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Controlling Your Money Step by Step.

Controlling Your Money Step by Step

In writing this book, the authors provide a unique mix of basic information, personal opinion, and applied worksheets that is potentially helpful to the individual formulating a personal financial plan. In evaluating the final product, this reviewer encounters difficulty in determining the primary purpose or thrust of the book. Is it intended as a "do-it-yourself" guide to personal financial planning, as suggested on the back cover? Is it intended to be a workbook to supplement text material for a personal finance course? One fact is certain--the book does not supply the technical detail and accuracy necessary for a financial planning course directed toward students aspiring to be professional financial planners.

The major strength of the book is the straightforward, basic treatment of financial planning problems for the novice. The concise worksheets sprinkled throughout the book promise to be particularly useful to the neophyte developing a personal financial plan. Examples of the more helpful worksheets include those pertaining to monthly budgeting, financial position, medical insurance, home cost estimation, and projected retirement savings needs. Both the worksheets and the text reflect a general presumption that the reader is neither well schooled in financial matters nor particularly wealthy.

Although the text material is written in a very understandable form for the beginner, a number of statements reflect only the authors' opinions, which may not be supported by facts. Some examples of potentially refutable sections include:

1. remarks indicating that insurance is not an investment;

2. advice positing that the insured should always use the largest deductable he or she can afford on auto insurance, while ignoring the issue of whether to maintain collision or comprehensive coverages;

3. recommendations that the borrower should get the shortest term mortgage on which he or she can afford payments, supported by an emphasis on total interest payments over the life of the loan rather than considerations regarding the time value of money and personal income taxation;

4. a misinterpretation of the planning effects triggered by the "kiddie tax" rules imposed by the Tax Reform Act of 1986;

5. encouragement of investment in individual common stocks, when mutual funds provide a more rational approach to individual investing; and

6. misstatements about the beta risk measure.

While the worksheets represent a highlight of this book, some of the insurance planning worksheets suffer from shortcomings. In the life insurance needs analysis, the authors ignore the time value of money entirely. They also assume survivors will retire mortgage loans immediately, which may not be a good idea considering the tax-preferred treatment accorded these loans compared to other consumer loans. The disability needs analysis impounds the assumption that Social Security disability benefits will be available to the family. With Social Security administrators now rejecting 65 percent of the applications for disability benefits, the alternative assumption is preferable.

Controlling Your Money, Step by Step impresses this reviewer as offering some concise and useful worksheets that would be helpful in supplementing text material for a personal finance course open to non-business majors. The instructor should carefully review the worksheets and supporting materials and be aware of untenable assumptions, some of which are reviewed above. Considering (1) the technical content of courses in estate and financial planning for aspiring financial services professionals and (2) the availability of financial planning software, this book does not offer sufficiently rigorous content to be useful as supplemental material in a "capstone" financial planning course.
COPYRIGHT 1989 American Risk and Insurance Association, Inc.
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Cox, Larry A.
Publication:Journal of Risk and Insurance
Article Type:Book Review
Date:Dec 1, 1989
Previous Article:Use of financial futures by life insurers.
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