Your Personal IQ Score & Grade 27-30 = A: Excellent Personal Financial IQ 24-26 = B: Above Average Personal Financial IQ 21-23 = C: Average Personal Financial IQ 18-20 = D: Below Average Personal Financial IQ 0 – 17 = E: Desperately Needs Financial Training
Element 1: Discover your comparative advantage - What does this mean? Specialize in what you are good at; you'll be more productive in that area - Pick an area that is of more value to others to maximize your earnings Ex: Engineering v. English degrees - Highest pay goes to those who are good at something that others value
How to figure out your comparative advantage - What do you like to do? What do you enjoy? - School subjects that come easily - How you spend your spare time - What you are passionate about; what you care about - What other people think about you & your talents - What else? Take a full career assessment evaluation; may be worth spending money on Did the online Personality ID Quiz help? - PRAY! God knows you better than anyone does; trust that He will lead you. Do not worry!
Element 2: Be Entrepreneurial. In a market economy people get ahead by helping others and discovering better ways of doing things. - Financial success = making your services more valuable to others. This is true whether you are an employer or an employee - Entrepreneurs < 1/5 of workforce but they = 2/3 of the millionaires Characteristics of Entrepreneurs: - Develop opportunities & new products that others have overlooked - Assume more risk b/c possible payback is higher - Save a lot, often reinvesting their profits - Work LONG hours, > 40 hours/week - Any employee can adopt some or all of these practices
Element 2: Be entrepreneurial THINK like an entrepreneur; DEVELOP SKILLS; Napoleon Dynamite was right! If you are an employee, think of ways to help your boss. What changes could be made to save money or improve the product or service you provide? How can you go the extra mile at work? Always look for new things to learn on the job. *** What business ideas do you have for the future or have already started?
Element 3: Budget to help you save regularly and spend your money more effectively. - How do people and nations become wealthy? By saving regularly. - Savings creates capital that can be used to generate wealth, such as a new business or investment - If you get in the habit now of knowing where your money is going and figuring out how to stick with your goals, you will do well in life and avoid being a poor fool (Prov. 6) or a rich fool (Luke 12). - This is where knowing your goals and dreams is important. - NOTE: Your money and everything you own belongs to God. You are His steward. Manage what He has given you in a way that will please HIM. Make Him Lord of your money!
A Budget = a Plan. START NOW! 1. Keep track of your income & expenses for a month 2. Set a minimum % for giving. Be willing to give more as God leads. 3. Decide how much spending money you need per month. 4. SAVE the REST OR set a % to save. - Save an Emergency Fund of $500 to $1000 that you don't touch. - Set Goals for your savings:short-term, medium-term & long-term. - What are your goals? PRAY! Put incentives to work for you. 5. STICK to your PLAN! Use Quicken, Budgetmap, Mvelopes from Crown Financial Ministries, or paper envelopes, but make it work. 6. AVOID DEBT, even to your parents and especially your friends.
How's Your Budgeting Going? <ul><li>Have you been keeping track of your expenses and income this month? Any comments, surprises?
How about the budgeting exercise you did this week? How did you make your decisions of how much to allocate to each category? Comments, reactions?
Hand them in. Keep going with your personal tracking. </li></ul>
Element 4: Don't Finance anything for longer than its useful life. - What should not be financed through debt? Items that are consumed or used up quickly: - When is it generally OK to purchase something on credit? When it's a long-lasting asset & the debt is paid before the asset wears out:
Element 5: Avoid Credit Card Debt & Consider purchasing used items. <ul><li>What's so bad about credit cards?
- Late fees, $25 and up; minimum payment problem
- Interest charges, 13% and up, much higher than you can earn in investments
- Temptation to buy things you can't afford; impulse buys – sales only save you money if you were already needing to buy that item.
What is average rate of return of stock market since 1926 for S&P 500 largest firms? </li></ul>
T HE R ULE OF 70 ~ H OW L ONG D OES I T T AKE TO D OUBLE Y OUR P RINCIPAL I NVESTMENT ? Place funds in a strategic investment vehicle and let them grow over time. Divide 70 by the expected rate of return (R) and see how long it takes to double in size. The Number of Years It will Take X to Double= 70/R When the rate of interest (R) = 7%, your investment will double in how many years? 10 years (=70/7)
Take a Closer Look: Rule of 70 <ul><li>Save $2000 at the age of 16 and place it in an investment that promises a 10% return.
Not bad, eh? But finding a 10% return these days is almost impossible. Even so, the principle is true. Interest rates change all the time and investment opportunities change with the times, too. Keep your eyes open and ask God to help you to know what to do. </li></ul>
Element 8: Diversify – Don't put all of your eggs in one basket. <ul><li>Do you know the story about the girl who sold eggs at the market?
Current stock prices already reflect what is known about the future so future stock prices will be determined by surprise happenings that can't be anticipated now so future prices will change in a random fashion.
What are the most common investments in America?
Real estate, Stocks & Bonds, Savings Accounts </li></ul>
Real Estate Investments <ul><li>Save at least 20% for a down payment
- Tell my story; my advice to all young married couples
What about owning stock in the company you work for? What is the risk here? </li></ul>
QUESTION FOR DISCUSSION If Microsoft constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest increase in diversification and reduction in risk? Lowe’s Home Improvement Apple Computer Google Oracle
Savings Accounts <ul><li>What are the current interest rates for savings accounts at your bank?
What are Certificates of Deposit (CD's)? Rates for these?
NOTE: Your emergency fund must be liquid. What does this mean? </li></ul>
Element 9: Indexed Equity Funds can help you beat the experts without taking excessive risks. What's the problem with investing in the stock market for most people? 1. they lack expertise or time to know which stocks to buy & when to sell 2. the future is impossible to predict; Who is the next Steve Jobs? - What is the solution suggested by CSE?
Stock Index Mutual Funds <ul><li>What are they?
Mutual funds that holds funds in the same proportions as one of the indexes of the stock market such as the S&P 500 or the Dow Jones Industrial
- Don't avoid investing in the stock market just because you lack the time or energy to do the research. Pick an indexed fund or two and hold onto them for a long time. Stocks yield the best returns over time with the least effort on your part.
- As you approach retirement, you will want to make some adjustments. </li></ul>
Element 10: Invest in Stocks for long-run objectives, but as the need for income approaches, increase the proportion of bonds. <ul>What are bonds? <li>In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals (ex semi annual, annual, sometimes monthly).
Thus a bond is like a loan: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor). Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. </li></ul>
How are Stocks & Bonds Different? <ul><li>Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders).
Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
Finally, stocks usually have a higher rate of return over the long run (7% v. 3.5% for bonds) but they are a much riskier investment; bonds are susceptible to losing value due to inflation but they have a more stable return over the short-run. Thus they are better for retirees than are stocks. </li></ul>
Types of Retirement Plans <ul><li>401(k) or 403(b) Plans – contributions are tax-deductible initially but will be taxed when you make withdrawals in retirement; interest growth not taxed until withdrawals made; these funds are set up by your employer or by you if you are self-employed. Employers typically make some kind of contribution to your fund annually.
IRA's = Individual Retirement Plans – function similarly to 401(k)'s except that you set up the fund rather than your employer.
Roth IRA's – contributions are not tax deductible so you won't be taxed when you make withdrawals later; thus, the investment grows entirely tax-free once you've made the contribution. </li></ul>
Tips for investing in Bonds <ul><li>Buy TIPS (Treasury Inflation-Protected Securities) b/c in addition to paying back the interest & principle at maturity, there's an extra payment to adjust for inflation, which is especially helpful for retirees.
Pick a maturity date that expires about the time you think you will need the money. Otherwise, if you have to cash it in early, you may not get the full principle back if interest rates have risen in the meantime. Of course, if interest rates drop, then it might make sense to cash it in early if you need the money. </li></ul>
When to buy stocks v. bonds? <ul><li>Depends on when you need the money
- If money not needed for 15 or more years, invest in _________ .
- If money needed in just a few years, invest in ____________.
If concerned about risk, move more of your investments to bonds.
Is now a good time to purchase bonds? </li></ul>
How to Save for Retirement <ul>1. Start early, like now! Or as soon as you start working full-time. 2. Take advantage of 401(k)'s and IRA's and other tax breaks. 3. Invest in diversified stocks such as an indexed fund until you need the money. 4. Start gradually moving your investments into bonds as retirement age nears to protect your investments from risk. </ul>
Element 11: Beware of investment schemes promising high returns with little or no risk. <ul><li>Rule #1: BE SKEPTICAL. Why are they coming to you rather than the bank? High-risk returns involve high risk. Are you OK with that?
I Tim 6:9-10, Psalm 73:3, I Tim 6:17, Prov. 14 :7
Make sure you are rich toward God: Luke 12:21 </li></ul>
Element 12: Teach your children how to earn money and spend it wisely. <ul>1. Teach them that money has to be earned; it's not manna from heaven. - What do you think about allowances or being paid for chores? How did your parents handle this? - Jesus Can, Piggy Bank & Personal Jollies - Do you agree with the authors about giving children the money for a brand-name item, but encouraging them to buy a less expensive alternative, saving the difference? - How about the meal allowance idea while on vacation? 2. Teach them that life is full of trade-offs. It's all about making choices and setting priorities & goals. 3. Teach them to share & give. </ul>
What are the three best methods of teaching your children? <ul><li>By example, by example, and by example