CUBIC 2015 Day 1

1. CUBIC 2015Day 1 Personal Finance Bob Donchez

2. The Financial Planning Process Personal Finance Topics 1) Financial planning process • Assessing financial position • Basics of personal taxes • Insurance • Managing personal debt • Setting and achieving goals • Retirement topics • Investment topics • Putting it all together

3. Question(1.1.0) Describe your level of knowledge of personal finance? A. Very low B. Low—very little knowledge C. Medium—some knowledge D. High—know quite a bit E. Very high

4. Question Describe your feeling/opinion: A. financial wealth is very important to happiness B. financial wealth is only one factor to happiness C. wealth has nothing to do with happiness D. wealth usually detracts from happiness E. really couldn’t say

5. “Money is not the most important thing….but it makes important things possible.” -Ben Stein, 2004

6. M.C. Hammer: Even $33,000,000 doesn’t ensure financial success! http://www.youtube.com/watch?v=otCpCn0l4Wo

7. The Financial Planning Process 1-1 The Case for Learning Personal Finance • Knowledge of personal planning concepts is low • Creates poor planning decisions • Savings rates are low • Use of debt very high • Basic investment mistakes common • Knowledge is power • TONS of financial data, but hard to get knowledge • Who to trust to obtain knowledge and make good decisions? • Personal finance very private matter

8. The Financial Planning Process 1-2 A Basic Approach to Personal Finance • Learn basic concepts—knowledge is power • Spend within income; follow a budget • Save regularly “off the top”—pay yourself first • Use debt wisely—not to support lifestyle, but for key needs • Make retirement planning a top priority early in career

9. The Financial Planning Process 1-2 A Basic Approach to Personal Finance (continued) • Assess financial position annually • Set goals with a plan to achieve them • Invest wisely using key concepts • Use insurance to “protect the plan” • Use trusted sources for answers

10. Question Who do you (or would you) see for advice on a personal finance issue or question? A. Friend B. Parent or relative C. Professional—planner or accountant D. My broker E. Newsletter, advisory service, on-line, magazine

11. Question Describe how well you track/monitor your financial accounts and spending. A. I keep statements, and track income & expenses very well B. I keep my statements, but don’t track spending too well C. Kind of “hit and miss” D. Not very organized at all E. Say what?

12. Assessing Current Financial Position 2-1 Rationale for Establishing Financial Position Can’t accomplish a financial plan without: • A starting point; knowing “where you’re at” • Having goals you want to achieve • Establishing a plan to get from “here” to “there” Important to measure financial position on a regular basis (for example, annually)

13. Assessing Current Financial Position 2-1 Rationale for Establishing Financial Position Financial Position entails: • Personal income statement • What you make, what you spend, what you save • Personal balance sheet • What you own, what you owe, and the difference (net worth)

14. Assessing Current Financial Position 2-2 Personal Income Statement Income • Wages • Self employment income • Investment income (interest/dividends)

15. Assessing Current Financial Position 2-2 Personal Income Statement Expenses Non-discretionary expenses (have to spend) • Taxes • Food • Utilities • Basic household • Transportation (gas, oil, maintenance) • Debt payments • Insurance • Basic clothing

16. Assessing Current Financial Position 2-2 Personal Income Statement Expenses (continued) Discretionary expenses (want to spend) • Entertaining • Dining • Fashion clothing • Charitable contributions • Subscriptions • Vacation • All those “little” conveniences (premium channels, Starbucks, etc)

17. Assessing Current Financial Position 2-2 Personal Income Statement Expenses (continued) Discretionary expenses are separated from non- discretionary because these items can better be used to increase savings. Once personal income statement is made, a budget can be created

18. Assessing Current Financial Position 2-2 Personal Income Statement Savings and debt: • If total expenses exceed income, savings falls or debt rises • If total expenses less than income, savings rises or debt falls • Savings best accomplished if: 1) saved regularly from payroll 2) taken first, “off the top” Link to Sample Personal Income Statement

19. Assessing Current Financial Position 2-3 Personal Balance Sheet Assets • Cash and cash equivalents • Checking, bank savings, money market, CDs • Use assets • Residence, auto, personal property • Invested assets • Taxable accounts • Brokerage, securities, mutual funds, • Tax sheltered accounts • IRA, 401k, annuities, life insurance cash value

20. Assessing Current Financial Position 2-3 Personal Balance Sheet Liabilities • Revolving credit • Credit cards • Home equity line of credit • Installment loans • Personal loans • Car loans • Home equity line of credit • Home loan, Mortgage

21. Assessing Current Financial Position 2-3 Personal Balance Sheet Net Worth • Equals total assets less total liabilities Link to Sample Personal Balance Sheet

22. Question) Do you have trouble keeping expenses under control? A. No, never B. Hardly ever C. Yes, sometimes D. Yes, all the time

23. Assessing Current Financial Position Exercise 1: Budgeting • Review exercise narrative and spreadsheet • Complete budget numbers with comments and assumptions • Answer question • Return completed spreadsheet and send by e-mail attachment—note Group # Link to Case Narrative & Spreadsheet

24. Question) Have you ever filed a personal tax return? A. No B. Yes, I did it C. Yes, my parents did D. Don’t know

25. Basics of Personal Taxes 3-1 Taxes paid by most people Income tax • Federal tax • State tax Social security/Medicare tax Property tax Car registration/use tax (Health insurance)

26. Basics of Personal Taxes 3-2 US tax structure Progressive tax system • Taxratepaid goes up by income bracket Taxable income by bracket • Tax rate ranges from 10% to 39.6% • Marginal tax: tax paid on next dollar of taxable income • Average tax: total tax divided by taxable income Tax paid based on filing status • Single • Married, filing jointly

27. Basics of Personal Taxes 3-2 US tax structure Tax table (2015)

28. Basics of Personal Taxes 3-2 US tax structure Example: tax on $50,000 taxable income, single

29. Question Between 1913 and 2014, what was the highest top marginal tax rate paid by individuals? A. 38% B. 50% C. 58% D. 77% E. 92%

30. Basics of Personal Taxes 3-3 Deriving taxable income Standard deduction: Single: $6,300 Married: $12,600

31. Basics of Personal Taxes 3-3 Deriving taxable income Exemption: Single: $4,000 Married: $4,000 each

32. Basics of Personal Taxes 3-3 Tax Forms Tax return forms • 1040 (long form) • 1040EZ Tax schedules (accompanying returns) • Schedule A: Itemized deductions • Medical, state tax, mortgage interest, charitable donations • Schedule B: Interest and dividend income • Schedule C: Profit/loss from business • Schedule D: Capital gains/losses

33. Basics of Personal Taxes 3-4 How taxes are paid • Wage withholding • Directly paying estimated tax • Withholding of prizes and large distributions • Payment with tax return

34. Basics of Personal Taxes 3-5 How to file tax return • Complete on paper and mail • Software system with electronic filing • TurboTax, TaxACT, H&R Block • Preparation by tax expert • H&R Block, Jackson Hewitt, Liberty Tax • Local CPA firm

35. Basics of Personal Taxes 3-6 Tax shelters (reducing tax) • Owning your own home • Deductible interest payments • Retirement investing • IRA, Roth IRA • 401k, Roth 401k • Self employment • Business expense

36. Basics of Personal Taxes On-line resources • Budgeting http://personalfinance.duke.edu/manage-your-finances/budget/discretionary-vs-non-discretionary-spending http://mint.com • Taxes http://www.irs.gov/uac/IRS-Offers-Free-Tax-Help-1 http://taxes.about.com/od/preparingyourtaxes/tp/freefile.htm