time & money

The 5 Worst Mistakes You Make with Your Personal Finances

How to overcome fear, uncertainty and doubt about your present and future finances

© Time & Money, LLC - 2010 2

Researched and produced by

Sponsored by

Time & Money, LLC

Why did Money Mastery commission a study?


• Because of today’s economic conditions, many people are looking for ways to improve their financial security

• So, we hired an independent research company to study what is happening to families today as well as uncover strategies that will help them to succeed financially

• We are pleased to share this study with you!

Areas Covered

• Personal financial problems in America today

• Five mistakes that keep you from achieving financial security

• Five ways to combat those mistakes and change your financial future


PERSONAL FINANCIAL PROBLEMS IN AMERICA TODAY


National household debt

© Time & Money, LLC - 2010

• In 1980, household debt amounted to $1.6 billion

• By 2009, that amount had increased to $14 billion

• Then in 2010, despite the recession, it only dropped by $500 million to $13.5 billion

Source: Household Sector: Liabilites: Household Credit Market Debt Outstanding, Federal Reserve Bank of St. Louis, accessed August 26, 2010

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Lack of financial management skills


• A report from the Financial Crisis Inquiry Commission recently stated that the majority of Americans lack basic math skills and knowledge of fundamental economic principles

• Interestingly, the report also showed that those surveyed believed they had much more financial and math knowledge than the tests actually revealed

Source: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010

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What’s your financial IQ?


• In a recent financial IQ quiz, the average score earned by those tested was “D+”

• Areas of lowest scoring:

– Credit management

– Cash flow management

Source: Household Financial Management: The Connection between Knowledge and Behavior, Federal Reserve Bulletin, July 2003

For example, how much do you know about your mortgage?


• A mortgage is one of the most complex and important contracts into which we enter

• However, 4.4 million mortgage borrowers report not knowing the interest rate they are paying on their mortgage!

Sources: Joint center for Housing Studies of Harvard University, 6/25/10; Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010

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Lack of personal savings


• In 1982, the personal savings rate was nearly 11% of disposable income

• In contrast, by 2005 personal savings dropped to 1.4% of disposable income

• Then in 2009, personal savings had inched up to only 4.3%Source: Personal Savings Up, National Savings Down, Federal Reserve Bank of Cleveland, March 19, 2010

Complex tax code


• In 1913, the Federal Tax Code contained 400 pages of rules

• By 2010, the number of pages had increased to over 71,680

Source: Issues, Randy Hultgren for Congress, accessed August 26, 2010

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The link between finances and divorce


• Money trouble is a top reason for divorce in America, second only to abuse

• Couples who reported disagreeing about finances on a weekly basis were over 30% more likely to divorce than couples who reported disagreeing about finances only a few times a month

Sources: Money Fights Predict Divorce Rates, The New York Times, December 7, 2009; Real Estate: Home Mortgage Crisis May Boost Divorces in U.S., Experts Say, divorce360, 2009

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Are you ready to retire?


• A study revealed that two out of three boomer households are financially unprepared for retirement

• The percentage of workers planning to work after they retire has increased to 72% in 2009 (up from 66% in 2007)

• The average 401(k) retirement account fell 24.3% in 2008

Sources: Not Ready to Retire?, Entrepreneur Magazine, March 2009; The 2009 Retirement Confidence Survey: Economy Drives Confidence to Record Lows; Many Looking to Work Longer,” EBRI Issue Brief, no. 328, April 2009; 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008, Investment Company Institute via Business Exchange, October 2009

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What does this all mean?


• Americans carry too much debt and have too little saved

• We don’t understand our debts nor do we understand the tax laws that could hurt or even help us

• Too many of us are allowing financial problems to ruin our marriages and credit

• Too few will be ready to retire and too many will need to continue working during their golden years

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The 5 Worst Mistakes


1. Habitual spending and borrowing

2. Incomplete solutions

3. Doing it yourself

4. Looking for a quick fix

5. Going with the crowd

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MISTAKE #1:

HABITUAL SPENDING AND BORROWING


Getting ourselves into this mess . . .


• Excessive spending and borrowing leads to living paycheck to paycheck

– 61% of workers say they live paycheck to paycheck

– 20% save nothing each month

– 42% of workers believe if they had $500 more per month, they would live comfortably

– HOWEVER, 30% of those making over $100,000 say they live paycheck to paycheck

Sources: More Upper-Income Workers Living Paycheck to Paycheck, CNBC, September 16, 2009; Living paycheck to paycheck, CNN, October 8, 2008

Living in denial


• The rude reality of being so far behind on bills coupled with our inability to purchase necessities can together create denial — we continue racking up debt despite our hopeless financial predicament

• In a recent survey, 7 in 10 respondents found their investment statements incomplete or hard to understand

• Many Americans live in a constant state of financial ignorance and denialSources: 2008-2009 Winter Issue: Dealing With Debt, Consumer Action News, January 30, 2009;

Understanding Your Account Statement, investorED survey cited by The Globe and Mail, 4/16/09

Spending is emotional, not mathematical


• Many people buried by credit cards and loans are in this position due to the emotional and psychological aspects of spending money, not necessarily a momentary lapse in mathematical ability

• So how do we then get ourselves out of this mess?

Source: The Best Way to Pay Off Debt, U.S. New & World Report via Yahoo! Finance, July 28, 2010

19

MISTAKE #2:

INCOMPLETE SOLUTIONS


A crash (spending) diet?


• Poor economic conditions have prompted more people to limit their use of credit — as of June 2010, Americans had cut credit card use for 21 straight months

• However, spending is only one piece of the puzzle

• Other important aspects of the financial puzzle that are tied with how we spend are:

– Debt– Savings/retirement– Taxes

Source: Credit-Card Delinquencies Slump In 2Q; Balances At 8-Year Low, The Wall Street Journal, AUGUST 25, 2010

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Debt is only one aspect of one’s financial troubles


• Worse yet, debt elimination programs are less successful than we may think:

– The current completion rate of debt management plans is roughly 20%

– Completion rates from debt counseling programs are as low as 21%

Source: The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy, How to Get Out of Debt, June 17, 2009

Throw in the towel?


• Will filing bankruptcy really solve your problem and change your behavior?

• Many Americans think this is the solution

• From 2007 to 2010, the number of personal bankruptcies more than doubled from 751,056 to over 1.5 million

Source: Bankruptcy Statistics 1980-2010, BankruptcyAction.com, August 17, 2010

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MISTAKE #3:

DOING IT YOURSELF


Making decisions on your own


• Many will agree that making financial decisions today is even harder than it was in the past — today’s financial markets are far more complex

• Managing day-to-day finances can not only be more difficult today, but “getting it wrong” can pose greater risks than ever beforeSource: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26,

2010

Are we financially savvy enough to go it alone?


• A report recently stated that the majority of Americans today lack critical knowledge of important financial concepts such as:

– How inflation works

– Financial risk

– Investing for the futureSource: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010

Results of our lack of knowledge


• The report further stated that one in five Americans have used alternative and costly borrowing methods (payday loans, advances on tax refunds, pawn shops, etc.) in the past five years

• Because of our lack of knowledge, too many Americans will have to work past retirement age, are overpaying taxes, paying too much interest or earning too little interest on their investments

Source: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010

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Are we preparing for the future?


• We know Social Security could run out in less than 27 years

• Younger generations will have to rely mostly on self-directed retirement accounts yet 58% of those surveyed have never even tried to calculate how much they should be saving to retireSource: McKinley, K. (2009, June 21). Five Social Security Questions Baby Boomers Should Ask Before They Retire. Retrieved

June 23, 2009

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MISTAKE #4:

LOOKING FOR A QUICK FIX


Taking the easy way out


• Many Americans want to pick up a book and fix their financial problems in an instant

• In 2008, the self-help book industry made an estimated $8 billion in the U.S. alone

Source: Is Modern Self-Help Just a Massive Money-Making Scam?, PsyBlog, January 9, 2008

But is it working?


• Despite their continuing popularity, self-help books have faced fierce criticism over the years

• Respected psychologists have argued that self-help books “will clearly not help people to become thin, rich and well-adjusted; indeed they probably have no effect whatsoever”

• How much success have you seen from a self-help resource?

Source: Is Modern Self-Help Just a Massive Money-Making Scam?, PsyBlog, January 9, 2008

Paying someone else to make your problems go away


• Maybe you or someone you know has paid someone to provide debt relief?

• Those who sign on with debt relief or debt settlement companies often end up with more debt than when they started

• Desperate consumers are paying thousands of dollars with no guarantee that even one penny of their debts will ever be settled

Source: Be wary of promises from debt relief companies, MSNBC, July 8, 2010

32

MISTAKE #5:

GOING WITH THE CROWD


Whom do you ask for financial advice?


• A study has shown that heads of households primarily obtain their financial knowledge from experience, friends, family and media rather than from financial experts


But do all advisors have YOUR best interests in mind?


• Reports show that most people get financial advice from many different types of professionals:

– Real estate agents– Mortgage brokers– Sellers of financial products

• High sales quotas tend to cause providers to promote products that can exploit a consumer’s tendency to behave irrationally

Source: How About a Stimulus for Financial Advice?, The New York Times, January 17, 2009

35

Mainstream financial gurus: are they the best choice for YOU?


• Popular financial “experts” have lots of good ideas, but rarely the actual experience in the field to back those theories

• Usually they specialize in one area of finance but are weak in others

• Their expertise is generally in motivation, not educationSources: Is Dave Ramsey A “Financial Expert”, Money Smarts, June 3, 2009;

Suze Orman comes out, Instant Pride, November 17, 2008

• Compulsive spending and borrowing can be counterproductive as they are usually very emotional and habit-forming

• Your finances will likely not improve if you address only one part of your money problem

• Short-term fixes and “crash diets” rarely help

• Self-help books and your neighbor’s advice are generally not specific enough to help you with your unique financial predicament

• So what can we do to fix the problem?

Bringing it all together…


Five Ways To Combat Your Financial Mistakes And Change Your Future

1. Decide to change your financial cycle for good

2. Realize this process may take time

3. Fix the whole problem

4. Create a solution that fits your unique needs

5. Find the best financial program and coach for you

Step #1:Decide to change for good


Make a commitment, once and for all


• Recognize that money matters are emotional

• Resist going with the status quo or choosing to do nothing at all

• Resolve that this time will be different — take action now!

Source: Why Habits Are Hard to Change (And Printers Hard to Buy), Psychology Today, March 18, 2010

Difficult decisions require self-efficacy


• Self-efficacy — the belief that you can make a change and overcome obstacles — is one of the best indicators of successful change

• What is the source of your motivation to succeed?

• What will give you the confidence that you will need to see you through?Source: Why Habits Are Hard to Change (And Printers Hard to Buy), Psychology Today, March 18, 2010

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Step #2:Take the timeto do it right


Give yourself time


• You can’t always go on a “crash budget” to solve your financial troubles

• A daily action like eating fruit at lunch or running for fifteen minutes takes an average of sixty-six days to become a solid habit

• Spending and saving are daily habits that take time to change and develop

Source: Stop Expecting to Change Your Habit in 21 Days, Psychology Today, October 21, 2009

You can learn from your mistakes


• 73% of people with the highest scores on a recent cash-flow and credit management survey reported having learned better habits from personal experience


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Step #3:Fix the wholeproblem


The big picture


• See your finances as one large picture, not as individual pieces of a puzzle:

– Debt

– Spending

– Savings/retirement

– Taxes

• Understand that everything a person needs to know to be successful financially is contained within these four areas

How to put the puzzle back together


• Regain control of these four areas

• Understand that they are interrelated

• Cause these areas to work together in harmony

Step #4:Tailor a solution for YOU


Is popular advice the best choice?


• Financial “gurus” that market a few feel-good tools may not have the total solution YOU need

• Having someone personally SHOW you how to apply financial management principles specific to your needs could be the key to your success

How do YOU learn best?


• You might also consider financial programs containing books, workbooks, CDs, DVDs, and seminars with live speakers which can reach out to various types of learners:

– those who learn from reading

– those who learn from watching

– those who learn from listening to speakers and asking questionsSource: Some Thoughts on Personal Finance

Coaching, The Simple Dollar, November 14, 2008

Coaching can be an effective tool


• Many simply thrive on having someone motivate them to make better choices, such as dietitians and personal trainers

• In a recent study, households that had participated in just one personalized financial counseling session…

– Were less likely to be late with payments

– Had higher credit scores– Had better credit management

Sources: Some Thoughts on Personal Finance Coaching, The Simple Dollar, November 14, 2008; Household Financial Management: The Connection between Knowledge and Behavior, Federal Reserve Bulletin, July 2003

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Case Study: A long-term coaching relationship can really pay off


A recent financial planning study categorized participants as either (a) self-directed, (b) advice-supported or (c) comprehensive planning participants

The comprehensive planning participants engaged in an ongoing relationship with a financial planner which included a written plan encompassing at least three major aspects of their financial lives

Source: Financial Planning Yields a Sense of Direction, 2008 Financial Planning Association Study, Conducted June-July 2008

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Getting ahead financially

Comprehensive planning participants were found to be nearly twice as likely as those in the other two categories to:

– Regularly save the amount needed for retirement

– Save at least 8% of their annual gross income

– Be on track to save enough for a college education either for themselves or their children

Source: Financial Planning Yields a Sense of Direction, 2008 Financial Planning Association Study, Conducted June-July 2008


Step #5:Find the optimal program and coach for YOU


Look for a financial program that . . .


1. Has the tools and techniques to help you to permanently change your behavior for the better

2. Has a time-tested, well-proven program for success

3. Uses a holistic solution

4. Treats the root of the problem, not just the symptoms

The right tools


• To leapfrog you over any learning roadblocks, consider a program with varied tools such as:

– Books and guides

– Software

– Audio CDs

– Planners and organizers

– Diaries and tracking tools

Time-tested program


• Consider seeking out a program that is led by experienced professionals

• An ideal program will have an excellent track record of “helping people help themselves” out of the financial holes they are in

Well-balanced approach


• Make sure the program you select addresses all aspects of finance:

– How to spend money

– How to save money

– How to pay off debt

– How to not overpay taxes

• And most importantly, how to do all these in the right order

Treat the root of the problem


• Look for a program that is interested in helping you create good financial habits

• Find someone who makes you feel you can make these changes

• Great coaches have a way of building one’s self esteem — anyone can improve their financial outlook if they first believe in themselves

Source: Debt Settlement Coaching – How To Get Free Debt Settlement Advice Online, PRLog, August 19, 2010

Who here feels they’ve learned a great deal today?


• Our hope is that you learned to pay more attention to your financial health

• That you learned more about how to best address the whole problem

• That you have learned and understand the purpose and need for the correct mentor and program that can tailor a solution to your individual needs

• This presentation was sponsored by Time & Money, LLC, let us tell you a bit about the Money Mastery® program.

• We have a three-minute overview


• The Money Mastery® system developed by Time & Money is proven to be a solution to the mistakes described in this study

• We would like to show you what sets us apart from the rest

Real answers…solid advice


Our purpose is to educate, inspire, and motivate people to make significant changes in their lives through the application of ten proven financial principles — the Money Mastery® principles!

Our Mission


• Has the tools and techniques to permanently change your behavior

• Uses a holistic solution• Has robust program material

and plenty of support tools• Treats the root of the

problem, not symptoms• Has a time-tested, well-

proven program for success• Is developed and led by true

professionals

Benefits of our Financial Program


Testimonials“The Money Mastery program works! We pay our bills on time, contribute to our 401(k)s, have money in savings, did not borrow money to send our child to college, and all without declaring bankruptcy!”

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“We had no savings, no retirement, and were living check-to-check. In one year, we’ve started a 401(k), a money market account, a mutual fund, a regular savings account, and have paid off three cars and two furniture loans. Thank you!”

— Ken & Barbara R., New York


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