Wiley Pathways Personal Finance: Managing Your Money and Building Wealth - Softcover

Bajtelsmit, Vickie L.

Softcover

ISBN 10: 0470111232 ISBN 13: 9780470111239

Verlag: Wiley, 2007

Inhaltsangabe

Personal Finance, the latest text in the business series in the Wiley Pathways imprint, helps students learn to budget, manage taxes, consumer credit, and loans while also providing the knowledge and skills needed to make good financial decisions including, automobiles or housing purchases and leases, investing in stocks and bonds, and planning for retirement.

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Über die Autorin bzw. den Autor

Vickie Bajtelsmit, is a professor in the College of Business at Colorado State University. She is the author of Personal Finance: Skills for Life as well as a member of several professional societies, including: the American Risk and Insurance Association, the Academy of Financial Services, the Financial Management Association, and the Risk Theory Society.

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You can get there

Where do you want to go? You might already be working in business and may be looking to expand your skills. You might be setting out on a new career path. Or, you might simply want to know how to wisely manage your money, make intelligent investment decisions, and maintain healthy finances.

Wherever you want to go, Wiley Pathways Personal Financewill help you get there. Easy-to-read, practical, and up-to-date, this text not only helps you master the core business competencies and skills that you need to succeed in the classroom; it also provides you with practical, real-world advice to help you make smart financial decisions at every stage of your life. The book’s brief, modular format and a variety of built-in learning resources enable you to learn at your own pace and focus your studies.

With this book, you will be able to:

• Evaluate your financial health and create a budget.
• Understand the U.S. tax system and your tax return, and use effective tax planning strategies to manage your taxes.
• Choose the right bank or financial institution and manage your cash and savings.
• Make wise credit card and consumer loan decisions.
• Learn how to purchase and finance an automobile or a home.
• Protect yourself, your family, and your property with the right insurance.
• Grow your money by investing in stocks, bonds, and mutual funds.
• Plan for retirement and preserve your estate.
• Make smart financial decisions throughout your life.

Wiley Pathwayshelps you achieve your goals

When it comes to learning about business, not every student is on the same path, but every student wants to succeed. The business series in the new Wiley Pathways imprint helps you achieve your goals. The books in this series––Marketing, Business Communication, Finance, Business Math, Real Estate, Small Business Management, Supervision, Project Management, Selling, and Personal Finance―offer a coordinated curriculum for learning business. Learn more at www.wiley.com/go/pathways.

Where do you want to go? You might already be working in business and may be looking to expand your skills. You might be setting out on a new career path. Or, you might simply want to know how to wisely manage your money, make intelligent investment decisions, and maintain healthy finances.

Wherever you want to go, Wiley Pathways Personal Financewill help you get there. Easy-to-read, practical, and up-to-date, this text not only helps you master the core business competencies and skills that you need to succeed in the classroom; it also provides you with practical, real-world advice to help you make smart financial decisions at every stage of your life. The book’s brief, modular format and a variety of built-in learning resources enable you to learn at your own pace and focus your studies.

With this book, you will be able to:

• Evaluate your financial health and create a budget.
• Understand the U.S. tax system and your tax return, and use effective tax planning strategies to manage your taxes.
• Choose the right bank or financial institution and manage your cash and savings.
• Make wise credit card and consumer loan decisions.
• Learn how to purchase and finance an automobile or a home.
• Protect yourself, your family, and your property with the right insurance.
• Grow your money by investing in stocks, bonds, and mutual funds.
• Plan for retirement and preserve your estate.
• Make smart financial decisions throughout your life.

Wiley Pathwayshelps you achieve your goals

When it comes to learning about business, not every student is on the same path, but every student wants to succeed. The business series in the new Wiley Pathways imprint helps you achieve your goals. The books in this series––Marketing, Business Communication, Finance, Business Math, Real Estate, Small Business Management, Supervision, Project Management, Selling, and Personal Finance—offer a coordinated curriculum for learning business. Learn more at www.wiley.com/go/pathways.

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Pathways Personal Finance

By Vickie L. Bajtelsmit Linda G. Rastelli

John Wiley & Sons

Copyright © 2007 Vickie L. Bajtelsmit
All right reserved.
ISBN: 978-0-470-11123-9

Chapter One

MANAGING YOUR CASH AND SAVINGS

Cash Management Strategies

Starting Point

Go to www.wiley.com/college/bajtelsmit to assess your knowledge of cash and savings management. Determine where you need to concentrate your effort.

What You'll Learn in This Chapter

* Cash management

* Financial institutions

* Financial products and services

After Studying This Chapter, You'll Be Able To

* Assess your need for cash management products and services

* Evaluate the differences among providers of cash management products and services

* Choose cash management products and services that are important to your financial plan

* Compare cash management account options based on liquidity, safety, costs, and after-tax annual percentage yield

* Select appropriate tools for dealing with cash management errors

INTRODUCTION

Everyone manages cash. Your very first exposure to personal financial management was probably related to cash management. Perhaps you received a small allowance when you were a child and had to decide how to spend or save the money. Access to cash to meet transaction needs and emergencies is essential to your financial plan. A central part of your cash management strategies involves choosing cash management services, such as checking and savings accounts. This chapter helps you evaluate companies and the cash management services they offer. After you select the options that best meet your needs, you can implement your plan.

4.1 Objectives of Cash Management

Many people are guilty of occasionally, or not so occasionally, neglecting to balance their checkbooks or making bill payments after they are due. Keeping track of your cash and paying your bills are both important tasks associated with cash management. Cash management includes all your decisions related to cash payments and short-term liquid investments.

As discussed in Section 2.2, liquid investments are those that can easily be converted to cash without loss of value, such as the money in a checking or savings account. Although you can leave money in these accounts for longer periods, they are not generally the best choice for long-term savings, so we can also think of cash management as decisions related to investments of one year or less.

When you hold cash, whether it's in your pocket or in a bank checking or savings account, you incur certain costs. For one, you give up the opportunity to invest those dollars to earn a higher rate of return. Most people hold some of their money in a checking account. In some cases, this account might pay a small amount of interest, but in most cases, it does not. In fact, you may even pay for the privilege of holding money in certain types of accounts.

The lost interest is an important consideration. For example, if you carry an average balance of $1,000 in your checking account for a year, and you could instead have invested it to earn 10 percent interest, you've given up about $100 in interest (10 percent of $1,000). An additional cost of holding cash is psychological: If you have money sitting in your checking account, you can spend it very easily. It would be a shame if all your hard work in developing your budget went to waste because you couldn't resist the temptation of writing a check for an expensive item you hadn't planned to buy. In contrast, if you keep your cash in an account that's not as easily accessible, such as a savings account, you'll be more likely to stick to your plan.

Cash accounts pay less interest and increase the risk of overspending. So why are we willing to incur these costs? There are three general reasons for holding cash:

* Managing transactions

* Preparing for cash emergencies

* Making temporary investments

All these purposes are related to managing liquidity. Money held in less liquid investments, such as bonds, stocks, and real estate, provides a better investment return than money held in checking and saving accounts, but it's also more difficult to access on short notice.

4.1.1 Managing Transactions

Everyone has bills. To pay your bills easily, you need to have sufficient cash in a transaction account, commonly called a checking account, which is an account that allows you to regularly make deposits, write checks, withdraw funds, or make electronic payments in a timely fashion and at minimal cost.

Many people find it convenient to deposit their paychecks into a checking account and then to pay their bills from that account. There's a cost to using this banking service, in the form of lost interest earnings. So why not have your paycheck deposited in a savings account instead?

Although it's usually fairly easy to make transfers between accounts, the time and effort required to make multiple transfers each month as bills come due would probably outweigh the minimal interest that could be earned. Because the money is coming in and then promptly going out, the actual amount of time that it will earn interest is likely to be relatively short, and the interest you earn may not be enough to justify the time spent shifting money between accounts. However, if your paycheck is normally greater than the total monthly payments you make from the account, you should carefully estimate your needs and have the extra amount automatically transferred to an interest-earning account each month.

4.1.2 Preparing for Cash Emergencies

Life is full of unpredictable events. Maybe the car needs a new $2,000 transmission. Or your son breaks his arm playing football, and you have to pay $400 in doctors' bills. More serious emergencies might involve the loss of a job or temporary disability. To meet your emergency cash needs, you should manage your financial assets so that you can access cash when needed. For most households, this should include a cash reserve-an accumulation of liquid assets that you can turn to in an emergency.

In the past, a family might have had a few hundred dollars hidden in the bottom of a cookie jar or under a mattress. Today, in addition to traditional checking and savings accounts, you can arrange for credit cards and home equity lines of credit that can be accessed in an emergency but that otherwise incur no interest. Section 5.6 explains that you should avoid using credit cards as much as possible because of their high interest costs. However, they can be a source of short-term liquidity as long as you anticipate repaying the borrowed amounts in the future.

4.1.3 Making Temporary Investments

The third reason you might hold cash is in anticipation of a near-term need for the funds. Perhaps you're saving for a vacation or a new car, or maybe you're planning to buy a home. Or you might have sold some other assets recently and haven't yet decided how to reinvest the funds. During the recent ups and downs in the stock market, many investors used cash accounts to temporarily store funds as they bought and sold stocks.

4.1.4 How Much Should You Hold in Cash?

Financial experts disagree as to how much money a household should hold in cash. Very conservative advice suggests that you should have enough liquid assets to cover five to eight months of regular expenses. Others suggest that two months is more than enough and recommend investing the rest for higher returns.

For an average household...

Details zur Ausgabe

• Verlag: Wiley
• Erscheinungsdatum: 2007
• Sprache: Englisch
• ISBN 10: 0470111232
• ISBN 13: 9780470111239
• Einband: Taschenbuch
• Auflage: 1
• Anzahl der Seiten: 528
• Kontakt zum Hersteller: Wiley-VCH GmbH; product_safety@wiley.com; ; Boschstrasse 12; Weinheim; 69469; Deutschland