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Learn how to wisely save money now and be a millionaire midway through your career through sound financial planning.
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Money RX
Your Prescription for Sound Financial Health
Jerry Love, CPA/PFS, CFPAICPA Personal Financial Planning
Executive Committee
Starting at the End
• “Let’s start with the end in mind.” -Steven Covey
• For most people, that’s retirement
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America’s Financial Literacy• The average American family spends $1.22 for every
dollar it earns • One in five American families with annual household
income of less than $50,000 is spending 40% of after-tax income to service its debt
• Average card debt among people who have at least one card is $9,205
• In 2003, 1.6 million Americans filed for bankruptcy – the highest amount in history
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The Problem• Average per household debt in the U.S., not
counting mortgage or debt on cars, is about $14,500
• A typical credit card purchase ends up costing 112 percent more than if cash were used
• About 60 percent of active credit card accounts are not paid off monthly
• A typical American family today pays about $1,200 annually in credit card interest
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Living Paycheck to Paycheck• Some 40 percent of American families annually
spend more than they earn • The average college student has $2,700 worth of
credit card debt by the time they graduate • The median debt for school loans for college
graduates in 2006 was $17,125• The average graduate student has six credit
cards and one in seven owes more than $16,928 (plus school loans in excess of $40,000)
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Money Rx
You must understand…
YOU CAN BORROW MORE MONEY THAN YOU CAN AFFORD TO REPAY
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Financial ABCs
• Attitudes – “Pay myself first”• Behaviors – “I’m saving every payday”• Control and Confidence – “I can do this”
• This reduces financial distress and increases one’s sense of financial well-being
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A Sound Financial Plan Helps You…
• Be in control so you can:– Pay down debt– Budget (spend less than you earn)– Establish some basic financial goals– Create a revolving savings fund– Save for short-term goals– Make contributions to long-term savings
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Money Rx
THE PROVERBIAL CARROT DANGLING IN FRONT OF US
Comfortable retirement is like…
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Do the Math
• Net worth basics– Determine your average
income for the most recent 10 years
–Multiply by your age– Divide by 10
• This is your target net worth
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Target Net Worth Illustration
• Assume Family Income of $70,700
• Assume 2% annual raises
• Saving 15.1% annually starting age 24
• Investments earning 7.5% annually
November 9, 2010
Money Rx
Age 35
Age 45
Age 50
Age 55
Age 65
$0 $500,000
$1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000
Net Worth
Slide 11 of 20
What You’ll Earn
November 9, 2010
Money Rx
Saving 15.1% each year will fund it
with:• $1,657,930 at 55• $3,736,679 at 65
Retire at 55
• Family income of $130,625 the year before retirement
• Need $5,261,978 for 33 years of retirement (w/o Social Security)
Start
career at
24
• Earn $3,126,851 over 32 years
Slide 12 of 20
Questions to Ask
• When do you want to retire? • Where do you want to live after you
retire? • How much money will you need to have
the type of life you want to lead? • Who will share your retirement with you
or otherwise depend on you financially?
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What You’ll Need to Save
• General rule of thumb for retirement expenses will be 60 to 80 percent of your pre-retirement income
• That means you’ll need to have $1,655,930 at the time you retire
• Must save $472,154 or an average of $14,755 per year (15.1%)
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Money Rx
THEIR MONEY IS WORKING FOR THEM, NOT THE OTHER WAY AROUND
People have peace of mind when spending 80% and saving 20% because
November 9, 2010
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Spending Plan Basics
• Setting up a spending plan• Monitor expenses• Mortgage payment, insurance and
property taxes should not be more than 28 percent
• Maximum total monthly debt shouldn't be more than 36 percent
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Money Rx
IT IS A MATTER OF PLANNING FOR LIFE’S MILESTONES
Financial literacy isn’t just a matter of knowing what you have and knowing your options…
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Seek Professional Guidance When:
• Getting married or divorced • Having a baby or adopting a child • Paying for your child's college education • Buying or selling a business • Changing jobs or careers • Planning for retirement • Developing an estate plan • Coping with the death of your spouse • Receiving an inheritance or a financial
windfall
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Money Rx
KNOWING WHAT YOU NEED TO KNOW TO ACHIEVE YOUR FINANCIAL GOALS
Financial Literacy:
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Need More Information?
• Contact me: [email protected] or www.DKCPA.com
• www.ValueYourMoney.org – free TSCPA consumer website
• www.360financialliteracy.org – free AICPA consumer website
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