Dad's Rules for Money - Rule #1

Future

My New Ride!

Future

Make saving a priority.

Paying yourself is your #1 expense, even higher

than rent.

Force yourself. Don’t wait for it to get easy….

IT WON’T!

Automatic…Automatic…Automatic! Your success is greatly improved when paying yourself is automatic.

Short Term Savings

–Emergency fund, vacation savings, etc

–Less than 1 year from now

–Savings accounts

Mid Term Savings

–House, Cars or other large purchases

–Between 1 to 10 years from now

–Brokerage account or savings accounts

Long Term Savings

–Retirement, 401K, etc

–10 years or more from now

–401K, IRA, Brokerage accounts

Start now, don’t wait. Now!!! And Forever!!!

Raschel turns 18 and follows rule #1 for the next 10 years. When

she is 28, she says

“The old man is crazy! I am tired of saving. I want to have

fun and buy some new clothes!”

Presley turns 18 and says

“I am just starting out. I am poor and I cannot afford to save yet. Let me work some things out and then start saving later.”

Then when she is 28, she realizes that she better start saving. She starts saving from every paycheck for the next 37 years.

Who did better?Presley saved for the 37 years non-stop after skipping the first 10 years.

So Raschel saved for 10 years, then stopped and never saved another dime.

“I did” “No, I did. Obviously!”

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

Age 1

9

21

23

25

27

29

31

33

35

37

39

41

43

45

47

49

51

53

55

57

59

61

63

65

Raschel Presley

“What?”

“Yippee”

Raschel Did

Presley saved almost four times more than Raschel, but Raschel ended up with twice as much money!

How is that possible?

Presley’s

Raschel’s

That’s the magic of Compounding!

Compounding is when you put in money

And your money earns money

And your moneys money earns money

And your money’s money’s money earn money

Lets save that one for college. Let me simplify…

The math formula for compound interest:

“Ugh. That looks painful.”

Dad’s Simplified Compounding Formula:

FV = PV x rt

Future Value, the value of what it will be

tomorrow

FV = PV x rt

Present Value, the value of what it is today

(what you save)

FV = PV x rt

The rate of return

FV = PV x rt

FV = PV x rt

The t is the most important part of compounding. It stands for time. And it is not a multiplier like the others, it is a power!

That makes the curve exponential. The more time that passes, the more it accelerates!

Exponential curveAs more time passes, the

curve gets steeper and steeper

Linear curveAs more time passes, it just increases at the same rate

Most of your friends will not understand compounding. Most will not understand the

importance of time. And most will not save a dime before they hit 35 or 40.

Started at age 38 Age 41 Age 46 Age 35Age 55! Oops!

They think the curve is linear, so it doesn’t matter if they have some fun while they are young . They believe

they can catch up later.

The curve is going up!” “Yep!” “It sure is!”

“I had a great time for the

last 15 years!”

Good Times for the last 35 years!”

Most will also put money in a savings account, but never invest anything. This lowers the r and loses

most of the compounding power.

“I like saving accounts”

“Yep, me too!” “I don’t trust the stock market!”

“Yep, me either!”

“I don’t know nothing about Wall Street, except don’t trust it.”

"My wealth has come from a combination of living in America, some lucky genes, and

compound interest."

– Warren Buffett

Worth $63.3 Billion (yep, thats B for Billion)

99% of Buffett's wealth was earned after his 50th birthday.

In 2013, Buffett made on average $37 million per day!

Remember Time!

Your life will have ups and downs. You can recover the money you save (the PV). You can also try to get better

returns (the r).

The one thing you cannot control. The one thing you can never get back, is time.

Don’t wait. Start early.

Saving does not get easier. Its always hard. Force yourself. Make it your top priority.

To Pay yourself first!Remember

Its going to rain. Bad stuff happens. It happens to everyone.

You don’t know when, or what it will be. So you must prepare to keep

it from doing too much damage.

Remember

“I got run over by agrizzly bear.”

What is Dad’s rule #1?

What are the two things that saving will

allow you to do?

What is compounding?

What is the most important piece of compounding?

Save early, save often, and let the laws of math work for you. You will make good things happen,

and prevent bad things from hurting you.

You will be financially happy forever and ever!

“I’m in the money!”