Shelbi Burgon
Finance 101
Chapter 1
Principle 1: Personal Financial Management
When managing their finances it would be a good idea for Brother and Sister Johnson to
work together. That way both Brother and Sister Johnson will understand what their current
financial situation is for them. Being able to work together will help them grow together. They
will also think more about their financial decisions because each one of them has the same idea
about their current situation.
President Ezra Taft Benson said, “For over forty years, in a spirit of love, members of the
Church have been counseled to be thrifty and self-reliant: to avoid debt; pay tithes and a
generous fast offering; be industrious; and have sufficient food, clothing, and fuel on hand to
last at least one year.” This is something that has been stressed in my personal life and I fell
that it also will beneficial to the Johnsons. A few years ago my father took a huge pay cut. We
had to adjust our monthly budget, but he continued to pay a full tithe and generous fast
offering. Because my family listened to leaders, it wasn’t as detrimental as it should have been.
We built up our food storage, adjusted our lifestyle, and had several blessings that helped us
through that time. So as well as working together, I feel it is necessary for the Johnson’s to
include the Lord in their financial lives as well as the necessary ecclesiastical leaders.
Principle 2: A Lifelong Financial Plan
It will also be important for the Johnson’s to develop a financial plan. Developing a
financial plan can be very difficult at first, but in due time it will turn into a lifestyle. The
Johnson’s should map out their financial plan together. By mapping this out together, Brother
and Sister Johnson will begin developing a mindset to be financially sound. They will develop
habits in saving, budgeting, investing, and preparing for retirement. By doing this together, the
Johnson’s will have mapped out their futures together and know what they both must do to
follow this plan. Additionally, the Johnson’s need to be ready to understand that financial plans
change. They will have to be ready to adjust their lives to the trials and success that will occur.
Principle 3: Five Keys to Personal Success
Here are five keys that will help the Johnson’s:
The first key is to pay the Lord first. When you do this you’re giving the Lord to
opportunity to bless you. You recognize the Lord’s hand in your life. By paying their tithes
faithfully, the Johnson’s will be “opening the windows of heaven” and allowing the Lord to bless
them even further. Throughout my life I have received numerous blessings from the Lord and
can testify that the tithing is a divine commandment. Tithing also teaches us to save our
money. If the Johnson’s pay their tithes faithfully, they will develop habits that will help them
save additional income before spending on other needs.
The second key is collecting interest. The Johnson’s need to make sure their money is
going to work for them. Meaning it is somewhere it can gain interest. The Johnson’s should
research banks and see what banks can return the most on their deposits. By doing so, not only
are the Johnson’s saving for the future, but they are gaining additional funds for the future.
This leads to key number three, you cannot retire until your money goes to work.
Ask yourself the question, how much interest can your money possibly earn in a bank?
There are a few factors that go into this such as the interest rate you earn on your savings, the
length of time your money is in the bank, and how often you deposit money into this account.
This is why researching about different banks is important. The Johnson’s will want to find the
bank that will give them the highest returns.
Key number four, don’t pay interest. Collecting interest is good, while paying interest is
not. When making a bigger purchase like a house or car, it’s important to check different
interest rates at different banks. At my bank I’m only paying 2.2% interest, but some banks can
charge up to 14%. Again researching banks will be necessary for the Johnson’s future.
The final key is to prepare financial goals and make wise financial decisions. When
creating goals decide if it’s going to be a short term or long. The Johnson’s need to make sure
they set financial goals, otherwise they will collect money and spend it without purpose. After
creating those goals, the Johnson’s should make sure their goals are SMART. Specific,
measurable, attainable, reasonable, and time-bound.
Chapter 2
Principle 1: Financial Records
The Lord teaches us that what we must “keep our house in order.” Keeping financial
records is included in this counsel. It’s not just about keeping them though, but how you store
and sort them as well. Keeping your important documents all in the same place and organized
is the best solution I have found. The documents that should be kept are: financial
management records, tax records, transaction records, investment records, property records,
personal records, credit records, and insurance records. These can be filed, but there are some
documents that should be kept in a safe. These include contracts, titles, deeds, certificates,
wills, and trusts. In my safe I also keep my birth certificate as well as my social security card.
Principle 2: Assets
The Johnson’s have assets, and they need to make sure to list them all. When listing
assets you will list them in a balance sheet in four categories: liquid assets, investments,
personal property, and real estate. Liquid assets are what you have in your savings and
checking accounts, cash, or anything that can be converted to cash fairly easy. Money that you
have saved in a retirement account, stocks, bonds, and mutual funds are investments. The
difference between liquid assets and investments is that money in investments are creating a
large return for you. Personal property are materialistic things that have a lasting value like
furniture, appliances, automobiles, clothing, and jewelry. Real estate is pretty self-explanatory,
but besides a home or land, can also include a business. By getting their assets appraised, the
Johnson’s will ensure that their property is at the current market value.
Principle 3: Budgeting Methods
The three methods are mental, envelope, and written. Mental is the least effective
because everyone feels like they can figure finances out in their head, but if you’re in the
moment when shopping, things could take a turn for the worst. Envelope is very creative. You
start by taking your budgeted money and placing them in envelopes and only using that money
for that specific task. Written is by far the most effective. Writing down exactly where their
money is going will make the Johnson’s realize their needs and their wants. When writing out
my monthly budget I color code my needs and wants, so that I can then adjust accordingly.
Chapter 3/9
Principle 1: Stock or Equity Investment
Stocks can be a very risky business, but when you invest smart the outcome can work
out in your favor. When you buy a stock it shows ownership in a corporation. When you invest
in a corporation, the company receive some or all of the earnings used to make the company
grow. Be faithful when investing because when a company produces more earnings their future
dividends are higher, making the stock value increase. This is great way for the Johnson’s to
have their money go to work for them.
Principle 2: Bonds or Debt Investments
Bonds are different than stocks. Stocks represent ownership interest in a company,
while bonds are long-term debts where the company pays a certain amount at a specific date.
One of the problems with bonds is as the interest rate increases the value of you bond goes
down. A bonds market value depends on the financial stability and strength of the company
issuing the bond. Usual bonds have lower returns than stocks, but bonds are another good
option for the Johnson’s to put their money to work.
Principle 3: Basic Investment Strategy Rules
Investing in stocks and bonds is very risky, but if done the right way and by
remembering the investment rules, the outcome could be positive. The Johnson’s should have
an emergency savings fund so they don’t have to liquidate investments. They need to
determine their investment goals and risk tolerance and then invest accordingly. They should
also remember that investing is not a short-term event. Their investments will need time to
grow in order for them to gain returns. They shouldn’t let current events or economic conditions
determine their investment strategies.
Chapter 5
Principle 1: Consumer Credit
The phrase “buy now pay later” is a very common phrase when it comes to making
purchases. This is where it’s important to determine a need vs. a want. In America there is $2.5
trillion in consumer credit. Broken down, $8,000 per person. Everyone should have at least 2
credit cards to build up your credit. When the Johnson’s make a purchase on a credit card, they
should pay it off without any outstanding balances. Paying with cash is the best way to ensure
they won’t rack up debt. My philosophy is if I can’t pay cash for it, I don’t need it.
There is such thing as necessary debt like when buying a car or a house. Buying a car is
debatable and personal situational. In my situation it is a necessity with how much I travel for
work and school. Although it is a necessary debt, I make sure I make the payments on time.
Sometimes I pay extra when I have it, so that way I pay off my debt faster.
Principle 2: The Advantages of Credit
When making a purchase you can get what’s called a float period, which is a period of
time where you don’t have to make a payment. It usually happens right when you make a large
purchase. The credit card company that you’re with will sometimes offer cash advances,
promotions, or special sales because you’re their customer. The better your credit score, the
more likely you are to be approved for a loan for a house or a car. When you have no credit
debt and everything financially is all in line I feel it creates a sense of security and reassurance.
As the Johnson’s create their financial plans, it will be important for them to figure out their
credit score, and then what they must do to improve or maintain it.
Principle 3: The Disadvantages of Credit
The disadvantages of credit are overspending and a high cost of credit. Most people just
think of the next big thing and purchasing it without thinking how much it’s going to cost them.
By having this mindset, you end up spending more than you can really afford. Bankruptcy is
real and happens all too often because of credit card debt. Bankruptcy doesn’t only affect your
finances it can affect relationships, your health, and peace of mind. The best way to avoid for
the Johnson’s to avoid bankruptcy is to have self-control when it comes to spending, as well as
knowing their limits.
Chapter 6
Principle 1: Transportation Alternatives
Some people think to feel good about yourself you need to have everything brand new,
the newest model, etc. In reality an item like a car needs to be reliable, whether it is new or
used. There are plenty of transportation options that don’t include a car like walking, riding a
bike, and using public transportation. While there are a lot of good things about these other
options but there are also a lot of bad things as well. The Johnson’s will have to get together
and think about how important it is for a purchase to be brand new.
Principle 2: Purchasing New or Used Vehicles
Buying a brand new car, or the newest model has its downsides. The deprecation rate
can cause the value of the car, or anything else you own, to decrease. A car can lose 50% of its
value in the first 2 years that you own it. When you buy a car that’s 2 years older it depreciates
much slower. It is the opposite when it comes to a warranty. When you buy a new car
generally, you get full warranty while a used car gets little to no warranty. If you want full
warranty on a used car you might have to pay a little more. Another thing to keep in mind is
that the cars that have been made in the past 10 years have less problems in the first 50,000
miles than older cars do.
Principle 3: Buy VS Leasing a Vehicle
When you lease a car usually it’s for about 4-5 years and you pay a monthly payment
for the set time period, some advantages include: putting out less money that is required for a
security deposit rather than a down payment, lower monthly payments than with traditional
financing. Leasing is a good idea if you want to drive a newer car more often or are looking for
a temporary solution for transportation. If you’re planning on driving your car for more than 5
years, purchasing is a better option. The downside of leasing are: penalties if you use excessive
mileage, and they can also charge you for the natural wear and tear of the car. Some general
rules for the Johnson’s to follow are: if you’re looking for something short term leasing is always
less expensive, in a medium term the cost is pretty equal, and in the long term buying is always
less expensive.
Chapter 7
Principle 1: Qualifying for a Mortgage
There are certain things that the Johnson’s need to know when qualifying for a
mortgage: down payment, income, and credit ratings. With your down payment it’s ideal to put
down 20% of the price of the house. You could put down a smaller down payment and
purchase private mortgage insurance. Private mortgage insurance protects the lender if you
default on the loan. Lenders use 28% of your income to determine the PITI (Principal, interest,
taxes and insurance) that you can afford, and 36% for the PITI and all the other debts. You can
calculate your mortgage loan amount by using the present value calculation.
Credit is very important when it comes to purchasing a home. Your credit decides how
much you qualify for or if you qualify at all. The Johnson’s credit is based on if they have a
steady job and if they’ve paid their bills on time.
Principle 2: Types of Mortgages
A conventional mortgage has a fixed interest rate for a specific number of years. You
can calculate payments and how long it will take you to pay off by using an amortization table.
Government guaranteed mortgages are for veterans that allow a lower down payment. There
are fees that must be paid or added to the loan. An adjustable-rate (ARM) has a lower interest
rate but can be increased or decreased depending on how well the economy is doing. Balloon
rate has a lower interest rate and allows you to finance your home for 15-30 years only if you
agree to pay your house off in 5-10 years, If you’re unable to meet the 5-10 year rule then you
would need to refinance with either another balloon mortgage or you can switch it to another
mortgage option.
Principle 3: Selecting a Home
When picking out a home there are a lot of things for the Johnson’s to consider.
Location is huge, and a lot of factors need taken into account when finding the location for your
home. Where your house is can determine the value of your house over the years. Value is
calculated by how well your neighborhood is maintained, traffic, how accessible it is to
businesses, and schools. Hiring a professional appraiser will allow you to determine your home’s
condition and market value.
Finding a good real estate agent will make the Johnson’s life easier when purchasing a
home. Their agent will have the power to access the multiple listing service and they can pull
up all homes that are in their price range. The Johnson’s won’t need a real estate agent if they
know what they’re doing. But if they don’t, hiring a realtor will take out the guess work as well
as taking the stress away from trying to do it on their own.
Chapter 8
Principle 1: Automobile Insurance
Liability insurance is required before operating a motor vehicle. With liability insurance
you have 2 main coverages: bodily injury and personal property. Bodily insurance covers
medical expenses for injuries caused by an accident that was your fault. Personal property
covers property damage when you damage another car. There is another type of insurance
known as collision coverage. Collision coverage covers your car no matter whose fault it is.
Comprehensive physical damage protects your car from theft, fire, glass breakage, falling
object, vandalism, and any other natural disasters.
Principle 2: Health Insurance
Many people don’t have health insurance. Although it’s not mandatory it is still
important. Not having health insurance is a risk and some people who never get sick don’t see
it as a necessity. There are steps for health living that will help keep the Johnson’s out of the
doctor’s office. Eating health, exercising regularly, living the Word of Wisdom, getting an
adequate amount of sleep, and driving cautiously. But living a healthy life is not enough. The
Johnson’s should be prepared if something does go wrong in their family’s health. They can do
this by investing in a good health insurance program. A few of the main health insurance types
are deductible amount, which is the amount you must pay before your health coverage begins,
or co-payment, which is the flat rate that you’re required to pay each time you receive medical
treatment.
Principle 3: Life Insurance
The purpose of life insurance is to provide for those who would suffer a financial loss if
you were to die. If you have little or no debt you could require a little less debt than someone
with more debt. Your dependent is designated as your beneficiary. Your beneficiary will receive
the money from your policy when you die. There are a few different methods for life insurance
coverage. There’s the guideline method, which is $10,000 of coverage for every $1000 of
annual income. Then there is the easy method, which is based on the assumption that your
family will need 70% of your salary for 7 years to make the financial adjustments due to your
death. Finally the DINK method, which stands for dual income with no dependents, is where
they take the percentage of each spouse’s income and multiply the percentage by the total debt
of the couple, then add the funeral expenses.
Chapter 10
Principle 1: Ultimate Financial Independence
Ultimate financial independence, doesn’t mean just living within your means, but also
accumulating enough money to live comfortably without needing to work for the rest of your
life. President Eldon Tanner shared “for those who have prepared, the declining years of their
life can be the most enjoyable.” Through recent years, people are living longer and are
generally more active during their retirement. For the Johnson’s, the top considerations when
preparing is how much total savings they need to retire comfortably, and how much they need
to save each month/year between then and now. Retirement is all about planning, the more
you plan and the earlier you start saving your money the better off you will be.
Principle 2: Employer Plans
Larger companies will offer one of two retirement plans: a defined benefit plan and a
defined contribution plan. The defined benefit plan, which is like social security, is where your
employer pays a monthly benefit for retirement based on your salary, usually called a pension.
A defined contribution plan is where your employer pays but there is no specific benefit. The
benefit you receive is determined on your account balance when you retire. One of the benefits
of this plan is that you can also contribute financially, usually called a 401K. The Johnson’s will
need to look at these plans and determine which one coincides their own financial goals.
Principle 3: The Importance of Starting Early in Life
The earlier you start saving your money the better off you’ll be. You could also pay less
money towards your payment plan and will receive more money in the end. The Johnson’s need
to start now rather than later. By starting now, they can prepare for the rest of their family’s
lives. They can begin the necessary adjustments that are easier to begin now than waiting for
change to become a last resort. They can find the best banks, the best options to invest, and
find the right types of insurance to protect them and their family. They can begin to make
smarter purchases and identify what purchases are wasting rather than saving money. They
can also begin to work toward larger purchases like cars, housing, and even their children’s
college funds today. By following the advice I have listed and planning with the Lord’s help, the
Johnson’s can start on a financially sound pathway that will last them the rest of their lives.