1 Money Management Principles n Are timeless and time-tested n Apply to everyone n Work well in up...

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Money Management Principles

Are timeless and time-tested

Apply to everyone

Work well in up & down economies

Help people grow wealthy over time

Need to be taught in school

Personal Finance Southwest High

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1. Go For The Goal Goals provide a “why” for saving Use goals to develop action plans Break goals into benchmarks Make your goals SMART

– Specific

– Measurable

– Attainable

– Realistic

– Time-RelatedPersonal Finance Southwest High

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Invest in your Human Capital

Get a solid education

– For career satisfaction

– For better health

– For higher lifetime earnings

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

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2. Time Is Your Friend Time: a young person’s biggest asset Compound interest is awesome For every decade that savings is

delayed, the required investment triples 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

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More About Time

Time diversification reduces investment volatility

The Rule of 72

– 72/interest rate = doubling period

– 72/doubling period = interest rate

Advantage calulators

Personal Finance Southwest High

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3. Live Below Your Means

Spend less than you earn

Create a spending plan

– Income = Fixed Exp (including savings) + Flexible Exp + 1/12 of Occasional Expense

Distinguish needs from wants

“Step-down principle”

Automate savings so money isn’t spentPersonal Finance Southwest High

4. Establish Emergency Fund Aka contingency fund

– Online savings accounts• No minimum• FDIC insured• 4.5% (varies)• Linked to checking account

– HSBC– Emigrant– ING & many others

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Pay Yourself First: Automate Your Savings Tax-deferred employer plans

– Get full 401(k) match from employer

Employer credit unions Savings bond purchase plans Mutual fund Automatic Investment Plan Direct stock purchase plans

Personal Finance Southwest High

Minnesota Saves

Build wealth, not debt Saver Strategies Get out of debt Earned income tax credit Free income tax preparation Individual Development Accounts

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5. Buy Insurance According to “The Large Loss Principle” Magnitude- not frequency- of losses Increase deductible to save $ Spend premium dollars on large potential

losses:– Liability

– Disability

– Destruction of home

– Large medical expenses

– Loss of household earner’s incomePersonal Finance Southwest High

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

7. Earned Income Tax Credit

Refundable tax credit for workers

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8. Vita tax prep

Provided by USU accounting students in Business building- starts Feb.

AVOID instant tax refunds– High cost loans (similar to payday loans)

Auto deposit Split your refund

– Save a portion, pay debt, spend

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9. Buying House/Vehicle Don’t buy more house than you can

afford (Subprime mortgage meltdown)

– Don’t’ trust mortgage broker

Don’t buy before you are really ready for the financial commitment

Buy new cars every 8-10 years or buy “new used”

Personal Finance Southwest High

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Check Your Financial Health

Take the Financial Fitness Quiz Least common practices

– Not having a will – No written financial goals – No written budget – No net worth calculation

Personal Finance Southwest High

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Financial Education Resources Investing For Your Future

– Home study course – http://www.investing.rutgers.edu/

Money 2000 & Beyond– http://www.rce.rutgers.edu/money2000

RU-FIT financial independence training– http://www.rce.rutgers.edu/ru-fit/

USU Extension – http://extension.usu.edu/

Personal Finance Southwest High

Spend Less, Enjoy the Holidays More

http://extension.usu.edu/htm/news/articleID=2361

Start a UESP account for your kids Spend time with important people Avoid gift cards

– High fees, money can’t be saved Pay cash! Avoid debt.

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Personal Finance Magazines

Kiplinger’s Personal Finance Magazine– Kiplingers.com

Money Magazine – Money.com– Money 101 on-line financial mgmt course

• http://money.cnn.com/pf/101/• 23 lessons

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The Financial Checkup by Alena Johnson

Personal Finance Southwest High

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Financial Planning for Womenhttp://www.usu.edu/fpw

For women of all ages & knowledge

Personal Finance Southwest High

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Avoid Common Mistakes of Young Adults

Buying a house before you are ready Buying too much house Putting too much $ into vehicles Keeping a balance on your credit cards Waiting to invest for retirement until… Not considering the cost of kids Spending too much on eating outPersonal Finance Southwest High

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Closing Thought

“If it is to be, it is up to me”

Comments? Questions? Experiences?

Personal Finance Southwest High