1. What it Takes to Become a Millionaire

2. Americans are Obsessed with Millionaires…
Do an Amazon Search on books with “Millionaire” in their title: over 1,370 books…
TV Shows - Survivor winner $1 million
“Who Wants to Be a Millionaire”
“Joe Millionaire”
“Deal or No Deal”
Lottery
How hard is it to become a millionaire?

3. Not Very Hard…
If a 30 year old making $50,000 a year (plus 3% raises each year), saving 10% of their income with a 10% return each year, could expect to hit millionaire status at age 59. If they work until the traditional retirement age of 65, they will have over 2 million saved up… N
Personal Finance Chapter 1

4. What can you do…
Start Saving Early…

5. The Importance of Starting Early
Earning 9% interest

6. What Happens When you Wait…
Earning 9% interest

7. Top 5 Ways to Become a Millionaire…
Earn Income
Live Within Your Means
Save Money
Invest Wisely
Stick With Your Plan
Source: GenXFinance.com

8. Misconceptions… Spending is a sign of wealth.
You don’t have to worry about money when you are young.
Those who buy very expensive things always have more wealth than people who buy less expensive things.
You can’t spend money when your bank account is empty.
There are no consequences to spending more money than you have.

9. Millionaire Next Door Research Found:
Most millionaires are college graduates
Only 19% of millionaires received money from a trust fund or estate.
Most millionaires drive Fords, Chryslers or Chevrolets.
Most millionaires wear inexpensive clothes.
Few millionaires lease cars
Most millionaires are homeowners
Only 17% of millionaires attended a private elementary or high school

10. Where do you begin…
Create a Financial Plan

11. Chapter 1 Personal Finance Basics & the Time Value of Money

12. Chapter 1 Learning Objectives
Analyze the process for making personal financial decisions
Develop personal financial goals
Assess personal and economic factors that influence personal financial planning
Determine the personal and financial opportunity costs associated with personal financial decisions
Identify strategies for achieving personal financial goals for different life situations

13. The Financial Planning Process
Objective 1: Analyze the process for making personal financial decisions
Personal Financial Planning is the process of managing your money to achieve personal economic satisfaction
Advantages of Personal Financial Planning are:
Increased effectiveness in obtaining, using and protecting financial resources
Increase control of one’s financial affairs
Improved personal relationships
Sense of freedom from financial worries
Personal Finance Chapter 1

14. The Financial Planning Process (continued)
Six-step procedure for Financial Planning
Determine your current financial situation.
Develop your financial goals.
Identify alternative courses of action.
Evaluate your alternatives.
Create and implement your financial action plan.
Review and revise your plan.

15. The Financial Planning Process (continued)
Step 1: DETERMINE YOUR CURRENT FINANCIAL SITUATION
Determine current financial situation regarding income, savings, living expenses, and debts
Prepare a list of current asset and debt balances and amount spent for various items
Match financial goals to current income and potential earning power

16. The Financial Planning Process (continued)
Step 2: DEVELOP YOUR FINANCIAL GOALS
Identify feelings about money and the reasons for those feelings
Determine the source of your feelings about money
Determine the effects of economy on your goals and priorities
Make sure that your goals are your own and are specific to your situation

17. The Financial Planning Process (continued)
Step 3: IDENTIFY ALTERNATIVE COURSES OF ACTION
Possible courses of action can be:
Continue the same course of action
Expand the current situation
Change the current situation
Take a new course of action
Creativity in decision making is vital to effective choices
“Do nothing” can be a dangerous alternative

18. The Financial Planning Process (continued)
Step 4: EVALUATE YOUR ALTERNATIVES
CONSEQUENCES OF CHOICES
Opportunity cost - What you give up
when you make a choice
The cost or trade-off of a decision cannot always be measured in dollars. Sometimes the cost is your time
EVALUATING RISK
Uncertainty is a part of every decision.
Best way to analyze and minimize risk is to gather information from financial planning sources. (Exhibit 1-3)

19. The Financial Planning Process (continued)
Step 5: CREATE AND IMPLEMENT YOUR FINANCIAL ACTION PLAN
Develop an action plan that identifies ways to achieve financial goals
Possible action plans can be increasing savings, reducing spending, or making provisions for taxes
To implement action plans you may need assistance from others

20. The Financial Planning Process (continued)
Step 6: REVIEW AND REVISE YOUR PLAN
Financial planning decisions need to be assessed regularly
Complete review should be done at least once a year
Regular reviews of decision-making process can help in making priority adjustments to achieve financial goals

21. Developing Personal Financial Goals
Objective 2: Develop personal financial goals
TYPES OF FINANCIAL GOALS can be:
Influenced by the time frame in which you want to achieve your goals
Influenced by the financial need that drives your goals
TIMING OF GOALS
Short-term, intermediate and long-term goals
Long term goals should be planned in coordination with short-term and intermediate goals
GOALS FOR DIFFERENT FINANCIAL NEEDS
Consumer product goals
Durable-produce goals
Intangible-purchase goals

22. Developing Personal Financial Goals (continued)
GOAL-SETTING GUIDELINES
Goals should be realistic
Goals should be stated in specific terms
Goals should have a time frame
Goals should indicate the action to be taken
Discuss some of your goals

23. Smart goals are specific….
Specific goals are much more likely to be accomplished than vague ones
Smart goal setting is ensured by following certain steps when creating goals for yourself. SMART is an acronym for the following characteristics that should be present in your goal.
A)Realize setting goals and committing to them can benefit them both short and long term.
B) Be ready and willing to risk failure in order to attempt reaching higher goals.
C) Use failures and mistakes as learning opportunities; not get discouraged when faced with momentary setback
Specific. This is a Goal Statement, and should be a short paragraph of one or two sentences describing the goal.
Measurable. This is a description of how to measure the goal; how can you tell when the goal is accomplished?
Achievable. This portion of the work sheet should go over what actions may be required to reach the goal, what obstacles may arise, and how such blocks can be handled and overcome.
Relevant. Why is this the goal? How is this important to you, and what benefits will come to you by reaching this goal? ("R" can also stand for Realistic).
Timely. This is the section where you lay out your time line - there should be a definite start and end date and any milestones should have clearly defined parameters.

24. Influences on Personal Financial Planning
Objective 3: Assess personal and economic factors that influence personal financial planning
LIFE SITUATION AND PERSONAL VALUES
Adult life cycle stage
Marital status, household size, and employment
Major events
Graduation, marriage, career change, children, retirement, etc
Values
What values are important to you?

25. Influences on Personal Financial Planning (continued)
ECONOMIC FACTORS
Forces of Supply and Demand and prices
Study of how wealth is created and distributed
Economy includes different institutions
Federal Reserve Bank and it’s role in the economy

26. Influences on Personal Financial Planning (continued)
GLOBAL INFLUENCES
Global marketplace influences financial activities
American companies compete against foreign companies for US dollars
Balance of exports and imports
Foreign investments and their role in the US Money Supply
The level of Money Supply affects interest rates

27. Influences on Personal Financial Planning (continued)
ECONOMIC CONDITIONS
Consumer The value of the dollar prices changes in inflation
Consumer The demand for goods and spending services by individuals and households
Interest rates The cost of money; cost of credit when you borrow; return on your money when you save or invest

28. Influences on Personal Financial Planning (continued)
Acquisitions
(automobile, home, college education, investments, insurance, retirement fund)
Personal
Opportunity Costs
(time, effort, health)
Financial
Opportunity Costs
(Interest, liquidity,
safety )

29. Opportunity Costs and the Time Value of Money
Every financial decision involves giving up something to obtain something else
PERSONAL OPPORTUNITY COSTS
Time
Other personal opportunity costs can be related to health, leisure etc.
Personal resources like financial resources require careful management

30. Opportunity Costs and the Time Value of Money (continued)
FINANCIAL OPPORTUNITY COSTS
Time Value of Money
Increases in an amount of money as a result of interest earned.
Saving today means more money tomorrow. Spending means lost interest.
Saving and spending decisions involve considering the trade-offs. Current needs can make spending worthwhile.

31. Opportunity Costs and the Time Value of Money (continued)
INTEREST CALCULATIONS
Three amounts are required to calculate the time value of money
Principal
Interest rates
Time

32. Opportunity Costs and the Time Value of Money (continued)
COMPUTING SIMPLE INTEREST
(Amount in savings) x (annual interest rate) x (time period) = (interest)
For Example:
$100 x 5% x 1 (1 year) x .05 x 1 = $5.00 In one year you have $100 in principle plus $5.00 in interest for a total of $105 at the end of the year

33. Opportunity Costs and the Time Value of Money (continued)
FUTURE VALUE OF A SINGLE AMOUNT
Future value is the amount to which current savings will increase based on a certain interest rate and a certain time period
Future value is also call compounding - earning interest on previously earned interest
FUTURE VALUE OF A SERIES OF DEPOSITS
Future value can be computed for a single amount or for a series of deposits called annuities
Question:
If you desire to have $10,000 in savings 8 years from now, what amount would you need to deposit in an account that earns 5%? $10,000 x .677 =$6,770 (Used Exhibit 1-8C on pg 19)

34. Opportunity Costs and the Time Value of Money (continued)
PRESENT VALUE OF A SINGLE AMOUNT
Present Value is the current value of a future amount based on a certain interest rate and a certain time period
Present value calculations are also called discounting
The present value of the amount you want in the future will always be less than the future value (See Exhibit 1-8C)
PRESENT VALUE OF A SERIES OF DEPOSITS
Present value can be computed for a single amount or for a series of deposits (See Exhibit 1-8D)

35. Rule of 72
The Rule of 72 provides a guideline for determining how long it takes your money to double and illustrates the power of compound interest.
Question:
You are earning 8% interest. How long will it take for you money to double? / 8 = 9 years
This rule can also be used to determine the interest rate you need to earn to double your money. Question:
If you would like your money to double in 12 years, what is the rate of return you need to earn on your money? / 12 = 6%

36. Achieving Financial Goals
DEVELOPING A FLEXIBLE FINANCIAL PLAN
A financial plan is a formalized report that...
Summarizes your current financial situation
Analyzes your financial needs
Recommends future financial activities
Your financial plan can be created by you, with assistance from a financial planner, or made using a money management software package

37. Achieving Financial Goals (continued)
IMPLEMENTING YOUR FINANCIAL PLAN
Develop good financial habits
Use a well conceived spending plan to help you stay within your income, while allowing you to save and invest for the future
Have appropriate insurance protection to prevent financial disasters
Become informed about tax and investment alternatives