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Personal Finance For Canadians For Dummies®, 5th Edition

Table of Contents


About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Assessing Your Fitness and Setting Goals

Part II: Saving More, Spending Less

Part III: Building Wealth with Wise Investing

Part IV: Insurance: Protecting What You Have

Part V: Where to Go for More Help

Part VI: The Part of Tens

Icons Used in This Book

Where to Go from Here

Part I: Assessing Your Fitness and Setting Goals

Chapter 1: Improving Your Financial Literacy

Talking Money at Home

Identifying Unreliable Sources of Information

Understanding how investment “gurus” are created

Considering the creation of a Canadian guru

Recognizing fake financial gurus

Understanding how undeserving investment gurus become popular

Pandering to advertisers

Jumping Over Real and Imaginary Hurdles to Financial Success

Discovering what (or who) is holding you back

Developing good financial habits

Chapter 2: Measuring Your Financial Health

Avoiding Common Money Mistakes

Determining Your Financial Net Worth

Adding up your financial assets

Subtracting your financial liabilities

Crunching your numbers

Interpreting your net worth results

Examining Your Credit Reports and Credit Score

Understanding what your credit data includes and means

Obtaining your credit reports and score

Improving your credit reports and score

Getting credit report errors corrected

Knowing the Difference between Bad Debt and Good Debt

Consuming your way to bad debt

Recognizing bad debt overload

Assessing good debt: Can you get too much?

Playing the credit card float

Analyzing Your Savings

Evaluating Your Investment Knowledge

Assessing Your Insurance Savvy

Chapter 3: Determining Where Your Money Goes

Examining Overspending

Having access to credit

Misusing credit cards

Taking out car loans

Bending to outside influences and agendas

Spending to feel good

Analyzing Your Spending

Tracking spending the low-tech way

Tracking your spending on the computer

Chapter 4: Establishing and Achieving Goals

Creating Your Own Definition of “Wealth”

Acknowledging what money can’t buy

Managing the balancing act

Prioritizing Your Savings Goals

Knowing what’s most important to you

Valuing retirement plans

Dealing with competing goals

Building Emergency Reserves

Saving to Buy a Home

Saving to Buy a Business

Funding Kids’ Educational Expenses

Saving for Big Purchases

Preparing for Retirement

Figuring what you need for retirement

Understanding your retirement building blocks

Crunching numbers for your retirement

Making up for lost time

Part II: Saving More, Spending Less

Chapter 5: Dealing with Debt

Using Savings to Reduce Your Consumer Debt

Understanding how you gain

Discovering money to pay down consumer debts

Decreasing Debt When You Lack Savings

Reducing your credit card’s interest rate

Understanding credit card terms and conditions

Cutting up your credit cards

Discovering debit cards: The best of both worlds

Getting Help from Not-for-Profit Credit Counselling Agencies

Understanding debt management programs

Avoiding debt management programs and asking questions

Filing Bankruptcy

Understanding bankruptcy benefits

Coming to terms with bankruptcy drawbacks

Seeking bankruptcy advice

Considering a Consumer Proposal: An Alternative to Bankruptcy

Stopping the Spending/Consumer Debt Cycle

Resisting the credit temptation

Identifying and treating a compulsion

Chapter 6: Reducing Your Spending

Finding the Keys to Successful Spending

Living within your means

Looking for the best values

Eliminating the fat from your spending

Turning your back on consumer credit

Budgeting to Boost Your Savings

Reducing Your Spending

Managing food costs

Saving on shelter

Cutting transportation costs

Lowering your energy costs

Controlling clothing costs

Repaying your debt

Indulging responsibly in fun and recreation

Lowering your phone bills

Spending wisely on technology

Curtailing personal care costs

Paring down professional expenses

Managing medical expenses

Eliminating costly addictions

Keeping an eye on insurance premiums

Trimming your taxes

Chapter 7: Trimming Your Taxes

Understanding the Taxes You Pay

Focusing on your total taxes

Recognizing the importance of your marginal tax rate

Defining taxable income

Being mindful of the second tax system: Alternative minimum tax

Trimming Employment Income Taxes

Contributing to RRSPs and retirement plans

Shifting some income

Increasing Your Deductions

Child care expenses

Alimony and maintenance payments

Child support

Annual union and professional fees

Business losses

Interest on investment loans

Married versus common-law partners

Moving expenses

Making the Most of Tax Credits

Maximizing your tax credits

Deducting self-employment expenses

Reducing Investment Income Taxes

Fill up those retirement plans

Consider other tax-sheltered vehicles

Select tax-friendly investments

Make your profits long-term

Getting Help from Tax Resources

Assistance from the Canada Revenue Agency

Preparation and advice guides

Software and Web sites

Professional hired help

Dealing with an Audit

Getting your act together

Surviving the day of reckoning

Part III: Building Wealth with Wise Investing

Chapter 8: Considering Important Investment Concepts

Establishing Your Goals

Understanding the Primary Investments

Looking at lending investments

Exploring ownership investments

Shunning Gambling Instruments and Behaviours

Forsake futures, options, and other derivatives

Ditch daytrading

Understanding Investment Returns

Sizing Investment Risks

Comparing the risks of stocks and bonds

Focusing on the risks you can control

Discovering low-risk, high-return investments

Diversifying Your Investments

Spreading the wealth: Asset allocation

Allocating money for the long term

Sticking with your allocations: Don’t trade

Investing lump sums via dollar-cost averaging

Acknowledging Differences among Investment Firms

Focusing on the best firms

Places to consider avoiding

Seeing through Experts Who Predict the Future

Investment newsletters

Investment gurus

Leaving You with Some Final Advice

Chapter 9: Understanding Your Investment Choices

Slow and Steady Investments

Transaction/chequing accounts

Savings accounts and money market funds


Building Wealth with Ownership Vehicles

Socking your money away in stocks

Generating wealth with real estate

Investing in small business (and your career)

Off the Beaten Path: Investment Odds and Ends

Precious metals



Chapter 10: Investing in Funds

Understanding the Benefits of Mutual Funds

Exploring Various Fund Types

Money market funds

Bond funds

Stock funds

Balancing bonds and stocks: Hybrid funds

Canadian, U.S., international, and global funds

Index funds

Specialty (sector) funds

Selecting the Best Mutual Funds

Reading prospectuses and annual reports

Keeping costs low

Evaluating historical performance

Assessing fund manager and fund family reputations

Rating tax friendliness

Determining your needs and goals

Deciphering Your Fund’s Performance

Interest and dividends

Capital gains

Share price changes

Evaluating and Selling Your Funds

Chapter 11: Registered Retirement Savings Plans

Understanding How RRSPs Work

The benefits of tax-deductible contributions

The payoff from tax-deferred compound growth

Maximizing Your RRSP’s Growth

The payoff from starting an RRSP early

Increasing your returns

Examining the Contribution Rules

Checking out the contribution limits

How much can you contribute?

Types of RRSPs

Guaranteed RRSPs

Mutual fund RRSPs

Self-directed and brokerage-house RRSPs

Taking Money Out of Your RRSP before Retirement

Regular withdrawals before retirement

Special circumstances

Closing Down Your RRSP

Registered Retirement Income Funds (RRIFs)


Chapter 12: Investing in Retirement Plans

Allocating Your Money in Retirement Plans

Understanding the difference between an RRSP and the investments inside your RRSP

Prioritizing retirement contributions

Allocating money when your employer selects the investment options

Allocating money in RRSPs

Annuities: An Odd Investment

Transferring Retirement Plans

Transferring accounts you control

Moving money from an employer’s plan

Chapter 13: Investing Outside Retirement Plans

Getting Started

Paying off high-interest debt

Taking advantage of tax breaks

Taking Advantage of Tax-Free Savings Accounts (TFSAs)

Understanding how much you can contribute

Understanding your TFSA investment choices

Making withdrawals from a TFSA

Understanding Registered Disability Savings Plans (RDSPs)

Determining whether you’re eligible for an RDSP

Earning disability grants for an RDSP

Withdrawing funds from an RDSP

Understanding Taxes on Your Investments

Fortifying Your Emergency Reserves

Bank and credit union accounts

High-interest savings accounts

Money market mutual funds

Investing for the Longer Term (A Few Years or More)

Defining your time horizons

Bonds and bond funds

Guaranteed investment certificates (GICs)

Stocks and stock funds


Real estate

Small-business investments

Chapter 14: Investing for Educational Expenses

Strategizing to Pay for Educational Expenses

Estimating university or college costs

Setting realistic savings goals

Strategies for Saving for Education Expenses

Registered Education Savings Plans (RESPs)

In-trust accounts

Obtaining Loans, Grants, and Scholarships

Government student loans program

Canada Access Grants

Tips for getting loans, grants,and scholarships

Investing Educational Funds

Good investments: No-load mutual funds

Bad investments

Overlooked investments

Chapter 15: Investing in Real Estate: Your Home and Beyond

Deciding Whether to Buy or Rent

Assessing your timeline

Determining what you can afford

Calculating how much you can borrow

Comparing the costs of owning versus renting

Considering the long-term costs of renting

Recognizing advantages to renting

Financing Your Home

Understanding mortgage essentials

Examining the difference between fixed- and variable-rate mortgages

Avoiding the down payment blues

Checking out the RRSP Home Buyers’ Plan

Finding the best lender

Increasing your approval chances

Finding the Right Property

Determining the right type of property

Casting a broad net

Finding out actual sale prices

Researching the area

Working with Real Estate Agents

Recognizing conflicts of interest

Looking for the right qualities in real estate agents

Putting Your Deal Together

Negotiating 101

Inspecting before you buy

Remembering title insurance

After You Buy

Refinancing your mortgage

Mortgage life insurance

Is a reverse mortgage a good idea?

Selling Your House

Selling through an agent

Selling without a real estate agent

Determining whether you should keep your home until prices go up

Considering keeping your home as an investment property after you move

Part IV: Insurance: Protecting What You Have

Chapter 16: Insurance: Getting What You Need at the Best Price

Discovering Our Three Laws of Buying Insurance

Law I: Insure for the big stuff; don’t sweat the small stuff

Law II: Buy broad coverage

Law III: Shop around and buy direct

Dealing with Insurance Problems

Knowing what to do if you’re denied coverage

Dealing with insurance company problems

Enlisting support

Chapter 17: Insurance on You: Life, Disability, and Health

Providing for Your Loved Ones: Life Insurance

Determining how much life insurance to buy

Looking at the Canada Pension Plan’s survivor benefits

Comparing term life insurance to cash-value life insurance

Making your decision

Buying term insurance

Getting rid of cash-value life insurance

Considering the purchase of cash-value life insurance

Preparing for the Unpredictable: Disability Insurance

Deciding whether you need coverage

Determining how much disability insurance you need

Identifying other features you need in disability insurance

Deciding where to buy disability insurance

Getting Care for the Road: Travel Medical Insurance

Determining what coverage you already have

Buying travel medical insurance

Long-Term Care Insurance

Chapter 18: Covering Your Assets

Insuring Where You Live

Dwelling coverage: The cost to rebuild

Personal property coverage: For your things

Liability insurance: Coverage for when others are harmed

Flood and earthquake insurance: Protection from Mother Nature

Deductibles: Your cost with a claim

Special discounts

Buying homeowner’s or renter’s insurance

Auto Insurance 101

Bodily injury/property damage liability

Uninsured or underinsured motorist liability


Special discounts

Little-stuff coverage to skip

Buying auto insurance

Protecting against Mega-Liability: Umbrella Insurance

Planning Your Estate

Wills, living wills, and medical powers of attorney

Avoiding probate through living trusts

Planning your estate to minimize taxes triggered by your death

Part V: Where to Go for More Help

Chapter 19: Working with Financial Planners

Surveying Your Financial Management Options

Doing nothing

Doing it yourself

Hiring financial help

Deciding Whether to Hire a Financial Planner

How a good financial adviser can help

Why advisers aren’t for everyone

Recognizing conflicts of interest

Finding a Good Financial Planner

Soliciting personal referrals

Seeking advisers through associations

Interviewing Financial Advisers: Asking the Right Questions

What percentage of your income comes from clients’ fees versus commissions?

What portion of fees paid by clients is for money management versus hourly planning?

What is your hourly fee?

Do you also perform tax or legal services?

What work and educational experience qualifies you to be a financial planner?

Have you ever sold limited partnerships? Options? Futures? Commodities?

Do you carry liability (errors and omissions) insurance?

Can you provide references from clients with needs similar to mine?

Will you provide specific strategies and product recommendations that I can implement on my own if I choose?

How is implementation handled?

Learning from Others’ Mistakes

Chapter 20: Using a Computer to Manage Your Money

Surveying Software and Web Sites

Adding up financial software benefits

Surfing hazards online

Accomplishing Money Tasks on Your Computer

Paying your bills and tracking your money

Planning for retirement

Preparing your taxes

Researching investments

Trading online

Reading and searching periodicals

Buying life insurance

Preparing legal documents

Chapter 21: On Air and in Print

Observing the Mass Media

Alarming or informing us?

Teaching questionable values

Worshipping prognosticating pundits

Rating Radio and Television Financial Programs

Finding the Best Web Sites

Navigating Newspapers and Magazines

Betting on Books

Understanding the book publishing business

Books at the head of their class

Part VI: The Part of Tens

Chapter 22: Survival Guide for Ten Life Changes

Starting Out: Your First Job

Changing Jobs or Careers

Getting Married

Buying a Home

Having Children

Starting a Small Business

Caring for Aging Parents


Receiving a Windfall


Chapter 23: Ten Tactics to Thwart Identity Theft and Fraud

Save Phone Discussions for Friends Only

Never Respond to E-Mails Soliciting Information

Review Your Monthly Financial Statements

Secure All Receipts

Close Unnecessary Credit Accounts

Regularly Review Your Credit Reports

Keep Personal Info Off Your Cheques

Protect Your Computer and Files

Protect Your Mail

Clean Out Your Wallet

End User License Agreement

Personal Finance For Canadians For Dummies®, 5th Edition

by Eric Tyson, MBA and Tony Martin, B.Comm


About the Authors

Eric Tyson first became interested in money more than three decades ago. After his father was laid off during the 1973 recession and received some retirement money from Philco-Ford, Eric worked with his dad to make investing decisions with the money. A couple years later, Eric won his high school’s science fair with a project on what influences the stock market. Dr. Martin Zweig, who provided some guidance, awarded Eric a one-year subscription to the Zweig Forecast, a famous investment newsletter. Of course, Eric’s mom and dad share some credit with Martin for Eric’s victory.

Today, Eric is an internationally acclaimed and best-selling personal finance book author, syndicated columnist, and speaker. He has worked with and taught people from all financial situations, so he knows the financial concerns and questions of real folks just like you. Despite being handicapped by an MBA from the Stanford Graduate School of Business and a BS in Economics and Biology from Yale University, Eric remains a master of “keeping it simple.”

Eric’s work has been featured and quoted in hundreds of local and national publications, including Newsweek, The Wall Street Journal, Los Angeles Times, Chicago Tribune, Forbes, Kiplinger’s Personal Finance magazine, Parenting, Money, Family Money, and Bottom Line/Personal; on NBC’S Today Show, ABC, CNBC, PBS Nightly Business Report, CNN, and FOX-TV; and on CBS national radio, NPR Sound Money, Bloomberg Business Radio, and Business Radio Network.

Eric’s Web site is www.erictyson.com.

Tony Martin has always had an innate understanding of money. Instead of getting his (tiny) allowance paid out to him weekly in shiny coins like his brothers did, he asked his mom to keep track of how much he was owed.

After emerging from Queen’s University business school with a B.Comm — despite a transcript that listed courses such as “Electronic Music” and “The Philosophy of Religion,” Tony set off to see the world. On his return he joined CBC radio, and ever since has been helping people understand the world of money.

Tony is also the co-author with Eric of Investing For Canadians For Dummies. His widely read column “Me and My Money” appears in “Net Worth,” The Globe and Mail’s weekend personal finance section. His work has been featured in many leading publications, including ROB Magazine, Reader’s Digest, and Canadian Business. Tony is a frequent commentator and speaker on personal finance and investing and regularly appears on television and radio, including CBC Radio, CBC Television, Report on Business Television, and TVOntario.

He has also been instrumental in the design and development of many online resources, including a complete online investor training program using simulated stock market transactions.

Tony’s Web site is www.tonymartintm.com.


This book is hereby and irrevocably dedicated to our family and friends, as well as to our clients and customers, who ultimately have taught us everything we know about how to explain financial terms and strategies so that all of us may benefit.

Authors’ Acknowledgments

Eric: Being an entrepreneur involves endless challenges, and without the support and input of my good friends and mentors Peter Mazonson, Jim Collins, and my best friend and wife, Judy, I couldn’t have accomplished what I have.

I hold many people accountable for my perverse and maniacal interest in figuring out the financial services industry and money matters, but most of the blame falls on my loving parents, Charles and Paulina, who taught me most of what I know that’s been of use in the real world.

I’d also like to thank Michael Bloom, Chris Dominguez, Maggie McCall, David Ish, Paul Kozak, Chris Treadway, Sally St. Lawrence, K.T. Rabin, Will Hearst III, Ray Brown, Susan Wolf, Rich Caramella, Lisa Baker, Renn Vera, Maureen Taylor, Jerry Jacob, Robert Crum, Duc Nguyen, Maria Carmicino, and all the good folks at King Features for believing in and supporting my writing and teaching.

Many thanks to all the people who provided insightful comments on this edition and previous editions of this book, especially Bill Urban, Barton Francis, Mike van den Akker, Gretchen Morgenson, Craig Litman, Gerri Detweiler, Mark White, Alan Bush, Nancy Coolidge, and Chris Jensen.

And thanks to all the wonderful people at my publisher on the front line and behind the scenes, especially Mike Baker and Chad Sievers.

Tony: The support, good humour, and advice of many are essential to my success. There is no such thing as succeeding on one’s own.

I owe special thanks to my wife, Jane Howard, and to my good friend Geoff Rockburn, who have both been endlessly supportive and helpful over the years. I’m grateful as always to my parents, Ruth and John, for teaching me so much about what really matters.

Many people in the personal finance industry have kindly offered me their assistance in penetrating, understanding, and explaining money matters. Many thanks to everybody who has generously shared insights and expertise, including Peter Volpe, Gena Katz, Sandra McLeod, Anthony Layton, Paul Hickey, Jim Bullock, Alisa Dunbar, Alan Silverstein, and Janet Freedman. In addition, I’d like to thank Karen Benzing, David Chilton, Patricia Davies, Dorothy Engleman, Dave Pyette, Jack Fleischmann, Peggy Wente, and Richard Quinlan for their support and encouragement over the years.

Many thanks as well to all the people who have provided insightful comments on this book, especially tax and financial planner extraordinaire Barton Francis, financial planner par excellence Warren Baldwin, and Mike van den Akker, Gretchen Morgensen, Craig Litman, Gerri Detweiler, Mark White, Alan Bush, Nancy Coolidge, and Chris Jensen. Special thanks to Becky Wong for her detailed and extremely helpful technical review of this book. And a well-earned tip of the hat this time ’round to Robert Hickey for his steadying hand and ongoing guidance. Finally, thanks to the wonderful people on the front line and behind the scenes — Pamela Vokey and Kelli Howey — for putting this 5th edition together.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Editor: Robert Hickey

Copy Editor: Kelli Howey

Production Editor: Pamela Vokey

Technical Editor: Becky Wong

Editorial Assistant: Katie Wolsley

Cover photo: © iStockphoto.com

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

Project Coordinator, U.S.: Lynsey Stanford

Layout and Graphics: Carl Byers, Mark Pinto

Proofreaders: Melissa Cossell, Leeann Harney

Indexer: Claudia Bourbeau

John Wiley & Sons Canada, Ltd.

Deborah Barton, Vice President and Director of Operations

Jennifer Smith, Publisher, Professional and Trade Division

Alison Maclean, Managing Editor, Professional & Trade Division

Karen Bryan, Vice-President, Publishing Services

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies

Ensley Eikenburg, Associate Publisher, Travel

Kelly Regan, Editorial Director, Travel

Composition Services

Debbie Stailey, Director of Composition Services


You’re probably not a personal finance expert, for good reason. Personal Finance 101 isn’t typically offered in our schools — not in high school, and not even in the best universities and graduate programs. It should be.

However, even if you’ve gotten some financial education and acquired some financial knowledge over the years, you’re likely a busy person who doesn’t have enough hours in the day to get things done. That means you want to know how to diagnose your financial situation efficiently (and painlessly) to determine what you should do next. Unfortunately, after figuring out which financial strategies make sense for you, choosing specific financial products in the marketplace can be a nightmare. You have literally thousands of investment, insurance, and loan options to choose from. Talk about information overload!

To complicate matters even more, you probably hear about most products through advertising that can be misleading, if not downright false. Of course, some ethical and outstanding firms advertise, but so do those that are more interested in converting your hard-earned income and savings into their profits. And they may not be here tomorrow when you need them.

Perhaps you’ve ventured online and been attracted to the promise of “free” advice. Unfortunately, discerning the expertise and background (and even identity) of those behind various Web sites is nearly impossible. And, as we discuss in this book, conflicts of interest (many of which aren’t disclosed) abound online.

As unfair as it may seem, numerous pitfalls await you when you seek help for your financial problems. The world is filled with biased and bad financial advice. We both constantly see and hear about the consequences of poor advice.

All too often, financial advice ignores the big picture and focuses narrowly on investing. Because money is not an end in itself but a part of your whole life, this book helps connect your financial goals and challenges to the rest of your life. You need a broad understanding of personal finance that includes all areas of your financial life: spending, taxes, saving and investing, insurance, and planning for major goals like education, buying a home, and retirement.

Even if you understand the financial basics, thinking about your finances in a holistic way can be difficult. Sometimes you’re too close to the situation to be objective. Like the organization of your desk or home (or disorganization, as the case may be), your finances may reflect the history of your life more than they reflect a comprehensive plan for your future.

You want to know the best places to go for your circumstances, so this book contains specific, tried-and-proven recommendations. We also suggest where to turn next if you need more information and help.

About This Book

The book you hold in your hands reflects more hard work and brings you the freshest material for addressing your personal financial quandaries. Here are some of the major updates you may notice as you peruse the pages of this book:

Coverage of new and revised tax laws and how to best take advantage of them

The latest information on what’s going on with government assistance programs like the Canada Pension Plan and Old Age Security, and what it means in terms of how you should prepare for and live in retirement

Updated investment recommendations — especially in the areas of mutual funds/other managed investments and real estate — throughout Part III

Details on the recently introduced Tax-Free Savings Accounts (TFSAs) and how to use them to save on taxes and save for the future

Updated coverage of the best ways to reduce, minimize the cost of, and eliminate consumer debt

Additional coverage of smart ways to use credit and qualify for the best loan terms, as well as how to understand — and improve — your credit scores

Revised recommendations for where to get the best insurance deals and expanded coverage on preparing for natural disasters

Expanded and updated coverage of how to use and make sense of the news and financial resources (especially online resources)

Aside from being packed with updated information, another great feature of this book is that you can read it from cover to cover if you want, or you can read each chapter and part without having to read what comes before, which is useful if you have better things to do with your free time. Handy cross-references direct you to other places in the book for more details on a particular subject.

Conventions Used in This Book

To help you navigate the waters of this book, we’ve set up a few conventions:

We use italics for emphasis and to highlight new words or terms that we define.

We use boldface text to indicate the action part of numbered steps and to highlight key words or phrases in bulleted lists.

We put all Web addresses in monofont for easy identification.

What You’re Not to Read

We’ve written this book so you can find information easily and easily understand what you find. And although we’d like to believe that you want to pore over every last word between the two yellow and black covers, we actually make it easy for you to identify “skippable” material:

Text in sidebars: The sidebars are the shaded boxes that appear here and there. They include helpful information and observations but aren’t necessary reading.

Anything with a Technical Stuff icon attached: This information is interesting but not critical to your understanding of the topic at hand.

Foolish Assumptions

In writing this book, we’ve made some assumptions about you, dear reader:

You want expert advice about important financial topics — such as paying off and reducing the cost of debt, planning for major goals, or investing — and you want answers quickly.

Or perhaps you want a crash course in personal finance and are looking for a book you can read cover-to-cover to help solidify major financial concepts and get you thinking about your finances in a more comprehensive way.

Or maybe you’re just tired of picking up scattered piles of bills, receipts, and junk mail every time the kids chase the cat around the den, so you plan to use this book as a paperweight.

Seriously, though, this book is basic enough to help a novice get his or her arms around thorny financial issues. But we think advanced readers will be challenged, as well, to think about their finances in a new way and identify areas for improvement.

How This Book Is Organized

This book is organized into six parts, with each covering an area of your personal finances. Here’s a summary of what you can find in each part.

Part I: Assessing Your Fitness and Setting Goals

This part explains how to diagnose your current financial health and explores common reasons for any missing links in your personal finance knowledge. We all have dreams and goals, so in this part, we also encourage you to think about your financial (and personal) aspirations and figure out how much you should be saving if you want to retire someday or accomplish other important goals.

Part II: Saving More, Spending Less

Most people don’t have gobs of extra cash. Therefore, this part shows you how to figure out where all your dollars are going and tells you how to reduce your spending. Chapter 5 is devoted to helping you get out from under the burden of high-interest consumer debt (such as credit card debt). We also provide specifics for reducing your tax burden.

Part III: Building Wealth with Wise Investing

Earning and saving money are hard work, so you should be careful when it comes to investing what you’ve worked so hard to save. In this part, we assist you with picking investments wisely and help you understand investment risks, returns, and a whole lot more. We explain all the major, and best, investment options. We recommend specific strategies and investments to use both inside and outside of tax-sheltered retirement plans. We also discuss buying, selling, and investing in real estate, as well as other wealth-building investments.

Part IV: Insurance: Protecting What You Have

Insurance is an important part of your financial life. Unfortunately, for most people insurance is a thoroughly overwhelming and dreadfully boring topic. But perhaps we can pique your interest in this esoteric topic by telling you that you’re probably paying more than you should for insurance and that you probably don’t have the right coverage for your situation. This part tells you all you ever wanted to know (okay, fine — all you never wanted to know but probably should know anyway) about how to buy the right insurance at the best price.

Part V: Where to Go for More Help

As you build your financial knowledge, more questions and issues may arise. In this part, we discuss where to go and what to avoid when you seek financial information and advice. We also discuss hiring a financial planner as well as investigating resources in print, on the air, and online.

Part VI: The Part of Tens

The chapters in this part can help you manage major life changes and protect yourself from the increasingly common problem of identity theft.

Icons Used in This Book

The icons in this book help you find particular kinds of information that may be of use to you:

technicalstuff.eps This nerdy-looking guy appears beside discussions that aren’t critical when you just want to understand basic concepts and get answers to your financial questions. You can safely ignore these sections, but reading them can help deepen and enhance your personal financial knowledge. This stuff can also come in handy if you’re ever on a game show or if you find yourself stuck on an elevator with a financial geek.

tip.eps This target flags strategy recommendations for making the most of your money (for example, paying off your credit card debt with your lottery winnings).

dumapproved.eps This icon highlights the best financial products in the areas of investments, insurance, and so on. These products can help you implement our strategy recommendations.

remember.eps This icon points out information that you’ll definitely want to remember.

warning_bomb.eps This icon marks things to avoid and points out common mistakes people make when managing their finances.

beware_sailing.eps This icon alerts you to scams and scoundrels who prey on the unsuspecting.

investigate_investing.eps This icon tells you when you should consider doing some additional research. Don’t worry — we explain what to look for and what to look out for.

Where to Go from Here

This book is organized so you can go where you need to for complete information. Want advice on investing strategies, for example? Go to Part III for that. You can check out the table of contents to find broad categories of information and a chapter-by-chapter rundown of what this book offers, or you can look up a specific topic in the index.

If you’re not sure where you want to go, you may want to turn a few pages and start at the beginning with Part I. It gives you all the basic info you need to assess your financial situation and points to places where you can find more detailed information for improving it.

Part I

Assessing Your Fitness and Setting Goals


In this part . . .

We discuss the concepts that underlie sensible personal financial management. You find out why you didn’t know all these concepts before now (and whom you can blame). Here, you undergo a (gentle) financial physical exam to diagnose your current fiscal health, and we show you how to identify where your hard-earned dollars are going. We also cover understanding and improving your credit report and scores and how to plan for and accomplish your financial goals.