Chapter 18

1. Chapter 18 Your Financial Future Starts Now

2. Your Financial Future Starts Now • Challenges ahead: • Student loans • Credit card debt • Budgeting, spending, saving • Marriage • Children • Choose wealth NOW!

3. A Look Back at the Financial Life Cycle • Increase awareness and discussion of personal finance issues. • Financial decisions affect your lifestyle; make sure they reflect your financial goals and values. • Prepare for the financial challenges, and changes, of the next few years. • Use your strongest ally on the road to personal financial success – time.

4. Women and Personal Finance: Why It’s Important • Achieving financial security is tougher for women • Know the facts that make women financially vulnerable

5. Why Are Women Financially Vulnerable? • 90% of women will be solely responsible for their financial decisions at some time in their lives. • 20% of women will never marry.   • 47% of first marriages and 49% of second marriages end in divorce.

6. Why Are Women Financially Vulnerable? (cont’d) • 75% of women do not know how much they need to save for retirement. • Women invest more conservatively than men, therefore earning less.

7. Why Are Women Financially Vulnerable? (cont’d) • Women live longer than men. • Age 65, women outnumber men 3 to 2 • Age 85, women outnumber men 5 to 2 • 75% of married women are widowed, with the average age of widowhood 56.

8. Why Are Women Financially Vulnerable? (cont’d) • Of the 12% of elderly people living in poverty, almost 75% of them are women. • 80% of the widows living in poverty were not living in poverty before widowhood.

9. Financial Independence, Especially During Retirement? • Women generally • earn less than men. • are less likely to have pensions than men. • because of lower earnings, qualify for less Social Security than men. • live longer than men. • Consequently, planning for retirement is more difficult for women than for men.

10. A Dangerous Myth… • Women must dispel the myth that “someone” will take care of them!

11. Take Responsibility for Your Financial Future • Gain knowledge. • Get involved in family investment decisions. • Develop and implement your financial plan. • Seek professional help if you lack confidence to act.

12. Financial Principles Are Gender-Neutral, But Women Should • Recognize that you live longer and may be divorced. • Get involved in your husband’s pension decisions. • Fund retirement plans and IRAs to the max. • See a financial planner, if needed.

13. Life Events: Marriage • Learn your partner’s financial history, habits, goals. • Track your expenses. • Develop a budget. • Review and revise the plan annually or when life changes occur.

14. Life Events: Marriage (cont’d) • Talk, talk, talk about your financial situation. • Seek help from a professional. • A financial planner • A financial counselor • National Foundation for Consumer Credit • Debt Counselors of America, now Myvesta.com

15. Life Events: Marriage (cont’d) • Two other important decisions • Joint or separate checking account(s) • Joint or separate credit cards

16. Life Events: Children • Birth through age 18, $153,600 • For a medium income family (i.e., $41,000 income per year), the investment increases to $1.45M by age 22 with education costs and lost wages from child-rearing.

17. Life Events: Children (cont’d) • How do you prepare? • Keep your insurance current and premiums paid – health, life, and disability • Consider a tax-free flexible spending account • Maintain adequate income and savings • Update your will and name a guardian • Review your financial plan • Start saving for education costs

18. Keys to Financial Success • How the rich become rich • Understand the difference in income and wealth • Live like a millionaire – practice frugality • Choose wealth – consider the 12 decisions

19. Why Frugality? • Sets the stage for personal finance success • Helps you spend less and save more • Helps you stretch your money • Helps you ignore marketers and realize that money, and what it buys, is not happiness

20. Choose Wealth #1: Become Knowledgeable • Knowledge • Makes it easier to avoid financial pitfalls and bad advice. • Spurs your commitment. • Helps you handle money surprises.

21. Choose Wealth #2:Don’t Procrastinate • Bad advice SLOWS your financial progress. Procrastination STOPS it……and makes your future work a lot harder.

22. Choose Wealth #3: Live Below Your Means • Spend less than you earn. • Change your attitude toward spending. • Track your spending and cut out extravagances. • Make savings automatic.

23. Choose Wealth # 4:Realize You Aren’t Indestructible • Do you need it? • Life insurance – it depends? • Health insurance – YES! • Disability insurance – YES! • Lead a healthy lifestyle.

24. Choose Wealth #5: Protect Your Stuff (Look Out for Lawyers) • Home and auto insurance – a necessity. • Liability coverage – too little can ruin your financial future. • Raise deductibles to keep costs down. • Increase your emergency fund. • Consider an umbrella policy.

25. Choose Wealth # 6: Embrace the “B” Word (Budget) • A budget, or cash flow plan forces you to control spending and save by • Using restraint when spending. • Thinking about what you buy. • Living below your means. • Being frugal. • To develop a budget, track your spending and eliminate expenses.

26. Choose Wealth #7: Reinvent and Upgrade Your Skills • To prepare for future job insecurity, • Make sure your talents and skills are needed. • Continue to educate yourself – your best investment for the future.

27. Choose Wealth #8: Hide Your Plastic • Use restraint to avoid credit card DEBT. • 20% of college students have 4 or more cards. • People spend about 30% more with cards than with cash.

28. Choose Wealth #9:Stocks Are Risky, But Not as Risky as Not Investing • If your investment horizon is long, invest in stocks and ride the risks up and down! • Use diversification to reduce risk. • Use your time horizon to guide your asset allocation. • Consider a stock index mutual fund.

29. Choose Wealth #9:Stocks Are Risky, But Not as Risky as Not Investing • Don’t let the fear of stock risk keep you from attaining your goals – don’t ignore the greater danger of inflation and taxes.

30. Choose Wealth #10: Exploit Tax-Favored Retirement Plans to the Max • Remember the advantages of tax-deferral: • Contributions aren’t taxed. • Earnings aren’t taxed • Eligibility for employer match

31. Choose Wealth #11: How Many Children You Have • Balance your values, goals, personal life, and finances – and remember, children cost money. Plan on it!

32. Choose Wealth #12: Stay Married • Married people tend to earn more and accumulate more than single people living alone or together. • Income of divorced women with children is 40% of that of married couples.

33. Choose Wealth #12: Stay Married • Why do married couples do better financially? • Cooperation skills from marriage translate into a job skill. • Money management is necessary. • Unnecessary spending is reduced. • The single lifestyle is expensive.

34. The Trap of Too Much Debt • Little capacity, but the potential for lots of debt – college students and credit • Part of the culture: borrowing more than you should • Bankruptcies at an all-time high

35. Six Keys to Successful Debt Management • Key #1: The Obvious: Spend Less Than You Earn and Budget Your Money • Use a budget to control spending and build savings. Pay yourself 1st! • Key #2: Know The Costs • Know the long-term costs of borrowing and avoid “high-priced” lenders.

36. Six Keys to Successful Debt Management (cont’d) • Key # 3: Understand the Difference Between Good and Bad Debt • Borrowing makes sense when you can afford the downpayment and the future payments, and the purchase • fulfills one of your goals • outlives the financing • provides a return that is greater than the cost (i.e., the effects of depreciation)

37. Six Keys to Successful Debt Management (cont’d) • Key # 4: Make Sure You Can Repay What You Borrow – Set Your Own Standards • Apply the 28%, 36% mortgage ratios • Apply the debt limit ratio Debt limit ratio = total monthly nonmortgage debt payments total monthly take-home pay

38. Six Keys to Successful Debt Management (cont’d) Key #5: Keep a Clean Credit Record – It’s a Source of Emergency Money • Your credit history determines the cost of borrowing. • Your borrowing capacity is available for emergencies.

39. Six Keys to Successful Debt Management (cont’d) • How Can You Avoid Credit History Problems? • Avoid borrowing up to your limits • Pay your bills on time • Check your credit report every 2-3 years for errors

40. Six Keys to Successful Debt Management (cont’d) Key #6: Don’t Live with Bad (And Expensive) Debt In 1998, the typical U.S. family had credit card debt of $5,800

41. How Can You Avoid Bad and Expensive Debt? • Negotiate down the rate on your current credit card(s). • Eliminate the lifestyle pattern that lead to the debt. • Pay more than the minimum payments.

42. How Can You Avoid Bad and Expensive Debt? (cont’d) • Liquidate an investment, or savings, that is paying less than the interest rate charged on debt. • Try to find a cheaper source of money (home equity loan, life insurance, friends or family).

43. How Can You Avoid Bad and Expensive Debt (cont’d) To follow this path, a serious lifestyle change may be necessary!

44. Getting Started on Your Financial Future • Begin with a budget and a plan. • Manage your cash – monitor bank fees and ATM charges. • Avoid “bad” debt; get rid of it if you have it. • Build a safety net – health, disability, property and liability, and life insurance. • Start investing for future goals. • Take advantage of tax-favored retirement plans.

45. Nothing Helps Your Financial Plan if You Procrastinate THE MOST IMPORTANT STEP! Follow Axiom15

46. Summary • Financial independence for women is tougher – be aware of the problems and start planning NOW! • Consider how marriage and children can help you match your financial future with your values and goals. • Share the habit of the wealthy – frugality.

47. Summary (cont’d) • Learn and implement the 12 decisions that will help you “choose wealth.” • Meet the financial challenge of controlling debt; follow the 6 keys to successful debt management. • Develop a basic financial plan for your future….but remember to “Just Do It.”