PERSONALFINANCESeventh EditionJEFF MADURAFlorida Atlantic UniversityA01 MADU9969 07 SE FM.indd 301/12/2018 01:54

Vice President, Business, Economics, andUK Courseware: Donna BattistaDirector of Portfolio Management: Adrienne D’AmbrosioEditorial Assistant: Catherine CinqueVice President, Product Marketing: Roxanne McCarleyProduct Marketing Assistant: Marianela SilvestriManager of Field Marketing, Business Publishing: AdamGoldsteinExecutive Field Marketing Manager: Thomas HaywardVice President, Production and Digital Studio, Arts andBusiness: Etain O’DeaDirector, Production and Digital Studio, Business andEconomics: Ashley SantoraManaging Producer, Business: Alison KalilContent Producers: Meredith Gertz and Shweta JainOperations Specialist: Carol MelvilleDesign Lead: Kathryn FootManager, Learning Tools: Brian SuretteSenior Learning Tools Strategist: Emily BibergerManaging Producer, Digital Studio and GLP:James BatemanManaging Producer, Digital Studio: Diane LombardoDigital Studio Producer: Melissa HonigDigital Studio Producer: Alana ColesDigital Content Team Lead: Noel LotzDigital Content Project Lead: Miguel LeonarteFull Service Project Management: Ana Diaz-Caneja/Bhanuprakash Sherla, Pearson CSCInterior Design: Pearson CSCCover Design: Pearson CSCCover Art: Bloomicon/Shutterstock, MaDedee/Shutterstock, Vadim Almiev/ShutterstockPrinter/Binder: LSC Communications, Inc./KendallvilleCover Printer: Phoenix Color/HagerstownMicrosoft and/or its respective suppliers make no representations about the suitability of the information contained inthe documents and related graphics published as part of the services for any purpose. All such documents and relatedgraphics are provided “as is” without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaimall warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no eventshall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services.The documents and related graphics contained herein could include technical inaccuracies or typographical errors.Changes are periodically added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time. Partial screen shotsmay be viewed in full within the software version specified.Microsoft and Windows are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation.Copyright 2020, 2017, 2014 by Pearson Education, Inc. or its affiliates. All Rights Reserved. Manufactured in theUnited States of America. This publication is protected by copyright, and permission should be obtained from thepublisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise. For information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department,please visit of third-party content appear on the appropriate page within the text, or are as follows:Brad Brooks photo: StockLite/Shutterstock; Stephanie Spratt photo: Maridav/Shutterstock; Sampson family photo:Monkey Business Images; Building Your Financial Plan image: Alex Roz/Shutterstock.PEARSON, ALWAYS LEARNING, and MYLAB are exclusive trademarks owned by Pearson Education, Inc. or itsaffiliates in the U.S. and/or other countries.Unless otherwise indicated herein, any third-party trademarks, logos, or icons that may appear in this work arethe property of their respective owners, and any references to third-party trademarks, logos, icons, or other tradedress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship,endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationshipbetween the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or distributors.Cataloging-in-Publication Data is available on file at the Library of Congress.118ISBN 10:   0-13-498996-1ISBN 13: 978-0-13-498996-9A01 MADU9969 07 SE FM.indd 401/12/2018 01:54

DEDICATIONThis text is dedicated to Best Friends Animal Society in Kanab, Utah, for its commitment to, compassionfor, and care of more than 1,500 animals, many of which were previously homeless. Best Friends hasestablished an ambitious campaign to save all healthy dogs and cats in the United States by 2025 (preventhealthy cats and dogs from being euthanized due to excessive population).Most of the royalties the author receives from this edition of the text will be invested in a fund that willultimately be donated to Best Friends Animal Society and other humane societies. In the last several years,this fund donated more than 400,000 to Best Friends to support a new healthcare facility for Best Friends,sponsor a Public Broadcasting Service (PBS) documentary on the efforts of Best Friends to help animal societies, and to save misplaced dogs during Hurricane Harvey in Houston during 2017. This fund has alsodonated more than 100,000 to other animal care societies, including Friends of Greyhounds (Sunrise, FL),Florida Humane Society (Pompano Beach, FL), Greyhound Pets of America in Central Florida (Melbourne,FL), Tri-County Humane Society (Boca Raton, FL), and Doris Day Animal League (Washington, DC).vA01 MADU9969 07 SE FM.indd 501/12/2018 01:54

BRIEF CONTENTSPreface. xxviiFinancial Literacy Pre-Test. xliChapter 1PART 1Overview of a Financial Plan. 1TOOLS FOR FINANCIAL PLANNINGChapter 2Chapter 3Chapter 4Planning with Personal Financial Statements. 34Applying Time Value Concepts. 65Using Tax Concepts for Planning. 91PART 2 MANAGING YOUR LIQUIDITYChapter 5Chapter 6Chapter 7Chapter 8Banking and Interest Rates. 120Managing Your Money. 145Assessing and Securing Your Credit. 165Managing Your Credit.191PART 3 PERSONAL FINANCINGChapter 9Chapter 10Personal Loans. 222Purchasing and Financing a Home. 255PART 4 PROTECTING YOUR WEALTHChapter 11Chapter 12Chapter 13Auto and Homeowner’s Insurance. 292Health and Disability Insurance. 321Life Insurance. 345PART 5 PERSONAL INVESTINGChapter 14Chapter 15Chapter 16Chapter 17Chapter 18Investing Fundamentals.370Investing in Stocks. 395Investing in Bonds. 417Investing in Mutual Funds. 435Asset Allocation. 465PART 6 RETIREMENT AND ESTATE PLANNINGChapter 19Chapter 20Retirement Planning. 488Estate Planning.511PART 7 SYNTHESIS OF FINANCIAL PLANNINGChapter 21Integrating the Components of a Financial Plan. 528Financial Literacy Post-Test. 545Appendix A Your Career. 547Appendix B Projects. 563Appendix C Financial Tables. 568Index. 577Free Apps for Personal Finance. 597viA01 MADU9969 07 SE FM.indd 601/12/2018 01:54

CONTENTSPreface. xxviiFinancial Literacy Pre-Test. xliChapter 1Overview of a Financial Plan. 1How Personal Finance Can Enhance Your Wealth. 2How Personal Finance Can Enhance Your Job Marketability. 6Components of a Financial Plan. 6A Plan for Your Budgeting and Tax Planning. 7A Plan to Manage Your Liquidity. 8A Plan for Financing Your Large Purchases. 8A Plan for Protecting Your Assets and Income. 8A Plan for Investing Your Money. 9A Plan for Your Retirement and Estate. 9Building Your Own Financial Plan. 9How Financial Planning Affects Your Cash Flows.10Part 1: Tools for Financial Planning.10Part 2: Managing Your Liquidity.10Part 3: Personal Financing.11Part 4: Protecting Your Wealth.11Part 5: Personal Investing. 12Part 6: Retirement and Estate Planning. 12Summary of Financial Plan Components. 13Integration of the Financial Plan Components. 14How Psychology Affects Your Financial Plan. 15Developing Your Financial Plan. 16Step 1: Establish Your Financial Goals. 16Step 2: Consider Your Current Financial Position. 17Step 3: Identify and Evaluate Alternative Plans That Could Achieve Your Goals. 18Step 4: Select and Implement the Best Plan for Achieving Your Goals. 21Step 5: Evaluate Your Financial Plan. 22Step 6: Revise Your Financial Plan. 22Summary. 24Review Questions. 24Financial Planning Problems. 25Financial Planning Online Exercises. 26Psychology of Personal Finance: Your Spending Behavior. 26Web Search Exercise. 26Video Exercise: Benefits of Financial Planning.