Personal Finance 101 Part 1...

AGENDA Purpose Budgeting Credit Cards Three Tenets of Personal Finance Emergency Savings Retirement Investing –Thrift Savings Plan (TSP) –Individual Retirement Accounts (IRAs) Life Insurance –Servicemembers’ Group Life Ins (SGLI) –Term vs. Whole Life Insurance

To provide Army leaders with a Better Understanding of personal financial planning in order to provide our Soldiers timely, accurate, and honest information in order to make more informed decisions. PURPOSE

Budgeting Almost everyone hates to budget You must have a good idea of your income and expenses For one month = keep track of every penny you spend. You’ll be shocked to see where your money goes

Credit Cards If you spend $4,000 on credit cards at 18.5% interest and pay only the minimum payments, it will take you 11 years to pay off ($7,800 total).

Three Main Tenets of Personal Finance Savings –Emergency Fund Investing –Individual Retirement Accounts (IRA) –Federal Thrift Savings Plan Insurance –Servicemembers’ Group Life Insurance (SGLI) & Family SGLI –Term vs. Whole Life

Emergency Savings Rainy days will happen…. You need 3-6 months of living expenses saved Very liquid….not in CDs, mutual funds, etc. The more secure your job, the less you need (Army = 3 months) Most should aim for $10,000 More responsibilities = larger savings needed

Getting Started Everyone can begin saving something Start with $50 a month if nothing else Many mutual funds can be started with as little as $50 (USAA for example) Everyone has a Latte Factor…find yours. Time is your biggest benefit. You miss out on compounding interest the longer you wait.

Retirement Investing - TSP Thrift Savings Plan…. Exactly like a civilian 401-k retirement plan Five index funds & four target date Life Cycle funds –Index funds follow S&P 500, Wilshire 5000, etc. –Life Cycle funds are too conservative for most Funded with before tax dollars Earnings grow tax deferred & taxes are owed on the interest and capital gains when withdrawn Can withdraw the money at 59 ½ years old $15,500 maximum yearly contribution limit Automatic enrollment….coming soon!

Retirement Investing – Roth IRA Roth IRAs…. Usually invested inside mutual funds or a brokerage account with individual stocks Funded with after tax earnings Earnings grow tax free & no taxes are owed on interest and capital gains when withdrawn Can withdraw the money at 59 ½ years old $5,000 maximum contribution limits ($416 a month) Investing $5,000 a year starting at 22 years-old, earning 8% annually, will grow to over $2.2 million at age 62 (your investment =$245,000) Skip a Traditional IRA until you max out a Roth

Investing Tips It’s usually more beneficial to start with a Roth IRA and then invest in TSP You can take out a loan for college, but you can’t take out a loan for retirement Investments with low expenses (like Index Funds) are a great place for a beginner investor Individual stocks are hard to track, mutual funds are better & more diversified

Life Insurance Is $400,000 SGLI enough? Maybe…. You need approximately 10x your income –For an E-6 with 10 years of service, you should have $500,00 in insurance. Do not forget to include BAH. Do you depend on your wife’s income? You may need insurance for her. Will the Family SGLI be enough to cover full time daycare for children, fixing meals, etc.? You have disability insurance with the Army, but does your spouse have it at her work? Can you survive a loss of her income?

Life Insurance For most people, Term insurance is better than Whole Life –$100,000 Whole Life = $100 a month –$500,000 Term Life = $40 a month 20 to 30 year term insurance (like SGLI) will protect you while your children are young You only need insurance to protect income Insurance on children is a waste of money

The Last Word….. If you take nothing else away…. Start now!

QUESTIONS ? “Amateurs talk about tactics, but professionals study Logistics.” – General Omar Bradley