Avoiding Financial Trouble
Prince William AreaFinancial Education
Program
Financial Management
From Cradle to Grave…
Start
Money Problems Involve
Lack of Planning Value Conflict Unrealistic Goals Emotional Uses of
Money Needs
vs Wants
4
Setting Goals
Clearly define your goals– Personal, financial, career,
social, etc.
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
Credi
tors
OOF!
6
Why?
$2,000 Times .02 = $40
Credit Card Issuers often require a minimum monthly payment of 2% to 3% Payment
Interest
Principal
InterestRate
18.5% divided by 12 = 1.54%
$40 - $31 = $9
$2,000 times 1.54% = $31
7
Tips on Debt 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.”
Good Debt – Borrowing for Long
Term Investment
Slims’s Diner
8
Dealing With Too Much Debt
HIGHPriority Debts
LowPriority Debts
Housing related - including utilities & condo or association fees Food Transportation Insurance Taxes
Credit cards Other “consumer” loans Doctor and hospital bills Professional services
9
Tips on Saving
Pay Yourself First!– Treat Savings as a Fixed Expense– Try to Save at Least 5% - 10% of your Gross
Salary Build up 3 to 6 Months of Living
Expenses– Liquidity Account (safety)
Start Investing
10
Investing – “The Market”
Bull & Bear
Markets
11Source:www.ricedelman.com 11/05/01
12
Beware of Percent Comparisons
Start Change ResultGrowt
h
$1,000
+$1,00
0 $2,000100.0
%
$2,000 -$1,000 $1,000 -50.0%
13
S&P 500 Stock Index vs. 6% Annual Return - 1971 to 2003 – Cumulative
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
$10,000 Initial Investment
Do
llar
s
$281k
$463K
Years
$355k
$68k
14
S&P 500 Stock Index 1971 to 2003% Change in Value by Year
$10,000 Initial Investment
0.4
0.6
0.8
1
1.2
1.4
1.6
15
Procrastination(Waiting to Start)
22 30 6531
$18,000
9 Years
$70,000
35 Years
Age$2,000 per Year at 9%
$579,488
$470,249
Jack
Jill
16
Income and ExpensesLiving Within Your Means:
Spend Less Than You Earn Save What You Do Not Spend Invest What You Save
Income
Expenses
17
Some Final Thoughts
Delayed gratification Acceptance of
responsibility Dedication to truth Balance