Personal Finance for Dummies

Take stock of your financial situation

From budgeting, saving, and reducing debt, to making timely investment choices and planning for the future, Personal Finance For Dummies provides fiscally conscious readers with the tools they need to take charge of their financial life.

This new edition includes coverage of an extensive new tax bill that took effect in 2018 and the impact on individuals, families, small businesses, and on real estate and investing decisions. Plus, it covers emerging investing interests like technology and global investing, cryptocurrencies, pot stocks, the lifestyle changes occurring with millennials, and more.

• Evaluate and manage your financial fitness
• Assess your credit report and improve your score
• Make smart investments in any economic environment
• Find out about international investing

The expert advice offered in Personal Finance For Dummies is for anyone looking to ensure that their finances are on the right track—and to identify the areas in which they can improve their financial strategies.

Eric Tyson is an internationally acclaimed and bestselling personal finance book author, syndicated columnist, and speaker. He is also the author of Investing For Dummies, Personal Finance in Your 20s & 30s For Dummies and coauthor of Home Buying Kit For Dummies.

Introduction 1

About This Book 2

Foolish Assumptions 3

Icons Used in This Book 3

Beyond the Book 4

Where to Go from Here 4

Part 1: Getting Started with Personal Finance 5

Chapter 1: Improving Your Financial Literacy 7

Talking Money at Home 8

Identifying Unreliable Sources of Information 10

Understanding the dangers of free financial content online 10

Recognizing fake financial gurus 11

Publishers pandering to advertisers 17

Jumping over Real and Imaginary Hurdles to Financial Success 18

Discovering what (or who) is holding you back 18

Developing good financial habits 19

Chapter 2: Measuring Your Financial Health 21

Avoiding Common Money Mistakes 22

Determining Your Financial Net Worth 24

Adding up your financial assets 24

Subtracting your financial liabilities 25

Crunching your numbers 26

Interpreting your net worth results 26

Examining Your Credit Score and Reports 27

Understanding what your credit data includes and means 27

Obtaining your credit reports and score 28

Improving your credit reports and score 29

Getting credit report errors corrected 30

Knowing the Difference between Bad Debt and Good Debt 32

Consuming your way to bad debt 33

Recognizing bad debt overload 33

Assessing good debt: Can you get too much? 35

Playing the credit-card float 35

Analyzing Your Savings 36

Evaluating Your Investment Knowledge 38

Assessing Your Insurance Savvy 39

Chapter 3: Managing Where Your Money Goes 41

Examining Overspending 42

Having access to credit 42

Misusing credit cards 43

Taking out car loans 43

Bending to outside influences and agendas 44

Spending to feel good 45

Analyzing Your Spending 45

Tracking spending the “low-tech” way 46

Tracking your spending on “free” websites and apps 51

Chapter 4: Establishing and Achieving Goals 53

Creating Your Own Definition of Wealth 53

Acknowledging what money can’t buy 54

Managing the balancing act 54

Prioritizing Your Savings Goals 56

Knowing what’s most important to you 57

Valuing retirement accounts 57

Dealing with competing goals 58

Building Emergency Reserves 59

Saving to Buy a Home or Business 60

Funding Kids’ Educational Expenses 61

Saving for Big Purchases 61

Preparing for Retirement/Financial Independence 62

Figuring out what you need for retirement/financial independence 64

Understanding retirement building blocks 65

Crunching numbers for your retirement 69

Making up for lost time 71

Part 2: Spending Less, Saving More 73

Chapter 5: Dealing with Debt 75

Using Savings to Reduce Your Consumer Debt 76

Understanding how you gain 76

Finding the funds to pay down consumer debts 77

Decreasing Debt When You Lack Savings 78

Reducing your credit card’s interest rate 78

Understanding all credit-card terms and conditions 79

Cutting up your credit cards 79

Discovering debit cards: The best of both worlds 80

Turning to Credit Counseling Agencies 82

Beware biased advice at credit counseling agencies 82

Ask questions and avoid debt management programs 83

Filing Bankruptcy 84

Understanding bankruptcy benefits 85

Coming to terms with bankruptcy drawbacks 86

Deciphering the bankruptcy laws 87

Choosing between Chapter 7 and 13 88

Seeking bankruptcy advice 89

Stopping the Spending/Consumer Debt Cycle 89

Resisting the credit temptation 89

Identifying and treating a compulsion 90

Chapter 6: Reducing Your Spending 93

Unlocking the Keys to Successful Spending 94

Living within your means 94

Looking for the best values 95

Eliminating the fat from your spending 99

Turning your back on consumer credit 100

Budgeting to Boost Your Savings 101

Reducing Your Spending 102

Managing food costs 103

Saving on shelter 106

Cutting transportation costs 109

Lowering your energy costs 112

Controlling clothing costs 113

Repaying your debt 114

Indulging responsibly in fun and recreation 115

Lowering your phone bills 116

Technology: Spending wisely 118

Curtailing personal care costs 118

Paring down professional expenses 119

Managing medical expenses 120

Eliminating costly addictions 121

Keeping an eye on insurance premiums 122

Trimming your taxes 122

Chapter 7: Trimming Your Taxes 125

Understanding the Taxes You Pay 125

Focusing on your total taxes 126

Recognizing the importance of your marginal tax rate 126

Defining taxable income 128

Being mindful of the second tax system: Alternative minimum tax 128

Analyzing the 2017 Tax Cuts and Jobs Act 129

Trimming Employment Income Taxes 131

Contributing to retirement plans 131

Shifting some income 132

Increasing Your Deductions 133

Choosing standard or itemized deductions 133

Purchasing real estate 134

Trading consumer debt for mortgage debt 135

Contributing to charities 136

Remembering auto registration fees and state insurance 136

Deducting self-employment expenses 137

Reducing Investment Income Taxes 138

Investing in tax-free money-market funds and bonds 139

Selecting other tax-friendly investments 139

Making your profits long term 140

Does funding retirement accounts still make sense? 140

Enlisting Education Tax Breaks 141

Getting Help from Tax Resources 142

Obtaining IRS assistance 142

Consulting preparation and advice guides 143

Using software and websites 143

Hiring professional help 143

Dealing with an Audit 145

Getting your act together 146

Surviving the day of reckoning 146

Part 3: Building Wealth Through Investing 149

Chapter 8: Considering Important Investment Concepts 151

Establishing Your Goals 151

Understanding the Primary Investments 152

Looking at lending investments 152

Exploring ownership investments 153

Shunning Gambling Instruments and Behaviors 154

Forsaking futures, options, and other derivatives 155

Ditching day trading 155

Understanding Investment Returns 156

Sizing Investment Risks 157

Comparing the risks of stocks and bonds 157

Focusing on the risks you can control 158

Discovering low-risk, high-return investments 159

Diversifying Your Investments 160

Spreading the wealth: Asset allocation 162

Allocating money for the long term 163

Sticking with your allocations: Don’t trade 164

Investing lump sums via dollar-cost averaging 165

Acknowledging Differences among Investment Firms 166

Focusing on the best firms 167

Places to consider avoiding 169

Seeing through Experts Who Predict the Future 173

Investment newsletters 174

Investment gurus 174

Leaving You with Some Final Advice 176

Chapter 9: Understanding Your Investment Choices 179

Slow and Steady Investments 179

Transaction/checking accounts 180

Savings accounts and money-market funds 180

Bonds 181

Building Wealth with Ownership Vehicles 183

Socking your money away in stocks 183

Investing internationally in stocks 188

Generating wealth with real estate 189

Investing in small business (and your career) 195

Off the Beaten Path: Investment Odds and Ends 198

Precious metals 199

Bitcoin and other cryptocurrencies 199

Annuities 201

Collectibles 201

Chapter 10: Investing in Funds 203

Understanding the Benefits of Mutual Funds and Exchange-Traded Funds 203

Exploring Various Fund Types 205

Money-market funds 205

Bond funds 206

Stock funds 207

Balancing bonds and stocks: Hybrid funds 208

U.S., international, and global funds 208

Index funds 209

Specialty (sector) funds 210

Selecting the Best Funds 211

Reading prospectuses and annual reports 212

Keeping costs low 212

Evaluating historic performance 214

Assessing fund manager and fund family reputations 215

Rating tax friendliness 215

Determining your needs and goals 216

Deciphering Your Fund’s Performance 216

Dividends 217

Capital gains 218

Share price changes 218

Evaluating and Selling Your Funds 219

Chapter 11: Investing in Retirement Accounts 221

Looking at Types of Retirement Accounts 221

Employer-sponsored plans 222

Self-employed plans 225

Individual Retirement Accounts (IRAs) 227

Annuities: An odd investment 228

Allocating Your Money in Retirement Plans 230

Prioritizing retirement contributions 230

Setting up a retirement account 230

Allocating money when your employer selects the investment options 231

Allocating money in plans you design 235

Transferring Retirement Accounts 238

Transferring accounts you control 238

Moving money from an employer’s plan 241

Chapter 12: Investing in Taxable Accounts 243

Getting Started 244

Paying off high-interest debt 244

Taking advantage of tax breaks 245

Understanding Taxes on Your Investments 245

Fortifying Your Emergency Reserves 246

Bank and credit union accounts 246

Money-market mutual funds 246

Investing for the Longer Term (Several Years or Decades) 249

Defining your time horizons 250

Bonds and bond funds 250

Certificates of deposit (CDs) 253

Stocks and stock funds 254

Annuities 254

Real estate 255

Small-business investments 255

Chapter 13: Investing for Educational Expenses 257

Figuring Out How the Financial Aid System Works 258

Treatment of retirement accounts 259

Treatment of money in the kids’ names 259

Treatment of home equity and other assets 262

Strategizing to Pay for Educational Expenses 262

Estimating college costs 262

Setting realistic savings goals 264

Tips for getting loans, grants, and scholarships 264

Investing Educational Funds 266

Good investments: No-load mutual funds and exchange-traded funds 266

Bad investments 267

Overlooked investments 267

Chapter 14: Investing in Real Estate: Your Home and Beyond 269

Deciding Whether to Buy or Rent 270

Assessing your timeline 270

Determining what you can afford 270

Calculating how much you can borrow 272

Comparing owning versus renting costs 272

Considering the long-term costs of renting 276

Recognizing advantages to renting 277

Financing Your Home 277

Understanding the two major types of mortgages 277

Choosing between fixed- and adjustable-rate mortgages 278

Shopping for fixed-rate mortgages 281

Inspecting adjustable-rate mortgages (ARMs) 284

Avoiding the down-payment blues 288

Comparing 15-year and 30-year mortgages 289

Finding the best lender 291

Increasing your approval chances 293

Finding the Right Property 294

Condo, town house, co-op, or detached home? 294

Casting a broad net 295

Finding out actual sale prices 295

Researching the area 296

Working with Real-Estate Agents 296

Recognizing conflicts of interest 297

Looking for the right qualities in real-estate agents 298

Putting Your Deal Together 300

Negotiating 101 300

Inspecting before you buy 301

Remembering title insurance and escrow fees 302

After You Buy 303

Refinancing your mortgage 303

Mortgage life insurance 305

Going with a reverse mortgage: Yes or no? 305

Selling your house 306

Part 4: Insurance: Protecting What You Have 309

Chapter 15: Insurance: Getting What You Need at the Best Price 311

Discovering My Three Laws of Buying Insurance 312

Law I: Insure for the big stuff; don’t sweat the small stuff 312

Law II: Buy broad coverage 317

Law III: Shop around and buy direct 319

Dealing with Insurance Problems 322

Knowing what to do if you’re denied coverage 322

Getting your due on claims 323

Chapter 16: Insurance on You: Life, Disability, and Health 329

Providing for Your Loved Ones: Life Insurance 330

Determining how much life insurance to buy 330

Comparing term life insurance to cash value life insurance 332

Making your decision 335

Buying term insurance 336

Considering the purchase of cash value life insurance 338

Getting rid of cash value life insurance 338

Preparing for the Unpredictable: Disability Insurance 339

Deciding whether you need coverage 339

Determining how much disability insurance you need 340

Identifying other features you need in disability insurance 341

Deciding where to buy disability insurance 342

Getting the Care You Need: Health Insurance 343

Mandating health insurance: The Affordable Care Act (Obamacare) 343

Choosing the best health plan 344

Buying health insurance 347

Looking at retiree medical care insurance 352

Chapter 17: Covering Your Assets 357

Insuring Your Home 357

Dwelling coverage: The cost to rebuild 358

Personal property coverage: For your things 359

Liability insurance: Coverage for when others are harmed 359

Flood and earthquake insurance: Protection from Mother Nature 360

Deductibles: Your cost with a claim 361

Special discounts 361

Buying homeowner’s or renter’s insurance 362

Auto Insurance 101 363

Bodily injury/property damage liability 363

Uninsured or underinsured motorist liability 364

Deductibles 364

Special discounts: Auto edition 365

Little-stuff coverage to skip 365

Buying auto insurance 365

Protecting against Mega-Liability: Umbrella Insurance 366

Planning Your Estate 367

Wills, living wills, and medical powers of attorney 367

Avoiding probate through living trusts 368

Reducing estate taxes 369

Part 5: Where to Go for More Help 371

Chapter 18: Working with Financial Planners 373

Surveying Your Financial Management Options 373

Doing nothing 374

Doing it yourself 374

Hiring financial help 374

Deciding Whether to Hire a Financial Planner 377

How a good financial advisor can help 378

Why advisors aren’t for everyone 379

Recognizing conflicts of interest 379

Finding a Good Financial Planner 383

Soliciting personal referrals 383

Seeking advisors through associations 384

Interviewing Financial Advisors: Asking the Right Questions 384

What percentage of your income comes from clients’ fees versus commissions? 385

What portion of client fees is for money management versus hourly planning? 386

What is your hourly fee? 386

Do you also perform tax or legal services? 386

What work and educational experience qualifies you to be a financial planner? 387

Have you ever sold limited partnerships? Options? Futures? Commodities? Invested with Madoff? 387

Do you carry liability (errors and omissions) insurance? 388

Can you provide references from clients with needs similar to mine? 388

Will you provide specific strategies and product recommendations that I can implement on my own if I choose? 389

How is implementation handled? 389

Learning from Others’ Mistakes 389

Chapter 19: Using Technology to Manage Your Money 391

Surveying Software, Apps, and Websites 392

Adding up financial software benefits 392

Understanding how apps can benefit and harm your bottom line 393

Surfing hazards online 394

Accomplishing Money Tasks on Your Computer, Tablet, or Smartphone 397

Paying your bills and tracking your money 397

Planning for retirement 399

Preparing your taxes 400

Researching investments 400

Accessing economic and financial data 401

Trading online 401

Reading and searching periodicals 402

Investing through automated investment managers: Robo advisors 402

Buying life insurance 402

Preparing legal documents 403

Chapter 20: On Air and in Print 405

Observing the Mass Media 405

Alarming or informing? 406

Teaching questionable values 406

Worshipping prognosticating pundits 407

Rating Radio and Television Financial Programs 407

Finding the Best Websites 408

Navigating Newspapers and Magazines 409

Betting on Books 409

Understanding the book publishing business 410

Books at the head of their class 411

Part 6: The Part of Tens 413

Chapter 21: Survival Guide for Ten Life Changes 415

Starting Out: Your First Job 416

Changing Jobs or Careers 417

Getting Married 418

Buying a Home 420

Having Children 420

Starting a Small Business 422

Caring for Aging Parents 423

Divorcing 424

Receiving a Windfall 426

Retiring 427

Chapter 22: Ten Tactics to Thwart Identity Theft and Fraud 431

Save Phone Discussions for Friends Only 432

Never Respond to E-mails Soliciting Information 432

Review Your Monthly Financial Statements 433

Secure All Receipts 433

Close Unnecessary Credit Accounts 433

Regularly Review Your Credit Reports 434

Freeze Your Credit Reports 434

Keep Personal Info Off Your Checks 434

Protect Your Computer and Files 435

Protect Your Mail 435

Glossary 437

Index 451