Personal Finance Planning

1. Personal Finance Planning Daniel Mui, BSc, MBA 2010 – 10 - 17 The Church of God in San Francisco

2. Life planning – goal in life • Know where is the $ from • Know where does the $ go • Purpose of $ • $ spending habit

3. Agenda • What do you expect from workshop? • What is money for? How much is needed? Enough? Goal? • Exercise 1 – Who do you know? • Knowledge is wealth • Basic principle of Money • Earning = Expense (+Tax) + Saving • Exercise 2 – Where is the money from and where does it go? • Labor Vs Capitalist • ROI, Risk & Return on Investment • Leverage of money • Exercise 3 Case study on Mortgage examples • Responsibility as a provider • Retire early • Work for money or money works for you? • Q&A

4. What do you expect from workshop? • Learn how to manage your bills? • Make more money? • Retire early? • Expand your knowledge? • Sit, hear, sleep and get rich? • Desire to get rich? • Willing to work toward the goal?

5. What do you expect from workshop? • This is purely a sharing session. Neither the speaker or the organizer resumes any liability on the consequence of your own finance planning. Please discuss with your accountant for the detail of your personal finance planning. • Finance planning --- do it at your own risk. Don’t do it at your destiny of failure. • Life is fragile, handle with God!

6. What is money for? How much is needed? Enough? • Can you bring money to your coffin for your future usage? • Temporary • Only used on earth • Need = Want ? • How much is enough? • Write down your expectation as of today.

7. Life planning with $ • Money management habit • Milestones in life • Car • Master Degree • Marriage • House • Other investment • Business • Children • College for children • Retirement • Building Church • Helping community and world

8. Exercise 1 – Who do you know? • Write down what do you think of finance planning. Do you have one already? • 5 people that you spend most of your time. • What do these 5 people do about financial plan? What are their life styles with their spending? • Write down 2 people that you think are financially well planned. What are their value and how they succeed?

9. Conclusion 1 • 與 智 慧 人 同 行 的 、 必 得 智 慧 ． 和 愚 昧 人 作 伴 的 、 必 受 虧 損 。 箴 言 13:20 • He that walketh with wise men shall be wise: but a companion of fools shall be destroyed. Proverbs 13:20

10. How much is needed? Enough? • Warren Buffet, the 2nd richest American man who has donated ~ $31 billion to charity. • He still lives in the same, small 3-bedroom house in midtown Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. • He drives his own car everywhere and does not have a driver. • He does not travel by private jet, although he owns the world's largest private jet company. • Warren Buffet does not carry a cell phone, nor has a computer on his desk.

11. His advice to young people: 'Stay away from credit cards and invest in yourself, and remember: • Money doesn't create man, but it is the man who created money. • Live your life as simple as you are. • Don't do what others say. Just listen to them, but do what makes you feel good. • Don't go on brand name. Wear those things in which you feel comfortable. • Don't waste your money on unnecessary things. Spend on those who really are in need. • After all, it's your life. Why give others the chance to rule it?

12. Knowledge is power • If you can ask Warren Buffet one question, what will you ask? • Which stock you are going to invest? • Warren answers: • He won’t tell it because it depends on the time and market • What do we need to know to make use of information?

13. Knowledge is wealth • 3 people paid their loans • 3 men owed $100 each to a friend. When this friend died, these three men came to pay back their loans. • The first man put $100 money note at the grave and said goodbye to his friend. • The second man came. He took the $100 money note and left a $200 cash check at the grave. • The third man came. He took the $200 cash check and left a $300 cross check with payable only to the dead man.

14. Basic principle of Money • Earning = Expense • Earning + Credit = Expense • Earning + Credit + loan = Expense + Tax • Earning = Tax + Offering + Donation + Saving + Expense

15. Exercise 2 – Household balance sheet • Balance Sheet • A healthy budget should have 5-10% disposable income. • The saving % will depend on individual finance planning

16. Labor Vs Capitalist • Price = Cost + Profit • Labor  Work  salary • Capital  Investment  profit • e.g. Burger shop Vs McDonald • hair stylist, engineer, worker • Landlord, Investor

17. ROI, Risk & Return on Investment • Investment – seed • Risk • Return • Assume • 4% • 10 years: • 48% Dow Jones Industrials NYSE Composite NASDAQ Composite

18. Risk of stock • Oct 19,1987 • Dow Jones Industrial Average (DJIA) dropped by 508 points to 1739 (22.6%) • By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. New Zealand's market was hit especially hard, falling about 60% from its 1987 peak

19. Risk – 1997 Asia Financial Crisis • The Thai stock market dropped 75% in 1997. • 20 October and 23 October the Hang Seng Index dropped 23% • The HKG Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies. • Singapore Straits Times Index was allowed to drop 60% • Property market crashed  Negative assets for years!

20. 2000-2010 US stock market

21. Changing environment • Know the change in the finance system. Learn the new system! • $50,000 could buy a house 20 years ago. House was taken as personal consumption but now is an investment • Most people were brought up with worker mentality but more and more people have their small business • Buying stock was considered speculation before but it is a popular investment way. People become share holder who own the business! • Insurance was considered as lack of faith in God’s protection but now is more acceptable as a consideration for the family

22. Exercise 3 – Mortgage leverage of money • Loan & mortgage • e.g. House of $500,000 • 10% down payment, 90% mortgage loan • House appreciate 5% annually • Mortgage interest 4.375% annually

23. Mortgage leverage simple sample

24. Mortgage leverage detail sample Must see spreadsheet for detail calculation and ASSUMPTIONS

25. Other discussion-- 401K & retirement • The 401(k) plan is a type of employer-sponsored retirement plan. It allows a worker to defer the income up to $15,500/year for retirement. The income taxes on the saved money and earnings are also deferred until withdrawal (normally after age 59.5). Very often employer may match a percentage or up to an amount of the 401k contribution. • Benefit: • Employer match • Allow borrowing for certain conditions (with tax & penalty) • First home, hardship, etc • Deferred income tax on the 401k contribution • It may not be an advantage if your retirement income is more than your current income • http://www3.prudential.com/signature/retirement-101.html#

26. Retire early? • Health • Children • Life style • Income • Social Security • 401k • Social Benefits • Investment • Expense • Vacation, travel • Learning & sharing

27. Reference • http://www.consumercredit.com/budget-sheet.htm • http://financialplan.about.com/ • http://www3.prudential.com/signature/basics.html • http://www.richdad.com • http://www.oneminutemillionaire.com/challenge/ • http://www.studentfinancedomain.com/budgets/student_budget_plan.aspx • Recommend reading: • Finance news, magazine e.g. Business Times, Economics • Rich dad, poor dad – Robert Kiyosaki • The Road to Wealth – Suze Orman • The One Minute Millionaire – Mark Hansen

28. Question & Answer