WELCOME!!!WELCOME!!!

The Iota Alumni Association welcomes The Iota Alumni Association welcomes you to our Financial Planning Workshopyou to our Financial Planning Workshop

The Goal: Educate you on THE BASICS The Goal: Educate you on THE BASICS of Financial Planningof Financial Planning

Your Humble PresenterYour Humble Presenter

Al Przygocki - Rat class: Fall 1991; Pledge Al Przygocki - Rat class: Fall 1991; Pledge class: Spring 1993 (Bagels & Buffoonery)class: Spring 1993 (Bagels & Buffoonery)

B.S. Mgt., Certificate in Finance, May 2003B.S. Mgt., Certificate in Finance, May 2003

NASD Series 7 & 66; Georgia Insurance NASD Series 7 & 66; Georgia Insurance License for Life, Accident, & Sickness; License for Life, Accident, & Sickness; Variable ProductsVariable Products

Licensed Personal Financial RepresentativeLicensed Personal Financial Representative

Washington Mutual & WM Financial ServicesWashington Mutual & WM Financial Services

THE BASICSTHE BASICS

BUDGETINGBUDGETINGCASH RESERVECASH RESERVECREDIT CARDSCREDIT CARDS

INSURANCEINSURANCEMORTGAGESMORTGAGESINVESTMENTSINVESTMENTS

RETIREMENT PLANNINGRETIREMENT PLANNING

BUDGETINGBUDGETING

BUDGETINGBUDGETING

Your savings is the fuel that feeds the Your savings is the fuel that feeds the engine of long term securityengine of long term security

You MUST earn more than you spendYou MUST earn more than you spend

Two Choices:Two Choices:

–EARN MOREEARN MORE

–SPEND LESSSPEND LESS

Earn MoreEarn More

Never settle for being unhappyNever settle for being unhappy

Changing companies to find a better job is Changing companies to find a better job is commonplace now, even expectedcommonplace now, even expected

Advanced degrees and CertificationsAdvanced degrees and Certifications

Always work on improving your job skills Always work on improving your job skills and your resumeand your resume

Always be ready for change, it is constantAlways be ready for change, it is constant

Spend LessSpend Less

Buy Quicken or MS Money or something Buy Quicken or MS Money or something similar (or design your own, smarty-pants!)similar (or design your own, smarty-pants!)Track every expenditure (down to pieces Track every expenditure (down to pieces of gum) for 30 daysof gum) for 30 daysSort your expenses into 4 categories:Sort your expenses into 4 categories:– SavingsSavings– TaxesTaxes– CommittedCommitted– DiscretionaryDiscretionary

ExpensesExpenses

Savings is probably your smallest expense but Savings is probably your smallest expense but ideally would be the largestideally would be the largest

Taxes are an expense that can be modified & Taxes are an expense that can be modified & must be accounted for but most people ignoremust be accounted for but most people ignore

Committed ExpensesCommitted Expenses– Mortgage/RentMortgage/Rent– Car LoanCar Loan– UtilitiesUtilities– Food (groceries)Food (groceries)

ExpensesExpenses

Discretionary ExpensesDiscretionary Expenses– Dining OutDining Out– Liquid RefreshmentsLiquid Refreshments– GT Season TicketsGT Season Tickets

Football, Baseball, Basketball, Volleyball, etc.Football, Baseball, Basketball, Volleyball, etc.

– Mall Shopping Sprees (those shoes are so you!)Mall Shopping Sprees (those shoes are so you!)– Computer Games, Music CD’s, DVD’s, BooksComputer Games, Music CD’s, DVD’s, Books– Entertainment (movies, concerts, strip clubs)Entertainment (movies, concerts, strip clubs)– Dates (if you’re married, it’s a committed expense)Dates (if you’re married, it’s a committed expense)– EVERYTHING ELSE!!!!EVERYTHING ELSE!!!!

BudgetingBudgeting

Once you know how much you currently Once you know how much you currently spend on things, you can make a plan.spend on things, you can make a plan.

Take your after tax income (we’ll talk Take your after tax income (we’ll talk about controlling taxes later).about controlling taxes later).

Subtract out your committed expenses.Subtract out your committed expenses.

This pool will need to fund both your This pool will need to fund both your savings and your discretionary expensessavings and your discretionary expenses

SAVING IS BETTER THAN SPENDING!!!SAVING IS BETTER THAN SPENDING!!!

Budgeting, part 2Budgeting, part 2

Most people spend first, and then save Most people spend first, and then save what’s “leftover”what’s “leftover”

So, they spend a lot and save little (if any)So, they spend a lot and save little (if any)

Smart answer: Save First, spend leftoversSmart answer: Save First, spend leftovers

Automate your savingsAutomate your savings– 401(k) contributions401(k) contributions– Automatic Transfers to Savings AccountsAutomatic Transfers to Savings Accounts– Bank Authorizations into Brokerage AccountsBank Authorizations into Brokerage Accounts

Budgeting, part 3Budgeting, part 3

Automate your regular expensesAutomate your regular expenses– Online Bill PayOnline Bill Pay– Bank Authorizations from Checking AccountsBank Authorizations from Checking Accounts

Saves stampsSaves stamps

Saves timeSaves time

Saves late paymentsSaves late payments

Saves your credit recordSaves your credit record

CASH RESERVECASH RESERVE

SavingsSavings

Having a Cash Reserve is CRITICAL!!!Having a Cash Reserve is CRITICAL!!!Experts recommend having between 3 Experts recommend having between 3 and 6 months worth of CASH available to and 6 months worth of CASH available to fund Committed Expensesfund Committed ExpensesThis is to take care of Emergencies or This is to take care of Emergencies or Opportunities as they arise. Cash is Opportunities as they arise. Cash is King!!!King!!!Taking money out of your savings account Taking money out of your savings account is a lot cheaper than using Credit Cardsis a lot cheaper than using Credit Cards

Savings, part 2Savings, part 2

Step 1: Direct Deposit your paycheckStep 1: Direct Deposit your paycheck– You can do it into more than one accountYou can do it into more than one account– Put enough in checking to cover your billsPut enough in checking to cover your bills– Put the rest into your savings accountPut the rest into your savings account

Step 2: Build up one month of reserve in Step 2: Build up one month of reserve in your checking accountyour checking account

Step 3: Build up two to five months of Step 3: Build up two to five months of reserve in your savings accountreserve in your savings account

Savings, part 3Savings, part 3

Once you have a Cash Reserve in place, Once you have a Cash Reserve in place, begin saving for long term goalsbegin saving for long term goals

You should begin to save up for a down You should begin to save up for a down payment on a housepayment on a house

Direct the portion that was going into your Direct the portion that was going into your savings into a new savings accountsavings into a new savings account

During this time, you should work on During this time, you should work on building your creditbuilding your credit

CREDIT & DEBTCREDIT & DEBT

CreditCredit

If you thought your GPA was important, If you thought your GPA was important, wait until you meet your credit scorewait until you meet your credit scoreYour credit score impacts many thingsYour credit score impacts many things– Interest rate on Loans (Car, Home, Personal, Interest rate on Loans (Car, Home, Personal,

etc.)etc.)– Employment (Many employers will run a credit Employment (Many employers will run a credit

check on you to see if you are responsible)check on you to see if you are responsible)– Relationships (Maybe this is an over 30 thing, Relationships (Maybe this is an over 30 thing,

but many people won’t get married to but many people won’t get married to someone with a bad credit score)someone with a bad credit score)

Credit AdviceCredit Advice

Limit yourself to two credit cardsLimit yourself to two credit cards– One is for paying bills and daily expensesOne is for paying bills and daily expenses– One is for Very Rainy Days (think Hurricane)One is for Very Rainy Days (think Hurricane)

Link your Online Bill Payments to the Link your Online Bill Payments to the Credit Card for bills & expensesCredit Card for bills & expensesHave one of your Online Bill Payments Have one of your Online Bill Payments come from your Checking Account to pay come from your Checking Account to pay the Credit Card down to $100 at the end of the Credit Card down to $100 at the end of each montheach month

Already in Debt?Already in Debt?

Credit Cards, Student Loans, Bookies, etc.Credit Cards, Student Loans, Bookies, etc.Debt is like cholesterol; Some is good and Debt is like cholesterol; Some is good and some is bad, and we would be in trouble if some is bad, and we would be in trouble if we had too little and if we had too muchwe had too little and if we had too muchGood debt = Mortgages, Student Loans, Good debt = Mortgages, Student Loans, anything at a low rate, anything investing anything at a low rate, anything investing in your future growthin your future growthBad debt = Credit Cards, anything at a Bad debt = Credit Cards, anything at a high rate, anything invested in stuffhigh rate, anything invested in stuff

Getting out of DebtGetting out of Debt

Highest Rate not the highest balanceHighest Rate not the highest balanceDon’t wipe out your Cash Reserve to pay off Don’t wipe out your Cash Reserve to pay off your debts!!! You’ll just end up right back in debt your debts!!! You’ll just end up right back in debt as soon as anything bad happens.as soon as anything bad happens.Take your Cash Reserve down some to pay off Take your Cash Reserve down some to pay off any debt that is at a high rate (over 10%)any debt that is at a high rate (over 10%)If you don’t have a Cash Reserve but you do If you don’t have a Cash Reserve but you do have debt, split your monthly savings evenly have debt, split your monthly savings evenly between Cash Reserves & paying off Debt until between Cash Reserves & paying off Debt until one goal is met and then finish off the otherone goal is met and then finish off the other

INSURANCEINSURANCE

InsuranceInsurance

Everyone needs insuranceEveryone needs insurance

You are paying the insurance company to take You are paying the insurance company to take the risk of something bad happeningthe risk of something bad happening

If you have a body, you need health insuranceIf you have a body, you need health insurance

If you have children and/or a spouse, you need If you have children and/or a spouse, you need life insurancelife insurance

If you count on your job for income, you need If you count on your job for income, you need disability insurancedisability insurance

If you have property, you should insure itIf you have property, you should insure it

Insurance, part twoInsurance, part two

Luckily, you can do the basics through your jobLuckily, you can do the basics through your jobSign up for the most free or low cost coverage Sign up for the most free or low cost coverage you can get (life, health, dental, vision, long term you can get (life, health, dental, vision, long term care, & disability)care, & disability)If you need more than the basics (life, disability, If you need more than the basics (life, disability, LTC), consult a financial advisorLTC), consult a financial advisorRenter’s Insurance is cheap and worth itRenter’s Insurance is cheap and worth itCar Insurance tip: High Deductible = Low Rates; Car Insurance tip: High Deductible = Low Rates; Low Deductible = High Rates. If your car has a Low Deductible = High Rates. If your car has a low replacement value, go for a high deductible low replacement value, go for a high deductible and save the difference into an account to buy a and save the difference into an account to buy a replacement (best value = 2 year old used car)replacement (best value = 2 year old used car)

MORTGAGESMORTGAGES

Home OwnershipHome Ownership

Renting is a temporary fix for a permanent Renting is a temporary fix for a permanent problem. When the lease is up, what do problem. When the lease is up, what do you have to show for your money?you have to show for your money?

Buying a home is typically a larger monthly Buying a home is typically a larger monthly expense, but it actually costs less because expense, but it actually costs less because you actually get something for your money you actually get something for your money (Appreciation in Value of the Home, (Appreciation in Value of the Home, Accumulation of Equity, Tax Write-Off)Accumulation of Equity, Tax Write-Off)

Renting vs. BuyingRenting vs. Buying

Pay $1,000 a month in rent for 7 years. You Pay $1,000 a month in rent for 7 years. You have spent $84,000 and have zero.have spent $84,000 and have zero.Pay $1,473 a month in mortgages for 7 years on Pay $1,473 a month in mortgages for 7 years on a home worth $220,000. You have spent a home worth $220,000. You have spent $123,732 and could have equity of $156,995, $123,732 and could have equity of $156,995, and a tax savings of $31,689 for a profit of and a tax savings of $31,689 for a profit of $80,061 while you lived there.$80,061 while you lived there.Assumptions: 10% down, 6% fixed 30 year Assumptions: 10% down, 6% fixed 30 year mortgage, 34% combined federal & state taxes, mortgage, 34% combined federal & state taxes, 7% selling expenses, 6% annual appreciation7% selling expenses, 6% annual appreciationhttp://www.wamuhomeloans.com/calculators/http://www.wamuhomeloans.com/calculators/c04rent/index.ogncc04rent/index.ognc

MortgagesMortgages

Fixed Rate MortgagesFixed Rate Mortgages

Adjustable Rate MortgagesAdjustable Rate Mortgages

Interest Only MortgagesInterest Only Mortgages

Home Equity LoansHome Equity Loans

Home Equity Lines of CreditHome Equity Lines of Credit

Mortgage TypesMortgage Types

Fixed Rate MortgagesFixed Rate Mortgages– Most Common Type in the U.S.Most Common Type in the U.S.– Least Common Type in the rest of the worldLeast Common Type in the rest of the world– Locked in Rate, Same Payment ThroughoutLocked in Rate, Same Payment Throughout

Adjustable Rate MortgagesAdjustable Rate Mortgages– Rate Resets periodically based on an IndexRate Resets periodically based on an Index

Interest Only MortgagesInterest Only Mortgages– Lowest Rate, Only have to pay interest portion, option Lowest Rate, Only have to pay interest portion, option

to pay down principal, lowest monthly paymentto pay down principal, lowest monthly payment– Payment adjusts periodically based on remaining Payment adjusts periodically based on remaining

principalprincipal

More Mortgage TypesMore Mortgage Types

Home Equity LoansHome Equity Loans– Loan equal to the amount of Equity in your HomeLoan equal to the amount of Equity in your Home– Paid to you in a lump sumPaid to you in a lump sum– You pay it back over time in equal paymentsYou pay it back over time in equal payments– Interest is tax deductibleInterest is tax deductible

Home Equity Lines of Credit (HELOC’s)Home Equity Lines of Credit (HELOC’s)– Credit Line equal to the amount of Equity in your Credit Line equal to the amount of Equity in your

HomeHome– Works like a credit cardWorks like a credit card– Only pay back what you useOnly pay back what you use– Interest is tax deductibleInterest is tax deductible

Mortgage AdviceMortgage Advice

If this is the last home you are ever going If this is the last home you are ever going to buy, then a Fixed Rate is perfect when to buy, then a Fixed Rate is perfect when rates are lowrates are lowIf rates are high or you expect to be in If rates are high or you expect to be in your home for longer than 10 years but your home for longer than 10 years but less than 30 years, Choose an Adjustable less than 30 years, Choose an Adjustable RateRateIf you know you will be in your home for If you know you will be in your home for less than 10 years, Choose Interest Onlyless than 10 years, Choose Interest Only

Mortgage Advice, part twoMortgage Advice, part two

Home Equity Loans are not a great ideaHome Equity Loans are not a great idea

Home Equity Lines of Credit are a great Home Equity Lines of Credit are a great ideaidea– Flexibility – Use only how much you need, Flexibility – Use only how much you need,

when you need itwhen you need it– Convenience – Only pay the minimums if Convenience – Only pay the minimums if

cash flow is tightcash flow is tight– Affordability – Cheaper than Credit Cards, Affordability – Cheaper than Credit Cards,

especially considering the tax deductibilityespecially considering the tax deductibility

INVESTMENTSINVESTMENTS

Why Start Now?Why Start Now?

Two 20-year olds, Aaron & BobTwo 20-year olds, Aaron & Bob

Aaron – invests $2,000/yr for 10 years and Aaron – invests $2,000/yr for 10 years and then sits on it for 20 yearsthen sits on it for 20 years

Bob – does nothing for 10 years, then Bob – does nothing for 10 years, then invests $2,000/yr for 20 yearsinvests $2,000/yr for 20 years

At the end of 30 years, who has the most At the end of 30 years, who has the most money?money?

The MathThe Math

Assuming 10% rate of return, compound Assuming 10% rate of return, compound annuallyannuallyAaron has ($2,000)x(1.10)^30 + … + Aaron has ($2,000)x(1.10)^30 + … + ($2,000)x(1.10)^21 = $235,881.85($2,000)x(1.10)^21 = $235,881.85Bob has ($2,000)x(1.10)^20 + … + Bob has ($2,000)x(1.10)^20 + … + ($2,000)x(1.10)^1 = $126,005.00($2,000)x(1.10)^1 = $126,005.00Aaron invested half as much and has Aaron invested half as much and has almost twice as much!!!almost twice as much!!!Behold the Power of Compounding!!!Behold the Power of Compounding!!!

Investing 101Investing 101

StocksStocks– You are buying a piece of a CompanyYou are buying a piece of a Company– Profit for investor comes from dividends Profit for investor comes from dividends

and/or from capital gainand/or from capital gain

BondsBonds– You are loaning money to a CompanyYou are loaning money to a Company– Profit for investor comes from dividend and/or Profit for investor comes from dividend and/or

from capital gainfrom capital gain

Investing 101, part 2Investing 101, part 2

Diversification comes in many different flavorsDiversification comes in many different flavors– Types of industries (utility vs. high tech)Types of industries (utility vs. high tech)– Types of companies (small cap vs. large cap)Types of companies (small cap vs. large cap)

Market Capitalization = Price of Stock x Shares OutstandingMarket Capitalization = Price of Stock x Shares OutstandingGeneral Electric (GE) is a Large Cap (well over $5 Billion)General Electric (GE) is a Large Cap (well over $5 Billion)Barnes & Noble (BKS) is a Mid Cap ($1 Billion - $5 Billion)Barnes & Noble (BKS) is a Mid Cap ($1 Billion - $5 Billion)Hot Topic (HOTT) is a Small Cap ($250MM - $1Billion)Hot Topic (HOTT) is a Small Cap ($250MM - $1Billion)

– Types of investments (stocks vs. bonds)Types of investments (stocks vs. bonds)– Value (established companies with dividends) vs. Value (established companies with dividends) vs.

Growth (newer companies seeking capital gain)Growth (newer companies seeking capital gain)– Length of time (short term vs. retirement)Length of time (short term vs. retirement)– Tax Treatments (tax deferred vs. taxable)Tax Treatments (tax deferred vs. taxable)

DiversificationDiversification

If you own one stock, then your entire portfolio is If you own one stock, then your entire portfolio is dependent on that one company doing well.dependent on that one company doing well.If you own 20 stocks but they are all in the same If you own 20 stocks but they are all in the same sector (oil companies), then you are dependent sector (oil companies), then you are dependent on one sector doing wellon one sector doing wellIf you own 500 stocks spread across 20 different If you own 500 stocks spread across 20 different sectors, then you are dependent on the stock sectors, then you are dependent on the stock market to do wellmarket to do wellThe same holds true for bondsThe same holds true for bondsIf you have a portfolio that is truly diversified If you have a portfolio that is truly diversified across all stock sectors and all bond sectors, across all stock sectors and all bond sectors, then you are dependent on the world doing wellthen you are dependent on the world doing well

Diversification, part 2Diversification, part 2

Problem: How in the heck am I going to Problem: How in the heck am I going to own the hundreds of stocks and hundreds own the hundreds of stocks and hundreds of bonds I need to get truly diversified?of bonds I need to get truly diversified?

Solution: Buy Mutual Funds!Solution: Buy Mutual Funds!

Mutual FundsMutual Funds

Fund companies gather investor assets Fund companies gather investor assets and buy enough stocks and/or bonds to and buy enough stocks and/or bonds to have diversified portfolioshave diversified portfolios

You, the investor, then buy shares of the You, the investor, then buy shares of the whole portfoliowhole portfolio

You can buy pieces of thousands of stocks You can buy pieces of thousands of stocks and bonds in small incrementsand bonds in small increments

Different funds have different fociDifferent funds have different foci

Harry Markowitz & YouHarry Markowitz & You

1990 Nobel Prize in Economics1990 Nobel Prize in Economics

Researched Portfolio PerformanceResearched Portfolio Performance

Used Linear Regression ModelingUsed Linear Regression Modeling

Found 3 Major Factors in ReturnsFound 3 Major Factors in Returns– Selection (which stocks or bonds to buy)Selection (which stocks or bonds to buy)– Timing (when to sell, when to buy)Timing (when to sell, when to buy)– Asset Class (what types of investments)Asset Class (what types of investments)

Asset AllocationAsset Allocation

2% comes from Timing2% comes from Timing

6% comes from Selection6% comes from Selection

92% comes from Asset Allocation92% comes from Asset Allocation

It makes sense. A portfolio of 100% stock It makes sense. A portfolio of 100% stock will behave much differently than one that will behave much differently than one that is 100% bonds, regardless of which stocks is 100% bonds, regardless of which stocks or bonds are in the portfolios.or bonds are in the portfolios.

So, let’s focus on the 92% for a minuteSo, let’s focus on the 92% for a minute

Asset Allocation, part 2Asset Allocation, part 2

The asset allocation in your portfolio is The asset allocation in your portfolio is based on your risk tolerance and your long based on your risk tolerance and your long term needs for returns.term needs for returns.The more risk-averse you are, and the The more risk-averse you are, and the less dependent you are on high returns, less dependent you are on high returns, then the higher the bond componentthen the higher the bond componentThe less risk-averse you are and the more The less risk-averse you are and the more dependent you are on high returns, then dependent you are on high returns, then the higher the stock componentthe higher the stock component

Asset ClassesAsset Classes

StocksStocks– Large Cap (Growth & Value)Large Cap (Growth & Value)– Mid Cap (Growth & Value)Mid Cap (Growth & Value)– Small Cap (Growth & Value)Small Cap (Growth & Value)

BondsBonds– Short TermShort Term– IntermediateIntermediate– Long TermLong Term– GovernmentGovernment– High YieldHigh Yield– JunkJunk

International (same as above classes)International (same as above classes)

Sample PortfoliosSample Portfolios

Aggressive – 100% stock, 0 % bondAggressive – 100% stock, 0 % bond– 40% Large, 30% Mid, 20% Small, 10% Intl.40% Large, 30% Mid, 20% Small, 10% Intl.

Moderate Aggressive – 80% stock, 20% bondModerate Aggressive – 80% stock, 20% bond– 40% Large, 20% Mid, 10% Small, 10% Intl., 10% High Yield 40% Large, 20% Mid, 10% Small, 10% Intl., 10% High Yield

Bonds, 10% Government Bonds.Bonds, 10% Government Bonds.

Moderate – 50% stock, 50 % bondModerate – 50% stock, 50 % bond– 20% Large, 10% Mid, 10% small, 10% Intl., 20% High Yield 20% Large, 10% Mid, 10% small, 10% Intl., 20% High Yield

Bonds, 20% Government Bonds, 10% Intl. bondBonds, 20% Government Bonds, 10% Intl. bond

Moderate Conservative – 20% stock, 80% bondModerate Conservative – 20% stock, 80% bond– 10% Large, 5% Mid, 5% Small, 20% High Yield, 20% 10% Large, 5% Mid, 5% Small, 20% High Yield, 20%

Government, 20% Intermediate, 20% Intl. bondGovernment, 20% Intermediate, 20% Intl. bond

Conservative – 100% bondConservative – 100% bond– 30% High Yield, 30% Government, 20% Intermediate, 20% Intl.30% High Yield, 30% Government, 20% Intermediate, 20% Intl.

RebalancingRebalancing

OK, so you have your perfect portfolio, but OK, so you have your perfect portfolio, but over time different funds will grow at over time different funds will grow at different rates – So what? Well, now your different rates – So what? Well, now your perfect portfolio is out of whackperfect portfolio is out of whackYou need to rebalance your account at You need to rebalance your account at least annually (at most quarterly) by selling least annually (at most quarterly) by selling your winners and buying your losersyour winners and buying your losersThis forces you to sell high and buy low This forces you to sell high and buy low and it also uses Dollar Cost Averaging!and it also uses Dollar Cost Averaging!

RETIREMENT RETIREMENT PLANNINGPLANNING

Tax DiversificationTax Diversification

There are basically three ways that your There are basically three ways that your investments accounts can be taxedinvestments accounts can be taxed– Taxed NowTaxed Now– Taxed LaterTaxed Later– Taxed NeverTaxed Never

Taxed NowTaxed Now

You pay taxes on the interest payments You pay taxes on the interest payments you receiveyou receive

You pay taxes on Capital Gains if you sell You pay taxes on Capital Gains if you sell for a profitfor a profit– Basic Brokerage AccountBasic Brokerage Account– Savings AccountSavings Account– Certificates of DepositCertificates of Deposit

Taxed LaterTaxed Later

Funded with pre-tax dollars (or write off in Funded with pre-tax dollars (or write off in the case of IRA’s)the case of IRA’s)Withdrawals taxed as Ordinary IncomeWithdrawals taxed as Ordinary IncomeTypically, there are special rulesTypically, there are special rules– Age 59 ½, 10% early withdrawal penaltyAge 59 ½, 10% early withdrawal penalty– RMD (Required Minimum Distributions) at RMD (Required Minimum Distributions) at

Age 70 ½ Age 70 ½

Examples: 401(k), 403(b), Annuities, Examples: 401(k), 403(b), Annuities, Traditional IRA’sTraditional IRA’s

Taxed NeverTaxed Never

These accounts are funded with after tax These accounts are funded with after tax dollarsdollars

If managed properly, withdrawals are not If managed properly, withdrawals are not taxabletaxable

Examples:Examples:– Roth IRARoth IRA– Municipal BondsMunicipal Bonds– Cash Value Life InsuranceCash Value Life Insurance

Basic Tax DiversificationBasic Tax Diversification

If you could invest all of your money in If you could invest all of your money in only one of these categories, you would go only one of these categories, you would go for Tax Never, but it’s not that easyfor Tax Never, but it’s not that easyRoth IRA – limited contributions ($4,000 Roth IRA – limited contributions ($4,000 for 2005-07; $5,000 in 2008); Also, if you for 2005-07; $5,000 in 2008); Also, if you have a large income, you may not qualifyhave a large income, you may not qualifyMunicipal Bonds – Too little returnMunicipal Bonds – Too little returnCash Value Life Insurance – great if you Cash Value Life Insurance – great if you need life insurance; pricey if you don’tneed life insurance; pricey if you don’t

Tax StrategyTax Strategy

Max your 401(k) to the matchMax your 401(k) to the match

Then, max your Roth IRAThen, max your Roth IRA

Then, max your 401(k) ($14,000 for 2005)Then, max your 401(k) ($14,000 for 2005)

Then, fund a Cash Value Life Insurance Then, fund a Cash Value Life Insurance Policy (if you have a need for life Policy (if you have a need for life insurance)insurance)

Then, fund a Brokerage Account (taxable)Then, fund a Brokerage Account (taxable)

Financial ProfessionalsFinancial Professionals

Financial Professionals are more Financial Professionals are more affordable than ever beforeaffordable than ever beforeIf you’d rather spend your time making If you’d rather spend your time making money than managing it, hire a Promoney than managing it, hire a ProGet a good accountantGet a good accountantGet a Financial AdvisorGet a Financial AdvisorGet a Will (not Bishop, he’s a pansy!)Get a Will (not Bishop, he’s a pansy!)Paying for advice on the front end is Paying for advice on the front end is cheaper than fixing problems on the backcheaper than fixing problems on the back

Want to know more?Want to know more?

Many great sources of information on the Many great sources of information on the internetinternet

Talk to a financial professional; Almost all Talk to a financial professional; Almost all of them offer a free consultation (the first of them offer a free consultation (the first one’s free, then you’re hooked!)one’s free, then you’re hooked!)

Many great books out there (but beware of Many great books out there (but beware of the bad ones)the bad ones)

ASK ME!!! (Al) – Take a business card!ASK ME!!! (Al) – Take a business card!

QUESTIONS?QUESTIONS?