Avoiding Financial Trouble Prince William Area Financial Education Program

Financial Management From Cradle to Grave… Start

Money Problems Involve u Lack of Planning u Value Conflict u Unrealistic Goals u Emotional Uses of Money Needs vs Wants

4 Setting Goals u Clearly define your goals –Personal, financial, career, social, etc. u Goals should –Be measurable –Have a time frame (deadline) –Be visual

5 Five Leading Causes of Overspending 5 - Thinking That Money Can Buy Happiness 4 - Wanting Only the Best for Your Children 3 - Trying to Keep Current 2 - Taking Out Car Loans 1 - Abusing Credit Cards Creditors OOF!

6 Why? u $2,000 Times.02 = $40 Credit Card Issuers often require a minimum monthly payment of 2% to 3% Payment Interest Principal Interest Rate u 18.5% divided by 12 = 1.54% u $40 - $31 = $9 u $2,000 times 1.54% = $31

7 Tips on Debt u Bad Debt – Borrowing for Consumption From Personal Finance For Dummies™, 2nd Edition by Eric Tyson. Copyright © 1996 by Eric Tyson. All rights reserved. Reproduced here by permission of IDG Books Worldwide, Inc. …For Dummies is a registered trademark under exclusive license to IDG Books Worldwide, Inc., from International Data Group, Inc.” u Good Debt – Borrowing for Long Term Investment Slims’s Diner

8 Dealing With Too Much Debt HIGH Priority Debts Low Priority Debts u Housing related - including utilities & condo or association fees u Food u Transportation u Insurance u Taxes u Credit cards u Other “consumer” loans u Doctor and hospital bills u Professional services

9 Tips on Saving u Pay Yourself First! –Treat Savings as a Fixed Expense –Try to Save at Least 5% - 10% of your Gross Salary u Build up 3 to 6 Months of Living Expenses –Liquidity Account (safety) u Start Investing

10 Investing – “The Market” Bull & Bear Markets

11 Source: 11/05/01

12 Beware of Percent Comparisons StartChangeResultGrowth $1,000+$1,000$2, % $2,000-$1,000$1, %

13 S&P 500 Stock Index vs. 6% Annual Return to 2003 – Cumulative $10,000 Initial Investment Dollars $281k $463K Years $355k $68k

14 S&P 500 Stock Index 1971 to 2003 % Change in Value by Year $10,000 Initial Investment

15 Procrastination (Waiting to Start) $18,000 9 Years $70, Years Age $2,000 per Year at 9% $579,488 $470,249 Jack Jill

16 Income and Expenses Living Within Your Means: u Spend Less Than You Earn u Save What You Do Not Spend u Invest What You Save Income Expenses

17 Some Final Thoughts u Delayed gratification u Acceptance of responsibility u Dedication to truth u Balance

18 Consumer Debt Ratios u Debt to Income Ratio –Monthly Consumer Debt Payments –15% Monthly Debt to Monthly Income u Debt Burden Ratio –Total Consumer Debt –25% Total Debt to Annual Income