Basics of Personal Financial Planning & Money Management

1. Basics of PersonalFinancial Planning & Money Management

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

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

4. Other Uses for Your Savings • Purchases • Purchase with cash • Don’t borrow money to buy the things you want • Wealth Building- Retirement, College Funding, etc. • Be consistent over time • 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 • It’s easy when you never see the money

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

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

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

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

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

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

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

12. Debt Snowball

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

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

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

16. 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)

17. An American Dream • A 30 year old couple funds a Roth IRA at $3,000 each per year ($500/mo @ 12% growth). At 70 years old they have…. $5,882,386.26 TAX FREE!

18. An American Dream, continued • The same 30 year old couple made $40,000 and saved 15% in a 401k ($6000/year, $500/mo @ 12% growth). At 70 years old they have…. $5,882,386.26 in the 401k

19. An American DREAM!! • 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!

20. 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!!

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

22. Where to Find Bargains

23. 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

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

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

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

27. Buying a House

28. 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

29. How to Finance a House • 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

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

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

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

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

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

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

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

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