Peter J. Sander - The 250 Personal Finance Questions Everyone Should Ask

THE 250

PERSONAL FINANCE

QUESTIONS EVERYONE SHOULD ASK

Peter Sander, M.B.A.

Copyright 2005 Peter Sander
All rights reserved. This book, or parts thereof, may not be reproduced in any
form without permission from the publisher; exceptions are made for brief
excerpts used in published reviews.

Published by
Adams Media, an F+W Publications Company
57 Littlefield Street, Avon, MA 02322. U.S.A.
www.adamsmedia.com

ISBN: 1-59337-352-X

Printed in Canada.

J I H G F E D C B

Library of Congress Cataloging-in-Publication Data
Sander, Peter J.
The 250 personal finance questions everyone should ask / Peter Sander.
p. cm.
ISBN 1-59337-352-X
1. Finance, PersonalExaminations, questions, etc. 2. InvestmentsExaminations,
questions, etc. I. Title: Two hundred fifty personal finance questions everyone should ask.
II. Title: Personal finance questions everyone should ask. III. Title.

HG179.S26 2005
332.024dc22

2005011198

This publication is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles jointly adopted by a
Committee of the American Bar Association and a
Committee of Publishers and Associations

Many of the designations used by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book and Adams Media was aware of a trademark claim, the designations have been printed with initial capital letters.

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CONTENTS

INTRODUCTION

A s the ought decade (20002009) unfolds, people are confronted with ever more critical and ever more complex management of their personal finances. As people change jobs, financial guarantees like pensions disappear. As financial markets become more uncertain, as home prices, health care, and tuition costs skyrocket, and the complex tangle of tax laws evolves, there is more to worry about. Are the solutions simple and straightforward? Hardly. How much money will you need in five years? Twenty years? To support a thirty-year retirement? To cover the possibilities of disability and unforeseen health problems?

Most people can't figure out what they need next week or month, let alone twenty years from now. Meeting today's needs and wants is so consuming of their time and money that there is little left over for tomorrow. The reality is this: It takes considerable energy, foresight, discipline, contingency planning, and a certain amount of good fortune to make your finances work to achieve your future goals. It requires a certain amount of professional skill to quantify and manage your personal finances.

Many people choose to leave the professional skill part to othersfinancial advisors, CPAs, stockbrokers, insurance agents, and the like. While this leave the driving to us model works for some, it is very dangerous in other circumstances. Financial professionals have to make money, and the harsh reality is that most make their money by selling somethinginsurance, securities, mutual funds, mortgages, and tax services. Can you get a complete, unbiased, and actionable financial strategy from these professionals? Yes, sometimes. But in the same way that it helps to know about cars before talking to a car salesperson or that it helps to know about paint before talking to a housepainter, so it follows that it also helps to know something about personal finance before talking to a financial professional. Otherwise, you may get something that meets their needs more than your own needs, and it rapidly goes downhill from there.

So today's savvy shoppers gather up information before buying a car. They visit manufacturer Web sites, automotive portals like Autobytel.com, Kelley Blue Book, Car and Driver, and so forth. They look at pictures, features, prices, dealer costs, repair data, and testimonials from other owners. Do these resources make the decision? Hardly. But along the way, they collect some key facts and impressions. More importantly, they learn what questions to ask. They can separate the jargon from the realities, and they are able to understand the facts and numbers well enough to decide.

Whether you are an individual or the head of a family, you are the chairman and CEO of your own financial destiny. Regarding your personal finances, you may choose to do it all yourself, delegate it all to others, or some combination of the two. Regardless, you'll need to arm yourself with the basicsthe questions and at least some of the answersto proceed. The 250 Personal Finance Questions Everyone Should Ask brings you a structured list of questions and answers covering all aspects of personal financial planning. The questions are designed to help you learn important facts and concepts about personal finance. In some cases, they may be used in direct conversation or to design the questions you might ask of a financial professional. Questions range from the strategic and conceptual why questions to the more tactical and precise how questions about specific financial tools.

The first group of these 250 questions covers personal finance as a broad topic. Next is a large body of questions covering daily personal financesthe management of income, spending, saving, budgeting, banking, and credit. From there, questions move to the more complex and subjective areas of financial planning. Topics include the achievement of financial goals such as college and retirement and the successful building of wealth to achieve these desired ends. The next set of questions covers external forces affecting the achievement of these goalsrisk and taxesthat can sink your plans unless navigated successfully. In the last set of questions, the topic of managing assets when you can'testate planningis addressed.

PART

Managing
Money

Chapter

PERSONAL
FINANCE BASICS

T he term personal finance makes the blood of many run cold. Uh-oh, here it comes. Too much month left at the end of my money. Not enough saved for retirement or college. Eight thousand dollars of debt on my credit card and growing. Budgets. Saving. Tax rules so complicated that even the enforcers don't understand them. The stock market, that emotional beast that ate so many for lunch in 200003. Insurance policies and contracts so complex that you hardly understand the reader-friendly version. Charts and graphs. The complex mathematical mysteries of compounding, making money worth more or less depending on time, an Einsteinian concept that might cause the genius himself to shake his head in confusion.

The truth is, unless you were raised in a firmly financially conscious household (and most of us weren't), most of the topics covered by personal finance represent scary, unfamiliar territory. Dealing with finances is, in two ways, a date with the devil. First, for most it uncovers the consequences and scary realities of what happens when you don't have enough money. Second, many of the solutions require that dreaded confrontation with the bank officer, insurance agent, stockbroker, or accountant, an encounter where you struggle to keep up with what they say and then somehow feel compelled to make a decision after listening to half an hour of incomprehensible stuff.