Financial Fitness Program  Saving and Investing
Key Points <ul><li>Importance of saving and investing </li></ul><ul><li>Resources to aid saving </li></ul><ul><li>Strategi...
Key Points <ul><li>Difference between saving and investing </li></ul><ul><li>Basic investment strategies and terms </li></...
What is Savings <ul><li>Setting aside money to meet known or unexpected short-term needs </li></ul><ul><li>An act of econo...
Savings in the USA  Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become diffic...
Savings in the USA  Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become diffic...
Savings in the USA  Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become diffic...
Savings in the USA  Why is it so Difficult ? <ul><li>#1 Reason (con’t) </li></ul><ul><li>The capacity to save has become d...
Why is Saving Important TO YOU? <ul><li>To keep from living pay check to pay check where all the house hold funds are exha...
Importance of Saving   “The Coffee Compound” $1,561.53 in 2 years $2/ day 5% interest = $2 a day for 2 years at 5% interest
Understanding and Calculating Interest <ul><li>Simple Interest </li></ul><ul><li>Dollar Amount x Interest Rate x Term (Yea...
Rule of 72 $512,000 $32,000 $8,000 69 $256,000 63 $128,000 $16,000 57 $64,000 51 $32,000 $8,000 $4,000 45 $16,000 39 $8,00...
Types of Savings <ul><li>Set-aside account for periodic and unexpected expenses </li></ul><ul><li>Account to reach specifi...
Tips for Savers <ul><li>Pay yourself first </li></ul><ul><li>Open a savings account far away from home and work </li></ul>...
Tips for Savers <ul><li>Make it a habit </li></ul><ul><li>Start small </li></ul><ul><li>Hang in there </li></ul>
Ideas for Increasing Income <ul><li>Overtime or a second job </li></ul><ul><li>Other family members work </li></ul><ul><li...
Savings Tools <ul><li>Savings Accounts </li></ul><ul><li>Money Market Accounts </li></ul><ul><li>Certificates of Deposits ...
Choosing an Account <ul><li>Interest rate </li></ul><ul><li>Fees, charges and penalties </li></ul><ul><li>Balance requirem...
Savings Barriers <ul><li>Funds exhausted by meeting monthly obligations </li></ul><ul><li>Emergencies and unexpected expen...
Savings Versus Investing <ul><li>Saving  is for emergencies and short-term goals and accounts earn less money </li></ul><u...
Financial Fitness Program  Investing
Investing Started Simple
In The End You’ll Learn… <ul><li>Asset Building Opportunities  </li></ul><ul><li>Long Term Planning </li></ul><ul><li>Futu...
Why Bother? <ul><li>Social Security Income  </li></ul><ul><li>Enhance Quality Of Life  </li></ul><ul><li>Future Medical Ne...
Why Bother <ul><li>Inflation  </li></ul><ul><li>Estate planning  </li></ul><ul><li>Life Expectancy </li></ul><ul><li>Minim...
Desired Outcome and Time <ul><li>Ability to absorb  risk  and speculate future  needs  drives investing behavior  </li></u...
Real Possibilities <ul><li>Investing At Age 35  </li></ul><ul><li>Earning $18,000/year </li></ul><ul><li>Saving 3% with 40...
Real Possibilities <ul><li>Investing At Age 45  </li></ul><ul><li>Earning $30,000/year </li></ul><ul><li>Saving 5% with 40...
How To Do It: Door Number 1 <ul><li>Employer Programs </li></ul><ul><li>Pensions </li></ul><ul><li>401(k)s  </li></ul><ul>...
How To Do It: Door Number 2 <ul><li>Personal Efforts </li></ul><ul><li>IRA </li></ul><ul><li>Annuities </li></ul><ul><li>C...
Pensions <ul><li>Employer Contribution Plans </li></ul><ul><li>Primary indicators </li></ul><ul><li>Not adjusted for infla...
401(k)s and 403(b)s <ul><li>Employer-Sponsored Plan </li></ul><ul><li>Tax-deferred </li></ul><ul><li>Withdrawal after age ...
SEPs <ul><li>Simplified Employee Pension Plan </li></ul><ul><li>Set up by the employer </li></ul><ul><li>May be a tax-defe...
SIMPLE <ul><li>Savings Incentive Match Plan </li></ul><ul><li>Pre-tax benefits </li></ul><ul><li>Employer % contribution <...
The IRA Very Basics <ul><li>Individual Retirement Account  </li></ul><ul><li>Traditional IRAs:  </li></ul><ul><ul><li>Annu...
The IRA Very Basics <ul><li>Roth IRAs </li></ul><ul><ul><li>Tax-free withdrawals IF… </li></ul></ul><ul><ul><li>Contributi...
Annuities <ul><li>Periodic payments from an insurance company to a policyholder </li></ul><ul><ul><li>Pretax salary reduct...
Certificates of Deposit   <ul><li>Like a short term savings goal it can be established for longer terms </li></ul><ul><li>...
Websites to Hyperlink <ul><li>Money </li></ul><ul><ul><li>http://www.money.com/ </li></ul></ul><ul><li>Kiplinger </li></ul...
Retirement Plans <ul><li>Social Security </li></ul><ul><li>Employer Savings Plans </li></ul><ul><li>Personal Savings Plans...
Financial Plan <ul><li>Usually a document prepared by an insurance or investment professional </li></ul><ul><li>Evaluate t...
Financial Plan <ul><li>Should list your stated goals </li></ul><ul><li>Give a timetable to reach them </li></ul><ul><li>Ha...
Why is a Financial Plan Important?  <ul><li>Help clarify and achieve numerous financial goals </li></ul><ul><li>Determine ...
Choosing A Financial Advisor/Planner  <ul><li>How long have you been in the business? </li></ul><ul><li>Do you specialize ...
Resources <ul><li>National Association of Personal Financial Advisors </li></ul><ul><ul><li>www.napfa.org </li></ul></ul><...
Summary <ul><li>A little bit of savings adds up over time </li></ul><ul><li>Pay yourself first </li></ul><ul><li>Make savi...
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Tab 4b, Saving and Investing

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  • This selection of PowerPoint slides is intended for use in flipchart format. With the intent to deliver the entirety of this topic as a non-technical representation of investing, and the benefit of Club format to be in a quasi-classroom setting, consider redrawing the following into flipcharts.
  • This club is not just about the following but is also intended to help avoid misuse of the asset that we are helping residents attain: homeownership. This is the opportunity to identify the future needs that are often cited at the time of refinancing and ways to obtain those goals without stripping equity from the home.
  • Assorted national dialogs have suggested that the future of social security may be unstable as a guaranteed source of retirement income, but more importantly, we should prepare to supplement that income for more than basic survival needs but to also help to establish funds for entertainment, opportunity, and the unforeseen. Q &amp; A considerations: What monthly medical costs might we anticipate?
  • Inflation is often typified as creating a 3-4% per year devaluing of a dollar. For example: $1 in 2005 is only worth $0.44 in 2025! What is important about this is the realization that while creating a savings account to save is very smart, it most likely will not provide the same level of return. The recent rates of savings have fluctuated nationally between 0.5 – 2.0% return, well below inflation averages. That means your dollar may not be worth as much even with interest earnings. Q: What will it mean to live longer? What implications should we consider? A: Maintaining better health, creating “pools” of funds for different wants/needs Q: What may be some added opportunities that you will want in your golden years? Will you want to work? At what age will you want to stop?
  • So what do you want out of investing? Most resources for investing that establish some moderate level of risk will provide you with information on how to get the best returns (often double digit returns) for your efforts. Most of those efforts will include investing with them as a greater assurance to make that happen. The issue to remember is not the avoid these services, but recognize that the goal is not about double digit returns but the goals that you establish and requirements to ensure that you will meet your needs in retirement.
  • So more than anything: The response is start now, start now, start now. It does not need to be high risk, but it has to be better than the current 0%. Get this: $1/day invested at a 7% yield from age 25 – 65 years of age will provide you with $75,000 - (ask for guesses)! To show the math in the first 5 days (considering daily compounding): $1.00 becomes $1.07 $2.07 becomes $2.21 $3.21 becomes $3.43 $4.23 becomes $4.74 $5.74 becomes $6.14 For monthly compounding that is $7 in year one and $60000 added to the dollars invested in the end!
  • At this stage of the presentation it is highly recommended that the counselor/educator provide direct education from a licensed professional. AND if a professional can tell you why you should buy their products, they should also be able and willing to represent to you the risks involved.
  • There are many other ways to create wealth that will not be discussed in this club format. The ones mentioned above are the most common avenues pursued by first time investors. Some other paths include collectibles, real estate investing, Dividend Reinvestment Plan – DRIP, Exchange-Traded Fund – ETF, and Spiders - SPDRs . IRA - Traditional, Roth
  • Primary indicators for receipt of retirement funds Personal salary history Number of years of service The plan&apos;s formula.
  • Simplified Employee Pension Plan (SEP) is a retirement plan for small businesses, self-employed individuals, and their employees
  • Pensions, 401(k)s, SEPs, and SIMPLE access should be discussed with your employer. Savings Incentive Match Plan for Employees (SIMPLE) is a retirement plan for fewer than 100 employees and self-employed persons to make contributions to an IRA Homework: Obtain all of the enrollment paperwork from your employer (if programs exist).
  • The counselor must recommend speaking to a tax consultant regarding tax implications of creating IRAs. Specified caps on contributions annually Contributions may be tax-deductible or non-deductible Taxes are deferred on traditional IRA earnings, meaning you&apos;ll owe on the money when you take it out
  • Withdrawals are tax-free if the account has been open for at least five years and you&apos;re at least 59 1/2 when you start to withdraw money Contributions to a Roth are not tax deductible.
  • Stop Here! Homework: Read one assigned book, watch one news show that includes an investment message (like CNN), read 3 articles from the prescribed websites
  • Tab 4b, Saving and Investing

    1. 1. Financial Fitness Program Saving and Investing
    2. 2. Key Points <ul><li>Importance of saving and investing </li></ul><ul><li>Resources to aid saving </li></ul><ul><li>Strategies to reduce spending and increase income </li></ul><ul><li>Savings tools and challenges </li></ul>
    3. 3. Key Points <ul><li>Difference between saving and investing </li></ul><ul><li>Basic investment strategies and terms </li></ul><ul><li>Retirement planning and Social security </li></ul>
    4. 4. What is Savings <ul><li>Setting aside money to meet known or unexpected short-term needs </li></ul><ul><li>An act of economizing; reduction in cost; &quot;it was a small economy to walk to work every day&quot;; &quot;there was a saving of $2.00&quot; </li></ul><ul><li>Characterized by thriftiness; &quot;wealthy by inheritance but saving by constitution&quot;- Ellen Glasgow </li></ul>
    5. 5. Savings in the USA Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become difficult in recent years due to : </li></ul><ul><li>“ Consumer Mentality” </li></ul><ul><li>&quot;I Want It Now&quot; or &quot; I Must Have It Immediately&quot; </li></ul><ul><li>“ an illness that, apparently, is only cured when you spend your money on items or assets that will give short or maybe even long term happiness but will definitely not increase in value. In other words - A Depreciable Asset&quot;. </li></ul>
    6. 6. Savings in the USA Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become difficult in recent years due to : </li></ul><ul><li>Internal vs. External Factors </li></ul>
    7. 7. Savings in the USA Why is it so Difficult ? <ul><li>#1 Reason's) </li></ul><ul><li>The capacity to save has become difficult in recent years due to : </li></ul><ul><li>Internal Factors </li></ul><ul><ul><ul><li>Higher consumer debt levels </li></ul></ul></ul><ul><ul><ul><li>Employees not vested or not fully utilizing 401(K) or other company retirement plans. </li></ul></ul></ul><ul><ul><ul><li>56% of working-age households won't be able to maintain their pre-retirement standard of living after they retire. </li></ul></ul></ul>
    8. 8. Savings in the USA Why is it so Difficult ? <ul><li>#1 Reason (con’t) </li></ul><ul><li>The capacity to save has become difficult in recent years due to : </li></ul><ul><li>External Factors </li></ul><ul><ul><ul><li>Low savings rates due to low market interest rates in general </li></ul></ul></ul><ul><ul><ul><li>Living wage is higher on average than the minimum wage. </li></ul></ul></ul><ul><ul><ul><li>Higher interest rates on credit cards. i.e. “the credit card trap” </li></ul></ul></ul><ul><ul><ul><li>Costs associated with Sub Prime and Predatory Lending loan products, as well as other fringe banking services. </li></ul></ul></ul><ul><ul><ul><ul><li>Pay Day Loans </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Check Cashers </li></ul></ul></ul></ul>
    9. 9. Why is Saving Important TO YOU? <ul><li>To keep from living pay check to pay check where all the house hold funds are exhausted by meeting monthly obligations </li></ul><ul><li>To meet emergencies and unexpected expenses without having to incur new or additional debt </li></ul><ul><li>To pay for certain goals in life such as a house, car, education, retirement, lifestyle etc… </li></ul><ul><li>You must Save to become an Investor </li></ul>
    10. 10. Importance of Saving “The Coffee Compound” $1,561.53 in 2 years $2/ day 5% interest = $2 a day for 2 years at 5% interest
    11. 11. Understanding and Calculating Interest <ul><li>Simple Interest </li></ul><ul><li>Dollar Amount x Interest Rate x Term (Years)= </li></ul><ul><li>Amount Earned </li></ul><ul><li>$100 x .06 x 1= $6 2 years: $12 </li></ul><ul><li>Compound Interest </li></ul><ul><li>(Original Amount + Earned Interest) x Interest Rate x Term (Years)= Amount Earned </li></ul><ul><li>$100 x .06 x 1= $6 </li></ul><ul><li>2 years: $106 x .06 x 1= $6.36 + $106 = $112.36 </li></ul>
    12. 12. Rule of 72 $512,000 $32,000 $8,000 69 $256,000 63 $128,000 $16,000 57 $64,000 51 $32,000 $8,000 $4,000 45 $16,000 39 $8,000 $4,000 33 $4,000 27 $2,000 $2,000 $2,000 21 Time for money to double Age 12% interest 72/12=6 6% interest 72/6=12 3% interest 72/3=24 Doubles
    13. 13. Types of Savings <ul><li>Set-aside account for periodic and unexpected expenses </li></ul><ul><li>Account to reach specific goals </li></ul>
    14. 14. Tips for Savers <ul><li>Pay yourself first </li></ul><ul><li>Open a savings account far away from home and work </li></ul><ul><li>Bank change at end of day </li></ul><ul><li>Bank surprises </li></ul>
    15. 15. Tips for Savers <ul><li>Make it a habit </li></ul><ul><li>Start small </li></ul><ul><li>Hang in there </li></ul>
    16. 16. Ideas for Increasing Income <ul><li>Overtime or a second job </li></ul><ul><li>Other family members work </li></ul><ul><li>Better paying job </li></ul><ul><li>Savings </li></ul><ul><li>Negotiate with creditors </li></ul><ul><li>Other resources </li></ul>
    17. 17. Savings Tools <ul><li>Savings Accounts </li></ul><ul><li>Money Market Accounts </li></ul><ul><li>Certificates of Deposits (CDs) </li></ul><ul><li>Individual Development Accounts (IDAs) </li></ul>
    18. 18. Choosing an Account <ul><li>Interest rate </li></ul><ul><li>Fees, charges and penalties </li></ul><ul><li>Balance requirements </li></ul><ul><li>Balance calculation method </li></ul>
    19. 19. Savings Barriers <ul><li>Funds exhausted by meeting monthly obligations </li></ul><ul><li>Emergencies and unexpected expenses </li></ul>
    20. 20. Savings Versus Investing <ul><li>Saving is for emergencies and short-term goals and accounts earn less money </li></ul><ul><li>Investing is for longer-term goals and plans get paid at higher rate </li></ul>
    21. 21. Financial Fitness Program Investing
    22. 22. Investing Started Simple
    23. 23. In The End You’ll Learn… <ul><li>Asset Building Opportunities </li></ul><ul><li>Long Term Planning </li></ul><ul><li>Future Retirement Funds </li></ul>
    24. 24. Why Bother? <ul><li>Social Security Income </li></ul><ul><li>Enhance Quality Of Life </li></ul><ul><li>Future Medical Needs </li></ul>
    25. 25. Why Bother <ul><li>Inflation </li></ul><ul><li>Estate planning </li></ul><ul><li>Life Expectancy </li></ul><ul><li>Minimize Work Schedules </li></ul>
    26. 26. Desired Outcome and Time <ul><li>Ability to absorb risk and speculate future needs drives investing behavior </li></ul><ul><li>3%? </li></ul><ul><li>6%? Graduated Risk </li></ul><ul><li>9%? </li></ul>
    27. 27. Real Possibilities <ul><li>Investing At Age 35 </li></ul><ul><li>Earning $18,000/year </li></ul><ul><li>Saving 3% with 401k, 403b, etc. </li></ul><ul><li>Rate of return 6% (moderate risk) </li></ul><ul><li>Nest egg at 65: $48,214 </li></ul>
    28. 28. Real Possibilities <ul><li>Investing At Age 45 </li></ul><ul><li>Earning $30,000/year </li></ul><ul><li>Saving 5% with 401k, 403b, etc. </li></ul><ul><li>Rate of return 4% (safe risks) </li></ul><ul><li>Nest egg at 65: $46,958 </li></ul>
    29. 29. How To Do It: Door Number 1 <ul><li>Employer Programs </li></ul><ul><li>Pensions </li></ul><ul><li>401(k)s </li></ul><ul><li>403(b)s </li></ul><ul><li>SEPs, SIMPLES </li></ul>
    30. 30. How To Do It: Door Number 2 <ul><li>Personal Efforts </li></ul><ul><li>IRA </li></ul><ul><li>Annuities </li></ul><ul><li>Certificates of Deposit </li></ul>
    31. 31. Pensions <ul><li>Employer Contribution Plans </li></ul><ul><li>Primary indicators </li></ul><ul><li>Not adjusted for inflation </li></ul><ul><li>Eligibility (FT/Vested) </li></ul><ul><li>Not guaranteed </li></ul>
    32. 32. 401(k)s and 403(b)s <ul><li>Employer-Sponsored Plan </li></ul><ul><li>Tax-deferred </li></ul><ul><li>Withdrawal after age 59-1/2 </li></ul><ul><li>Contributions may be matched </li></ul><ul><li>(Similar to an IDA - “free” dollars) </li></ul>
    33. 33. SEPs <ul><li>Simplified Employee Pension Plan </li></ul><ul><li>Set up by the employer </li></ul><ul><li>May be a tax-deferred IRA or annuity </li></ul>
    34. 34. SIMPLE <ul><li>Savings Incentive Match Plan </li></ul><ul><li>Pre-tax benefits </li></ul><ul><li>Employer % contribution </li></ul><ul><li>Contributions limits </li></ul>
    35. 35. The IRA Very Basics <ul><li>Individual Retirement Account </li></ul><ul><li>Traditional IRAs: </li></ul><ul><ul><li>Annual contribution caps </li></ul></ul><ul><ul><li>Tax-deductible or non-deductible </li></ul></ul><ul><ul><li>Taxes are deferred </li></ul></ul>
    36. 36. The IRA Very Basics <ul><li>Roth IRAs </li></ul><ul><ul><li>Tax-free withdrawals IF… </li></ul></ul><ul><ul><li>Contributions not tax deductible </li></ul></ul>
    37. 37. Annuities <ul><li>Periodic payments from an insurance company to a policyholder </li></ul><ul><ul><li>Pretax salary reductions </li></ul></ul><ul><ul><li>Earns tax-deferred income </li></ul></ul>
    38. 38. Certificates of Deposit <ul><li>Like a short term savings goal it can be established for longer terms </li></ul><ul><li>Least cumbersome paperwork </li></ul><ul><li>Easiest to draw funds </li></ul><ul><li>Lowest risk and lowest return </li></ul>
    39. 39. Websites to Hyperlink <ul><li>Money </li></ul><ul><ul><li>http://www.money.com/ </li></ul></ul><ul><li>Kiplinger </li></ul><ul><ul><li>http://www.kiplinger.com/ </li></ul></ul><ul><li>The Motley Fool </li></ul><ul><ul><li>http://www.fool.com/ </li></ul></ul><ul><li>Bankrate </li></ul><ul><ul><li>http://www.bankrate.com/ </li></ul></ul><ul><li>Investopedia </li></ul><ul><ul><li>www.investopedia.com </li></ul></ul>
    40. 40. Retirement Plans <ul><li>Social Security </li></ul><ul><li>Employer Savings Plans </li></ul><ul><li>Personal Savings Plans </li></ul>
    41. 41. Financial Plan <ul><li>Usually a document prepared by an insurance or investment professional </li></ul><ul><li>Evaluate the likelihood of your reaching your financial goals given your age, asset allocation, and tax obligation. </li></ul><ul><li>Plans concentrate on specific goals such funding a college education, planning for retirement, or reducing estate taxes </li></ul>
    42. 42. Financial Plan <ul><li>Should list your stated goals </li></ul><ul><li>Give a timetable to reach them </li></ul><ul><li>Have financial projections related to your stated goals and asset allocation </li></ul><ul><li>Provide disability, life, and liability insurance evaluations </li></ul><ul><li>Make investment recommendations related to your goals </li></ul><ul><li>Give income tax management strategies </li></ul>
    43. 43. Why is a Financial Plan Important? <ul><li>Help clarify and achieve numerous financial goals </li></ul><ul><li>Determine where you are spending your money </li></ul><ul><li>Can be tax deductible </li></ul><ul><li>Understand the commitment necessary to meet financial goals </li></ul><ul><li>Help understand real insurance needs </li></ul><ul><li>Determine the most effective way to invest resources </li></ul>
    44. 44. Choosing A Financial Advisor/Planner <ul><li>How long have you been in the business? </li></ul><ul><li>Do you specialize in any product or service? </li></ul><ul><li>How are you compensated? </li></ul><ul><li>Will other members of the company help prepare the plan? </li></ul><ul><li>How many clients do you have? </li></ul><ul><li>What is the average net worth or portfolio of your client base? </li></ul><ul><li>How many of your clients have written financial plans and can I see one? </li></ul>
    45. 45. Resources <ul><li>National Association of Personal Financial Advisors </li></ul><ul><ul><li>www.napfa.org </li></ul></ul><ul><li>Institute of Certified Financial Planners </li></ul><ul><ul><li>www.cfp-ca.org </li></ul></ul>
    46. 46. Summary <ul><li>A little bit of savings adds up over time </li></ul><ul><li>Pay yourself first </li></ul><ul><li>Make savings a habit </li></ul><ul><li>Look for ways to trim expenses </li></ul><ul><li>Save and invest (in your future) </li></ul>
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