The YOLO Effect On Finances & What You Should Know 1243396RM-Jul17

Agenda Introduction Understanding Debt Protect First Saving & Investing Budgeting Wrap-Up

What is YOLO? In the real world: Carpe Diem; You Only Live Once In the financial world: Carpe diem for today, financial ruin for the future Poor planning now can have disastrous consequences in the future

Agenda Understanding Debt Introduction Protect First Saving & Investing Budgeting Wrap-Up

What is DEBT? What is debt? “Something owed, such as money, goods or services” Two types of debt: Non-Toxic and Toxic Source: dictionary.com

The 2 Types of Debt Non-Toxic Debt Debt that provides future value Produces more wealth in the long run Source: bankrate.com

The 2 Types of Debt Toxic Debt Debt which imposes harm on the financial life of the holder. It may be debt that provides no future value, has interest rates higher than a reasonable, conservative gross earnings rate, or debt with which the interest rates of the obligation are subject to discretionary changes, adding a future interest rate risk to those monies.  When you buy something that goes down in value immediately = TOXIC DEBT

Types of Debt What types of debt are we incurring? Non-Toxic Debt Student Loans Business Loans Mortgage Reasonable Transportation Real Estate Loans TOXIC Debt Credit Cards Depreciating Assets High Interest Loans Bail bonds Tax liens

Building Strong Habits – Understanding Debt NOW WHAT? Control & Curb TOXIC debt Total personal debt should not exceed 36% of your income Ratios any higher than this can lower your credit score Missed/delinquent payments can also lower your credit score Source: bankrate.com

Agenda Protect First Introduction Understanding Debt Saving & Investing Budgeting Wrap-Up

Protection What does “PROTECTION” mean, and why should we care? Indemnity Security of protection against a loss or other financial burden; to make whole again

Protection Property Property + Income Property + Income + Life What types of protection are offered? Auto Property Liability/Umbrella Property Disability Medical/Health Social Security Property + Income Wills & Documents Trusts & Ownership Life Property + Income + Life

Agenda Saving & Investing Introduction Understanding Debt Setting Up an Emergency Fund Protect First Saving & Investing Budgeting Wrap-Up

Saving & Investing Pay down debt, or pay yourself? Set up an emergency fund Pay yourself 15% of your paycheck Pay down TOXIC debt Be LIQUID Liquidity: the ability to convert an asset to cash quickly

Setting Up An Emergency Fund What is an emergency fund? Cash that you’ve saved up for the sole purpose of helping you maintain your normal life through the emergencies that life hands you Money not only for emergencies, but also OPPORTUNITIES Source: investopedia.com

Setting Up An Emergency Fund Where to stash this extra cash? Money Market Accounts Checking/Savings Accounts CDs Banks/Credit Unions EASY ACCESS

Why Saving & Investing is Important Manage debt, while building your bank Leveraging Capabilities OPM Debt Savings

Savings Plan Types: 401(k) 401(k) Plans Congress passed Revenue Act of 1978, which allowed employees to avoid being taxed on a portion of income they decide to receive as “deferred compensation” (Knows as IRC Section 401(k)) Current Limitations: Age 49 and under: $18k; Age 50 and older: $24k

Savings Plan Types: 401(k): Historical Tax Rates

Savings Plan Types: IRA IRA – Individual Retirement Account Accounts that you open on your own, not through employer Several types: Traditional, Roth, SEP, Simple Contribution restrictions include: Age 49 and under: Up to $5,500 Age 50 and older: $6,500

Savings Plan Types: LIRP LIRP: Life Insurance Retirement Plan If structured correctly, the distributions are tax-free and do not contribute to the income thresholds that trigger taxation of SSI Assets grown tax-deferred in the LI policy, any residual benefit pays directly to beneficiary TAX FREE No income or contribution limitations

Tax Advantages of Plans Traditional IRA Roth IRA Traditional 401(k) LIRP* Contributions Made with pre-tax dollars. 2014: $5500, if over 50, $6500 Made with after-tax dollars. 2014: $5500, if over 50, $6500 Made with pre-tax dollars, $18k for 49 and under; $24k for 50 and over. Made with after-tax dollars, limitations are what your cash flow will allow. Eligibility Anyone can participate Income limitations: AGI of $191k/couple; $129k/Individual Contributions can be made at any age You must work for an employer that provides a 401(k) Must be insurable Taxes on Withdrawals All withdrawals taxed at federal and state income tax rates None for qualified distributions All withdrawals are taxed at federal and state income tax rates Income tax free withdrawals/loans Penalties 10% penalty on withdrawals before age 59.5 10% penalty on withdrawals of earnings prior to 59.5, withdrawal contributions anytime 10% penalty on withdrawals on distributions made before age 59.5 None, if structured properly RMDs Must be taken by age 70.5 None during your lifetime *When structured properly, non-MEC

Agenda Budgeting Introduction Understanding Debt Protect First Saving & Investing Budgeting Wrap-Up

Budgeting Live below your means Pay yourself 15%, live off of 85% Save to be able to spend guilt-free Create a budget! If you’re born poor, it’s not your mistake. If you die poor, it’s your mistake. - Bill Gates

Budgeting Necessary components to a good budget Net income amounts Include emergency fund (potential expenses) Pay yourself first (savings) Realistic written goals (monthly/quarterly/yearly) Monthly review Track EVERY expense (credit cards, utility bills, car payments, Starbucks) Monitor closely Be disciplined!

Agenda Wrap-Up Introduction Understanding Debt Setting Up an Emergency Fund Protect First Saving & Investing Budgeting Wrap-Up

Budgeting YOLO: NOT a sound long-term financial plan What does your financial future look like? How do we better prepare? Take a holistic, macro-economic approach to finances All elements are related, and can work together to create a strategic financial plan Schedule an appointment with us to find out how

Wrap Up Any questions?

Thank You Fatema Qassimyar – Qassimyar.Fatema@pennmutual.com John Randle – Randle.John@pennmutual.com