Introduction To Good $ense March 2010

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Introduction to Good $enseIntroduction to Good $ense

March 2010

North Way Oakland

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Goals of Today

• Leave with a vision for purposefully managing your finances!

• Provide an overview of some practical tools.

• Commit to relevant next step for you!

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“I am positive that personal finance is 80% behavior and 20%

head knowledge.”

Dave RamseyThe Total Money Makeover

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Would you fire yourself,

if you were your own personal CFO?

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In America today …

49% of people could cover less than one month’s expenses if they lost their

income.

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In America today …

58% have never calculated what it will cost to retire

59% hope to live better retired then during working years

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In America today …

60% of people don’t pay off their creditcards every month

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In America today …

70% of people spend more thanthey make

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In America today …

80% of graduating college seniors have credit-card debt before they even have

a job!

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In America today …

19% of bankruptcy filings were from college students

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Would you fire yourself,

if you were your own personal CFO?

Most Americans Have to Say Yes!

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Need to Change!

1) Ask ‘how much’ instead of ‘how much down and how much a month’!

2) Reach the point where what people think is not primary motivator!

3) ‘Live like no one else, so later you can live like no one else.’ -- Dave Ramsey

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“Great spirits have always found violent opposition from mediocre

minds.”

Albert Einstein

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75% of Forbes 400‘best way to build wealth is tobecome and stay debt free’

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Dave Ramsey’s 7 Baby Steps

1. $1,000 in Emergency Fund

2. Get out of Debt

3. 3 - 6 Month Emergency Fund

4. Save 15% of Gross Income for Retirement (also review insurances)

5. College Funds

6. Pay House Off Early

7. Build Wealth & Give it Away!

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Video 1: ‘Super Saving’(5:24 - 14:54)

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78% of people will have a financialemergency in 10 year period.

Fortune Magazine

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“I am positive that personal finance is 80% behavior and 20%

head knowledge.”

Dave RamseyThe Total Money Makeover

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“Budgeting is simply telling your money what to do.”

John Maxwell

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“Where your treasure is, there your heart will be also.” Matthew 6:21

Every financial decision is also a spiritual decision.

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• Gives accurate data

• Improves COMMUNICATION

• Allows for mid-course corrections

• Provides ACCOUNTABILITY

Benefits of Record Keeping:

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The Truth about Record Keeping:

• It’s simpler than it seems

• It takes less time than you think

• It does not require a Ph.D. in math

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Zero Based Budgeting

Plan how you are going to spend every dollar at the beginning of the month.

Household Income – Monthly Expenses = ZERO!

Avoid still having month left at the end of your money.

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Review Spending Plan

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Three Systems:

• Envelope

• Written record

• Electronic

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Credit Card Studies:

• Family spending using a credit card versus cash– Amount spent (with a credit card) rose between 20%

and 30%.

• Camera purchase using cash versus a credit card– Cash group paid an average of $29.58– Credit card group paid an average of $52.67

• MIT Study 2 Groups of Students (Celtics Tickets)– Credit card group paid 2x as much

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Two Reasons Credit Card Users Spend More

• Using a credit card is psychologically different than using cash. Cash HURTS more!

• No RECORD of how much we’ve charged until the end of the month

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Credit Card Rules:

• Use only for BUDGETED items

• Pay the balance in FULL every month

• If you violate rule one or rule two, CUT up your cards

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Get out of Debt

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Biblical Guidelines:

• Avoid debt

“The borrower is servant to the lender.” Proverbs 22:7

• Repay debt

“The wicked borrow and do not repay, but the righteous give generously.” Psalm 37:21

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Debt Facts …

The total American consumer debt ismore than $2.8 trillion

$2,800,000,000,000

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Debt Facts …

The average household credit carddebt has increased approximately

2.5x in the past 17 years

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Debt Facts …

The average balance per credit card-holding household is more than

$9,300

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Debt Facts …

The credit card industry takes in $43 billion per year in additional,

unexpected fees from the consumer, such as late payments, over-the-limit, and balance

transfer fees.

Late fees alone bring in more than $11 billion.

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Three Spiritual Dangers of Debt:

• PRESUMES on the future “… you do not even know what will happen tomorrow.” James

4:13, 14

• DENIES God the opportunity to Teach us“My God will meet all your needs according to his glorious riches in

Christ Jesus.” Philippians 4:19

• FOSTERS envy and greed “Don’t be greedy for what you don’t have. Real life is not measured

by how much we own.” Luke 12:15

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Five Kinds of Debt:

• Home

• Education

• Auto

• Business

• CREDIT CARD

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Debt ExampleYou owe $7,200 @ 18.1%

(Minimum payment = 2% of the balance or $10/month whichever is greater.)

You Pay Total Paid Time

$Minimum/month $23,049 30+ years$144/month $13,387 8 years$144 + $100/month $ 9,570 3 years

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Is God big enough and are you committed enough to find a little over $3 a day somewhere in your expenditures?

Key Question:

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Video 2: ‘Dumping Debt’(1:17:33 - 1:30:52)

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The Debt Snowball

• List your debts from smallest to largest• Attack your SMALLEST debt first.• Pay the MINIMUM on the rest• As a debt is repaid, ROLL the amount you

were paying to the next largest debt.• Incur NO new debt!

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Ways to find additional money for the Debt War:

1. Sell Assets (A great jump start)

2. Free up cash from daily spending(Most important step)

3. Increase income via part-time job(During debt repayment)

4. Others ?

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Reduction Plan Example

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Debt Repayment a Great Investment

• Guaranteed

• Tax free

• Immediate

• High rate of return (18%+ for credit cards)

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Get Started Now!

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Arthur vs. Ben

• Both save $2,000 per year at 12% – Ben starts at 19 and stops at 26– Arthur starts at 27 and stops at 65

• Ben @ 65: $2,277,996

• Arthur @ 65: $1,532,166

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4 Tips: Starting Out

1. Don't buy an expensive car right out of school

2. Don't sign up for more credit cards 

3. Don't need the nicest apartment  

4. Don't need a $10k work wardrobe to 'get started'

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Video 3: ‘Buyer Beware’(48:50 - 53:14)

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What are your goals?

“we spend the first 5 - 7 years of marriagetrying to attain the standards of living

our parents attained over their lifetime.”

- Larry Burkett

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What are the consequences?

90% of marriages that end in the first 7 years blame it on money

problems

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TIME TO BUILD WEALTH!!!!

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Investing (baby step #4)

• Get your money to grow!

• Why wait until all debt is paid off?– Habits are ingrained– Easier to make a priority

• Time to invest!

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Different Goals

• Emergency Fund

• Retirement Fund

• House/Boat/Vacations/College

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Emergency Fund

• What is a money market account?– Short term, easily available– Backed by the federal government up to

$250,000– Online – Vanguard, majority of all banks

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Retirement

• Remember Ben & Arthur?– The sooner the better!

• Prioritize Retirement– 401k first if you have a company match– ROTH IRA next– Back to 401k if you have money left over

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Why Invest?

• Because it usually pays off!• $10,000 invested today for 30 years:

– @ 3% - $24,270– @ 6% - $57,430– @ 11% - $228,920

• Live like no one else, so that later, you can live like no one else!!

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Diversification

• Spread out your money– 2008:

• Bonds: +8%• US Stocks: -37%• Intl Stocks: -41%

– 2009:• Bonds: +3%• US Stocks: +26%• Intl Stocks: + 27%

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Use Mutual Funds

• Help Diversify Risks

• Safer than individual stocks

• Best way to get exposure to many stocks.

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House/Boat/Vacation/College

• Timing– Short term investing (<5 years)

• Savings accounts

– Long term investing (>5 years)• Mutual Funds (stocks and bonds)• Over the past 70 years, 9 out of every 10 5-

year rolling periods had positive returns

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Insurance

• Helps transfer risk

• Two types of Life Insurance– Cash Value or Whole Life– Term

• Recommendation: 10x annual income– Scale up or down depending on life stage

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Cash Value Insurance

• Typically more expensive, has a savings account component– Portion of premium payment is put in a

savings account– Use mutual funds for investing– High expenses

• Upon death, insurance company keeps the cash value, pays the face value

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Term Life Insurance

• Significantly cheaper than Cash Value– $125,000 coverage for 30-year old man +

family:• Cash Value: $100/month• Term: $7/month

• It is what it is – INSURANCE

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Reminder: Goals of Today

• Leave with a vision for purposefully managing your finances!

• Provide an overview of some practical tools.

• Commit to relevant next step for you!

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Your Commitment:

• Cut up Credit Cards

• Attack your Next Baby Step

• Develop a Spending Plan & Stick to It!

• Other?

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Learn More …

• Meet one-on-one to discuss

• Pick up ‘Total Money Makeover’ book

• Wexford Good $ense Full Class