Compare investment alternatives on an after tax basis

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Compare investment alternatives on an after-tax basis. Understand tax laws. 43
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Principle 5: Stuff Happens, or the Importance of Liquidity Plan for unexpected events Have money or liquid funds available Liquid funds should cover 3 to 6 months of living expenses 44
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Principle 6: Waste Not, Want Not - Smart Spending Matters Differentiate want from need Do homework before the purchase Make the purchase at the best price Maintain your purchase 45
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Principle 7: Protect Yourself Against Major Catastrophes Have the right kind of insurance before a tragedy occurs. Know your insurance policy coverage. Focus insurance on major catastrophes which can be financially devastating. 46
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Principle 8: Risk and Return Go Hand in Hand Saving and investing grows money. Investors demand a minimum return above anticipated inflation. Investors demand higher return for added risk. Diversification by spreading money in several investments reduces risk. 47
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Figure 1.7 The Risk-Return Trade-Off 48
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Principle 9: Mind Games, Your Financial Personality, and Your Money Behavioral biases lead to big financial mistakes. Mental accounting impacts financial decisions. “Sunk cost effect” pours good money after bad money because of bias. 49
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Principle 10: Just Do It! Taking the first step towards your goals is difficult. The following steps become easier. First step is to pay yourself first—save then spend. Saving early can make a big difference. 50
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Women and Personal Finance Tougher to achieve financial security. Generally earn less. Less likely to have pensions. Qualify for less Social Security. Live longer than men. Planning for financial independence is more difficult for them than it is for men. 51
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Women and Personal Finance Need to take charge of their money and financial future. Acquire knowledge. Make things happen—need a plan. See a financial planner about specific concerns. 52
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Summary Personal financial planning allows you to manage your finances and achieve lifecycle financial goals. There are five basic steps to personal financial planning. Set your financial goals in order to achieve them with a financial plan. 53
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Summary An emergency fund can help protect yourself in the event of an economic downturn. The more educated your are, the more you will earn. There are ten basic principles on which personal financial planning is built. Planning is especially important for the financial future of women. 54
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Figure 1.6 How Long Households Go Without Income Before Hardship Sets In 55
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End of Chapter 1 Slides 56
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