Introduction To Good $ense March 2010


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Presentation given at North Way Oakland Church -- Saturday March 27, 2010 on Personal Finance & Budgeting.

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Introduction To Good $ense March 2010

  1. 1. Introduction to Good $ense March 2010 North Way Oakland
  2. 3. Goals of Today <ul><li>Leave with a vision for purposefully managing your finances! </li></ul><ul><li>Provide an overview of some practical tools. </li></ul><ul><li>Commit to relevant next step for you! </li></ul>
  3. 4. “ I am positive that personal finance is 80% behavior and 20% head knowledge.” Dave Ramsey The Total Money Makeover
  4. 5. Would you fire yourself, if you were your own personal CFO?
  5. 6. In America today … <ul><li>49% of people could cover less than one month’s expenses if they lost their income. </li></ul>
  6. 7. In America today … <ul><li>58% have never calculated what it will cost to retire </li></ul><ul><li>59% hope to live better retired then during working years </li></ul>
  7. 8. In America today … <ul><li>60% of people don’t pay off their credit cards every month </li></ul>
  8. 9. In America today … <ul><li>70% of people spend more than they make </li></ul>
  9. 10. In America today … <ul><li>80% of graduating college seniors have credit-card debt before they even have a job! </li></ul>
  10. 11. In America today … <ul><li>19% of bankruptcy filings were from college students </li></ul>
  11. 12. Would you fire yourself, if you were your own personal CFO? Most Americans Have to Say Yes!
  12. 13. Need to Change! <ul><li>Ask ‘how much’ instead of ‘how much down and how much a month’! </li></ul><ul><li>Reach the point where what people think is not primary motivator! </li></ul><ul><li>‘ Live like no one else, so later you can live like no one else.’ -- Dave Ramsey </li></ul>
  13. 14. “ Great spirits have always found violent opposition from mediocre minds.” Albert Einstein
  14. 15. 75% of Forbes 400 ‘best way to build wealth is to become and stay debt free’
  15. 16. Dave Ramsey’s 7 Baby Steps <ul><li>$1,000 in Emergency Fund </li></ul><ul><li>Get out of Debt </li></ul><ul><li>3 - 6 Month Emergency Fund </li></ul><ul><li>Save 15% of Gross Income for Retirement (also review insurances) </li></ul><ul><li>College Funds </li></ul><ul><li>Pay House Off Early </li></ul><ul><li>Build Wealth & Give it Away! </li></ul>
  16. 17. Video 1: ‘Super Saving’ (5:24 - 14:54)
  17. 18. 78% of people will have a financial emergency in 10 year period. Fortune Magazine
  18. 19. “ I am positive that personal finance is 80% behavior and 20% head knowledge.” Dave Ramsey The Total Money Makeover
  19. 20. “ Budgeting is simply telling your money what to do.” John Maxwell
  20. 21. <ul><li>“ Where your treasure is, there your heart will be also.” Matthew 6:21 </li></ul><ul><li>Every financial decision is also a spiritual decision. </li></ul>
  21. 22. <ul><li>Gives accurate data </li></ul><ul><li>Improves COMMUNICATION </li></ul><ul><li>Allows for mid-course corrections </li></ul><ul><li>Provides ACCOUNTABILITY </li></ul>Benefits of Record Keeping:
  22. 23. The Truth about Record Keeping: <ul><li>It’s simpler than it seems </li></ul><ul><li>It takes less time than you think </li></ul><ul><li>It does not require a Ph.D. in math </li></ul>
  23. 24. Zero Based Budgeting <ul><li>Plan how you are going to spend every dollar at the beginning of the month. </li></ul><ul><li>Household Income – Monthly Expenses = ZERO! </li></ul><ul><li>Avoid still having month left at the end of your money. </li></ul>
  24. 25. Review Spending Plan
  25. 26. Three Systems: <ul><li>Envelope </li></ul><ul><li>Written record </li></ul><ul><li>Electronic </li></ul>
  26. 29. Credit Card Studies: <ul><li>Family spending using a credit card versus cash </li></ul><ul><ul><li>Amount spent (with a credit card) rose between 20% and 30%. </li></ul></ul><ul><li>Camera purchase using cash versus a credit card </li></ul><ul><ul><li>Cash group paid an average of $29.58 </li></ul></ul><ul><ul><li>Credit card group paid an average of $52.67 </li></ul></ul><ul><li>MIT Study 2 Groups of Students (Celtics Tickets) </li></ul><ul><ul><li>Credit card group paid 2x as much </li></ul></ul>
  27. 30. Two Reasons Credit Card Users Spend More <ul><li>Using a credit card is psychologically different than using cash. Cash HURTS more! </li></ul><ul><li>No RECORD of how much we’ve charged until the end of the month </li></ul>
  28. 31. Credit Card Rules: <ul><li>Use only for BUDGETED items </li></ul><ul><li>Pay the balance in FULL every month </li></ul><ul><li>If you violate rule one or rule two, CUT up your cards </li></ul>
  29. 32. Get out of Debt
  30. 33. Biblical Guidelines: <ul><li>Avoid debt </li></ul><ul><ul><li>“ The borrower is servant to the lender.” Proverbs 22:7 </li></ul></ul><ul><li>Repay debt “The wicked borrow and do not repay, but the righteous give generously.” Psalm 37:21 </li></ul>
  31. 34. Debt Facts … <ul><li>The total American consumer debt is more than $2.8 trillion </li></ul><ul><li>$2,800,000,000,000 </li></ul>
  32. 35. Debt Facts … <ul><li>The average household credit card debt has increased approximately 2.5x in the past 17 years </li></ul>
  33. 36. Debt Facts … <ul><li>The average balance per credit card-holding household is more than $9,300 </li></ul>
  34. 37. Debt Facts … <ul><li>The credit card industry takes in $43 billion per year in additional, unexpected fees from the consumer, such as late payments, over-the-limit, and balance transfer fees. </li></ul><ul><li>Late fees alone bring in more than $11 billion. </li></ul>
  35. 38. Three Spiritual Dangers of Debt: <ul><li>PRESUMES on the future </li></ul><ul><ul><li>“… you do not even know what will happen tomorrow.” James 4:13, 14 </li></ul></ul><ul><li>DENIES God the opportunity to Teach us </li></ul><ul><ul><li>“ My God will meet all your needs according to his glorious riches in Christ Jesus.” Philippians 4:19 </li></ul></ul><ul><li>FOSTERS envy and greed </li></ul><ul><ul><li>“ Don’t be greedy for what you don’t have. Real life is not measured by how much we own.” Luke 12:15 </li></ul></ul>
  36. 39. Five Kinds of Debt: <ul><li>Home </li></ul><ul><li>Education </li></ul><ul><li>Auto </li></ul><ul><li>Business </li></ul><ul><li>CREDIT CARD </li></ul>
  37. 40. Debt Example <ul><li>You owe $7,200 @ 18.1% </li></ul><ul><li>(Minimum payment = 2% of the balance or $10/month whichever is greater.) </li></ul>You Pay Total Paid Time $Minimum/month $23,049 30+ years $144/month $13,387 8 years $144 + $100/month $ 9,570 3 years
  38. 41. <ul><li>Is God big enough and are you committed enough to find a little over $3 a day somewhere in your expenditures? </li></ul>Key Question:
  39. 42. Video 2: ‘Dumping Debt’ ( 1:17:33 - 1:30:52)
  40. 43. The Debt Snowball <ul><li>List your debts from smallest to largest </li></ul><ul><li>Attack your SMALLEST debt first. </li></ul><ul><li>Pay the MINIMUM on the rest </li></ul><ul><li>As a debt is repaid, ROLL the amount you were paying to the next largest debt. </li></ul><ul><li>Incur NO new debt! </li></ul>
  41. 44. Ways to find additional money for the Debt War: <ul><li>1. Sell Assets (A great jump start) </li></ul><ul><li>2. Free up cash from daily spending </li></ul><ul><ul><li>(Most important step) </li></ul></ul><ul><li>3. Increase income via part-time job </li></ul><ul><ul><li>(During debt repayment) </li></ul></ul><ul><li>4. Others ? </li></ul>
  42. 45. Debt Reduction Plan Example
  43. 46. Debt Reduction Plan Example
  44. 47. Debt Reduction Plan Example
  45. 48. Debt Reduction Plan Example
  46. 49. Debt Reduction Plan Example
  47. 50. Debt Reduction Plan Example
  48. 51. Debt Reduction Plan Example
  49. 52. Debt Repayment a Great Investment <ul><li>Guaranteed </li></ul><ul><li>Tax free </li></ul><ul><li>Immediate </li></ul><ul><li>High rate of return (18%+ for credit cards) </li></ul>
  50. 53. Get Started Now!
  51. 54. Arthur vs. Ben <ul><li>Both save $2,000 per year at 12% </li></ul><ul><ul><li>Ben starts at 19 and stops at 26 </li></ul></ul><ul><ul><li>Arthur starts at 27 and stops at 65 </li></ul></ul><ul><li>Ben @ 65: $2,277,996 </li></ul><ul><li>Arthur @ 65: $1,532,166 </li></ul>
  52. 55. 4 Tips: Starting Out <ul><li>Don't buy an expensive car right out of school </li></ul><ul><li>Don't sign up for more credit cards  </li></ul><ul><li>Don't need the nicest apartment   </li></ul><ul><li>Don't need a $10k work wardrobe to 'get started' </li></ul>
  53. 56. Video 3: ‘Buyer Beware’ ( 48:50 - 53:14)
  54. 57. What are your goals? <ul><li>“ we spend the first 5 - 7 years of marriage trying to attain the standards of living our parents attained over their lifetime.” </li></ul><ul><li>- Larry Burkett </li></ul>
  55. 58. What are the consequences? <ul><li>90% of marriages that end in the first 7 years blame it on money problems </li></ul>
  56. 59. <ul><li>TIME TO BUILD WEALTH!!!! </li></ul>
  57. 60. Investing (baby step #4) <ul><li>Get your money to grow! </li></ul><ul><li>Why wait until all debt is paid off? </li></ul><ul><ul><li>Habits are ingrained </li></ul></ul><ul><ul><li>Easier to make a priority </li></ul></ul><ul><li>Time to invest! </li></ul>
  58. 61. Different Goals <ul><li>Emergency Fund </li></ul><ul><li>Retirement Fund </li></ul><ul><li>House/Boat/Vacations/College </li></ul>
  59. 62. Emergency Fund <ul><li>What is a money market account? </li></ul><ul><ul><li>Short term, easily available </li></ul></ul><ul><ul><li>Backed by the federal government up to $250,000 </li></ul></ul><ul><ul><li>Online – Vanguard, majority of all banks </li></ul></ul>
  60. 63. Retirement <ul><li>Remember Ben & Arthur? </li></ul><ul><ul><li>The sooner the better! </li></ul></ul><ul><li>Prioritize Retirement </li></ul><ul><ul><li>401k first if you have a company match </li></ul></ul><ul><ul><li>ROTH IRA next </li></ul></ul><ul><ul><li>Back to 401k if you have money left over </li></ul></ul>
  61. 64. Why Invest? <ul><li>Because it usually pays off! </li></ul><ul><li>$10,000 invested today for 30 years: </li></ul><ul><ul><li>@ 3% - $24,270 </li></ul></ul><ul><ul><li>@ 6% - $57,430 </li></ul></ul><ul><ul><li>@ 11% - $228,920 </li></ul></ul><ul><li>Live like no one else, so that later, you can live like no one else!! </li></ul>
  62. 65. Diversification <ul><li>Spread out your money </li></ul><ul><ul><li>2008: </li></ul></ul><ul><ul><ul><li>Bonds: +8% </li></ul></ul></ul><ul><ul><ul><li>US Stocks: -37% </li></ul></ul></ul><ul><ul><ul><li>Intl Stocks: -41% </li></ul></ul></ul><ul><ul><li>2009: </li></ul></ul><ul><ul><ul><li>Bonds: +3% </li></ul></ul></ul><ul><ul><ul><li>US Stocks: +26% </li></ul></ul></ul><ul><ul><ul><li>Intl Stocks: + 27% </li></ul></ul></ul>
  63. 66. Use Mutual Funds <ul><li>Help Diversify Risks </li></ul><ul><li>Safer than individual stocks </li></ul><ul><li>Best way to get exposure to many stocks. </li></ul>
  64. 67. House/Boat/Vacation/College <ul><li>Timing </li></ul><ul><ul><li>Short term investing (<5 years) </li></ul></ul><ul><ul><ul><li>Savings accounts </li></ul></ul></ul><ul><ul><li>Long term investing (>5 years) </li></ul></ul><ul><ul><ul><li>Mutual Funds (stocks and bonds) </li></ul></ul></ul><ul><ul><ul><li>Over the past 70 years, 9 out of every 10 5-year rolling periods had positive returns </li></ul></ul></ul>
  65. 68. Insurance <ul><li>Helps transfer risk </li></ul><ul><li>Two types of Life Insurance </li></ul><ul><ul><li>Cash Value or Whole Life </li></ul></ul><ul><ul><li>Term </li></ul></ul><ul><li>Recommendation: 10x annual income </li></ul><ul><ul><li>Scale up or down depending on life stage </li></ul></ul>
  66. 69. Cash Value Insurance <ul><li>Typically more expensive, has a savings account component </li></ul><ul><ul><li>Portion of premium payment is put in a savings account </li></ul></ul><ul><ul><li>Use mutual funds for investing </li></ul></ul><ul><ul><li>High expenses </li></ul></ul><ul><li>Upon death, insurance company keeps the cash value, pays the face value </li></ul>
  67. 70. Term Life Insurance <ul><li>Significantly cheaper than Cash Value </li></ul><ul><ul><li>$125,000 coverage for 30-year old man + family: </li></ul></ul><ul><ul><ul><li>Cash Value: $100/month </li></ul></ul></ul><ul><ul><ul><li>Term: $7/month </li></ul></ul></ul><ul><li>It is what it is – INSURANCE </li></ul>
  68. 71. Reminder: Goals of Today <ul><li>Leave with a vision for purposefully managing your finances! </li></ul><ul><li>Provide an overview of some practical tools. </li></ul><ul><li>Commit to relevant next step for you! </li></ul>
  69. 72. Your Commitment: <ul><li>Cut up Credit Cards </li></ul><ul><li>Attack your Next Baby Step </li></ul><ul><li>Develop a Spending Plan & Stick to It! </li></ul><ul><li>Other? </li></ul>
  70. 73. Learn More … <ul><li>Meet one-on-one to discuss </li></ul><ul><li>Pick up ‘Total Money Makeover’ book </li></ul><ul><li>Wexford Good $ense Full Class </li></ul>