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Copyright 2008 Willie Glenn Page, Inc. Making Money Work: A Christian Guide For Personal Finance Welcome Debt Management.

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Presentation on theme: "Copyright 2008 Willie Glenn Page, Inc. Making Money Work: A Christian Guide For Personal Finance Welcome Debt Management."— Presentation transcript:

1 Copyright 2008 Willie Glenn Page, Inc. Making Money Work: A Christian Guide For Personal Finance Welcome Debt Management

2 Live within your income even if you have to borrow money to do it Josh Billings, Humorist 1818-1885 (Charles J. Givens, Wealth Without Risk, Simon And Schuster, Copyright 1998 by Charles J. Givens, page 97).

3 Copyright 2008 Willie Glenn Page, Inc. Debt Management While God does not prohibit borrowing, God does discourage it. Proverbs 17:18A man void of understanding striketh hands, [and] becometh surety in the presence of his friend (KJV). Surety is simply taking on an obligation to pay later without a certain way to pay it Larry Burkett, The Financial Guide For The Single Parent, Copyright 1997 by Larry Burkett, Moody Press, Chicago, page 218. Proverbs 22:7–The rich ruleth over the poor, and the borrower [is] servant to the lender (KJV).

4 Copyright 2008 Willie Glenn Page, Inc.

5 Debt Management Principal = borrowed money. Interest = the amount you pay on principal (borrowed money). Interest = Principal x Interest Rate x Time.

6 Copyright 2008 Willie Glenn Page, Inc. Debt Management Cardinal rules: Borrow as little money possible at the lowest interest rate possible and for the shortest timeframe possible. Live within your means. Establish an emergency fund to avoid debte.g. $1,000 then 3-6 months expenses and then 6-9 months expenses. Practice delayed gratificationsave for items and pay cash. Credit cardspay the balance off in full each month or consider canceling the cards in order to control your deficit spending. Understand the difference between Good Debthelps to build your future net worthand Bad Debtdiminishes your future net worth. Avoid impulse buyingunderstand the difference between needs, wants and desires.

7 Copyright 2008 Willie Glenn Page, Inc. Differentiating Between Needs, Wants And Desires NeedWantDesire To drink: WaterBottled WaterCola To tell time: Use free available clocksAn inexpensive watch-- Timex An expensive watch-- Rolex Transportation: Use public transportation Used carNew carRolls Royce

8 Copyright 2008 Willie Glenn Page, Inc. Can Drinking Tap Water Make You A Millionaire?

9 Copyright 2008 Willie Glenn Page, Inc. Understanding Opportunity Costs For Needs, Wants And Desires

10 Copyright 2008 Willie Glenn Page, Inc. Understanding Opportunity Costs For Needs, Wants And Desires

11 Copyright 2008 Willie Glenn Page, Inc. Understanding Opportunity Costs For Needs, Wants And Desires NeedWantDesire To drink: Tap WaterBottled WaterCola Cost/year = $2.85 Cost/lifetime = $216.86 Cost/year = $890.15 Cost/lifetime = $67,651.56 Cost/year = $1,223.77 Cost/lifetime = $93,006.78 If savings is invested @ 8% growth over 76 years: $2.85 (Need Cost) - $1,223.77 (Desire Cost) = $1,220.92 at 8%/year for 76 years = $5,278,966.47 $890.15 (Want Cost) - $1,223.77 (Desire Cost) = $333.62 at 8%/year for 76 years = $3,848,795.99 $0.00 (-$93,006.78 in opportunity costs)

12 Copyright 2008 Willie Glenn Page, Inc. Opportunity Costs is the cost of passing up the next best choice when making a decision. Your values determine your perception of needs, wants and desires. Everyone has different values. Complete The SS44 Values And Spending Exercise (CD-RW). Realistically, few people will go through life only drinking tap water. Few people will be able to invest for 76 years during their lifetime. The purpose of this example is to point out how a shift from spending on wants and desires to spending on needs and then saving and investing the difference can have a profound impact upon your finances.

13 Copyright 2008 Willie Glenn Page, Inc. Calculating The Opportunity Cost For An Expensive Watch Using The Rule of 72 NeedWantDesire To tell time: Use free available clocksAn inexpensive watch-- Timex An expensive watch-- Rolex e.g. $10,000 The Rule of 72: At 10% interest, money doubles every 7.2 years. If a person works 28.8 years, their money should double 4 times.

14 Copyright 2008 Willie Glenn Page, Inc. Calculating The Opportunity Cost For An Expensive Watch ($10,000 Original Cost) Using The Rule of 72 1 st 7 years 2 nd 7 years 3 rd 7 years 4 th 7 years $20,000$40,000$80,000$160,000

15 Copyright 2008 Willie Glenn Page, Inc. Compound Interest Works As A Powerful Ally To Build WealthIts Antithesis Bad Debt Works To Destroy Wealth. Pay off all of your bad debt as soon as possibleyou will be happier, healthier and wealthier!

16 Copyright 2008 Willie Glenn Page, Inc. 4 Cs Of Credit (What Creditors Look At) Collateral secured loanan asset of value the lender can take from you if you fail to repay the loan. Capitalitems of value that could be sold to repay the loane.g. investment accounts, your home (in some states). Capacityability to repay a loan. Income and employment history. Characteryour credit record. Do you have a history or paying bills on time.

17 Copyright 2008 Willie Glenn Page, Inc. Credit Reportyour credit history, a record of your personal financial transactions. Tells lenders any credit you have, loan amounts, your credit card balances and limits, history of paying bills. It covers the last 7 to 10 years. It may be checked when you get a cell phone, buy a car, rent an apartment, apply for a job, etc. You are entitled to a free credit report every yearcorrect any mistakes. Credit Scorebased on the 4 Cs. It is a number that reflects your creditworthiness at any point in time. The most popular credit score is the FICO score which ranges from 300 to 850a score of 680 or more is considered good. The 3 main credit reporting agencies: Equifax, Experian, and TransUnion.

18 Copyright 2008 Willie Glenn Page, Inc. You may request one free annual copy of your credit report at www.annualcreditreport.com or by calling 877- 322-8228sponsored by Equifax, Transunion, and Experian.www.annualcreditreport.com You may get free personal information from www.Quizzle.com including your credit rating, home value, budget information, and mortgage information. www.Quizzle.com

19 Copyright 2008 Willie Glenn Page, Inc. Order of expenditures per $100.00 of income earned: 1. Tithe (example: 10% to God)$10.00 2. Savings (example: 10% to your 401K)$10.00 3. Federal taxes (example: 25% Federal taxes)$25.00 4. State Taxes (example: 7% to your states tax program)$7.00 5. FICA Taxes (e.g.: 6.2% Social Security + 1.45% Medicare Ins. = 7.65%; or self employed 12.4% Social Security + 2.9% Medicare = 15.3%): $7.65 $15.30 6. Balance to spend on other items-- employed by others: Self-employed: $40.35 $32.70

20 Copyright 2008 Willie Glenn Page, Inc. Budgeting Small children can start with 3 jars labeled giving, saving, and spending. For each dollar, they put 10 cents in giving, 10 cents in saving, and 80 cents in spending. Teenagers might want to use an envelope system similar to the jar system above for all of their expenditures.

21 Copyright 2008 Willie Glenn Page, Inc. Step 1: List Financial Goals Short-term Goals (one year goals)e.g. immediately save $1,000 and then 3-6 months expenses and then 6 to 9 months expenses in a liquid emergency fund account. Take full advantage of employer-matching funds up to the full matching limit. Pay off all credit card debt. Pay off credit cards in full each month. Mid-term Goals (2 to 5 years)e.g. purchase a used car within 3 years. Pay off all student loans. Save 20% for a down payment on a home purchase. Long-term Goals (over 5 years)e.g. After maximizing savings up to the full employer match in retirement savings accounts, invest in a Roth IRA. Eliminate all debtcar payments, home mortgage, etc. Basic Budgeting Beginning Steps

22 Copyright 2008 Willie Glenn Page, Inc. Basic Budgeting Beginning Steps Step 2: Conduct A Credit Card Debt Analysis Suggestion: open up the SS13.a CalculatorDebt Management.xls and click on the Credit Card Analysis sheet tab to prepare your own credit card debt analysis.

23 Copyright 2008 Willie Glenn Page, Inc. Basic Budgeting Beginning Steps Step 3: Conduct A Cash Flow Analysis Analyze all income and expenditures. Use pay stubs, check books, billing statements, and any other statements showing money flowing into and out of your accounts. List all fixed expensese.g. those that have little or no flexibility such as rent and insurance. List all discretionary expensese.g. those that can be easily changed such as dining out, entertainment, vacations, hobbies, etc. Total Income – Total Expenses = a cash surplus (discretionary income) or a cash deficit. Suggestion: open up the SS13.a CalculatorDebt Management.xls and click on the Cash Flow Statement sheet tab to prepare your own cash flow analysis.

24 Copyright 2008 Willie Glenn Page, Inc. Basic Budgeting Beginning Steps Step 4: Determine Your Net Worth This is a listing of what you own and what you owe. The goal is to increase your net worth each year. Compare your net worth statement each year to prior years. Adjust your spending/or saving habits as needed. Suggestion: open up the SS13.a CalculatorDebt Management.xls and click on the Net Worth Statement sheet tab to prepare your own net worth analysis.

25 Copyright 2008 Willie Glenn Page, Inc. Budget If you are unable to live within your means you are deficit spending you should prepare a very detailed budget. Use the Making Money Work SS13 Calculator-Budget.xls worksheet for a more detailed household budget (Making Money Work Book CD-ROM calculator).

26 Copyright 2008 Willie Glenn Page, Inc. Budget Guidelines

27 Copyright 2008 Willie Glenn Page, Inc. Steps To Becoming Debt Free Praywhen you work, you work. When you pray, God works. Stop accumulating debt. Destroy credit cards if necessary and pay by cash, check, or debit card. Practice delayed gratification. Be happy with what you have. Do not spend tomorrows money today. Institute the 24-hour rule: before buying anything over $50, wait a day to make sure your really need it. List all of your assets and determine if any need to be sold and the proceeds used to reduce/or eliminate debt. List all of your liabilitiesknow where you stand financially. Establish a written budget. Analyze spending habits to determine where you can cut back or eliminate expenses. Establish a debt-repayment plan. By looking at the debt amount and interest rates charged, decide which debts you should pay back first. Typically, you save the most money by paying off the highest interest rate charges first. As each credit card is paid off, use the savings to pay off the next card(s) until all are paid in full.

28 Copyright 2008 Willie Glenn Page, Inc. Steps To Becoming Debt Free If you have a line of credit with a low rate, you might consider using it to pay off higher interest rate debt such as credit cardswarning: only do this if you are certain you can make the payments and do not put your home at risk. Earn additional income to pay down debte.g. non-working spouse gets a job, working spouse gets an additional part-time job. Consider an extreme change in lifestylee.g. the elimination of non-wealth producing activities such as luxury vehicles, boats, etc. Moving to a smaller house with a lower mortgage payment. Work hard at reducing your debt and never give upthe Lord said, I am with you always. Support groups such as Debtors Anonymous www.debtorsanonymous.org helps correct spending habits and stop impulse buying.www.debtorsanonymous.org The National Foundation for Consumer Credit www.nfcc.org 800-388-2227 offers free or low cost credit counseling.www.nfcc.org

29 Copyright 2008 Willie Glenn Page, Inc. SS12 Calculator-Liquid Assets Versus Current Liabilities.xls (Making Money Work Book CD-ROM calculator): The % of current liabilities to current assets should be less than 50%-- for individuals and companies. SS14 Calculator-Loan Payment.xls (Making Money Work Book CD-ROM calculator): Exercise: Given the following: You wish to purchase a car. It cost $5,000. You have a 20% down payment. There are 12 payments per year at a 12% interest rate. Your loan is for 36 months. How much are your monthly payments? What are your total payments over the life of the 36 month loan? How much will you have to pay in interest charges over 36 months?

30 Credit ScoreChance of defaulting within 2 years Credit Score up to 49983% 500-54970% 550-59951% 600-64931% 650-69914% 700-7495% 750-7992% 800+1% Consumer Report: A person with a credit score of 720 and up would be eligible for a 5.55% interest rate on $150,000 30-year mortgage and a $856 monthly payment. Someone with a score of 620 to 674 could pay $1,034/month for the same loan. If you are in the 580 to 620 range, you will probably still qualify for a mortgage loan, but at a higher rate. Most lenders use scores calculated by Fair Isaac Corp.uses a formula with 22 pieces of data. Scores range from 300 to 850. They predict how likely you are to pay bills on time. www.myfico.com Chance of defaulting within two years, by credit score

31 Copyright 2008 Willie Glenn Page, Inc.

32 Romans 13:7-8--Discharge your obligations to all men; pay tax and toll, reverence and respect, to those to whom they are due, Leave no claim outstanding against you, except that of mutual love. Luke 19:8-10Zacchaeus said to Jesus Here and now, sir, I give half my possessions to charity; and if I have cheated anyone, I am ready to repay him four times over, Jesus said to him, Salvation has come to this house today! Debt is a burden affecting not only your living, but also your giving. Debt prevents you from being able to give everything God intended for you to give!

33 Copyright 2008 Willie Glenn Page, Inc. Please complete the Chapter 4 Debt Management--Extra Learning Module (CD-RW).


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