Step 1: Take an Inventory of yourFinancial Assets• Develop a balance sheet• List assets on one side and liabilities on the other• If liabilities exceed the value of your assets you don’t have very good financial security.• Create an income statement.• Think about how much money you will need to save to reach all of your goals.
Step 2: Keep Track of All Your Expenses• Keep records of expenses.• List everything you spend.• Develop spending categories.• Miscellaneous or impulse category.• Develop categories based off whats most important
Step 3: Prepare a Budget• Choose how much to allow for expenses.• Ex cell phone use, eating out, entertainment.• What you spend reduces what you save later.
Step 4: Pay off Debts• Start with the ones with highest interest rate• Check credit statements and other mailing carefully.
Step 5: Start a Savings Plan• Save money each month in a separate account for large purchases.• Best way to save is to pay yourself first.• Take out money for savings and figure out what to do with the rest.
Step 6: Borrow Only to Buy Assets ThatIncrease in Value• Save about six months in advance for contingencies• Only the most unexpected of expenses should cause you to borrow.
Building a Financial BaseIncluding: Investing in realestate, saving money, andmanaging credit.
Success in a capitalist system • Must have capital to invest. ▫ Sacrifice. ▫ Living frugal. ▫ Save money.
Investments- Benefits of Home Ownership • Investment you live in. • Mortgage payments fixed. • Forces people to save. • Great asset when applying for business loans. • Seed money. • Real estate flip-n-sell. Interest.com
Benefits of Home Ownership- Tax Deductions • Tax deductible: -Interest on mortgage payments. -Real estate taxes. “What’s that?! The Federal Government helps home owners?!”
Where To Put Savings • Not just the bank. • Stock market. - Okay to take risk. - Low prices = time to buy.
Managing Credit- Credit Cards• Important to financial system.• Paying off credit cards: ▫ Pay in full before gain interest. ▫ DO NOT BUY THINGS YOU CANNOT AFFORD TO PAY OFF QUICKLY (finance charges). ▫ “Give backs” (CardRatings.com) FICO stands for Fair Isaac Corporation, which is the company that created the industry standard credit scores used by almost all lenders. FICO has been in business since the 1950s but began building the famous FICO score in the mid 1980s.
Dangers- Credit Cards• Debt piles up.• Not good to have if you: ▫ Don’t stick to financial plans. ▫ Cannot follow a budget. Example: -Card balance of 10,000 at a 16% interest rate. If you pay 4% in your monthly payments it will take you 14 years to pay it off. - Interest would be 5,000.
Protecting Your Financial BaseBuying Insurance
Life Insurance - insurance providing for a payment of a sumof money to a named beneficiary upon death of thepolicyholder or to the policyholder if still living after a certainage. Types of Life Insurance: •Term Insurance- Pure insurance protection for a given number of years. •Whole Life Insurance- Insurance that combines pure insurance and savings. • Variable Life Insurance - Whole life insurance that invest the cash value of the policy in stocks or other high-yielding securities.
Annuity- a contract to make regular payments to a person for life or for a fixed period. • Two Kinds of Annuities:- Fixed and Variable Other Insurances you also need. . . •Health •Disability •Homeowner’s/Renter’s •Automobile/Liability