Personal Financial Planning — Part 2: Managing Basic Assets

Key Diagram: Liquid Assets Spectrum — the 8-vehicle liquidity-return tradeoff
Every basic asset decision is governed by the liquidity-return-risk tradeoff — higher returns require sacrificing liquidity or accepting risk
Systematic cost comparison consistently beats intuition across checking accounts, car deals, and mortgages
Information asymmetry favors institutions — banks, dealers, and lenders know more than you; research and regulation are the equalizers
Behavioral discipline (reconciliation, sequential negotiation, structured worksheets) is financial infrastructure, not optional
Tax treatment structurally favors homeownership and certain savings instruments — always analyze after-tax costs

Situation	Do This	Avoid This
Choosing a savings vehicle	Compare effective (not nominal) rates	Assuming higher nominal rate = better deal
Lost debit card	Report within 2 business days ($50 max loss)	Waiting >60 days (unlimited liability)
Selecting a checking account	Calculate total annual cost including fees	Choosing by convenience or brand
Buying a car	Negotiate price, trade-in, financing separately	Bundling all three in one negotiation
Lease vs. buy a car	Run total-cost worksheet including opportunity costs	Comparing monthly payments alone
Rent vs. buy a home	Run after-tax cost comparison worksheet	Assuming buying is always cheaper
Determining home affordability	Apply BOTH income ratio AND down payment constraints	Using only one constraint
Choosing a mortgage	Match risk tolerance to fixed vs. ARM tradeoff	Ignoring negative amortization risk with ARMs
Considering refinancing	Calculate break-even months vs. remaining occupancy	Refinancing without recouping closing costs

"There is no reason you can't use deposit accounts at different financial institutions to get the best deal." — Gitman, Joehnk & Billingsley, p. 116

Overview