Personal
Management
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What Is Personal Management?
• One of the five hardest merit badges to earn *
• 90 day commitment to financial record keeping
• Concepts
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Budgeting and Planning (Requirements 1, 2, 3)
Saving and Investing (Requirements 4, 5, 6)
Understanding Debt (Requirement 7)
Time Management (Requirement 8, 9)
Planning Your Future (Requirement 10)
• Eagle Required
• Others include Personal Fitness, Environmental Science, Scuba Diving and Lifesaving according to National Geographic article
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Why Personal Management?
• Financial Independence
– Money issues are one of the top 3 causes of divorce
– Money might not buy happiness but it doesn’t hurt to have it
– A penny saved is two pennies earned *
• How far are you from:
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Retirement?
Buying a house?
Buying a car?
Buying a video game system?
* We will talk more about this in a future session
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Top Three Financial Lessons
• Live within your means
– Spend less than you make
• Pay yourself first
– You earn interest rather than the bank
• Leverage the time value of money
– It’s never too soon to start preparing for the future
– Compound interest is an amazing tool
– Rule of 72 (more on this later)
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Compound Interest
• You are 18 and get your first job
– Income $1500 / month
– Expenses $1400 / month
– Savings $100 month
• What is that worth?
– Invest $100 / month in stock market at 10% year with a minimum
investment horizon of 10 years
– Total invested = $100 * 12 months * 10 years = $12,000
– Future Value = $20,484
– Suppose you increase savings $10 / month each 10 years?
– Future Value = $28,280
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Work Backwards
• I am 13 and in 5 years will start college
– I expect $25,000 per year in college expenses
– I have $10,000 saved now and I need $90,000 more
• How can I get there?
– One-time investment of $55,701
– Series of payments of $1,162 / month
– Assumes 10% annual return
• Discuss: Where might you get
$55,701 all at once?
Year 1
Year 2
Year 3
Year 4
Year 5
$55,882.92
$61,471.21
$67,618.33
$74,380.17
$81,818.18
$90,000.00
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Start Sooner!
• I am 8 and in 10 years will start college
• How can I get there?
– One-time investment of $36,571
– Series of payments of $440 / month
$100,000.00
$90,000.00
$80,000.00
$70,000.00
$60,000.00
$50,000.00
$40,000.00
$30,000.00
$20,000.00
$10,000.00
$0.00
Lump Sum
Monthly Payment
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
$34,698.90
$38,168.79
$41,985.66
$46,184.23
$50,802.65
$55,882.92
$61,471.21
$67,618.33
$74,380.17
$81,818.18
$90,000.00
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Stock Market Returns
The S&P 500 is what’s called a Stock Index. It’s a group of 500 different companies.
Sometimes it’s way up…
Historically the stock
market has averaged
around 10% annual return
… and sometimes it’s way down
But the general
trend over the
long term has
been upward.
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Would You Like to be a Millionaire?
The earlier you start saving
for retirement the more
money you will have.
Waiting 10 years to start
saving (age 35 instead of 25)
cuts your retirement in half!
• This example assumes only a 7% annual rate of return
• https://www.fidelity.com/retirement-planning/learn-about-iras/contributing-to-ira
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What Am I Going To Do?
• Overviews of major topics
• Concepts
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Budgeting and Planning (Requirements 1, 2, 3)
Saving and Investing (Requirements 4, 5, 6)
Understanding Debt (Requirement 7)
Time Management (Requirement 8, 9)
Planning Your Future (Requirement 10)
• Available for questions at any troop meeting
– Contact me via email at drathbun@aol.com
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Saving vs Investing (4a)
• Saving means putting aside money for safety
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Short term goal
Preservation of capital (don’t lose money)
Low return on investment (ROI)
Very low risk
• Investing means putting aside money for growth
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Longer term goals
May lose capital
Goal is to increase in value with higher ROI
Low to moderate to high risk
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Saving vs Investing (continued)
• Discuss: What are things you save for?
• Discuss: What are things you invest for?
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Return On Investment (4b)
• Return on investment is simply how much you made
• Example
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Return on investment = (Value – Cost) / Cost
Investment cost $1,000
Final value was $1,200
($1,200 - $1,000) / $1,000
$200 / $1,000 = 20% ROI
• Discuss: What else is important to know for ROI?
– Time! You need to know how long this investment took
– One year 20% return is great, ten years not so much
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Risk (Requirement 4b)
• Risk is a measure of how likely you are to lose
money
• Aggressive investments can provide excellent ROI
but have a larger chance of losing money
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Risk Impacts Investment Decisions
• Investment A
– Never goes up more than 3% / year
– Never goes down more than 1% / year
• Investment B
– Might go up 10% / year
– Might go down 3% / year
• Investment C
– Might go up 25% / year
– Might go down 20% / year
• Discuss: Which do you buy? Why?
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Risky Business
This chart shows what can
happen with stocks with
different degrees of risk.
$1,400
$1,300
$1,200
A
$1,100
B
C
$1,000
$900
$800
1
2
3
4
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Interest Is Interesting! (4c)
• Interest comes in two flavors: Simple and Compound
• Simple interest is simple!
– Only the invested amount (called principal) earns interest
• Compound interest is powerful
– Interest also earns interest
Investment
$100
Total after 6 interest payments
Simple Interest
$10.0
$10.0
$10.0
$10.0
$10.0
$10.0
$160.0
Compound Interest
$10.0
$11.0
$12.1
$13.3
$14.6
$16.1
$177.16
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Let’s Talk Stock
• Companies can be private or public
• Public companies trade on a stock market
– New York Stock Exchange is our main exchange
– Others are located in London, Hong Kong, and other cities
• If you own stock, you own part of that company!
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Stocks As Investments
• Stocks can reward investments in two ways:
• Appreciation
– The price of the stock goes up (or down)
• Dividends
– The company pays out part of their profits to any shareholder
– Paid annually (once per year), Quarterly (four times a year), and
sometimes monthly
• Dividends can be taken as cash or reinvested back
into more stock
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Let’s Look At Some Stocks (5)
• The following pages show stocks that we will
discuss
• For the merit badge, get your parents permission or
assistance and find five companies that are publicly
traded and review them on the Internet
• Suggested sources include:
– https://us.etrade.com/home
– http://finance.yahoo.com/
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Required for the
merit badge
PepsiCo
Extra useful
information
How much did
the stock move
up (down)
The last price
the stock
traded at today
What range has the
stock traded in the
last 52 weeks?
Beta is a measure of stock
volatility; how much it moves up
and down. Low numbers
indicate a stable stock.
Dividends are shares of profits
paid to shareholders. The
percentage shows how much.
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Best Buy
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Hershey
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What’s Next?
• Start your financial record (Requirement 2)
• Prior to next meeting complete requirement 3
• For those that have completed requirement 2 work
on requirement 8
• Any questions? Contact me at drathbun@aol.com or
see me at any troop meeting.
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