports and alert the
agencies if you find errors. Follow the agency’s instructions to clear up
mistakes and be patient. It can take a little while, but clearing up your
credit reports is very important.
 ● Pay your bills on time. It’s simple, but paying your bills on time is one of
the best ways to improve your credit rating. Set up automatic payments
on any recurring expenses – such as rent, utilities, insurance, car
payments, etc. to avoid missing payments or sending payments in late.
● Call your creditors. It might seem counterintuitive to contact your
creditors, especially if you are scared or embarrassed about your debts
getting out of control, but hiding is not going to help. It is better to be
up-front and honest.
● Get credit counseling from a trusted source. Start with a nonprofit
debt counseling service such as the National Foundation for Credit
Counseling (NFCC) by visiting www.nfcc.org or calling 1-800-388-2227.
Or start with the Financial Counseling Association of America (FCAA)
at www.credithelp4U.org. You also can research local programs in your
area by calling 2-1-1.
How do credit repair scams work?

If you reply to offers of easy ways to repair your

credit, you could make your financial
situation worse rather than better. Be especially suspicious
if the deal involves a fee or up-front payment.

Unsolicited offers can come from predatory people or organizations that find
out the details of your financial life through public information. These
organizations look for people who are struggling to pay debts and then offer to
help repair their credit — at a price, of course.

There are many things you can do to improve your credit on your own, for free
or at a low cost. Companies that offer seemingly similar services often charge a
lot of money, and they may not provide quality service (or any service). They
can also make your credit situation worse than it was by using precious time
that you could use to improve your credit history.

The Federal Trade Commission’s article “Credit Repair: How to Help Yourself”
provides sound information to improve your credit history on your own.
Keep in mind these tips:

● Contact the company yourself via a phone call or an Internet address you
type in. Don’t click on links to company sites contained in an email
message. These are maybe fake sites set up to look like that of a legitimate
company but actually designed to fraudulently get your money or install
malware on your computer.
● Don’t be pressured into making a decision quickly. If the deal is genuine, it
will be around tomorrow — after you’ve had a chance to think about it
and research it.
● Always know whom you’re dealing with. Research companies and
individuals who will handle your money before you turn it over.
● If you receive an offer by phone, ask for that information to be mailed or
emailed to you.
● If an offer sounds too good to be true, it probably is.

How do debt consolidation loans work?

Debt consolidation loans can serve three purposes:

● Lower your monthly payment

● Sometimes can lower your interest rate
● Combine all of your payments into one monthly bill

If you’re scrambling to remember various payment dates to several different

lenders, having only one due date can be advantageous.

The first two purposes sound positive, but can have negative effects. Let’s say
you owe four different creditors debt with respective interest rates of 12
percent, 15 percent, 18 percent and 20 percent. A debt consolidation loan may
be able to lower your interest rate to 9 percent. However, in order to lower
your monthly payment, the loan will have a longer term. Because it will take
longer to pay off your debt, you may end up paying more in interest over time
despite the rate being lower.
The actual cost will depend on time frames and the difference in the interest
rate. Reducing interest from 20 percent to 9 percent is a big drop that could
save a lot and blunt the effects of stretching out payments.

If you cannot currently afford your monthly payments, you may not mind
paying more in interest due to the longer payoff period. Making on-time
payments should eliminate late fees and could serve as a boon to your credit
score.

Before working with a debt consolidation company, you should research and
fully understand these facets of your agreement:

● Do I have to pay any fees up front? (Companies that charge fees up front
tend to be predatory.)
● Are there any service fees built into my new loan?
● What are the late fees and when will they be charged?
● Will my interest rate change for any reason?

Another common way to consolidate debt is to take out a home equity line of
credit (HELOC). These loans tend to have even lower interest rates, but they
are secured by your house. That means that if you fail to pay the loan back,
you could lose your home.
Traditional debt consolidation loans are unsecured, meaning there is no
potential for collateral loss.

How do I file for bankruptcy? Will it haunt me for the rest of

my life?

Filing for bankruptcy is not an easy decision. If you

are drowning in debt that you cannot repay, you have
the option to file Chapter 7 bankruptcy, under which
your nonexempt assets (i.e., assets that bankruptcy
filers are not allowed to keep and must be turned over to a court trustee) are
liquidated in order to repay as much of the debt as you can before it goes away.
Another option is Chapter 13 bankruptcy, under which you set up a plan to
pay back at least part of the debt within three to five years based on your
regular, reliable income. It is important to note that certain debts, such as
student loans and unpaid income taxes, are not dischargeable via bankruptcy.
All bankruptcy cases must be filed at the federal level. Because of the legal and
financial ramifications, it is highly recommended that you seek out a lawyer. If
you can’t afford your debts, it’s unlikely that you’ll be able to afford legal help
on your own. The American Bar Association has a searchable database of
lawyers who can help for free.
Although it is not recommended, you do have the option of representing
yourself. Cornell University has some resources available that outline the
Federal Bankruptcy Code and the nuances of the process, but you will also
have to research rules of your local court. You will have to fill out paperwork at
the federal level, which can be found for free via the United States Courts, and
you will need to fill out paperwork for the specific court in which you will be
filing.
Bankruptcy can leave a negative mark on your credit report; however, that
mark does not stay there forever. Chapter 13 bankruptcies are removed from
credit reports after seven years, and Chapter 7 bankruptcies are removed after
10 years. The impact of bankruptcy on your credit score can lessen over time
as you establish good credit.

You may even start to see positive changes to your credit score after as little as
one year, but the real trouble comes when lenders and others in authority
check your credit report. During those seven to 10 years, you may have
trouble:

● Obtaining new loans with reasonable interest rates

● Finding a new employer if they check credit reports
● Finding housing, if landlords check credit reports
● Opening a new bank account
● Opening a new insurance policy

Bankruptcy usually is a last resort, but if you are in more debt than you can
manage, it can be a good option — especially if you have few assets and are
under extreme stress.
 I can’t pay my credit card bills — what can I do?

It might be tempting to avoid the situation, but when you can’t

pay your credit card bills you should contact your lender(s) right
away to minimize the damage to your
credit rating and start digging out of debt.

● Before you miss a payment or realize you can’t pay your credit card bills,
contact the lender(s) by phone. Explain the situation and discuss options.
If your payment history has been good up to now with this creditor, you
might be able to work out a revised payment plan (sometimes called a
financial hardship plan) for a limited time.
● If you can pay only a portion of the bill, still contact your lender. Making
small payments is better than no payments at all.
● Take notes during the call:
1. Note the time and date of the call as well as the name and extension of
the person with whom you spoke.
2. Ask if further late fees can be waived if you agree to a hardship plan and
stop using the account (i.e., you will no longer be able to use the credit
card).
3. Ask for written confirmation by letter or email that verifies any new
payment terms.
4. Make timely payments and keep track of payment confirmation
numbers.

When you can’t pay your credit card bills or other debts, it can feel
overwhelming. Instead of ignoring the situation, address it right away. Your
situation is unique and how you proceed depends on your income, assets,
debts and financial goals. If you are not able to resolve the issue on your own,
you might need to research more serious actions such as declaring bankruptcy.
 I need a loan — what are my credit options?

The tighter money gets, the more you may be

tempted to take out a loan to cover expenses or make a big
purchase. Before you sign for a loan, learn about credit options and how each
one can affect your financial health.

Banks and Credit Unions

Personal loans from banks and credit unions are unsecured, so they carry
higher rates than mortgages or auto loans, which are secured by your house or
car. Here are some things to consider before taking out a personal loan:

● Borrowers with better credit usually will get better rates.

● Interest typically compounds annually.
● Shop around to get the best rate.
● Credit unions tend to be more willing to lend and generally do so at lower
interest rates.
Payday Loans

Payday loans are typically the least desirable for the consumer. Here’s why:

● The advertised interest rate likely adds up to somewhere between

national averages of 200 percent and 400 percent annually.
● Financing fees are typically very high.
● If you have to pay the loan off with your next paycheck, odds are you will
need another loan to cover the next gap.
Credit Card Cash Advances

Another option is to take a cash advance from your credit card. Here’s what
you should think about first:

● Interest rates may be higher for cash advances than simply charging
something to your card.
● Interest will start accruing immediately, regardless of whether you pay
your bill in full every billing cycle. There is no grace period as there might
be for regular purchases.
● You will be subject to additional fees as outlined in your user agreement.
● You also may incur ATM fees when withdrawing the money.
Home Equity Line of Credit (HELOC)

A HELOC functions much like a credit card in that you can spend as much or as
little as you want so long as you don’t exceed your credit limit – in this case,
the amount of equity you have in your home. However, because it is secured by
your home, interest rates tend to be lower than traditional credit cards.

Reverse Mortgages

Reverse mortgages are structured for those in retirement. The lender will give
you a monthly payment, lump sum, or line of credit and when you pass away,
or leave the home, the sale of the home will pay them back. Reverse
mortgages:

● Typically have large origination fees.

● Rely on the value of your home rather than your credit score.
Borrowing from Friends and Family

Borrowing from friends or family can be a quick way to get a zero- percent
interest loan. As with any loan though, it’s a good idea to agree on repayment
terms before taking any money. Paying your loan back on time can help
remove any strain it may put on your relationship.
 What does repossession mean?

You know that repossession looks bad on your record, but what
does repossession mean for your lifestyle?
When you have something repossessed, not only do you still have the debt –
which in some cases doesn’t go away just because you don’t have the item –
now you don’t have the item, either. At the very least, if you have something
repossessed, you could still owe the balance of whatever was left on the loan.

To avoid repossession, you first could try to work with the lender to come up
with a payment plan that fits your budget. Some lenders would rather have
small payments over time than no payments at all.

If you are not able to reach an agreement with the lender, you could try selling
the item yourself and using the money to pay back the debt. This could be a
good option if the item still has enough resale value to cover your debt and
possibly even have some money left over. At least if you sell your car and pay
off the remaining balance, you will not have to continue to pay the lender for
something you no longer have.

Another option is to quickly raise cash by selling something else of value,

taking on more hours at work or getting another job to raise income.

What should I do if I missed a credit card payment?

As soon as you realize you missed a credit card payment

— or that you are going to miss a credit card payment — contact
your lender. Work with the credit card company
to avoid collection calls and minimize the damage done to your credit rating.
Before you call the credit card company, figure out how much you can pay and
when you can pay it. Examine your income and expenses and create a
spending plan. Be realistic and don’t commit to a payment that you really can’t
afford. You might put off the stress momentarily, but you could be in the same
situation and miss another credit card payment next month. (Only this time,
you’ll have less flexibility with the lender.)

It’s better to pay a little on the date you say you will, rather than promise to
pay more because that’s what you’d like to do.

Once you know how much you can afford to pay, call the lender and ask about
possible options:

1. Can I pay the amount in full, but late?

2. Can I pay a reduced amount? When is the latest I can pay it?
3. Can I pay nothing for the foreseeable future?
4. Can you waive the late fee?
5. Can you restore the interest rate to what it was before the missed payment?
6. Can you remove other penalties and fees?

You’ll have more luck if your credit payment history has been good with the
lender before you miss a credit card payment. But even if you have been late or
have missed payments, it still is worth trying. If the lender agrees to new
terms, request the changes in writing.

To rebuild a better credit history with each creditor, be sure you live up to any
renegotiated terms and make future payments on time.

Where can I get a truly free copy of my credit report and

credit score?

You can get your credit report and score for free, but you won’t
be able to get both in the same place.
Free Credit Report
Federal law mandates that everyone can get free access to their credit report
from each of the three major credit bureaus – TransUnion, Experian and
Equifax – each year. While many companies boast that you can get yours free
through their service, the only guaranteed way to access it at no cost is
through AnnualCreditReport.com, which is the website authorized to provide
reports by federal law.

You can access your credit report from each bureau once per 12- month cycle.
Some people check all three at once, while others prefer to check in with one
bureau every four months on a rotating basis. Checking your credit report in
this manner will not affect your credit score.

Free Credit Score

There are many ways to check your credit score for free. Check the online
portal of the financial institution where you have a checking, credit card or
investing account.

It’s important to note that you have at least one credit score from each of the
three credit bureaus. For example, if you pull up your free credit score from
your financial institution, it may be using Experian data, while the potential
lender pulls up TransUnion. If you work with more than one financial
institution, it may be worth checking with each one to see if they pull from
different credit bureaus.

You should also keep in mind that depending on the financial product you are
applying for, your credit score will look different. For example, your auto credit
score weighs past installment loans on vehicles more heavily than the credit
score that mortgage lenders would see if you were applying for a home loan.
 I need more money now — should I reduce my contributions
or stop paying into my 401(k)?

When you need more money on a month-to-month basis, you may

wonder if you should reduce contributions or stop paying into
your 401(k) or 403(b) retirement plan.

Unless the money you are contributing to your retirement plan could be used
to help you avoid dire financial outcomes such as losing your house or your
transportation to work, it’s a good idea to keep contributing to your 401(k) or
403(b) plan.

If you don’t, you will lose money by not contributing. Your contributions are
taken out pretax. If you stop contributing, part of that same dollar amount will
be deposited into your bank account, but another portion will go to taxes. If
you keep contributing, all of your money will be going toward your own
future.

When you think about your future, you need to remember that your
contributions will be compounding interest. Let’s assume the market will give
you 6 percent returns annually and that you have 20 years left until
retirement. If you reduce your contributions by
$200 per month, you will have $91,129 less when you retire (assuming a 3
percent inflation rate).

If you do decrease the amount of your contribution, you should not go below
the minimum required to get your employer’s match. An employer’s match to
your retirement fund really is free money that you would be throwing away.
Not only is it free money, but it is also subject to compound interest. Again,
you’re not just missing the contribution today; you will be missing out on the
long-term gains that would otherwise help you in retirement.
 Even if your employer has reduced or eliminated a match, you should try to
save through the existing plan or establish a Roth IRA for further
contributions.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

Search Indicator

Smart About Money

https://www.smartaboutmoney.org/Tools/Common-Money-
Questions/Spending-and-Borrowing
 Week 7 Personal Finance
Lesson Title Saving money and prioritizing you’re saving goals.
Learning Discuss how a person think about making and
Outcome(s) saving money and prioritizing your saving goals.

I
LEARNING NTENT!
Terms to Ponder

Savings refers to the amount left over after an individual's consumer

spending is subtracted from the amount of disposable income earned in a
given period of time.

Essential Content

SAVE MONEY
 Sometimes the hardest thing about saving money
is just getting started. This step-by- step guide for
how to save money can help you develop a simple
and realistic strategy, so you can save for all your
short- and long- term savings goals.

Record your expenses

The first step to start saving money is to figure out how much you spend. Keep
track of all your expenses—that means every coffee, household item and cash
tip.

Once you have your data, organize the numbers by categories, such as gas,
groceries and mortgage, and total each amount. Use your credit card and bank
statements to make sure you’re accurate—and don’t forget any.

Tip: Look for a free spending tracker to help you get started. Choosing a digital
program or app can help automate some of this work. Bank of America clients
can use the Spending & Budgeting tool, which automatically categorizes your
transactions for easier budgeting in the mobile app or online.

21

Budget for savings

Once you have an idea of what you spend in a month, you can begin to
organize your recorded expenses into a workable budget. Your budget should
outline how your expenses measure up to your income—so you can plan your
spending and limit overspending. Be sure to factor in expenses that occur
regularly but not every month, such as car maintenance.

Tip: Include a savings category—aim to save 10 to 15 percent of your income

 Find ways you can cut your spending

If your expenses are so high that you can’t save as much as you’d like, it might
be time to cut back. Identify non-essentials that you can spend less on, such as
entertainment and dining out. Look for ways to save on your fixed monthly
expenses like television and your cell phone, too.

Here are some ideas for trimming everyday expenses:

● Use resources such as community event listings to find free or low- cost
events to reduce entertainment spending.
● Cancel subscriptions and memberships you don’t use—especially if they
renew automatically.
● Commit to eating out only once a month and trying places that fall into the
“cheap eats” category.
● Give yourself a “cooling off period”: When tempted by a nonessential
purchase, wait a few days. You may be glad you passed—or ready to save up
for it.

Set savings goals

One of the best ways to save money is to set a goal. Start by thinking of what
you might want to save for—perhaps you’re getting married, planning a
vacation or saving for retirement. Then figure out how much money you’ll
need and how long it might take you to save it.
Here are some examples of short- and long-term goals:

If you’re saving for retirement or your child’s education, consider putting that
money into an investment account such as an IRA or 529 plan. While
investments come with risks and can lose money, they also create the
opportunity for growth when the market grows, and could be appropriate if
you plan for an event far in advance. See step No. 6 for more details.

Tip: Set a small, achievable short-term goal for something fun and big enough
that you aren’t likely to have the cash on hand to pay for it, such as a new
smartphone or holiday gifts. Reaching smaller goals—and enjoying the fun
reward you’ve saved for—can give you a psychological boost that makes the
payoff of saving more immediate and reinforces the habit.

Decide on your priorities

After your expenses and income, your goals are likely to have the biggest
impact on how you allocate your savings. Be sure to remember long-term
goals—it’s important that planning for retirement doesn’t take a back seat to
shorter-term needs.

Tip: Learn how to prioritize your savings goals so you have a clear idea of where
to start saving. For example, if you know you’re going to need to replace your car
in the near future, you could start putting money away for one now.
 Pick the right tools

If you’re saving for short-term goals, consider using these FDIC- insured
deposit accounts:

● Savings account
● Certificate of deposit (CD), which locks in your money for a fixed period of
time at a rate that is typically higher than savings accounts
For long-term goals consider:

● FDIC-insured individual retirement accounts (IRAs), which are tax- efficient

savings accounts
● Securities, such as stocks or mutual funds. These investment products are
available through investment accounts with a broker- dealer. Remember that
securities are not insured by the FDIC, are not deposits or other obligations
of a bank and are not guaranteed by a bank. They are subject to investment
risks, including the possible loss of your principal.
Tip: You don’t have to pick just one account. Look carefully at all of your options
and consider things like balance minimums, fees and interest rates so you can
choose the mix that will help you best save for your goals.

Make saving automatic

Almost all banks offer automated transfers between your checking and savings
accounts. You can choose when, how much and where to transfer money or
even split your direct deposit so a portion of every paycheck goes directly into
your savings account.

Tip: Splitting your direct deposit and setting up automated transfers are
simple ways to save money since you don’t have to think about it, and it
generally reduces the temptation to spend the money instead. With Mobile &
Online Banking, Bank of America clients can easily set up automatic transfers
between accounts.
 8

Watch your savings grow

Review your budget and check your progress every month. Not only will this
help you stick to your personal savings plan, but it also helps you identify and
fix problems quickly. Understanding how to save money may even inspire you
to find more ways to save and hit your goals faster.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

Search Indicator

Better Money Habits

https://bettermoneyhabits.bankofamerica.com/en/saving-
budgeting/ways-to-save-money
 Week 8 Personal Finance
Lesson Title Emergency Reserves and Saving Big Purchase
Learning Understand the concept of saving for big
Outcome(s) purchases and building emergency reserves.

I
LEARNING NTENT!
Terms to Ponder

Savings refers to the amount left over after an individual's consumer

spending is subtracted from the amount of disposable income earned in a
given period of time.

Essential Content

6 simple steps to jump-start your emergency fund

Saving several months’ worth of living expenses for an emergency fund can be
intimidating, especially when it feels like all of your available cash is already
accounted for, each month. If your monthly living expenses came to $2,000, for
example, it would take time to save $6,000, or three times your living
expenses—the low end of the typical range for an emergency fund.
Following these six simple steps can help you get started on building a reserve
of cash, bringing with it greater financial security and peace of mind.

Break it down

You’re faced with a daunting task—if you focus on the total. But a total is made
up of smaller parts, and those are chunks that you can reasonably achieve each
month. Some people, for example, might start with a goal of $100 a
month—that’s as little as $3 to $4 a day, but saving $100 a month would bring
your reserve to $1,200 after a year. Bank of America clients can use the
Spending & Budgeting tool for help spotting opportunities to save.

Pick something and cut it

Everyday savings can add up. You could carpool or use

public transportation to save on gas, bring your lunch
instead of buying it or cancel that streaming service you
don’t watch anymore. Calculate how much you are saving
each month from your daily change, and capture that
amount by putting it in your emergency fund.

The key is to identify a specific expense to reduce, which is more effective than
making a general resolution to “save money.” You can change your overall
behavior—if you start small and specific.
An easy way to save more consistently is to set up automatic transfers from
your checking to your savings account. Consider coordinating your automatic
transfers with your payday—if you have direct deposit at work, you could have
a percentage of your paycheck go directly into your emergency savings
account each pay period. Bank of America can help you set up your own
automatic transfers.

Don’t let debt get in the way

If you’re struggling to pay down debt, saving might be the last thing on your
mind. And if your debt carries high interest rates—like credit cards—it might
make sense to aggressively pay down balances first. But if your rates and
balances are lower and more manageable, you can work on both goals at the
same time: Consider allotting funds to both debt and savings each month.
5

Keep your funds accessible—but away from

temptation

Emergency funds must be available when you need them. That means not
locking them up in accounts that charge you to access your money—or
keeping them in an account you’ll be tempted to tap for everyday expenses.
Consider creating a separate, interest- bearing, FDIC-insured savings or money
market account.

Now, up the ante

Don’t stop once you’ve hit your initial

savings target. Steadily increase your
savings goals until you have put aside
enough money to cover your expenses for
six to nine months—a significant buffer
against unexpected emergencies. And with
that financial foundation in place,
you can apply your strong savings habits to new goals, such as the down
payment on a car, retirement or even your next vacation.

It can be overwhelming to think about the amount of money you’ll need for a
big expense, like paying for a wedding or making a down payment on your
first home or a car loan. A great place to start is calculating how much you’ll
need to save each month to meet your goal. For example, let’s say you’re
planning to get married in 18 months and you want to have $10,000 saved up
to cover some of the wedding expenses. $10,000 divided by 18 months comes
out to
$555 per month. That probably sounds like a lot of money, and that’s because
it is a lot of money.
Even if you don’t have a large purchase on the horizon, it’s always a good idea
to look for ways to save emergency funds for a rainy day.

There’s no shortcut to saving money. It takes time, effort and patience. But
there are things you can do to make the process easier.

1. Pay Yourself First

Even if you can’t afford to save enough to hit your goal in the allotted time, pay
yourself first. Set up an automatic transfer on pay day from your checking
account to your savings account. This way, you won’t be tempted to skimp on
saving because you don’t have enough money “left over” toward the end of a
pay period. An even more foolproof method is to set up a direct deposit with
your employer, since it’s much harder to cancel a direct deposit than it is to
cancel an online banking transfer.

2. Use the 50/20/30 Rule

Managing and budgeting your money is key to financial success. Sen. Elizabeth
Warren and LearnVest have both popularized the 50/20/30 rule, which
recommends that you spend 50 percent of your take home pay on necessities
like food and rent or mortgage payments, 20 percent on savings and debt
reduction payments and 30 percent on lifestyle choices (workout equipment
or the latest and greatest tech gadget). If your take home pay is $3,000 per
month and you have no debt (good for you!), that means you should be saving
$600 per month. Your savings may add up faster than you expect!

3. Start Small

If 20 percent of your take home pay seems like a lot, start small — even if it’s
$50 or $100 per month. Just like with exercise, saving only a little is better
than saving nothing at all, and you’re much more likely to keep saving if you
set small, achievable goals.
4. Invest Some of Your Money, or Place It in a High-Yield Savings
Account

If you’re saving money for something you don’t expect to purchase for at least
two or three years, like a house, you might consider contributing to a mutual
fund, which generally has a higher rate of return than a traditional savings or
money market account. You might also consider moving your money to a
high-yield savings account in order to earn additional interest, but beware that
the interest rate could go down at any time without warning.

It's important to consistently reevaluate market conditions and implement

smart strategies to keep your finances healthy even during downturns.

And remember, it’s never too early to start saving for retirement. Volatile
markets can offer some of the best opportunities to create wealth for long
term investors, so investing in retirement accounts early in your life can set
you up for future success.

5. If Nothing Else, Start a Change Jar

It may sound too simple, but this is a great way to amass a nice little savings
pile, especially if you use cash on a semi-regular basis. Whenever you feel your
wallet getting a little too heavy or your pockets getting a little too jangly, dump
the spare change into a jar and forget about it. We’ve heard stories of people
saving $3,000 or more by using a 5-gallon water cooler jug.

Whether it’s saving for a wedding, a new home or even to establish and
practice good saving habits, there’s no one-size fits all approach to financial
planning. With the help of these small tips, however, you can help set yourself
up for financial success and be confident in the financial decisions you make.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.
Search Indicator

Better Money Habits

https://bettermoneyhabits.bankofamerica.com/en/saving-
budgeting/ways-to-save-money
 Week 9 Personal Finance
Lesson Title Retirement Building Blocks
Learning Propose some steps to get your investment growing
Outcome(s) and understand retirement building blocks.

I
LEARNING NTENT!
Terms to Ponder

Retirement refers to the time of life when one chooses to permanently leave the
workforce behind.

Essential Content

Basic Investing Steps

 Once you have a good job and have begun to pay off your debt, it is time to
start investing your money. Investing your money is essential because it
allows you to amass wealth and open doors for you later. People who regularly
save and invest are the ones who end up being wealthy. And, the good news is
it does not take a lot of money to start.

It is important that you trim your spending so that you can begin moving
forward and acquiring wealth. For your investing to work, you should not pull
money out of your investments but leave them there to grow.

Are You Ready to Begin Investing?

It is necessary to make sure that you

are truly ready to begin investing
before you do. It does not make
sense to begin investing money when
you are charging money on your
credit cards. You should be spending
less than you make and be debt-free,
except for your house before you get
serious about investing. However,
you should still take advantage of
employer match programs if you can.
It is important to start investing for
retirement right away, even as you
try to get out of debt. Once you are
debt-free, you can focus on investing
on your own.

● If you are not currently ready to begin investing, set a goal of when you
will be ready.
● Start learning about investing and what your goals are.
● Set up a debt payment plan that will allow you to start investing as soon
as possible. The more aggressive you are in paying off your debt, the
sooner you will begin investing.
Determine How Much You Can Invest

It is important to determine how much you can invest initially and how much
you can continue to invest monthly or annually. This budgeting will help you
determine which investments are the right ones and help you set clear goals
on what you want to achieve. Remember that you do not want to invest your
emergency fund, since you may need to access the funds quickly. These types
of investments are more for building wealth and long-term savings goals.

Find a Financial Planner or Investment Firm

The next basic step in investing is to find a financial planner. You will want to
do your first investing in basic investing tools, such as mutual funds. Your
financial planner should be someone willing to take the time to explain the
different types of investments to you. They should be willing to look for
investment products that you feel safe using while offering the biggest
potential growth. She will also help you set up an effective financial plan.

Your bank may have a financial planner you can use, or ask a friend for
referrals. If you are comfortable investing on your own, you will need to find
an investment firm that will allow you to trade online.

● A financial planner can help if you are not sure what to do.
● Online investment firms may cost less, but you will need to understand
what you are going to invest in and how to spread the investment risk
across securities.
● Invest time in learning how to read and understand the market.

Understand the Different Type of Investment Accounts and the Risk

It is also important to understand basic investing tools and accounts. These

accounts can be used to help you save for retirement as well. You need to
understand the difference between mutual funds and money market accounts.
You should also spread your wealth among several different accounts, even if
you want to focus primarily on mutual funds. As you look at the accounts, you
need to determine how comfortable you are with taking risks.
Determining your risk level is where a financial planner can help you. When
you are in your twenties, you can take more risks because you have time for
the market to recover, but as you get older, you will need to be more
conservative in your investments.

● Ask questions about the investments.

● Read about the different investment types, both online and in financial
magazines and books.
● Do your research and be comfortable and knowledgeable
about your investments.

Real Estate Investments

You may be considering using real estate as an investment or a

wealth-building tool. Real estate is a great investment. However, there is a
difference between flipping properties and investing in real estate for the long
term. You should carefully consider the differences before you decide which
one is best for you. Real estate that generates passive income is a great
investment, but you need to make sure that it can cover the costs of upkeep
and other potential problems.

● Talk to someone who has real estate investments before you start.
● The book "Rich Dad, Poor Dad" is a great starting point if you are
interested in investing in real estate.

The Balance does not provide tax, investment, or financial services and advice.
The information is being presented without consideration of the investment
objectives, risk tolerance, or financial circumstances of any specific investor and
might not be suitable for all investors. Past performance is not indicative of
future results. Investing involves risk, including the possible loss of principal.
 Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

Search Indicator

The Balance Financial Planning Saving Money Basic Investing Steps

abcedfhttps://www.thebalance.com/basic-investing-steps-2386154
 Week 10 Personal Finance
Lesson Title Decreasing Debts when you lack of savings
Describe appropriate measures to get out of debt
Learning Outcome(s)
when you don’t have savingsusing
savings to reduce your consumer debts.

I
LEARNING NTENT!
Terms to Ponder

Retirement refers to the time of life when one chooses to permanently leave the
workforce behind.

Essential Content

How to Decrease Debt

Accumulating bad debt (consumer debt) by buying things like new living room
furniture or a new car that you really can’t afford is like living on a diet of
sugar and caffeine: a quick fix with little nutritional value. Borrowing on your
credit card to afford an extravagant vacation is detrimental to your long-term
financial health.
When you use debt for investing in your future, I call it good debt. Borrowing
money to pay for an education, to buy real estate, or to invest in a small
business is like eating a well-balanced and healthy diet. That’s not to say that
you can’t get yourself into trouble when using good debt. Just as you can gorge
yourself on too much good food, you can develop financial indigestion from
too much good debt.

In this article, I mainly help you battle the pervasive problem of consumer
debt. Getting rid of your bad debts may be even more difficult than giving up
the junk foods you love. But in the long run, you’ll be glad you did; you’ll be
financially healthier and emotionally happier. And after you get rid of your
high-cost consumer debts, make sure you practice the best way to avoid future
credit problems: Don’t borrow with bad debt.

Before you decide which debt reduction strategies make sense for you, you
must first consider your overall financial situation and assess your
alternatives.

Using Savings to Reduce Your Consumer Debt

Many people build a mental brick wall between their savings and investment
accounts and
their consumer debt accounts.
By failing to view their finances
holistically, they simply fall into
the habit of looking at these
accounts individually. The
thought of putting a door in that
big brick wall doesn’t occur to
them. This article helps you see
how your savings can be used to
lower your consumer debt.

Understanding how you gain

If you have the savings to pay off consumer debt, like high-interest credit-card
and auto loans, consider doing so. (Make sure you pay off the loans with the
highest interest rates first.) Sure, you diminish your savings, but you also
reduce your debts. Although your savings and investments may be earning
decent returns, the interest you’re paying on your consumer debts is likely
higher.
Even if you think that you’re an investing genius and you can earn more on
your investments, swallow your ego and pay down your consumer debts
anyway. In order to chase that higher potential return from investments, you
need to take substantial risk. You may earn more investing in that hot stock tip
or that bargain real estate, but you probably won’t.

Finding the funds to pay down consumer debts

Have you ever

reached into the
pocket of an old
jacket and found a
rolled-up $20 bill you
forgot you had?
Stumbling across some
forgotten funds is always a
pleasant experience.
But before
you root through
all your closets
in search of stray cash to help you pay down that nagging credit- card debt,
check out some of these financial jacket pockets you may have overlooked:
● Borrow against your cash value life insurance policy. If you did business
with a life insurance agent, she probably sold you a cash value policy because
it pays high commissions to insurance agents. Or perhaps your parents bought
one of these policies for you when you were a child. Borrow against the cash
value to pay down your debts. (Note: You may want to consider discontinuing
your cash value policy altogether and simply withdraw the cash balance.)

● Sell investments held outside of retirement accounts. Maybe you have

some shares of stock or a Treasury bond gathering dust in your safety deposit
box. Consider cashing in these investments to pay down your consumer loans.
Just be sure to consider the tax consequences of selling these investments. If
possible, sell investments that won’t generate a big tax bill.

● Tap the equity in your home. If you’re a homeowner, you may be able to tap
in to your home’s equity, which is the difference between the property’s
market value and the outstanding loan balance. You can generally borrow
against real estate at a lower interest rate and get a tax deduction, subject to
interest deduction limitations. However, you must take care to ensure that you
don’t overborrow on your home and risk losing it to foreclosure.

● Borrow against your employer’s retirement account. Check with your

employer’s benefits department to see whether you can borrow against your
retirement account balance. The interest rate is usually reasonable. Be careful,
though — if you leave or lose your job, you may have to repay the loan within
60 days. Also recognize that you’ll miss out on investment returns on the
money borrowed.
● Lean on family. They know you, love you, realize your shortcomings, and
probably won’t be as cold-hearted as some bankers. Money borrowed from
family members can have strings attached, of course. Treating the obligation
seriously is important. To avoid misunderstandings, write up a simple
agreement listing the terms and conditions of the loan. Unless your family
members are the worst bankers I know, you’ll probably get a fair interest rate,
and your family will have the satisfaction of helping you out. Just don’t forget
to pay them back.

Decreasing Debt When You Lack Savings

If you lack savings to throw at your consumer debts, not surprisingly, you have
some work to do. If you’re currently spending all your income (and more!),
you need to figure out how you can decrease your spending and/or increase
your income. In the meantime, you need to slow the growth of your debt.

Reducing your credit card’s interest rate

Different credit cards charge different interest rates. So why pay 14, 16, or 18
percent (or more) when you can pay less? The credit-card business is highly
competitive. Until you get your debt paid off, slow the growth of your debt by
reducing the interest rate you’re paying. Here are sound ways to do that:

● Apply for a lower-rate credit card. If you’re earning a decent income, you’re
not too burdened with debt, and you have a clean credit record, qualifying for
lower-rate cards is relatively painless. Some persistence (and cleanup work)
may be required if you have income and debt problems or nicks in your credit
report. After you’re approved for a new, lower-interest-rate card, you can
simply transfer your outstanding balance from your higher-rate card.

CreditCards.com’s website carries information on low-interest-rate and

no-annual-fee cards (among others, including secured cards).
● Call the bank(s) that issued your current high-interest-rate credit card(s)
and say that you want to cancel your card(s) because you found a
competitor that offers no annual fee and a lower interest rate. Your bank
may choose to match the terms of the “competitor” rather than lose you as a
customer. But be careful with this strategy and consider just paying off or
transferring the balance. Canceling the credit card, especially if it’s one you’ve
had for a number of years, may lower your credit score in the short- term.

● While you’re paying down your credit-card balance(s), stop making new
charges on cards that have outstanding balances. Many people don’t
realize that interest starts to accumulate immediately when they carry a
balance. You have no grace period — the 20 or so days you normally have to
pay your balance in full without incurring interest charges — if you carry a
credit-card balance from month to month.

Understanding all credit-card terms and conditions

First, any card that offers such a low interest rate will honor that rate only for
a short period of time — in this case, six months. After six months, the interest
rate skyrocketed to nearly 15 percent.

But wait, there’s more: Make just one late payment or exceed your credit limit,
and the company raises your interest rate to 19.8 percent (or even 24 percent,
29 percent, or more) and slaps you with a $25 fee — $35 thereafter. If you
want a cash advance on your card, you get socked with a fee equal to 3 percent
of the amount advanced. (Some banks have even advertised 0 percent interest
rates — although that rate generally has applied only to balances transferred
from another card, and such cards have been subject to all the other vagaries
discussed.)
I’m not saying that everyone should avoid this type of card. Such a card may
make sense for you if you want to transfer an outstanding balance and then
pay off that balance within a matter of months and cancel the card to avoid
getting socked with the card’s high fees.

The world worked fine back in the years B.C. (Before Credit). Think about it:
Just a couple generations ago, credit cards didn’t even exist. People paid with
cash and checks — imagine that! You can function without buying anything
on a credit card. In certain cases, you may need a card as collateral — such as
when renting a car. When you bring back the rental car, however, you can pay
with cash or a check. Leave the card at home in the back of your sock drawer
or freezer, and pull (or thaw) it out only for the occasional car rental.
If you can trust yourself, keep a separate credit card only for new purchases
that you know you can absolutely pay in full each month. No one needs three,
five, or ten credit cards! You can live with one (and actually none), given the
wide acceptance of most cards.

Retailers such as department stores and gas stations just love to issue cards.
Not only do these cards charge outrageously high interest rates, but they’re
also not widely accepted like Visa and MasterCard. Virtually all retailers accept
Visa and MasterCard. More credit lines mean more temptation to spend what
you can’t afford.

If you decide to keep one widely accepted credit card instead of getting rid of
them all, be careful. You may be tempted to let debt accumulate and roll over
for a month or two, starting up the whole horrible process of running up your
consumer debt again. Rather than keeping one credit card, consider getting a
debit card.

Discovering debit cards: The best of both worlds

Credit cards are the main reason today’s consumers are buying more than they
can afford. So logic says that one way you can keep your spending in check is
to stop using your credit cards. But in a society that’s used to the widely
accepted Visa and MasterCard plastic for purchases, changing habits is hard.
And you may be legitimately concerned that carrying your checkbook or cash
can be a hassle or can be costly if you’re mugged.

A debit card looks just like a credit card with either the Visa or MasterCard
logo. The big difference between debit cards and credit cards is that, as with
checks, debit card purchase amounts are deducted electronically from your
checking account within days. (Bank ATM cards are also debit cards; however,
if they lack a Visa or MasterCard logo, they’re accepted by far fewer
merchants.)
 Here are some other differences between debit and credit cards:

● If you pay your credit-card bill in full and on time each month, your credit card
gives you free use of the money you owe until it’s time to pay the bill. Debit
cards take the money out of your checking account almost immediately.
● Credit cards make it easier for you to dispute charges for problematic
merchandise through the issuing bank. Most banks allow you to dispute
charges for up to 60 days after purchase and will credit the disputed amount
to your account pending resolution. Most debit cards offer a much shorter
window, typically less than
one week, for making disputes.
Because moving your checking account can be a hassle, see whether your
current bank offers Visa or MasterCard debit cards. If your bank doesn’t offer
one, shop among the major banks in your area, which are likely to offer the
cards. Because such cards come with checking accounts, make sure you do
some comparison shopping among the different account features and fees.
Turning to Credit Counseling Agencies
Prior to the passage of the 2005 bankruptcy laws, each year hundreds of
thousands of debt-burdened consumers sought “counseling” from credit
counseling service offices. Now, more than a million people annually get the
required counseling. Unfortunately, some people find that the service doesn’t
always work the way it’s pitched.

Beware biased advice at credit counseling agencies

Leona Davis, whose family racked up

significant debt due largely to
unexpected medical expenses and a
reduction in her income, found
herself in trouble with too much debt.
So she turned to one of the large,
nationally promoted credit counseling
services, which she heard about
through its advertising and
marketing
materials.

The credit counseling agency Davis went to markets itself as a “nonprofit

community service.” Davis, like many others I know, found that the “service”
was not objective. After her experience, Davis feels that a more appropriate
name for the organization she worked with would be the Credit Card
Collection Agency.

Unbeknownst to Davis and most of the other people who use supposed credit
counseling agencies is the fact that the vast majority of their funding comes
from the fees that creditors pay them. Most credit counseling agencies collect
fees on a commission basis — just as collection agencies do! Their strategy is
to place those who come in for help on their “debt management program.”
Under this program, counselees like Davis agree to pay a certain amount per
month to the agency, which in turn parcels out the money to the various
creditors.
Because of Davis’s tremendous outstanding consumer debt (it exceeded her
annual income), her repayment plan was doomed to failure. Davis managed to
make 10 months’ worth of payments, largely because she raided a retirement
account for $28,000. Had Davis filed bankruptcy (which she ultimately needed
to do), she would’ve been able to keep her retirement money. But Davis’s
counselor never discussed the bankruptcy option. “I received no counseling,”
says Davis. “Real counselors take the time to understand your situation and
offer options. I was offered one solution: a forced payment plan.”

Others who have consulted various credit counseling agencies, including one
of my research assistants who, undercover, visited an office to seek advice,
confirm that some agencies use a cookie-cutter approach to dealing with debt.
Such agencies typically recommend that debtors go on a repayment plan that
has the consumer pay, say, 3 percent of each outstanding loan balance to the
agency, which in turn pays the money to creditors.
Unable to keep up with the enormous monthly payments, Davis finally turned
to an attorney and filed for bankruptcy — but not before she had
unnecessarily lost thousands of dollars because of the biased
recommendations.

Although credit counseling agencies’ promotional materials and counselors

aren’t shy about highlighting the drawbacks to bankruptcy, counselors are
reluctant to discuss the negative impact of signing up for a debt payment plan.
Davis’s counselor never told her that restructuring her credit-card payments
would tarnish her credit reports and scores. The counselor my researcher met
with also neglected to mention this important fact. When asked, the counselor
was evasive about the debt “management” program’s impact on his credit
report.
 Ask questions and avoid debt management programs

Probably the most important question to ask

a counseling agency is whether it offers debt
management programs (DMPs),
whereby you’re put on a repayment plan
with your creditors and the agency gets a
monthly fee for handling the payments. You
do not want to work with an agency offering
DMPs because of conflicts of interest. An
agency can’t
offer objective advice about all your options for dealing with debt, including
bankruptcy, if it has a financial incentive to put you on a DMP.

● What are your fees? Are there setup and/or monthly fees? Get a specific
price quote in writing.
● What if I can’t afford to pay your fees or make contributions? If an
organization won’t help you because you can’t afford to pay, look elsewhere for
help.
● Will I have a formal written agreement or contract with you? Don’t sign
anything without reading it first. Make sure all verbal promises are in writing.
● Are you licensed to offer your services in my state? You should work only
with a licensed agency.
● What are the qualifications of your counselors? Are they accredited or
certified by an outside organization? If so, by whom? If not, how are they
trained? Try to use an organization whose counselors are trained by a
non-affiliated party.
● What assurance do I have that information about me (including my
address, phone number, and financial information) will be kept
confidential and secure? A reputable agency can provide you with a clearly
written privacy policy.
● How are your employees compensated? Are they paid more if I sign up
for certain services, if I pay a fee, or if I make a contribution to your
organization? Employees who work on an incentive basis are less likely to
have your best interests in mind than those who earn a straight salary that
isn’t influenced by your choices.

Stopping the Spending/Consumer Debt Cycle

Regardless of how you deal with paying off your debt, you’re in real danger of
falling back into old habits. Backsliding happens not only to people who file
bankruptcy but also to those who use savings or home equity to eliminate
their debt.

Resisting the credit temptation

Getting out of debt can be challenging, but I have confidence that you can do it
with this book by your side. In addition to eliminating all your credit cards and
getting a debit card, the following list provides some additional tactics you can
use to limit the influence credit cards hold over your life.
● Replace your credit card with a charge card. A charge card (such as the
American Express Card) requires you to pay your balance in full each billing
period. You have no credit line or interest charges. Of course, spending more
than you can afford to pay when the bill comes due is possible. But you’ll be
much less likely to overspend if you know you have to pay in full monthly.
● Never buy anything on credit that depreciates in value. Meals out, cars,
clothing, and shoes all depreciate in value. Don’t buy these things on credit.
Borrow money only for sound investments — education, real estate, or your
own business, for example.
● Think in terms of total cost. Everything sounds cheaper in terms of monthly
payments — that’s how salespeople entice you into buying things you can’t
afford. Take a calculator along, if necessary, to tally up the sticker price,
interest charges, and upkeep. The total cost will scare you. It should.
● Stop the junk mail avalanche. Look at your daily mail — I bet half of it is
solicitations and mail-order catalogs. You can save some trees and some time
sorting junk mail by removing yourself from most mailing lists. To remove
your name from mailing lists, contact the Direct Marketing Association (you
can register through its
website).
To remove your name from the major credit reporting agency lists that are
used by credit-card solicitation companies, call 888-567- 8688 or online. Also,
tell any credit-card companies you keep cards with that you want your
account marked to indicate that you don’t want any of your personal
information shared with telemarketing firms.

● Limit what you can spend. Go shopping with a small amount of cash and no
plastic or checks. That way, you can spend only what little cash you have with
you!
 Identifying and treating a compulsion
No matter how hard they try to break the habit, some people become addicted
to spending and accumulating debt. It becomes a chronic problem that starts
to interfere with other aspects of their lives and can lead to problems at work
and with family and friends.

Debtors Anonymous (DA) is a nonprofit organization that provides support

(primarily through group meetings) to people trying to break their debt
accumulation and spending habits. DA is modeled after the 12-step Alcoholics
Anonymous (AA) program.

Like AA, Debtors Anonymous works with people from all walks of life and
socioeconomic backgrounds. You can find people who are financially on the
edge, $100,000-plus income earners, and everybody in between at DA
meetings. Even former millionaires join the program.

DA has a simple questionnaire that helps determine whether you’re a problem

debtor. If you answer “yes” to at least 8 of the following 15 questions, you may
be developing or already have a compulsive spending and debt accumulation
habit:

● Are your debts making your home life unhappy?

● Does the pressure of your debts distract you from your daily work?
● Are your debts affecting your reputation?
● Do your debts cause you to think less of yourself?
● Have you ever given false information in order to obtain credit?
● Have you ever made unrealistic promises to your creditors?
● Does the pressure of your debts make you careless when it comes to the
welfare of your family?
● Do you ever fear that your employer, family, or friends will learn the extent of
your total indebtedness?
● When faced with a difficult financial situation, does the prospect of borrowing
give you an inordinate feeling of relief?
● Does the pressure of your debts cause you to have difficulty
sleeping?
● Has the pressure of your debts ever caused you to consider getting drunk?
● Have you ever borrowed money without giving adequate
consideration to the rate of interest you’re required to pay?
 ● Do you usually expect a negative response when you’re subject to a credit
investigation?
● Have you ever developed a strict regimen for paying off your debts, only to
break it under pressure?
● Do you justify your debts by telling yourself that you are superior to the
“other” people, and when you get your “break,” you’ll be out of debt?

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 11 Personal Finance
Lesson Title Bankruptcy
Learning Understand bankruptcy benefits and
Outcome(s) laws and filling bankruptcy.

I
LEARNING NTENT!
Terms to Ponder

Bankruptcy is a legal process designed to help individuals and

companies get a financial fresh start by discarding or making
arrangements to repay unmanageable debt.

Essential Content

Bankruptcy

Bankruptcy is a legal process designed to help individuals and

companies get a financial fresh start by discarding or making arrangements to
repay unmanageable debt. It can also be a way for companies to end business
and liquidate assets in an orderly way.
 There are times when the mountain of debt becomes too difficult to
climb. Bankruptcy offers a way out of this situation while still considering the
creditors seeking to collect debts. While a bankruptcy will stay on your credit
report for a long time, sometimes it is the best option for starting over
financially.

What Is Bankruptcy?

When an individual, couple, or business feels like they are no longer able
to repay all of their debts, they may seek to file for bankruptcy. Although there
are several different types of bankruptcy and different qualifying factors for
each, the end goal is the same: to be discharged from debts and get a financial
fresh start.

A discharge is an order from the bankruptcy court permanently

prohibiting any
creditor from attempting to collect
the discharged debt from the debtor.
It's also known as a bankruptcy
injunction. The discharge only
occurs after the debtor has met all
the terms of the bankruptcy
agreement and payment plan or the
court has ruled otherwise.1 Those
terms will vary depending on the
bankruptcy chapter.

Types of Bankruptcy

There are six types of bankruptcy, known as chapters:

● Chapter 7 liquidation is by far the most common bankruptcy chapter for

individuals. It calls for the sale of a debtor's nonexempt property. The
proceeds are then distributed to their creditors. Chapter 7 liquidation is
appropriate for individuals who do not have a regular income and
cannot or do not wish to use Chapter 13's payment plan system.

● Chapter 13 bankruptcy is the second most common chapter for

individuals. It permits a debtor who is making a regular income to repay
at least a portion of debt over a period of three to five years.
 ● Chapter 11 is used by businesses to reorganize complex debt structures.

● Chapter 9 is used by municipalities and other political subdivisions such

as utility, hospital, airport, or school districts.

● Chapter 12 is for family farmers and family fisherman.

● Chapter 15 is filed by foreign debtors who usually are companies with

bankruptcy or receivership actions pending in other countries.

How Bankruptcy Works

If a debtor files for bankruptcy, they

must be in good standing with the courts
and have had credit counseling from an
approved agency within the last 180 days.
They will also have to go through a debtor
education course before their debts are
finally discharged.3Beyond these
requirements, each bankruptcy chapter
will have its own specific qualifying factors,
fees, and required paperwork.

A few other consistencies across the different chapters include the

overaching bankruptcy system, the use of trustees, and the end goal of
discharge.
The Bankruptcy System

The bankruptcy system is operated by the U.S. Bankruptcy Courts as

outlined in the U.S. Bankruptcy Code. The bankruptcy courts are subunits of
the federal district court system. As a result, there is a bankruptcy court in
each federal district of the United States. However, depending upon the
population of a district, there may be multiple courthouses in different cities.
Bankruptcy courts are supervised by bankruptcy judges that are appointed by
federal judicial committees.4

Bankruptcy Trustees

In the vast majority of bankruptcy cases, a trustee is automatically

appointed when the case is filed. The trustee administers the bankruptcy case
by reviewing the documentation of the debtor.

In a Chapter 7 case, the trustee will attempt to sell any nonexempt

property to pay creditors. In other cases, the trustee will oversee the payment
plan and coordinate payments to creditors. The trustee also has the obligation
to watch vigilantly for fraudulent conduct and failure of the debtor to disclose
information. They owe a fiduciary duty to the creditors and must collect as
many assets as possible to pay them.5 6

Protections and Discharge

Once a debtor is approved for bankruptcy, they are typically protected

from creditors seeking as long as the debtor sticks to the terms of the
bankruptcy agreement. Once all terms are met, any remaining debts that were
included in the bankruptcy filing will be discharged.

Although the discharge is permanent, it is not all-inclusive. Some debts

are not dischargeable. For example, most tax debts, child support, and spousal
support cannot be discharged.
Chapter 7 Bankruptcy vs. Chapter 11

Chapter 7 bankruptcy, also known as liquidation, is what most people

think of when it comes to bankruptcy. It involves selling assets and using the
proceeds to pay debts. For a business, however, selling assets often results in
ceasing operations. Unless a business owner plans to shut down, Chapter 11 is
often the better choice for businesses that can continue to generate income to
pay off their debts.

Bankruptcy Fraud

As bankruptcy is a federal
system codified by Congress into
the United States Bankruptcy
Code, bankruptcy fraud falls under
the domain of the federal
government. Specifically,
bankruptcy fraud, which includes
false oaths,
failure to disclose debts or assets, and other fraudulent conduct, is a federal
crime. Committing bankruptcy fraud can lead to you losing your discharge.
You may also end up in jail for up to five years, paying up to a $250,000 fine, or
both.8

Although the federal government keeps a watchful eye out for

bankruptcy fraud, any creditor of a bankruptcy debtor can file a complaint
against the debtor. The complaint may seek to deny the debtor a discharge for
bankruptcy fraud. In addition, the complaint may seek a judgment by the
bankruptcy court that the debt owed to the creditor is non-dischargeable in
bankruptcy. A debt may be non-dischargeable under the bankruptcy laws or
because the credit was obtained by fraudulent means. Bankruptcy is certainly
not a safe haven for the unscrupulous debtor.
 Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 13 Personal Finance
Lesson Title Budgeting to Boost Your Savings
Recognizing the budgeting can help you learn how much you
Learning Outcome(s)
spend on various things to reduce your
spending and budgeting to boast your savings.

I
LEARNING NTENT!
Terms to Ponder

Saving is putting money away. A budget is a spending plan.

Essential Content

Strategies for Budgeting and Saving Money

Budgeting and saving money don't come naturally to many people for obvious
reasons. Spending money on nonessentials is so easy, even if you're committed
to a well-laid spending plan.

Still, getting on track with a realistic budget and squirreling money away may
not be as difficult as you think. Begin by taking the time to create a budget,
which can help you reorganize your finances, prioritize spending, and manage
debt, thus allowing you to make progress toward your long-term financial
goals.

Make a Classic Budget

Budgeting your money is the cornerstone of a sound financial plan, and seeing
all the numbers in black and white can offer valuable perspective on where
your money is going and where you could put it to better use.
A budget can help you spot areas where you're spending more than you realize
and can also be set up to allow for the occasional indulgence as well as
unforeseen emergencies. You have lots of reasons to set aside a few hours to
build a classic budget— especially when you can do it in four practically
painless steps.

1. Gather into one place all your electronic or paper bills, receipts,
pay stubs, bank statements, and any other record of income or
expense for at least a month. Or keep track of monthly income and
expenditures as they happen.

2. Create a budget worksheet, using a budget template from Google

Sheets, an Excel spreadsheet, or paper and pen. List all your income
after taxes—for example, employee and freelance income, investment
income, and interest earned on any savings accounts. Then list all
expenses—for example, rent or mortgage payments, credit card
payments, installment loan payments, grocery receipts, and utility bills.

3. Add up each set of figures and subtract the expense total from the
income total to get a general picture of your financial health. If your
income total is larger than your expense total— congratulations—you
just found more money for saving, investing, and paying down your debt.
If your expense total is larger than your income total, all is not lost, but
you'll have to make some choices about where you spend some of your
money going forward if you want to balance your budget.

4. Drill down into your expenses and further categorize them into fixed,
variable, and discretionary expenses. Fixed expenses (such as your rent)
remain the same from month to month and thus often constitute the
basis of your budget. Variable expenses such as utility bills can typically
be lowered with behavioral tweaks like turning off the lights as you
leave a room, and discretionary expenses consist of wants rather than
needs and provide the most opportunities for saving.
Adopt the 50-20-30 Approach

You have alternatives if you don't want to make a classic budget. For example,
you could consider structuring your plan according to the 50-20-30 rule.
Under this approach to budgeting, you spend:

● 50% of your after-tax income on housing, food, and other necessities

● 20% on paying down debt or increasing savings
● 30% on whatever you want—discretionary spending

Although this plan is simple, some critics say that it allows too much
discretionary spending and doesn't emphasize debt reduction or savings
enough.

Use Apps

Another alternative to a classic budget is a budget app that can be downloaded

to your phone, tablet, or computer. You generally link your app of choice to
your checking and credit card accounts, and the app tracks your spending and
generates a monthly report by spending category.

Budget apps can often be set up to alert you when a payment is coming due
when an account balance is getting too low, or if there's suspicious activity in
your account. The cost of most apps ranges from zero to several dollars a
month, although some offer free introductory periods so that you can try
before you buy.

Put Your Budget to Work

Once you figure out how much money you're spending and where you're in a
better position, take the necessary steps to put your financial future front and
center.

Reduce Spending

Start by cutting spending on items you don't need. For example, do you need a
$5 coffee every morning? Could you make do with a smaller, older car? Instead
of an expensive vacation, would you be willing to try a stay-at-home vacation
(staycation)?

These types of choices are very personal, so there's no right or wrong answer.
But laying them out on the table can at least help you understand your
priorities and some of the options you may not have realized you had for
saving money.
Get a Handle on Your Debt

One aspect that seems to come with adulthood is accumulating some form of
debt. Credit cards, student loans, car loans, and mortgage payments are
common types of debt. Credit cards and other forms of debt can be an
essential part of your financial toolbox because they build a credit history.
However, exercise care when using them. Understanding the difference
between good debt and bad debt can go a long way toward making sure you
use credit wisely and maintain a good credit history.

At the same time, you should always look for ways to make your debt less
expensive while you're paying it off. Transferring your credit card balances to
a card with a zero percent APR or refinancing your student loans, for
example, could reduce the amount you pay in interest charges and accelerate
your debt payoff plans.

To build wealth, you have to start somewhere. The ability to save money is
essential, but the first step in saving is spending less than you earn. This point
may seem obvious, but it's also frequently easier said than done. Fortunately,
even if your budget doesn't allow much wiggle room, dozens of ways to save
money are available.

Reduce Your Tax Burden

Nobody likes paying taxes, but they're an important aspect of any financial
plan. Even if you don't make much money, you might be surprised to learn how
certain tax strategies and decisions can affect your finances.

Learning how to minimize the impact of taxes on your finances can ensure
that more money is going into your pocket and moving you toward your
financial goals. Tax planning includes claiming all the deductions and tax
credits you're eligible for and maximizing contributions to tax-advantaged
accounts, such as an employer's 401(k) plan, an IRA, or a Health Savings
Account (HSA), as often as possible.
Set Up Automatic Savings

One of the best and most convenient paths toward wealth accumulation is to
sign up for automatic savings. Open a savings account and then link your
checking account to it so that an affordable, fixed amount is automatically
transferred into your savings account every month.

Shop Smart and Live Frugally

Plan weekly menus and meal prepping around inexpensive, nutritious foods,
and draw your shopping list directly from these menus. Try to avoid running
to the store multiple times a week by designating one day a week as a
shopping day. When that day rolls around, take your list to a local discount
market and stick to the list.

Clip paper coupons to redeem at grocery stores, drugstores, restaurants, and

more, or try using one of the many available coupon apps to take page flipping
and scissors out of the equation.

Shop for clothes, furniture, and toys at garage sales, thrift stores, and vintage
shops, but spring for new mattresses, upholstered furniture, swimsuits,
underwear, bike helmets, shoes, and the like. Never buy these latter types of
items used.

Attempt to spend money only when it's really necessary. For example, use your
local library for books instead of cluttering up your space with expensive
tomes that you'll probably only read once, if at all.

Spend Money to Save Money

This advice may sound like an oxymoron, but many real-life examples can
point the way to you saving some serious bucks. For instance, take your car in
for scheduled maintenance and don't skip your six-month dental cleaning and
checkup. These preventive strategies may be painful to your pocket, but
deferring maintenance—whether for yourself personally or on items you
own—could lead to a lot more pain and expense down the road.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.
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 Week 14 Personal Finance
Lesson Title Curtailing Personal Care Costs.
Learning Evaluate some money saving advice and
Outcome(s) curtailing personal care costs.

I
LEARNING NTENT!
Terms to Ponder

Saving is putting money away. A budget is a spending plan.

Essential Content

Curtailing Personal Care Costs

 Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 15 Personal Finance
Lesson Title Cost of healthcare and managing medical expenses
Learning Discuss the cost of healthcare and managing
Outcome(s) medical expenses.

I
LEARNING NTENT!
Terms to Ponder

Saving is putting money away. A budget is a spending plan.

Essential Content

Ways to cut your health care costs

The cost of health care continues to rise. That is why it helps to learn how to
take steps to limit your out-of-pocket health care costs.

Learn how to save money and still receive the care you need. Start by looking
at your plan information so you know what services are available. Try the tips
below to help you get the most from your benefits and save money on your
care.

1. Save Money on Medicines

There are a few ways to cut costs on your medicines.
● Ask your health care provider if you can switch to generic medicines. They
have the same active ingredient, but cost less than brand name drugs.
● Ask your provider if there is a less expensive medicine that treats the same
condition.
● See if you can order your medicine through the mail.
● Take all of your medicines as directed. Not taking your medicine or not taking
enough medicine may lead to further health problems.
 2. Use Your Benefits
● Get routine health screenings. These tests can catch health problems early,
when they may be more easily treated. And you often do not have to pay a
copay for health screenings, vaccines, and annual well visits.
● Get prenatal care if you are pregnant. This is the best way to ensure you and
your baby will be healthy.
● Some health plans offer health advocates or case managers. A health advocate
can help you get the most of your benefits. A case manager can help you to
manage complex health problems such as diabetes or asthma.
● Use free and discounted services. Many health plans offer discounts on things
like gym memberships or eyewear.
3. Plan Ahead for Urgent and Emergency Care
When an illness or injury occurs, you need to decide how serious it is and how
soon to get medical care. This will help you choose whether to call your
provider, go to an urgent care clinic, or get emergency care.

You can decide where to get care by thinking about how quickly you need care.

● If a person or unborn baby could die or have permanent harm, it is an

emergency. Examples include chest pain, trouble breathing, or severe pain or
bleeding.
● If you need care that cannot wait until the next day to see your provider, you
need urgent care. Examples of urgent care include strep throat, bladder
infection, or a dog bite.
You will save both time and money if you use an urgent care center or see your
provider rather than going to the emergency department. Plan ahead by
knowing which urgent care center is near you. Also, learn how to recognize an
emergency in adults and in a child.
4. Ask About Outpatient Facilities
If you need a procedure or surgery, ask your provider if you can have it done at
an outpatient clinic. Often, getting care at a clinic is cheaper than having the
same procedure in a hospital.

5. Choose In-Network Health Care Providers

Depending on your health coverage, you may have the choice to see providers
who are in-network or out-of-network. You pay less to see providers who are
in-network, because they have a contract with your health plan. This means
they charge lower rates.

6. Take Care of Your Health

A simple way to save money on health care is to stay healthy. Of course, that is
sometimes easier said than done. But staying at a healthy weight, getting
regular exercise, and not smoking lowers your risk for health problems.
Staying healthy helps you avoid costly tests and treatments for ongoing
conditions such as diabetes or heart disease.

7. Choose a Health Plan That is Right for You.

When choosing a plan, think about the health needs of you and your family. If
you pick a plan with higher premiums, more of your health costs will be
covered. This may be a good idea if you have a health problem, such as
diabetes, and need regular care. If you rarely need medical care, then you may
want to choose a plan with a higher deductible. You will pay lower monthly
premiums and likely save money overall. Also compare prescription drug
coverage.

8. Use a Health Care Savings Account (HSA) or Flexible Spending

Account (FSA)
Many employers offer an HSA or FSA. These are savings accounts that allow
you to set aside pre-tax money for health care expenses. This can help you
save several hundred dollars per year. HSAs are owned by you, earn interest,
and can be transferred to a new employer. FSAs are owned by your employer,
do not earn interest, and must be used within the calendar year.
 Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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American Board of Internal Medicine (AMBI) Foundation. Choosing wisely:

patient abcdefresources. www.choosingwisely.org/patient- resources.
Accessed October 29, abcdef2020.

Centers for Disease Control and Prevention website. See which screening tests
and abcdefvaccines you or a loved one need to stay abcdefhealthy.
www.cdc.gov/prevention/index.html.Updated October 29, 2020.
abcdefAccessed October 29, 2020.
 Week 16 Personal Finance
Lesson Title Investment Risk and Return
Learning Evaluate Investment returns and risks in
Outcome(s) establishing your goals

I
LEARNING NTENT!
Terms to Ponder

In investing, risk and return are highly correlated. Increased potential

returns on investment usually go hand-in-hand with increased risk.
Essential Content

Investment risk and return

Let's look at asset allocation

What is asset allocation?
Asset allocation is the mix of investment types that make up your investment
portfolio. Investment types are generally divided into four different asset
classes, which include:
● cash
● Australian or international fixed interest
● property
● Australian or international shares.

Each asset class has inherent attributes. The table below highlights the
characteristics and risk and return for the various asset classes.
Choosing where to invest your money is a difficult decision and will depend on
many factors, including your overall investment objectives, risk profile and the
amount of time you have to invest. It's therefore best to seek the advice of a
qualified financial adviser who can help define your personal situation and
identify the appropriate asset allocation.

Characteristic s
Asset class Risk Return

Cash Lowest level of Low Low

Includes bank risk and return
deposits, cheque of all the asset
accounts and classes.
cash Suitable for
management investors who
trusts. have a short-
term
investment
outlook or
low tolerance
for risk.

As the
investment
provides
interest only,
the investment
value may not
keep up with
inflation.

Fixed interest Fixed interest is Low/moderat e Moderate

Generally more
includes volatile than
income- cash but still a
producing relatively stable
assets asset class.
(Government
bonds, fixed You receive
term deposits, your initial
 Characteristic s
Asset class Risk Return

mortgage trusts) investment

although the amount back
capital value at the end of the
can rise or fall in set term.
certain
circumstances Investments
. often don't
keep pace
with inflation
as only a pre-
determined,
fixed amount
of interest is
paid on the
initial
investment.

Property Includes Property Moderate/hig h Moderate/hig h

residential, investments
industrial and have a higher
commercial risk than
property. fixed interest
but less than
shares.
Can provide
tax- advantaged
income from
rent received
and can
include capital
growth.

Shares Shares are High High

Involves the the most
purchase of a volatile asset
stake or class, but
 Characteristic s
Asset class Risk Return

financial interest historically over

in a long
company, periods of
enabling you time have
to share in the achieved on
profits and average the
future growth highest returns.
of that
company. Investment
sectors include
Australian
shares and
International
shares

Why is asset allocation important?

Most investment specialists believe that asset allocation is vital in generating
returns. Although there are many investment products in the market, it is the
asset allocation rather than the actual investment products which
differentiates high returns from low returns and will enable you to reduce the
risks involved with investing.
Different asset classes mean different returns
Generally speaking, your asset classes will not all react in the same way. It's
likely that some asset classes will have above average returns in a particular
year, while other asset classes may have below average returns for that same
year.
The significance of growth assets and defensive assets
Asset classes are often split into two categories: growth assets and defensive
assets.
 What are defensive assets?
Defensive assets provide long-term stable returns with lower volatility.
Examples of defensive assets are fixed interest investment options such as
debentures, bonds and bank bills and cash investment options which include
bank bills and bank deposits.
What are growth assets?
Growth assets are investments that offer higher returns over the long-term but
at the expense of less stable returns.
Examples of growth assets include property and shares.
Let's look at risk and return What is
investment risk?
Investment risk refers to the level of volatility, or fluctuation in investment,
returns, you're prepared to accept.
The word 'risk' has a number of connotations with regards to investment, however there
are three main risk factors to consider:
● The risk of losing your initial investment – for example, if you invested in a
company which is poorly managed and subsequently went bankrupt, you
could lose your total investment. This is a rare occurrence, however, cases
such as Enron show that there is some possibility of this occurring.
● The risk of receiving a lower than expected growth return – for example, the
value of an asset in which you have invested, such as a house or shares, either
increases at a lower than expected rate or even decreases when you were
expecting growth.
● The risk of receiving a lower than expected income return – for example, if you
purchased shares and expected a dividend payout of 50 cents per share and
you only received 10 cents per share.

As discussed previously, the type of risks you are exposed to will be

determined by the type of assets in which you choose to invest. Fixed interest
and cash investments will generally be low risk (defensive assets) and assets
such as property and shares are generally considered to be high risk (growth
assets).
 What's the relationship between risk and return?
Whilst we would all love to find a perfect investment which has low risk and
high returns, the fact is that this doesn't exist because risk and return are
positively related.
This means that the lower risk investments – while good for peace of mind –
will generally provide a lower long-term return than a high risk investment.
The chart below shows the risk return profiles of each of the different asset
classes.

How do you manage investment risk?

● Diversification means spreading your investments across a variety of asset
classes. In doing so, the positive returns you receive from one investment can
generally offset any negative returns you may receive from other investments.
● Your investment time frame also has a significant impact on your investment
decisions and, therefore, the amount of risk you take. Usually, your age and
relative proximity to retirement will determine whether you're investing for
the short, medium or long term.
● Review your plan regularly – once developed, your investment strategy
should consider all aspects of your personal situation. If your circumstances
change, therefore, it's important that your plan is updated accordingly.

Let's look at diversification

When choosing your asset allocation, it is essential that you spread your
investments across different asset classes and investment products, so that all
of your financial eggs are not in the one basket.
 Diversification is key to boosting your investment returns; the possibility of
higher returns from growth assets together with the stability of lower risk
defensive assets.
The main benefit is that if one or two of the assets are performing poorly you
have other assets that may be performing better and which could possibly
balance out your losses.
It's also important that your investment portfolio is diversified within, as well
as, across all asset classes.
Let's look at investment time frames
How long you have to invest, or your investment time frame, is a great starting
point for determining your investment strategy.
Usually, your age and relative proximity to retirement will help you determine
your goals and therefore, whether you're investing for the:
● short term (one to three years)
● medium term (three to five years), or
● long term (more than five years).

Over time, investment markets move up and down as does the value of your
investments. If you have many years over which to invest, you may be
prepared to take on more risk. In this situation, with more time to ride out any
short-term fluctuations in investment returns, you have the opportunity to
benefit from the higher expected returns offered by growth investments such
as shares.
If, on the other hand, you only have a couple of years over which to invest,
you're generally investing for the short term and security may be more
important than higher returns. Accordingly, you might put a greater emphasis
on placing your investments in short-term, more secure assets, such as cash
and fixed interest.
Let's look at longevity risk
Longevity risk is one of the biggest risks facing retirees. It refers to the risk of
outliving your savings. Longevity issues arise as people enter retirement,
generally with a fixed amount of money to fund their retirement years (either
in the form of a lump sum or pensions), but with no idea of how long they will
live and, therefore, no idea how long their money needs to last.
 Australians are getting older
According to the Australian Bureau of Statistics (ABS), over the last 50 years,
the life expectancy of a new-born boy increased from 66.1 years in the period
1946-48 to 80.1 years in the period 2011-13. Similarly, the life expectancy of a
new-born girl increased from 70.6 to 84.3 years during the same period.
How do you manage longevity risk?
Account-based pensions
Account-based pensions are purchased with superannuation monies and
provide an income source during retirement years. As account-based pensions
are linked to the market, your investment, and therefore the income payments
you receive, will be affected by market fluctuations.
The risk is that the income drawn from your account-based pension is not
guaranteed to last your lifetime; it depends on the initial capital invested and
the return from the underlying investments. Longevity risk can, however, be
managed to a certain degree by setting and adjusting the underlying
investments, asset allocation and the level of income drawn each year from the
pension.
Other strategies to manage longevity risk
● A product that does protect against longevity risk is a lifetime annuity or
pension. A lifetime annuity is not exposed to market returns, so does not suffer
in a downturn market and is a guaranteed income stream for life. Despite the
certainty, however, these are unpopular because the rate of return is locked in
at the time of purchase and access to funds can be restricted. Since the
changes to superannuation in 2007, the value of these annuity investments
has been included as an asset under Centrelink's assets test.
● One concept prevalent overseas is that of deferred annuities (a form of
longevity insurance), which can be purchased on retirement. In this case, you
must have accumulated sufficient funds from other sources (such as an
account-based pension) to support you until you reach your life expectancy
age. Once you reach your life expectancy age, the deferred annuity begins
paying income and continues to do so for the rest of your life.
● Some Australian product providers are developing new income- stream
products based on this principle, which can be used in conjunction with
traditional income streams to provide you with an income for as long as you
live. However, the benefit of using such products must be weighed against the
fees and charges levied.
 Things to consider
What if you have both long-term and short-term goals?
Your asset allocation will be clearly affected by your investment timeframe,
therefore, it will be beneficial for you to separate your long and short-term
goals, work out how much is needed for each and then determine the
allocation separately.
For example, you can invest for the long term in growth assets and set aside
funds for the short term in a cash investment or other similar defensive asset.
Therefore, you can ensure that the short- term funds are available when
needed and that your longer term investments aren't hindered by significant
falls in the short term.
Keeping to your plan
Once developed, your investment strategy should incorporate all aspects of
your personal finances. It's therefore important to keep to your strategy to
give yourself the greatest chance of achieving your financial goals. After all,
your investment strategy has been designed to assist you over the short,
medium and long-term and the success of the strategy depends on whether
you adhere to it.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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 Week 17 Personal Finance
Lesson Title Types of Investments (and How They Work)
Learning Distinguish the best investment firms from
Outcome(s) the rest and diversifying your investments.

I
LEARNING NTENT!
Terms to Ponder

An investment is essentially an asset that is created with the intention of

allowing money to grow. The wealth created can be used for a variety of
objectives such as meeting shortages in income, saving up for retirement,
or fulfilling certain specific obligations such as repayment of loans,
payment of tuition fees, or purchase of other assets.

Essential Content

10 Types of Investments (and How They Work)

Investing intimidates a lot of people. There are numerous options, and it can
be hard to figure out which investments are right for your portfolio. This guide
walks you through 10 of the most common types of investment and explains
why you may want to consider including them in your portfolio.
Stocks
Stocks, also known as shares or equities, may be the most well- known and
simple type of investment. When you buy stock, you’re buying an ownership
stake in a publicly traded company. Many of the biggest companies in the
country — think General Motors, Apple and Facebook — are publicly traded,
meaning you can buy stock in them.

When you buy a stock, you’re hoping that the price will go up so you can then
sell it for a profit. The risk, of course, is that the price of the stock could go
down, in which case you’d lose money.

Brokers sell stocks to investors. You can either opt for an online brokerage
firm or work face-to-face with a broker.

Bonds
When you buy a bond, you’re essentially lending money to an entity. Generally,
this is a business or a government entity. Companies issue corporate bonds,
whereas local governments issue municipal bonds. The U.S. Treasury issues
Treasury bonds, notes and bills, all of which are debt instruments that
investors buy.

While the money is being lent, the lender gets interest payments. After the
bond matures — that is, you’ve held it for the contractually determined
amount of time — you get your principal back.

The rate of return for bonds is typically much lower than it is for stocks, but
bonds also tend to be lower risk. There is some risk involved, of course. The
company you buy a bond from could fold, or the government could default.
Treasury bonds, notes and bills, however, are considered a very safe
investments.
Mutual Funds
A mutual fund is a pool of many investors’ money that is invested broadly in a
number of companies. Mutual funds can be actively managed or passively
managed. An actively managed fund has a fund manager who picks securities
in which to put investors’ money. Fund managers often try to beat a
designated market index by choosing investments that will outperform such
an index. A passively managed fund, also known as an index fund, simply
tracks a major stock market index like the Dow Jones Industrial Average or the
S&P 500. Mutual funds can invest in a broad array of securities: equities,
bonds, commodities, currencies and derivatives.

Mutual funds carry many of the same risks as stocks and bonds, depending on
what they are invested in. The risk is often lesser, though, because the
investments are inherently diversified.

Exchange-Traded Funds
Exchange-traded funds (ETFs) are similar to mutual funds in that they are a
collection of investments that tracks a market index. Unlike mutual funds,
which are purchased through a fund company, shares of ETFs are bought and
sold on the stock markets. Their price fluctuates throughout the trading day,
whereas mutual funds’ value is simply the net asset value of your investments,
which is calculated at the end of each trading session.

ETFs are often recommended to new investors because they’re more

diversified than individual stocks. You can further minimize risk by choosing
an ETF that tracks a broad index.
Certificates of Deposit
A certificate of deposit (CD) is a very low-risk investment. You give a bank a
certain amount of money for a predetermined amount of time. When that time
period is over, you get your principal back, plus a predetermined amount of
interest. The longer the loan period, the higher your interest rate.

There are no major risks to CDs. They are FDIC-insured up to

$250,000, which would cover your money even if your bank were to collapse.
That said, you have to make sure you won’t need the money during the term of
the CD, as there are major penalties for early withdrawals.

Retirement Plans

There are a number of types of retirement plans. Workplace retirement plans,

sponsored by your employer, include 401(k) plans and 403(b) plans. If you
don’t have access to a retirement plan, you could get an individual retirement
plan (IRA), of either the traditional or Roth variety.

Retirement plans aren’t a separate category of investment, per se, but a vehicle
for making investments, including purchasing stocks, bonds and funds, that
exempt you from taxes in one of two ways: either letting you invest pretax
dollars (as with a tradition IRA) or allowing you to withdraw money without
paying taxes on that money. The risks for the investments are the same as if
you were buying the investments outside of a retirement plan.
Options
An option is a somewhat more complicated way to buy a stock. When you buy
an option, you’re purchasing the ability to buy or sell an asset at a certain price
at a given time. There are two types of options: call options, for buying assets,
and put options, for selling options.

The risk of an option is that the stock will decrease in value. If the stock
decreases from its initial price, you lose your money. Options are an advanced
investing technique, and retail should exercise caution before using them.

Annuities
Many people use annuities as part of their retirement savings plan. When you
buy an annuity, you purchase an insurance policy and, in return, you get
periodic payments.

Annuities come in numerous varieties. They may last until death or only for a
predetermined period of time. The may require periodic premium payments
or just one up-front payment. They may be linked partially to the stock market
or they may simply be an insurance policy with no direct link to the markets.
Payments may be immediate or deferred to a specified date. They may be fixed
or variable.

While annuities are fairly low risk, they aren’t high-growth. They make a good
supplement to retirement savings, rather than an integral source of funding.
Cryptocurrencies

Cryptocurrencies are a fairly new investment option. Bitcoin is the most

famous cryptocurrency, but there are countless others, such as Litecoin and
Ethereum. Cryptocurrencies are digital currencies that don’t have any
government backing. You can buy and sell them on cryptocurrency exchanges.
Some retailers will even let you make purchases with them.

Cryptos often have wild fluctuations, making them a very risky investment.

Commodities
Commodities are physical products that you can invest in. They are common in
futures markets where producers and commercial buyers – in other words,
professionals – seek to hedge their financial stake in the commodities. Retail
investors should make sure they thoroughly understand futures before
investing in them. Partly, that’s because commodities investing runs the risk
that the price of a commodity will move sharply and abruptly in either
direction due to sudden events. For instance, political actions can greatly
change the value of something like oil, while weather can impact the value of
agricultural products.
 There are four main types of commodities:

Metals – this includes precious metals like gold and silver and industrial
metals like copper

Agricultural – this includes wheat, corn and soybeans;

Livestock and meat – this includes pork bellies and feeder cattle; and

Energy – this includes crude oil, petroleum products and natural gas

The Bottom Line

There are a lot of types of investment to choose from. Some are perfect for
beginners, while others require more experience. Each type of investment
offers a different level of risk and reward. Investors should consider each type
of investment before determining an asset allocation that aligns with their
goals.

Note: PPT/PDF will be available in your Edmodo account in our classroom for
this course.

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SmartAsset Types of Investments https://smartasset.com/investing/types-

of-investment