1 Managing Your Money Financial Planning U$iN $eN$e Practical Money Skills For Life Suhaila Kani CFP TM M.Comm BSc Royal Bank of Canada.

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Managing Your Money Financial Planning

U$iN $eN$ePractical

Money SkillsFor Life

Suhaila Kani CFPTM M.Comm BSc

Royal Bank of Canada

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Contents

» About Financial Planning

» Life Goals

» Basics To Savings

» Time Value of Money » Savings» Loans» Credit Cards

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Financial Planning

Essential part of our everyday lives to help BUILD YOUR MONEY TREE

Help to plan for YOUR FUTURE, your children’s future and our family as a whole.

Determine how individuals can meet their LIFE GOALS through proper management of their financial resources.

Can be used as a key to getting yourself on the road to FINANCIAL INDEPENDENCE and towards becoming FINANCIALLY FREE!

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What Are Life Goals?

$ Cars$ Weddings$ Having Babies$ Travelling $ Dream House$ Business$ Own/Children’s

Education$ Retirement $ Old Age$ Unexpected

circumstance$ Financial

Security

What Are You Saving For?

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How to get what you want?

» Set Goals/Dreams/Targets» Be Realistic - Differentiate

between A Need and A Want» Need: A Must, Cannot Do Without e.g

House» Want: Can Live Without e.g 4 Story House

» Write Down Your Goals» List according to

» Short Term Goals» Medium Term Goals » Long Term Goals

» Write the Number of Years Required

» Write Down the Amount Required

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Example Of Written Goals

Short Term (0 – 5 years)

1 yr Emergency Funds

For the ‘Just In Case’

$10,000

2 yrs Renovate Batchelor’s Pad $8,000

5 yrs Car A Sports Car $40,000

Medium Term (5 – 25 years)

20 yrs House 3 Bedroom 2 Storey House

$250,000

25 yrs Children’s Education

Best College for 2 Children

$150,000

Long Term (>25 years)

35 yrs Retirement Age 55, financially free with $3000 per month

$1,000,000

Din’s Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows:

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Where do you start?

How do you know how much to save?

Everyone’s life is different - Use this as a benchmark

Dead Broke: »Don’t Save»Spend More than you Make»Borrow on Credit Card»Have Excessive Debt that Can’t be

paid off

Poor: »Thinking about Saving but don’t do

it.»Spend Everything you make each

month and Save Nothing. »Keep telling yourself, “Nantitah!!...”

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Use this benchmark

Middle Class: Save 5% to 10% of Gross Income

Upper Middle Class: Save 10% to 15% of Gross Income

Rich: Save 15% to 20% of Gross Income

Rich Enough to Retire Early:

Save >20% of Gross Income

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Budgeting

» Map of Your Finances» Breakdown of Income &

Expenditure» Monitoring your finances» Do a monthly budget» Gives You Financial Control

Helps you to know:» How much you can

save» If you Spend more

than you Earn» What pleasures you

can afford» Can tell you a lot

about a person

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Example of Making a Budget

Din’s Profile: 21years old $2000 starting salary, Stays with Parents, Has Car Loans. His Budget looks like this:

IncomeSalary 2000

Interest & Dividend -

Commission -

Total Income 2000

ExpensesRent -

Electricity & Water 50

Telephone/Internet 100

Mobile Phone 150

Grocery & Eat Out 300

Home Maintenance 100

Clothes & Toiletries 80

Petrol 100

Credit Card 50

Car Loan 400

Entertainment 70

Support for Parents/Siblings 200

Total Expenses 1600

TAP 100

Total Expenses + TAP deduction

1700

Leftover (Income Less Exp)

300

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Do you have an idea how much to save

now?

SAVE

»$300 is left over after expenses

»What do you do with it?

»Spend on other things or Save?Treat this $300 as an expense

that you pay to yourself

‘PAY YOURSELF FIRST’ Before you pay your bills and other

expenses

‘PAY YOURSELF FIRST’

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$3,684$7,556

$20,402

$46,585

$80,187

$249,678

$340,828

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

1 2 5 10 15 30 35

$300 per month at 5% Annual Return

Years

Look at what $300/mth can do for you!

If you ‘Pay Yourself First’

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Look at what $300/mth can do for you!

If you ‘Pay Yourself First’

$3,770$7,934

$23,231

$61,453

$124,341

$678,146

$1,138,991

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

1 2 5 10 15 30 35

$300 per month at 10% Annual Return

Years

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Let’s See!If you ‘Pay Yourself

First’ $1 a day

$367$748

$1,987

$4,418

$7,388

$20,825

$27,412

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1 2 5 10 15 30 35

$1 a day at 4% Annual Return

Years

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Small Savings Can Make A Difference!

If you ‘Pay Yourself First’ $3 a day

$1,100$2,245

$5,967

$13,252

$22,148

$62,464

$82,236

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1 2 5 10 15 30 35

$3 a day at 4% Annual Return

Years

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Small Savings Can Make A Big Difference!

Just by Adding $2 a day at 4% Annual Return

In 2 years the difference is $1,497In 10 years the difference is $8,834In 15 years the difference is $14,760In 30 years the difference is $41,639In 35 years the difference is $54,824

This is the effect of Compounding Interest

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Going back to Din’s Goals

Din’s Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows:Short Term (0 – 5 years)

1 yr Emergency Funds

For the ‘Just In Case’

$10,000

2 yrs Renovate Batchelor’s Pad $8,000

5 yrs Car A Sports Car $40,000

Medium Term (5 – 25 years)

20 yrs House 3 Bedroom 2 Storey House

$250,000

25 yrs Children’s Education

Best College for 2 Children

$150,000

Long Term (>25 years)

35 yrs Retirement Age 55, financially free with $3000 per month

$1,000,000

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How much to save for Din’s Car?

» Save $603 per month for 5 years at this rate.» BUT Din only can save $300 per month.

Now, What should he do?

Din’s Goal is to buy a fancy Sports Car in 5 years time.

He need $40,000.

How much would he need to save now at 4% p.a?

Option 1- Buy a Second Hand car for $20,000- By saving $300 per month at 4% return p.a

Option 2- Reduce expenses by $100 a month - Save $400 per month- $26,519 in 5 years at 4% p.a

Option 3- Invest $400 per mth at 8% p.a - $29,390 in 5 years

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» Din has 1 month bonus yearly.

» Save: 1 month bonus of $2000 each year at 4%, at the end of 5 years

Just his bonuses will amount to $10,832

How much to save for Din’s Car?

» If Din really wants to save for his Dream Sport Car,

save $400 a month at 4% p.a and save $2000 (1 month

bonus) for 5 years, total savings

Equal to$26,519+$10,832 = $37,351

» OR save $400 a month at 8% p.a and save $2000 (1 month bonus) at 4% p.a for 5 years, total savings

Equal to$29,390+$10,832 = $40,222

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Car Loans

Option 1» Extend period payment to 7, 10, 12 years

etc BUT this will incur more interest

Some people say,

‘Save the Hassle and just Loan for the Car’

Here’s an example,

If Din takes out a loan of 40K at 9% reducing rate with a minimum payment of $800 for 5 years.

BUT ONLY $300 is left after his expenses

Option 2» Try to finish his previous loans to keep to the 5

year period payment

Option 3» Save enough for a down payment to reduce Din’s

Loan Interest

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Car Loans

To Note:» $800 goes to the bank not to yourself. Din

in 5 years time will have NO SAVINGS

» Din will continue to work PAYCHECK TO PAYCHECK just to pay for his Car

» $800 per month at 4% after 5 years will total up to $53,039 which he could have saved for the car and still have some left for his Wedding!

» GOOD TO WAIT! You might not know other things might happen within 5 years of Savings. Examples:» Won a Lucky Draw for a Car» Parents Give Him a Car» New Car at lower cost in 5 years time» Priorities change

Say Din takes option 2,

paying off his previous loans

and pay $800 minimum over 5 year

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Save Vs LoansWhich is the better

deal?

PAY YOURSELF FIRST!

» Save

» Still HAVE SAVINGS at the end of 5 years

» EXTRA MONEY after 5 years can be for other uses

» No DEBT

» Pay $40K Car in CASH

MAKE PROFIT FOR THE BANK

» Pay the Loan First

» At the end of 5 years, NO SAVINGS

» DEBT CYCLE that Never End

» End up Paying thousands of dollars more than $40K

You have a choice, which one do you prefer?

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5156

62 6681

0

20

40

60

80

100

12.00% 15.00% 18.00% 20.00% 24.00%

Credit Cards

Some of the things to know about Credit cards

• If you have a $4000 credit card balance,• You pay $100 every month:• HOW LONG WILL IT TAKE TO PAY?

Months

Interest Rates

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$1,134$1,580

$2,155$2,647

$4,128

$0

$1,000

$2,000

$3,000

$4,000

$5,000

12.00% 15.00% 18.00% 20.00% 24.00%

Credit Cards

Some of the things to know about Credit Cards

• If you have a $4000 credit card balance,• You pay $100 every month:• HOW MUCH INTEREST WILL YOU PAY?

Months

Interest Rates

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Pay Yourself First

$1,222$2,494

$6,629

$14,725

$24,609

$69,405

$91,373

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

1 2 5 10 15 30 35

Years

Invest $100 a month at 4% p.a

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Look at how much you end up

paying!

Would you rather

PAY YOURSELF FIRST or PAY THE CREDIT CARD?

Interest Rate

Time To Pay Off Debt

With This Much Interest To Pay

Total Amount Paid for $4000 worth of items

12% 51 Mths

4.25 yrs

$1134 $5134

15% 56 Mths

4.66 yrs

$1580 $5580

18% 62 Mths

5.17 yrs

$2155 $6155

20% 66 Mths

5.50 yrs

$2647 $6647

24% 81 Mths

6.75 yrs

$4128 $8128

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Conclusion

» Financial Planning is for EVERYBODY

» Plan Early – Decide Your Life Goals

» YOU ARE IMPORTANT so before expenses Pay Yourself First

» Avoid Debt If Possible» Take RESPONSIBILITY of your own

finances like you would yourself» Have fun with financial planning

and ENJOY your wealth grow over time!

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Credit Card

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THANK YOUFOR

YOUR TIME