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Personal Finance 101Personal Finance 101
CHOICECHOICE
SCARCITYSCARCITY
INCENTIVESINCENTIVES
BENEFIT - COSTBENEFIT - COST
OPPORTUNITY COST OPPORTUNITY COST
I. KEY
TERMS
A. When you borrow money you PAY interest
B. When you invest money you EARN interest
II. BASIC CONCEPTS
C. Rule of 72 – C. Rule of 72 –
interest rate divided by 72 = number of interest rate divided by 72 = number of years it will take to double your moneyyears it will take to double your money
D.D. Liquidity - Liquidity -
how fast the investment can be turned how fast the investment can be turned into cashinto cash
III. YOUR INVESTMENT PORTFOLIOYour $ working for youYour $ working for you BenefitBenefit CostCost
Checking Checking accountaccount
-everyday use-everyday use
-easy to access $ -easy to access $ w/ atm cardw/ atm card
Low interest Low interest
< 1%< 1%
Savings Account/ Savings Account/ Emergency fundEmergency fund
Should equal 2 Should equal 2 months salarymonths salary
Easy to accessEasy to access
Low interestLow interest
2-3%2-3%
IRA (Individual IRA (Individual Retirement Retirement Account 401k, Account 401k, 403b)403b)
Not taxedNot taxed Cannot Cannot access until access until 65 w/out big 65 w/out big penaltypenalty
BenefitBenefit CostCost
CD (Certificate of CD (Certificate of Deposit)Deposit)
Fixed interestFixed interest
Fixed time of Fixed time of maturitymaturity
No riskNo risk
Cannot access Cannot access until matures until matures w/out big penaltyw/out big penalty
!!will rollover!!will rollover
Real EstateReal Estate - Ownership- Ownership
- Historical - Historical upward trend in upward trend in ChicagoChicago
Difficult to turn Difficult to turn into cashinto cash
Down PaymentDown Payment
10-20 %10-20 %
Bonds – I.O.U.’s to Bonds – I.O.U.’s to Government or Government or BusinessBusiness
Rated - AAA is bestRated - AAA is best
Fixed interestFixed interest
Fixed time of Fixed time of maturitymaturity
Cannot access Cannot access until matures until matures w/out big penaltyw/out big penalty
BENEFIT BENEFIT COSTCOST
stock – share of stock – share of ownership in a ownership in a companycompany
OwnershipOwnership
DividendDividend
Historical upward Historical upward trendtrend
Minimum # of Minimum # of shares to get in shares to get in
All eggs in one All eggs in one basketbasket
Mutual Fund – Mutual Fund – fund manager fund manager spreads your spreads your money out in the money out in the stock marketstock market
DiversificationDiversification
Fund manager Fund manager expertiseexpertise
Historical upward Historical upward trend trend 7-8% interest7-8% interest
Minimum # of Minimum # of shares to get inshares to get in
IV.IV. Personal Finance 101Personal Finance 101
1. Save early and often1. Save early and often
2. Save as much as possible2. Save as much as possible ((10% of income minimum)10% of income minimum)
3. Have a plan3. Have a plan
4. Save and Invest for the long term4. Save and Invest for the long term
5. Gather information before deciding 5. Gather information before deciding (benefit –cost analysis)(benefit –cost analysis)
BULL MARKET – STOCKS ARE ON THE RISE, GOOD TIME TO SELL
BEAR MARKET – STOCKS ARE DOWN, GOOD TIME TO BUY
CHICAGO BOARD OF
TRADE (CBOT)
STOCK MARKET VOCABULARYSTOCK MARKET VOCABULARYSTOCK STOCK – SHARE OF OWNERSHIP– SHARE OF OWNERSHIP
DIVIDENDDIVIDEND – PROFITS PAID TO A – PROFITS PAID TO A SHAREHOLDERSHAREHOLDER
BLUE CHIPSBLUE CHIPS – STOCKS THAT HAVE – STOCKS THAT HAVE CONSISTANTLY DONE WELLCONSISTANTLY DONE WELL
Market Cap = Market Cap =
Total value of a companyTotal value of a company
Securities and Exchange Commission (SEC)Securities and Exchange Commission (SEC)
– – government agency that regulates government agency that regulates
the stock marketthe stock market
MARKETSMARKETSNYSENYSE (New York Stock Exchange) 1792 - +3000 companies (New York Stock Exchange) 1792 - +3000 companies hybrid of electronic and open outcryhybrid of electronic and open outcryAMEXAMEX (American Stock Exchange) (American Stock Exchange)
NASDAQNASDAQ ( National Association of Securities Dealers Automated ( National Association of Securities Dealers Automated
Quotations) electronic, screen – based +3200 companiesQuotations) electronic, screen – based +3200 companies
CBOTCBOT ( Chicago Board of Trade ) 1848 Futures and Options( Chicago Board of Trade ) 1848 Futures and Options
CME CME ( Chicago Mercantile Exchange) ( Chicago Mercantile Exchange)
INDICES ( INDEX)INDICES ( INDEX)DOW JONESDOW JONES
- Top 30 companies- Top 30 companies
S+P 500S+P 500 - Standard and Poor top 500- Standard and Poor top 500
NASDAQNASDAQ – – measures all 3200 stocks trades measures all 3200 stocks trades
on on NASDAQNASDAQRussell 2000Russell 2000