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Get Out of the Debt Rat Race Aim for Financial Freedom First Community Credit Union First Community Credit Union.

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Presentation on theme: "Get Out of the Debt Rat Race Aim for Financial Freedom First Community Credit Union First Community Credit Union."— Presentation transcript:

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2 Get Out of the Debt Rat Race Aim for Financial Freedom First Community Credit Union First Community Credit Union

3 Proverbs 22:7 Just as the rich rule the poor, so the borrower is servant to the lender

4 What is the American Dream Education for your children

5 American Dream To some: A Secure Job until you can Retire Own your Own Home Retire Comfortably Visit Your Children and Family Have a Summer Home by the Lake

6 What People Want 56% want a house by the beach 56% want a house by the beach 66% expect to become millionaires 66% expect to become millionaires Only 8% have made it so far Only 8% have made it so far 46% of all millionaires own investment real estate 46% of all millionaires own investment real estate 26% of millionaires own their own business 26% of millionaires own their own business 56% of Americans dream of owning their own business 56% of Americans dream of owning their own business 4.2% are in the process of starting a business 4.2% are in the process of starting a business 1 in 3 will actually launch a company 1 in 3 will actually launch a company 56% of those will fail within 4 years 56% of those will fail within 4 years

7 How about this Dream! Financial Freedom Being able to do what you want, when you want, and not having to worry about how much time it takes or how much it costs. Being financially dependent on NO ONE

8 What is Reality A US Department of Health and Human Services study says Out of every 100 people reaching age 65…

9 Snap Shot of American Finances According to the Wall Street Journal 70% of all consumers live paycheck to paycheck According to the Wall Street Journal 70% of all consumers live paycheck to paycheck According to the American Bankruptcy Institute: 1,3million file every year. 97% are personal not business bk’s. According to the American Bankruptcy Institute: 1,3million file every year. 97% are personal not business bk’s. 70% are Chapter 7’s (Total Bankruptcy) 70% are Chapter 7’s (Total Bankruptcy) 95% of those are declared “No Assets” 95% of those are declared “No Assets” In 1929 only 2% of homes had a mortgage In 1929 only 2% of homes had a mortgage 1962 only 2% did not have a mortgage 1962 only 2% did not have a mortgage

10 Typical Household Christian Financial Concepts says that the typical American household has $38,000 in debt and the total consumer debt has tripled since 1980 Christian Financial Concepts says that the typical American household has $38,000 in debt and the total consumer debt has tripled since 1980 A poll published in USA Today stated that 55% of Americans worry about their money A poll published in USA Today stated that 55% of Americans worry about their money 46% of all Americans have less than $10,000 saved for retirement. 46% of all Americans have less than $10,000 saved for retirement. According to Automatic Data Processing Inc. 20% of workers would not be able to make a mortgage, utility, or credit card payment if According to Automatic Data Processing Inc. 20% of workers would not be able to make a mortgage, utility, or credit card payment if they missed a paycheck. they missed a paycheck.

11 Proverbs 27:12 A prudent person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences.

12 Monthly Savings Required to Reach Your Financial Freedom Goal Annual income goal Nest Egg Needed MonthlySavings Needed to Reach your FinancialFreedomGoal Today’s Dollar 40 Years 35 Years 30 Years 25 Years 20 Years 15 Years 10 Years 10,000167, ,101 20,000334, ,2632,197 30,000500, ,1981,894, ,000667, ,0661,5992,5274,396 50,000834, ,3311,9973,1575,492 60,0001,000, ,0881,5982,3973,7886,590 70,0001,167, ,2701,8652,7974,4217,961 80,0001,334, ,0011,4512,1303,1965,0518,787 90,0001,500, ,1261,6322,3973,5955,6829,886

13 Did you Know You Are Already a Millionaire If you average $25K annually over 40 years, you will have earned 1 million dollars in your lifetime. If you average $25K annually over 40 years, you will have earned 1 million dollars in your lifetime. Where does it all go? Where does it all go? 37% - 50% to taxes 37% - 50% to taxes 20% to home mortgage interest 20% to home mortgage interest 10% to other credit interest 10% to other credit interest Only 20%- 33% for you! Only 20%- 33% for you! That’s $8,250/yr…$687 per month…$159/wk for you to live on. That’s $8,250/yr…$687 per month…$159/wk for you to live on.

14 Psalms 37:21 The wicked borrow and never repay, but the godly are generous givers.

15 Must have a Plan People do not plan to Fail People do not plan to Fail They Fail to Plan They Fail to Plan The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty.” The plans of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty.” Proverbs21:5 (NKJV) Proverbs21:5 (NKJV)

16 Emergency Fund Must put away some money to prepare for the unexpected events that cost you money. Must put away some money to prepare for the unexpected events that cost you money. Car problems (Battery, Tires, etc) Car problems (Battery, Tires, etc) Washing Machine goes out Washing Machine goes out Minor Medical issues Minor Medical issues Have money set aside so you can pay cash for these minor setbacks! Have money set aside so you can pay cash for these minor setbacks!

17 Stop using Credit Cut the credit cards up Cut the credit cards up If you must keep one, keep the FCCU credit card. If you must keep one, keep the FCCU credit card. The only way to pay these off is to stop using them first. The only way to pay these off is to stop using them first.

18 Start Paying Debt Debt Snowball (Dave Ramsey) Debt Snowball (Dave Ramsey) Systematic way to eliminate debt Systematic way to eliminate debt Start with the easiest Start with the easiest Be consistent Be consistent Reward yourself when you pay one of the suckers off! Reward yourself when you pay one of the suckers off!

19 Calculating Your Debt Pay-Off Priority My personal debt elimination worksheet Name of Debt Total Balance MonthlyPaymentDivisionAnswerPay-offPriorityMarginRoll-upMonths To Payoff Mortgage87, Master Card 1,42536 Visa1,25032 Discover65518 Joe’s Car 7, Susie’s Car 5, Home improve Totals$108,080$1,230 Accelerator Margin Usually 10% of you monthly gross income Total Monthly AcceleratedPaymentAmount 1, = $1,620

20 Calculating Your Debt Pay-off Priority Name of Debt Total Balance Monthly Pay Division Answer Pay-off Priority Margin Roll- up Months to Pay off Mortgage87, th MasterCard1, th8332 Visa1, th7972 Discover nd6201 Joe’s Car 7, st60212 Susan’s Car 5, rd7657 Home Imp 5, th9585 Total Debt Total payments Totals108,0801,23083 Accelerator Margin Usually 10% Of your Monthly gross Income$390 AcceleratedMonthly Payment amt. $1,620 My personal debt elimination worksheet

21 Where does the Monthly Accelerator come from? Save in a week Save in a month Save in a year 2 nd Job + $100 + $400 + $4,800 No Family Life Carpool + $10 + $40 + $480 Good Luck Tough to Coordinate Coupons + $10 + $40 + $480 Doable No Movies + $25 + $100 + $1,200 Ouch! Can I go to One a month No eating out + $35 + $140 + $1,680 Ouch! Can I eat Out once a month Bring Lunch + $10 + $40 + $480 I hate cold Sandwich Can I bring Two time a week Taxes + $10 + $40 + $480 Doable Insurance + $4 + $20 + $240 Doable Reduce De ductables Totals $820 + $9,840

22 A Built In AcceleratorDebtAmtPayment Mortgage New Loan 111,325Savings MasterCard Yr Payment 5.75%649.66$ Visa Yr Payment5.5%765.79$ Discover Yr Payment5.25%902.25$ His car Her Car Home Imp Compare 30 Yr Fixed 20 Yr Fixed 15 Yr Fixed MonthlyOutgo$1,230$649.66$765.79$902.25

23 When will I be Debt-Free? Total Debt 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year Total accelerated Monthly Payments = $1620 Total Debt $108,080 Out of Debt in about Seven Years Debt–Elimination Time Calculator

24 Proverbs 21:20 The wise have wealth and luxury, but fools spend whatever they get.

25 Credit Cards…the balance that won’t go away According to RAM Research (2004), 64% of Americans carry a balance on their credit cards. According to RAM Research (2004), 64% of Americans carry a balance on their credit cards. The average household now has six credit cards with total balances around $ 10,192, up from four cards and $6,400 in balances five years ago (RAM Research 2004) The average household now has six credit cards with total balances around $ 10,192, up from four cards and $6,400 in balances five years ago (RAM Research 2004) According to CardTrak of America, most credit card companies set their minimum payments at 2% of the outstanding balance or $10 per month. According to CardTrak of America, most credit card companies set their minimum payments at 2% of the outstanding balance or $10 per month. Making the minimum payment on a $4,800 balance (average total balance of US card holders) at the average annual 17% interest rate would take you 39 years and seven months to pay off. Making the minimum payment on a $4,800 balance (average total balance of US card holders) at the average annual 17% interest rate would take you 39 years and seven months to pay off. You would pay $10, in interest alone, and a total of $15,619 for the privilege of charging the $4,800 You would pay $10, in interest alone, and a total of $15,619 for the privilege of charging the $4,800 On average, you’ll spend 112% more on a credit card purchase than when using cash. On average, you’ll spend 112% more on a credit card purchase than when using cash.

26 Credit Card Voodoo A $2,000 dollar Furniture Purchase! A $2,000 dollar Furniture Purchase! Boy are we excited, except that it will take 31 years, 2 months to pay off the balance (paying minimum required) and you will pay $8,202 in interest alone! (19.8%) Boy are we excited, except that it will take 31 years, 2 months to pay off the balance (paying minimum required) and you will pay $8,202 in interest alone! (19.8%) What do you think the sofa will look like when you finally pay it off? What do you think the sofa will look like when you finally pay it off?

27 Romans 13:8 Pay all your debts, except the debt of love for others.

28 If you make a $300 monthly payment for half your working life… You give up $1, in your future so you can spend $300/mo now on credit! You give up $1, in your future so you can spend $300/mo now on credit! Invest your $300 a month in a mutual fund with a 10% return, you could draw a monthly income of $1,898.42… Invest your $300 a month in a mutual fund with a 10% return, you could draw a monthly income of $1,898.42… FOR THE REST OF YOUR LIFE!!!!!!!! FOR THE REST OF YOUR LIFE!!!!!!!!

29 Case Study: Joe & Susan Lucky Our average American Family Total Household Income: $ 47,211 ($3,935/month gross; net $2,951 approx) Total Household Income: $ 47,211 ($3,935/month gross; net $2,951 approx) Accelerator Margin: $390 (10% of gross monthly income) Accelerator Margin: $390 (10% of gross monthly income) Name of Debt Balance Monthly Payment Interest Mortgage$87,000$ % Master card $1,425$3617% Visa$1,250$3216.5% Discover$655$1819.8% His Car $7,250$ % Her Car $5,500$ % Home Imp $5,000$1259.6% Total$108,080$1,230

30 Debt Free in 7 Years and 7 Months! 20 years and 9 months faster than normal! 20 years and 9 months faster than normal! They saved $105,407 in interest by following this debt elimination plan! They saved $105,407 in interest by following this debt elimination plan! Interest saved Equals Interest Earned: A 31.32% Guaranteed Return! Interest saved Equals Interest Earned: A 31.32% Guaranteed Return! Six Month Cash Reserve: They can now live on 58% of their Income! Six Month Cash Reserve: They can now live on 58% of their Income! 58% of their income because they have no debts! 58% of their income because they have no debts! Build $1,278,260 in Real Wealth using the same money they were paying bills with! After building a 6 months cash reserve Joe and Susan put their $1,620 into a Mutual Fund paying 10% annual rate of return, for the remaining 20 years and nine months that they would have been paying off their mortgage! Build $1,278,260 in Real Wealth using the same money they were paying bills with! After building a 6 months cash reserve Joe and Susan put their $1,620 into a Mutual Fund paying 10% annual rate of return, for the remaining 20 years and nine months that they would have been paying off their mortgage!

31 What Do I Do? Two Simple Steps: Two Simple Steps: Stop the Credit Spending (Plastic Surgery) Stop the Credit Spending (Plastic Surgery) Make the Plan to get out of Debt! Make the Plan to get out of Debt!

32 Debit Cards You can’t Spend More Than You Have You can’t Spend More Than You Have You Have The Convenience of a Credit Card

33 What Should I Do First? 1st- Pay off Debt 1st- Pay off Debt 2nd- Invest 2nd- Invest

34 But Shouldn’t I Save First? Would Joe and Susan be better off to save their money instead of paying off debts Year Save First Year End Value Pay Off Debt Year End Value 1 Put $17,706 in Cash Reserve Apply $390 per month 2 To pay off debts and 3Mortgage 4$1,170$1,180 5$4,680$6,204 6$4,680$11,754 7$4,680$17,885 Debt Free in 7 yr 7 months 8$4,680$24,659 Reserve built $10,326 Breakeven 9$4,680$32,142$19,44020,356 10$4,680$40,408$19,44042,844 25$4,680$341,616$19,440$862,266 26$4,680$382,287$19,440$972,912 27$4,680$427,220$19,440$1,095,145 28$4,680$476,856$19,440$1,230,178

35 In both strategies Joe and Susan pay out $550,800 During 28 years in the previous chart we see that by paying debt first, they will come out $783,729 ahead! During 28 years in the previous chart we see that by paying debt first, they will come out $783,729 ahead! The reason the Lucky family came out ahead by paying off their debt first is because more of the money they would’ve wasted, paying interest to others (they saved $105,407 in interest payments), went to work building wealth FOR them, instead!

36 Comparing Debt Free Income to Income with Various Debt Loads Annual Income No Debts Debt Load 15% Debt Load 20% Debt Load 25% Debt Load 30% Debt Load 35% Debt Load 40% Debt Load 45% $20,000$23,52925,00026,66728,7130,76933,33336,364 $30,000$33,33337,50040,00042,85746,15450,00054,545 $40,000$47,05750,00053,33357,14361,53866,66772,727 $50,000$58,82462,50066,66771,42876,923833,3390,909 $60,000$70,58875,00080,00085,71492,308100,000109,090 $70,000$82,35387,50093,333100,000107,692116,667127,273 $80,000$94,118100,000106,667114,286123,077133,333145,455 $90,000$105,882112,500120,000128,571138,462150,000163,636 $100,000$117,647125,000133,333142,857153,846166,667181,818

37 What you should do when you are debt free Build a Ready Cash Reserve Build a Ready Cash Reserve Use a FCCU Money Management Account Use a FCCU Money Management Account Build Your Wealth Build Your Wealth Maximize Employer Matching Programs Maximize Employer Matching Programs Open a Roth IRA Open a Roth IRA Operate on Cash!!!!!!!!!!!!!!!! Operate on Cash!!!!!!!!!!!!!!!!

38 Let’s Summarize: The System is stacked against you: Credit Cards Auto Loans Mortgages Taxes Suck the financial life out of you

39 Get out of Debt: Build your accelerator Do what needs to be done to get out of debt: Cut back spending Brown Bag to Lunch Cut back on Entertainment Car Pool Cut Taxes Work a 2 nd job Plan how you are going to accomplish this Mission!

40 Start Investing Mutual Funds Real Estate What you know about! Educate Yourself Get sound Advice!


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