Six Steps to Financial Success

Financial ManagementSix Steps to Financial Success

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Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Making the Most of Your Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Protect What You Have . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Key Areas of Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Three Critical Life Insurance Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Life Insurance Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Take Control of Your Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Cash Management Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The $160,000 Credit Card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Invest Wisely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Mr . and Mrs . Taylor and Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Why Do People Invest in Mutual Funds and ETFs? . . . . . . . . . . . . . . . . . . . . . . . .7Types of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Mutual Fund Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Manage Your Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Take a Close Look at Your Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Investment Taxes to Consider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Tax-Favored Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Calculating the Taxable Equivalent Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Save for Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Will the Smiths Have Enough to Retire? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Calculating the Cost of Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13How Much Will You Need to Retire? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Leave a Legacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Probate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Estate Distribution Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Figuring Out Your Net Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Figuring Out Your Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19What to Bring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . back cover

This material was written and prepared by Broadridge Advisor Solutions.

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The information contained in this workbook is not written or intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Broadridge assumes no responsibility for statements made in this publication including, but not limited to, typographical errors or omissions, or statements regarding legal, tax, securities, and financial matters. Qualified legal, tax, securities, and financial advisors should always be consulted before acting on any information concerning these fields.

Financial Management

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Introduction

Making the Most of Your MoneySound financial management is a process that begins with your first paycheck

and continues through each stage of life . Every financial decision you make

about money today will form the foundation for your financial future, as well

as help you handle financial challenges that may come your way .

You may be working hard in order to build wealth, but is your money

working as hard for you? Putting your money to work through careful planning

creates additional opportunities for success and gives you greater control of

your financial future .

Developing a comprehensive, long-term strategy typically requires the

coordination of all your personal finances . To succeed, you need to set goals

and make sure that all the various financial components of your life work

together . This requires covering all the bases — from insurance protection to

reduce the risks of everyday life, to managing your tax burden and freeing up

money to invest, to building a portfolio that will fund a comfortable retirement

and help you achieve other goals (such as a college education for your kids), to

preserving wealth so you can leave a lasting legacy for your loved ones .

1 Protect What You Have

2 Take Control of Your Cash Flow

3 Invest Wisely

4 Manage Your Taxes

5 Save for Retirement

6 Leave a Legacy

“An investment in knowledge pays the best interest.”

— Benjamin Franklin

Source: Brainyquote.com

Six Steps to Financial SuccessThis six-step plan is designed to help you pursue financial success —

to take you from where you are now to where you want to be .

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Protect What You Have

Health Insurance MarketplaceIf you don’t have health coverage through an employer and are not eligible

for a government plan such as Medicare, you can check out different plans on the Health Insurance Marketplace . At HealthCare.gov, you can find answers to questions about different plans and eligibility, and compare plans based on coverage options, deductibles, and cost .

Three Critical Life Insurance QuestionsHow much life insurance do I need? Some experts recommend

at least two to five years of salary; others recommend as much as 10 years .

What type of policy will meet my family’s needs? Would I be best served by term insurance, or should I buy a permanent life insurance policy?

Who will get the money upon my death? Should the benefit pass directly to my heirs, or do I want it to accomplish other goals? Is it important to keep the benefit outside of my taxable estate?

A financial professional can help you address these concerns .

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased . Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable .

Key Areas of Insurance CoverageMany individuals attempt to achieve financial success without protecting what

they already have . That can be a mistake .

A well-designed risk management program may help protect you in the event of a disaster without burdening you with payments for protection you don’t really need . In order to be adequately insured, you need to consider six areas of insurance coverage:

• Medical

• Long-term care

• Disability income

• Liability

• Property and casualty

• Life

Consider an HSAA tax-advantaged health savings account (HSA) may help you save money for current and future medical expenses. Interest and earnings accumulate tax deferred, and withdrawals are tax-free if spent on qualified health-care expenses.

In order to establish and contribute to an HSA, you must be enrolled in a qualified high-deductible health plan and not be enrolled in Medicare.

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Protect What You Have

1. Calculate your dependents’ total annual living costs.(Include all mortgage and loan payments) $_________ $________

2. How much annual income would be available to them?A. Spouse’s income $___________ B. Investment income $___________C. Social Security $___________D. Pension $___________E. Other income $___________F. Total income available $___________ $_________ $________

3. How much more income would your family need?*(Subtract the total on line 2F from line 1) $_________ $________

4. What return could they expect on investments? ________ % ________%

5. Resulting life insurance benefit(Divide total on line 3 by the rate of return on line 4) $_________ $________

*To estimate how much capital it would take to provide $28,000 in annual income for anindefinite number of years, you would estimate the return that might be expected on ahypothetical investment portfolio (7% in this example). To calculate the amount of principal,or life insurance benefit, that would be needed to invest at 7% to generate an annual incomeof $28,000, you would divide $28,000 (line 3) by .07 (line 4), which results in $400,000 of lifeinsurance coverage.

If you need more money for a child’s college education or other needs, you might want additional insurance coverage.

This hypothetical example is used for illustrative purposes only. The investment return does not represent the performance of any specific investment.

How much life insurance would your family need to maintain its comfortable lifestyle over the long term?

70,000

42,000

28,000

7

400,000

Example You

Group Coverage May Not Be SufficientKeep in mind that group insurance through your employer — whether for medical,

life, or disability income insurance — may not be sufficient for your family’s long-

term needs . And if you should lose your job, you would also lose this coverage .

Although you might be able to extend health-care coverage under your former

employer’s plan through COBRA for up to 18 months after separation from service,

you would be responsible for the full premium .

That’s why you may want to consider purchasing individual policies to enhance or

supplement your group insurance coverage .

Life Insurance Worksheet

Origins of Insurance

Many modern insurance practices began with the wealthy ship captains, merchants, and ship owners who frequented Edward Lloyd’s coffee house in London in the late 1600s.

This group eventually went on to become Lloyd’s of London.

Source: Lloyd’s of London

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The $160,000 Credit CardIf you’re like many people who have a high credit-card balance, it may make

more sense to “invest” in paying off high-interest credit-card debt before you make any other investment . This example illustrates the investment opportunity lost to credit-card debt .

Cash Management ProcessEffective cash management consists of three main steps .

Assess and take control of your current situation. You can’t very well

control spending if you have no idea what you’re spending your money on .

Once you see where you are wasting capital, you can put it to work more

productively .

Build a cash reserve or emergency fund. This is the “rainy day” money that

you set aside for life’s little and not-so-little emergencies . As a general rule,

your cash reserve fund should be large enough to cover living expenses for at

least three to six months .

Pay down your credit-card debt. Credit cards are a double-edged sword .

They can be powerful allies . But using credit cards can also lull you into

thinking that you aren’t paying all that much when you make low monthly

payments over time .

Take Control of Your Cash Flow

Traditional Savings VehiclesYour cash reserve fund, by definition, should be liquid and safe. Many people use savings accounts, certificates of deposit, and money market mutual funds.

Bank savings accounts and CDs are FDIC insured for up to $250,000 per depositor, per federally insured institution, and generally provide a fixed rate of return.

Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.

Credit-Card Debt

• $30,000 debt• 18% interest• $541 monthly payment• 10 years

Stock Investment

• $541 monthly investment• 8% rate of return• 10 years

$164,501 Difference

–$64,867

$99,634

This hypothetical example is used for illustrative purposes only and does not represent any specific investment or credit card . It does not take into account taxes or investment fees, which would reduce the investment amount shown . The example assumes an 8% annual return on the stock market investment and an 18% annual interest rate on the credit cards . It also assumes a 10-year repayment schedule for the credit-card debt with no new charges added . Actual results will vary .

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