Financial Seminar For Nurses
Patrick Heyman, Ph.D., ARNP
Financial Independence

No debt

Own house free and clear

Enough savings/investments

Benefits

Less stress

More security

Work for enjoyment

Able to freely contribute to God’s kingdom
Biblical Principles

All money is God's money

Stewards caring for what is not ours


To whom much is given, much is required –
Luke 12:48
He who is faithful in small things will be
entrusted with more – Matthew 25:14-28

Look at the ant's example - Proverbs

A borrower is slave to the lender - Proverbs
Biblical Principles

Work diligently

Give a tithe back to God

Save

Be generous toward those in need

Care for your family

Stay out of debt

“But I thought Jesus said, ‘Blessed are the
poor?’”
Crown Money Map
1) Emergency Savings (3 mos expenses)
2) Pay off credit cards
3) Pay off consumer debt
4) Save for major purchases
5) Buy home, begin investing
6) Home mortgage paid off
7) True financial freedom
Transforming Debt to
Wealth Plan
1) Pay off credit cards
2) Pay off consumer debt
3) Emergency Savings
4) Purchase/Pay off house
5) Begin investing
6) True financial freedom
Debt is the Single Biggest Obstacle
to Building Wealth




Example: You have $100 a month extra. You
want to buy a $1000 Widescreen TV
Save it for 10 months with 4.5% interest

1 $1000 widescreen TV

$20.86 left over in interest
Buy it now on a credit card at 8% interest

After 10 months you have 1 TV

You still owe $145
Net difference = $165.86 in lost wealth
To become financially independent
you must

Control Spending: live under your means



Resist credit
If you are in debt, pay it off as quickly as
possible


Do not earmark future raises for spending
Paying off a 9.6% credit card is the same as getting
9.6% in interest after taxes
Save/invest

If you don't have the self control, create artificial
scarcity
Counter Culture



Income vs Net Worth
Most high income earning households will never
become millionaires

Spend too much

Status symbols

Increased living expenses

Poor role models/peer support
Most millionaires are first generation

Savings is more important than income
Do I Really Need to Know All This?
I'm Young and Poor!!!



Sara starts working at 18 and invests $2000/
year for six years, and then never invests again.
Stephanie starts working at 25 and invests
$2000/ year until she retires at 67.
Ashley starts working at 35 and invests $2000/
year until she retires at 67.
And the Winner is...

Assuming 8% interest, at age 67

Sara invested $12,000 and has $468,332

Stephanie invested $84,000 and has $711,899

Ashley invested $64,000 and has $315,253

And if Sara decides to keep investing $2,000 a year
until she retires....
$1,239,343!!!!
Things to include in budget



Net income
Tithe and Charity (PBA alumni association)
Expenses




Savings



Monthly (rent, electricity)
Non-monthly (insurance premiums)
Unexpecteds (car repairs)
Retirement/Long term
Goal oriented (new car, vacation)
Some fun (personal allowance)
Destroyers of Wealth/
Creators of Misery




Debt
Divorce – number 1 wealth destroyer
(also happens to be counterbiblical)
Fighting about money

Poor

Rich

Spending styles
Number one predictor of millionaire????
Tips For Significant Other


If dating

Maintain separate accounts

Avoid buying high value items together (boat,
house, etc.)
If married

Agree on a budget; do a monthly evaluation

Keep a joint account for marital expenses

Keep an individual account for each spouse, and
give yourself a budgeted allowance that each
spouse can use or save how they want
Tips Continued


Designate one person to keep the books/pay
the bills
Make sure the other reviews regularly

Detect problems early (gambling or risky
investments)

Premature death
The Heyman Money Plan For
Marital Bliss
Husband
Salary
IRAs
Wife
Salary
Main Checking
Account
Short Term
Savings
Long term/
Emergency Savings
Husband
Allowance
Wife
Allowance
Arrows indicate automatic transactions. Bills are paid from main checking.
Protecting Your Small Fortune

Inflation

Debasement: Loss of the value of money

“Expansionist monetary policy”

Artificially low interest rates

Artificial bubbles

Boom/Bust cycle

Avoid debt

Invest in gold, commodities, stocks

Stay out of cash, bonds
This Is Only A Primer
Suggested Further Reading

www.crown.org/library

Stanley & Danko: The Millionaire Next Door




Suze Orman: The Money Book for the Young,
Fabulous & Broke
Larry Swedroe: The Successful Investor Today: 14
Simple Truths You Must Know When You Invest
John Cummuta: Transforming Debt to Wealth (Buy it
on E-bay if available)
P.J. O'Rourke: Eat The Rich
Libertarian Thoughts,aka Freedom
in American Society



Murray Rothbard, What Has Government Done
to Our Money?
http://mises.org/money.asp
Murray Rothbard, The Case Against the Fed
http://mises.org/books/fed.pdf
Peter Schiff, Crash Proof: How to Profit From
the Coming Economic Collapse
Creating Artificial Scarcity

Pay yourself first technique

Fund retirement accounts before the paycheck ever
gets to you

Have automatic transfer of money from checking to
a savings/investment account

Pay your bills as soon as you get them; do not wait
until they are due
Okay, I'm living
under my means

What do I do with all this money Lying around?

Pay off debts

Fund retirement accounts

Save for house

Pay off the house

Save/invest for retirement

Enjoy life a little
Retirement Plans


401(k), 403(b): Employer plans

Reduce before tax income

Grow tax free

Often have matching contribution programs

Vestment period
Traditional IRA: Personal Plan

Up to $4000/year

Reduces current taxes

Grows tax free
Retirement Plans cont


Roth IRA: Individual Plan

Up to $5000/year

Must pay taxes on contributions

Grows tax free, and is never taxed again
Other plans: SEP, Simple, etc.

More for Private businesses, self-employed
Retirement Plan Strategy

First Question: Should I fund my retirement
plan or pay down debt?
1) Contribute to 401(k), 403(b) to meet the employer
matching
2) Max out Roth IRA
3) Get your emergency savings
4) Max out 401(k), 403(b)
Retirement Accounts


One thing in common: reduce or delay income
tax
How income tax works

Income vs Taxable income

Marginal tax bracket
Marginal Tax Rates
In c o m e u p
T h e t a x is
to
$ 7 ,5 5 0
$ 3 0 ,6 5 0
$ 7 4 ,2 0 0
$ 1 5 4 ,8 0 0
$ 3 3 6 ,5 5 0
$0
$755
$ 4 ,2 2 0
$ 1 5 ,1 0 8
$ 3 7 ,6 7 6
$ 9 7 ,6 5 3
P lu s
10%
15%
25%
28%
33%
35%
Of t h e
am ount
o ve r
$0
$ 7 ,5 5 0
$ 3 0 ,6 5 0
$ 7 4 ,2 0 0
$ 1 5 4 ,8 0 0
$ 3 3 6 ,5 5 0
Concrete Examples Please
How do I get an
IRA or Roth IRA?

IRAs must be held by a financial institution

Can transfer between institutions

Can invest in a wide variety of options

Stocks, mutual funds, bonds, even real estate, gold,
silver, commodities

Depends on the financial institution

Mutual Funds are most popular
Income Tax Myths




Myth: Maximize deductions to reduce tax
burden
Example: Take a big mortgage, so you get the
interest deduction
Reality: Maximize taxable deductions by
minimizing taxable income AND maximizing
wealth (net worth)
Example: Fund retirement accounts
Investment Basics



Basic terms

Liquidity: ability to “use” an asset

Risk: possibility that value of an asset may go down
“No risk” investments

FDIC insured accounts

U.S. Treasury Bonds
Emergency Funds should be in “no risk”
relatively liquid accounts

i.e., savings account not stocks
What is investing?

“Americans live in a chosen country to which
has been vouchsafed a “new era” in which all
one has to do is buy “well-selected stocks at
any time, at any price, and hold with sufficient
patience in order to sell for more than one paid
and thereby realize a handsome return on the
investment” -- Chamberlain and Hay, 1927
What is investing?


Speculation

Purchase with the hope to sell it for more than you
paid for it in the future

The greater fool theory
Investing

Income now

Preservation of capital

Growth in value

Price matters
Investment Vehicles (Examples)



Equity – Owning a piece of something

Stocks

Real estate

Partnerships
Liability – Loaning money

Bonds

Mortgages

Bank account
Derivatives and Commodities
“Investment” Theory


Modern Portfolio Theory

It is impossible to consistently outperform the
market

Don't try to pick winners and losers

Select a “mix” of investments that corresponds to
your risk comfort, and sit back, enjoy the ride
Bottom line
Stock Terms


Company size (market cap)

Large cap

Mid cap

Small cap
Earnings Potential

Growth stock: earnings expected to grow rapidly;
typically do not pay dividends

Value: company is thought to have low growth
potential; usually pay higher dividends
Stock Indexes


GPA for a group of stocks
Groups of stocks that track a “segment” of the
market

Dow Jones Industrial Average

NASDAQ

Standard & Poor 500 (S&P 500)

Russel 2000 small cap index

Wilshire 5000 (overall American stock market)
Mutual Funds

A group of stocks which is then sold in shares

Actively managed funds


Passively managed funds


A manager tries to pick stocks that he thinks will
outperform the others
Use an algorithm or stock index to determine what
stocks they will have
Versatility: stocks, bonds, REITs, mixes
Mutual Funds

Broker funds (traditional):




Exchange traded funds (ETFs) more advanced
(look it up later)



Usually have a low barrier to entry, esp for IRA
accounts
Account maintenance fees, no commissions
Fees are usually waived for accounts higher than
$3000 - $5000
Are traded like stocks
Commissions, but no maintenance fees
401(k), 403(b)
Fund Expenses

Front load: upfront commission

Back load: back end commission

No load


ONLY PURCHASE NO LOAD FUNDS
Expense ratio

When given a choice between two equally
performing funds, go with the one with lower lower
expense ratio

Passive funds cost less than active funds
How to Buy a Fund



Choose a brokerage firm and open account
Decide what kind of investment strategy you
want to pursue
Buy the fund with the lowest expense ratio that
helps you achieve that goal
Comparing Funds



Don't be suckered by past performance
In any given year, 85% of actively managed
funds fail to outperform their benchmarks (stock
index)

Of the 15% that did outperform the market, less
than 1% will do so three years running

Active funds have higher expense ratios. You must
subtract that from your return
Bottom line: index funds are the way to go for
most investors
Diversification:
Building a Portfolio

Purpose of Diversification

Reduce risk

Balance losses in one are with gains in another

Stocks

Bonds

Money market

Real estate

Gold and foreign markets
Hey I Don't Need Think I Need to
Know About Mutual Funds



Yes you do.
Most 401(k)'s and 403(b)'s require you to invest your
money in on of several mutual funds that they provide.
For example, the VA offers: (tsp.gov)

G Fund: Government securities (T-bills)

F Fund: Bonds

S Fund: Small Cap

C Fund: Large Cap

I Fund: International

L Funds: Life
Too Lazy for All That?

Choose a “blended fund”

A fund that has a set mix of stocks and bonds

Usually, the company has a series of questions


Age

Planned retirement age

Desired return

Risk tolerance
Buy one fund and be done with it.
VA Lifecycle Funds
Too Boring?


Get really wild and crazy with specialty funds

Gold funds

Currency funds

Hedge funds

Biotech funds

Etc.
Generally speaking, don't buy individual stocks
unless you put in the effort to educate yourself
Sample Investment Mixes

Aggressive long term


All small cap/value stocks
Aggressive long term with some diversification

70% small cap/value stocks

20% large cap stocks

10% International stocks
Sample Invest Mixes cont

Lower Risk Long Term

20% large/growth cap

20% small/value cap

10% international

10% REIT (real estate)

30% bonds

10% Treasury bills
Sample Brokerage Firms

Vanguard

T. Rowe Price

TD Waterhouse

Fidelity Investments

Charles Schwab

Boutique


Euro Pacific Capital
“Full Service”

Merill Lynch

Morgan Stanley

Citigroup