1. Net Worth

2. The Typical Millionaire Most millionaires inherited their wealth.
False - 80% of millionaires earned their first million without family assistance

3. The Typical Millionaire
Most millionaires earn (earned income) more than $500,000 per year.
False - Less than 15 % of millionaires earn more than $500,000 per year through earned income. Millionaire’s benefit most from unearned income (like investments).

4. The Typical Millionaire
College graduates earn twice
what high school graduates earn.
False - the average college graduate
earned 78% more. Professional degrees earned 255% more!

5. The Typical Millionaire
Self-employed people are
rarely millionaires.
False - More than half of the
millionaires are self-employed.

6. The Typical Millionaire
Millionaires wear expensive clothes.
False – 50% of millionaires
have never paid more than $400 for a suit;
90 percent of millionaires have never paid more than $1,000 for a suit.

7. The Typical Millionaire
Many millionaires drop out of
college to start working.
False - Four of five millionaires are college graduates. 18% have master’s degrees, 8% have law degrees, and PHD’s

8. The Typical Millionaire
Millionaires always drive new cars.
False - Less than 25 % of millionaires drive a current-year car.

9. The Typical Millionaire It is impossible to save enough to
be a millionaire.
False - If a 22-year-old saves $50 per week ($2,600 per year) and earns a 9 %
rate of return on the investments, they would save $1million by age 63.

10. The measure of financial wealth
Net Worth
Wealth
The measure of financial wealth
Indicates the monetary value of all possessions that a person owns, minus the total amount owed to others

11. Net Worth = Assets – Liabilities
Depends on how a person manages their income
Net Worth = Assets – Liabilities
A person may have high income and low or negative net worth (or vice versa)

12. Asset – possessions that generally increase in value over time.
What is an asset?
Cash
Asset – possessions that generally increase in value over time.
Car, House, Jewelry, Stocks

13. A debt or obligation owed to others
What are liabilities?
Loans: mortgage
automobile student
Liabilities
A debt or obligation owed to others
Credit Cards: Balances on all credit cards

14. How can you increase Net Worth?
Increase assets and/or decrease liabilities
Be sure to save first and often before spending!
With Each Purchase Ask Yourself?
How will this financial decision affect my future net worth?
Evaluate how you manage your money
Liabilities

15. How much does your spending actually cost?
Item
Average Cost
Cost per Month
(M-F)
Cost Per Year
16 oz. soda
$1.50
$360
$30
16 oz. energy or sports drink
$2.00
$40
$480
Candy bar
$0.75
$180
$15
16 oz. Latte’ or flavored coffee
$4.00
$80
$960

16. Do you remember? Earned income – any money earned from working
Unearned income – any money received from sources other than employment, like investments
Pay Yourself First – save a portion of your income every pay period before you spend any money!

17. Pay Yourself First!
Your present self impacts your future self! Save today to have financial security in the future. Emergency Savings – An account used to save money for unexpected expenses. Needs to be very liquid! What are some examples of emergencies?

18. How much should you save?
Depends on income, dependents, job security & insurance coverage Typically 3-6 months worth of living expenses Example: $7500 monthly expenses x 6 months = $38,000

19. What is the Rule of 72?
A shortcut to estimate the number of years required to double your money at a given annual rate of return.
Formula:
_______________72_________________
Compound Annual Interest Rate
(72 divided by the
compound annual interest rate)

20. What is the Rule of 72?
A shortcut to estimate the number of years required to double your money at a given annual rate of return.
Example: If you want to double an investment that earns 8% interest compounded annually how long will it take you?
Divide 72 by the rate
72 / 8 = 9 years

21. Time Value of Money
Money today is worth more than the same amount received in the future! Why? Because it has time to increase its value

22. Time Value of Money Time Value of Money is affected by: Interest Rate
Amount
Time

23. $1,000 Saved for 5 Years with Compounding Interest
Interest Rate
Interest Rate
More Money Earned
$1,000 Saved for 5 Years with Compounding Interest

24. Principal - original amount of money saved or invested
More Money Earned
Amount
Principal - original amount of money saved or invested
3% interest for 5 years
Principal
Value of Savings
$100
$115.93
$1,000
$1,159.27
$10,000
$11,592.74

25. More Money Earned Time Time $1,000 Invested @ 3% Years
Value of Savings 3
$1065 10
$1,343.92 20
$1,806.11

26. How does inflation affect the time value of money?
What is inflation? A general increase in the price of goods and services over time.
When inflation occurs your money loses its buying power. $5.00 today will be able to purchase less tomorrow.
With inflation time is your enemy! You must carefully choose investments that earns an interest rate higher than the rate of inflation.

27. WISE QUESTION
Julian is single and a recent college graduate who just got his first full-time job. Which of the following should be his first financial goal?
buying a house.
establishing a fund for emergencies.
buying a life insurance policy.
creating a stock portfolio.
Answer: C

28. Wise Question
An important consideration when saving money for emergencies is:
High growth potential
High degree of safety and liquidity
Diversification
Return on Investment

29. Wise Question
To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and…
Total income
The rate of inflation
Whether the amount is FDIC insured
Whether the bank offers overdraft protection

30. Wise Question
Who benefits the most from inflation?
Long-term fixed rate borrowers
Lenders
Persons on fixed incomes
The government

31. Complete the Matching and Increase/Decrease questions in your notes.
Then, check your answers on the next slide.

32. No, really … do the questions FIRST, THEN check your answers!

33. Did you answer the questions FIRST????

34. MATCHING AND T/F ANSWERS
D – Asset
E – Inflation
C – Depreciation
F – Liability
A – Net Worth
B – Principal
Increase/Decrease I D

35. Assignment due by the end of class:
Let’s Calculate Net Worth worksheet
(hints: there are 9 assets, 5 liabilities &
the net worth should be $10,750)