Managing Personal Finances

This activity is important because it demonstrates the importance of personal finance.

The goal of the activity is to help you understand how to control assets, how to protect assets with insurance, and how to plan for retirement.

Read the case about managing personal finances and then answer the questions that follow.

Case

Alexis and Jose have been dating since high school. They are both college graduates and plan to marry this fall. Alexis just found out she is pregnant and will be expecting next spring.

Jose has a full-time job with benefits; it comes with a cafeteria-style benefits plan wherein he can choose which type of insurance he wants and whether he wants to invest in his company's 401k plan. His company matches up to 15 percent of his salary. Right now, his salary is substantial enough to cover basic living expenses. He tracks each month's expenses on a spreadsheet.

Alexis is working a part-time job that offers no benefits. She is bringing in a nominal amount toward the family income, but plans to put most of these earnings toward a small wedding.

Both Alexis and Jose have incurred a significant amount of student loan debt and each have a couple of credit cards. They currently rent and share ownership of a single vehicle. They have little other assets. Neither one of them has a significant savings account or has started investing in a retirement fund.

They have a lot of important financial decisions ahead of them. Help them make some of those decisions by answering the questions that follow.

1b. What should Alexis and Jose do

What should Alexis and Jose do with the money that is left after all their monthly bills have been paid?

1) Put it in a savings account. 2) Pay off their credit card debt. 3) Put it toward paying off their student loans. 4) Invest in the stock market. 5) Use it to purchase a house.

1c. What is the minimum amount that Alexis

What is the minimum amount that Alexis and Jose should have in savings?

1) 6 times their income. 2) 2 times their income. 3) 10 times their income. 4) 5 times their income

1d. Jose's job is offering him life insurance...

Jose's job is offering him life insurance; how much should he buy?

1) 7 times the total family income plus $100,000. 2) 7 times of one salary plus $50,000. 3) 2 times the total family income. 4) half the total of each salary plus $100,000

1e. How much should Jose invest in the company's 401k program?

How much should Jose invest in the company's 401k program?

1) 15% of his salary. 2) 75% of his salary. 3) 5% of his salary 4)10% of his salary

Q2) 1) The_______is one of the best places to put your money.

• bank account
• credit card
• stock market

2) It is wise to plan your financial future with __________.

• uncertainty
• insurance
• excitement

Q3) Retirement Investments

It may seem a bit early to start planning your retirement, but successful financial planning means long-range planning, and retirement is a critical phase of life. This activity is important because it covers you what can do now to start investing in your future.

The goal of this exercise is to differentiate and understand the value of different retirement investments.

Match the terms to the most appropriate scenario.

1) Keogh plans. 2) IRA. 3) Social Security. 4) Roth IRA. 5) myRA

-- Stan has invested $5000 of his income to this account each year for the last 5 years. This invested money is not taxed, which is one of the greatest benefits of this type of investment.

-- Nixon and Max just started a new drive-and-delivery service that caters to the elderly population in their community. They can't open an IRA because of the limited amount they can invest. They decided to go with this type of investment insteadthe "IRA for entrepreneurs"which will allow them to invest up to $54,000 a year.

--- Anjuli recently decided to invest in this type of fund, which guarantees she will never lose her principal investment because it is backed by the government. It is a slow-growing investment due to the low interest rates, but due to her limited funds, this was her best savings option.

--- Rolando is a junior in college. He recently transferred his regular bank savings account into this type of fund. He will have to pay taxes on it upfront, but his earnings on it will grow tax free and any withdrawals he makes will also be tax free.

--- Aja has been working for the last 25 years at the same company. She plans to retire at 65. Continuous contributions from her paychecks have helped to grow this fund that will replace approximately 40 percent of her income once she retires.