Basics of Personal Financial Planning & Money Management

Ya Gotta Save! SAVE MONEY! SAVE MONEY! Make it a priority Make it a priority Pay yourself first Pay yourself first Save for 3 reasons: Save for 3 reasons: Emergency Fund Emergency Fund Purchases Purchases Wealth Building Wealth Building When do I start? NOW!!! When do I start? NOW!!!

Ya Gotta Save! At least $1000 in your emergency fund At least $1000 in your emergency fund Savings Account Savings Account Easy to get to when emergencies happen Easy to get to when emergencies happen Then 3-6 months expenses saved Then 3-6 months expenses saved Money Market Money Market Where do I get the $1000 Where do I get the $1000 Sell something Sell something Cut back – pizza & coke money Cut back – pizza & coke money Work extra – 2 nd job/overtime Work extra – 2 nd job/overtime

Other Uses for Your Savings Purchases Purchases Purchase with cash Purchase with cash Don’t borrow money to buy the things you want Don’t borrow money to buy the things you want Wealth Building- Retirement, College Funding, etc. Wealth Building- Retirement, College Funding, etc. Be consistent over time Be consistent over time 40 years of saving $100 per month, at 12 %, will build to $1,176,477!! 40 years of saving $100 per month, at 12 %, will build to $1,176,477!! Direct deposit some of your paycheck into savings, and some into checking Direct deposit some of your paycheck into savings, and some into checking It’s easy when you never see the money It’s easy when you never see the money

The Dreaded “B” Word Make a written budget! Make a written budget! Know before the month begins where your money is going Know before the month begins where your money is going Pay necessities first Pay necessities first Food Food Shelter – rent/house & insurance Shelter – rent/house & insurance Transportation – car & gas Transportation – car & gas Clothing Clothing

The Dreaded “B” Word “Learn to manage money, or the lack of it will manage you” “Learn to manage money, or the lack of it will manage you” Keep your checkbook balanced Keep your checkbook balanced Duplicate checks Duplicate checks NO Hot checks, EVER!! NO Hot checks, EVER!! CAREFUL with your DEBIT or ATM card! CAREFUL with your DEBIT or ATM card!

Why Must I Budget? A budget removes the “management by crisis” from your finances A budget removes the “management by crisis” from your finances Managed money goes farther Managed money goes farther Removes money fights, guilt, shame, & fear from marriage & life Removes money fights, guilt, shame, & fear from marriage & life Removes a lot of stress and over-spending Removes a lot of stress and over-spending Use a zero-based budget & an envelope system Use a zero-based budget & an envelope system

Dumping Debt Stop borrowing money! Stop borrowing money! Credit Cards Credit Cards Cars Cars Houses Houses Boats, SeaDoos, Motorcycles Boats, SeaDoos, Motorcycles Student Loans Student Loans Start paying off any existing debt as soon as you start drawing a paycheck Start paying off any existing debt as soon as you start drawing a paycheck

The “Nevers” of Smart Money Never loan money to family or friends Never loan money to family or friends Never co-sign a loan for someone else Never co-sign a loan for someone else Never use Cash-Advance, Rent-to-own, Title Pawning, or Tote-the-Note Car Lots Never use Cash-Advance, Rent-to-own, Title Pawning, or Tote-the-Note Car Lots Never lease a vehicle Never lease a vehicle Never buy a new car (until you’re rich!) Never buy a new car (until you’re rich!) Never get a Home Equity Loan Never get a Home Equity Loan Never take out a 30-year mortgage Never take out a 30-year mortgage Never take out an ARM or Balloon mortgage Never take out an ARM or Balloon mortgage

The “Nevers” of Smart Money Never get a credit card to “build your credit” Never get a credit card to “build your credit” Never carry a balance on a credit card Never carry a balance on a credit card Never get or allow your kids to get a credit card Never get or allow your kids to get a credit card Never get a debt consolidation loan Never get a debt consolidation loan “How much could you give, save, blow, and give if you didn’t have any payments?”

Steps Out of Debt Save money! Sell something! Part-time job or overtime Use the Debt Snowball

Debt Snowball ItemTotalMinimumNewPaymentsCumulative PayoffPayment RemainingPayments JC Penney$150$15$00Garage sale Sears$250$10$2511 VISA$500$75$100Paid11 Mastercard$1,500$90$ Car$4,000$210$ Student Loan$4,000$65$ Finish Emergency Fund Fund Retirement/College Pay off the house: House$70,000$700$1,

Investing Keep your investments DIVERSIFIED Keep your investments DIVERSIFIED Save long-term with tax-favored dollars. Save long-term with tax-favored dollars. Tax deferred Tax deferred Pre-tax Pre-tax 15% of your household income to retirement 15% of your household income to retirement 401k, 403b Retirement Plans 401k, 403b Retirement Plans ALWAYS contribute amount = the company match ALWAYS contribute amount = the company match

Investing IRA – Individual Retirement Account IRA – Individual Retirement Account Must have earned income to participate Must have earned income to participate $4000 per year (changes yearly) for worker $4000 per year (changes yearly) for worker $4000 per year for non-working spouse $4000 per year for non-working spouse SEPP – Simplified Employee Pension Plan SEPP – Simplified Employee Pension Plan Self-employed may deduct up to 15% of their net profit & put into a SEPP Self-employed may deduct up to 15% of their net profit & put into a SEPP Roth IRA Roth IRA After-tax IRA that grows TAX FREE! After-tax IRA that grows TAX FREE!

Roth IRA Only available at certain income levels Only available at certain income levels Single – income up to $95,000/year Single – income up to $95,000/year Married filing jointly – income up to $150,000/year Married filing jointly – income up to $150,000/year More choices More choices You’ll be in a higher tax bracket at retirement (saves you thousands!) You’ll be in a higher tax bracket at retirement (saves you thousands!) More invested More invested More flexibility More flexibility

Flexibility of the Roth IRA Tax free and penalty free withdrawals anytime equal to contributions For emergency if emergency fund is dry After 5 years, penalty free withdrawals if: Over 59 ½ years old Death or disability First time home purchase (max $10,000)

An American Dream A 30 year old couple funds a Roth IRA at $3,000 each per year 12% growth). At 70 years old they have…. A 30 year old couple funds a Roth IRA at $3,000 each per year 12% growth). At 70 years old they have…. $5,882, TAX FREE!

An American Dream, continued The same 30 year old couple made $40,000 and saved 15% in a 401k ($6000/year, 12% growth). At 70 years old they have…. The same 30 year old couple made $40,000 and saved 15% in a 401k ($6000/year, 12% growth). At 70 years old they have…. $5,882, in the 401k

An American DREAM!! That 30 year old couple, DEBT FREE, saved $1000 per month. At 70 years old they will have That 30 year old couple, DEBT FREE, saved $1000 per month. At 70 years old they will have$11,764,772.51!!! This can be your American REALITY!

An American DREAM!!  If their investments are making 12%, they can draw out 8% per month (leaving 4% for inflation) and live on $40,000 per month!!

Big Bargains Negotiate everything! Negotiate everything! Ask for a good deal! Ask for a good deal! Use the power of cash Use the power of cash Have patience Have patience Find good deals Find good deals Trade something of value, goods, services Trade something of value, goods, services

Where to Find Bargains Estate/Garage Sales IndividualsAuctions Couponing Flea Markets Repo Lots Refunding/RebatesForeclosures Pawn Shops Classified Ads Consignment Sales Convention at Closing Time

Buyer Beware Marketing, Marketing, Marketing Personal Selling Financing (in-house/90 days same as cash) TV, Radio, all Media Product positioning Brand Recognition Color Shelf Position Packaging

Wait overnight before making a purchase Wait overnight before making a purchase Carefully consider your buying motives Carefully consider your buying motives No amount of stuff equals contentment or fulfillment No amount of stuff equals contentment or fulfillment Never buy anything you don’t understand Never buy anything you don’t understand Consider the “opportunity cost” of money Consider the “opportunity cost” of money Seek the counsel of your spouse, parent, or friend Seek the counsel of your spouse, parent, or friend If you can’t pay for it, don’t buy it! If you can’t pay for it, don’t buy it!

Buying a House Owning a home is a great investment Owning a home is a great investment Forced savings plan Forced savings plan Inflation hedge Inflation hedge Grows virtually tax free Grows virtually tax free Buy at bottom of price range in neighborhood Buy at bottom of price range in neighborhood Location, location, location Location, location, location Have the VISION! (carpet, paint, landscaping) Have the VISION! (carpet, paint, landscaping)

Buying a House Attractive from the street & good floor plan Attractive from the street & good floor plan Have the home inspected and appraised Have the home inspected and appraised 15 year mortgage only 15 year mortgage only Payment no more than 25% of take-home Payment no more than 25% of take-home At least 10% down At least 10% down

Buying a House Original Amount YearsPayment Paid Out in 10 years Balance $95, years $907/mo.$108,840 ($907*12 *10) $44,000 $95, years $697/mo.$83,640 ($697*12 *10) $83,000

How to Finance a House Conventional Down payments from 5% - 20% or more 20% down saves you PMI FHA – Insured by HUD-The government Charges MIP (Mortgage Insurance Premium) for the life of the loan Lower down payment Higher interest rate

VA – Insured by the Veterans Administration Designed to benefit the veteran Owner Financing – you pay the owner Can be creative in the structure of the loan

ARM – Adjustable Rate Mortgages ARM – Adjustable Rate Mortgages Interest rate changes on a schedule (every X number of years) Interest rate changes on a schedule (every X number of years) BAD DEAL!!! BAD DEAL!!! More than 35% of ARMs are adjusted inaccurately More than 35% of ARMs are adjusted inaccurately Fixed Rate Mortgage – Fixed Rate Mortgage – Interest rate is fixed for the term of the loan Interest rate is fixed for the term of the loan BEST DEAL!! BEST DEAL!!

Gotta Have Insurance! Insurance is used to transfer risk Insurance is used to transfer risk Homeowner’s or Renter’s Homeowner’s or Renter’s Auto Auto Health Health Disability Disability Life Life Long-term Care Long-term Care

Gotta Have Insurance! Homeowners Homeowners Home – replacement cost Home – replacement cost Contents – update this as your stuff increases Contents – update this as your stuff increases Liability Liability Renters Renters Personal belongings Personal belongings Liability Liability

Gotta Have Insurance! Auto Auto Liability Liability Full Coverage (comprehensive/collision Full Coverage (comprehensive/collision Umbrella Umbrella Can be purchased if you have auto & home Can be purchased if you have auto & home Need once you have some assets Need once you have some assets

Gotta Have Insurance! Health Health Buy through work to get best rates Buy through work to get best rates Self-employed can use an MSA (Medical Savings Account) or HSA (Health SA) Self-employed can use an MSA (Medical Savings Account) or HSA (Health SA) Disability Disability To replace lost income due to short term or permanent disability To replace lost income due to short term or permanent disability Should be for 65% of your take home pay Should be for 65% of your take home pay Know what the elimination period is Know what the elimination period is

Gotta Have Insurance! Life Life This is really death insurance for your family This is really death insurance for your family Term Life Insurance Term Life Insurance For a specified period For a specified period Cheaper than other types Cheaper than other types No savings plan built in No savings plan built in Cash Value Insurance Cash Value Insurance For life For life More expensive in order to fund the savings More expensive in order to fund the savings

Why Not Cash Value Insurance? Much more expensive than term Much more expensive than term Historically Low Returns Historically Low Returns When you die with cash value, the company keeps the cash in most cases When you die with cash value, the company keeps the cash in most cases Very high fees Very high fees

How to Buy Life Insurance Buy low-cost level term Buy low-cost level term Do not forget your spouse Do not forget your spouse No fancy options No fancy options Need about 10X your annual salary Need about 10X your annual salary