Understanding the Time Value of Money

1
Chapter 18????

• ??????????

2
Fitting the Pieces Together

• ??????????

3
The Ingredients of Success
4
???????

• Evaluate you financial health????????
• Plan and budget?????
• Manage your cash and credit?????????
• Make knowledgeable consumer decisions????????
• Have adequate insurance??????
• Understand the sound principles of
  investing????????
• Make investment decisions that reflect your
  goals???????????????????
• Plan for retirement????
• Plan for appropriate distribution of assets upon
  death?????????????????

5
Your Financial Future Starts Now???????????

• Challenges ahead???????
• Student loans??????
• Credit card debt??????
• Budgeting, spending, saving????????
• Marriage??
• Children??
• Choose wealth NOW!???????

6
A Look Back at the Financial Life Cycle ?????????

• Increase awareness and discussion of personal
  finance issues.?????????????
• Financial decisions affect your lifestyle make
  sure they reflect your financial goals and
  values.?????????????,????????????????
• Prepare for the financial challenges, and
  changes, of the next few years.?????????????????
• Use your strongest ally on the road to personal
  financial success time.???????????????????-??

7
Women and Personal Finance ???????Why Its
Important??????

• Achieving financial security is tougher for
  women??????????????????
• Know the facts that make women financially
  vulnerable????????????

8
Why Are Women Financially Vulnerable???????????

• 90 of women will be solely responsible for their
  financial decisions at some time in their lives
  .???????????????????????????????
• 20 of women will never marry.???????????? 
• 47 of first marriages and 49 of second
  marriages end in divorce. ??????????????????,?????
  ??????????????????   

9
Why Are Women Financially Vulnerable?
(contd)??????????(?)

• 75 of women do not know how much they need to
  save for retirement.???75???????????????
• Women invest more conservatively than men,
  therefore generating lower returns and earning
  less.??????????,?????????

10
Why Are Women Financially Vulnerable?
(contd)??????????(?)

• Women live longer than men.???????
• Age 65, women outnumber men 3 to 2
  65????????? 32
• Age 85, women outnumber men 5 to 2 85?????????
  52
• 75 of married women are widowed, with the
  average age of widowhood 56. 75????????,????????
  65?

11
Why Are Women Financially Vulnerable?
(contd)??????????(?)

• Of the 12 of elderly people living in poverty,
  almost 75 of them are women. ?12??????????75?
  ??
• 80 of the widows living in poverty were not
  living in poverty before widowhood.?80???????????
  ????,????????

12
Financial Independence, Especially During
Retirement????,????????

• Women generally ????
• earn less than men.????????
• are less likely to have pensions than
  men.????????
• because of lower earnings, qualify for less
  Social Security than men.?????????,???????????
• live longer than men.??????
• Consequently, planning for retirement is more
  difficult for women than for men.?????????????

13
A Dangerous Myth???????

• Women must dispel the myth that someone will
  take care of them! ?????????????????

14
Take Responsibility for Your Financial Future
?????????

• Gain knowledge.????
• Get involved in family investment
  decisions.?????????
• Develop and implement your financial
  plan.???????????
• Seek professional help if you lack confidence to
  act. ???????????????

15
Financial Principles Are Gender-Neutral, But
Women Should??????????,??????

• Recognize that you live longer and may be
  divorced.???????????????
• Get involved in your husbands pension
  decisions.??????????
• Fund retirement plans and IRAs to the
  max.??????IRAs????????
• See a financial planner, if needed.????,??????????

16
Life Events ????????Marriage??

• Learn your partners financial history, habits,
  goals.???????????,?????
• Track your expenses.??????
• Develop a budget.????
• Review and revise the plan annually or when life
  changes occur.???????????,??????????????

17
Life Events????????Marriage (contd)??(?)

• Talk, talk, talk about your financial
  situation.???????????????
• Seek help from a professional.???????
• A financial counselor??????
• National Foundation for Consumer Credit
• A financial planner????????
• Debt Counselors of America, now Myvesta.com

18
Life Events????????Marriage (contd)??(?)

• Two other important decisions???????
• Joint or separate checking account(s)???????????
• Joint or separate credit cards?????????

19
Life Events????????Children??

• average cost from birth through age 18
  165,630???????18 ?,??????165,630
• For a medium income family (i.e., 42,000 income
  per year), the investment increases to 1.45M by
  age 22 with education costs and lost wages from
  child-rearing.?????????(?????42,000),???????145?,
  ???22?????????????????????

20
Life Events????????Children (contd)??(?)

• How do you prepare??????
• Keep your insurance current and premiums paid
  health, life, and disability??????????????????????
  ??????????
• Consider a tax-free flexible spending
  account????????????????
• Maintain adequate income and savings????????????
• Update your will and name a guardian??????????????
  ??
• Review your financial plan????????
• Start saving for education costs ????????

21
Keys to Financial Success??????

• How the rich become rich????????
• Understand the difference in income and
  wealth??????????
• Live like a millionaire practice
  frugality???????-????
• Choose wealth consider the 12
  decisions????-?????12???
• Sets the stage for personal finance
  success???????????
• Helps you spend less and save more???????????
• Helps you stretch your money??????

22
Choose Wealth 1 ??????1Become
Knowledgeable????

• Knowledge??
• Makes it easier to avoid financial pitfalls and
  bad advice.????????????????????
• Spurs your commitment.????????
• Helps you handle money surprises.?????????

23
Choose Wealth 2??????2Dont Procrastinate???
24
Bad advice SLOWS your financial progress.

• ??????????????
• Procrastination STOPS itand makes your future
  work a lot harder.??????-???????????

25
Choose Wealth 3??????3 Live Below Your
Means????????

• Spend less than you earn.?????????
• Change your attitude toward spending.????????
• Track your spending and cut out
  extravagances.???????,???????
• Make savings automatic.????

26
Choose Wealth 4??????4Realize You Arent
Indestructible??????????

• Do you need it???????
• Life insurance it depends? ????-??????
• Health insurance YES! ????-??!
• Disability insurance YES!????-??!
• Lead a healthy lifestyle.???????????

27
Choose Wealth 5??????5 Protect Your Stuff
(Look Out for Lawyers)???????(lookout for lawyers)

• Home and auto insurance a necessity.???????????
• Liability coverage too little can ruin your
  financial future.?????????????????
• Raise deductibles to keep costs down.????????????
• Increase your emergency fund.????????
• Consider an umbrella policy.????umbrella policy

28
Choose Wealth 6??????6 Embrace the B Word
(Budget)????(??)???
29
A budget, or cash flow plan forces you to control
spending and save by?????????????????

• Using restraint when spending.?????????
• Thinking about what you buy.?????????
• Living below your means.????????
• Being frugal.????
• To develop a budget, track your spending and
  eliminate expenses.??????,?????????????

30
Choose Wealth 7??????7Reinvent and Upgrade
Your Skills??????????

• To prepare for future job insecurity,????????????
• Make sure your talents and skills are
  needed.?????????????
• Continue to educate yourself your best
  investment for the future.??????-????????

31
Choose Wealth 8??????8Hide Your
Plastic???????

• Use restraint to avoid credit card
  DEBT.?????????????
• 20 of college students have 4 or more
  cards.?20?????4???????
• People spend about 30 more with cards than with
  cash.?30???????????????

32
Choose Wealth 9 Stocks Are Risky, But Not as
Risky as Not Investing
33
??????9 ?????????,?????????????

• If your investment horizon is long, invest in
  stocks and ride the risks up and
  down!???????????????
• Use diversification to reduce risk.??????????????
• Use your time horizon to guide your asset
  allocation.???????????????????
• Consider a stock index mutual fund.???????????

34
Dont let the fear of stock risk keep you from
attaining your goals dont ignore the greater
danger of inflation and taxes.?????????????????-??
?????????
35
Choose Wealth 10 Exploit Tax-Favored
Retirement Plans to the Max??????10?????????????
??????

• Remember the advantages of tax-deferral???????
• Contributions arent taxed.??????
• Earnings arent taxed???????
• Eligibility for employer match???????

36
Choose Wealth 11 ???? ??11How Many Children
You Have????????

• Balance your values, goals, personal life, and
  finances and remember, children cost money.
  Plan on it!??!??????????,???????

37
Choose Wealth 12 ??????12
38
Stay Married????

• Married people tend to earn more and accumulate
  more than single people living alone or
  together.????????????????????????
• Married men earn about 26 more than unmarried
  men.???????????????26
• Income of divorced women with children is 40 of
  that of married couples.??????????,????????????40
  

39
Choose Wealth 12 ??????12Stay Married
(contd)????(?)

• Why do married couples do better
  financially??????????????????
• Cooperation skills from marriage translate into a
  job skill.?????,?????????????
• Money management is necessary.????????
• Unnecessary spending is reduced.??????????
• The single lifestyle is expensive.?????????????

40
The Trap of Too Much Debt?????

• Little capacity, but the potential for lots of
  debt college students and credit?????????????
• Part of the culture borrowing more than you
  should????????????
• Bankruptcies at an all-time high??????

41
Six Keys to Successful Debt Management???????????

• Key 1 The Obvious Spend Less Than You Earn and
  Budget Your Money
• Use a budget to control spending and build
  savings. Pay yourself 1st!
  1????,????,???????????????
• Key 2 Know The Costs 2????
• Know the long-term costs of borrowing and avoid
  high-priced lenders.?????????,??????????

42
Six Keys to Successful Debt Management
(contd)???????????(?)

• Key 3 Understand the Difference Between Good
  and Bad Debt 3?????????????
• Borrowing makes sense when you can afford the
  downpayment and the future payments, and the
  purchase??????????
• fulfills one of your goals???????
• outlives the financing?????????
• provides a return that is greater than the cost
  (i.e., the effects of depreciation) ???????
  (???????)

43
Six Keys to Successful Debt Management
(contd)???????????(?)

• Key 4 Make Sure You Can Repay What You Borrow
  Set Your Own Standards 4??????????
• Debt limit ratio??????
• total monthly non-mortgage debt
  payments?????????????
• total monthly take-home pay????????
• Apply the 28, 36 mortgage ratios??PITI?????28?P
  ITI??????36???
• Apply the debt limit ratio????????

44
Six Keys to Successful Debt Management
(contd)???????????(?)

• Key 5 Keep a Clean Credit Record Its a
  Source of Emergency Money 5?????????
• Your credit history determines cost of
  borrowing.???????????????????
• Your borrowing capacity is available for
  emergencies.????????????????,?????,??????????

45
Six Keys to Successful Debt Management
(contd)???????????(?)

• How Can You Avoid Credit History
  Problems????????????
• Avoid borrowing up to your limits?????????
• Pay your bills on time???????
• Check your credit report every 2-3 years for
  errors?????????????

46
Six Keys to Successful Debt Management
(contd)???????????(?)

• Key 6 Dont Live with Bad (And Expensive) Debt
  6 ??????(??)???
• In 1998, the typical U.S. family had credit card
  debt of 5,800 ?1998???????????5,800

47
How Can You Avoid Bad and Expensive
Debt?????????????

• Negotiate down the rate on your current credit
  card(s).????????????
• Eliminate the lifestyle pattern that lead to the
  debt??????????????
• Pay more than the minimum payments.????????

48
How Can You Avoid Bad and Expensive Debt?
(contd)????????????(?)

• Liquidate an investment, or savings, that is
  paying less than the interest rate charged on
  debt.?????????????????
• Try to find a cheaper source of money (home
  equity loan, life insurance, friends or
  family).??????????????(???????????????????????)

49
How Can You Avoid Bad and Expensive Debt?
(contd)????????????(?)

• To follow this path, a serious lifestyle change
  may be necessary!????????????,??????????????

50
Getting Started on Your Financial Future??????????

• Begin with a budget and a plan.???????
• Manage your cash monitor bank fees and ATM
  charges.??????-????????ATM ??
• Avoid bad debt get rid of it if you have
  it.??????,??,????
• Build a safety net health, disability, property
  and liability, and life insurance.???????-
  ????????????????
• Start investing for future goals.????????
• Take advantage of tax-favored retirement
  plans.?????????????

51
Nothing Helps Your Financial Plan if You
Procrastinate????????????

• Follow Principle 15????15?????!
• Just
• THE MOST IMPORTANT STEP!??????

52
Summary??

• Financial independence for women is tougher be
  aware of the problems and start planning
  NOW!?????????????,??????????????
• Consider how marriage and children can help you
  match your financial future with your values and
  goals.?????????????????????????
• Share the habit of the wealthy
  frugality.???????-??

53
Summary (contd)??(?)

• Learn and implement the 12 decisions that will
  help you choose wealth.??????????12???
• Meet the financial challenge of controlling debt
  follow the 6 keys to successful debt
  management.??????,????,?????????????
• Develop a basic financial plan for your
  future.but remember to Just Do
  It.?????????????!?????!