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Building Wealth
- 1. Disclaimer: The views expressed are those of the presenters and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.
- 3. True or False? • Most millionaires inherited their wealth. • Most millionaires earn more than $500,000 per year. • College graduates earn about twice what high school graduates earn over a 40-year work life. • People who are self-employed rarely become millionaires. • All millionaires wear expensive clothes. • Millionaires usually drive new cars. • Many millionaires drop out of college to start work. • It is impossible to save enough to be a millionaire.
- 4. Wealth is…
- 5. • Assets Anything an individual or business owns that has commercial or exchange value • Liabilities Money an individual or organization owes; same as debt • Net Worth The difference between the total assets and total liabilities of an individual
- 6. Sandra’s Balance Sheet Description Amount Owed to her mother for extra cell phone charges $250 Present value of a savings bond that her uncle gave her $150 Balance on a car loan $1,500 Savings account from summer job $750 DVD collection $200 1999 car $3,500 Balance due on prom dress $200
- 7. Sandra’s Balance Sheet Assets Liabilities Present value of a savings bond that her uncle gave her $150 Owed to her mother for extra cell phone charges $250 Savings account from summer job $750 Balance on a car loan $1500 DVD collection $200 Balance due on prom dress $200 1999 car $3500 Total assets $4600 Total liabilities $1950 Sandra’s net worth = $2650
- 8. Using Credit Wisely • Think about your balance sheet… Debt increases your liabilities – does it increase your assets? • Think about your budget… How will the payments affect your budget? What other spending will you sacrifice to pay off the debt?
- 10. Goals • You might have a goal to simply increase your net worth, but most people have a more specific goal in mind. • Once you set a goal, you have to evaluate the saving and the income required to achieve the goal.
- 11. Goals • Buy a new car • Go to college • Buy a used car • Go to the senior prom • Rent an apartment • Take a trip • Buy a house • Buy a new HDTV
- 12. Sam’s Two-Week Budget Spending Categories Expenses Changes New Eating out at lunch 60 Movie night with friends 40 Dinner with friends 20 Football game and snacks 10 New CD 20 New item of clothing 50 Gas 70 Soft drink from vending machine 10 Total Expenses $280
- 13. Sam’s Two-Week Budget Spending Categories Expenses Changes New Eating out at lunch 60 Take his lunch 24 Movie night with friends 40 Every other week 20 Dinner with friends 20 Eat out once 10 Football game and snacks 10 10 Music downloads 20 Reduce 10 New item of clothing 50 Only one 25 Gas 70 70 Soft drink from vending machine 10 Only one 1 Total Expenses $280 $170
- 15. Save and Invest • Build a strong financial foundation first. • How much risk are you willing to take? • Think about your time horizon and other factors. • The sooner you start, the better (and easier)!
- 17. Applying for Credit • Read the fine print! Look for: – Finance charges the dollar amount you pay to use credit – Annual percentage rate (APR) the percentage cost of credit on a yearly basis – Fees can include loan fees, annual fees, late- payment fees, etc.
- 18. Credit Reports • Credit reporting company • Credit report • Credit score
- 19. Reviewing Your Credit Report • Three major credit reporting companies – Equifax – Experian – Trans Union • One website for free credit reports www.annualcreditreport.com
- 20. Identity Theft • It's not too early to pull your credit report! • Carefully review the report and correct any inaccuracies. • Don't carry your Social Security card in your wallet! • Shred any papers that contain personal information before throwing them away.