Your Personal Financial Plan

Section III. Personal Financial Statements:

Have a cover sheet with current situation and
action plan for each section below explaining
where you are, what you learned, and what you
will change
Show first and last months data
a. Personal Balance Sheets
b. Personal Income Statements
c. Personal Financial Ratios
Action Plan for a-c
What can you do to improve these
statements in the future?
Section IV. Budgets
Include cover sheet that explains differences with
explanations. Support documentation includes
forecast, actual, and differences
Month 1 (Quicken, TT31, Mint.com, or other
program)
Month 2
Month 3. (Budgets will be handed in at the end of
each of the first two months, with the third month’s
budget handed in with the PFP)
Action Plan
What can you do to do better in the future?
Include a One Year Spending Plan (TT30F). In
Quicken use a screen shot of your advanced budget
What are the principles of successful budgeting?
1. Spend less that you earn
2. Keep good records for spending, tax and
other purposes
3. Use a budgeting method that meets your
Individual and family needs and objectives
Whatever method you choose, it should
accomplish the above three principles
There are five main types of budgeting methods
to help meet your needs and objectives:
1. The Envelope Method
2. The 60% Rule
3. Spreadsheets
4. Budgeting Software
The method the majority use:
5. DNAH-ial Methods (Do Nothing and Hope)
1. The Envelope Method
•Requirements: Envelopes for each category
•Divide spending each month into categories.
At the beginning of each month, take the mone
y you have planned for each category and put it
in the envelope
•Once a bill comes, take the money from the co
rresponding envelope and pay the bill
•Once the money is gone from one envelope an
d you need more, you must shift money betwee
n other envelopes or make do with what you ha
ve
•There is no getting money outside the system
2. The 60% Solution Method
•Requirements: Journal or spreadsheet
•Determine your gross salary each month. T
ake 60% of that amount and only spend that
amount each month. Do not spend beyond t
hat amount
•Take 20% of your salary and save for lon
g-term goals
•Take 20% of your salary and save to pay
your taxes at year-end
•Once you have spent your money, you c
annot go outside the method for more mo
ney
3. Spreadsheet Methods
•Requirements: Computer and spreadsheets
•Determine your gross salary and take home ea
ch month after taxes and other deductions
•Determine spending by categories (rows) and
dates (columns), and budget each category
•As bills come in, input the spending on each d
ate (column) and row (category)
•Plan in adequate amounts for a financial reser
ve and long-term goals
•Type in spending directly into spreadsheet
•Can be useful if updated regularly
4. Computer Software Methods
•Requirements: Computer and software, such
as Mint.com (free), Quicken, Mvelopes
•Determine your gross salary and take home
each month after taxes and other deductions

•Determine spending by category, and budg

et each category. Work to within your budge
t for each spending category
•Obtain receipts and credit card information
directly via internet from financial institutions
•Can plan in adequate amounts for a financi
al reserve and long-term goals
5. DNAH-ial Methods (Denial - Do nothing and
hope for the best)
•Requirements: None
•This is what the majority use
•Do nothing in this areas
•Deny there is a concern
•Hope things work out (they should because
I pay my tithing)
•Only respond when things get so bad that y
ou have to act
Which is the best method?
In my experience, the best plans are those that:
1. Are low cost and relatively easy to use
2. Allows downloading of bills from banks and credit
card companies--makes data entry easier
3. Allows adequate categorization of spending for
income, spending, reporting and tax purposes
4. Minimizes the time spent in doing finances (I
spend roughly 1-2 hours per week)
Develop and Live on a Budget
President Spencer W. Kimball said:
Every family should have a budget. Why, we w
ould not think of going one day without a budg
et in our businesses. We have to know approx
imately what we may receive, and we certainly
must know what we are going to spend. And o
ne of the successes of the business would hav
e to be very careful with our budget, and we do
not spend that which we do not have. (Merely
adopted and changes has been made in this
statement); (Conference Report, April 1975, pp
. 166-167.)
What is a Budget?
•It is the single most important tool in helping
you attain your personal goals.
•It’s the process of making sure your
resources are used for the things that matter
most—your personal goals
•Budgeting is a star to set your sights by, not
a stick to beat yourself with
•People who budgeted had 40% more at
retirement than those who didn’t (Money
Magazine)
The Budgeting Process
1. Know what you want to accomplish
2. Track your spending (your expenses)
3. Develop your cash budget
4. Implement your budget
5. Compare it to actual expenses, then
make changes where necessary to
achieve your goals
1. Know what you want to accomplish
• Know and write down your goals
•What do you want to accomplish
•Do you want to:
•Graduate from college
•Prepare to be a worthy spouse
•Get a great job
•Send kids to college and on missions
2. Track spending
There are different methods to track spending:
•Checks and credit cards
•These expenditures leave a paper trail
•Cash
•Record expenditures in a notebook
•Computer programs, i.e., Quicken, Money
•These are very useful, especially if tied to
bank and credit card companies
•The goal is to generate a monthly income and
expense statement
3. Develop your Cash Budget (the better way)
•What is a Cash Budget?
•A plan for controlling cash inflows and outflows
•Its purpose--To help you spend money for what is
really important to you
•Income:
•Examine last year’s after-tax total income and
make adjustments for the current year.
•Expenses:
•Identify all fixed (“must have”) and variable
(“would be nice to have”) expenditures
•Look for ways to reduce your variable
expenses
4. Implement your Cash Budget
• Try the budget for a month
•Record all income and expenses in the proper
category by date
•Sum all days or columns
•Note how much you have available in each
category at the end of each week
•Adjust the plan or expenses as necessary to
maintain the plan
•Try to be as financially prudent as possible
5. Compare Budget to Actual
•Compare your budget to actual
•Adjust the plan or your expenses as necessary to
maintain the plan
•Don’t reduce payments todebts and to your yo
urself
•If all else fails, this system will work!
•The Envelope System:
•Put money for each expense in an envelope
•When the money is gone, its gone
•It forces you to make it work (no cheating)
International Diversification and
Investment

International Diversification
The attempt to reduce risk by investing in
more than one nation. By diversifying
across nations whose economic cycles are
not perfectly correlated, investors can
typically reduce the variability of
their returns.
International Diversification
Investment of one's portfolio in securities that
are traded in various countries. This is done to
reduce risk, often political risk. For example, if one
country's government announces a larger than
normal budget deficit, or the central
bank raises interest rates, this may affect security
prices in one country, but not necessarily in other
countries that did not take equivalent steps.
Likewise, if a whole industry fails in one country but
thrives in another, investing in the same industry in
both countries hedges one's risk. Some analysts
argue that international diversification is less
effective in an era of globalization, but other analysts
Does International Investing Really Offer
Diversification?
Does international investing really
offer diversification to a U.S.-based investor?
There certainly is enough information available to
the investing public to suggest it does,
and institutional investors have been on board for
more than 20 years. The premise for investing in
international assets is typically driven by the
benefits that the diversification offers to a U.S.-
based investor.
Taking a look at the long
term correlations between non-U.S. assets
and U.S. assets, it's obvious that the theory
applies, as adding low-correlated assets to
any portfolio can reduce overall risk. While
this seems to be generally accepted in
investing theory, a more in-depth evaluation
provides some compelling evidence that
this is not always the case - especially in
the short term and during times of dramatic
swings in global markets.
International Markets

Taking a look at non-U.S. markets, there

are two distinct categories for both stocks
and bonds: developed and emerging
markets. Emerging markets are then broken
down further into sub-categories. While
there are some variations in how these
classifications are decided, a good source
for their origins has been defined by
the Financial Times and London Stock
Exchange (FTSE).
Developed countries, as of the
September 2008 FTSE classification
are: Australia, Austria, Belgium,
Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland,
Israel, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway,
Portugal, Singapore, South Korea,
Spain, Sweden, Switzerland, United
Kingdom and United States.
Developed markets are generally
considered to be larger and more
established, and are perceived to be less
risky investments. The remaining countries
are broken down into emerging markets
then sub-categorized as advanced,
secondary and frontier emerging markets
with varying levels of size, gross domestic
product (GDP), liquidity and populations.
They include countries
like Brazil, Vietnam andIndia. 
These markets are considered to be less
liquid, less developed and more risky in
nature. Like the stock markets, there are
bond markets in some but not all of these
countries. They are dominated by
government-related issues as corporate
bonds are issued far less frequently outside
of the U.S. (To learn more, read Evaluating
Country Risk For International Investing.)
The Benefits of International Investing

There are two major benefits of adding

international asset classes to a portfolio of
U.S.–based investments: the potential to
increase total return and the potential to
diversify the total portfolio. The potential to
increase total returns is evident because
U.S. stocks underperform international
markets in most periods. 
Figure 1: Regional returns are cyclical: U.S.
vs. international stock performance.Source:
Schwab Center for Investment Research
with data provided by Ibbotson Associates.

Figure 1 shows how international stocks

have outperformed U.S. stocks over various
time periods. While this trend has reversed
or changed direction during market
movements, the long-term difference is
obvious.
This brings us to the second concept of
diversification: adding low correlated assets
to reduce overall risk. 

Figure 2: Three- year rolling correlation of

monthly returns: U.S. and international
stocks.Source: Schwab Center for
Investment Research with data provided by
Ibbotson Associates.
Figure 2 represents the long-term correlation of non-U.S.
assets to U.S. assets. While the evidence is clear, most
people who practice the concept of diversification with
international assets are probably not aware of the recent
changes in correlation. Constructing a portfolio by
combining international and U.S. assets has historically
produced return patterns resembling lower risk as
defined by standard deviation. Historically, adding as
little as 10% in non-U.S. assets to a U.S.-based portfolio
can reduce the standard deviation of the total portfolio
by 0.7-1.1% over a five-year periods. At first glance this
may not be considered substantial, but when viewed
over long time periods, there is compelling evidence to
suggest a long-term commitment to non-U.S. assets. (To
learn more, read Understanding Volatility Measures.)
The Downside of International Investing 
Most readers may want to stop here or cover their
eyes, and remain with the strategy they already have
in place. It sounds good, makes sense and has
worked in the past, so why read on? The answer lies
in the far right side of Figure 2 and the changes in
correlation over time. Yesim Tokat, Ph.D., an analyst
with Vanguard's Investment Counseling & Research
group, authored a paper titled "International Equity
Investing from the European Perspective: Long-Term
Expectations and Short-Term Departures" (October,
2004). His research calls into question the perceived
benefits of diversification with international
investments.
Targeting short time periods and recent trends make
a decent argument to exclude these assets unless
they are adding higher returns without a significant
increase in risk. This research can be easily picked
apart by criticizing the short-term focus of the time
frames.
What is really compelling about this research is that
during bear markets, international investing has
produced higher returns and has failed to reduce
volatility. During bull markets, international investing
has increased diversification rather than leading to
higher returns as seen in Figure 3. (To learn more,
read Digging Deeper Into Bull and Bear Markets.)
Figure 3: Annualized performance of international
equities in European bear and bull markets.
Note: All returns are in synthetic eurosSource:
Thomson Financial Datastream.

This ties directly to the increase in correlation of

asset classes, but does not necessarily tell us
why. Theories are varied and most reference the
globalization and integration of international
markets.
Conclusion
Modern portfolio theory has defined investment
strategies for both institutions and individuals
since it was first presented. Constructing a
portfolio of non-U.S.-based assets, particularly in
developed stock markets, has both increased
total returns and decreased volatility. There has,
however, been a trend of increased correlation
between the U.S. and non-U.S. markets. This
increase in correlation has called the concept of
diversification into question.
Research focusing on short time periods and bull
and bear markets has caused a chink in the
armor. It can be argued that short time periods
only exist for now and the historical trends will
prevail. It is important to take note of the increase
in correlations, which may be due to globalization
and integration as a long-term trend. If it
continues, history may have to be rewritten. (To
learn more, read Modern Portfolio Theory: An
Overview.)
(http://www.investopedia.com/articles/financial-
theory/09/international-investing-
diversification.asp)
Definition of 'Cost Basis'
1.The original value of an asset for tax purposes
(usually the purchase price), adjusted for stock
splits, dividends and return of capital distributions.
This value is used to determine the capital gain,
which is equal to the difference between the
asset's cost basis and the current market value.
Also known as "tax basis".
2.The difference between the cash price and the
futures price of a given commodity.
3.Cost Basis is your original price, but
sometimes you can make adjustments to that
future to make it larger.
Cost Basis Explanations
1. Using the correct tax basis is important
especially if you reinvested dividends and
capital gains distributions instead of taking
the earnings in cash. Reinvesting
distributions increases the tax basis of your
investment, which you must account for in
order to report a lower capital gain (and
therefore pay less tax). If you don't use the
higher tax basis, you could end up paying
taxes twice on the reinvested distributions.
For example, say you bought 100 shares of a stock
for $1,000 last year and you reinvested the $100 of
dividends distributed from the company. The next
year, you received $200 in dividends and capital-
gains distributions, which you again reinvested.
Since tax law considers these reinvested earnings as
paid to you even though you didn't actually have the
cash in hand, your adjusted cost basis when the
stock is sold should be recorded at $1,300 instead of
the original purchase price of $1,000. Thus, if the
sale price is $1,500, the taxable gain would only be
$200 ($1,500 - $1,300) instead of $500 ($1,500 -
$1,000). If you record the cost basis as $1,000, you'll
end up paying more taxes than you have to.
2. For example, if particular corn futures contract
happens to be trading at $3.50, while the current
market price of the commodity today is $3.10,
there is said to be a $0.40 basis.
(http://www.investopedia.com/terms/c/costbasis.asp)
Cost basis is, generally, the price you paid for
your shares. This includes adjustments such as
reinvested dividends and capital gains, as well as
any sales commissions or transaction fees.
A question many investors have about their
investments is "How much money did I make?"
They often look at cost basis to answer that
question. However, cost basis isn't intended to
tell you how much money you've made on an
investment. Instead, cost basis is used to help
determine capital gains or losses for tax
purposes. Learn more about why cost basis is not
performance
The importance of reporting accurate cost basis
information
Keeping track of your cost basis is an important step in
determining your capital gains or losses on sales of shares.
The IRS requires you to report your gains or losses for
shares sold when you file your annual tax return.
•Because of regulatory changes, which are being phased in
over three years, investment companies such as Vanguard
will have to report cost basis for sales in taxable
(nonretirement) accounts to the IRS as well as to you.
Previously we reported this information only to you. The table
below lists the effective dates for the different types of
securities that are covered by the new IRS rules. If you
acquire shares after the effective date and subsequently sell
them, your cost basis will be reported to the IRS as well as to
you.
What to expect at tax time

•You'll need to report investment sales to the IRS when you

file your 2012 tax return. For mutual fund investors in
particular, you should familiarize yourself with important
changes to the tax forms that Vanguard will send you to
report gains and losses from your mutual fund sales.
•Vanguard Brokerage began reporting cost basis information
for sales of covered stocks and certain ETFs to the IRS on
Form 1099-B beginning with tax year 2011. The process for
reporting sales of such shares in 2012 will remain the same
since all shares acquired on or after January 1, 2011, are
considered covered.
(http://www.vanguard.com/jumppage/costbasis/index.html)
 ONLINE
INVESTMENT
Investing online, or self-directed investing,
has become the norm for
individual investors and traders over the
past decade with manybrokers now offering
online services with unique trading
platforms.

An Investor is any party that makes an

investment.
An investor is a person who allocates capital
with the expectation of a financial return. The
types of investments include: gambling and
speculation, equity, debt securities, real
estate, currency, commodity, derivatives such as
put and call options, etc. This definition makes no
distinction between those in the primary and
secondary markets. That is, someone who
provides a business with capital and someone
who buys a stock are both investors. Since those
in the secondary market are considered
investors, speculators are also investors.
According to this definition there is no difference.
A trader is person or entity, in finance, who buys and
sells financial instruments such
as stocks, bonds,commodities and derivatives, in the
capacity of agent, hedger, arbitrageur, or speculator.
Traders are either professionals (institutional)
working in a financial institution or a corporation, or
individual (retail). They buy and sell financial
instruments traded in the stock markets, derivatives
markets and commodity markets, comprising
the stock exchanges, derivatives exchanges and
the commodities exchanges. Several categories and
designations for diverse kinds of traders are found
in finance, these may include:
1. Day trader
2. Floor trader
3. High-frequency trader
4. Pattern day trader
5. Rogue trader
6. Stock trader
A stock trader refers to a person or entity engaging
in the trading of equity securities, in the capacity of
agent, hedger, arbitrageur, speculator, or investor.
Day trader refers to the hold time that a trader,
trading in capacity of speculator, buys and sells
financial
instruments (e.g. stocks,options, futures, derivatives,
 currencies) within the same trading day, such that
all positions will usually be closed before the market
close of the trading day. This trading style is
called day trading. Depending on one's trading
strategy, it may range from several to hundreds of
orders a day.
A floor trader is a trading venue and a member
of a stock or commodities exchange who trades
on the floor of that exchange for his or her own
account. The floor trader must abide by trading
rules similar to those of the exchange
specialists who trade on behalf of others. The
term should not be confused with floor broker.
Floor traders are occasionally referred to
as registered competitive traders, individual
liquidity providers or locals.
In finance, an electronic trading platform is a
computer system that can be used to place
orders for financial products over a network with
a financial intermediary. This includes products
such
as stocks, bonds, currencies, commodities and d
erivatives with a financial intermediary, such
as brokers, market makers, Investment
banks or stock exchanges. Such platforms
allow electronic trading to be carried out by users
from any location and are in contrast to
traditional floor trading using open outcry and
telephone based trading.
Open outcry is the name of a method of
communication between professionals on a stock
exchange or futures exchange. It involves shouting
and the use of hand signals to transfer information
primarily about buy and sell orders. The part of the
trading floor where this takes place is called a pit.
Examples of markets which use this system in
the United States are the New York Mercantile
Exchange, the Chicago Mercantile Exchange,
the Chicago Board of Trade, and the Chicago Board
Options Exchange. In the United Kingdom,
the London Metal Exchange still makes use of open
outcry.
The open outcry system is being replaced
by electronic trading systems (such
as CATS andGlobex). The supporters of electronic
trading claim that they are faster, cheaper, more
efficient for users, and less prone to manipulation
by market makers and broker/dealers. However,
many traders advocate for the open outcry system
on the basis that the physical contact allows traders
to speculate as to a buyer/seller's motives or
intentions and adjust their positions accordingly.
Today, most stocks and futures contracts are no
longer traded using open outcry due to the lower
cost of the aforementioned technological advances.
A "trading floor" is a trading venue. This
expression often refers to a place
where traders or stockbrokers meet in order
to buy and sell equities, also called a pit.
Sometimes, the expression "trading floor" is
also used to refer to the "trading room" or
"dealing room", i.e. the office space where
market activities are concentrated in
investment banks or brokerage houses. But,
technically speaking, these two spaces are
different.
Hand signaling, also known as arb or arbing (short
for arbitrage), is a system of hand signals used on
financial trading floors to communicate buy and sell
information in an open outcry trading environment. The
system is used at financial exchanges such as
theChicago Mercantile Exchange and the American
Stock Exchange (AMEX). The AMEX is the only U.S.
stock market to permit the transmission of buy and sell
orders through hand signals. Traders usually flash the
signals quickly across a room to make a sale or a
purchase. Signals that occur with palms facing out and
hands away from the body are an indication the gesturer
wishes to sell. When traders face their palms in and hold
their hands up, they are gesturing to buy.
Numbers one through five are gestured on one hand
with the fingers pointing directly upwards. To indicate
six through ten, the hand is held sideways, parallel to
the ground. Counting starts from six when the hand
is held in this way. Numbers gestured from the
forehead are blocks of ten, blocks of hundreds and
thousands can be indicated by repeatedly touching
the forehead with a closed fist. The signals can
otherwise be used to indicate months, specific trade
option combinations or additional market information.
Rules vary significantly among exchanges; however,
the purpose of the gestures remains the same.
Source: (http://en.wikipedia.org/wiki/)
What Is Forex?
The foreign exchange market is the "place" where currencies
are traded. Currencies are important to most people around
the world, whether they realize it or not, because currencies
need to be exchanged in order to conduct foreign trade and
business. If you are living in the U.S. and want to buy cheese
from France, either you or the company that you buy the
cheese from has to pay the French for the cheese in euros
 (EUR). This means that the U.S. importer would have to
exchange the equivalent value of U.S. dollars (USD) into
euros. The same goes for traveling. A French tourist
inEgypt can't pay in euros to see the pyramids because it's
not the locally accepted currency. As such, the tourist has to
exchange the euros for the local currency, in this case the
Egyptian pound, at the current exchange rate
(http://www.investopedia.com/university/forexmarket/forex1.a
sp).
Advantages of Forex Trading
1.The returns are better than any other market and
it can help in managing the finances of your own.
2.The costs for starting Forex trading are a lot
lower than other stocks.
3.The market is so large that no one can take
advantage of it.
4.Making money is a lot easier as you can do it
when the markets are increasing and decreasing.
5.There is no waiting to start in Forex trading, as it
is a 24-hour market.
6.Forex trading has more leverage (buying power)
than anything else.
7. Opening and closing a position in Forex
trading is very affordable when compared to
anything else.
8. It is very easy money and not very time
consuming.
9. All you need is an internet connection and you
can trade.
10.It can get confusing when trading stocks
because there is so many to choose from, in
Forex you can just focus on one or two pairs.
Internet Fraud - The use of Internet services or
software with Internet access to defraud victims or to
otherwise take advantage of them, for example by
stealing personal information, which can even lead
to identity theft. A very common form of Internet
fraud is the distribution of rogue security software.
Internet services can be used to present fraudulent
solicitations to prospective victims, to conduct
fraudulent transactions, or to transmit the proceeds
of fraud to financial institutions or to others
connected with the scheme.
Internet fraud can occur in chat rooms,
email, message boards, or on websites.
Purchase fraud occurs when a criminal
approaches a merchant and proposes a
business transaction, and then uses
fraudulent means to pay for it, such as a
stolen or fake credit card. As a result,
merchants do not get paid for the sale.
Merchants who accept credit cards may
receive a chargeback for the transaction
and lose money as a result.
Online automotive fraud
1. A fraudster posts a nonexistent vehicle for sale to a website,
typically a luxury or sports car, advertised for well below its
market value. The details of the vehicle, including photos and
description, are typically lifted from sites such as craigslist,
autotrader, cars.com or Autoscout24.com . An interested buyer,
hopeful for a bargain, emails the fraudster, who responds
saying the car is still available but is located overseas. Or, the
scammer will say that he is out of the country but the car is with
a shipping company. The scam artist then instructs the victim to
send a deposit or full payment via wire transfer to initiate the
"shipping" process. To make the transaction seem more
legitimate, the fraudster will ask the buyer to send money to a
fake agent of a third party that offers purchase protection. The
unwitting victims wire the funds, and subsequently discover
they have been scammed.
2. In another type of fraud, a fraudster
contacts someone who has posted a
vehicle for sale online, asking for the vehicle
identification number (VIN) in order to check
the accident record of the vehicle. However,
the crook actually uses the VIN to make
fake documentation for a stolen car, in order
to sell it.
Vehicles can also be used as part of a
counterfeit cashier's check scam.
With dating fraud, often the con artist develops a
relationship with their victim through an online dating site and
convinces the victim to send money to the fraudster. The
requests for money can be a one-time event, or repeated
over an extended period of time.
Although online dating has its dangers, three major dating
services, eHarmony; Match.com and Spark Networks, have
all agreed to take steps to keep their members safe from
common online dating dangers. These steps include:
checking registered members against the national sex
offender data base, including ongoing tips and guides on
how to meet that special someone in person in a safe way,
ongoing tips and guides on how to safely interact with other
members so as to avoid fraud and rapid abuse reporting
systems so members can report abuse or suspected fraud
as it happens, allowing the companies to take swifter action.
A new term in dating fraud is "Catfis" and is
defined on the website Urban Dictionary as
someone who pretends to be someone they're
not using Facebook or other social media to
create false identities, particularly to pursue
deceptive online romances.
Dating fraud also ties into the concept of online
identity.
Phishing is the act of masquerading as a trustworthy person
or business to fraudulently acquire sensitive information,
such as passwords and credit card details, that a victim
might think reasonable to share with such an entity. Phishing
usually involves seemingly official electronic notifications or
messages, such as e-mails or instant messages. It is a form
of social engineering.
The term phishing was coined in the mid-1990s by black-hat
computer hackers attempting to gain access
to AOL accounts. An attacker would pose as an AOL staff
member and send an instant message to a potential victim.
The message would ask the victim to reveal his or her
password to "verify your account" or to "confirm billing
information". Once the victim gave their password, the
attacker could access the victim's account and use it for
criminal purposes, such as spamming.
Email Spoofing - Sender data shown
in emails can be "spoofed", displaying a
fake return address on outgoing email to
hide the true origin of the message,
therefore protecting it from being traced.
The Sender Policy Framework protocol
helps to combat email spoofing.
Pharming occurs when a hacker redirects website traffic
from a legitimate website to the hacker's fraudulent website
by exploiting vulnerabilities in the Domain Name
System (DNS). By corrupting a computer's knowledge of
how a site's domain name maps to its IP address, the
attacker causes the victim's computer to communicate with
the wrong server—a technique known as domain hijacking.
By constructing a fake web site that looks like a legitimate
site that might ask for the user's personal information, such
as a copy of abank's website, the fraudster can "phish", or
steal by means of false pretenses, a
victim's passwords, PIN or bank account number. The
combination of domain hijacking with a phishing website
constitutes farming.
Source: http://en.wikipedia.org/wiki/Internet_fraud
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