CONTENTS LICENSE i SHAREWARE iii 1 INTRODUCTION TO PERSONAL FINANCIAL PLANNING 1 Do I Need a Financial Plan? 1 Should I Prepare My Own Plan? 3 Financial Objectives 4 What is the Focus of this Book? 5 Getting Started with EZ-$-PLAN 7 2 YOUR PERSONAL DATA BASE 8 Personal Data 8 Keep Track of Important Dates 10 Where Are Your Important Documents? 12 Safe Deposit Box 13 3 INCOME AND EXPENSE ANALYSIS 14 Preparing Your Own Income and Expense Analysis 14 Entering Income Data 14 Entering Fixed Expense Data 16 Entering Variable Expense Data 17 Reconciliation of Bank and Credit Card Statements 17 Analyzing Income and Expenses 17 4 ASSETS, LIABILITIES AND NET WORTH 20 Assets 20 Liabilities 22 Analyzing the Planners' Balance Sheet 23 Setting Up Your Own Balance Sheet 24 5 PLANNING TO MEET YOUR LIFE's GOALS 26 Goals Unlimited 27 Realistic Goals 28 Planning Near-Term Tasks 29 Selecting the Right Alternative 31 6 TAX PLANNING (Not Included in SHAREWARE Version) EZ-$-PLAN Income Tax Tools How to Prepare Your 1988 Federal Income Tax Federal Income Tax for Bill and Hope Planner Married With Two Dependent Children Married and Retired How to Estimate 1988 Quarterly Tax Payments Bill and Hope Planner's Estimated Tax Discussion of Federal Income Tax Comparison of Several States' Taxes iv 7 LIFE INSURANCE (Not Included in SHAREWARE Version) Do We Need Life Insurance? How Much Life Insurance Do We Need? Survivor's Immediate Cash Needs Final Medical Expenses Funeral-Burial Expenses Probate Estate Taxes Survivor's Future Insurance Needs Survivor's Future Expense Fund Survivor's Take-home Pay and Annual Expenses Social Security Survivor's Benefits Supplementary Income Fund Crisis Fund Dependent Care Fund College Education Fund Debt Repayment Fund Immediate Plus Future Fund Assets Extra Insurance Needed Which Life Insurance Policy Should We Buy? Term Insurance Renewable Term Cost of Term Revertible Term Participating and Non-Participating Term Group Term Whole Life Insurance Universal Life Insurance Insurance Companies Financial Strength Why Buy Term Insurance? Comparison Shopping 8 FINANCIAL CALCULATOR 32 Compound Interest 32 Future Value of Investment 32 Range of Compound Interest 33 Use of Future Value to Pick the Best Terms 34 Interest Rates 35 Present Value 35 Number of Compounding Periods 36 Annuities 37 Present Value of Annuity Due (Not Included in SHAREWARE Version) Number of Compounding Periods, Ordinary Annuity 38 Periodic Interest Rate, Ordinary Annuity 39 Net Present Value (not Included in SHAREWARE Version) v 9 PORTFOLIO MANAGEMENT (Not Included in SHAREWARE Version) Features of EZ-$-PLAN's Portfolio Manager Investment Principles A Process of Portfolio Management EZ-$-PLAN Portfolio Management Tools How to Prepare an Investment Journal How to Compare Mutual Funds How to Determine Your Fund Distribution How to Track Your Portfolio and Other Key Variables Total Rate of Return Net Total Asset Value How to Generate a Plot of Net Total Asset Value (NTAV) Net Asset Value Database DATA Dividends Plus Capital Gains per Share (DATA1) Develop Net Total Asset Value Database DATA2 Select NTAV Data Sets Within Time Range (DATA5) Generate and Label NTAV Plots How to Generate Portfolio Statistics Establish Database DATA3 Run Statistical Program EASTAT1 Financial Market Information The Balance of Payments Foreign Exchange Federal Reserve Monetary Policy Money Rates - Key Interest Rates Composite Index of Leading Economic Indicators Gross National Product Inflation - Consumer Price Index Portfolio Management - Putting It All Together Market Information and Investment Strategy 10 REAL ESTATE PLANNING (Not Included in SHAREWARE Version) What Home Mortgage Amount and House Price? Can a Prospective Buyer Afford Our House? Which Home Mortgage Program to Select? Fixed Rate Mortgage Adjustable Rate Mortgage (ARM) Comparison Shopping for Mortgages Analyzing Real Estate Investments Real Estate Financial Calculations Compound Annual Appreciation of a Home Payment and Interest Rate on a Home Mortgage Buying Notes at Discount Mortgage With a Balloon Payment Mortgage Amortization Mortgage Refinancing vi 11 FINANCIAL PLANNING SIMULATION (Not Included in SHAREWARE Version) What Is Personal Financial Planning Simulation? EZ-$-PLAN Simulation Tools Simulation Plan for Bill and Hope Planner How to Develop a Financial Simulation Plan Develop Worksheet Information Develop Simulation Program for Historical Year Projection Formulae and Assumptions Investment Strategy Exercise Simulation Program 12 FINANCING A COLLEGE EDUCATION (Not Included in SHAREWARE Version) Looking at College as an Investment College Costs and Financial Aid Predicting College Costs and Savings Required 13 RETIREMENT PLANNING 40 Income Need Approach 41 Retirement Income Need Estimate 42 Retirement Income Plan 43 Expenditures Budget Approach (Not Included in SHAREWARE Version) Expenditures Budget Estimate Retirement Income Plan A Simulation Approach to Retirement Planning (Not Included in EZ-$-PLAN Software Tools SHAREWARE Version) Case Study - The Planner's Retirement Development of Pre-Retirement Simulation Program Post-Retirement Financial Plan Other Retirement Options Discussion 44 REFERENCES (Not Included in SHAREWARE Version) QUICK START 46 EZ-$-PLAN SOFTWARE INDEX (Not Included in SHAREWARE Version) INDEX (Not Included in SHAREWARE Version) vii