Building Your Financial House WELCOME !

Program Objectives Become more comfortable talking about money issues Identify the Framework for Building Your Financial House Walk away with facts and skills needed to build your financial house Gain confidence to make good money choices for your situation Be in a better position for long-term financial stability and success. Module 5: Make Money Work

Modules 1. Invest in Yourself 2. Maximize Earnings 3. Spend Sensibly 4. Check Taxes 5. Make Money Work 6. Protect Your Potential 7. Borrow to Grow Module 5: Make Money Work

Recap: Check Taxes Last time, we talked about: The value in good record keeping Key components of a tax return Differences between total and taxable income; total tax and withholding Recipes for tax refunds Differences between tax preparers Module 5: Make Money Work

Do You Have a Goal? Module 4: Check Taxes (PAGE CT-3)

Did You Practice? Module 4: Check Taxes

Did You Learn More? Module 4: Check Taxes (PAGE CT-23)

Did You Take Action? Module 4: Check Taxes

Module 5 Make Money Work Module 5: Make Money Work

5 Make Money Work Much like adding an extra room in the attic, you can expand your financial house by making your money work for you through saving, investing, and monitoring what you own. Adrian Review where this module fits within the Framework for Building Your Financial House. -Next-

Self-Assessment Module 5: Make Money Work (PAGE MMW-3)

Objectives Knowledge Actions Differentiate between working and wealth Recognize growing money starts with saving money Identify the power of compounding and time when building assets Distinguish between types of assets, their uses, risks, and costs Recognize net worth as a measure of wealth Pay yourself first Save early, save often and reinvest Assess an asset’s use, expectations, pros and cons when making an investing choice Calculate net worth and monitor ownership Module 5: Make Money Work

Invest, Investing, Investment Word Gallery Invest, Investing, Investment Module 5: Make Money Work

YOUR MONEY Working Hard Cash-in Working (Employment) Wealth (Ownership) SAVE and INVEST YOU Working Hard YOUR MONEY Working Hard Module 5: Make Money Work (PAGE MMW-5)

is to set aside cash for a future use. To Save… is to set aside cash for a future use. STASH YOUR CASH Use now Liquid (turned into cash quickly) Safe (no loss, guaranteed) Earns little interest Module 5: Make Money Work (PAGE MMW-6)

To Invest… is to use saved cash to buy assets that build wealth and future income. BUILD ASSETS Use in the future (two years +) Less liquid (harder to turn into cash quickly) Some risks (may lose, no guarantee) Future income or profit Module 5: Make Money Work (PAGE MMW-6)

The First Step… DECIDE SAVING IS POSSIBLE, and MAKE THE COMMITMENT TO SAVE! Module 5: Make Money Work (PAGE MMW-7)

3. No Amount Too Small 2. Pay Yourself First The Commitment to Save 1. It’s Necessary 2. Pay Yourself First 3. No Amount Too Small Module 5: Make Money Work (PAGE MMW-7)

Side Bar: Saving Spending Leaks! It’s only (a $2.00) cup of coffee… 1 week = $10 1 month = $44 1 year = $520 5 years = $2,600 10 years = $5,200 20 years = $10,400 Module 5: Make Money Work

Where to Stash Your Cash Financial Institutions: Safe/guaranteed Liquid Low interest earned Module 5: Make Money Work (PAGE MMW-8)

Where to Stash Your Cash Savings account Money market deposit account Certificate of deposit (CD) Savings Money Market Certificate Account Deposit Account of Deposit Module 5: Make Money Work (PAGE MMW-8)

Rules for Building Assets Start Early- take advantage of the time value of money Stay Invested-take advantage of compounding interest Diversify-mix it up and build a variety of assets Module 5: Make Money Work (PAGE MMW-10)

Time Value of Money $ 87,275 $ 8,651 $698,200 $69,208 Age 25 30 40 50 Monthly Amount Invested Age 25 30 40 50 $ 25 $ 87,275 $ 57,347 $ 23,776 $ 8,651 $100 $349,100 $229,388 $95,105 $34,604 $200 $698,200 $458,776 $190,208 $69,208 $ 87,275 $ 8,651 $698,200 $69,208 This time value of money illustration assumes an average annual return of 8%. Module 5: Make Money Work

The Cost of Waiting 55 yrs old $1325/month = $250,000 45 yrs old This time value of money illustration assumes an average annual return of 7%. Module 5: Make Money Work (PAGE MMW-12)

The One Tree Forest 8 + 8 = 16 Year One Year Two Year Three 4 + 4 = 8 Year Four 1 + 1 = 2 Tree Seed Trees 2 + 2 = 4 Trees Seeds Trees 4 + 4 = 8 Trees Seeds Trees 8 + 8 = 16 Trees Seeds Trees Module 5: Make Money Work (PAGE MMW-13)

Stay Invested. It Pays! Interest Simple Compound $464 Y-One Y-Two Y-Three Y-Four $1000 @10% = $100 $1000 @10% = $100 $400 $1000 @10% = $100 $1100 @10% = $110 $1210 @10% = $121 $1331 @10% = $133 $464 Module 5: Make Money Work (PAGE MMW-13)

Diversify-Mix It Up Financial Real property Personal property Small business Module 5: Make Money Work (PAGE MMW-14)

Why Diversify? ≠ What if … NO Module 5: Make Money

Financial Assets Module 5: Make Money Work

Case Study (Page 24) Module 5: Make Money Work BYFH – Spend Sensibly (2016)

Role Play: Investing in Anna Module 5: Make Money Work

Taking the Fear Out of Financial Assets - Stocks 1 Saver has cash and wants to make it work. 2 Company needs cash to make their product. CASH STOCK Module 5: Make Money Work (PAGE MMW-15)

Taking the Fear Out of Financial Assets - Stocks $0 Pays No Dividend Pays Dividend Sell for Profit Sell for Loss Module 5: Make Money Work (PAGE MMW-15)

Taking the Fear Out of Financial Assets - Bonds 1 Saver has cash and wants to make it work. 2 City needs cash to build a museum. CASH Bond Module 5: Make Money Work (PAGE MMW-16)

Taking the Fear Out of Financial Assets - Bonds $0 Pays No Interest Pays Interest Loan Repaid Loan Not Repaid Module 5: Make Money Work (PAGE MMW-16)

Taking the Fear Out of Financial Assets – Mutual Funds 1 Savers have cash and wants to make it work. They don’t want to choose stocks and bonds 2 Money manager can choose stocks and bonds. CASH Shares Module 5: Make Money Work (PAGE MMW-17)

Taking the Fear Out of Financial Assets – Mutual Funds Pays Interest and Dividends Pays No Interest or Dividends Sell for Profit Sell for Loss Module 5: Make Money Work (PAGE MMW-17)

How do I choose? Eeny, meeny, miny, moe…. Module 5: Make Money Work Script Now that you know how your money values may influence your spending, ultimately, it’s still your choice to spend or not to spend on any particular thing. Click So, how can we make sensible spending decisions? Eeny, meeny, miny, moe is probably not the best method to make spending choices! -Next- Module 5: Make Money Work

Investing Strategies OBJECTIVE RISK TIME Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work (PAGE MMW-18)

Investing Strategies ∙Sell for profit ∙Guaranteed value ∙Cash payments OBJECTIVE ∙Guaranteed value ∙Cash payments ∙Sell for profit Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Investing Strategies TIME Short-term: less than one year Medium-term: two – five years Long-term: five years + TIME Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Investing Strategies RISK Market Risk – “follow the leader” Company Risk – “one bad apple” Liquidity Risk – “get cash now” Inflation Risk – “worth less” dollars RISK Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

If You Invested $100 in 1980… $3,220 $1,405 $616 Module 5: Make Money Work

Savings & CD’s Bonds Risk/Reward Pyramid Stocks Real Property REWARD Small Business Collectibles Stocks Real Property Bonds Savings & CD’s RISK REWARD Risk/Reward Pyramid Module 5: Make Money Work (PAGE MMW-20)

Capital Preservation Time: Now; there when needed Risk: Low Expectations: Stability, guaranteed value Liquid; quickly turned to cash Time: Now; there when needed Risk: Low Module 5: Make Money Work (PAGE MMW-21)

Income Expectations: Time: short, medium, and long-term Receiving regular cash payments Interest or dividends Time: short, medium, and long-term Risk: Low to high depending on credit rating or profitability of borrower Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Growth Expectations: Time: medium to long-term Worth more than paid for it Buy low, sell high for profit Time: medium to long-term Risk: medium to high depending on profitability of company Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Growth and Income Time: medium to long-term Expectations: Some worth more, some cash payments Balanced Time: medium to long-term Risk: medium to high depending on profitability of borrower/company Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Value and Hedging Value expectations: Hedging expectations: Good stuff cheap! Out-of-fashion or overlooked Hedging expectations: Taking both sides! Limiting loss Both: short to long-term Risk: medium to high Asset allocation by using Model Portfolios ING Description Module 5: Make Money Work

Easy Ways to Start Investing Employee retirement savings accounts i.e., 401(k)’s, 403(b)’s, 457’s 529 Plans w/guaranteed, investment, and beneficiary age options Index mutual funds Target date mutual funds Module 5: Make Money Work

Before you buy -or- sell! Assess Assets Uses: Cash Reserve College Retirement Shelter Career Personal Objective/Expectations Cash (like)-There when I need it Income-Pay me cash Growth-Worth more; sell for profit Value-On sale, cheap! Hedge-Have cake…eat it too! Before you buy -or- sell! Pros Easily accessible/liquid Safe/guaranteed Higher interest/return Tax advantages Interest fulfilled Relationships strengthened Cons Less liquid Chance of loss Low interest/return Expensive Storage Debt incurred Module 5: Make Money Work (PAGE MMW-22)

Monitor Ownership So, where do you stand? What is your net worth? Module 5: Make Money Work (PAGE MMW-25)

Jargon Alert: “NET WORTH” What you have - What you owe = Net Worth Assets - Debts Module 5: Make Money Work

Net Worth Module 5: Make Money Work (PAGE MMW-25)

Net Worth “What’s Your Number?” Calculate at least once every year Can be positive or negative Barometer for progress Measure of “wealth” Module 5: Make Money Work

Make Money Work We’ve covered: Working vs. wealth; saving vs. investing Save early, save often and reinvest to maximize compound interest and the time value of money Types of assets, their uses, risks, and potential for financial gain Measuring and monitoring net worth Module 5: Make Money Work

Take Action – Set a Goal Module 5: Make Money Work (PAGE MMW-3) BYFH – Make Money Work (2016)

Take Action – Worksheets Module 5: Make Money Work BYFH – Make Money Work (2016)

Take Action – Learn More Module 5: Make Money Work (PAGE MMW-23)

Measure – Track Your Progress Module 5: Make Money Work (PAGE MMW-3)

Please complete the session evaluation form. (Page MMW-27) Module 5: Make Money Work

Building Your Financial House Thank You!