Introduction 1
About This Book 1
Foolish Assumptions 1
Icons Used in This Book 2
Where to Go from Here 2
Chapter 1: Introduction to Financial Literacy 3
What Is Financial Literacy, Anyway? 3
Budgeting and transaction accounts 4
Investing 4
Insurance 4
Why It Matters: The Power of Knowing Your Money Stuff 5
Identifying hurdles to financial success 5
Understanding your personal and emotional hurdles 6
Developing good financial habits 7
How to Avoid the "Oops, I Bought a Timeshare" Scenario 7
Assessing free financial content online 8
Protecting yourself from supposed financial gurus 9
Considering the influence of advertising 11
Preventing Common Money Mistakes 12
Chapter 2: Budgeting Basics 15
Creating a Budget 15
Tracking Expenses: From Lattes to Rent 16
Tracking spending the "low-tech" way 17
Tracking your spending on "free" websites and apps 21
Getting a handle on overspending 23
Figuring Out Your Savings Rate 25
Calculating Your Financial Net Worth 28
Adding up your financial assets 28
Subtracting your financial liabilities 29
Crunching your numbers 30
Interpreting your net worth results 31
Emergency Funds: Because Life Throws Curveballs 31
Preparing financially for the unexpected 32
Assessing your resources 33
Surveying societal safety nets 36
Table of Contents iii
Chapter 3: Saving Like a Pro 41
Savings Accounts 101: Where to Stash Your Cash 41
Getting Help from Technology: Let Robots Do the Work 43
Assessing financial software 43
Understanding how apps can benefit and harm your bottom line 44
Managing your money with software and apps 46
Chapter 4: Debt Demystified 53
Good Debt versus Bad Debt 53
Consuming your way to bad debt 54
Recognizing bad debt overload 54
Assessing good debt: Can you get too much? 56
Managing Debt: Good, Bad, and Unexpected 56
Planning for educational expenses 57
Using credit cards strategically 58
Anticipating medical bills 58
Strategies for Debt Repayment 59
Using savings to reduce your consumer debt 59
Decreasing debt when you lack savings 61
Reducing your credit card's interest rate 62
Turning to credit counseling agencies 66
Filing bankruptcy 67
Stopping the Spending/Consumer Debt Cycle 72
Resisting the credit temptation 72
Identifying and treating a compulsion 73
Chapter 5: Investment Strategies 75
Understanding Investment Vehicles 75
Reducing risk with bonds 75
Investing in stocks 77
Checking out mutual funds and exchange-traded funds 81
Deciding whether real-estate investing is for you 89
Building wealth through small business investing 93
Are You a Daredevil or a Safety Net Enthusiast? 94
Realizing risks 94
Managing risks 96
Making sense of returns 97
Matching risk-taking to your investment goals 98
Diversification: Not Just a Fancy Word for Variety 99
Allocating your assets 100
Allocating money for the long term 101
Resisting the urge to trade 102
Investing lump sums via dollar-cost averaging 103
Chapter 6: Credit Scores and Reports: The Magic Numbers 105
Why Your Credit Report and Credit Score Matter 105
Making Sense of Credit Reports 106
Obtaining your credit reports 107
Reviewing your credit reports 107
Fixing credit-report errors 107
Getting Your Credit Score 108
Interpreting your credit score 109
Understanding how your FICO score is calculated 110
Improving your FICO score 112
Tracking credit inquiries 112
What FICO scores ignore 113
Gaining insight from rejections 114
Boosting Your Credit Rating 114
Chapter 7: Financial Goals and Dreams 117
Setting Financial Goals 117
Saving on a Car 118
Saving for a Home 120
Understanding mortgage essentials 120
Budgeting for monthly expenses 121
Grasping the tax benefits of homeownership 122
Considering closing costs 124
Accumulating the down payment 124
Planning for College Costs 128
Setting realistic savings goals 128
Understanding the expected family contribution 129
Finding financial aid and other resources 130
Saving and investing: Long-term strategies 131
Saving strategies for late starters 132
Developing a Retirement Plan 133
Figuring out what portion of income you need 134
Eyeing the components of your retirement plan 135
Crunching the numbers 137
Making the numbers work 139
Dealing with excess money 140
Investing in retirement accounts when you're young 140
Chapter 8: Protecting Your Assets with Insurance 147
Protecting Your Castle (and Your Pokémon Collection) 148
Insuring your home 148
Insuring your car 150
Protecting against mega-liability: Umbrella insurance 151
Assessing Your Need for Life Insurance 152
Determining how much life insurance you need 153
Reviewing your current life coverage 154
Figuring out what type to buy 156
Choosing where to buy life insurance 157
Protecting Your Employment Income: Disability Insurance 158
Identifying needed disability coverage 160
Shopping for disability coverage 161
Understanding Long-Term Care 161
Naming the types of long-term care 162
Predicting who will need long-term care 164
Planning to pay for LTC 164
Estate Planning: Passing the Torch to Future You 165
Wills, living wills, and medical powers of attorney 165
Avoiding probate through living trusts 166
Reducing estate taxes 167
Chapter 9: Making Tax-Wise Personal Finance Decisions 169
Considering Taxes in Your Financial Planning 170
Avoiding Common Tax Mistakes 171
Seeking advice after a major decision 171
Failing to withhold enough taxes 172
Overlooking legitimate deductions 172
Passing up retirement accounts 173
Ignoring tax considerations when investing 173
Not buying a home 173
Allowing your political views to distort your decision making 174
Ignoring the financial aid (tax) system 174
Neglecting the timing of events you can control 174
Not using tax advisors effectively 176
Understanding Why People Make Bad Tax Decisions 177
Getting bad advice 177
Misleading advertising 178
Following advice from websites and publications 178
Overspending 178
Financial illiteracy 179
Chapter 10: Ten Questions to Ask Financial Advisors 181
What Portion of Your Income Comes from Clients' Fees versus Commissions? 181
What Portion of Client Fees Is for Money Management versus Hourly Planning? 183
What Is Your Hourly Fee? 183
Do You Perform Tax or Legal Services? 183
What Work Experience and Education Qualifies You to Be a Financial Planner? 184
Do You Carry Liability Insurance? 184
Can You Provide References from Similar Clients? 185
Will You Provide Specific Strategies and Product Recommendations? 185
How Is Implementation Handled? 186
Index 187
