Seven Rules For Financial Success


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Everyone wants to be more financially secure, but don't know the basics of how to get there. This presentation is a roadmap with seven simple rules for financial success. It is part of a series of seminars offered by Saunders Learning Group on personal money management. You can now view the presentation here, order the Family Financial Freedom book from any of the ebook sites for iPhone, iPad, Kindle, Nook, Kobo reader etc. contact me at for a copy of the presentation or more information on how to get seminar materials.

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  • There are several observations here. First, the ending balance of just over $2 million is in today’s dollars assuming a 3.1% inflation rate. The actual retirement savings balance after 35 years is over $6 million. The chart is broken into three colors: yellow, blue and purple. The yellow is the actual amount of money invested, blue the amount earned directly from the money invested (called simple interest), and purple the amount earned from the simple interest (called compound interest). The point is that given enough time, the compound interest earned will far exceed the amount invested or even the simple interest. That’s the most powerful force in the known universe that Einstein was talking about! Finally, note that the $2 million balance in today’s dollars is enough to withdraw about $80,000 a year for retirement, exactly what you’d need if you were seeking to replace 80% of your income in today’s dollars.
  • This is the example of Jane who started saving $1,000 per month and earned an hypothetical 8% rate of return. At age 65, Jane has $3.5 million to retire on. Gary started 10 years later, saving the same $1,000 per month @8% and had half as much at age 65.
  • Seven Rules For Financial Success

    1. 1. The Beginning Investor Series. Seven Rules for Financial Success Tried and True, these are just seven common sense rules to build financial success, plus 12 rules for successful stock investing Saunders Learning Group, Newton, KS
    2. 2. Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-­‐680-­‐6482 or at for more informaKon. Saunders Learning Group, LLC, Andover, KS 2 Training from Saunders Learning Group
    3. 3. All About Figuring Out Wall Street ... Published by Saunders Learning Group. Training for financial professionals and consumers. If your interest is financial turn to Saunders Learning Group for your training needs. Contact information: email: mobile: 316-680-6482 Saunders Learning Group, LLC, Andover, KS Everything has changed in the financial services industry and it affects your financial well-­‐being. From bank failures, to record unemployment, home foreclosures and panic around the world, Figuring Out Wall Street, is the concise guide to help everyone from first Kme investors to veterans of banking understand what to do to persevere and restore our faith in our financial systems. 3
    4. 4. Rule One – Pay off Consumer Debt ! Credit cards and other consumer debt is the greatest barrier to financial success you face. ! You pay high cost to borrow money (finance charges) ! You increase your debt load and Debt-to-Income Ratio ! You decrease the amount that you should be saving ! You may put your property at risk (if you can’t pay) ! Less money each month for household expenses, saving and investing ! Can easily overspend and create financial difficulties 61% of Americans live from paycheck to paycheck, up from 32% in 2008. 43 million Americans are on food stamps, mostly the elderly, children, and the working poor. 50% are white, 27% are black 43% of Americans have less than $10,000 save for retirement, 36% contribute nothing 24% of us postpone retirement by at a year 80% of Americans have less than 6 months of income in reserve for a rainy day Personal bankruptcy increased by 32% in 1980, as millions of Americans lost their jobs and homes The bottom 50% of incomes own less than 1% of the wealth in America Saunders Learning Group, LLC, Andover, KS 4 Use the “Snowball Effect to pay off debt
    5. 5. Snowball effect ! Review all of your debt ! Take the lowest balance credit card or consumer debt and apply as much as possible to the balance each month un:l it is paid off. ! Cancel that card once it is paid off (unless it has the lowest interest rate) ! Then take the same monthly payment you just eliminated an apply it to the next highest balance account (in addi:on to what your were paying), un:l it is paid off. ! Do this un:l you have paid off all of your consumer debt and then only keep one open credit card account (finding an account with the lowest possible interest rate). Saunders Learning Group, LLC, Andover, KS 5
    6. 6. What is the Cost of Credit? ! If you borrow money on credit you will pay the lender a finance charge Saunders Learning Group, LLC, Andover, KS 6 (their profit) for the use of their money. ! Example of the cost of credit: Let’s say that you borrow $10,000 from the Bank to purchase a car. — The interest rate is 12% on the $10,000 auto loan. — Your monthly payment is $222.44 for 5 years. — Your total cost for borrowing $10,000 is $3,346.67 or 33.4% of the $10,000 borrowed.
    7. 7. Rule Two: Pay Yourself First Each Month ! Use automa:c transfers to move money from your paycheck or checking account to a savings account or mutual fund. ! The sure path to financial security is to set aside 10% of whatever you earn in a savings account, un:l you had an emergency fund of at least six months of your income. ! Sad Fact: 80% of Americans have less than six months of income in reserve. Saunders Learning Group, LLC, Andover, KS 7 Pay Yourself First Where do I get the Money to start? Additional Outside Income Avoid Credit Traps Buy the Right Insurance Budget for wants vs. needs Realign your assets
    8. 8. Rule Three: Build From A Financial Foundation ! Once you have an paid off consumer debt and have an emergency fund, you can begin to invest, but do it in a sensible way – By pyramiding you savings and investments Medium Risk Futures Contracts Options, and Collectibles High Risk Variable Low Risk Annuities Treasury Bills & Notes Bonds Mutual Funds Financial Plan Saunders Learning Group, LLC, Andover, KS 8 Government Securities Financial Foundation Insurance Goals Budget Financial Records Net Worth Life Disability Health Property & Liability Insured Savings Accounts Savings Bonds EE & HH Money Market Funds Certificates of Deposit Aggressive Growth Stocks, junk bonds, mutual funds Real Estate High Quality Stocks and Bonds Mutual Funds
    9. 9. The Magic of Compound Interest ! Compound Interest is the eighth wonder of the world. The chart shows the growth of saving %15,000 a year, assuming a 10% return, 3.1% inflation and savings beginning at age 30. Saunders Learning Group, LLC, Andover, KS 9
    10. 10. Start Early With Compound Interest Saunders Learning Group, LLC, Andover, KS 10
    11. 11. Rule Four: Learn the basics of Investing ReKrement Plans ! Every wage earner has a tax problem ! Qualified retirements plans allow to shelter your retirements savings from taxes and in most cases reduce your taxable income. ! You should always maximize your contributions to retirement plans before making any other investments choices. ! If your employer provides matching contributions to a retirement plan, take it, it’s free money. Saunders Learning Group, LLC, Andover, KS Mutual Funds ! Diversifica:on & Divisibility: — A single investment is immediately diversified through the fund’s holdings ! Liquidity ! Record Keeping ! Professional Management: — Informed money managers may make beZer decisions than uninformed investors. ! Reduced transac:on costs: Costs are reduced with economies of scale. 11 ! Start with a sensible investment plan using; " Tax advantages retirement plans: 401ks, 403(b), IRAs, Roth IRAs " Mutual Funds, Exchange Traded Funds and Dividend Reinvestment Programs
    12. 12. Rule Five: Buy Term Insurance - Invest Your Savings ! As long as you have established a regular savings plan, have created an emergency fund and started a re:rement savings account, you are saving money by buying term insurance. Term insurance does not come with built in cash values or investment accounts like other forms of more expensive insurance. ! Follow the idea that your responsibili:es decrease over :me, while your savings and investment increase and you can see that less expensive term insurance, frees up money to create an investment plan that makes you more secure in the future. It works like this: Life Insurance Saunders Learning Group, LLC, Andover, KS 12 In the early years, you need more coverage . . . 1. Young children 2. More debt 3. A Home mortgage 4. A loss of income would be devastating In the early years, you don’t have much money . . . Savings & Investments Life Insurance Savings & Investments In the later years, you need less coverage . . . 1. Children are grown 2. Debts paid off 3. Mortgage paid 4. Savings for Retirement in place In the later years, you don’t need much insurance.
    13. 13. Rule Six: Maximize contributions to tax-deferred retirement accounts before any other investment. ! First, in most cases (the ROTH is the excep:on) the contribu:ons are made with pre-­‐tax dollars and therefore you taxable income is reduced by your contribu:ons in a defined benefit plan or defined contribu:on plan (typically a 401k). ! With a ROTH IRA, your contribu:ons are made with a_er tax dollars, but at re:rement, you pay no taxes on your withdrawals. ! Second, the contribu:ons grow on a tax-­‐deferred basis. That means all of the interests, dividends and capital gains are added to your account without taxes becoming due. You are only taxes on the withdrawals made in re:rement. ! Third, re:rement plans are professional managed and you typically have a range of op:ons to help you select sub-­‐accounts or separate funds that match your desires for a greater returns vs. the risks taken to get beZer returns. ! Fourth, because you have a range of op:ons you can diversity between investment types to beZer manage risks and returns. Saunders Learning Group, LLC, Andover, KS 13
    14. 14. Rule Seven: Have A Will, Trust and Estate Plan ! A will protects your assets from probate in most cases (consult a lawyer) ! A will allows you pass your estate according your wishes ! Include a Durable Power of Attorney and Medical directives to insure your wishes about how to handle medical decisions are done according to your wishes. ! Trust accounts allow you manage assets and often defer taxes Saunders Learning Group, LLC, Andover, KS 14
    15. 15. INVESTING BASICS TO KNOW Here are the basics you need to know to invest in stocks Saunders Learning Group, LNLeCw,t Aond, oKvSe r, KS 15
    16. 16. Economic Analysis Involves assessing economic conditions that can affect a firm’s stock price Economic growth A measure of growth in a country’s economy over a particular period Gross domestic product (GDP): the total market value of all products and services produced in a country Weak economic conditions ! Lowers demand and stock prices ! Consumers spend less, further lowering demand Fiscal policy The means by which the U.S. government imposes taxes on individuals and corporations and by which it spends its money Interest rates # Stocks perform better when interest rates are low # Some stocks are more sensitive to interest rates than others # The Federal Reserve uses monetary policy to influence interest rates Inflation The increase in the general level of prices of products and services over a specified period # Consumer price index (CPI): a measure of inflation that represents prices of various consumer products # Producer price index (PPI): a measure of inflation that represents prices of products used to produce other products Saunders Learning Group, LLC, Andover, KS 14-16
    17. 17. Sources for Economic Analysis Saunders Learning Group, LLC, Andover, KS 14-17
    18. 18. Evaluating Stocks The Internet • Most corporations have their own Web sites. • The information may be more detailed than material from the corporation’s printed publications. • You can also use search engines to find information about investing in stocks. General financial news • Specific information about a company and its stock’s performance Saunders Learning Group, LLC, Andover, KS Stock Advisory Services • Contains information about stock prices and capitalization, earnings, and dividends • Provides a detailed description of the company’s major operations • Offers current information about net income and sales revenue Corporate News Publications • Annual and quarterly reports offer: • A summary of a corporation’s activities • Detailed financial information • You do not have to be a stockholder to get an annual report. You can also get information about specific companies from financial publications
    19. 19. Analysis of the Firm Firm-specific characteristics - Analysis of a firm’s income statement and balance sheet can reveal the following characteristics: Liquidity • Current ratio The ratio of a firm’s short-term assets to its short-term liabilities • Show the firm’s ability to cover expenses Financial leverage • Debt ratio A measure of financial leverage that measures the proportion of total assets financed with debt • Times interest earned ratio A measure of financial leverage that measures the ratio of the firm’s earnings before interest and taxes to its total interest payments Efficiency • Inventory turnover A measure of efficiency; computed as the cost of goods sold divided by average daily inventory • Average collection period A measure of efficiency; computed as accounts receivable divided by average daily sales • Asset turnover ratio A measure of efficiency; computed as sales divided by average total assets Saunders Learning Group, LLC, Andover, KS 14-19 Profitability • Operating profit margin A firm’s operating profit divided by sales • Net profit margin A measure of net profit as a percentage of sales • Return on assets A measure of profitability; computed as net profit divided by total assets • Return on equity A measure of profitability; computed as net profit divided by stockholder’s equity
    20. 20. Financial Ratios Used to Evaluate a Business Saunders Learning Group, LLC, Andover, KS 14-20
    21. 21. Evaluating Stocks To find out about the health of a corporation, you can use numerical measures such as: Current Yield • The annual dividend of an investment divided by the current market value Total Return • A calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment Earnings Per Share • A corporation’s net, or after-tax, earnings divided by the number of outstanding shares of common stock • Measures the amount of corporate profit assigned to each share of common stock • Gives a stockholder an idea of a company’s profitability, an increase in earnings per share is a good sign for stockholders. Price-earnings (PE) ratio • The price of one share of stock over the last 12 months • Used to compare the corporate earnings to the market price of a corporation’s stock. • Study the price-earnings ratio for a corporation over a period of time so that you can see a range. Industry Norms, Go to: hZp:// Provides informa:on on various industry groups and financial informa:on on firms you specify in any industry. Saunders Learning Group, LLC, Andover, KS
    22. 22. Analysis of the Firm Saunders Learning Group, LLC, Andover, KS 14-22
    23. 23. 12 Rules for Investing in Stocks 1. Start with an emergency fund 2. Open a “cash” only account with a stock broker – Online, Discount, Full-­‐Service 1. Save the margin account for later, a_er you know more about what you are doing 1. New investor, need advise – Use a full service brokerage for guidance, check for a good track record 2. More experienced – Use a discount brokerage with good service and quality products 3. Start with $1,000 in mutual funds 1. $5,000 buy just two to three stocks 2. $10,000 add one or two addi:onal stocks 3. $25,000 allows you have five or six stocks 4. $100,000 Not more than 20 stocks, unless you want to spend 100% of your :me inves:ng 4. Buy the very best companies, concentrate on a limited number of stocks with growing dividends, and watch them closely using stock alerts. Saunders Learning Group, LLC, Andover, KS 23
    24. 24. 12 Rules for Investing in Stocks 5. Cut loses on stocks @ 8% with Stop Lost orders $ This takes out the hope and fear of inves:ng, makes for ra:onal decision making $ Be persistent about cukng loses, so you have money to invest in the next best op:on 6. Sell your best stocks with 25 to 30% gains $ Always sell you worst-­‐performing stocks first, not your best, but don’t hang on for the last ounce of gains 7. Pick Market leaders in areas you have some knowledge $ Profits drive the price of stocks: improving earnings (EPS), growing profits, increasing sales and earnings growth $ #1 in their category with strong Return on Equity (ROE) 8. Invest dollars, not number of shares. Pick stocks with a price between $15 and $150 per share $ 70% of trades are with ins:tu:onal investors, who drive the market and shun low priced stocks Saunders Learning Group, LLC, Andover, KS 24
    25. 25. 12 Rules for Investing in Stocks 9. Use fundamental analysis for picking stocks to own and technical analysis to know the buy and sell signals $ Technical analysis is reading a stock’s prices and trading volume to :me the buying and selling of stocks. Look for price correc:ons and base building in charts. 10. Earnings Per Share of 30% or more $ Over :me 3 of 4 of the biggest winners are growth stocks with EPS of 30% or more 11. Buy leaders $ Sales up 25% $ Look for stocks with gains of 25% in the same quarter from a year earlier $ #1 in their field for recent sales, earning growth, profit margins and ROE (20% or more) $ Also look for strong management team and management ownership with strong ins:tu:onal ownership 12. Look for stocks with a strong record of annually increasing dividends Saunders Learning Group, LLC, Andover, KS 25
    26. 26. Questions Saunders Learning Group, LLC, Andover, KS
    27. 27. Post Workshop Action Plan ! Complete the Post Workshop Ac:on Plan Saunders Learning Group, LLC, Andover, KS 27
    28. 28. Reference Material Saunders Learning Group, LLC, Andover, KS Figuring Out Wall Street Consumer’s Guide To Financial Markets By Floyd Saunders Publisher: Saunders Learning Group ISBN: 978-0-9824019-0-3 available from Amazon, B&N, and http:// www.figuringout or Book summary: From bank failures to home foreclosures and panic around the world, Figuring Out Wall Street, is the concise guide to help everyone understand how this latest crisis happened, who was responsible and what to do now to restore our financial systems. Written in an easy to understand manner, even the most complex financial concepts are easy to digest. This book provides help to monitor investments with a review of investment products, financial regulators and economic indicators. Learn how the stock market exchanges work and the world of investment banking, hedge funds, venture capital and private equity. Every chapter includes action plans for investing.
    29. 29. About the Author Saunders Learning Group, LLC, Andover, KS ! Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking. ! He has taught courses in Money and Banking and extensively for the American Ins:tute of Banking and various colleges. ! As a consultant, he developed and taught a wide range of banking and inves:ng courses. ! He authored three programs for the American Bankers Associa:on: Banking on Mutual Funds and Annui1es, Introduc1on to Securi1es Markets and Inves1ng in Securi1es. date