1 Money Management Principles n Are timeless and time-tested n Apply to everyone n Work well in up & down economies n Help people grow wealthy over time n Need to be taught in school Personal Finance Southwest High

2 1. Go For The Goal n Goals provide a “why” for saving n Use goals to develop action plans n Break goals into benchmarks n Make your goals SMART –Specific –Measurable –Attainable –Realistic –Time-Related Personal Finance Southwest High

3 Invest in your Human Capital n Get a solid education –For career satisfaction –For better health –For higher lifetime earnings n It’s OK to borrow for education –There is an opportunity cost to taking too long to earn degree –Student loans are better than credit cards Personal Finance Southwest High

4 2. Time Is Your Friend n Time: a young person’s biggest asset n Compound interest is awesome n For every decade that savings is delayed, the required investment triples n Example: $500,000 at 65; 10% yield –Age 25: $ 79 per month –Age 35: $ 219 per month –Age 45: $ 653 per month –Age 55: $ 2,141 per month Personal Finance Southwest High

5 More About Time n Time diversification reduces investment volatility n The Rule of 72 –72/interest rate = doubling period –72/doubling period = interest rate n Advantage calulators Personal Finance Southwest High

6 3. Live Below Your Means n Spend less than you earn n Create a spending plan –Income = Fixed Exp (including savings) + Flexible Exp + 1/12 of Occasional Expense n Distinguish needs from wants n “Step-down principle” n Automate savings so money isn’t spent Personal Finance Southwest High

4. Establish Emergency Fund n Aka contingency fund –Online savings accounts No minimum FDIC insured 4.5% (varies) Linked to checking account –HSBC –Emigrant –ING & many others 7 Personal Finance Southwest High

8 Pay Yourself First: Automate Your Savings n Tax-deferred employer plans –Get full 401(k) match from employer n Employer credit unions n Savings bond purchase plans n Mutual fund Automatic Investment Plan n Direct stock purchase plans Personal Finance Southwest High

Minnesota Saves n Build wealth, not debt n Saver Strategies n Get out of debt n Earned income tax credit n Free income tax preparation n Individual Development Accounts 9 Personal Finance Southwest High

10 5. Buy Insurance According to “The Large Loss Principle” n Magnitude- not frequency- of losses n Increase deductible to save $ n Spend premium dollars on large potential losses: –Liability –Disability –Destruction of home –Large medical expenses –Loss of household earner’s income Personal Finance Southwest High

11 6. Repay Debt Quickly and Borrow For Less n Consumer debt ratio < 15% of net pay n Consumer debt + housing < 50% of net n High debt makes other problems worse n Negotiate lower interest rates n Always pay more than the minimum n Avoid “perma-debt” n Pay promptly to avoid late fees n Family Life Center PowerPay analysis Personal Finance Southwest High

7. Earned Income Tax Credit n Refundable tax credit for workers 12 Personal Finance Southwest High

8. Vita tax prep n Provided by USU accounting students in Business building- starts Feb. n AVOID instant tax refunds –High cost loans (similar to payday loans) n Auto deposit n Split your refund –Save a portion, pay debt, spend 13 Personal Finance Southwest High

14 9. Buying House/Vehicle n Don’t buy more house than you can afford (Subprime mortgage meltdown) –Don’t’ trust mortgage broker n Don’t buy before you are really ready for the financial commitment n Buy new cars every 8-10 years or buy “new used” Personal Finance Southwest High

15 Check Your Financial Health n Take the Financial Fitness Quiz n Least common practices –Not having a will –No written financial goals –No written budget –No net worth calculation Personal Finance Southwest High

16 Financial Education Resources n Investing For Your Future –Home study course – n Money 2000 & Beyond – n RU-FIT financial independence training – n USU Extension – Personal Finance Southwest High

Spend Less, Enjoy the Holidays More n eID= eID=2361 n Start a UESP account for your kids n Spend time with important people n Avoid gift cards –High fees, money can’t be saved n Pay cash! Avoid debt. 17 Personal Finance Southwest High

18 Personal Finance Magazines n Kiplinger’s Personal Finance Magazine –Kiplingers.com n Money Magazine –Money.com –Money 101 on-line financial mgmt course 23 lessons Personal Finance Southwest High

19 The Financial Checkup by Alena Johnson Personal Finance Southwest High

20 Financial Planning for Women n For women of all ages & knowledge Personal Finance Southwest High

21 Avoid Common Mistakes of Young Adults n Buying a house before you are ready n Buying too much house n Putting too much $ into vehicles n Keeping a balance on your credit cards n Waiting to invest for retirement until… n Not considering the cost of kids n Spending too much on eating out Personal Finance Southwest High

22 Closing Thought “If it is to be, it is up to me” Comments? Questions? Experiences? Personal Finance Southwest High