What is Personal Finance
and why should I care
Start Planning Now!
Life is Expensive!
Discuss with your neighbors:
What education level do you hope to achieve?
What career do you want?
Do you want to get married? When?
Do you want kids? If so, how many? When?
What do you want to enjoy (adventure, toys, hobbies, etc.)?
Do you want to own a house? When?
When do you expect to retire?
What do you want to do in retirement?
What car would you reasonably like to own?
To what age do you expect to live?
Think/Pair/Share
1. Why is now such a critical time in your
financial lives?
2. How important is money to you? Rate on a
scale from 1-10 and explain.
3. What have your parents taught you about
money or what have you learned by watching
them?
Scary Financial Statistics
The average college graduate will leave with $35,000 in student loans.
(Edvisors.com 2015)
About half of senior girls shopped two or more weeks for their prom
dress and half of senior boys spent two or more weeks deciding whom to ask. In contrast, nearly half of high school seniors spent less than 5
hours learning how to pay for college. (Sallie Mae 2011)
34% of American families have credit card debt with an average
household balance of $5700. (Federal Reserve)
The cost of health insurance for a family of 4 for a year was $16,351 in
2015 (Henry Kaiser Family Foundation)
The average cost for a car accident involving an injury was $126,000. A
fatal car accident costs $6 million (AAA)
Cost for middle-income couple to raise a child born last year to age 18 is
More Scare Tactics
62% of Americans live paycheck to paycheck and half of American householdshave a savings of less than $1,200. (Bankrate.com)
People ages 18 to 24 spend ~30% of monthly income on debt repayment -
(10% of net income is a recommended amount for debt obligation). (Source: Center for Responsible Lending)
43% of American workers have less than $10,000 saved up for retirement.
The median balance is $60,000 (Federal Reserve)
70% of Americans couldn’t come up with $5000 in an emergency if they
needed to. (Dave Ramsay 2008)
The average new car payment is $471/mo. (Experian, 2015)
If you had a $200,000 mortgage at 6% interest for 30 years, you would pay
How to Avoid Common Consumer’s
Woes: The Big Ideas
1.
Work hard now
to find a career
that fits you and
pays a living
wage.
2. Budget. Tell
your money
where to go.
3. Save >10%.
Reach your
goals by paying
yourself first.
4. Watch out for
“leaks” in your
spending.
5. Debt is
dangerous.
Borrow wisely.
1. Education Pays
Additional schooling/training is necessary to learn/develop skills forliving-wage careers. You will not develop those skills here.
Those who are skilled are more desirable and better paid. How are you going to become skilled? Options:
• Bachelor’s degree • Master’s degree
• 2 year degree or certificate • Apprenticeship program
• Professional degree (law, medicine, physical therapy) • For-profit schools (beauty schools, culinary schools, etc.)
How can you find a way to match what you’re good at with a job you like that pays you well? What are you doing to figure this out?
People end up in jobs they don’t enjoy to buy stuff they don’t need with money they don’t have to impress people they don’t like.
Monthly earnings with:
bachelor’s degree = $4404
high school diploma = $2672
That’s a difference of $1732 a month.
2. Budget to control your money
Maximize your income and minimize your expenses to help you meet your
responsibilities and achieve your financial goals!!!
Does your money disappear too fast each month? Tell your money where to go
instead. Know your monthly income and bills, then figure out what to do with the excess based on goals. A real-life example:
$1920 ($12/hr x 40 hours x 4 weeks) -384 (taxes @ 20%)
-500 (rent)
-150 (utilities - electric, phone, water, gas, cable, internet, garbage) -200 (car payment?)
-150 (gas)
-250 (food)= $8.33/day -150 (car insurance)
-100 (medical/house/gifts/car maintenance) = $36
3. Save by Paying Yourself First
Put money away for saving/investing at the beginning of the
month.
Adult rule: 3 months worth of expenses in an emergency
fund. $500 is a great starting point for young people.
Save at least 10% (20%?) of your monthly income.
Save and invest regularly through monthly automatic
withdrawals from your checking account to savings accounts
and investment accounts. Make saving and investing
automatic and start as soon as you can.
4. Watch the Little Things
What are your spending habits? Are they unwise or do they reflectyour priorities?
Clothes, tobacco/alcohol/drugs, eating out, coffee, pop, and vending machine snack costs add up fast. Have you done the math?
• $4 coffee drink x 20 times a month = $80/month or $960/year • $5 lunch x 20 times a month = $100/month or $1200/year
Is this where you want your money to go? If so, great! But, what if you redirected it to college savings or to save for a new computer or car? Is this more important to you?
How can you avoid these expenses and save for your goals? Don't smoke, make lunch and coffee at home, drink water from reusable bottle, etc.
5. Debt Sucks
Many people bury themselves in debt early in life. Its like trying to cup
water out of boat with a hole in the bottom.
Pay your credit card in full every month. Save for things you wish to
buy. Minimize college loans. Set yourself up to borrow at low interest rates by building a good credit score.
Credit Cards
If you borrowed $5000 at 20% interest, and paid $100 a month, it would take you more than 9 years to pay off the debt. Total payments would equal $10,900. That’s $5900 in interest!
Student Loans
If you borrow $60,000 at 6% interest on a 20 year loan, you’ll pay $430/ mo. Your payments add up to $103,166 .
Mortgages
A 200,000 mortgage, at 6% interest over 30 years is $1200/mo. and $431,000 in total. That's $231,000 just in interest.
6. Compounding Interest is Rad.
Invest early and regularly.
Compounding interest is the eighth wonder of the world. Compound interest arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest.
Example: Growth/
Start of year Interest Rate Interest Earned End of Year
Year 1: $1000 x 6% =$60 1000 + 60 = $1060
Year 2: $1060 x 6% = $63.60 1060+63.60 = $1123.60
Year 3: $1123.60 x 6% = $67.42 1123.60+67.42 =$1191.02
Year 4: $1191.02 x 6% = $71.46 1191.02+71.46 =$1262.48
Year x $100,000 x 6% = $6000 100,000+6000 =$106,000
Year x+1 $106,000 x 6% = $6360 106,000+6360 =$112,360
Question: What's 6% of 1 million dollars? Answer: $60,000.
Imagine $60,000 in wealth created from doing nothing!
Other Key Elements
Pay your bills on time.
Understand how to minimize your
taxes.
Comparison shop and use
information to make informed
decisions.
Protect yourself from risk with
adequate insurance.
Protect yourself from scams/identity
Exit Ticket
1.
List 2 things you learned.
2.
What was your “a-ha” or biggest takeaway ?
3.
What’s a question you have or an area you want to learn more
about regarding what we discussed?
4.
What are the benefits of financial responsibility?
Consequences of irresponsibility? (Objective 1)
5.
Give examples of how decisions made today (or in the next
year) can affect future opportunities. (Objective 2)
6.
Preview for tomorrow: a. What are your values (what’s