Money Management Principles
n
Are timeless and time-tested
n
Apply to everyone
n
Work well in up & down economies
n
Help people grow wealthy over time
n
Need to be taught in school
Personal Finance
Southwest High
1
1. Go For The Goal
n
n
n
n
Goals provide a “why” for saving
Use goals to develop action plans
Break goals into benchmarks
Make your goals SMART
– Specific
– Measurable
– Attainable
– Realistic
– Time-Related
Personal Finance
Southwest High
2
Invest in your Human Capital
n
Get a solid education
– For career satisfaction
– For better health
– For higher lifetime earnings
n
It’s OK to borrow for education
– There is an opportunity cost to taking too long to
earn degree
– Student loans are better than credit cards
Personal Finance
Southwest High
3
2. Time Is Your Friend
n
n
n
n
Time: a young person’s biggest asset
Compound interest is awesome
For every decade that savings is
delayed, the required investment triples
Example: $500,000 at 65; 10% yield
– Age 25: $
79 per month
– Age 35: $ 219 per month
– Age 45: $ 653 per month
– Age 55: $ 2,141 per month
Personal Finance
Southwest High
4
More About Time
n
Time diversification reduces investment
volatility
n
The Rule of 72
– 72/interest rate = doubling period
– 72/doubling period = interest rate
n
Advantage calulators
Personal Finance
Southwest High
5
3. Live Below Your Means
n
Spend less than you earn
n
Create a spending plan
– Income = Fixed Exp (including savings) +
Flexible Exp + 1/12 of Occasional Expense
n
Distinguish needs from wants
n
“Step-down principle”
Automate
savings
so
money
isn’t
spent
Southwest High
6
Personal Finance
n
4. Establish Emergency Fund
n
Aka contingency fund
– Online savings accounts
•
•
•
•
No minimum
FDIC insured
4.5% (varies)
Linked to checking account
– HSBC
– Emigrant
– ING & many others
Personal Finance
Southwest High
7
Pay Yourself First: Automate
Your Savings
n
Tax-deferred employer plans
– Get full 401(k) match from employer
n
n
n
n
Employer credit unions
Savings bond purchase plans
Mutual fund Automatic Investment Plan
Direct stock purchase plans
Personal Finance
Southwest High
8
Minnesota Saves
n
n
n
n
n
n
Build wealth, not debt
Saver Strategies
Get out of debt
Earned income tax credit
Free income tax preparation
Individual Development Accounts
Personal Finance
Southwest High
9
5. Buy Insurance According to
“The Large Loss Principle”
n
n
n
Magnitude- not frequency- of losses
Increase deductible to save $
Spend premium dollars on large
potential losses:
– Liability
– Disability
– Destruction of home
– Large medical expenses
Personal Finance
Southwest High
– Loss of household earner’s income
10
6. Repay Debt Quickly and
Borrow For Less
Consumer debt ratio < 15% of net pay
n Consumer debt + housing < 50% of net
n High debt makes other problems worse
n Negotiate lower interest rates
n Always pay more than the minimum
n Avoid “perma-debt”
n Pay promptly to avoid late fees
Southwest High
11
Personal Finance
n Family Life Center PowerPay analysis
n
7. Earned Income Tax Credit
n
Refundable tax credit for workers
Personal Finance
Southwest High
12
8. Vita tax prep
n
n
Provided by USU accounting students
in Business building- starts Feb.
AVOID instant tax refunds
– High cost loans (similar to payday loans)
n
n
Auto deposit
Split your refund
– Save a portion, pay debt, spend
Personal Finance
Southwest High
13
9. Buying House/Vehicle
n
Don’t buy more house than you can
afford (Subprime mortgage meltdown)
– Don’t’ trust mortgage broker
n
n
Don’t buy before you are really ready for
the financial commitment
Buy new cars every 8-10 years or buy
“new used”
Personal Finance
Southwest High
14
Check Your Financial Health
n
n
Take the Financial Fitness Quiz
Least common practices
– Not having a will
– No written financial goals
– No written budget
– No net worth calculation
Personal Finance
Southwest High
15
Financial Education Resources
n
Investing For Your Future
– Home study course
– http://www.investing.rutgers.edu/
n
Money 2000 & Beyond
– http://www.rce.rutgers.edu/money2000
n
RU-FIT financial independence training
– http://www.rce.rutgers.edu/ru-fit/
n
USU Extension
– http://extension.usu.edu/
Personal Finance
Southwest High
16
Spend Less,
Enjoy the Holidays More
n
n
n
n
http://extension.usu.edu/htm/news/articl
eID=2361
Start a UESP account for your kids
Spend time with important people
Avoid gift cards
– High fees, money can’t be saved
n
Pay cash! Avoid debt.
Personal Finance
Southwest High
17
Personal Finance Magazines
n
Kiplinger’s Personal Finance Magazine
– Kiplingers.com
n
Money Magazine
– Money.com
– Money 101 on-line financial mgmt course
• http://money.cnn.com/pf/101/
• 23 lessons
Personal Finance
Southwest High
18
The Financial Checkup by Alena Johnson
Personal Finance
Southwest High
19
Financial Planning for Women
http://www.usu.edu/fpw
n
For women of all ages & knowledge
Personal Finance
Southwest High
20
Avoid Common Mistakes of Young
Adults
n
n
n
n
n
n
n
Buying a house before you are ready
Buying too much house
Putting too much $ into vehicles
Keeping a balance on your credit cards
Waiting to invest for retirement until…
Not considering the cost of kids
Spending too much on eating out
Personal Finance
Southwest High
21
Closing Thought
“If it is to be,
it is up to me”
Comments? Questions? Experiences?
Personal Finance
Southwest High
22