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Finance 101

Finance 101. Cash . Checking accounts – NOW accounts Money Market accounts CDs. Bonds – Fixed Income. Savings Bonds Corporate Bonds A, AA, C – can default Ownership in companies Municipal Bonds City/state/government Funds schools/projects Treasury Bonds

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Finance 101

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  1. Finance 101

  2. Cash • Checking accounts – NOW accounts • Money Market accounts • CDs

  3. Bonds – Fixed Income • Savings Bonds • Corporate Bonds • A, AA, C – can default • Ownership in companies • Municipal Bonds • City/state/government • Funds schools/projects • Treasury Bonds • Full faith & credit of US Government

  4. Bonds • Principal remains the same • Dividends are paid – quarterly • $5,000 @ 5% - 3 years • $5,000 purchase price • $62.50 per quarter • $5,000 @ maturity • Treasury • Purchased at discount • $5,000 @ 5% - 3 years • 4,250 purchase price • $5,000 @ maturity

  5. Stocks – Growth • Individual stocks – ownership in companies • Proctor & Gamble • Microsoft • Mutual funds – ability to diversify holdings • Fidelity – Peter Lynch/Magellan • Morningstar rating • REITS ( Real estate investment trust) • Invest in real estate for minimum amounts

  6. Stocks • Dow Jones – 30 companies • S&P 500 – 500 large cap • Nasdaq – 5,000 • Value can increase/decrease • Dividends paid quarterly • High/low • Long term investment

  7. US Stock Market History

  8. Proctor & Gamble

  9. Other financial terms • IRA – can open even while in 401(k) • 401 (k) – payroll deduction/company match. • Estate – value of all you own when you pass. • Will – road map for disposition of assets upon death. • Trust – various uses during life and after.

  10. Credit/Loans • Credit cards • Interest rates • Minimum payment • Auto loans • Installment – e.g. $7,000 x 8.75% for 5 years = $173 per month • Rates & terms determined if new car vs old car • Mortgages • Similar to installment loans – e.g. $100,000 @ 6.25% for 30 years = $615 per month • Home Equity loans • Lines of credit and installment loans • Student loans

  11. Credit,Capital,Capacity • Credit • Credit history – important all through life! • Determines rate • Capital • Other assets • Value of collateral – if offered • Capacity • Cash flow analysis – ability to repay

  12. Cash flow analysis • Example of loan • $10,000 @ 8.75% for 4 years • Cash flow analysis • Income • Annual salary = $50,000/12 $4,166.00 • Investment income = $5,000 stock x 2% 100.00 TOTAL MONTHLY INCOME $4,266.00 • Expenses • Rent $1,000.00 • Credit Card debt ($1,000 x 3.5%) 35.00 • Other debt – student loans etc. 500.00 TOTAL MONTHLY DEBT $1,535.00 DEBT/INCOME = 28% ACCEPTABLE RATIO THIS EXAMPLE = $4,266/$1,535 = 35%

  13. Your financial health • Take control • Read more about finances • Monitor your own accounts – (identity theft) • Seek advice • Keep to budget • Plan for future – 401(k) A MUST HAVE

  14. Word of Wisdom • The only way not to think about money is to have a great deal of it….Edith Wharton • Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy…. Groucho Marx • If you would be wealthy, think of saving as well as getting….Benjamin Franklin • We make a living by what we get, we make a life by what we give….Sir Winston Churchill

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