Download Personal Finance – An Introduction

Personal Finance – An
Introduction
Dr. Steven M. Hays
Personal Finance
BKHS – Fall 2011
Why Is Money Important?
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•
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Pay Bills
Make Purchases
Retirement
Housing
Vacations
Education
Three Techniques for Understanding the
Importance of Money
1. Budget
2. Rate of Return
3. Risk
BUDGETS
• What is a budget?
• Why is a budget
important?
• How is a budget
used?
Budgets and Expenses
• Define expense:
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Definition of EXPENSE
1 archaic : the act or an instance of expending : expenditure
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2 a : something expended to secure a benefit or bring about a result b :
financial burden or outlay : cost <built the monument at their own
expense> c : an item of business outlay chargeable against revenue for a
specific period
Budget to Save – You Can Create Personal
Wealth
1.
2.
3.
4.
5.
Budget
Save and Invest
Pay off Debt
Avoid Credit Cards
Save for Retirement
The Millionaire’s Quiz – True or False
• Most millionaires inherited their wealth
• Most millionaires earn more than $500,000 a year
• College graduates earn about twice what high school graduates
earn over a 40 year work life.
• People who are self-employed rarely become millionaires.
• All millionaires wear expensive clothing.
• Millionaires usually drive new cars.
• Many millionaires drop out of college to start work.
• It is impossible to save enough to be a millionaire.
“Wealth Is…”
Building Net Worth
• What is net worth?
• The Financial Equation
– Assets – Liabilities = Net Worth
• Assets
– Anything an individual or business owns that has commercial
or exchange value
• Liabilities
– Money an individual or organization owes; same as debt
• Is a person’s assets the same as a person’s net worth?
Balance Sheets of the Rich and
Famous activity
Following the Money Map
• Destination 1
• Emergency Savings
 Begin using a spending
plan
 Save $1,000
Destination 2
• Credit Cards Paid Off
 Pay off credit cards
 Increase savings to one month’s
living expense
Destination 3
• Consumer debt paid off
 Pay off all consumer debt
Auto loans
Student loans
 Increase savings to 3 months living expense
Destination 4
Save for Major Purchases
Save for MajorBegin
Purchases
saving for major
Begin saving purchases
for major purchases
Home
Auto
Home
Auto
saving for retirement
Begin saving Begin
for retirement
Begin saving for children’s
Begin saving for children’s college education
college education
If you want toIf
start
own
business,
start
you
want
to start
own
saving
business, start saving
Destination 5
• Buy Home, Begin Investing
 Buy affordable home
 Begin prepaying home
mortgage
 Begin investing wisely
Destination 6
• Home Mortgage Paid Off
 Pay off mortgage
 Children’s education funded
 Confirm estate plan is in order
Destination 7
• Final Destination
 Retirement is funded
 I am free to volunteer my time working for the Lord
What Does It Mean to be Wealthy?
• Name two assets that are likely to depreciate in value over time.
• What happens to wealth if debt is used to purchase consumable
items?
• What conditions would allow a house to considered a wealthcreating asset?
• Why might a U.S. Treasury security be called a wealth creating
asset?
Homework
• Sandra’s Balance Sheet –
complete and turn in on Tuesday, September 13, 2011