Seven Rules For Financial Success

The Beginning Investor Series.
Seven Rules for
Financial Success
Tried and True, these are just
seven common sense rules to
build financial success, plus 12
rules for successful stock
investing
Saunders Learning Group, Newton, KS

Saunders
Learning
Group
provides
a
variety
of
training
programs,
workshops
and
seminars
targeted
to
the
financial
services
industry.
Programs
are
available
in
a
wide
range
of
topics,
and
we
are
specialists
in
developing
custom
programs
that
are
targeted
to
your
needs.
Contact
the
founder,
Floyd
Saunders
at
316-‐680-‐6482
or
at
floyd@floydsaunders.com
for
more
informaKon.
Saunders Learning Group, LLC, Andover, KS
2
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Published by Saunders Learning Group.
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Contact information: email: floyd@floydsaunders.com mobile: 316-680-6482
Everything
has
changed
in
the
financial
services
industry
and
it
affects
your
financial
well-‐being.
From
bank
failures,
to
record
unemployment,
home
foreclosures
and
panic
around
the
world,
Figuring
Out
Wall
Street,
is
the
concise
guide
to
help
everyone
from
first
Kme
investors
to
veterans
of
banking
understand
what
to
do
to
persevere
and
restore
our
faith
in
our
financial
systems.
3

Rule One – Pay off Consumer Debt
! Credit cards and other consumer debt is the greatest barrier to financial
success you face.
! You pay high cost to borrow money (finance charges)
! You increase your debt load and Debt-to-Income Ratio
! You decrease the amount that you should be saving
! You may put your property at risk (if you can’t pay)
! Less money each month for household expenses, saving and investing
! Can easily overspend and create financial difficulties
61% of Americans live from paycheck to paycheck, up from 32% in 2008.
43 million Americans are on food stamps, mostly the elderly, children, and the working poor. 50%
are white, 27% are black
43% of Americans have less than $10,000 save for retirement, 36% contribute nothing
24% of us postpone retirement by at a year
80% of Americans have less than 6 months of income in reserve for a rainy day
Personal bankruptcy increased by 32% in 1980, as millions of Americans lost their jobs and homes
The bottom 50% of incomes own less than 1% of the wealth in America
4
Use the “Snowball Effect to pay off debt

Snowball effect
! Review
all
of
your
debt
! Take
the
lowest
balance
credit
card
or
consumer
debt
and
apply
as
much
as
possible
to
the
balance
each
month
un:l
it
is
paid
off.
! Cancel
that
card
once
it
is
paid
off
(unless
it
has
the
lowest
interest
rate)
! Then
take
the
same
monthly
payment
you
just
eliminated
an
apply
it
to
the
next
highest
balance
account
(in
addi:on
to
what
your
were
paying),
un:l
it
is
paid
off.
! Do
this
un:l
you
have
paid
off
all
of
your
consumer
debt
and
then
only
keep
one
open
credit
card
account
(finding
an
account
with
the
lowest
possible
interest
rate).
5

What is the Cost of Credit?
! If you borrow money on credit you will pay the lender a finance charge
6
(their profit) for the use of their money.
! Example of the cost of credit:
Let’s say that you borrow $10,000 from the Bank to purchase a car.
— The interest rate is 12% on the $10,000 auto loan.
— Your monthly payment is $222.44 for 5 years.
— Your total cost for borrowing $10,000 is $3,346.67 or 33.4% of the
$10,000 borrowed.

Rule Two: Pay Yourself First Each Month
! Use
automa:c
transfers
to
move
money
from
your
paycheck
or
checking
account
to
a
savings
account
or
mutual
fund.
! The
sure
path
to
financial
security
is
to
set
aside
10%
of
whatever
you
earn
in
a
savings
account,
un:l
you
had
an
emergency
fund
of
at
least
six
months
of
your
income.
! Sad
Fact:
80%
of
Americans
have
less
than
six
months
of
income
in
reserve.
7
Pay
Yourself
First
Where do
I get the
Money to
start?
Additional
Outside
Income
Avoid
Credit
Traps
Buy the
Right
Insurance
Budget for
wants vs.
needs
Realign
your
assets

Rule Three: Build From A Financial Foundation
! Once
you
have
an
paid
off
consumer
debt
and
have
an
emergency
fund,
you
can
begin
to
invest,
but
do
it
in
a
sensible
way
–
By
pyramiding
you
savings
and
investments
Medium Risk
Futures
Contracts
Options, and
Collectibles
High Risk
Variable Low Risk
Annuities
Treasury Bills & Notes Bonds Mutual Funds
Financial Plan
8
Government Securities
Financial Foundation
Insurance
Goals
Budget
Financial
Records
Net Worth
Life
Disability
Health
Property &
Liability
Insured
Savings
Accounts
Savings
Bonds
EE & HH
Money
Market
Funds
Certificates
of Deposit
Aggressive Growth
Stocks, junk bonds, mutual funds
Real Estate
High Quality
Stocks and Bonds Mutual Funds

The Magic of Compound Interest
! Compound
Interest
is
the
eighth
wonder
of
the
world.
The chart shows the growth of saving %15,000 a year, assuming a 10% return,
3.1% inflation and savings beginning at age 30.
9

Start Early With Compound Interest
10

Rule Four: Learn the basics of Investing
ReKrement
Plans
! Every wage earner has a tax problem
! Qualified retirements plans allow to shelter
your retirements savings from taxes and in
most cases reduce your taxable income.
! You should always maximize your
contributions to retirement plans before
making any other investments choices.
! If your employer provides matching
contributions to a retirement plan, take it,
it’s free money.
Mutual
Funds
! Diversifica:on
&
Divisibility:
— A
single
investment
is
immediately
diversified
through
the
fund’s
holdings
! Liquidity
! Record
Keeping
! Professional
Management:
— Informed
money
managers
may
make
beZer
decisions
than
uninformed
investors.
! Reduced
transac:on
costs:
Costs
are
reduced
with
economies
of
scale.
11
! Start with a sensible investment plan using;
" Tax advantages retirement plans: 401ks, 403(b), IRAs, Roth IRAs
" Mutual Funds, Exchange Traded Funds and Dividend Reinvestment Programs

Rule Five: Buy Term Insurance - Invest Your Savings
! As
long
as
you
have
established
a
regular
savings
plan,
have
created
an
emergency
fund
and
started
a
re:rement
savings
account,
you
are
saving
money
by
buying
term
insurance.
Term
insurance
does
not
come
with
built
in
cash
values
or
investment
accounts
like
other
forms
of
more
expensive
insurance.
! Follow
the
idea
that
your
responsibili:es
decrease
over
:me,
while
your
savings
and
investment
increase
and
you
can
see
that
less
expensive
term
insurance,
frees
up
money
to
create
an
investment
plan
that
makes
you
more
secure
in
the
future.
It
works
like
this:
Life Insurance
12
In the early years, you need
more coverage . . .
1. Young children
2. More debt
3. A Home mortgage
4. A loss of income would
be devastating
In the early years, you don’t
have much money . . .
Savings & Investments
Life Insurance
Savings & Investments
In the later years, you need less
coverage . . .
1. Children are grown
2. Debts paid off
3. Mortgage paid
4. Savings for Retirement in place
In the later years, you don’t need
much insurance.

Rule Six: Maximize contributions to tax-deferred
retirement accounts before any other investment.
! First,
in
most
cases
(the
ROTH
is
the
excep:on)
the
contribu:ons
are
made
with
pre-‐tax
dollars
and
therefore
you
taxable
income
is
reduced
by
your
contribu:ons
in
a
defined
benefit
plan
or
defined
contribu:on
plan
(typically
a
401k).
! With
a
ROTH
IRA,
your
contribu:ons
are
made
with
a_er
tax
dollars,
but
at
re:rement,
you
pay
no
taxes
on
your
withdrawals.
! Second,
the
contribu:ons
grow
on
a
tax-‐deferred
basis.
That
means
all
of
the
interests,
dividends
and
capital
gains
are
added
to
your
account
without
taxes
becoming
due.
You
are
only
taxes
on
the
withdrawals
made
in
re:rement.
! Third,
re:rement
plans
are
professional
managed
and
you
typically
have
a
range
of
op:ons
to
help
you
select
sub-‐accounts
or
separate
funds
that
match
your
desires
for
a
greater
returns
vs.
the
risks
taken
to
get
beZer
returns.
! Fourth,
because
you
have
a
range
of
op:ons
you
can
diversity
between
investment
types
to
beZer
manage
risks
and
returns.
13

Rule Seven: Have A Will, Trust and Estate Plan
! A will protects your assets from probate in most cases (consult a lawyer)
! A will allows you pass your estate according your wishes
! Include a Durable Power of Attorney and Medical directives to insure
your wishes about how to handle medical decisions are done according
to your wishes.
! Trust accounts allow you manage assets and often defer taxes
14

INVESTING BASICS TO KNOW
Here
are
the
basics
you
need
to
know
to
invest
in
stocks
Saunders Learning Group, LNLeCw,t Aond, oKvSe r, KS
15

Economic Analysis
Involves assessing economic conditions that can affect a firm’s stock price
Economic growth
A measure of growth in a country’s
economy over a particular period
Gross domestic product (GDP):
the total market value of all products
and services produced in a country
Weak economic conditions
! Lowers demand and stock prices
! Consumers spend less, further
lowering demand
Fiscal policy
The means by which the U.S. government
imposes taxes on individuals and
corporations and by which it spends its
money
Interest rates
# Stocks perform better when interest
rates are low
# Some stocks are more sensitive to
interest rates than others
# The Federal Reserve uses monetary
policy to influence interest rates
Inflation
The increase in the general level of prices of
products and services over a specified period
# Consumer price index (CPI): a measure of
inflation that represents prices of various
consumer products
# Producer price index (PPI): a measure of
inflation that represents prices of products
used to produce other products
Saunders Learning Group, LLC, Andover, KS 14-16

Sources for Economic Analysis

Evaluating Stocks
The Internet
• Most corporations
have their own Web
sites.
• The information may
be more detailed
than material from
the corporation’s
printed publications.
• You can also use
search engines to
find information
about investing in
stocks.
General financial
news
• Specific information
about a company
and its stock’s
performance
Stock Advisory
Services
• Contains information
about stock prices and
capitalization,
earnings, and dividends
• Provides a detailed
description of the
company’s major
operations
• Offers current
information about net
income and sales
revenue
Corporate News
Publications
• Annual and quarterly
reports offer:
• A summary of a
corporation’s
activities
• Detailed financial
information
• You do not have to be
a stockholder to get an
annual report. You can
also get information
about specific
companies from
financial publications

Analysis of the Firm
Firm-specific characteristics - Analysis of a firm’s income statement and balance sheet can reveal the following characteristics:
Liquidity
• Current ratio
The ratio of a firm’s
short-term assets to
its short-term
liabilities
• Show the firm’s
ability to cover
expenses
Financial leverage
• Debt ratio
A measure of
financial leverage
that measures the
proportion of total
assets financed
with debt
• Times interest
earned ratio
A measure of
financial leverage
that measures the
ratio of the firm’s
earnings before
interest and taxes
to its total interest
payments
Efficiency
• Inventory turnover
A measure of
efficiency;
computed as the
cost of goods sold
divided by average
daily inventory
• Average collection
period A measure of
efficiency;
computed as
accounts receivable
divided by average
daily sales
• Asset turnover ratio
A measure of
efficiency;
computed as sales
divided by average
total assets
Profitability
• Operating profit
margin A firm’s
operating profit
divided by sales
• Net profit margin
A measure of net
profit as a
percentage of sales
• Return on assets
A measure of
profitability;
computed as net
profit divided by
total assets
• Return on equity
A measure of
profitability;
computed as net
profit divided by
stockholder’s equity

Financial Ratios Used to Evaluate a Business

Evaluating Stocks
To find out about the health of a corporation, you can use numerical measures such as:
Current Yield
• The annual dividend of an investment divided by the current market value
Total Return
• A calculation that includes the annual dividend as well as any increase or decrease in the
original purchase price of the investment
Earnings Per Share
• A corporation’s net, or after-tax, earnings divided by the number of outstanding shares of
common stock
• Measures the amount of corporate profit assigned to each share of common stock
• Gives a stockholder an idea of a company’s profitability, an increase in earnings per share is
a good sign for stockholders.
Price-earnings (PE) ratio
• The price of one share of stock over the last 12 months
• Used to compare the corporate earnings to the market price of a corporation’s stock.
• Study the price-earnings ratio for a corporation over a period of time so that you can see a
range.
Industry Norms, Go
to:
hZp://biz.yahoo.com/research/indgrp
Provides
informa:on
on
various
industry
groups
and
financial
informa:on
on
firms
you
specify
in
any
industry.

Analysis of the Firm

12 Rules for Investing in Stocks
1. Start
with
an
emergency
fund
2. Open
a
“cash”
only
account
with
a
stock
broker
–
Online,
Discount,
Full-‐Service
1. Save
the
margin
account
for
later,
a_er
you
know
more
about
what
you
are
doing
1. New
investor,
need
advise
–
Use
a
full
service
brokerage
for
guidance,
check
for
a
good
track
record
2. More
experienced
–
Use
a
discount
brokerage
with
good
service
and
quality
products
3. Start
with
$1,000
in
mutual
funds
1. $5,000
buy
just
two
to
three
stocks
2. $10,000
add
one
or
two
addi:onal
stocks
3. $25,000
allows
you
have
five
or
six
stocks
4. $100,000
Not
more
than
20
stocks,
unless
you
want
to
spend
100%
of
your
:me
inves:ng
4. Buy
the
very
best
companies,
concentrate
on
a
limited
number
of
stocks
with
growing
dividends,
and
watch
them
closely
using
stock
alerts.
23

5. Cut
loses
on
stocks
@
8%
with
Stop
Lost
orders
$ This
takes
out
the
hope
and
fear
of
inves:ng,
makes
for
ra:onal
decision
making
$ Be
persistent
about
cukng
loses,
so
you
have
money
to
invest
in
the
next
best
op:on
6. Sell
your
best
stocks
with
25
to
30%
gains
$ Always
sell
you
worst-‐performing
stocks
first,
not
your
best,
but
don’t
hang
on
for
the
last
ounce
of
gains
7. Pick
Market
leaders
in
areas
you
have
some
knowledge
$ Profits
drive
the
price
of
stocks:
improving
earnings
(EPS),
growing
profits,
increasing
sales
and
earnings
growth
$ #1
in
their
category
with
strong
Return
on
Equity
(ROE)
8. Invest
dollars,
not
number
of
shares.
Pick
stocks
with
a
price
between
$15
and
$150
per
share
$ 70%
of
trades
are
with
ins:tu:onal
investors,
who
drive
the
market
and
shun
low
priced
stocks
24

9. Use
fundamental
analysis
for
picking
stocks
to
own
and
technical
analysis
to
know
the
buy
and
sell
signals
$ Technical
analysis
is
reading
a
stock’s
prices
and
trading
volume
to
:me
the
buying
and
selling
of
stocks.
Look
for
price
correc:ons
and
base
building
in
charts.
10. Earnings
Per
Share
of
30%
or
more
$ Over
:me
3
of
4
of
the
biggest
winners
are
growth
stocks
with
EPS
of
30%
or
more
11. Buy
leaders
$ Sales
up
25%
$ Look
for
stocks
with
gains
of
25%
in
the
same
quarter
from
a
year
earlier
$ #1
in
their
field
for
recent
sales,
earning
growth,
profit
margins
and
ROE
(20%
or
more)
$ Also
look
for
strong
management
team
and
management
ownership
with
strong
ins:tu:onal
ownership
12. Look
for
stocks
with
a
strong
record
of
annually
increasing
dividends
25

Questions

Post Workshop Action Plan
! Complete
the
Post
Workshop
Ac:on
Plan
27

Reference Material
Figuring Out Wall Street Consumer’s Guide To
Financial Markets
By Floyd Saunders
Publisher: Saunders Learning Group
ISBN: 978-0-9824019-0-3
available from Amazon, B&N, and http://
www.figuringout wallstreet.com
or www.floydsaunders.com
Book summary: From bank failures to home foreclosures and panic
around the world, Figuring Out Wall Street, is the concise guide to help
everyone understand how this latest crisis happened, who was responsible and
what to do now to restore our financial systems. Written in an easy to
understand manner, even the most complex financial concepts are easy to
digest. This book provides help to monitor investments with a review of
investment products, financial regulators and economic indicators. Learn how
the stock market exchanges work and the world of investment banking, hedge
funds, venture capital and private equity. Every chapter includes action plans
for investing.

About the Author
! Floyd
Saunders
has
worked
on
Wall
Street
with
both
Bank
of
America
and
JPMorgan,
where
is
was
a
vice
president
in
global
financial
systems.
He
has
worked
across
the
industry
in
retail,
commercial,
and
investment
banking.
! He
has
taught
courses
in
Money
and
Banking
and
extensively
for
the
American
Ins:tute
of
Banking
and
various
colleges.
! As
a
consultant,
he
developed
and
taught
a
wide
range
of
banking
and
inves:ng
courses.
!
He
authored
three
programs
for
the
American
Bankers
Associa:on:
Banking
on
Mutual
Funds
and
Annui1es,
Introduc1on
to
Securi1es
Markets
and
Inves1ng
in
Securi1es.
date

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