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Personal finance presentation

on Aug 09, 2010

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Personal finance presentationPresentation Transcript

• Creative (…and High Tech) Ways To Teach Personal Finance
• Why Save?
The reward for saving is INTEREST!
Save \$4000 a year between age 16 and 20, with a 10% annual return, and have \$1,000,000 by age 65.
With a Roth IRA, it is tax free.
• “It’s not your salary that makes you rich; it’s your spending habits”
- Charles A. Jaffe
• With compounding interest, the choice is not between one car now and one car later.
• Its One Car Today...or…
• With Compounding @ 8% a year... A car now or In 9 Years ...
• With Compounding @ 8% a year... A car now or In 18 Years ...
• With Compounding @ 8% a year... A car now or In 27 Years ...
• Or a…
• “Adding time to investing is like adding fertilizer to a garden: It makes everything grow.”
- Meg Green
• RULE OF 72
Years to Double = 72 / Interest
• 1\$ @ 12%  72/12 = 6 years to double
An example: \$1 @ 12%
Now \$1 After 24 years \$16
After 6 years \$2 After 30 years \$32
After 12 years \$4 After 36 years \$64
After 18 years \$8 After 42 years \$128
After 48 years \$256
• So, \$4000 saved at 17 makes one a millionaire at age 65!
\$4000 X 256 = \$1,024,000
• Jack saves \$5,000 at age 38 years old, and earns 8% interest. Approximately how much will he have when he is 65 years old?
Jill saves \$5,000 at age 20 years old, and earns 8% interest. Approximately how much will she have when he is 65 years old?
Jack  \$40,000
Jill  \$160,000
• So, \$4000 saved at 17 makes one a millionaire at age 65!
\$4000 X 256 = \$1,024,000
• “Drive-thru banks were established so most of the cars today could see their real owners.”
- E. Joseph Grossman
• There is a crucially important difference about playing the game of investing compared to virtually any other activity. Most of us have no chance of being as good as the average in any pursuit where others practice and hone skills for many, many hours. But we can be as good as the average investor in the stock market with no practice at all”
- Jeremy Siegel, Professor of Finance and author of “Stocks for the Long Run”
• Investing into an IRA
• If you decide to save for retirement and put your money in an IRA, the government will give you a tax break
What, the government is going to do you a favor?
There must be a catch!
• Investing into an IRA
Well there actually is a catch.
You have to keep your money in the IRA until age 59 ½. Or Else …
• If you withdraw the money before that, you will be hit with a 10% penalty, plus taxes on everything you withdraw.
Redelsheimer’s PowerPoints Inc.
• Investing into an IRA
Richard Miller and Jim Jones each make \$50,000 a year.
Redelsheimer’sPowerPoints Inc.
The Millers
The Joneses
• Investing into an IRA
Both families are taxed in the 25% bracket.
The Millers put \$5,000 into their 401 K
Redelsheimer’s PowerPoints Inc.
The Millers
The Joneses
\$ 50,000
\$ 50,000
\$ 5,000 401 K
- \$12,500 Taxes
\$ 45,000 Taxable Income
\$ 37,500
Disposable Income
- \$ 11,250 Taxes
\$ 33,750 Disposable Income
• Now the Joneses want to keep up with the Millers, and invest \$5,000, but they do so not in an IRA but a regular taxable saving account
The Millers
The Joneses
\$ 50,000
\$ 50,000
\$ 5,000 401 K
- \$12,500 Taxes
\$ 45,000 Taxable Income
\$ 37,500 Disposable
Income
- \$ 11,250 Taxes
\$ 5,000 Regular Savings
\$ 33,750 Disposable Income
\$ 32,500 Disposable Income
• Which family comes out ahead?
Redelsheimer’s PowerPoints Inc.
The Millers
The Joneses
\$ 50,000
\$ 50,000
\$ 5,000 IRA
- \$12,500 Taxes
\$ 45,000 Taxable Income
\$ 37,500 Disposable
Income
- \$ 11,250 Taxes
\$ 5,000 Regular Savings
\$ 33,750 Disposable Income
\$ 32,500 Disposable Income
• The Millers Net Worth is \$ 38,750
The Jones’s Net Worth is \$ 37,500
• Investing into an IRA
• How did this happen?
• The Millers savings into an IRA were before taxes.
• Why would the Government be so kind and give a tax break to investors?
• Maybe because they know there will not be enough money in Social Security to pay future retirees?
• ROTH IRA
• Put in your money after taxes, and pay NO taxes when you take out your \$.
• Take out money tax free for education and your first house
• Can take out your principal at any time without a penalty
• Can put in a maximum of \$5000 (in 2010) a year.
• Young people can make \$ twice, and pay no income tax.
• “Diversification is protection against ignorance”
- Warren Buffet
• Why Diversify?
Assume you have 100,000 to invest in your 401K
You put all you money in one investment.
There is a 50% chance it will quadruple, and a 50% chance you will lose your money.
50% chance \$100,000 = \$400,000
50% chance \$100,000 = \$0
• Why Diversify?
Now you diversify your \$100,000 into 10 different investments
The Odds are the same for each \$10,000  50% chance of quadrupling, 50% chance of losing your money.
Now assume ½ of your 10 investments quadruple: (\$10,000 X 4 = \$40,000), and ½ of your investments lose all of their (\$10,000 X 0 = \$0)
\$40,000 X 5 = \$200,000
You have turned \$100,000 into \$200,000 by diversifying your money!!
• E-Mentors Program
• the end