Presentation on theme: "1 Managing Your Money Financial Planning U$iN $eN$e Practical Money Skills For Life Suhaila Kani CFP TM M.Comm BSc Royal Bank of Canada."— Presentation transcript:
1 Managing Your Money Financial Planning U$iN $eN$e Practical Money Skills For Life Suhaila Kani CFP TM M.Comm BSc Royal Bank of Canada
2 Contents » About Financial Planning » Life Goals » Basics To Savings » Time Value of Money » Savings » Loans » Credit Cards
3 Financial Planning Essential part of our everyday lives to help BUILD YOUR MONEY TREE Help to plan for YOUR FUTURE, your childrens future and our family as a whole. Determine how individuals can meet their LIFE GOALS through proper management of their financial resources. Can be used as a key to getting yourself on the road to FINANCIAL INDEPENDENCE and towards becoming FINANCIALLY FREE!
4 What Are Life Goals? $ Cars $ Weddings $ Having Babies $ Travelling $ Dream House $ Business $ Own/Childrens Education $ Retirement $ Old Age $ Unexpected circumstance $ Financial Security What Are You Saving For?
5 How to get what you want? » Set Goals/Dreams/Targets » Be Realistic - Differentiate between A Need and A Want » Need: A Must, Cannot Do Without e.g House » Want: Can Live Without e.g 4 Story House » Write Down Your Goals » List according to » Short Term Goals » Medium Term Goals » Long Term Goals » Write the Number of Years Required » Write Down the Amount Required
6 Example Of Written Goals Short Term (0 – 5 years) 1 yrEmergency Funds For the Just In Case$10,000 2 yrsRenovateBatchelors Pad$8,000 5 yrsCarA Sports Car$40,000 Medium Term (5 – 25 years) 20 yrsHouse3 Bedroom 2 Storey House $250, yrsChildrens Education Best College for 2 Children $150,000 Long Term (>25 years) 35 yrsRetirementAge 55, financially free with $3000 per month $1,000,000 Dins Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows:
7 Where do you start? How do you know how much to save? Everyones life is different - Use this as a benchmark Dead Broke: »Dont Save »Spend More than you Make »Borrow on Credit Card »Have Excessive Debt that Cant be paid off Poor: »Thinking about Saving but dont do it. »Spend Everything you make each month and Save Nothing. »Keep telling yourself, Nantitah!!...
8 Use this benchmark Middle Class: Save 5% to 10% of Gross Income Upper Middle Class: Save 10% to 15% of Gross Income Rich: Save 15% to 20% of Gross Income Rich Enough to Retire Early: Save > 20% of Gross Income
9 Budgeting » Map of Your Finances » Breakdown of Income & Expenditure » Monitoring your finances » Do a monthly budget » Gives You Financial Control Helps you to know: » How much you can save » If you Spend more than you Earn » What pleasures you can afford » Can tell you a lot about a person
10 Example of Making a Budget Dins Profile: 21years old $2000 starting salary, Stays with Parents, Has Car Loans. His Budget looks like this: Income Salary2000 Interest & Dividend- Commission- Total Income2000 Expenses Rent- Electricity & Water50 Telephone/Internet100 Mobile Phone150 Grocery & Eat Out300 Home Maintenance100 Clothes & Toiletries80 Petrol100 Credit Card50 Car Loan400 Entertainment70 Support for Parents/Siblings200 Total Expenses1600 TAP100 Total Expenses + TAP deduction1700 Leftover (Income Less Exp)300
11 Do you have an idea how much to save now? SAVE » $300 is left over after expenses » What do you do with it? » Spend on other things or Save? Treat this $300 as an expense that you pay to yourself PAY YOURSELF FIRST Before you pay your bills and other expenses PAY YOURSELF FIRST
12 $300 per month at 5% Annual Return Years Look at what $300/mth can do for you! If you Pay Yourself First
13 Look at what $300/mth can do for you! If you Pay Yourself First $300 per month at 10% Annual Return Years
14 Lets See! If you Pay Yourself First $1 a day $1 a day at 4% Annual Return Years
15 Small Savings Can Make A Difference! If you Pay Yourself First $3 a day $3 a day at 4% Annual Return Years
16 Small Savings Can Make A Big Difference! Just by Adding $2 a day at 4% Annual Return In 2 years the difference is $1,497 In 10 years the difference is $8,834 In 15 years the difference is $14,760 In 30 years the difference is $41,639 In 35 years the difference is $54,824 This is the effect of Compounding Interest
17 Going back to Dins Goals Dins Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows: Short Term (0 – 5 years) 1 yrEmergency Funds For the Just In Case$10,000 2 yrsRenovateBatchelors Pad$8,000 5 yrsCarA Sports Car$40,000 Medium Term (5 – 25 years) 20 yrsHouse3 Bedroom 2 Storey House $250, yrsChildrens Education Best College for 2 Children $150,000 Long Term (>25 years) 35 yrsRetirementAge 55, financially free with $3000 per month $1,000,000
18 How much to save for Dins Car? »Save $603 per month for 5 years at this rate. »BUT Din only can save $300 per month. Now, What should he do? Dins Goal is to buy a fancy Sports Car in 5 years time. He need $40,000. How much would he need to save now at 4% p.a? Option 1 - Buy a Second Hand car for $20,000 - By saving $300 per month at 4% return p.a Option 2 - Reduce expenses by $100 a month - Save $400 per month - $26,519 in 5 years at 4% p.a Option 3 - Invest $400 per mth at 8% p.a - $29,390 in 5 years
19 »Din has 1 month bonus yearly. »Save: 1 month bonus of $2000 each year at 4%, at the end of 5 years Just his bonuses will amount to $10,832 How much to save for Dins Car? »If Din really wants to save for his Dream Sport Car, save $400 a month at 4% p.a and save $2000 (1 month bonus) for 5 years, total savings Equal to $26,519+$10,832 = $37,351 »OR save $400 a month at 8% p.a and save $2000 (1 month bonus) at 4% p.a for 5 years, total savings Equal to $29,390+$10,832 = $40,222
20 Car Loans Option 1 »Extend period payment to 7, 10, 12 years etc BUT this will incur more interest Some people say, Save the Hassle and just Loan for the Car Heres an example, If Din takes out a loan of 40K at 9% reducing rate with a minimum payment of $800 for 5 years. BUT ONLY $300 is left after his expenses Option 2 »Try to finish his previous loans to keep to the 5 year period payment Option 3 »Save enough for a down payment to reduce Dins Loan Interest
21 Car Loans To Note: »$800 goes to the bank not to yourself. Din in 5 years time will have NO SAVINGS »Din will continue to work PAYCHECK TO PAYCHECK just to pay for his Car »$800 per month at 4% after 5 years will total up to $53,039 which he could have saved for the car and still have some left for his Wedding! »GOOD TO WAIT! You might not know other things might happen within 5 years of Savings. Examples: »Won a Lucky Draw for a Car »Parents Give Him a Car »New Car at lower cost in 5 years time »Priorities change Say Din takes option 2, paying off his previous loans and pay $800 minimum over 5 year
22 Save Vs Loans Which is the better deal? PAY YOURSELF FIRST! »Save »Still HAVE SAVINGS at the end of 5 years »EXTRA MONEY after 5 years can be for other uses »No DEBT »Pay $40K Car in CASH MAKE PROFIT FOR THE BANK »Pay the Loan First »At the end of 5 years, NO SAVINGS »DEBT CYCLE that Never End »End up Paying thousands of dollars more than $40K You have a choice, which one do you prefer?
23 Credit Cards Some of the things to know about Credit cards If you have a $4000 credit card balance, You pay $100 every month: HOW LONG WILL IT TAKE TO PAY? Months Interest Rates
24 Credit Cards Some of the things to know about Credit Cards If you have a $4000 credit card balance, You pay $100 every month: HOW MUCH INTEREST WILL YOU PAY? Months Interest Rates
25 Pay Yourself First Years Invest $100 a month at 4% p.a
26 Look at how much you end up paying! Would you rather PAY YOURSELF FIRST or PAY THE CREDIT CARD ? Interest Rate Time To Pay Off DebtWith This Much Interest To Pay Total Amount Paid for $4000 worth of items 12%51 Mths4.25 yrs$1134$ %56 Mths4.66 yrs$1580$ %62 Mths5.17 yrs$2155$ %66 Mths5.50 yrs$2647$ %81 Mths6.75 yrs$4128$8128
27 Conclusion » Financial Planning is for EVERYBODY » Plan Early – Decide Your Life Goals » YOU ARE IMPORTANT so before expenses Pay Yourself First » Avoid Debt If Possible » Take RESPONSIBILITY of your own finances like you would yourself » Have fun with financial planning and ENJOY your wealth grow over time!