Importance of Saving Income vs. Wealth

 When you hear; “The Importance of Savings” what comes to mind?  Define the difference between Income & Wealth?  If I could go back…  I would say; pay yourself first, be the bank & build assets  Understand the power behind the Importance of Saving  Pay Yourself First = Every time you get $ put a % away to build your personal wealth  Be the Bank = Use your own personal wealth as you would a bank  Build Assets = Develop assets to pay your bills

 The first step, build an emergency fund account  You need access to cash for unforeseen expenses  Don’t borrow money, use credit cards or stop saving  If you have debt already…  Use most of your disposable $ towards debt repayment but save some towards an emergency fund (i.e. 90/10 split)  How much?  3 – 6 months of your monthly expenses  $3,000 in monthly expenses = Have $9k in emergency funds  Use an account that is liquid & easily accessible  This is essential in converting Income to Wealth

 What does a typical college student have for college debt?  For me it was $40,000  Being paid back at 4% over 15 years  Imagine if you held the note to your own college debt

 What if I had loaned that $40k to myself at 4%?  I would have earned $11k over that 15 year period  Plus still have my original $40k investment after 15 years  So why doesn’t the average person do this? Option 1Option 2 College Education - $11k in Interest Lost+ $11k in Interest Earned Over 15 Years + Paid Back My $40k to Boot at the End

 Most people don’t have $40k laying around  If we did…  We could use this very same strategy for;  Paying for a house  Paying for kids  Paying for a car  Any major financial decisions in our life  How do we get to this point?  Paying Yourself First  Disciplined savings  Turning Income into Wealth

 Example - Generating a $50,000 Asset  Desired outcome = $4,000/year for Vacations/Trips 8% interest/year = $4,000/year from your asset  Details  $5,000 = Initial Value  8% = Rate of Return  Save from age 22 to age 30 (8 yrs)  Save $300/month

Power of Time & Compounding Interest (Cost of Waiting) Age 22 End Value = Age 30 Age 23 (waiting 1 year) End Value = $42,595 Cost of Waiting = $3,695 Age 24 (waiting 2 years) End Value = $35,859 Cost of Waiting = $6,831 Age 25 (waiting 3 years) End Value = $29,639 Cost of Waiting = $9,451

Power of Time & Compounding Interest (Cost of Waiting) Age 22 End Value = $1,505,597 Age 23 (waiting 1 year) End Value = $1,386,739 Cost of Waiting = $115,258 Age 24 (waiting 2 years) End Value = $1,276,989 Cost of Waiting = $225,007 Age 25 (waiting 3 years) End Value = $1,175,651 Cost of Waiting = $326,346

 Mint.com  Cash Flow Spreadsheet  Know your Wealth Score  Net Worth/Lifetime Earnings  0 – 20% for Younger Individuals  Know your Savings Rate  Savings per Year/Annual Income  10% - 12%  Know your Liquidity Ratio  Liquid Assets/Monthly Expenses  3 to 6