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An Orderly Financial An Orderly Financial House House Grant McQueen Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott Sudweeks, and my friends and colleagues at BYU’s Marriott School School
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An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Dec 14, 2015

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Page 1: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

An Orderly Financial An Orderly Financial HouseHouse

Grant McQueenGrant McQueen

With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my

friends and colleagues at BYU’s Marriott Schoolfriends and colleagues at BYU’s Marriott School

Page 2: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Benjamin FranklinBenjamin Franklin

Money can help you to get Money can help you to get medicines but not health. Money medicines but not health. Money can help you to get soft pillows, can help you to get soft pillows, but not sound sleep. Money can but not sound sleep. Money can help you to get material comforts, help you to get material comforts, but not eternal bliss. Money can but not eternal bliss. Money can help you to get ornaments, but help you to get ornaments, but not beauty. Money will help you to not beauty. Money will help you to get an electric earphone, but not get an electric earphone, but not natural hearing. Attain the natural hearing. Attain the supreme wealth, wisdom, and you supreme wealth, wisdom, and you will have everything.will have everything.

Source: www.quotedb.com/quotes/1016Source: www.quotedb.com/quotes/1016

Page 3: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

A Perspective on MoneyA Perspective on Money

“I am satisfied that money is I am satisfied that money is the root of more trouble in the root of more trouble in marriage than all other causes marriage than all other causes combined.”combined.”

““There would be fewer rash There would be fewer rash decisions, fewer unwise decisions, fewer unwise investments, fewer consequent investments, fewer consequent losses, fewer bankruptcies if losses, fewer bankruptcies if husbands and wives would husbands and wives would counsel together on such counsel together on such matters and unitedly seek matters and unitedly seek counsel from each other”counsel from each other”

Gordon B. Hinckley, Gordon B. Hinckley, Cornerstones of a Cornerstones of a Happy HomeHappy Home [pamphlet, 1984] [pamphlet, 1984]

Page 4: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

The Richest Man In BabylonThe Richest Man In Babylon

1.1. Start thy purse to fatteningStart thy purse to fattening

2.2. Control thy expenditureControl thy expenditure

3.3. Make thy gold multiplyMake thy gold multiply

4.4. Guard thy treasures from lossGuard thy treasures from loss

5.5. Make of thy dwelling a profitable Make of thy dwelling a profitable investmentinvestment

6.6. Insure a future incomeInsure a future income

7.7. Increase thy ability to earnIncrease thy ability to earn

George S. ClasonGeorge S. Clason

Page 5: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Health

Insu

rance

Health

Insu

rance Life InsuranceLife Insurance W

ills

Wills and

and Trusts

TrustsOther InsuranceOther Insurance

Rainy Day FundRainy Day Fund(Safe, liquid)(Safe, liquid)

Tax-advantaged Tax-advantaged Retirement FundRetirement Fund

Other InvestmentsOther Investments( Index Funds)( Index Funds)

Self-SufficiencySelf-SufficiencyHappinessHappiness AttitudeAttitude

GarbageGarbage::Consumer DebtConsumer Debt

GamblingGambling

DerivativesDerivatives

Identity TheftIdentity Theft

Budget/PlanBudget/Plan

TaxesTaxes

Home BuyingHome Buying

Page 6: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

PrioritiesPriorities

While Balancing the BudgetWhile Balancing the Budget (behavior, relationships, (behavior, relationships, values, human capital):values, human capital):

1.1. Manage the MisfortuneManage the Misfortune (basic life, health, disability, (basic life, health, disability, auto, and home insurance), auto, and home insurance),

2.2. Discharge the DebtDischarge the Debt (credit cards, bondage, FICO), (credit cards, bondage, FICO),

3.3. Anticipate the AdversityAnticipate the Adversity (rainy-day fund, will), (rainy-day fund, will),

4.4. Snatch the MatchSnatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), (401k, 403b, 457, SEP, Keogh, SIMPLE),

5.5. Fund the FavoredFund the Favored (IRA, Roth IRA, 529, Annuities), (IRA, Roth IRA, 529, Annuities),

6.6. Stuff the SavingsStuff the Savings (diversify across assets and time), (diversify across assets and time),

But Possess a Purpose and Preserve a But Possess a Purpose and Preserve a PerspectivePerspective

Page 7: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and HappinessMoney and Happiness

Money never made a man happy Money never made a man happy yet, nor will it. There is nothing in yet, nor will it. There is nothing in its nature to produce happiness. its nature to produce happiness. The more a man has, the more he The more a man has, the more he wants. Instead of its filling a wants. Instead of its filling a vacuum, it makes one. If it satisfies vacuum, it makes one. If it satisfies one want, it doubles and trebles one want, it doubles and trebles that want another way. That was a that want another way. That was a true proverb of the wise man, rely true proverb of the wise man, rely upon it; "Better is little with the fear upon it; "Better is little with the fear of the Lord, than great treasure, of the Lord, than great treasure, and trouble therewith.”and trouble therewith.”

- Benjamin Franklin- Benjamin FranklinSource: www.quotedb.com/quotes/463Source: www.quotedb.com/quotes/463

Page 8: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and HappinessMoney and Happiness

The conviction of the rich that the The conviction of the rich that the poor are happier is no more poor are happier is no more foolish than the conviction of the foolish than the conviction of the poor that the rich are.poor that the rich are.

- Mark Twain- Mark TwainSource: www.quotedb.com/quotes/1981Source: www.quotedb.com/quotes/1981

Page 9: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and HappinessMoney and Happiness

Because gratification of a desire leads Because gratification of a desire leads to the temporary stilling of the mind to the temporary stilling of the mind and the experience of the peaceful, and the experience of the peaceful, joyful Self, it's no wonder that we get joyful Self, it's no wonder that we get hooked on thinking that happiness hooked on thinking that happiness comes from the satisfaction of comes from the satisfaction of desires. This is the meaning of the old desires. This is the meaning of the old adage, “Joy is not in things, it is in adage, “Joy is not in things, it is in us.”us.”

- Joan Borysenko (a medical scientist and - Joan Borysenko (a medical scientist and psychologist)psychologist)

Source: www.quoteland.com/author.asp?AUTHOR_ID=228Source: www.quoteland.com/author.asp?AUTHOR_ID=228

Page 10: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and HappinessMoney and Happiness

Page 11: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Old Definition: “Did you make the Old Definition: “Did you make the nails?”nails?”

New Definition: “I teach them to New Definition: “I teach them to contribute contribute more than they more than they consume.”consume.”

Self-SufficiencySelf-Sufficiency

Page 12: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-SufficiencySelf-Sufficiency

Human CapitalHuman Capital

•Marketable Marketable skillsskills

•Invest in Invest in yourselfyourself

Financial Financial CapitalCapital

•Marketable Marketable assetsassets

•Invest in Invest in securitiessecurities

Page 13: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-SufficiencySelf-Sufficiency

I think that much of the I think that much of the advice given to young men advice given to young men about saving money is wrong. about saving money is wrong. I never saved a cent until I I never saved a cent until I was forty years old. I invested was forty years old. I invested in myself - in study, in in myself - in study, in mastering my tools, in mastering my tools, in preparation. Many a man who preparation. Many a man who is putting a few dollars a is putting a few dollars a week into the bank would do week into the bank would do much better to put it into much better to put it into himself.himself.

- Henry Ford- Henry FordSource: www.quotedb.com/quotes/2899Source: www.quotedb.com/quotes/2899

Page 14: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-SufficiencySelf-Sufficiency

Page 15: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Note: Data are 2007 annual averages for persons age 25 and over. Note: Data are 2007 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.Earnings are for full-time wage and salary workers.

For updates go to: For updates go to: http://stats.bls.gov/emp/emptab7.htmhttp://stats.bls.gov/emp/emptab7.htm

Self-SufficiencySelf-Sufficiency

Page 16: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-SufficiencySelf-Sufficiency

““Be like JoLene.”Be like JoLene.”

““But be like Grant, too.”But be like Grant, too.”

Page 17: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-Sufficiency—Human Self-Sufficiency—Human CapitalCapital

““In times of change, learners inherit In times of change, learners inherit the earth the earth whilewhile the learned find the learned find themselves beautifully equipped to themselves beautifully equipped to work in a world that no longer work in a world that no longer exists.”exists.”

Eric Eric HofferHoffer

Page 18: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

““Self-reliance, the height Self-reliance, the height and perfection of man, is and perfection of man, is the reliance on God.”the reliance on God.”

Ralph Waldo Ralph Waldo EmersonEmerson

Self-SufficiencySelf-Sufficiency

Page 19: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

AttitudeAttitude

““Our attitude towards what has Our attitude towards what has happened to us in life is the important happened to us in life is the important thing to recognize. Once hopeless, my thing to recognize. Once hopeless, my life is not hope-full, but it did not happen life is not hope-full, but it did not happen overnight. The last of human freedoms, overnight. The last of human freedoms, to choose one's attitude in any given set to choose one's attitude in any given set of circumstances, is to choose one's own of circumstances, is to choose one's own way.”way.”

““The last of the human freedoms is to The last of the human freedoms is to choose one's attitudes.”choose one's attitudes.”

-Victor Frankl-Victor FranklSource: www.quoteland.com/author.asp?Source: www.quoteland.com/author.asp?

AUTHOR_ID=239AUTHOR_ID=239

Page 20: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and AttitudeMoney and Attitude

Money can help you to get Money can help you to get medicines but not health. Money medicines but not health. Money can help you to get soft pillows, but can help you to get soft pillows, but not sound sleep. Money can help not sound sleep. Money can help you to get material comforts, but you to get material comforts, but not eternal bliss. Money can help not eternal bliss. Money can help you to get ornaments, but not you to get ornaments, but not beauty. Money will help you to get beauty. Money will help you to get an electric earphone, but not an electric earphone, but not natural hearing. Attain the supreme natural hearing. Attain the supreme wealth, wisdom, and you will have wealth, wisdom, and you will have everything.everything.

- Benjamin Franklin- Benjamin FranklinSource: www.quotedb.com/quotes/1016Source: www.quotedb.com/quotes/1016

Page 21: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

AttitudeAttitude

““Now when Jesus heard Now when Jesus heard these things, he said unto these things, he said unto him, Yet thou lackest one him, Yet thou lackest one thing: sell all that thou thing: sell all that thou hast, and distribute unto hast, and distribute unto the poor, and thou shalt the poor, and thou shalt have treasure in heaven: have treasure in heaven: and come, follow me.and come, follow me.

““And when he heard this, And when he heard this, he was very sorrowful: for he was very sorrowful: for he was rich.”he was rich.”

Luke 18:22-23Luke 18:22-23

Page 22: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and AttitudeMoney and Attitude

A wise man should have A wise man should have money in his head, but not in money in his head, but not in his heart.his heart.

- Jonathan - Jonathan SwiftSwift

Page 23: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Money and AttitudeMoney and Attitude

He is richest who is content with He is richest who is content with the least.the least.

- Socrates- SocratesSource: www. quotedb.com/quotes/1582Source: www. quotedb.com/quotes/1582

Page 24: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Health

Insu

rance

Health

Insu

rance Life InsuranceLife Insurance W

ills

Wills and

and Trusts

TrustsOther InsuranceOther Insurance

Rainy Day FundRainy Day Fund(Safe, liquid)(Safe, liquid)

Tax-advantaged Tax-advantaged Retirement FundRetirement Fund

Other InvestmentsOther Investments( Index Funds)( Index Funds)

Self-SufficiencySelf-SufficiencyHappinessHappiness AttitudeAttitude

GarbageGarbage::Consumer DebtConsumer Debt

GamblingGambling

DerivativesDerivatives

Identity TheftIdentity Theft

Budget/PlanBudget/Plan

TaxesTaxes

Home BuyingHome Buying

Page 25: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Inappropriate DebtInappropriate Debt

• Consumer Consumer GoodsGoods

• VacationsVacations

• Expensive CarsExpensive Cars

• Credit Card Credit Card DebtDebt

Page 26: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Self-Test:Self-Test:Do I have too Much Debt?Do I have too Much Debt?

• Can I pay off my credit card balance Can I pay off my credit card balance completely each month?completely each month?

• Do I skip some bills to pay others?Do I skip some bills to pay others?• If I lost my job today, do I have enough in If I lost my job today, do I have enough in

liquid assets to pay living expenses for at liquid assets to pay living expenses for at least three months?least three months?

• Do my spouse and I often argue about Do my spouse and I often argue about money?money?

• Do I receive calls from creditors about Do I receive calls from creditors about overdue bills?overdue bills?

• Have I postponed medical or dental Have I postponed medical or dental appointments because I can’t afford them appointments because I can’t afford them right now?right now?

• Am I using an increasing percentage of my Am I using an increasing percentage of my monthly income to pay off debts?monthly income to pay off debts?

Page 27: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Sometimes we find ourselvesSometimes we find ourselves in a financial pit in a financial pit

By Patty SladeBy Patty Slade

Page 28: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

We have to stop diggingWe have to stop digging

By Patty SladeBy Patty Slade

Page 29: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Mr. Ashton’s Mr. Ashton’s Debt Elimination CalendarDebt Elimination Calendar

May start with May start with debt with highest debt with highest interest rate or interest rate or earliest payoffearliest payoff

Currently owe Currently owe minimums of minimums of $60, $70, $50, $60, $70, $50, $75, and $235$75, and $235

Save and pay an Save and pay an extra $50 per extra $50 per monthmonth

Debt-Elimination Calendar

Credit Dept. Dentist Piano AutoCard Store Loan Loan

March 110 70 50 75 235April 110 70 50 75 235May 110 70 50 75 235June 110 70 50 75 235July 180 50 75 235August 180 50 75 235Sept. 180 50 75 235Oct. 230 75 235Nov. 230 75 235Dec. 305 235Jan. 305 235Feb. 540March

Page 30: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Reducing Unproductive DebtReducing Unproductive Debt

• Plastic surgery Plastic surgery • Reduce spendingReduce spending• Use assets to pay off debtUse assets to pay off debt• Reduce interest rateReduce interest rate

– Consider a home equity loanConsider a home equity loan– Use another lower cost source of Use another lower cost source of

borrowingborrowing

• Make a plan -- stick to itMake a plan -- stick to it• Talk to a Talk to a reputablereputable credit credit

counselor if neededcounselor if needed

Page 31: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit Counseling ServicesCredit Counseling Services

• National Foundation for Consumer National Foundation for Consumer CreditCredit

• American Consumer Credit American Consumer Credit CounselingCounseling

• American Debt Management American Debt Management ServicesServices

• Debt Counselors of AmericaDebt Counselors of America

Page 32: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Q: How Many Payments?Q: How Many Payments?

Page 33: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Q: How Many Payments?Q: How Many Payments?

A: With 21% APR, 103.2 payments or A: With 21% APR, 103.2 payments or 8.6 years8.6 years

StereoStereo $999.74$999.74

InterestInterest$1,167.56$1,167.56

TotalTotal$2,167.30$2,167.30

Page 34: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Reducing Your BalanceReducing Your Balance

How long it takes to eliminate your credit card debt.

Initial balance 2,000$ Percentage of the initial balance you will pay each month 2%Interest Rate* 18%Number of months to pay your debt 93.11(7.76 Years)

Page 35: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

J. Reuben Clark on Interest (1938)J. Reuben Clark on Interest (1938)

Interest never sleeps nor sickens nor dies; it never goes to Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; . . . it is as employment; it never works on reduced hours; . . . it is as hard and soulless as a granite cliff. Once in debt, interest hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to whenever you get in its way or cross its course or fail to meet its demands, it crushes you.meet its demands, it crushes you.

Page 36: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

• Annual feeAnnual fee

• Over-limit feeOver-limit fee

• Late payment fee Late payment fee

• Cash advance fee Cash advance fee

• Finance chargesFinance charges

– About ¼ of credit cards don’t have grace About ¼ of credit cards don’t have grace periodperiod

– If you don’t completely pay off previous If you don’t completely pay off previous month’s balance, the grace period doesn’t month’s balance, the grace period doesn’t apply (the balance could be one penny)apply (the balance could be one penny)

What are the Costs?What are the Costs?

Page 37: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What Rate are the Paying?What Rate are the Paying?

RC WilleySearsOld NavyMervynsDillardsJC PenneyMeier and Frank

21.00%24.15%19.80%22.30%24.15%21.00%21.60%

Home Equity Loan

Home Equity Line of Credit

Visa Platinum

Visa Gold

6.5%

7.0%

8.0%

12.25%Survey conducted on Dec. 13, 2005, rates on right column are from Utah Community Credit Union

Page 38: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Be careful where you borrow!Be careful where you borrow!

• Finance Finance companiescompanies

• Credit cardsCredit cards• BanksBanks• Credit unionsCredit unions• SavingsSavings

0

5

10

15

20

25

30

FC CC B CU S

Page 39: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit CardsCredit Cards

Interesting TidbitsInteresting Tidbits

• An American typically carries from one to An American typically carries from one to three credit cards, and owes $9,000.three credit cards, and owes $9,000.

• An average household has eight credit An average household has eight credit cards.cards.

• Only 35% of cardholders pay off the total Only 35% of cardholders pay off the total balance each month.balance each month.

• Twenty-five percent of college students owe Twenty-five percent of college students owe more than $10,000 on their cards.more than $10,000 on their cards.

• 20 % of credit cards are maxed out.20 % of credit cards are maxed out.

SeeSee www.cardweb.com

Page 40: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit ReportsCredit Reports

• Three major credit reporting agencies (check all Three major credit reporting agencies (check all 3)3)

– Experian—www.experian.com (888-397-3742)Experian—www.experian.com (888-397-3742)

– Equifax—www.equifax.com (800-685-1111)Equifax—www.equifax.com (800-685-1111)

– TransUnion—www.transunion.com (800-916-8800)TransUnion—www.transunion.com (800-916-8800)

• Almost ½ contain inaccurate infoAlmost ½ contain inaccurate info

• Free copy of report if denied creditFree copy of report if denied credit

• Dispute inaccuracies by requesting investigation Dispute inaccuracies by requesting investigation (Agencies have 30 days to respond)(Agencies have 30 days to respond)

• May file statement presenting your point-of-view May file statement presenting your point-of-view (100 words)(100 words)

• Fair Credit Act 1996 allows consumer law suitsFair Credit Act 1996 allows consumer law suits

Page 41: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit Reports, ContinuedCredit Reports, Continued

• Bankruptcy remains for 10 years, Bankruptcy remains for 10 years, other negative information for 7 yearsother negative information for 7 years

• Pay off credit cards before closing Pay off credit cards before closing accountaccount

• Be careful about retail store discount Be careful about retail store discount promotionspromotions

• Risk scoringRisk scoring

• Limit inquiriesLimit inquiries

• Credit repair services often encourage Credit repair services often encourage illegal activitiesillegal activities

Page 42: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit Reports, ContinuedCredit Reports, Continued

• Free Credit ReportFree Credit Report

– www.AnnualCreditReport.com

– 877-322-8228877-322-8228

• Cheap FICO scoreCheap FICO score

– myfico.com

• Opt outOpt out

– 1-888-5OP-TOUT or 1-888-382-12221-888-5OP-TOUT or 1-888-382-1222

• Do Not CallDo Not Call

– www.donotcall.gov

Page 43: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Credit Reports, ContinuedCredit Reports, Continued

• FICO score (between 300 and 850, 725 FICO score (between 300 and 850, 725 average)average)

• Factors that determine risk score:Factors that determine risk score:– Payment History—What is your track record?Payment History—What is your track record?

– Amounts Owed—How much is too much?Amounts Owed—How much is too much?

– Length of Credit History—How established is your?Length of Credit History—How established is your?

– New Credit—Are you taking on more debt?New Credit—Are you taking on more debt?

– Types of Credit Used—Do you have a healthy mix?Types of Credit Used—Do you have a healthy mix?

• Limit authorized inquires (prescreen by Limit authorized inquires (prescreen by creditors has no impact)creditors has no impact)

Page 44: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Gambling vs. InvestingGambling vs. Investing

Investments:Investments:

- positive expected return (stocks) or- positive expected return (stocks) or

- eliminate or transfer existing risk - eliminate or transfer existing risk (insurance)(insurance)

Gambling:Gambling:

- negative expected return or- negative expected return or

- creates a risk- creates a risk

Page 45: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Gambling vs. InvestingGambling vs. Investing

• Gambling makes a Gambling makes a miserable investment, for miserable investment, for example in roulette:example in roulette:– House has 5.26% edgeHouse has 5.26% edge– Statistical certainty: you will lose Statistical certainty: you will lose

money over timemoney over time

• Compare this to investing in Compare this to investing in stocks:stocks:– 12.6% average return over last 50 12.6% average return over last 50

yearsyears– High probability that you will earn High probability that you will earn

money over timemoney over time

Page 46: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.
Page 47: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

DerivativesDerivatives

• Examples: Options, futures, Examples: Options, futures, swapsswaps

• ““Zero sum game”Zero sum game”– Money-losing proposition over Money-losing proposition over

timetime

• Extremely volatileExtremely volatile• Placing bets against the prosPlacing bets against the pros• Appropriate use in hedgingAppropriate use in hedging

Page 48: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

DerivativesDerivatives

• Extremely complexExtremely complex

• Inappropriate for virtually all non-Inappropriate for virtually all non-professional investorsprofessional investors

• Better idea: stick to what you knowBetter idea: stick to what you know

Black-Scholes Options Pricing ModelBlack-Scholes Options Pricing Model

Page 49: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

DerivativesDerivatives

Different people understand different Different people understand different businesses. The important thing is to know businesses. The important thing is to know which ones you do understand and when which ones you do understand and when you’re operating within your circle of you’re operating within your circle of competence.competence. Warren Buffett, Berkshire Hathaway Annual MeetingWarren Buffett, Berkshire Hathaway Annual Meeting

We view them as time bombs both We view them as time bombs both for the parties that deal in them and for the parties that deal in them and the economic system ... In our the economic system ... In our view ... derivatives are financial view ... derivatives are financial weapons of mass destruction, weapons of mass destruction, carrying dangers that, while now carrying dangers that, while now latent, are potentially lethal.latent, are potentially lethal.Warren Buffett, Chairman’s Letter, Berkshire Hathaway 2002 Annual ReportWarren Buffett, Chairman’s Letter, Berkshire Hathaway 2002 Annual Report

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Hi, I’m Andrew L. Holmes... Hi, I’m Andrew Lee Holmes...

I’m Andy!

NO, I’m Andy!

What the…Hey, I’m Andy!

Believe me now! My name is Andy Holmes. Do not listen to this suit wearing man. He

is a liar!!

Want a second full-time Job?

Get your identity stolen!!!

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Identity theft occurs when Identity theft occurs when someone uses:someone uses:

•Your nameYour name•AddressAddress•Social Security number (SSN)Social Security number (SSN)•Bank or credit card account Bank or credit card account numbernumber•Other identifying information Other identifying information without your knowledge to commit without your knowledge to commit fraud or other crimesfraud or other crimes

A Word on Identity Theft:A Word on Identity Theft: What What is it?is it?

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How do they get your How do they get your identity?identity?

•From businesses From businesses - by stealing records or bribing an employee - by stealing records or bribing an employee

•Rummage through trash, aka “dumpster Rummage through trash, aka “dumpster diving” diving”

- including un-shredded pre-approved credit card - including un-shredded pre-approved credit card apps!!apps!!

•Steal credit and debit card numbersSteal credit and debit card numbers- as your card is processed, aka “skimming”- as your card is processed, aka “skimming”

•Pose at landlord or employer to obtain credit Pose at landlord or employer to obtain credit reportreport

•Pose as a legitimate business person or Pose as a legitimate business person or government government official to obtain information official to obtain information (aka (aka “Phishing”)“Phishing”)

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How do they get your identity? How do they get your identity? (cont.)(cont.)

•Use personal information shared on the Use personal information shared on the Internet Internet

- on unsecured sites- on unsecured sites

•Buy personal information from Buy personal information from insideinside sourcessources

•Call credit card issuer, pretend to be you, Call credit card issuer, pretend to be you, and ask to change mailing address on and ask to change mailing address on accountsaccounts

•Steal mail, then complete a change of Steal mail, then complete a change of addressaddress

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……Then???Then???

•Establish phone or wireless service in your Establish phone or wireless service in your namename•Open bank accounts in your name and write Open bank accounts in your name and write bad checksbad checks

•Purchase vehicles by taking out auto loans in Purchase vehicles by taking out auto loans in your nameyour name

•Create counterfeit checks or authorize Create counterfeit checks or authorize electronic transfers in your nameelectronic transfers in your name

•File for bankruptcy in your name to avoid File for bankruptcy in your name to avoid paying debts incurred in your name or to paying debts incurred in your name or to avoid evictionavoid eviction

•Get job or file fraudulent tax returns in your Get job or file fraudulent tax returns in your namename

Page 55: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What should you do to What should you do to prevent it?prevent it?

•Protect your SSN Protect your SSN (don’t carry SS card, don’t write it (don’t carry SS card, don’t write it on checks)on checks)•Minimize the number of credit card accounts Minimize the number of credit card accounts openopen•Check statements for unusual activity Check statements for unusual activity AnnualCreditReport.comAnnualCreditReport.com•Destroy, i.e. shred unwanted credit card Destroy, i.e. shred unwanted credit card offers before discarding them offers before discarding them •Never give out personal information over the Never give out personal information over the phone to someone you do not knowphone to someone you do not know•Have your mail stopped by the Post Office Have your mail stopped by the Post Office when leaving townwhen leaving town•Use Passwords on Credit/Bank accounts Use Passwords on Credit/Bank accounts (not (not obvious like birth date)obvious like birth date)•Never click on unsolicited e-mailsNever click on unsolicited e-mails

Page 56: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What if it happens to me?What if it happens to me?

•Contact the police and file reportContact the police and file report•Call all your creditors Call all your creditors (close tampered (close tampered accounts)accounts)•Call the Identity Theft Hotline 801-579-Call the Identity Theft Hotline 801-579-14001400•Contact all major credit reporting Contact all major credit reporting agencies: agencies: TransUnion, Equifax, and TransUnion, Equifax, and Experian (place a “Fraud Alert”)Experian (place a “Fraud Alert”)•Report theft to the Federal Trade Report theft to the Federal Trade CommissionCommission (www.ftc.gov/idtheft) (www.ftc.gov/idtheft)•State by State protection information State by State protection information is available:is available: www.identity-theft-protection.com/states.htm

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Health

Insu

rance

Health

Insu

rance Life InsuranceLife Insurance W

ills

Wills and

and Trusts

TrustsOther InsuranceOther Insurance

Rainy Day FundRainy Day Fund(Safe, liquid)(Safe, liquid)

Tax-advantaged Tax-advantaged Retirement FundRetirement Fund

Other InvestmentsOther Investments( Index Funds)( Index Funds)

Self-SufficiencySelf-SufficiencyHappinessHappiness AttitudeAttitude

GarbageGarbage::Consumer DebtConsumer Debt

GamblingGambling

DerivativesDerivatives

Identity TheftIdentity Theft

Budget/PlanBudget/Plan

TaxesTaxes

Home BuyingHome Buying

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Rainy Day FundRainy Day Fund

““For age and want, save while For age and want, save while you may; no morning sun lasts you may; no morning sun lasts a whole day.”a whole day.”

- - Benjamin FranklinBenjamin Franklin

Page 59: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Rainy Day FundRainy Day Fund

Insured but low interest ratesInsured but low interest ratesChecking AccountChecking Account

Savings Account and Money Market Savings Account and Money Market Deposit Acct.Deposit Acct.

Certificates of DepositCertificates of Deposit

Not insured and higher interest ratesNot insured and higher interest ratesMoney Market Mutual FundsMoney Market Mutual Funds

-Treasury Bills-Treasury Bills

-Certificates of Deposit-Certificates of Deposit

-Commercial Paper-Commercial Paper

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Rainy Day Fund—How Much?Rainy Day Fund—How Much?

Salary ConsiderationSalary Consideration

The higher the salary, the bigger the The higher the salary, the bigger the rainy day fund (i.e., rainy day fund (i.e., fivefive month’s month’s salary) salary)

Net Worth ConsiderationNet Worth Consideration

The higher your net worth, the smaller The higher your net worth, the smaller the rainy day fund (i.e., the rainy day fund (i.e., threethree month’s month’s salary if you own stocks and bonds)salary if you own stocks and bonds)

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Rainy Day FundRainy Day Fund

A penny saved is a penny A penny saved is a penny earned.earned.

- Benjamin Franklin- Benjamin FranklinSource: www.quotedb.com/quotes/977Source: www.quotedb.com/quotes/977

A bank is a place where they A bank is a place where they lend you an umbrella in fair lend you an umbrella in fair weather and ask for it back weather and ask for it back when it begins to rain.when it begins to rain.

- Robert Frost- Robert FrostSource: www.quotedb.com/quotes/706Source: www.quotedb.com/quotes/706

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RetirementRetirement

““Buying a lottery ticket every Buying a lottery ticket every week doesn’t count as week doesn’t count as retirement planning.”retirement planning.”

Ric Ric EdelmanEdelman

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Prepare for RetirementPrepare for Retirement

Some Retirement MythsSome Retirement Myths• ““I’ll live on Social Security I’ll live on Social Security

benefits”benefits”– SS will replace only 25% of your SS will replace only 25% of your

incomeincome

• ““Someone else will take care of Someone else will take care of me”me”

• ““Better be safe and invest Better be safe and invest conservatively”conservatively”

• ““I can use my retirementI can use my retirement

funds for other things”funds for other things”

Page 64: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Sources of Retirement MoneySources of Retirement Money

– Social Security Social Security 25%25%

– PensionsPensions21%21%

– Real AssetsReal Assets13%13%

– Financial SavingsFinancial Savings12%12%

– TOTALTOTAL 71%71%

Page 65: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Albert EinsteinAlbert Einstein

““Compound interest is Compound interest is the eighth wonder of the eighth wonder of the world.”the world.”

Page 66: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Start Early!Start Early!

AgeAge JackJack JillJill

2020 $4,000$4,000 $0$0

2121 $4,000$4,000 $0$0

2222 $4,000$4,000 $0$0

:: :: ::

3838 $4,000$4,000 $0$0

3939 $4,000$4,000 $0$0

4040 $0$0 $4,000$4,000

4141 $0$0 $4,000$4,000

:: :: ::

5757 $0$0 $4,000$4,000

5858 $0$0 $4,000$4,000

5959 $0$0 $4,000$4,000

Amount Amount Inv.Inv.

$80,000$80,000 $80,000$80,000

ValueValue $1,541,27$1,541,2700

$229,100$229,100

$4,000 per year for 20 years$4,000 per year for 20 years

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How Does This Work?How Does This Work?

• Compound interest Compound interest (interest on (interest on interest)interest)

• Bill started earlier—compound Bill started earlier—compound interest has more time to work its interest has more time to work its miraclemiracle

• If the Manhattoes If the Manhattoes (who sold Manhattan (who sold Manhattan to the Dutch West India company for trade to the Dutch West India company for trade goods worth $24)goods worth $24) invest in an account invest in an account in 1626 at 8% interest how much in 1626 at 8% interest how much would the account have in it today? would the account have in it today? $24(1.08)$24(1.08)381381

$130,215,000,000,000 !!$130,215,000,000,000 !!

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How Much Will I Need in How Much Will I Need in Retirement?Retirement?

Money Magazine SurveyMoney Magazine Survey

• Estimates: Estimates: 53%53% Actual: Actual: 71%71%• One third of retirees support One third of retirees support

children and grandchildren and children and grandchildren and many support parentsmany support parents

• Health care costs generally higherHealth care costs generally higher• Biggest regrets for retirees:Biggest regrets for retirees:

– Didn’t take full advantage of tax Didn’t take full advantage of tax deferred investmentsdeferred investments

– Didn’t start earlier to save for Didn’t start earlier to save for retirementretirement

Page 69: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Life Cycle SavingsLife Cycle Savings

-100

0

100

200

300

400

500

600

700

20 25 30 40 50 60 65 70 80

Save 20%Save 20%

Save 10%Save 10%

BorrowingBorrowing

RetirementRetirementSoc. Sec. & PensionSoc. Sec. & Pension

To heirsTo heirs

(000’s)(000’s)

AgeAge

Page 70: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What Should I Invest In?What Should I Invest In?

• Principle: risk-return trade-offPrinciple: risk-return trade-off– High risk—high returnHigh risk—high return– Low risk—low returnLow risk—low return

• What?What?– Stocks—ownership in a company (risky)Stocks—ownership in a company (risky)– Bonds—loan to a company/government Bonds—loan to a company/government

(less risky)(less risky)– Deposit accounts— (insured, no risk)Deposit accounts— (insured, no risk)

• How?How?– Mutual fundsMutual funds– Tax-advantaged investingTax-advantaged investing

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How Much Will I Need?How Much Will I Need?

Use a worksheet to estimate Use a worksheet to estimate how much you will need to how much you will need to save each month to save each month to achievement your retirement achievement your retirement savings goalsavings goal

LinkLink to retirement worksheetto retirement worksheet AARP CalculatorAARP Calculator

Page 72: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Social Security—How much will Social Security—How much will I get?I get?

• Annual SS report near birth dateAnnual SS report near birth date

• Benefit amounts vary depending on:Benefit amounts vary depending on:• Lifetime earningsLifetime earnings

• Age at retirementAge at retirement

• Nonworking spouses get benefits equal to Nonworking spouses get benefits equal to 50% of their working spouses benefit50% of their working spouses benefit

• If both spouses worked, each is eligible for If both spouses worked, each is eligible for benefits based on own earnings or based on benefits based on own earnings or based on 50% of spouse’s benefit, whichever is 50% of spouse’s benefit, whichever is greatergreater

SS Benefits CalculatorSS Benefits Calculator

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When Can I Retire With Full Social When Can I Retire With Full Social Security Benefits?Security Benefits?

Those Can Retire WithBorn In Full Benefits At1937 or earlier 65 years1938 65 years, 2 months1939 65 years, 4 months1940 65 years, 6 months1941 65 years, 8months1942 65 years, 10 months1943 to 1954 66 years1955 66 years, 2 months1956 66 years, 4 months1957 66 years, 6 months1958 66 years, 8 months1959 66 years, 10 months1960 and later 67 years

Page 74: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

SS Benefit Assuming You Are 62 And SS Benefit Assuming You Are 62 And Retire At 65Retire At 651/21/2 (estimated in year-2003 (estimated in year-2003

dollars)dollars)Current Earnings PIA Single Spouse same ageAssuming Age 62 (monthly) Person (annual) or dependent child

$20,000 $736 $8,832 44% $13,248

$25,000 $832 $9,984 40% $14,976

$30,000 $928 $11,136 37% $16,704

$35,000 $1,025 $12,300 35% $18,450

$40,000 $1,121 $13,452 34% $20,178

$45,000 $1,217 $14,604 32% $21,906

$50,000 $1,313 $15,756 32% $23,634

$55,000 $1,410 $16,920 31% $25,380

$60,000 $1,506 $18,072 30% $27,108

$65,000 $1,558 $18,696 29% $28,044

$70,000 $1,603 $19,236 27% $28,854

$75,000 $1,649 $19,788 26% $29,682

$80,000 $1,693 $20,316 25% $30,474

$85,000 $1,738 $20,856 25% $31,284

$87,000 $1,755 $21,060 24% $31,590

The taxable maximum for 2003 was $87,000. See www.ssa.gov to The taxable maximum for 2003 was $87,000. See www.ssa.gov to estimate your benefits.estimate your benefits.

Page 75: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

VehicleVehicle vs. Engine vs. Engine

•IRAIRA

•SEPSEP

•KeoghKeogh

•SIMPLESIMPLE

•401k401k

•StocksStocks

•BondsBonds

•Mutual FundsMutual Funds

•REITsREITs

Important DistinctionImportant Distinction

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Three Kinds of Retirement PlansThree Kinds of Retirement Plans

Employer Funded Employer Funded PensionPension

Plan (Defined Benefit Plan (Defined Benefit Plan)Plan)

Employer Sponsored Employer Sponsored Retirement PlanRetirement Plan

(Defined Contribution Plan)(Defined Contribution Plan)

Individual Retirement Individual Retirement AccountsAccounts

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Defined Benefits PlanDefined Benefits Plan

• Employees don’t contribute to Employees don’t contribute to planplan

• Employee receives promised or Employee receives promised or defined payout at retirementdefined payout at retirement

• Payout is generally based on Payout is generally based on formulaformula– Formula variables include:Formula variables include:

– Age at retirementAge at retirement– Salary levelSalary level– Years of serviceYears of service

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Example of Payout Formula (BYU)Example of Payout Formula (BYU)

• Calculate average of five highest Calculate average of five highest annual salaries within the last ten annual salaries within the last ten yearsyears

• Multiply final “average” salary by Multiply final “average” salary by 1.5% and by years in service 1.5% and by years in service (max 30)(max 30)

Ex: $60,000 x .015 x 25 yrs = Ex: $60,000 x .015 x 25 yrs =

$22,500$22,500

or 37.5% of final salaryor 37.5% of final salary

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Defined Contribution PlansDefined Contribution Plans

• Employer contributes to a fundEmployer contributes to a fund

• Generally employee also Generally employee also

contributes to fundcontributes to fund

• Employer has no obligation to Employer has no obligation to

provide fixed amount when you provide fixed amount when you

retireretire

• Pension is determined by:Pension is determined by:– How much is investedHow much is invested

– How much it growsHow much it grows

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Types of Defined Contribution PlansTypes of Defined Contribution Plans

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Salary Reduction PlansSalary Reduction Plans[401(k), 403(b), & 457][401(k), 403(b), & 457]

• 60 million employees 60 million employees participate in 401(k) plansparticipate in 401(k) plans

• Employees contribute before Employees contribute before tax dollars reducing their tax dollars reducing their taxable income taxable income

• Earnings accumulate tax Earnings accumulate tax deferreddeferred

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• Employers may match employee Employers may match employee contributionscontributions

• 89% of 401(k) plans have matching 89% of 401(k) plans have matching contributionscontributions

• Example:Example:

BYU 401(k) Plan

Employee Contribution

Employer Contribution

Total Contribution

1% 1% 2%2% 2% 4%3% 3% 6%4% 3.5% 7.5%

5% to 21% 4% 9% to 25%

Salary Reduction Plans (cont’)Salary Reduction Plans (cont’)

Page 83: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Employees direct the funds into Employees direct the funds into

differentdifferent

investment options (you choose the investment options (you choose the

engine)engine)

•Fixed incomeFixed income

•EquitiesEquities

•Money marketMoney market

Salary Reduction Plans (cont’)Salary Reduction Plans (cont’)

Page 84: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Contribution LimitsContribution Limits

• For a 401(k) plan the employee For a 401(k) plan the employee

contribution cannot total over 25% contribution cannot total over 25%

of compensation (before and after of compensation (before and after

tax).tax).

• Before tax employee contribution Before tax employee contribution

cannot exceed $15,500 (2008) cannot exceed $15,500 (2008)

with a “catch-up” for those over with a “catch-up” for those over

age 50.age 50.

Page 85: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

401(k) Tax Considerations401(k) Tax Considerations

• Retirement income taxed as ordinary Retirement income taxed as ordinary incomeincome

• 10% penalty rule applies for early 10% penalty rule applies for early withdrawals before 59 ½ , with some withdrawals before 59 ½ , with some exceptionsexceptions

• 20% tax withholding requirement20% tax withholding requirement• Certain loan provisions may applyCertain loan provisions may apply• Mandatory annual distributions begins Mandatory annual distributions begins

after age 70 ½after age 70 ½• Possible high tax bracket (winners Possible high tax bracket (winners

curse)curse)

Page 86: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Payout/Distribution OptionsPayout/Distribution Options

• Lump Sum DistributionLump Sum Distribution– Pro: Control over investing, spending, giftingPro: Control over investing, spending, gifting

– Con: Tax due immediatelyCon: Tax due immediately

– Con: No assurance of lifetime incomeCon: No assurance of lifetime income

• Annuity (can purchase contract Annuity (can purchase contract inside or outside)inside or outside)– Pro: Stable payments usually for lifePro: Stable payments usually for life

– Con: Generally no COLACon: Generally no COLA

– Con: Tax due on amount received each yearCon: Tax due on amount received each year

Page 87: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Payout/Distribution Options (cont’)Payout/Distribution Options (cont’)

• Periodic PaymentsPeriodic Payments– Pro: Regular payments at regular intervalsPro: Regular payments at regular intervals

– Pro: Relatively large paymenttsPro: Relatively large paymentts

– Con: No assurance of lifetime incomeCon: No assurance of lifetime income

– Tax rate may be high due to high incomeTax rate may be high due to high income

• IRA Rollover (Be careful, don’t touch IRA Rollover (Be careful, don’t touch funds)funds)– Pro: Defer taxes until you withdraw fundsPro: Defer taxes until you withdraw funds

– Pro: Can direct investmentPro: Can direct investment

– Pro: Enjoy tax deferred growthPro: Enjoy tax deferred growth

– Con: Begin withdrawals at 70 ½ or penaltyCon: Begin withdrawals at 70 ½ or penalty

Page 88: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

TraditionalTraditional RothRoth

IRA OptionsIRA OptionsTax Deferred Retirement PlansTax Deferred Retirement Plans

Also consider SEP, Keogh, or SIMPLE plan for self-employedAlso consider SEP, Keogh, or SIMPLE plan for self-employed

or small businessesor small businesses

Page 89: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What are the characteristics of What are the characteristics of traditional IRA’s?traditional IRA’s?

• Contribution is often tax-deductibleContribution is often tax-deductible– income limits if you participate in ESP (e.g., 401k), $85,000income limits if you participate in ESP (e.g., 401k), $85,000 **

joint AGIjoint AGI– income limits for spouse of ESP participant, $159,000income limits for spouse of ESP participant, $159,000 ** joint joint

AGIAGI

• Choice of investment engineChoice of investment engine• Contributions and gains are taxed when Contributions and gains are taxed when

the money is withdrawn the money is withdrawn (Lower rate?)(Lower rate?)

• Maximum contribution is currently Maximum contribution is currently $5,000 (+ catch-up)$5,000 (+ catch-up)

• Not all are eligibleNot all are eligible (under 70½ w/ earned income or (under 70½ w/ earned income or spouse)spouse)

* Start of the phase-out* Start of the phase-out

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When can withdrawals be made?When can withdrawals be made?

• After 59 ½ for whatever purposeAfter 59 ½ for whatever purpose

• Prior to 59 ½ withdrawals are subject to Prior to 59 ½ withdrawals are subject to federal penalties (10%) unless money is federal penalties (10%) unless money is used for:used for:

– Qualified education expensesQualified education expenses– First-time home purchase ($10,000)First-time home purchase ($10,000)– Death or disabilityDeath or disability– Annuity paymentsAnnuity payments– Medical expenses greater than 7.5% of AGIMedical expenses greater than 7.5% of AGI

• Federal law requires that you begin Federal law requires that you begin withdrawals by April 1withdrawals by April 1stst of the year after of the year after you reach 70 ½you reach 70 ½

Page 91: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

What are the characteristics of a What are the characteristics of a Roth IRA?Roth IRA?

• Contributions are not tax-Contributions are not tax-

deductibledeductible

• Can contribute if in ESP or over Can contribute if in ESP or over

age 70½age 70½

• Contributions can always be Contributions can always be

withdrawn tax and penalty free withdrawn tax and penalty free (Earnings if over 59½ and Roth >5 years)(Earnings if over 59½ and Roth >5 years)

• Earnings grow Earnings grow tax-freetax-free

• Pass tax-free to heirs Pass tax-free to heirs (5-year required (5-year required

distribution)distribution)

• Avoids Winners Curse (70½)Avoids Winners Curse (70½)

Page 92: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Traditional vs. Roth IRATraditional vs. Roth IRASummary

Traditional IRA Roth IRATax-deductible contribution

Yes No

Maximum total annual contribution to all IRA programs

*$5,000 or 100% of earned income. *Maximum contribution for a marred couple is $10,000, or $5,000 each.

*$5,000 or 100% on earned income. *Maximum contribution for a married couple is $10,000, or $5,000 each.

EligibilityMust be under age 70 1/2 and have earned income, Limits if ESP

Any age with earned income not exceeding AGI limits.

Spousal IRA's

* Deductibility is subject to AGI limits. *Contributions from non-earning spouses are based on earnings of employed spouse

*Subject to AGI limits. *Contributions from non-earning spouse are based on earnings of employed spouse

Tax-free withdrawals No Yes

Age to begin required minimum distributions

70 1/2 None

Page 93: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

IRA Tax Law Changes (Bush 2001IRA Tax Law Changes (Bush 2001))

• IRA annual contribution limit will IRA annual contribution limit will increase as follows:increase as follows:

IRAIRA ContributionContribution

YearYear LimitLimit20072007 $4,000$4,00020082008 $5,000$5,00020092009

$5,000+index$5,000+index

Page 94: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Other InvestmentsOther Investments

Investment options:Investment options:Bank SavingsBank SavingsBills and BondsBills and BondsStocksStocksReal EstateReal EstateAnnuitiesAnnuitiesMutual Funds Mutual Funds (bills, bonds, stocks, & real estate)(bills, bonds, stocks, & real estate)

What can we learn from the past?What can we learn from the past?

Page 95: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

S&P 500 Small Cap T-bond T-bill CPI

11.88% 14.16% 5.95% 4.75% 3.74%

Wealth Index for U.S. Capital Markets 1947:12 to 2007:12

$0

$1

$10

$100

$1,000

$10,000

Dol

lar

Val

ue (L

og S

cale

)

S&P500 SmallCap T-bond T-bill CPI

$844

$2827

$32

$16

$9

Page 96: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Long-Term Return on the Stock Long-Term Return on the Stock MarketMarket

The Long-term Return on the Stock Market

Stock market risk-premium = market return - risk Stock market risk-premium = market return - risk free returnfree return

7.13%7.13% = = 11.88% - 4.75% 11.88% - 4.75%

… … but the U.S. in the last half-century has been but the U.S. in the last half-century has been “lucky” compared to other developed markets and “lucky” compared to other developed markets and time periods.time periods.

Going forward, the expected stock market risk-Going forward, the expected stock market risk-premium is about 5.0 percent. With the risk-free rate premium is about 5.0 percent. With the risk-free rate at about 3.0 percent, the long-term expected return at about 3.0 percent, the long-term expected return on stocks is abouton stocks is about

8 percent per year8 percent per year

(standard deviation of 20 percent per year)(standard deviation of 20 percent per year)

Page 97: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Managing Stock RiskManaging Stock Risk

1. Diversity Across Stocks1. Diversity Across Stocks

2. Diversity Across Time2. Diversity Across Time

3. Buy and Hold an Index Fund3. Buy and Hold an Index Fund

Page 98: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Diversify Across StocksDiversify Across Stocks

It is the part of a wise It is the part of a wise man to keep himself man to keep himself today for tomorrow and today for tomorrow and not to venture all his eggs not to venture all his eggs in one basket.in one basket.

Miguel de Miguel de CervantesCervantes

Page 99: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Diversify Across StocksDiversify Across StocksA

vera

ge a

nn

ual st

an

dard

A

vera

ge a

nn

ual st

an

dard

d

evia

tion

(%

)d

evia

tion

(%

)

49% -

24% -

19% -Total Risk

Diversifiable Risk

Nondiversifiable Risk

Number of stocks in portfolioNumber of stocks in portfolio

1 10 20 25

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Diversify Across TimeDiversify Across Time

Even a diversified portfolio is risky in Even a diversified portfolio is risky in a given month or year. However, a given month or year. However, given enough time, the probability of given enough time, the probability of a loss becomes manageablea loss becomes manageable

Page 101: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

-30%

-15%

0%

15%

30%

45%

60%

1 5 10 20

Holding Period (years)

Best and Worst Annualized Returns(1948-2007)

S&P 500

T-Bonds

T-Bills

Diversify Across TimeDiversify Across Time

Page 102: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Index FundsIndex Funds

Page 103: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Ten-Year Annualized Return on the 30 Largest Ten-Year Annualized Return on the 30 Largest Mutual Funds Mutual Funds

Investor return for calendar years 1995 to 2004; largest funds as Investor return for calendar years 1995 to 2004; largest funds as of year-end 1994of year-end 1994

Average mutual fund return: Average mutual fund return: 10.78% 10.78%Vanguard 500 Index fund return: Vanguard 500 Index fund return: 12.0% 12.0%

Funds outperforming the index: 9 out of Funds outperforming the index: 9 out of 30 (30%)30 (30%)

1 Fidelity Magellan 10.16 16 Fidelity Growth Opportunity 6.812 Investment Company of America 13.04 17 AXP New Dimensions 10.643 Washington Mutual Investors 13.54 18 Pioneer II 8.984 Vanguard Windsor 12.81 19 American Centuary Growth 8.735 American Century Ultra 10.40 20 Lord Abbett Affiliated 12.896 Janus 9.32 21 American Century Select 9.507 Fidelity Growth and Income 11.04 22 AIM Weingarten 6.168 Fidelity Contrafund 13.82 23 Putnam Voyager 9.109 Vanguard Windsor II 13.71 24 Putnam Growth and Income B 9.94

10 Fidelity Equity-Income II 11.65 25 Fidelity Blue Chip Growth 8.8211 Fidelity Equity-Income 11.94 26 Fidelity Destiny 6.7612 MSDW Dividend Growth 9.62 27 T. Rowe Price Equity Income 13.0013 Putnam Growth and Income 10.76 28 Fidelity Independence 10.6314 American Mutual 11.93 29 Waddell & Reed 10.3715 Growth Fund of America 14.79 30 Fidelity Growth Company 12.57

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Index Funds Have Low Index Funds Have Low FeesFees

Performance comes and Performance comes and goes, but costs roll on goes, but costs roll on forever.forever.

- Jack Bogle- Jack Bogle

Value of $100,000 investmentValue of $100,000 investment

33% of 33% of your your retiremenretirement to t to managermanager

Page 105: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Low Fees or Low AmountsLow Fees or Low Amounts

VanguardVanguard is a pioneer in low cost is a pioneer in low cost index fundsindex funds (passively managed diversified mutual funds (passively managed diversified mutual funds with fees oftenwith fees oftenbelow 0.2% per year)below 0.2% per year)www.vanguard.comwww.vanguard.com

Homestead FundsHomestead Funds is a pioneer in is a pioneer in managing small accountsmanaging small accounts (minimum of (minimum of $200 for IRA and $500 for regular accounts—$200 for IRA and $500 for regular accounts—NO minimum if automatic scheduled NO minimum if automatic scheduled investments)investments)www.homesteadfunds.com www.homesteadfunds.com

Page 106: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

The Futility of Trying to Time the The Futility of Trying to Time the MarketMarket

Period of InvestmentPeriod of Investment NYSE/NYSE/AMEX/AMEX/NASDAQ NASDAQ Return Return AnnualizeAnnualizedd

Value of Value of $10,000 $10,000 Invested Invested in Jan. in Jan. 19851985January 2, 1985 - December 30, January 2, 1985 - December 30,

20052005+12.48%+12.48% $118,089$118,089

Less the 10 biggest daysLess the 10 biggest days + 9.81%+ 9.81% $71,389$71,389

Less the 20 biggest daysLess the 20 biggest days +7.84%+7.84% $48,827$48,827

Less the 30 biggest daysLess the 30 biggest days +6.13%+6.13% $34,854$34,854

Less the 40 biggest daysLess the 40 biggest days +4.60%+4.60% $25,695$25,695

Data Source: CRSP Value-Data Source: CRSP Value-Weighted Index with DividendsWeighted Index with Dividends

     

Page 107: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Q: What Should I Invest In?Q: What Should I Invest In?

A: What is A: What is your risk your risk tolerance and tolerance and investment investment horizon?horizon?

Page 108: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Asset Allocation Breakdown During the Asset Allocation Breakdown During the Early YearsEarly Years

Source: Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. Ibbotson Associates, Inc.

1926-1998 1964-1998Stock/bond mix 80/20 Stock/bond mix 80/20Annual compound return 10.4% Annual compound return 11.6%Years with loss (out of 73) 19 Years with losses(out of 35) 8

Bonds 20%

Stocks 80%

Page 109: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Approaching Retirement – The Golden Approaching Retirement – The Golden YearsYears

Source: Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. Ibbotson Associates, Inc.

1926-1998 1964-1998Stock/bond mix 60/40 Stock/bond mix 60/40Annual compound return 9.5% Annual compound return 10.8%Years with loss (out of 73) 16 Years with losses(out of 35) 7

Stocks 60%

Bonds 40%

Page 110: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

During the Retirement YearsDuring the Retirement Years

Source: Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. Ibbotson Associates, Inc.

1926-1998 1964-1998Stock/bond/Treasury Bill mix 40/40/20 Stock/bond/Treasury Bill mix 40/40/20Annual compound return 8.0% Annual compound return 9.6%Years with loss (out of 73) 14 Years with losses(out of 35) 6

Stocks 40%

Bonds 40%

Treasury Bills 20%

Page 111: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

During the Late Retirement YearsDuring the Late Retirement Years

Source: Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. Ibbotson Associates, Inc.

Stocks 20% Bonds 60%

1926-1998 1964-1998Stock/bond/Treasury Bill mix 20/60/20 Stock/bond/Treasury Bill mix 20/60/20Annual compound return 6.8% Annual compound return 8.7%Years with loss (out of 73) 12 Years with losses(out of 35) 5

Treasury Bills 20%

Page 112: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Grant’s day-trading buddyGrant’s day-trading buddy

– $500,000 in stocks X 2%$500,000 in stocks X 2%$10,000$10,000

– 250 days X 1 trade X $15250 days X 1 trade X $15 - 3,750- 3,750– $0.125 X 100 shares X 250 trades$0.125 X 100 shares X 250 trades - 3,125- 3,125– Gross Trading ProfitGross Trading Profit 3,125 3,125– Tax @ 39.6%Tax @ 39.6% - 1,237- 1,237– Net ProfitNet Profit $ 1,888$ 1,888

Page 113: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Grant’s day-trading buddyGrant’s day-trading buddy

Trading ProfitTrading Profit $1,888$1,88810 hours/week X 52 weeks 10 hours/week X 52 weeks 520 hours520 hours

Equals $3.63 per hour!Equals $3.63 per hour!

Not to mention the costs of an office, Not to mention the costs of an office, computer, internet fee, real time data fee, computer, internet fee, real time data fee, and …and …

……THE FACT THAT HE DIDN’T BEAT THE THE FACT THAT HE DIDN’T BEAT THE MARKET.MARKET.

Page 114: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Health

Insu

rance

Health

Insu

rance Life InsuranceLife Insurance W

ills

Wills and

and Trusts

TrustsOther InsuranceOther Insurance

Rainy Day FundRainy Day Fund(Safe, liquid)(Safe, liquid)

Tax-advantaged Tax-advantaged Retirement FundRetirement Fund

Other InvestmentsOther Investments( Index Funds)( Index Funds)

Self-SufficiencySelf-SufficiencyHappinessHappiness AttitudeAttitude

GarbageGarbage::Consumer DebtConsumer Debt

GamblingGambling

DerivativesDerivatives

Identity TheftIdentity Theft

Budget/PlanBudget/Plan

TaxesTaxes

Home BuyingHome Buying

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BudgetingBudgeting

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BudgetingBudgeting

““Dear, you can’t save Dear, you can’t save money by spending.”money by spending.”

Grant McQueenGrant McQueen

Page 117: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

BudgetingBudgeting

Make Saving EasyMake Saving Easy

Make Spending HardMake Spending Hard

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BudgetingBudgeting

- The root cause of most family - The root cause of most family financial problems is bad behavior, financial problems is bad behavior, not bad mathnot bad math

- Good governance, communication, - Good governance, communication, and controls are essentialand controls are essential

- Budgeting is about values - Budgeting is about values (priorities), not money(priorities), not money

Page 119: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

The Millionaire Next DoorThe Millionaire Next Door

• ““The foundation stone of The foundation stone of wealth accumulation is wealth accumulation is defense, and this defense defense, and this defense should be anchored by should be anchored by budgeting and planning.” budgeting and planning.” (Stanley & Danko)(Stanley & Danko)

• ““Planning is typically found to Planning is typically found to be a strong habit among be a strong habit among people who have people who have demonstrated propensity to demonstrated propensity to accumulate wealth.” (Stanley accumulate wealth.” (Stanley & Danko)& Danko)

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BudgetingBudgeting

1,000,0001,000,000 750,000750,000 350,000350,000

Scott Marsh’s ClientsScott Marsh’s Clients

Page 121: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Spending TrapsSpending Traps

• Impulse BuyingImpulse Buying (checkout or end-of-aisle, not hungry, list, counter argue) (checkout or end-of-aisle, not hungry, list, counter argue)

• Failure to PlanFailure to Plan (Costco vs. convenience, raw vs. packaged) (Costco vs. convenience, raw vs. packaged)

• Hidden Price TagsHidden Price Tags (computers need a screen, printer, software, internet) (computers need a screen, printer, software, internet)

• Opportunity CostsOpportunity Costs (snowmobiles eat up time, energy, and emotions) (snowmobiles eat up time, energy, and emotions)

• Sales TricksSales Tricks (assume “yes,” reciprocity, evaporating incentive) (assume “yes,” reciprocity, evaporating incentive)

• Per Use CostsPer Use Costs (RV used twice a year) (RV used twice a year)

• Conspicuous ConsumptionConspicuous Consumption (Polo ponies and Nike swooshes) (Polo ponies and Nike swooshes)

• Delayed PriceDelayed Price (Disneyland, captive audience—breakfast and pictures) (Disneyland, captive audience—breakfast and pictures)

• Perfected VisionsPerfected Visions (Cruise—people get sick, it rains, not all are sexy) (Cruise—people get sick, it rains, not all are sexy)

• Upgrades and ExtrasUpgrades and Extras (time delayed start button with extended warranty) (time delayed start button with extended warranty)

• Underestimating AdaptationUnderestimating Adaptation (stereos) (stereos)

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BudgetingBudgeting

Q: What is the cost of a soft drink at lunch?Q: What is the cost of a soft drink at lunch?

Q: What is the future value of investing $20 per month Q: What is the future value of investing $20 per month for 40 years at 8%?for 40 years at 8%?

A: $20/month * 12 months/year * 40 years = $9,600A: $20/month * 12 months/year * 40 years = $9,600

$9,600 ÷ (1-.4) = $16,000 before tax and tithing income$9,600 ÷ (1-.4) = $16,000 before tax and tithing income

A: $69,820A: $69,820

Page 123: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Shaker HymnShaker Hymn

‘‘Tis the gift to be simpleTis the gift to be simple

‘‘Tis the gift to be freeTis the gift to be free ““Simple Gifts” by Joseph Brackett, Jr. Simple Gifts” by Joseph Brackett, Jr.

in 1848in 1848

Who owns whom?Who owns whom? Grant McQueenGrant McQueen

George FoxGeorge Fox

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We’re Number one!We’re Number one!

Page 125: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Available Available for for

SavingsSavings

Personal Personal GoalsGoals

IncomIncomee

ExpensExpenseses

The Budgeting ProcessThe Budgeting ProcessThe Traditional ApproachThe Traditional Approach

Page 126: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

The Budgeting ProcessThe Budgeting ProcessA Better ApproachA Better Approach

IncomIncomee

ExpensExpenseses

Personal Personal GoalsGoals

OtherOtherSavinSavin

gsgs

PayPayYoursYours

elfelf

Page 127: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Personal Balance SheetPersonal Balance Sheet

Basic characteristicsBasic characteristics– Point in timePoint in time

– AssetsAssets• Value of what you ownValue of what you own

• Ordered by level of liquidityOrdered by level of liquidity

– LiabilitiesLiabilities• Debts you oweDebts you owe

– Net worthNet worth• Difference between assets and liabilitiesDifference between assets and liabilities

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Personal Balance Sheet ContinuedPersonal Balance Sheet ContinuedBalance Sheet for Joe and Jain Jones, April 2002

ASSETS LIABILITIES

Current Assets Current Liabi l i tiesCash $140 Credit Card Debt $4,200Savings Account $3,700 Short-Term Consumer Loan $3,800Checking Account $1,700 Total Current Liabilities $8,000Certificate of Deposit $3,000 Long-Term LiabilitiesTotal Current Assets $8,540 Mortgage $185,000

Property Car Loan $23,000Home Furnishings/Appliances $23,000 Total Long-Term Liabilities $208,000

Stereo System $800

Clothing $4,000 Total Liabilities $216,000Television and VCR $1,200Personal Computer $3,000

Market Value of Vehicles $27,000 NETWORTHMarket Value of Home $250,000

Total Property $309,000 Total Assets - Total Liabilities $129,890Investments

Vanguard Mutual Fund $4,300Individual Retirement Account $18,050SEP Retirement Plan $6,000Total Investments $28,350

Total Assets $345,890

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Income StatementIncome Statement

Basic characteristicsBasic characteristics

– Considers a period of timeConsiders a period of time

– How money has come and goneHow money has come and gone

– Excellent monitoring mechanismExcellent monitoring mechanism

– Difference between income & Difference between income & expenses provides opportunities for expenses provides opportunities for savings/investmentssavings/investments

Page 130: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Income Statement ContinuedIncome Statement ContinuedIncome Statement for Joe Appraiser

January 1, 2000 - December 31, 2000

INCOME EXPENSES

Regular Income: Fixed ExpensesSalary/Appraisal Earnings $90,000 Mortgage Payment $19,200

Car Payments $5,000Auto Insurance $1,200

Other Income:Dividends $375 Homeowners Insurance $1,000Interest Income $400 Life Insurance $600

Income Taxes $20,600

Total Income $90,375 Social Security Taxes $5,100

Tithing $9,000

Offerings $750Property Taxes $1,520Savings Program $8,945 Total Fixed Expenses $72,915

Variable ExpensesFood $5,000Clothing $2,500Car (fuel, oil, tires, etc.) $2,000Utilities $3,000Entertainment $1,200Telephone $970Medical Care/Medication $1,700Personal Care (hair, laundry) $840Gifts $250 Total Variable Expenses $17,460

Total Expenses $90,375

Net Gain (+) or Net Loss (-) $0

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Tax (Credit vs. Deduction)Tax (Credit vs. Deduction)

Tax CreditTax CreditDollar-for-dollarDollar-for-dollar

A $1 creditA $1 creditsaves $1 in saves $1 in taxestaxes

i.e., $1,000 childi.e., $1,000 childtax credit is tax credit is worthworth$1,000$1,000

Tax Tax DeductionDeductionPercentage Percentage

A $1 deductionA $1 deductionsaves $1 x t in saves $1 x t in taxestaxes

i.e., $3,000 i.e., $3,000 charitable charitable donation donation deduction is deduction is worth aboutworth about $3,000 x .25 = $3,000 x .25 = $750$750

Page 132: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Tax IdeasTax Ideas

• Itemize deductionsItemize deductions (if > $10,900 standard deduction, joint in (if > $10,900 standard deduction, joint in 2008)2008)

• Child Tax CreditChild Tax Credit ($1,000 per child under 17)($1,000 per child under 17)

• Hope and Lifetime Learning education creditsHope and Lifetime Learning education credits• Tax preferred savingsTax preferred savings (i.e., IRA, Roth IRA, 401k, SEP)(i.e., IRA, Roth IRA, 401k, SEP)

• Donation of appreciated securitiesDonation of appreciated securities• ““Cafeteria Plans”Cafeteria Plans” (Flexible Spending Accounts: pay for heath, (Flexible Spending Accounts: pay for heath,

drugs, and childcare with pretax dollars)drugs, and childcare with pretax dollars)

• Education savings plansEducation savings plans (i.e., 529 plan and Coverdell Ed. (i.e., 529 plan and Coverdell Ed. IRAs)IRAs)

• Estate TaxesEstate Taxes (46 percent over $2.0 million until 2009) ($3.5 (46 percent over $2.0 million until 2009) ($3.5 mill. after 2009)mill. after 2009)

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Taxes (itemize deductions)Taxes (itemize deductions)

• Charitable ContributionsCharitable Contributions (Red Cross, United Way, BYU!!!) (Red Cross, United Way, BYU!!!)

• Mortgage Interest Mortgage Interest (2(2ndnd home, 2 home, 2ndnd mort., equity line of credit, mort., equity line of credit, points)points)

• State Income Taxes State Income Taxes (or sales tax option in 2007 and (or sales tax option in 2007 and perhaps beyond)perhaps beyond)

• Real Estate and Personal Property TaxesReal Estate and Personal Property Taxes• Medical and Dental Medical and Dental (> 7.5% of AGI,(> 7.5% of AGI, timing, limits)timing, limits)

• Casualty and Theft Losses Casualty and Theft Losses (>10% of AGI, after (>10% of AGI, after insurance)insurance)

• Interest on qualified student loans Interest on qualified student loans (up to $2,500)(up to $2,500)

• NOTNOT: social security tax, federal tax, sales tax, : social security tax, federal tax, sales tax, consumer interest, fees to governments, fees consumer interest, fees to governments, fees to lenders…to lenders…

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Taxes (education credits)Taxes (education credits)

• HOPEHOPE– Up to $1,800 credit Up to $1,800 credit

per eligible studentper eligible student– Only for first 2 years Only for first 2 years

of postsecondary ed.of postsecondary ed.– Only for 2 years per Only for 2 years per

eligible studenteligible student– At least At least ½-time for ½-time for

at least one at least one semestersemester

• Lifetime Lifetime LearningLearning– Up to $2,000 credit Up to $2,000 credit

per returnper return– All years of All years of

postsecondary ed.postsecondary ed.– Unlimited number Unlimited number

of yearsof years– For one or more For one or more

coursescourses

Mutually exclusive in a given yearMutually exclusive in a given year

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Taxes (529 “College” Savings Taxes (529 “College” Savings Plans)Plans)

• State Tax IncentivesState Tax Incentives– ContributionsContributions are deductible are deductible ($3,240 for couples per child)($3,240 for couples per child)

for UT taxesfor UT taxes– EarningsEarnings are exempt from state income tax are exempt from state income tax (if used for (if used for

qualified higher education expenses)qualified higher education expenses)

• Federal Tax Incentives Federal Tax Incentives (10% penalty for non-qualified (10% penalty for non-qualified withdrawals)withdrawals)

– EarningsEarnings are exempt from federal income tax are exempt from federal income tax– Gift limit of $12,000 < College limit of $55,000 Gift limit of $12,000 < College limit of $55,000

((w/control)w/control)

• Rollover to other family membersRollover to other family members ( (w/o penaltyw/o penalty))• Utah Ed. Savings Plan is OutstandingUtah Ed. Savings Plan is Outstanding

– Nine investment options (Vanguard Funds)Nine investment options (Vanguard Funds)– Minimum payment per month of $25Minimum payment per month of $25

• Grandmas, Grandpas, Aunts, Uncles, FriendsGrandmas, Grandpas, Aunts, Uncles, Friends

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Home BuyingHome Buying

• RentingRenting– Mobility and liquidityMobility and liquidity– Repairs and Repairs and

maintenancemaintenance– Low initial costLow initial cost– Low on going costLow on going cost– Low price riskLow price risk

• BuyingBuying– Permanence and pridePermanence and pride– Payments for Payments for

ownershipownership– ControlControl– Tax benefitsTax benefits– Property appreciation Property appreciation

(?)(?)– LeverageLeverage– Nicer neighborhood, Nicer neighborhood,

school, and ward?school, and ward?

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Home Buying StepsHome Buying Steps

Develop a financial plan Develop a financial plan (pre-qualify vs. pre-approved, (pre-qualify vs. pre-approved, set limits)set limits)

Develop a needs plan Develop a needs plan (location, size, features, age, (location, size, features, age, condition, etc.)condition, etc.) beforebefore driving arounddriving aroundTake your time Take your time (rent for a while?)(rent for a while?)

Search diligently Search diligently (use the internet, drive around, (use the internet, drive around, realtors work for seller, follow plan, talk with realtors work for seller, follow plan, talk with people)people)

Do your homework Do your homework (inspections and appraisals)(inspections and appraisals)

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Financing a HomeFinancing a Home

• CreditCredit (income stability, debt-to-(income stability, debt-to-income, loan-to-value, history/FICO)income, loan-to-value, history/FICO)– FICO score > 620, approved?FICO score > 620, approved?– FICO score < 590, subprime?FICO score < 590, subprime?

• CashCash– Down payment (typically 3% to 20%)Down payment (typically 3% to 20%)– Closing costs or fees ($2,000 to $3,000)Closing costs or fees ($2,000 to $3,000)– Minimum reserves (two months of payments, Minimum reserves (two months of payments,

not gifted)not gifted)

• Cash FlowCash Flow (i.e., income) (i.e., income)– Mortgage paymentMortgage payment– Mortgage insurance, property taxes, home Mortgage insurance, property taxes, home

insurance, etc…insurance, etc…

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Home Buying FeesHome Buying Fees

• Loan Origination Fee Loan Origination Fee (points)(points)

• Escrow FeesEscrow Fees• Homeowner’s Homeowner’s

InsuranceInsurance• Legal Fees?Legal Fees?• Private Mortgage Private Mortgage

InsuranceInsurance• Document Preparation Document Preparation

FeesFees• Title InsuranceTitle Insurance• Appraisal FeesAppraisal Fees• Credit Report FeesCredit Report Fees

• Tax Service FeesTax Service Fees• Survey Fees?Survey Fees?• Property TaxesProperty Taxes• Pest Inspection Pest Inspection

FeeFee• Notary Public Notary Public

ChargeCharge• FedEx FeeFedEx FeeAsk for a so called “good faith” estimate of feesAsk for a so called “good faith” estimate of fees

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How Much Can You Afford?How Much Can You Afford?

Two Ratios: Front-end and Two Ratios: Front-end and Back-endBack-end(Must meet both, but a large down payment (Must meet both, but a large down payment covers many sins)covers many sins)• Front-end: House payment (PITI)Front-end: House payment (PITI)// gross gross

income < 0.28income < 0.28– Principle, Interest, Taxes, & InsurancePrinciple, Interest, Taxes, & Insurance

• Back-end: PITI + other finance chargesBack-end: PITI + other finance charges// gross gross income < 0.36income < 0.36– Car lease, student loans, minimum payment on credit Car lease, student loans, minimum payment on credit

cardscards

• Some lenders allow back-end ratios as high as Some lenders allow back-end ratios as high as 50%!50%!

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How Much Can You Afford?How Much Can You Afford?

Here Comes a Really Here Comes a Really Important SlideImportant Slide

There is a Difference There is a Difference Between Between

What You Can Get Finance What You Can Get Finance

and What you Can Afford!and What you Can Afford!

Pay AttentionPay Attention

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Anatomy of a MortgageAnatomy of a Mortgage

• Size Size – Less than $360,00 is “conforming” by Less than $360,00 is “conforming” by

Federal National Mortgage Association Federal National Mortgage Association (FNMA) standards(FNMA) standards

• Interest RateInterest Rate– APR (origination and discount points)APR (origination and discount points)– A 7 % interest rate may have a 7.3% APRA 7 % interest rate may have a 7.3% APR– Fixed-Rate or Adjustable Rate Mortgage (ARM)Fixed-Rate or Adjustable Rate Mortgage (ARM)

• Teaser rate, cap, adjustment frequency and Teaser rate, cap, adjustment frequency and maximumsmaximums

• COFI, Hybrid (fixed for 3 yr’s then ARM), Two-step COFI, Hybrid (fixed for 3 yr’s then ARM), Two-step (5/25(5/25** or 7/23) or 7/23)

• TermTerm– 30 and 15 year most common30 and 15 year most common– BalloonBalloon

*Fixed rate for 5 years then a new fixed*Fixed rate for 5 years then a new fixed market rate for the next 25 yearsmarket rate for the next 25 years

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Health

Insu

rance

Health

Insu

rance Life InsuranceLife Insurance W

ills

Wills and

and Trusts

TrustsOther InsuranceOther Insurance

Rainy Day FundRainy Day Fund(Safe, liquid)(Safe, liquid)

Tax-advantaged Tax-advantaged Retirement FundRetirement Fund

Other InvestmentsOther Investments( Index Funds)( Index Funds)

Self-SufficiencySelf-SufficiencyHappinessHappiness AttitudeAttitude

GarbageGarbage::Consumer DebtConsumer Debt

GamblingGambling

DerivativesDerivatives

Identity TheftIdentity Theft

Budget/PlanBudget/Plan

TaxesTaxes

Home BuyingHome Buying

Page 144: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

InsuranceInsurance

• What insurance What insurance isis::– A way to protect your assets from major A way to protect your assets from major

unforeseen expensesunforeseen expenses

• What insurance What insurance isn’tisn’t::– A service to pay for minor losses you could easily A service to pay for minor losses you could easily

afford to pay yourselfafford to pay yourself

• Multiple claims often lead to higher Multiple claims often lead to higher premiums or worsepremiums or worse– Example: some insurers won’t renew your Example: some insurers won’t renew your

homeowner’s policy if you’ve had more than three homeowner’s policy if you’ve had more than three claims in two yearsclaims in two years

Page 145: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Insurance rules of thumbInsurance rules of thumb– The more you earn, the The more you earn, the

more you needmore you need• Take assets into consideration as Take assets into consideration as

wellwell

– Higher deductibles can save Higher deductibles can save a lot of moneya lot of money• Make sure your “rainy day” savings Make sure your “rainy day” savings

are sufficient to cover any lossesare sufficient to cover any losses

InsuranceInsurance

Page 146: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Life InsuranceLife Insurance

Term life—pure death benefitTerm life—pure death benefit– No savings componentNo savings component– About 1/10th the cost of cash About 1/10th the cost of cash

valuevalue– Gets more expensive as you Gets more expensive as you

get olderget older– Expires at age 65 or 70 Expires at age 65 or 70

(usually)(usually)– Provisions Provisions (renewability & (renewability &

convertability)convertability)

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Life InsuranceLife Insurance

Cash value life—death benefit Cash value life—death benefit plus savings (bonds, stock plus savings (bonds, stock market, etc.)market, etc.)– Builds cash valueBuilds cash value– Does not expire (“whole life” Does not expire (“whole life”

insurance)insurance)– Low but guaranteed minimum Low but guaranteed minimum

rate of return on cash valuerate of return on cash value– Much more expensive relative to Much more expensive relative to

termterm– Types: Whole Life, Universal Life, Types: Whole Life, Universal Life,

Variable LifeVariable Life

Page 148: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Whole Life: Pros and ConsWhole Life: Pros and Cons

• Budgeting premiumsBudgeting premiums• No unaffordability No unaffordability

and uninsurabililty and uninsurabililty problemsproblems

• Cash value Cash value (forced (forced savings)savings)

• Can borrow or Can borrow or withdraw cash valuewithdraw cash value

• Earnings grow tax Earnings grow tax deferreddeferred

• Expensive Expensive (less death (less death benefit per premium benefit per premium dollar)dollar)

• Poor returns on Poor returns on savings componentsavings component

• High sales High sales commission commission (over (over 100 % of first year 100 % of first year premium and around premium and around 20% of lifetime 20% of lifetime premiumpremium

Page 149: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

• Combines term insurance with tax-sheltered Combines term insurance with tax-sheltered investment accounts earning money market investment accounts earning money market ratesrates

• Many different typesMany different types

• Flexibility with changing death benefit and Flexibility with changing death benefit and premiumspremiums

• Selling point is that cash value will increase to a Selling point is that cash value will increase to a point to cover premiums for death benefit, point to cover premiums for death benefit, however this is often not realized.however this is often not realized.

• Premiums may be skipped if cash value is high Premiums may be skipped if cash value is high enough however premiums may then increase enough however premiums may then increase in later yearsin later years

• High commissionsHigh commissions

Universal Life InsuranceUniversal Life Insurance

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• Similar concept as universal life insurance Similar concept as universal life insurance but owner of policy can decide how to but owner of policy can decide how to invest the money in the savings invest the money in the savings component.component.

• There is no minimum return guaranteedThere is no minimum return guaranteed

• The amount of the death benefit is often The amount of the death benefit is often related to policy investment returns.related to policy investment returns.

• The insurance firm generally determines The insurance firm generally determines which funds (mutual funds) you can invest which funds (mutual funds) you can invest in.in.

• Earning grow tax-deferred Earning grow tax-deferred

Variable Life InsuranceVariable Life Insurance

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What Kind and How Much?What Kind and How Much?

• Term insurance generally best to Term insurance generally best to start offstart off

• 6-10 times annual income6-10 times annual income• Convertible term if you think you Convertible term if you think you

may want cash value insurance may want cash value insurance laterlater

• Group is least costly (but what if Group is least costly (but what if you leave?)you leave?)

• Have some for non-employed Have some for non-employed spousespouse

• Children? At most a small amountChildren? At most a small amount

Page 152: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

• Your primary life insurance need is to Your primary life insurance need is to replace income that is earned during your replace income that is earned during your working years.working years.

• You have limited funds to purchase the You have limited funds to purchase the level of protection that you need (e.g., 6 to level of protection that you need (e.g., 6 to 10 times annual salary).10 times annual salary).

• You have insurance protection needs that You have insurance protection needs that are easily quantifiable (e.g., mortgage, are easily quantifiable (e.g., mortgage, partnership buyout, etc.).partnership buyout, etc.).

• Grant likes term!Grant likes term! (w/ renewability (w/ renewability provisions)provisions)

Term Insurance May Be Best If:Term Insurance May Be Best If:

Page 153: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

• Your needs for life insurance are Your needs for life insurance are permanent or long term.permanent or long term.

• You have concerns regarding insurability You have concerns regarding insurability and affordability later in life.and affordability later in life.

• You intend to keep your coverage for a You intend to keep your coverage for a while and would not want premiums to while and would not want premiums to increase with your age.increase with your age.

• After bills are paid and savings are met, After bills are paid and savings are met, you still have disposable income.you still have disposable income.

• The concept of tax-deferred cash value The concept of tax-deferred cash value accumulation appeals to you (Limits on accumulation appeals to you (Limits on IRAs and 401k).IRAs and 401k).

Cash Value Insurance May Be Best Cash Value Insurance May Be Best If:If:

Page 154: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Health InsuranceHealth Insurance

Traditional Indemnity (Fee-for-Service)Traditional Indemnity (Fee-for-Service)– Quite expensive, becoming less common Quite expensive, becoming less common

in group plansin group plans– Most often seen today in individual plansMost often seen today in individual plans

Page 155: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Health InsuranceHealth Insurance

Managed CareManaged Care– HMO: Health Maintenance Organization.HMO: Health Maintenance Organization.

• Most restrictive, generally may use in-Most restrictive, generally may use in-network services only.network services only.

– PPO: Preferred Provider Organization.PPO: Preferred Provider Organization.• Typically covers treatment anywhere, but Typically covers treatment anywhere, but

with lower co-payments for in-network with lower co-payments for in-network services.services.

– POS: Point of Service.POS: Point of Service.• A type of HMO plan with PPO features. In-A type of HMO plan with PPO features. In-

network services typically cheaper than a network services typically cheaper than a PPO, out of network services covered, but PPO, out of network services covered, but with markedly higher co-payments.with markedly higher co-payments.

Page 156: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

• Property CoverageProperty Coverage– Can cover structures, attachments,Can cover structures, attachments, personal property they contain, and personal property they contain, and ““loss of use” expenses.loss of use” expenses.

• Liability CoverageLiability Coverage– Protects you from liability for injuries that take place Protects you from liability for injuries that take place

on insured property.on insured property.• CaveatsCaveats

– Standard policies do Standard policies do notnot cover home-based cover home-based businesses.businesses.

– Don’t own your home? Your landlord is Don’t own your home? Your landlord is notnot liable for liable for loss of your personal property. Renters insurance is loss of your personal property. Renters insurance is available for this purpose.available for this purpose.

– Standard policies do not cover earthquakes or Standard policies do not cover earthquakes or floods.floods.

Homeowners’ InsuranceHomeowners’ Insurance

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• Liability CoverageLiability Coverage– Pay others for bodily injury and property Pay others for bodily injury and property

damage for which you are responsibledamage for which you are responsible• Medical CoverageMedical Coverage

– Covers medical bills for you and your Covers medical bills for you and your passengerspassengers

• Uninsured Motorist CoverageUninsured Motorist Coverage– Pays what you would have received from Pays what you would have received from

another motorist had they had their own another motorist had they had their own insuranceinsurance

• Vehicle Damage CoverageVehicle Damage Coverage– Collision—pays for damage caused by Collision—pays for damage caused by

collision or rollovercollision or rollover– Comprehensive—pays for loss when car is Comprehensive—pays for loss when car is

stolen or damaged by vandalism, fire, etc.stolen or damaged by vandalism, fire, etc.

Auto InsuranceAuto Insurance

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How much coverage do you need?How much coverage do you need?– Typically more than the baseline state Typically more than the baseline state

requirementsrequirements– Commonly-recommended Commonly-recommended minimumsminimums::

• $100,000 per person/$300,000 per accident $100,000 per person/$300,000 per accident liability coverageliability coverage

• $5,000 medical coverage$5,000 medical coverage– even if you have health insurance, your even if you have health insurance, your

passengers may notpassengers may not

• $50,000 property damage coverage$50,000 property damage coverage

– Those with larger-than-average incomes Those with larger-than-average incomes or asset bases require more coverageor asset bases require more coverage

Auto InsuranceAuto Insurance

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Prepare a WillPrepare a Will

• Especially if youEspecially if you– Have childrenHave children– Have a complex family situationHave a complex family situation– Have significant assetsHave significant assets

• Do this now: Holographic will for Do this now: Holographic will for studentsstudents– Done in own handDone in own hand– Signed and datedSigned and dated– Deal with children and assetsDeal with children and assets

• Why not have an attorney prepare Why not have an attorney prepare your will?your will?

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You May Need a TrustYou May Need a Trust

• Estate taxes: about 46% of Estate taxes: about 46% of assets assets aboveabove $2,000,000 per $2,000,000 per person (until 2008)person (until 2008)

• Spouse may pass on unlimited Spouse may pass on unlimited amount to surviving spouseamount to surviving spouse

• BUT…then only one gets the BUT…then only one gets the $2.0 Mill. exemption$2.0 Mill. exemption

• Need A/B trust Need A/B trust (to get $4 mill. (to get $4 mill. exemption)exemption)

• Consider life insurance trustConsider life insurance trust

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Powers of AttorneyPowers of Attorney

• Conventional, assign someone to :Conventional, assign someone to :– Handle specific financial affairsHandle specific financial affairs– i.e., sell car and pay bills while on missioni.e., sell car and pay bills while on mission

• Durable, appoint someone to:Durable, appoint someone to:– Make financial or medical decisions if Make financial or medical decisions if

incapacitatedincapacitated

• Living Will or Advance Directive to Living Will or Advance Directive to Physicians:Physicians:– Outlines medical procedures allowedOutlines medical procedures allowed– Authorizes termination of artificial life Authorizes termination of artificial life

supportsupport

Page 162: An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott.

Documents For Safe Deposit Documents For Safe Deposit BoxBox

• Wills and Trusts (Husband and Wife)Wills and Trusts (Husband and Wife)

• Birth Certificates (Husband, Wife, Children, Adopted Birth Certificates (Husband, Wife, Children, Adopted Children)Children)

• Citizenship Papers and Passports (Husband, Wife, Citizenship Papers and Passports (Husband, Wife, Children, Adopted Children)Children, Adopted Children)

• Marriage CertificateMarriage Certificate

• Adoption PapersAdoption Papers

• Military Service PapersMilitary Service Papers

• Divorce PapersDivorce Papers

• Death CertificatesDeath Certificates

• Probate RecordsProbate Records

• Real Estate Deeds and PapersReal Estate Deeds and Papers

• Names/Phone Numbers for: Attorneys, Accountants, Names/Phone Numbers for: Attorneys, Accountants, Investment Counselors, and Insurance AgentsInvestment Counselors, and Insurance Agents

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Documents (continued)Documents (continued)

• Living Wills (Husband and Wife)Living Wills (Husband and Wife)

• Durable Powers of Attorney (Husband and Wife)Durable Powers of Attorney (Husband and Wife)

• Healthcare Powers of Attorney (Husband and Wife)Healthcare Powers of Attorney (Husband and Wife)

• Organ Donor certificates (Husband and Wife)Organ Donor certificates (Husband and Wife)

• Prepaid Funeral Plans and burial plot deeds (Husband Prepaid Funeral Plans and burial plot deeds (Husband and Wife)and Wife)

• Obituary and Funeral Instructions (Husband and Wife)Obituary and Funeral Instructions (Husband and Wife)

• Federal and State Tax Returns (at least 3 years)Federal and State Tax Returns (at least 3 years)

• Investment and Insurance Records (Most Recent Year-Investment and Insurance Records (Most Recent Year-End Statements)End Statements)

• Personal Loan Documents, Service Contracts, and Personal Loan Documents, Service Contracts, and WarranteesWarrantees

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PrioritiesPriorities

While Balancing the BudgetWhile Balancing the Budget (behavior, relationships, (behavior, relationships, values, human capital):values, human capital):

1.1. Manage the MisfortuneManage the Misfortune (basic life, health, disability, (basic life, health, disability, auto, and home insurance), auto, and home insurance),

2.2. Discharge the DebtDischarge the Debt (credit cards, bondage, FICO), (credit cards, bondage, FICO),

3.3. Anticipate the AdversityAnticipate the Adversity (rainy-day fund, will), (rainy-day fund, will),

4.4. Snatch the MatchSnatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), (401k, 403b, 457, SEP, Keogh, SIMPLE),

5.5. Fund the FavoredFund the Favored (IRA, Roth IRA, 529, Annuities), (IRA, Roth IRA, 529, Annuities),

6.6. Stuff the SavingsStuff the Savings (diversify across assets and time), (diversify across assets and time),

But Possess a Purpose and Preserve a But Possess a Purpose and Preserve a PerspectivePerspective

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