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

Parent Company

Current price for 1 share

Click here to find industry

Stock

Symbol for coca-cola

Where traded NYSE = New York Stock Exchange

Market price of the entire company, total value

1 year high and low stock price