The Complete Idiot's Guide to Personal Finance in Your 40s and 50s PDF
Preview The Complete Idiot's Guide to Personal Finance in Your 40s and 50s
Personal Finance in Your 40s and 50s by Sarah Young Fisher and Susan Shelly A Pearson Education Company We extend love and appreciation to our families: Dallas (Chuck), Rob, and Catie Fisher, and Mike, Sara, and Ryan McGovern. Copyright © 2002 by Sarah Young Fisher and Susan Shelly All rights reserved. No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, re- cording, or otherwise, without written permission from the publisher. No patent liability is assumed with respect to the use of the information contained herein. Although every precaution has been taken in the preparation of this book, the pub- lisher and authors assume no responsibility for errors or omissions. Neither is any liability assumed for damages resulting from the use of information contained herein. For information, address Alpha Books, 201 West 103rd Street, Indianapolis, IN 46290. THE COMPLETE IDIOT’S GUIDE TO and Design are registered trademarks of Pearson Education, Inc. International Standard Book Number: 0-02-864273-2 Library of Congress Catalog Card Number: Available upon request. 04 03 02 8 7 6 5 4 3 2 1 Interpretation of the printing code: The rightmost number of the first series of numbers is the year of the book’s printing; the rightmost number of the second series of numbers is the number of the book’s printing. For example, a printing code of 02-1 shows that the first printing occurred in 2002. Printed in the United States of America Note: This publication contains the opinions and ideas of its authors. It is intended to provide helpful and informative material on the subject matter covered. It is sold with the understanding that the authors and publisher are not engaged in rendering professional services in the book. If the reader requires personal assistance or advice, a competent professional should be consulted. The authors and publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book. Publisher: Marie Butler-Knight Product Manager: Phil Kitchel Managing Editor: Jennifer Chisholm Senior Acquisitions Editor: Renee Wilmeth Development Editor: Nancy D. Warner Senior Production Editor: Christy Wagner Copy Editor: Cari Luna Illustrator: Jody Schaeffer Cover/Book Designer: Trina Wurst Indexer: Amy Lawrence Proofreading: Svetlana Dominguez Contents at a Glance Part 1: Taking a Look at the Big Picture 1 1 So, How’s Mid Life Treating You? 3 If you’re having trouble grappling with the very thought of middle age, this chapter will help you come to terms with where you are in life. 2 Figuring Out Where You Are in Life 13 You’ve got to have a handle on what’s really necessary at this stage of life before you can start dreaming about the new convertible or the trip to Hawaii. 3 On the Plus Side 25 Chances are that you’ve got a lot going for you, both financially, and in other aspects of life. 4 On the Minus Side 33 If you’ve got financial impediments, now is the time to get them out of the way and keep moving forward. 5 Getting It All Together 45 If your net worth isn’t what you’d like it to be, you can get your finances on track by paying careful attention to how much and where you’re spending your money. Part 2: Your Kids and Your Money 57 6 The Big, Expensive Parent Trap 59 Kids want a lot of stuff, but it’s not your job, as a parent, to satisfy their every desire. 7 Trading In the Bikes for Cars 69 There are a lot of issues that you and your child should consider together before he or she drives a car off the lot. 8 Paying for College 81 A college education (or two or three) is a huge investment that requires thoughtful planning; fortunately, you may be able to get some financial assistance. 9 Wedding Bells 95 The responsibility for paying for a wedding doesn’t land squarely on the backs of the bride’s parents anymore, but is spread out among both families, and often the bride and groom. 10 Helping Your Kids Get on Their Feet 103 Regardless of how much financial help you decide to give your grown kids, make sure that everyone is clear about the terms of a gift or loan. Part 3: Hearth and Home 113 11 To Stay or Not To Stay? 115 Your housing needs may change along with your circumstances, forcing you to make some difficult decisions about where to live. 12 A Home Away from Home 127 There are some real advantages to owning a second home, but it’s definitely not for everyone. 13 Paying for a New Home or Second Home 137 There are different methods of financing a home, so you’ll need to do your homework to learn what would work best for you. 14 Selling the House You Already Have 147 Whether you go with a realtor or decide to sell your home yourself, you’ve got to keep some important legal and practical considerations in mind. Part 4: Life Changes 161 15 Knowing That Nothing Stays the Same 163 The only thing we can be sure of concerning change is that it will happen to all of us. 16 Job Changes 171 Changing jobs is difficult at any stage of life, but can be particularly challenging (and potentially rewarding) when you’re middle aged. 17 Dealing With Losing Your Job 179 Losing your job requires financial discipline, but it doesn’t have to derail your financial plans and goals. 18 Going Out on Your Own 189 If you’ve always dreamed of having your own business, this chapter will give you some ideas for how to get started. 19 Other Changes to Think About 199 Death and relationship changes are among the most difficult situations we encounter in life, but planning for change can help you to cope when they occur. Part 5: Smart Investing in This Stage of Life 211 20 Investing at Work 213 Work is a great place to save, so be sure to take full advantage of an employer-sponsored retirement plan. 21 Investing Outside of Work 227 This chapter helps you to navigate the murky waters of the stock and bond markets, and explores other investment opportunities. 22 Investing Lump Sums 239 Handling large amounts of money all at once can be a difficult task, but there are strategies to help you make the right choices. 23 Finding a Good Financial Advisor 249 Everyone can benefit at times from some good financial advice, but you’ve got to know what type of advisor is best for you. Part 6: Preparing for the Future 259 24 You’re Never Too Young to Plan 261 Taking care of business includes planning for death and dying, and the sooner you get started with that planning, the better. 25 Helping Aging Parents Plan 273 If you have aging parents, you may be called upon to help them make some very major decisions. 26 Estate Planning 101 283 Estate planning is for everyone, and this chapter will help you understand the basics. 27 Seeing Into Your Crystal Ball 293 Nobody can predict the future, but good financial planning can help you achieve your dreams and live comfortably in old age. Appendixes A Glossary 301 B Resources 325 Index 331 Contents Part 1: Taking a Look at the Big Picture 1 1 So, How’s Mid Life Treating You? 3 How Time Flies ..............................................................................4 Dealing with Changes ....................................................................5 How’s Your Health?........................................................................6 Feeling a Little Bit Stressed?..........................................................9 Welcome to the Sandwich Generation ........................................10 2 Figuring Out Where You Are in Life 13 Knowing What You Need ............................................................14 Emergency Fund ..........................................................................15 The Right Accounts......................................................................16 Insurance ......................................................................................17 Disability Insurance ....................................................................18 Homeowner’s Insurance ..............................................................19 Auto Insurance............................................................................20 Personal Catastrophic Casualty Policy (PCAT) ............................20 Life Insurance ............................................................................20 Knowing What You Want............................................................21 A Tropical Paradise for Two ........................................................21 A Cozy Little Cabin ....................................................................22 A BMW of Your Very Own ........................................................22 Understanding the Difference Between Want and Need ..........23 Get Real ........................................................................................24 3 On the Plus Side 25 Your House ..................................................................................26 Income ..........................................................................................27 Savings and Investments ..............................................................29 Vehicles ........................................................................................30 Your Family ..................................................................................30 A Place in Your Community ........................................................31 viii The Complete Idiot’s Guide to Personal Finance in Your 40s and 50s 4 On the Minus Side 33 Your Mortgage ..............................................................................34 Credit Card Debt..........................................................................37 Credit Card Nightmares ............................................................38 Paying Off Your Debt..................................................................38 Finding a Better Deal ................................................................40 Car Payments................................................................................40 Expenses, Expenses, Expenses......................................................41 And Then There’s Your Ex ..........................................................43 5 Getting It All Together 45 What Is Net Worth? ....................................................................46 Figuring It Out ............................................................................46 Maybe You Need a Budget ..........................................................50 A Sample Budget Worksheet........................................................50 Cutting Back When Necessary ....................................................53 Software to Help You Budget ......................................................55 Planning for What You’ll Need ..................................................55 Keeping Your Finances on Track ................................................56 Part 2: Your Kids and Your Money 57 6 The Big, Expensive Parent Trap 59 Cell Phones, Jeeps, and PlayStation 2s ........................................60 But Mom, All My Friends Have One ..........................................61 Living in an Affluent Society ......................................................61 Helping Them Appreciate What They’ve Got ..............................62 Social Responsibility ....................................................................62 Teaching Kids About Money........................................................63 Letting Them Earn Their Own ..................................................66 You’re Not a Fairy Godmother....................................................67 Helping Out with Big Expenses ..................................................67 7 Trading In the Bikes for Cars 69 When Your Kid Wants a Car ......................................................70 Knowing If He or She Is Ready ..................................................71 Who Should Buy the Car? ..........................................................73 What About a Lease? ..................................................................74 New Jetta or a Junker? ................................................................75 The Cost of Keeping a Car..........................................................77 Contents ix 8 Paying for College 81 The Cost of Higher Education ....................................................82 Starting Early to Save for College ..............................................83 Traditional College Accounts ......................................................83 Other Options for College Savings ............................................84 EE Bonds ....................................................................................84 Uniform Gifts to Minors Act (UGMA) Accounts ........................85 Education IRAs ..........................................................................86 Tax Credits for Parents of College Students..................................86 Qualified State Tuition Plans ......................................................87 Figuring Out What You Can Afford............................................88 Finding Financial Aid ..................................................................90 Other Ways to Finance College ..................................................91 Extras, Spending Money, Cars, and Credit Cards ......................93 9 Wedding Bells 95 Your Baby’s Getting Married........................................................96 Who Pays for a Wedding These Days? ......................................96 Wedding Costs..............................................................................98 Saving on Wedding Costs ..........................................................100 Avoiding Temptation ..................................................................102 10 Helping Your Kids Get on Their Feet 103 The Cost of Getting Started ......................................................104 How Much Should You Help? ..................................................105 To Loan or to Give? ..................................................................107 Keeping It All Up Front ............................................................108 Boomerang Kids ........................................................................110 Part 3: Hearth and Home 113 11 To Stay or Not To Stay? 115 If Your Housing Needs Are Changing ......................................116 Health Issues ............................................................................117 Too Much Space ........................................................................118 Too Much Yard..........................................................................118 Just Not Quite Right ................................................................119
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