SAVING WISELY Chris Andrews, CFP® Wealth Management Advisor Northwestern Mutual Silicon Valley, CA

ABOUT THE SPEAKER Chris Andrews 2004 graduate from Stanford Wealth Management Advisor with Northwestern Mutual since 2007 Lives in Menlo Park with his wife Erinn (BA ’04, MA ‘09) and their two kids, Izzy (4) and Ashton (2) Loves good wine, singing, and everything about Stanford sports

KEY POINTS Key Concepts Behavior Strategies/Options What am I saving for? Why start early? Behavior How do I save by design? How do I build good saving habits? Strategies/Options Where should my short-, mid-, and long-term money go?

SAVING CONCEPTS Creating a financially secure future begins with your career. How many of you have changed your mind at one point or another about what you wanted to do when you grew up? Have any of you changed your major? Your minor?

SAVING CONCEPTS Two Phases in Life 3 buckets People at work (Career) Money at work (Retirement) 3 buckets Short-, mid-, and long-term money Timing the market vs. Time in the market Two main phases in each person’s financial life. The “People at Work” phase refers to your career. You go to your job, you advance your career, you earn money, you cover your expenses, and you save what you can along the way. At some point, when you want to retire, you’re going to rely on your money to “Go To Work” to support your lifestyle. A key part of planning is identifying how much you CAN save, WHERE it should go, and HOW MUCH will keep you on track for your goals. Most people should think about their savings as 3 different buckets. There’s the short-term “emergency cushion” that should be in a savings account, CDs, money market, etc. That should be equivalent to 6 months of expenses for a single earner and 3 months of expenses for a dual earner household. Long term is the money you’ll put in 401k, IRA, ROTH with the intention of NOT touching it before retirement. Mid-term money include investments, mutual funds, company stock grants, employee stock purchase plans, 529 college plans, and other funds that are invested but that you can access BEFORE retiremetn as/if necessary. The biggest advantage a 22-year-old student or early-stage professional has is time IN the market. Building wealth is about being disciplined in saving money consistently and having enough time for the assets to grow. Lots of investment companies talk about timing the market or beating the index…this is far LESS important than saving consistently and investing wisely along a long time horizon.

POWER OF COMPOUNDING HYPOTHETICAL INVESTMENT IN STOCKS This example simply highlights 2 different situations where someone saves and invests $2,000 per year. The first person

WHAT IS THE RULE OF 72? How long would it take your savings to double assuming different rates of return? RATE OF RETURN RULE OF 72 (72 / RATE OF RETURN) YEARS TO DOUBLE 3% 72 / 3 24 7% 72 / 7 10.3 12% 72 / 12 6 This concept applies to both investments and debt. For investments, this gives the number of years for the investment to double. For debt, it’s the number of years for the amount owed to double! Yikes for credit cards and other high interest debt. How long would it take for a savings account getting 1% per year to double (assuming $0 in taxes in year)? 72 years! That’s why we tend to look at different “buckets” of money – cash savings are good for short-term goals, but cash savings will lose ground to inflation for long-term goals. Having a strategy based on risk tolerance and time horizon for each bucket is an important first step. The use of the Rule of 72 is for illustrative purposes only and is intended to use a mathematical concept to approximate percentage rates relative to time. Investments and corresponding rates of return may fluctuate over time.

WHAT A DIFFERENCE 2% CAN MAKE $200 a month invested for 20 years… At 2% $58,959 At 4% $73,355 At 6% $92,408 At 8% $117,804 At 10% $151,874 This slide simply emphasizes how seemingly small differences in rates of return can have a huge impact long term value of your savings. For example, let’s assume a fund that pays 6% per year. Account A is taxable on that 6% at a 33% rate each year, while Account B is tax-free. Account A would effectively be earning only 4% per year, while Account B would be earning 6% --- that leads to a $19,000 difference over 20 years! This concept simply emphasizes that using efficient tools for saving and investing can significantly improve your long term results. Assumes a monthly investment of $200 and reinvestment of all dividends and capital gains. The hypothetical returns are for illustrative purposes only and are not intended to represent the return of any specific investment.

BEHAVIOR Creating a financially secure future begins with your career. How many of you have changed your mind at one point or another about what you wanted to do when you grew up? Have any of you changed your major? Your minor?

Shaping Your Savings Behavior Starting small still makes a difference Put together a budget How much can you afford to set aside? Clarify your savings goals Which of the 3 “buckets” are you saving toward? Automate your savings Saving by design rather than default

Avoid budget pitfalls Listed items under-calculated Impulse purchases When life throws you curveballs, sticking to a budget can become a challenge. Make sure your budget accounts for: Listed items under-calculated Impulse purchases Forgotten bills Emergencies Put simply, the first place you should save is the bank. Finding a way to carve out an emergency cushion first will provide a backstop to you budget, a fund for unexpected expenses, and security to start investing and growing your money in other vehicles.

Strategies / Options Creating a financially secure future begins with your career. How many of you have changed your mind at one point or another about what you wanted to do when you grew up? Have any of you changed your major? Your minor?

What’s The Right Fit for Each Bucket? Short-term savings Checking account for monthly expenses Online savings accounts for the emergency cushion (higher interest, out-of-sight out-of-mind, ability to automate)

What’s The Right Fit for Each Bucket? Long-term savings Any retirement plans available through your part-time or summer employer (401k, 403b, etc)? ROTH IRA Mid-term savings Brokerage accounts Mutual funds, Index funds, ETFs, stocks, bonds, etc.

Questions? Chris Andrews Phone: (650) 264-4902 Email: chris.andrews@nm.com Website: www.chrisandrews-nm.com Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Chris Andrews is an Insurance Agent of NM and Northwestern Long Term Care Insurance Company, Milwaukee, WI (long-term care insurance), a subsidiary of NM. Registered Representative and may also be an Investment Adviser Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC. Representative of Northwestern Mutual Wealth Management Company®, Milwaukee, WI, a subsidiary of NM and limited purpose federal savings bank that provides financial planning, investment management, and trust services. There may be instances when this agent represents companies in addition to NM or its subsidiaries. Thank you!