Personal Finance For Dummies^?, 5th Edition

by Eric Tyson

• ISBN13: 9780470038321
• ISBN10: 0470038322
• Edition: 5th
• Format: Paperback
• Copyright: 2006-09-01
• Publisher: For Dummies

Summary

Too many personal finance consultants offer financial advice that ignores the big picture and instead focuses on investing. You need much more than that to plan your future. You need a broader understanding of personal finance that includes all areas of your financial life in order to become financially sound. Personal Finance for Dummies, 5 th Edition is full of detailed, action-oriented financial advice that will show you how to lower expenses and tame debts as well as invest wisely to achieve your financial goals! Now in its 5 th edition, this up-to-date guide covers all the latest trends to ensure your financial stability. Just some of the updates and revisions include: Reviews of the new and revised tax laws and how to take advantage of them The latest scoop on Medicare and Social Security and what it means for you Updated investment advice on mutual funds and other managed investments Enhanced smart spending tips Coverage of new bankruptcy laws and how to eliminate consumer debt Smart ways to use credit and improve credit scores Expanded coverage on educational savings options This hands-on, straightforward guide features ways to survive life changes such as starting your first job, getting married, having children, and retiring, as well as helpful tactics for preventing identity theft and fraud. With Personal Finance for Dummies, 5 th Edition, you'll be able to achieve financial strength and start concentrating on the more important things in life!

Author Biography

Eric Tyson first became interested in money more than three decades ago. After his father was laid off during the 1973 recession and received some retirement money from Philco-Ford, Eric worked with his dad to make investing decisions with the money. A couple years later, Eric won his high school’s science fair with a project on what influences the stock market. Dr. Martin Zweig, who provided some guidance, awarded Eric a one-year subscription to the Zweig Forecast, a famous investment newsletter. Of course, Eric’s mom and dad share some credit with Martin for Eric’s victory.
After toiling away for a number of years as a management consultant to Fortune 500 financial-service firms, Eric finally figured out how to pursue his dream. He took his inside knowledge of the banking, investment, and insurance industries and committed himself to making personal financial management accessible to all.
Today, Eric is an internationally acclaimed and bestselling personal finance book author, syndicated columnist, and speaker. He has worked with and taught people from all financial situations, so he knows the financial concerns and questions of real folks just like you. Despite being handicapped by an MBA from the Stanford Graduate School of Business and a B.S. in Economics and Biology from Yale University, Eric remains a master of “keeping it simple.” An accomplished personal finance writer, his “Investor’s Guide” syndicated column, distributed by King Features, is read by millions nationally, and he was an award-winning columnist for the San Francisco Examiner. He is the author of five national bestselling financial books in the For Dummies series on personal finance, investing, mutual funds, home buying (coauthor), and taxes (coauthor). The prior edition of this book was awarded the Benjamin Franklin Award for best book of the year in the Business category.
His latest book, Mind Over Money: Your Path to Wealth and Happiness (CDS/Perseus), examines the problematic financial habits people engage in and provides proven strategies for overcoming them.
Eric’s work has been featured and quoted in hundreds of local and national publications, including Newsweek, The Wall Street Journal, Los Angeles Times, Chicago Tribune, Forbes, Kiplinger’s Personal Finance magazine, Parenting, Money, Family Money, and Bottom Line/Personal; on NBC’s Today Show, ABC, CNBC, PBS Nightly Business Report, CNN, and FOX-TV; and on CBS national radio, NPR’s Sound Money, Bloomberg Business Radio, and Business Radio Network.

Table of Contents

Introduction	1	(1)
About This Book	2	(1)
Conventions Used in This Book	3	(1)
What You Don't Need to Read	3	(1)
Foolish Assumptions	4	(1)
How This Book Is Organized	4	(2)
Part I: Assessing Your Fitness and Setting Goals	4	(1)
Part II: Saving More, Spending Less	5	(1)
Part III: Building Wealth with Wise Investing	5	(1)
Part IV: Insurance: Protecting What You've Got	5	(1)
Part V: Where to Go for More Help	5	(1)
Part VI: The Part of Tens	6	(1)
Glossary	6	(1)
Icons Used in This Book	6	(1)
Where to Go from Here	7	(2)
Part I: Assessing Your Fitness and Setting Goals	9	(68)
Improving Your Financial Literacy	11	(12)
Talking Money at Home	12	(1)
Picking Up on Personal Finance in the Classroom	13	(1)
Identifying Unreliable Sources of Information	14	(5)
Recognizing fake financial gurus	14	(3)
Understanding how undeserving investment gurus get popular	17	(1)
Pandering to advertisers	18	(1)
Jumping over Real and Imaginary Hurdles to Financial Success	19	(4)
Discovering what (or who) is holding you back	20	(1)
Developing good financial habits	21	(2)
Measuring Your Financial Health	23	(20)
Avoiding Common Money Mistakes	23	(2)
Determining Your Financial Net Worth	25	(4)
Adding up your financial assets	26	(1)
Subtracting your financial liabilities	26	(1)
Crunching your numbers	27	(1)
Interpreting your net worth results	28	(1)
Examining Your Credit Score and Reports	29	(4)
Understanding what your credit data includes and means	29	(1)
Obtaining your credit reports and score	30	(1)
Improving your credit reports and score	31	(1)
Getting credit report errors corrected	32	(1)
Knowing the Difference between Bad Debt and Good Debt	33	(4)
Consuming your way to bad debt	34	(1)
Recognizing bad debt overload	35	(1)
Assessing good debt: Can you get too much?	36	(1)
Playing the credit card float	37	(1)
Analyzing Your Savings	37	(2)
Evaluating Your Investment Knowledge	39	(1)
Assessing Your Insurance Savvy	40	(3)
Determining Where Your Money Goes	43	(12)
Examining the Roots of Overspending	44	(3)
Access to credit	44	(1)
Misusing credit cards	44	(1)
Taking out car loans	45	(1)
Bending to outside influences and agendas	46	(1)
Spending to feel good	47	(1)
Analyzing Your Spending	47	(8)
Tracking spending the low-tech way	48	(1)
Tracking your spending on the computer	49	(6)
Establishing and Achieving Goals	55	(22)
Creating Your Own Definition of ``Wealth''	55	(4)
Acknowledging what money can't buy	56	(1)
Managing the balancing act	57	(2)
Prioritizing Your Savings Goals	59	(3)
Knowing what's most important to you	60	(1)
Valuing retirement accounts	60	(1)
Dealing with competing goals	61	(1)
Building Emergency Reserves	62	(1)
Saving to Buy a Home or Business	63	(1)
Funding Kids' Educational Expenses	64	(1)
Saving for Big Purchases	64	(1)
Preparing for Retirement	65	(12)
Figuring what you need for retirement	66	(2)
Understanding retirement building blocks	68	(4)
Retirement planning worksheet	72	(2)
Making up for lost time	74	(3)
Part II: Saving More, Spending Less	77	(74)
Dealing with Debt	79	(18)
Using Savings to Reduce Your Consumer Debt	80	(2)
Understanding how you gain	80	(1)
Discovering money to pay down consumer debts	81	(1)
Decreasing Debt When You Lack Savings	82	(4)
Reducing your credit card's interest rate	82	(1)
Understanding all credit card terms and conditions	83	(1)
Cutting up your credit cards	83	(1)
Discovering debit cards: The best of both worlds	84	(2)
Turning to Credit Counseling Agencies	86	(2)
Beware biased advice at credit counseling agencies	86	(1)
Ask questions and avoid debt management programs	87	(1)
Filing Bankruptcy	88	(6)
Understanding bankruptcy benefits	89	(1)
Coming to terms with bankruptcy drawbacks	90	(2)
Deciphering the new bankruptcy laws	92	(1)
Choosing between Chapter 7 and 13	93	(1)
Seeking bankruptcy advice	93	(1)
Stopping the Spend-and-Consumer Debt Cycle	94	(3)
Resisting the credit temptation	94	(1)
Identifying and treating a compulsion	95	(2)
Reducing Your Spending	97	(30)
Finding the Keys to Successful Spending	97	(7)
Living within your means	98	(1)
Looking for the best values	98	(4)
Eliminating the fat from your spending	102	(1)
Turning your back on consumer credit	103	(1)
Budgeting to Boost Your Savings	104	(1)
Reducing Your Spending: Eric's Strategies	105	(22)
Managing food costs	106	(2)
Saving on shelter	108	(2)
Cutting transportation costs	110	(4)
Lowering your energy costs	114	(1)
Controlling clothing costs	115	(1)
Repaying your debt	115	(1)
Indulging responsibly in fun and recreation	116	(2)
Lowering your phone bills	118	(1)
Technology: Spending wisely	119	(1)
Curtailing personal care costs	120	(1)
Paring down professional expenses	121	(1)
Looking for value in publication subscriptions	121	(1)
Managing medical expenses	122	(1)
Eliminating costly addictions	123	(1)
Keeping an eye on insurance premiums	124	(1)
Trimming your taxes	125	(2)
Taming Taxes	127	(24)
Understanding the Taxes You Pay	127	(4)
Focusing on the total taxes you pay	128	(1)
Recognizing the importance of your marginal tax rate	128	(2)
Defining taxable income	130	(1)
Being mindful of the second tax system: Alternative minimum tax	130	(1)
Trimming Employment Income Taxes	131	(2)
Contributing to retirement plans	131	(1)
Shifting some income	132	(1)
Increasing Your Deductions	133	(7)
Choosing standard or itemized deductions	133	(2)
Purchasing real estate	135	(1)
Trading consumer debt for mortgage debt	135	(1)
Contributing to charities	136	(1)
Remembering auto registration fees and state insurance	137	(1)
Deducting miscellaneous expenses	137	(1)
Deducting self-employment expenses	138	(2)
Reducing Investment Income Taxes	140	(3)
Investing in tax-free money market funds and bonds	140	(1)
Selecting other tax-friendly investments	141	(1)
Making your profits long-term	142	(1)
Does funding retirement accounts still make sense?	142	(1)
Enlisting Education Tax Breaks	143	(1)
Getting Help from Tax Resources	144	(3)
IRS assistance	144	(1)
Preparation and advice guides	144	(1)
Software and Web sites	145	(1)
Professional hired help	145	(2)
Dealing with an Audit	147	(4)
Getting your act together	147	(1)
Surviving the day of reckoning	148	(3)
Part III: Building Wealth with Wise Investing	151	(154)
Important Investment Concepts	153	(28)
Establishing Your Goals	153	(1)
Understanding the Primary Investments	154	(2)
Looking at lending investments	154	(1)
Exploring ownership investments	155	(1)
Shunning Gambling Instruments and Behaviors	156	(2)
Forsake futures, options, and other derivatives	157	(1)
Ditch daytrading	158	(1)
Understanding Investment Returns	158	(1)
Sizing Investment Risks	159	(3)
Comparing the risks of stocks and bonds	160	(1)
Focusing on the risks you can control	161	(1)
Discovering low-risk, high-return investments	161	(1)
Diversifying Your Investments	162	(7)
Spread the wealth: Asset allocation	164	(1)
Allocating money for the long term	165	(1)
Sticking with your allocations: Don't trade	166	(1)
Investing lump sums via dollar-cost averaging	167	(2)
Acknowledging Differences among Investment Firms	169	(7)
Focusing on the best firms	169	(2)
Places to consider avoiding	171	(5)
Seeing through Experts Who Predict the Future	176	(3)
Investment newsletters	176	(1)
Investment gurus	177	(2)
Leaving You with Some Final Advice	179	(2)
Understanding Your Investment Choices	181	(20)
Slow and Steady Investments	181	(4)
Transaction/checking accounts	182	(1)
Savings accounts and money market funds	182	(1)
Bonds	183	(2)
Building Wealth with Ownership Vehicles	185	(13)
Stocks	185	(5)
Generating wealth with real estate	190	(5)
Investing in small business (and your career)	195	(3)
Off the Beaten Path: Investment Odds and Ends	198	(3)
Precious metals	198	(1)
Annuities	199	(1)
Collectibles	199	(2)
Investing in Mutual Funds	201	(16)
Understanding the Benefits of Mutual Funds	201	(2)
Exploring Various Fund Types	203	(6)
Money market funds	204	(1)
Bond funds	204	(1)
Stock funds	205	(1)
Balancing bonds and stocks: Hybrid funds	206	(1)
U.S., international, and global funds	206	(1)
Index funds	207	(1)
Specialty (sector) funds	208	(1)
Selecting the Best Mutual Funds	209	(5)
Reading prospectuses and annual reports	209	(1)
Keeping costs low	210	(2)
Evaluating historic performance	212	(1)
Assessing fund manager and fund family reputations	212	(1)
Rating tax friendliness	213	(1)
Determining your needs and goals	213	(1)
Deciphering Your Fund's Performance	214	(2)
Dividends	215	(1)
Capital gains	215	(1)
Share price changes	216	(1)
Evaluating and Selling Your Funds	216	(1)
Investing in Retirement Accounts	217	(22)
Looking at Types of Retirement Accounts	217	(9)
Employer-sponsored plans	218	(3)
Self-employed plans	221	(2)
Individual retirement accounts (IRAs)	223	(1)
Annuities: An odd investment	224	(2)
Allocating Your Money in Retirement Plans	226	(8)
Prioritizing retirement contributions	227	(1)
Setting up a retirement account	227	(1)
Allocating money when your employer selects the investment options	227	(4)
Allocating money in plans you design	231	(3)
Transferring Retirement Accounts	234	(5)
Transferring accounts you control	234	(2)
Moving money from an employer's plan	236	(3)
Investing in Taxable Accounts	239	(14)
Getting Started	239	(2)
Paying off high-interest debt	240	(1)
Taking advantage of tax breaks	240	(1)
Understanding Taxes on Your Investments	241	(1)
Fortifying Your Emergency Reserves	242	(3)
Bank and credit union accounts	242	(1)
Money market mutual funds	242	(3)
Investing for the Longer Term (A Few Years or More)	245	(8)
Defining your time horizons	246	(1)
Bonds and bond funds	247	(2)
Certificates of deposit (CDs)	249	(1)
Stocks and stock funds	250	(1)
Annuities	250	(1)
Real estate	251	(1)
Small-business investments	251	(2)
Investing for Educational Expenses	253	(12)
Figuring Out How the Financial Aid System Works	253	(4)
Treatment of retirement accounts	254	(1)
Treatment of money in the kids' names	255	(2)
Treatment of home equity and other assets	257	(1)
Strategizing to Pay for Educational Expenses	257	(4)
Estimating college costs	258	(1)
Setting realistic savings goals	258	(1)
Tips for getting loans, grants, and scholarships	259	(2)
Investing Educational Funds	261	(4)
Good investments. No-load mutual funds	261	(1)
Bad investments	262	(1)
Overlooked investments	262	(3)
Investing in Real Estate: Your Home and Beyond	265	(40)
Deciding Whether to Buy or Rent	265	(8)
Assessing your timeline	266	(1)
Determining what you can afford	266	(2)
Calculating how much you can borrow	268	(1)
Comparing the costs of owning versus renting	268	(3)
Considering the long-term costs of renting	271	(2)
Recognizing advantages to renting	273	(1)
Financing Your Home	273	(16)
Understanding the two major types of mortgages	273	(1)
Choosing between fixed- and adjustable-rate mortgages	274	(2)
Shopping for fixed-rate mortgages	276	(3)
Inspecting adjustable-rate mortgages (ARMs)	279	(3)
Avoiding the down-payment blues	282	(2)
Comparing 15-year and 30-year mortgages	284	(1)
Finding the best lender	285	(2)
Increasing your approval chances	287	(2)
Finding the Right Property	289	(2)
Condo, town house, co-op, or detached home?	289	(1)
Casting a broad net	290	(1)
Finding out actual sale prices	290	(1)
Researching the area	290	(1)
Working with Real Estate Agents	291	(3)
Recognizing conflicts of interest	291	(2)
Looking for the right qualities in real estate agents	293	(1)
Putting Your Deal Together	294	(4)
Negotiating 101	295	(1)
Inspecting before you buy	296	(1)
Remembering title insurance and escrow fees	297	(1)
After You Buy	298	(7)
Refinancing your mortgage	298	(1)
Mortgage life insurance	299	(1)
Is a reverse mortgage a good idea?	300	(1)
Selling your house	301	(4)
Part IV: Insurance: Protecting What You've Got	305	(58)
Insurance: Getting What You Need at the Best Price	307	(18)
Discovering My Three Laws of Buying Insurance	308	(10)
Law I: Insure for the big stuff; don't sweat the small stuff	308	(5)
Law II: Buy broad coverage	313	(2)
Law III: Shop around and buy direct	315	(3)
Dealing with Insurance Problems	318	(7)
Knowing what to do if you're denied coverage	318	(2)
Getting your due on claims	320	(5)
Insurance on You: Life, Disability, and Health	325	(24)
Providing for Your Loved Ones: Life Insurance	326	(9)
Determining how much life insurance to buy	326	(2)
Comparing term life insurance to cash value life insurance	328	(3)
Making your decision	331	(1)
Buying term insurance	332	(1)
Getting rid of cash value life insurance	333	(1)
Considering the purchase of cash value life insurance	334	(1)
Preparing for the Unpredictable: Disability Insurance	335	(4)
Deciding whether you need coverage	335	(1)
Determining how much disability insurance you need	336	(1)
Identifying other features you need in disability insurance	337	(1)
Deciding where to buy disability insurance	338	(1)
Getting the Care You Need: Health Insurance	339	(10)
Choosing the best health plan	339	(3)
Buying health insurance	342	(1)
Dealing with insurance denial	343	(1)
Looking at retiree medical care insurance	343	(6)
Covering Your Assets	349	(14)
Insuring Where You Live	349	(5)
Dwelling coverage: The cost to rebuild	350	(1)
Personal property coverage: For your things	350	(1)
Liability insurance: Coverage for when others are harmed	351	(1)
Flood and earthquake insurance: Protection from Mother Nature	352	(1)
Deductibles: Your cost with a claim	353	(1)
Special discounts	353	(1)
Buying homeowner's or renter's insurance	353	(1)
Auto Insurance 101	354	(4)
Bodily injury/property damage liability	354	(1)
Uninsured or underinsured motorist liability	355	(1)
Deductibles	356	(1)
Special discounts	356	(1)
Little-stuff coverage to skip	357	(1)
Buying auto insurance	358	(1)
Protecting against Mega-Liability: Umbrella Insurance	358	(1)
You Can't Take It with You: Planning Your Estate	359	(4)
Wills, living wills, and medical powers of attorney	359	(1)
Avoiding probate through living trusts	360	(1)
Reducing estate taxes	361	(2)
Part V: Where to Go for More Help	363	(40)
Working with Financial Planners	365	(20)
Surveying Your Financial Management Options	365	(4)
Doing nothing	365	(1)
Doing it yourself	366	(1)
Hiring financial help	367	(2)
Deciding Whether to Hire a Financial Planner	369	(2)
How a good financial advisor can help	369	(2)
Why advisors aren't for everyone	371	(1)
The Frustrations of Finding Good Financial Planners	371	(5)
Recognizing conflicts of interest	372	(3)
Regulatory problems	375	(1)
Finding a Good Financial Planner	376	(2)
Soliciting personal referrals	376	(1)
Seeking advisors through associations	376	(2)
Interviewing Financial Advisors: Asking the Right Questions	378	(5)
What percentage of your income comes from clients' fees versus commissions?	379	(1)
What percentage of fees paid by clients is for ongoing money management versus hourly financial planning?	380	(1)
What is your hourly fee?	380	(1)
Do you also perform tax or legal services?	380	(1)
What work and educational experience qualifies you to be a financial planner?	380	(1)
Have you ever sold limited partnerships? Options? Futures? Commodities?	381	(1)
Do you carry liability (errors and omissions) insurance?	381	(1)
Can you provide references from clients with needs similar to mine?	382	(1)
Will you provide specific strategies and product recommendations that I can implement on my own if I choose?	382	(1)
How is implementation handled?	382	(1)
Learning from Others' Mistakes	383	(2)
Computer Money Management	385	(10)
Surveying Software and Web Sites	385	(3)
Adding up financial software benefits	386	(1)
Treading carefully on the Web	386	(2)
Accomplishing Computer Money Tasks	388	(7)
Paying your bills and tracking your money	389	(1)
Planning for retirement	390	(1)
Preparing your taxes	390	(1)
Researching investments	391	(1)
Trading online	391	(1)
Reading and searching periodicals	392	(1)
Buying life insurance	392	(1)
Preparing legal documents	393	(2)
On Air and in Print	395	(8)
Observing the Mass Media	395	(2)
Alarming or informing us?	395	(1)
Teaching what kind of values?	396	(1)
Worshipping prognosticating pundits	397	(1)
Rating Radio and Television Financial Programs	397	(1)
Finding the Best Web Sites	398	(1)
Navigating Newspapers and Magazines	398	(1)
Betting on Books	399	(4)
Understanding the book publishing business	400	(1)
Books at the head of their class	401	(2)
Part VI: The Part of Tens	403	(22)
Survival Guide for Ten Life Changes	405	(14)
Starting Out: Your First Job	406	(1)
Changing Jobs or Careers	407	(1)
Getting Married	408	(1)
Buying a Home	409	(1)
Having Children	410	(2)
Starting a Small Business	412	(1)
Caring for Aging Parents	413	(1)
Divorcing	414	(1)
Receiving a Windfall	415	(2)
Retiring	417	(2)
Ten Tactics to Thwart Identity Theft and Fraud	419	(6)
Save Phone Discussions for Friends Only	420	(1)
Never Respond to E-mails Soliciting Information	420	(1)
Review Your Monthly Financial Statements	421	(1)
Secure All Receipts	421	(1)
Close Unnecessary Credit Accounts	421	(1)
Regularly Review Your Credit Reports	422	(1)
Freeze Your Credit Reports	422	(1)
Keep Personal Information off Your Checks	423	(1)
Protect Your Computer and Files	423	(1)
Protect Your Mail	423	(2)
Glossary	425	(16)
Index	441