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.