Personal Finance Cheat Sheet, Slides of Finance

Download Personal Finance Cheat Sheet and more Slides Finance in PDF only on Docsity! Personal Finance Cheat Sheet An easy guide to help you navigate your financial future. Goal Setting: Whether your personal financial goals are to start a family, pay down student debt, retire early or buy a home, your main financial goal is to grow your Net Worth and manage your Cash Flow. Net Worth = Assets – Liabilities Cash Flow = Income – Expenses Tip: Write down your financial goals. When doing so, consider how much money you will need, when you need the money and how important one goal is relative to other financial goals. Also, keep in mind the amount of risk you are willing to tolerate to achieve your goal. Cash Management: Get Organized! Prepare a budget and determine if you are you running a cash flow surplus or deficit. Income > Expenses = CF Surplus Income < Expenses = CF Deficit While budgets can be time consuming, they will help you understand your current lifestyle and create a sustainable structure for your finances and long-term goals. Surplus = Savings = Increasing Net Worth Tip: If you find that tracking your spending is too time consuming, after you have trained yourself to spend wisely, you can consider the following guideline: 60% of your gross income can be dedicated to fixed expenses (i.e. food, bills, all taxes) while 40% can be dedicated to savings and discretionary spending (fun money). Build a Cash Reserve: As a rule of thumb, consider keeping 3-6 months of living expenses as cash or cash equivalents for emergency and/or opportunity. This way, you don’t need to tap savings earmarked for other financial goals when an unexpected expense or opportunity comes your way. Insurance: Insurance is a common tool used to help transfer significant risks such as premature death or disability, which could impede achieving one’s personal financial goals. • Life Insurance – provides a death benefit in the event of premature death of a spouse or significant other. • Disability Insurance – provides income in the event of full or partial disability. Tip: When buying insurance, first decide how much you need, for how long, and what you can afford to pay. Rules of Thumb: How Much Life Insurance Do I Buy? • Some people like using a calculation that allows their family to use the lump sum insurance benefit to create income indefinitely. One rule of thumb is the 4% rule, which means that you buy enough insurance so that your family could live off 4% of the policy’s death benefit each year. • Another approach is to add up all the expenses you expect your family to need to cover for a set period of time. Tip: When shopping for life insurance, there are many types of life insurance products to consider, including term and permanent insurance. Consider working with a financial professional to help determine which product is right for you given your needs and affordability. Protecting Your Income: Outside of family and loved ones, many consider their ability to earn income to be their most important asset. • If long-term disability benefits are not offered through your place of employment, consider the benefits of owning an individual disability insurance policy. Policies such as these could provide between up to 60-70% of your earned income, up to age 65 and, in some cases, longer. Tax Planning: Taxation planning considers the taxation implications of individual, investment, or business decisions, usually with the goal of minimizing tax liability. • This is often achieved by reducing taxable income through income deferral and income shifting. • Other strategies for reducing taxable income include: o Deduction planning o Investment tax planning o Year-end planning strategies Investment Tax Planning • This involves evaluating how to best position assets in order to minimize the amount of taxes you have to pay on an ongoing basis. • Requires year-round planning. • Begins with an in-depth understanding of the tax implications of various investments and investment strategies. Common Tax Planning Mistakes • Waiting until the end of the year to begin tax planning. • Ignoring the impact of the federal Alternative Minimum Tax on your financial decisions. • Not taking advantage of tax-deferred or tax-free investments. • Ignoring the tax implications of life changes, such as the birth of a child, marriage, divorce, selling a home or business, etc. • Overlooking the tax-lowering impact of charitable gifts. • Not understanding the tax savings opportunities under new tax laws. • Not maximizing the potential tax advantages afforded by retirement plans. • Selling property without taking into consideration the capital gain impact. Tip: Even if you delegate filing your taxes to your accountant or tax professional, knowing the decisions that can affect your tax liability will allow you to take the greatest possible advantage of permissible tax savings.