Pay Yourself First to Achieve Financial Freedom!

Achieve your personal goals

Why Do You Work?Make a short list

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Income to:◦ Provide for basic needs

Food Shelter Clothing

◦ Achieve your personal goals Home ownership Travel Retirement Children’s Education

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Why Do you Work?

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Goals should be SMART:◦ Specific: know what your goals are to create a plan◦ Measurable: with a specific amount◦ Action-oriented: identify the personal financial

activities◦ Realistic: utilizing your income and life situation◦ Time-based: identify the time frame to achieve the

goal

Example: To save $20,000 by 2015 to make a down payment on a house by increasing savings by $200/month.

Goal Setting Guidelines

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Write a short-term goal Write an intermediate goal Write a long-term goal

Include an action plan of how to achieve each

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What are your goals?

“Pay Yourself First”◦ What does this mean to you?◦ Why is it important?

Definition: Set aside a certain dollar amount each pay period to save and invest for the future.

Ideally, have the amount automatically deducted from your check so that you never see the money

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Philosophy for Success

Needs vs Wants◦ Focus on Needs ◦ Set goals to meet Wants◦ Keep a daily spending diary for at least a month

to determine where your money goes◦ Reduce spending, increase savings

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How to Adopt “Pay Yourself First”

Spend—Reduce Save--Increase Share—Support Sacrifice--Required

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4 Ss of Resource Allocation

Challenge:◦ Begin a Daily Spending Diary Today◦ Track Every Penny You Spend◦ Determine things that you can reduce◦ Save that money and begin paying yourself

So, what can you do without? (50-30-20)◦ 50% on Needs◦ 30% on Wants◦ 20% on Savings and Debt Repayment

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Importance of Daily Spending Diary

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Save Now

“Let’s assume you make $50,000 a year. That’s about $2,000 every two weeks, so to save 10 percent of your income, you’d have to save $200 every two weeks or $14 a day.Result: Invest $200 every two weeks for 35 years in a retirement account that earned an annual return of 10 percent what would you have? $1,678,293.78.”Source: D. Bach, “The Automatic Millionaire”:

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Example of Time Value

Savings accts and certificates of deposit U.S. savings bonds United States treasury bills Municipal bonds Corporate bonds Preferred and income common stocks Income mutual funds Real estate rental property

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Investment Options

Growth means increase in value Growth companies pay little or no

dividends, but reinvest in the company Mutual funds, government and corporate

bonds, and real estate offer growth potential

Gemstones and collectibles - more speculative

Real Estate lacks liquidity

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Investment Growth

The process of placing your assets among several types of investments which lessens your risk in different market cycles

Dependent on:◦ Time Factor—the longer the better◦ Your Age—type will change as you age◦ Financial Goals◦ Risk Tolerance—How comfortable are you with

exposure? Are you young enough to recover?

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Asset Allocation

My expenses will decrease when I retire My retirement will only last 15 years Social Security & my pension will pay for my

basic living expenses My pension benefits will increase to keep pace

with inflation My employers health insurance plan and

Medicare will cover my medical expenses There’s plenty of time for me to start saving for

retirement Saving just a little bit won’t help

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Retirement Planning Misconceptions

If from age 25 to 65 you invest $300 a month (9%), at age 65 you’ll have a nest egg of $1.4 million

Wait ten years until age 35 to start and you’ll have about $550,000 at age 65

Wait twenty years until age 45 and you’ll have only $201,000 at age 65

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Time Value of Money

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Many people are concerned about the future of Social Security.

Longer life expectancies means retirees collect benefits longer

People are retiring earlier and entering the system sooner and staying longer

The baby boomers will begin retiring soon and the ratio of workers to retirees is doing down◦ In 1945 there were 42 workers per retiree,◦ In 2008 there are three workers per

retiree, by 2032 it will drop to 2.1 workers per retiree

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Future of Social Security

Employer Pension Plan 401K IRAs Social Security Annuities

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Types of Retirement Plans

Pay yourself first◦ Start Small if you must◦ Find ways to cut spending◦ Set goals to guide your saving/spending

Time Value of Money◦ The earlier you begin, the more likely to achieve

your goals Monitor, review and revise annually

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Summary