BUS 211 Principle of Business Management Day 25

Day 26 Overview Questions? Graded Individual 15,Team 15 and Reflections 15, Business Plan part 5 Reminders Individual 16,Team 16, and Reflection 16 Due Today Individual 17,Team 17, and Reflection 17 Due Dec 7 Crafting a Business Plan Part 6 Due Dec 7 All remaining assignments posted in Blackboard Managing your Personal Finances

New Schedule for Assignments Date Team Exercise Individual Exercise Reflection Crafting the Business Plan Dec 4 16 Part 6 Dec 7 17 Dec 11 Business Plan Due @ Midnight Dec 14 Final Exam @ 8 AM Remaining Lectures Today Managing Your Personal Finances – Appendix III (optional) Dec 7 Make-up day (just in case, we have a unplanned delay) Dec 14 @ 8 AM Final exam 75 M/C questions from all 17 chapters

Final Business Plan Due Dec 11 @ Midnight Make sure you incorporate any feedback and fix all spelling, grammar and formatting errors before submission. Add a title page, table of contents and a bibliography. Feel free to embellish the business plan with a few graphics but remember that this is to be a professional document.

Managing Your Personal Finances Business Essentials Eleventh Edition Appendix III Managing Your Personal Finances Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Introduction Dealing with personal finances is a lifelong job involving a crucial choice between two options: Committing to the rational management of your personal finances by controlling them, helping them grow, and therefore enjoying greater personal satisfaction and financial stability Letting the financial chips fall where they may and hoping for the best (which seldom happens) and therefore inviting frustration, disappointment, and financial distress

Building Your Financial Plan Financial Planning process of looking at one’s current financial condition, identifying one’s goals, and anticipating requirements for meeting those goals Advice Keep two months wages in a separate account of emergencies The sooner you adopt a financial planning strategy, you earlier you will become financial stable

Developing a Personal Financial Plan

Assessing Your Current Financial Condition Personal Net Worth value of one’s total assets minus one’s total liabilities (debts) Should be always increasing If you have excess student loan, you will start you adult working life with a negative net worth (sad but true)

Worksheet for Calculating Net Worth (1 of 2)

Worksheet for Calculating Net Worth (2 of 2)

Develop Your Financial Goals

Compounding Money over Time retirement fund.xlsx

Timetable for Growing $1.00 FIGURE AIII.5 Timetable for Growing $1.00 n 1% 2% 4% 6% 8% 10% 1 1.010 1.020 1.040 1.060 1.080 1.100 2 1.082 1.124 1.166 1.210 3 1.030 1.061 1.125 1.191 1.260 1.331 4 1.041 1.170 1.262 1.360 1.464 5 1.051 1.104 1.217 1.338 1.469 1.611 6 1.062 1.126 1.265 1.419 1.587 1.772 7 1.072 1.149 1.316 1.504 1.714 1.949 8 1.083 1.172 1.369 1.594 1.851 2.144 9 1.094 1.195 1.423 1.689 1.999 2.358 10 1.105 1.219 1.480 1.791 2.159 2.594 15 1.161 1.346 1.801 2.397 3.172 4.177 20 1.220 1.486 2.191 3.207 4.661 6.727 25 1.282 1.641 2.666 4.292 6.848 10.834 30 1.348 1.811 3.243 5.743 10.062 17.449 Note: n = number of time periods; % = various interest rates

The Credit Card Trap Credit cards charge high interest ~18% The minimum monthly payment is based on a very long payment period (1-3% of amount outstanding) CCT.xlsx

Save Your Money: Lower Interest Rates and Faster Payments Seeking Lower Interest Rates Making Faster Payments  Declining Asset Value: A Borrower’s Regret FIGURE AIII.6 Paying off Credit-Card Debt Balance = $5,000 MPD 3% MPD 5% MPD 10% APR Months Costs 6% 144 $5,965.56 92 $5,544.58 50 $5,260.74 9% 158 $6,607.24 96 $5,864.56 51 $5,401.63 12% 175 $7,407.50 102 $6,224.26 53 $5,550.32 18% 226 $9,798.89 115 $7,096.70 55 $5,873.86 21% 266 $11,704.63 123 $7,632.92 57 $6,050.28 Note: APR, annual percentage rate; MPD, minimum payment due

The New Car Financing Car depreciation Which is better? 0% financing for 4 years or $2500 cash back at signing? http://www.pelletierford.com/ Price of car 20,000 Monthly payment @ 0% = 20000/48 = $416.67 Take the discount Price is $17,500 Finance at Norstate 48 months = 3% = 387.36 48*387.36 = $18952.83 If you pay off in 3 year rate is 2.5% = $505.07/month 505.07 * 36 = 18182.67 Car depreciation 11% when drive off the lot 20,000  17,800 owed @ 0 = 20000 25% after one year 20,000  15,000 owed @ 0 = 15000 46% after 3 years 20,000  10,800 owed @ 0 = 5000 63% after 5 years 20,000  7,400 owed @ 0 = 0 https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/

Best Advice for New Car/truck Buying Buy leftovers (one model year eelier) Dealer sells at depreciated price ME Excise tax is cheaper Insurance is chaper Best Month to buy December, buy a 2017 vehicle in Dec, 1017 and register in Jan 2018 Best deals “Program” Cars/truck Vehicle turned in from lease Worst time to buy Anytime there is a major flood in US

Financial Commitments of Home Ownership Mortgage Loan loan secured by property (the home) being purchased FIGURE AIII.7 To Buy or Not Buy Renting Buying No down payment to get started Must make payments for mortgage, property taxes, and insurance Flexibility to leave Equity builds up over time No obligation for upkeep or improvements More privacy No groundskeeping Value of property may increase Easy cash-flow planning (a single monthly payment) Lower income taxes: mortgage-interest and property tax payments reduce taxable income May provide access to recreation and social facilities Financial gains from selling house can be exempt from taxes Rental conditions may be changed by owner Greater control over use of property and improvements Timing for repairs controlled by owner The home can become a source of cash by refinancing with another mortgage loan or a home-equity loan

Monthly Payments on a $10,000 Loan https://www.wellsfargo.com/mortgage/rates/ FIGURE AIII.8 Monthly Payments on a $10,000 Loan Length of Loan Interest Rate (%) 3 Years 5 Years 10 Years 20 Years 30 Years 5.0 $299.71 $188.71 $106.07 $66.00 $53.68 6.0 304.22 193.33 111.02 71.64 59.96 6.5 306.49 195.66 113.55 74.56 63.21 7.0 308.77 198.01 116.11 77.53 66.53 8.0 313.36 202.76 121.33 83.65 73.38 9.0 318.00 207.58 126.68 89.98 80.47 10.0 322.67 212.47 132.16 96.51 87.76 11.0 327.39 217.42 137.76 103.22 95.24 12.0 332.14 222.44 143.48 110.11 102.86

Worksheet for PITI Calculations

Cashing Out from Tax Avoidance (Legally) Traditional Individual Retirement Account (IRA) provision allowing individual tax-deferred retirement savings (up to $5500 for < 50, 6500> 50) Roth IRA provision allowing individual retirement savings with tax-free accumulated earnings Income limits https://www.fidelity.com/retirement- ira/contribution-limits-deadlines Coverdell Education Savings Account (529) (also known as an Education IRA) you can contribute up to $2,000 annually for each child under age 18

Cash Flows: Roth IRA versus Traditional IRA FIGURE AIII.10 Cash Flows: Roth IRA versus Traditional IRA Assumptions: Initial contribution and earnings average 10 percent growth annually. Initial contribution and earnings remain invested for 40 years. Income tax rate is 30 percent. blank Traditional IRA Roth IRA Initial cash contribution to IRA $3,000 Income tax paid initially: $4,285 income x 30% tax rate = $1,285 tax 1,285 Total initial cash outlay $4,285 Accumulated earnings (40 years) $132,774 Initial contribution + 3,000 Total available for distribution after 40 years = $135,774 Income tax at time of distribution − $40,732 Blank After-tax distribution (cash) $95,042

401(k) accounts (best retirement option) Offered by employers allows employee to invest pre-tax dollars in a retirement account (limit of 18,500, year) Some employers will match employee contribution (up to a limit) Example Sally makes $50,000/ year at Acme which has a 401K plan where ACME matches to the first 4% of employee contributions. Sally elects to place 5% of her salary into a 401K. Her contributions is $2500, her employer will match that with $2000 (4%) giving here a $4500 contribution to her account. Since Sally is single, she is in 25% tax bracket which means she will save $625 in taxes due to her $2500 contribution. (true cost = %1875) Sally ROI on her contribution is 140% in year 1 the 401k miracle.xlsx