Download - Introduction To Good $ense March 2010
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Introduction to Good $enseIntroduction to Good $ense
March 2010
North Way Oakland
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Goals of Today
• Leave with a vision for purposefully managing your finances!
• Provide an overview of some practical tools.
• Commit to relevant next step for you!
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“I am positive that personal finance is 80% behavior and 20%
head knowledge.”
Dave RamseyThe Total Money Makeover
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Would you fire yourself,
if you were your own personal CFO?
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In America today …
49% of people could cover less than one month’s expenses if they lost their
income.
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In America today …
58% have never calculated what it will cost to retire
59% hope to live better retired then during working years
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In America today …
60% of people don’t pay off their creditcards every month
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In America today …
70% of people spend more thanthey make
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In America today …
80% of graduating college seniors have credit-card debt before they even have
a job!
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In America today …
19% of bankruptcy filings were from college students
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Would you fire yourself,
if you were your own personal CFO?
Most Americans Have to Say Yes!
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Need to Change!
1) Ask ‘how much’ instead of ‘how much down and how much a month’!
2) Reach the point where what people think is not primary motivator!
3) ‘Live like no one else, so later you can live like no one else.’ -- Dave Ramsey
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“Great spirits have always found violent opposition from mediocre
minds.”
Albert Einstein
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75% of Forbes 400‘best way to build wealth is tobecome and stay debt free’
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Dave Ramsey’s 7 Baby Steps
1. $1,000 in Emergency Fund
2. Get out of Debt
3. 3 - 6 Month Emergency Fund
4. Save 15% of Gross Income for Retirement (also review insurances)
5. College Funds
6. Pay House Off Early
7. Build Wealth & Give it Away!
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Video 1: ‘Super Saving’(5:24 - 14:54)
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78% of people will have a financialemergency in 10 year period.
Fortune Magazine
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“I am positive that personal finance is 80% behavior and 20%
head knowledge.”
Dave RamseyThe Total Money Makeover
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“Budgeting is simply telling your money what to do.”
John Maxwell
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“Where your treasure is, there your heart will be also.” Matthew 6:21
Every financial decision is also a spiritual decision.
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• Gives accurate data
• Improves COMMUNICATION
• Allows for mid-course corrections
• Provides ACCOUNTABILITY
Benefits of Record Keeping:
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The Truth about Record Keeping:
• It’s simpler than it seems
• It takes less time than you think
• It does not require a Ph.D. in math
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Zero Based Budgeting
Plan how you are going to spend every dollar at the beginning of the month.
Household Income – Monthly Expenses = ZERO!
Avoid still having month left at the end of your money.
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Review Spending Plan
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Three Systems:
• Envelope
• Written record
• Electronic
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Credit Card Studies:
• Family spending using a credit card versus cash– Amount spent (with a credit card) rose between 20%
and 30%.
• Camera purchase using cash versus a credit card– Cash group paid an average of $29.58– Credit card group paid an average of $52.67
• MIT Study 2 Groups of Students (Celtics Tickets)– Credit card group paid 2x as much
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Two Reasons Credit Card Users Spend More
• Using a credit card is psychologically different than using cash. Cash HURTS more!
• No RECORD of how much we’ve charged until the end of the month
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Credit Card Rules:
• Use only for BUDGETED items
• Pay the balance in FULL every month
• If you violate rule one or rule two, CUT up your cards
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Get out of Debt
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Biblical Guidelines:
• Avoid debt
“The borrower is servant to the lender.” Proverbs 22:7
• Repay debt
“The wicked borrow and do not repay, but the righteous give generously.” Psalm 37:21
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Debt Facts …
The total American consumer debt ismore than $2.8 trillion
$2,800,000,000,000
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Debt Facts …
The average household credit carddebt has increased approximately
2.5x in the past 17 years
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Debt Facts …
The average balance per credit card-holding household is more than
$9,300
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Debt Facts …
The credit card industry takes in $43 billion per year in additional,
unexpected fees from the consumer, such as late payments, over-the-limit, and balance
transfer fees.
Late fees alone bring in more than $11 billion.
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Three Spiritual Dangers of Debt:
• PRESUMES on the future “… you do not even know what will happen tomorrow.” James
4:13, 14
• DENIES God the opportunity to Teach us“My God will meet all your needs according to his glorious riches in
Christ Jesus.” Philippians 4:19
• FOSTERS envy and greed “Don’t be greedy for what you don’t have. Real life is not measured
by how much we own.” Luke 12:15
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Five Kinds of Debt:
• Home
• Education
• Auto
• Business
• CREDIT CARD
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Debt ExampleYou owe $7,200 @ 18.1%
(Minimum payment = 2% of the balance or $10/month whichever is greater.)
You Pay Total Paid Time
$Minimum/month $23,049 30+ years$144/month $13,387 8 years$144 + $100/month $ 9,570 3 years
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Is God big enough and are you committed enough to find a little over $3 a day somewhere in your expenditures?
Key Question:
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Video 2: ‘Dumping Debt’(1:17:33 - 1:30:52)
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The Debt Snowball
• List your debts from smallest to largest• Attack your SMALLEST debt first.• Pay the MINIMUM on the rest• As a debt is repaid, ROLL the amount you
were paying to the next largest debt.• Incur NO new debt!
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Ways to find additional money for the Debt War:
1. Sell Assets (A great jump start)
2. Free up cash from daily spending(Most important step)
3. Increase income via part-time job(During debt repayment)
4. Others ?
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Reduction Plan Example
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Debt Repayment a Great Investment
• Guaranteed
• Tax free
• Immediate
• High rate of return (18%+ for credit cards)
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Get Started Now!
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Arthur vs. Ben
• Both save $2,000 per year at 12% – Ben starts at 19 and stops at 26– Arthur starts at 27 and stops at 65
• Ben @ 65: $2,277,996
• Arthur @ 65: $1,532,166
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4 Tips: Starting Out
1. Don't buy an expensive car right out of school
2. Don't sign up for more credit cards
3. Don't need the nicest apartment
4. Don't need a $10k work wardrobe to 'get started'
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Video 3: ‘Buyer Beware’(48:50 - 53:14)
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What are your goals?
“we spend the first 5 - 7 years of marriagetrying to attain the standards of living
our parents attained over their lifetime.”
- Larry Burkett
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What are the consequences?
90% of marriages that end in the first 7 years blame it on money
problems
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TIME TO BUILD WEALTH!!!!
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Investing (baby step #4)
• Get your money to grow!
• Why wait until all debt is paid off?– Habits are ingrained– Easier to make a priority
• Time to invest!
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Different Goals
• Emergency Fund
• Retirement Fund
• House/Boat/Vacations/College
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Emergency Fund
• What is a money market account?– Short term, easily available– Backed by the federal government up to
$250,000– Online – Vanguard, majority of all banks
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Retirement
• Remember Ben & Arthur?– The sooner the better!
• Prioritize Retirement– 401k first if you have a company match– ROTH IRA next– Back to 401k if you have money left over
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Why Invest?
• Because it usually pays off!• $10,000 invested today for 30 years:
– @ 3% - $24,270– @ 6% - $57,430– @ 11% - $228,920
• Live like no one else, so that later, you can live like no one else!!
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Diversification
• Spread out your money– 2008:
• Bonds: +8%• US Stocks: -37%• Intl Stocks: -41%
– 2009:• Bonds: +3%• US Stocks: +26%• Intl Stocks: + 27%
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Use Mutual Funds
• Help Diversify Risks
• Safer than individual stocks
• Best way to get exposure to many stocks.
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House/Boat/Vacation/College
• Timing– Short term investing (<5 years)
• Savings accounts
– Long term investing (>5 years)• Mutual Funds (stocks and bonds)• Over the past 70 years, 9 out of every 10 5-
year rolling periods had positive returns
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Insurance
• Helps transfer risk
• Two types of Life Insurance– Cash Value or Whole Life– Term
• Recommendation: 10x annual income– Scale up or down depending on life stage
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Cash Value Insurance
• Typically more expensive, has a savings account component– Portion of premium payment is put in a
savings account– Use mutual funds for investing– High expenses
• Upon death, insurance company keeps the cash value, pays the face value
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Term Life Insurance
• Significantly cheaper than Cash Value– $125,000 coverage for 30-year old man +
family:• Cash Value: $100/month• Term: $7/month
• It is what it is – INSURANCE
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Reminder: Goals of Today
• Leave with a vision for purposefully managing your finances!
• Provide an overview of some practical tools.
• Commit to relevant next step for you!
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Your Commitment:
• Cut up Credit Cards
• Attack your Next Baby Step
• Develop a Spending Plan & Stick to It!
• Other?
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Learn More …
• Meet one-on-one to discuss
• Pick up ‘Total Money Makeover’ book
• Wexford Good $ense Full Class