Savings Fitness Short Version

8/3/2019 Savings Fitness Short Version

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Savings FitnessSavings Fitness

A Guide to Your Money and Your

Financial FuturePPT Developed by Karissa Berndt

USU Family Finance Student

A Guide to Your Money and Your

Financial FuturePPT Developed by Karissa Berndt

USU Family Finance Student

Financial Planning for Women

March 2007


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Todays ProgramTodays Program Provides ageneral overview of saving &

investing

Focus on retirement but principles apply to

all goals

Details are in the Savings Fitnessbooklet

PPT & links available at www.usu.edu/fpw

Provides ageneral overview of saving &

investing

Focus on retirement but principles apply to

all goals

Details are in the Savings Fitnessbooklet

PPT & links available at www.usu.edu/fpw


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Program ObjectivesProgram Objectives Identify your goals

Distinguish between savings and investing

Develop net worth statement & savings plan

Learn to manage debt

Understand risk-return relationship Begin or increase saving/investing

Identify your goals

Distinguish between savings and investing

Develop net worth statement & savings plan

Learn to manage debt

Understand risk-return relationship Begin or increase saving/investing


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How to manage financial

challenges and afford a secureretirement?

How to manage financial

challenges and afford a secureretirement?

Write your goals on a 3x5 card

Sort the cards into two stacks:

Goals in the next 5 years or less

Goals in 5 years or more

Sort the cards in order of priority

Make retirement a priority!

Write on each card what you need to do to accomplish thatgoal

Write your goals on a 3x5 card

Sort the cards into two stacks:

Goals in the next 5 years or less

Goals in 5 years or more

Sort the cards in order of priority

Make retirement a priority!

Write on each card what you need to do to accomplish thatgoal


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Beginning Your Savings Fitness PlanBeginning Your Savings Fitness Plan Current financial resources:

Net worth: the total value of what you own

(assets) minus what you owe (liabilities) Assets

Possessions, vehicles, home, bank accounts, investments, etc.

Liabilities

Remaining mortgage on your home, any loans/debts, etc. Subtract your liabilities from your assets.

Goal: a positive net worth, which grows each year

Review your net worth annually (at tax time)

Current financial resources:

Net worth: the total value of what you own

(assets) minus what you owe (liabilities) Assets

Possessions, vehicles, home, bank accounts, investments, etc.

Liabilities

Remaining mortgage on your home, any loans/debts, etc. Subtract your liabilities from your assets.

Goal: a positive net worth, which grows each year

Review your net worth annually (at tax time)


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Saving vs. InvestingSaving vs. Investing Short term goals

< 5 years

No risk of loss ofprincipal

No or low realreturnafter taxes & inflation

Steady but slowgrowth

Short term goals < 5 years

No risk of loss ofprincipal

No or low realreturnafter taxes & inflation

Steady but slowgrowth

Long term goals 5 years or more

Trade potential shortterm loss for long termgains

Positive real return

after subtracting taxes& inflation

Volatility

Long term goals 5 years or more

Trade potential shortterm loss for long termgains

Positive real return

after subtracting taxes& inflation

Volatility


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Estimate How Much You Need

to Invest for Retirement

Estimate How Much You Need

to Invest for Retirement Worksheets & software programs can help

you estimate how much you need to invest.

kiplinger.com (click on Retirement) moneymag.com (click on Retirement)

usnews.com (click on Retirement Calculator )

asec.org (click on Ballpark Estimate Worksheet) See FPW website for PPT on Ballpark Estimate

nasd.com (click on Investor Services, then FinancialCalculators)

Planning for a Secure Retirement

http://www.ces.purdue.edu/retirement/

Worksheets & software programs can helpyou estimate how much you need to invest.

kiplinger.com (click on Retirement) moneymag.com (click on Retirement)

usnews.com (click on Retirement Calculator )

asec.org (click on Ballpark Estimate Worksheet) See FPW website for PPT on Ballpark Estimate

nasd.com (click on Investor Services, then FinancialCalculators)

Planning for a Secure Retirement

http://www.ces.purdue.edu/retirement/


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How Much Retirement Income

Will I Need?

How Much Retirement Income

Will I Need? Need to replace 70 to 90 percent of pre-

retirement income

Lower the income, the higher the % that

needs to be replaced

It depends on the kind of retirement you

want to enjoy

Need to replace 70 to 90 percent of pre-

retirement income

Lower the income, the higher the % that

needs to be replaced

It depends on the kind of retirement you

want to enjoy


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How Long Will I Live In

Retirement?

How Long Will I Live In

Retirement? Average male life expectancy: age 78

Average female life expectancy: age 82

Consider your health and family history

Expect to live longer than previousgenerations!

Planning for a Secure Retirement http://www.ces.purdue.edu/retirement/ Module 1b Life Expectancy Calculators

Average male life expectancy: age 78

Average female life expectancy: age 82

Consider your health and family history

Expect to live longer than previousgenerations!

Planning for a Secure Retirement http://www.ces.purdue.edu/retirement/ Module 1b Life Expectancy Calculators


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What Savings Do I AlreadyH

ave?What Savings Do I AlreadyH

ave? Social Security retirement benefits

A pension that provides a fixedamount of

retirement income each month

Nest egg ! the desired total income/year

(Social Security any pension income)

Nest egg examples- Retirement plan accounts atwork, IRAs, annuities, and personal savings

Social Security retirement benefits

A pension that provides a fixedamount of

retirement income each month

Nest egg ! the desired total income/year

(Social Security any pension income)

Nest egg examples- Retirement plan accounts atwork, IRAs, annuities, and personal savings


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What Adjustments Must Be Made

For Inflation?

What Adjustments Must Be Made

For Inflation? The cost of retirement will go up every year

due to inflation

The average annual inflation rate is 3.1% In 1980 the inflation rate was 13.5%

In 1998 it reached a low of 1.6%

Assume a higher, rather than a lower, rate ofinflation

Its safer to plan on 4% than 3.1%

The cost of retirement will go up every year

due to inflation

The average annual inflation rate is 3.1% In 1980 the inflation rate was 13.5%

In 1998 it reached a low of 1.6%

Assume a higher, rather than a lower, rate ofinflation

Its safer to plan on 4% than 3.1%


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One Simple Trick

Spend Less Money Than You Earn!

One Simple Trick

Spend Less Money Than You Earn! Start with a spending plan or budget

Income Add up monthly income: wages, average tips or bonuses,

alimony payments, etc.

Expenses Add up monthly expenses: mortgage or rent, car payments,

food bills, entertainment, etc.

Include savings as an expense!

Subtract income from expenses

Consult USU Family Life Center, 797-7224

Start with a spending plan or budget Income

Add up monthly income: wages, average tips or bonuses,alimony payments, etc.

Expenses Add up monthly expenses: mortgage or rent, car payments,

food bills, entertainment, etc.

Include savings as an expense!

Subtract income from expenses

Consult USU Family Life Center, 797-7224


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Spending Plans Cont.Spending Plans Cont. What if expenses exceed income?

Cut Expenses (nickel & dime vs. BIG expenses) clipping grocery coupons

bargain hunting (thrift stores, etc.)

changing phone or cable to a cheaper plan

Real savings: housing & transportation!

Increase Income work a part-time second job

turn a hobby into income

jointly decide that another family member will work

What if expenses exceed income?

Cut Expenses (nickel & dime vs. BIG expenses) clipping grocery coupons

bargain hunting (thrift stores, etc.)

changing phone or cable to a cheaper plan

Real savings: housing & transportation!

Increase Income work a part-time second job

turn a hobby into income

jointly decide that another family member will work


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Adopt Savings Rules

Adopt Savings Rules

Americans who follow rules save more*

Pay yourself first

Put savings/investing on auto pilot Save your tax refund

Save unexpected money (i.e., windfall, gifts)

Save all change

Save $ you saved on grocery & gas (receipts) Other ideas?

Americans who follow rules save more*

Pay yourself first

Put savings/investing on auto pilot Save your tax refund

Save unexpected money (i.e., windfall, gifts)

Save all change

Save $ you saved on grocery & gas (receipts) Other ideas?

*Rha, Montalto,& Hanna (2007). The Effect of Self-Control Mechanisms on

Household Saving Behavior. Financial Counseling and Planning, 17(2), 3-16.


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Avoid Debt & Credit ProblemsAvoid Debt & Credit Problems How much debt is too much debt?

[monthly debts (credit card payments, car loan

payments, student loan payments, etc.) mortgage] z

by the money you bring home each month.

The result is your debt ratio.

Keep this ratio at 10% or less Total mortgage and non-mortgage debt should

be no more than 36% of your take-home pay.

How much debt is too much debt?

[monthly debts (credit card payments, car loan

payments, student loan payments, etc.) mortgage] z

by the money you bring home each month.

The result is your debt ratio.

Keep this ratio at 10% or less Total mortgage and non-mortgage debt should

be no more than 36% of your take-home pay.


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Whats the Difference Between

Good Debt and Bad Debt?

Whats the Difference Between

Good Debt and Bad Debt? Good debt - provides a financial pay off

buying or remodeling a home (within reason!)

investing in education

advancing your own career skills

Bad debt - borrowing for things that do not

provide financial benefits, or that dont last as

long as the loan

Depreciating assets: vehicles

vacations, clothing, furniture, dining out

Good debt - provides a financial pay off

buying or remodeling a home (within reason!)

investing in education

advancing your own career skills

Bad debt - borrowing for things that do not

provide financial benefits, or that dont last as

long as the loan

Depreciating assets: vehicles

vacations, clothing, furniture, dining out


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Handle Credit Cards Wisely

Handle Credit Cards Wisely

Use only 1 or 2 cards, not the usual eight or nine

Dont charge big-ticket items.

Save or find less expensive loan alternatives

Shop for the best interest rates, annual fees,

service fees, and grace periods

Pay off the card each month,

If you cannot pay in full, pay more than minimum

Still have problems? Leave the cards at home

USU FLC 797-7224

Use only 1 or 2 cards, not the usual eight or nine

Dont charge big-ticket items.

Save or find less expensive loan alternatives

Shop for the best interest rates, annual fees,

service fees, and grace periods

Pay off the card each month,

If you cannot pay in full, pay more than minimum

Still have problems? Leave the cards at home

USU FLC 797-7224


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How to Climb Out of Debt

How to Climb Out of Debt

Work with your creditors directly to try and

work out payment arrangements

Request lower APR on credit card

USU Family Life CenterHousing &

Financial Counseling

can help you set up a plan to work with yourcreditors and reduce your debts

PowerPay Debt Analysis: https://powerpay.org/

Work with your creditors directly to try and

work out payment arrangements

Request lower APR on credit card

USU Family Life CenterHousing &

Financial Counseling

can help you set up a plan to work with yourcreditors and reduce your debts

PowerPay Debt Analysis: https://powerpay.org/


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Investing for RetirementInvesting for Retirement Once youve reduced unnecessary debt and

created a spending plan, youre ready to

begin investing for retirement.

Participate in your employers retirement

plan

Invest in an Individual Retirement Account

Once youve reduced unnecessary debt and

created a spending plan, youre ready to

begin investing for retirement.

Participate in your employers retirement

plan

Invest in an Individual Retirement Account


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Where to Save/Invest?Where to Save/Invest? Cash Equivalents - very little risk; very low return

Savings accounts

Money market mutual funds Certificates of deposit

U.S. Treasury bills

Suitable for short term goals only Your money wont grow

Taxes & inflation negate any growth!

Cash Equivalents - very little risk; very low return

Savings accounts

Money market mutual funds Certificates of deposit

U.S. Treasury bills

Suitable for short term goals only Your money wont grow

Taxes & inflation negate any growth!


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BondsBonds Corporate or Government Bonds

You loan money to a U.S. company or a

government body in return for its promise topay back what you loaned with interest

Small % of your long term investments

Conservative Low growth potential

Corporate or Government Bonds

You loan money to a U.S. company or a

government body in return for its promise topay back what you loaned with interest

Small % of your long term investments

Conservative Low growth potential


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StocksStocks You own a part of a U.S. or international

company

High potential for growth in the long run

Short term volatility

Must be willing to accept the ups & downs

along the road to inflation-beating growth

You own a part of a U.S. or international

company

High potential for growth in the long run

Short term volatility

Must be willing to accept the ups & downs

along the road to inflation-beating growth


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Mutual FundsMutual Funds Pools your money with money of other

investors and invests it.

A stock mutual fund, for example, invests instocks on behalf of funds shareholders.

Easier to invest and to diversify.

Ideal for your Individual RetirementAccount (IRA)

See FPW PowerPoints on website

Pools your money with money of otherinvestors and invests it.

A stock mutual fund, for example, invests instocks on behalf of funds shareholders.

Easier to invest and to diversify.

Ideal for your Individual RetirementAccount (IRA)

See FPW PowerPoints on website


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Where to Put Your MoneyWhere to Put Your Money For goals that are at least 5 years in the future:

stocks

bonds

real estate foreign investments

mutual funds

Notinsured by the federal government - there is the riskthat you could lose some of your money

The longer you have until retirement, the more risk youcan afford.

For goals that are at least 5 years in the future: stocks

bonds

real estate foreign investments

mutual funds

Notinsured by the federal government - there is the riskthat you could lose some of your money

The longer you have until retirement, the more risk youcan afford.


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Why Take Risk At All?Why Take Risk At All? The greater the risk, the greater the potential return

a diversified portfolio of stocks & bonds will earnsignificantly more than a savings account.

No/low risk = no growth

Historic Average Annual Returns

U.S. Treasury Bills: 3.8%

Government Bonds: 5.3%

Large-Company Stocks: 11.2% Inflation averages 3.1%

Taxes reduce investment returns

The greater the risk, the greater the potential return a diversified portfolio of stocks & bonds will earn

significantly more than a savings account.

No/low risk = no growth

Historic Average Annual Returns

U.S. Treasury Bills: 3.8%

Government Bonds: 5.3%

Large-Company Stocks: 11.2% Inflation averages 3.1%

Taxes reduce investment returns


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Reducing Investment RiskReducing Investment Risk Diversification

Distributing your money among several

investments, rather than investing in individualcompanies.

You can do this by investing in: mutual funds

index mutual funds Diversification will greatly decrease your risk

of losing money.

Diversification

Distributing your money among several

investments, rather than investing in individualcompanies.

You can do this by investing in: mutual funds

index mutual funds Diversification will greatly decrease your risk

of losing money.


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Why Diversify?Why Diversify? At any given time one investment might do better

than another.

The factors that can cause one investment to dopoorly may actually cause another to do well.

By diversifying into different types of assets, youare more likely to reduce risk, and actually

improve return, than by putting all of your moneyinto one investment.

Dont put all your eggs in one basket!

At any given time one investment might do betterthan another.

The factors that can cause one investment to dopoorly may actually cause another to do well.

By diversifying into different types of assets, youare more likely to reduce risk, and actually

improve return, than by putting all of your moneyinto one investment.

Dont put all your eggs in one basket!


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Reducing Investment Risk Cont.Reducing Investment Risk Cont. Asset Allocation - investing among

different categories of investments (FPW PPT)

Put some money in cash, some in bonds, some

in stocks, and some in other investments

The choices you make about what % to have in

these major categories defines your investmentstrategy.

Asset Allocation - investing among

different categories of investments (FPW PPT)

Put some money in cash, some in bonds, some

in stocks, and some in other investments

The choices you make about what % to have in

these major categories defines your investmentstrategy.


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Employer-Based Retirement

Plans

Employer-Based Retirement

Plans Does your employer provide a retirement

plan?

If sograb it! Employer-based plans are the

most effective way to invest for your future.

Youll enjoy tax benefits.

Two types of employer-based plans : defined benefit

defined contribution

Does your employer provide a retirement

plan?

If sograb it! Employer-based plans are the

most effective way to invest for your future.

Youll enjoy tax benefits.

Two types of employer-based plans : defined benefit

defined contribution


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Defined Benefit PlansDefined Benefit Plans Pay a lump sum upon retirement or a guaranteed

monthly benefit.

The payout is typically based on a set formula such as: (# of years you have worked for the employer)

v (a percentage of your highest earnings)

Usually the employer funds the plan--commonly

called a pension plan.

Most are insured by the federal government.

Pay a lump sum upon retirement or a guaranteed

monthly benefit.

The payout is typically based on a set formula such as: (# of years you have worked for the employer)

v (a percentage of your highest earnings)

Usually the employer funds the plan--commonly

called a pension plan.

Most are insured by the federal government.


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Defined Contribution PlansDefined Contribution Plans 401(k) plans are the most common type

Does not guarantee a specified amount for

retirement The money you have available to help fund your

retirement depends on: how long you participate in the plan

how much you invest how well the investments perform

More common than traditional pension plans.

401(k) plans are the most common type

Does not guarantee a specified amount for

retirement The money you have available to help fund your

retirement depends on: how long you participate in the plan

how much you invest how well the investments perform

More common than traditional pension plans.


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Vesting RulesVesting Rules Money that youput in a retirement plan and earnings on

those contributions, always belongs to you.

Employees dont always have immediate access to themoney their employer invests in their fund.

Once you are vested you own all of your employerscontribution.

Some plans vest in stages, others after fixed period of

employment. Know your employers vesting rules.

Dont leave before you are vested!

Money that youput in a retirement plan and earnings onthose contributions, always belongs to you.

Employees dont always have immediate access to themoney their employer invests in their fund.

Once you are vested you own all of your employerscontribution.

Some plans vest in stages, others after fixed period of

employment. Know your employers vesting rules.

Dont leave before you are vested!


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What If You Cant Join An Employer-

Based Plan?

What If You Cant Join An Employer-

Based Plan? If possible, take a job with a plan

Encourage your employer to offer a plan Invest in an IRA (see FPW PPTs)

Build your personal savings

Consider an annuity (April 11 FPW)

If possible, take a job with a plan

Encourage your employer to offer a plan Invest in an IRA (see FPW PPTs)

Build your personal savings

Consider an annuity (April 11 FPW)


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What If You Are Self-Employed?What If You Are Self-Employed? SEP (Simplified employee pension plan)

SIMPLE IRA IRA

Annuities

SEP (Simplified employee pension plan)

SIMPLE IRA IRA

Annuities


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Coping With Financial CrisisCoping With Financial Crisis Establish an Emergency Fund

This can lessen the need to dip into retirement savings for afinancial emergency

Insure Yourself Having adequate insurance will protect your financial assets

Insurance coverage: Health

Disability

Homeowners or Renters (PPT on FPW website)

Automobile

Umbrella liability

Life (if someone else depends on your income)

Establish an Emergency Fund This can lessen the need to dip into retirement savings for a

financial emergency

Insure Yourself Having adequate insurance will protect your financial assets

Insurance coverage: Health

Disability

Homeowners or Renters (PPT on FPW website)

Automobile

Umbrella liability

Life (if someone else depends on your income)


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Monitor Your ProgressMonitor Your Progress

Financial planning is not a one-time process, so

make sure to do the following:

Periodically review your spending plan

Monitor the performance of your investments

make adjustments as necessary

Contribute more toward retirement as you earn more

Update your insurance to reflect changes in income or

personal circumstances

Keep your finances in order

Financial planning is not a one-time process, so

make sure to do the following:

Periodically review your spending plan

Monitor the performance of your investments

make adjustments as necessary

Contribute more toward retirement as you earn more

Update your insurance to reflect changes in income or

personal circumstances

Keep your finances in order


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April 11 FPWApril 11 FPW Making YourMoney Lastfor a Lifetime:

Why YouNeed to Know AboutAnnuities

Check FPW web http://www.usu.edu/fpw/for related PowerPoint presentations

Asset allocation

IRA picks 2005; Mutual Funds 2006

What is an IRA?

Ballpark E$timate

Taking the mystery out of retirement planning

Making YourMoney Lastfor a Lifetime:Why YouNeed to Know AboutAnnuities

Check FPW web http://www.usu.edu/fpw/for related PowerPoint presentations

Asset allocation

IRA picks 2005; Mutual Funds 2006

What is an IRA?

Ballpark E$timate

Taking the mystery out of retirement planning


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Questions?Questions?

Savings Fitness Short Version

Documents

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