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Foundations of Leadership Conference Have the Courage to Lead Out in Personal Finance Bryan L. Sudweeks, Ph.D., CFA August 25, 2015 Abstract • Personal finance is simply part of the gospel of Jesus Christ, like Sunday School, scripture study, or Indexing. Whether you like it or not, you are a leader. Others look up to you, and you have an influence on what others may do or become. As you lead in other areas, have the courage also to lead out in personal finance. Remember your ABCs: remember principles; live on a budget; understand and use credit wisely; minimize then eliminate debt; and learn to give. 2 Leadership A leader is one who knows the way, goes the way, and shows the way. Poster in my daughter’s 7th grade classroom 3 Objectives A. B. C. D. E. Remember the “A” List Embrace the “B” Word Tame the “C” Monster Use wisely the “D” Word Share the good “G” Word 4 A. Remember the “A” List - Principles • Elder Richard G. Scott commented: • Joseph Smith’s inspired statement, “I teach them correct principles, and they govern themselves,” still applies. The Lord uses that pattern with us. . . Your consistent adherence to principle overcomes the alluring yet false life-styles that surround you. Your faithful compliance to correct principles will generate criticism and ridicule from others, yet the results are so eternally worthwhile that they warrant your every sacrifice (Richard G. Scott, “The Power of Correct Principles,” Ensign, May 1993, 32). • What are those correct principles that are so eternally 5 worthwhile? Principle 1: Ownership 1. Ownership: Everything we have is the Lord’s • The Psalmist wrote: • The earth is the Lord’s, and the fullness thereof; the world, and they that dwell therein. (Psalms 24:1) • The Lord is the creator of the earth (Mosiah 2:21), the supplier of our breath (2 Nephi 9:26), the giver of our knowledge (Moses 7:32), the provider of our life (Mosiah 2:22), and the giver all we have and are (Mosiah 2:21). . 6 Principle 2: Stewardship 2. We are stewards over all that the Lord has, is giving, or will share with us • The Lord said: • Thou shalt be diligent in preserving what thou hast, that thou mayest be a wise steward; for it is the free gift of the Lord thy God, and thou art his steward (D&C 136:27). 7 Principle 3: Agency 3. We were given agency by a loving Father • President David O. McKay: • “Next to the bestowal of life itself, the right to direct that life is God’s greatest gift to man. … Freedom of choice is more to be treasured than any possession earth can give” (italics added, in Conference Report, Apr. 1950, p. 32; italics added). 8 Principle 4: Accountability 4. Accountability: We are accountable for every choice we make • The Lord through the prophet Joseph stated: • For it is required of the Lord, at the hand of every steward, to render an account of his stewardship, both in time and in eternity (D&C 72:3). • Elder Todd Christofferson recently stated: • We control the disposition of our means and resources, but we account to God for this stewardship over earthly things (D. Todd Christofferson, “Come to Zion”, Ensign, November 2008 ). 9 What is Really Ours? • Elder Neal A. Maxwell stated: • The submission of one’s will is really the only uniquely personal thing we have to place on God’s altar. The many other things we “give,” brothers and sisters, are actually the things He has already given or loaned to us. However, when you and I finally submit ourselves, by letting our individual wills be swallowed up in God’s will, then we are really giving something to Him! It is the only possession which is truly ours to give! (italics added, “Swallowed Up in the Will of the Father,” Ensign, Nov. 1995, 22). 10 B. Embrace the “B” Word - Budget • President Spencer W. Kimball said: • Every family should have a budget. Why, we would not think of going one day without a budget in this Church or our businesses. We have to know approximately what we may receive, and we certainly must know what we are going to spend. And one of the successes of the Church would have to be that the Brethren watch these things very carefully, and we do not spend that which we do not have (Conference Report, April 1975, pp. 166-167). 11 Budgeting (continued) • What is a Budget? • It’s the single most critical tool in helping you achieve your personal and financial goals • It’s the process of making sure your resources are used for the things that matter most—your personal goals • It is giving every dollar a name—a purpose • Budgeting is a star (or tool) to set your sights by, not a stick to beat yourself with. 12 Budgeting (continued) • What is the Budgeting Process? • • • • • 1. Know what you want to accomplish 2. Track your spending 3. Develop your budget 4. Implement your budget 5. Compare it to actual spending, then make changes where necessary to achieve your goals 13 Budgeting (continued) 1. Know what you want—write it down • What do you want to accomplish? • Do you want to: • Prepare for a mission? • Prepare to be a worthy husband or wife? • Graduate? • Get a great job? • Return to your Heavenly Father? • Determine what you want to do, then write it down. A goal not written is only a wish 14 Budgeting (continued) 2. Track your Spending • There are different methods to track spending: • Checks and credit cards • These leave a paper trail • Cash • Record spending in a notebook • Computer programs, i.e., Quicken, Money • These are useful, especially if tied to bank and credit card companies • The goal is to generate a record of everything you earn and spend 15 Budgeting (continued) 3. Develop a Budget--the better way • What is a Budget? • It’s a plan for controlling earning and spending • Its purpose -- To help you spend your money of what is really important to you • Earnings/scholarships/gifts/grants: • Determine what you earned last year, and make adjustments for the current year • Expenses/school costs: • Identify all fixed (“must have”) and variable (“would be nice to have”) spending 16 Budgeting: The Old Way Income Tithing Expenses Available for Savings Personal Goals 17 Budgeting: The Better Way Income Pay the Lord Pay Yourself Expenses Other Savings Personal Goals 18 The Better Way (continued) Elder L. Tom Perry said: • After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. That leaves you a balance of your income to budget for taxes, food, clothing, shelter, transportation, etc. It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing. (L. Tom Perry, “Becoming Self-Reliant,” Ensign, Nov. 1991, 64.) 19 Budgeting (continued) • 4. Implement your budget • Try the budget for a month • Record all earning and spending in a spreadsheet • Sum all days or columns by category • Note how much you have available in each category at the end of each week • Adjust the plan as necessary to maintain the plan 20 Budgeting (continued) 5. Compare budget to spending • Compare your budget to actual spending • Adjust the plan or your expenses as necessary to maintain the plan • Don’t reduce payments to the Lord or yourself • If all else fails, this system will work! • The Envelope System: • Put money for each expense in an envelope • When the money is gone, its gone • It forces you to make it work 21 Budgeting (continued) Elder Marvin J. Ashton stated: • Some claim living within a budget takes the fun out of life and is too restrictive. But those who avoid the inconvenience of a budget must suffer the pains of living outside of it. The Church operates within a budget. Successful business functions within a budget. Families free of crushing debt have a budget. Budget guidelines encourage better performance and management (italics added, Marvin J. Ashton, “It’s No Fun Being Poor,” Ensign, Sept. 1982, 72). 22 Want help with Budgeting? • You can download a copy of a budgeting spreadsheet in the “better way” format from the Personal Finance website at: • http://personalfinance.byu.edu. • Click on Teaching Tools and Teaching Tool 4 or 31: Budget spreadsheet (which includes tools to help prepare your Budget and also get out of debt) • You can use free programs: • Mint.com • You can also buy preprogramed software: • Quicken, MoneyDesktop, Mvelopes, YNAB 23 C. Tame the “C” Monster - Credit • Know about Credit Reports, Credit Scoring, and Credit Cards • 1. Credit reports • Information collected by credit bureaus from private and public records • 2. Credit scoring • A numerical evaluation of your credit based on specific criteria (similar to a grade in a class) • 3. Credit cards • Either the single most destructive financial instrument in the history of mankind or a financial tool to help you attain your goals 24 1. Credit Reports • What are credit reports? • Credit reports are privately collected information on all your existing and available credit • It includes all your borrowing history, credit card balances and payment history, mortgages, phone payment records and the like • Like it or not, it is a record of how well you handle credit • You can get a copy of your free credit report at www.annualcreditreport.com 25 2. Credit Scoring • What is credit scoring? • It’s a way of grading your ability to pay back loans • 75% of all mortgage (home loan) applications are sorted on credit scores • It may help you get the lowest interest rate on many types of consumer loans • Home, car, and consumer • It also may reduce the cost of your insurance products • You can get a copy of your credit score at www.creditkarma.com 26 Credit Scoring • How does credit scoring work? • Lenders base your interest rate on your score • The higher the score, the lower the rate • Research by Fico showed (Fico uses a 0-850 range): $300,000 30-year fixed rate mortgage • Scores 760+ paid 3.55% Scores 700+ paid 3.78% • Scores 680+ paid 3.95% Scores 660+ paid 4.17% • Scores 640+ paid 4.60% Scores 620+ paid 5.14% • Source: http://www.myfico.com/HelpCenter/FICOScores 2012-05-02 • A mortgage at the bottom versus the top rate paid $101,013 more in interest over the life of the loan 27 3. Credit Cards • What are credit cards? • Either the most destructive financial instrument in the history of mankind or a tool to help you achieve your goals. • What are the correct uses of credit cards? • Guarantee / Emergency Use • Convenience, float, or timing • Free services • What are the problems with credit cards? • It is too easy to spend money • It’s easy to lose track of what you spend • Interest costs on credit cards are very high (1228%) 28 Credit Cards (continued) • Keys to effective credit card use: • • • • • Know your goals Spend only on things planned in your budget Don’t go into debt Use wisdom in your expenditures Don’t use credit cards to finance school expenses!!!! 29 D. Use Wisely the “D” Word - Debt Median Level of Education Annual Earnings* Lifetime Earnings Not a HS graduate $24,325 $973,000 High school Diploma 32,600 1,304,000 Some College, no degree 38,675 1,547,000 Associate's Degree 43,175 1,727,000 Bachelor’s Degree 56,700 2,268,000 Master’s Degree 66,775 2,671,000 Doctoral Degree 81,300 3,252,000 Professional Degree 91,200 3,648,000 *Annual earnings is lifetime earnings divided by 40 years. Source: Anthony P. Carnevale, Stephen J. Rose, and Ban Cheah, “The College Payoff: Education, Occupations, Lifetime Earnings,” Georgetown University Center for Education and the Workforce, 2012. 30 Does Education Pay? President Gordon B. Hinckley counseled: • You young people, the little decisions that you make can so affect your lives. Shall I go to school or not? Shall I continue on with my education? That is a big decision for some of you. Our doctrine suggests, although there may be some circumstances that would affect that decision, that the more education you receive the greater will be your opportunity to serve. That is why this Church encourages its young people to get the schooling that will qualify them to take their places in the society in which they will become a part. Make the right decisions. Take a long look. (italics added, Pocatello, Idaho, regional conference, Idaho State University, 4 June 1995). 31 Use Debt Wisely • What has been the prophet’s counsel on debt? • President James E. Faust stated: • Over the years the wise counsel of our leaders has been to avoid debt except for the purchase of a home or to pay for an education. I have not heard any of the prophets change this counsel. (“Doing the Best Things in the Worst Times,” Ensign, August 1984, 41) • How do we minimize debt while at the same time getting an education? • By using debt wisely and sparingly—using the Priority of Money for Education 32 The Priority of Money for Education • Is there a priority of money for financing school? • Priority of Money for School • 1. Free Money • 2. Family Money • 3. Employment • 4. Loans • 5. Credit Cards 33 1. Free Money • Get free money first--scholarships and grants • This is free money which is not paid back • If you pay to get a scholarship its a scam! • Grants are need-based--complete the FAFSA • Pell Grant: approximately $626-$5,775/year • Scholarships from schools and private sources • You may need a supplemental application • Find out which ones you are eligible for on a scholarship search engine and apply for each • Armed Forces Scholarships: See recruiting offices 34 2. Personal and Family Money • Use personal savings and help from parents • If you help pay for your education and missions, they will likely use the resources more wisely, as it’s your money you are spending. • Start the process of financial self-reliance as soon as you can. • Do as much as you can to help yourself • If parents and grandparents can help, that is wonderful. 35 3. Employment • Work when to offset education expenses • Most colleges offer federal College Work Study. Some universities, including BYU, provide thousands of student employment opportunities from their own funds. • Undergraduate students enrolled in 12+ semester hours should work no more than 20 work hours per week. This will help cover rent and food expenses • Working summers to save for mission and college is also very desirable. 36 4. Loans • Use (all) loans wisely—they are debt • There are five main items to be aware of with loans: • a. Who pays the interest during school? • The borrower or the government? • b. When must you start paying back the loan? • Immediately or after graduation? • c. Who takes out the loan? • You or your parents? • d. What is the interest rate cap? • What is the highest rate you may pay? • e. What are the costs? 37 Loans (continued) • Priority of loans (in this order) if needed: • 1. Subsidized Federal loans • These have a lower interest rate and the government pays interest while you are in school • 2. Subsidized Private Loans • These are private but subsidized loans • 3. Unsubsidized Federal loans • These have lower interest costs but interest costs accrue immediately • 4. Alternative loans • These are the most expensive--use with caution – highest rates and begin accruing interest immediately 38 Loans (continued) • Remember the high costs of debt: Borrow $1 Pay back $1.47 To Borrow $1.00 • You must earn $1.47 to pay it back: • Tithing @ 10% .15 • Federal tax @15% .22 • State tax @ 7% .10 • Available to Pay back $1.00 39 5. Credit Cards • These are the most expensive way to borrow • They require you to pay it back immediately • There is no help in the payment of interest • The interest rates are extremely high and you are in school • This is the least advisable way to finance schooling and is usually the result of poor planning! 40 Loans (continued) • Remember the high costs of credit cards: Borrow $1.00, You must Earn $9.93 to Pay it Back at 14% interest Now Borrow $1.00 on a credit card at 14% Keep it for 4 years paying no interest, and pay it back over 4 years after school Borrow $1 Pay back $9.93 It will cost you: Amount borrowed $ Interest Rate Amount at end of four years Pay off in 4 years (annual pmt) Total amount paid Plus tithes and taxes @ 47% 1.00 14% 4.92 1.69 6.76 $9.93 41 E. Share the “G” Word - Giving • Someone wrote: • We make a living by what we earn, but we make a life by what we give. • If you can’t learn to give when you are poor, you will never learn to give when you are rich. • Now is the time to continue your life-long habit of giving • Learn to give of what you have—your time, talents, and resources. • Make giving a part of each and every day • Realize it is not what we have, but what we give, that makes us rich, with the riches of eternity 42 Summary • A. Remember the “A” List - Principles • Ownership: None of this is ours • Stewardship: We are stewards over all we have been, are, or will be blessed with • Agency: The privilege and knowledge to choose is a God-given gift and we are responsible for our choices • Accountability: We will be held accountable for all our choices in life (including our financial choices) 43 Summary (continued) • B. Embrace the “B” Word – Budget • Give every dollar a name 1. Know what you want to accomplish 2. Track your spending 3. Develop your budget 4. Implement your budget 5. Compare it to actual spending, then make changes where necessary • And budget the “better way” 44 Summary (continued) • C. Tame the “C” Monster - Credit • Understand and use credit wisely • 1. Credit reports • 2. Credit scoring • 3. Credit cards • Pull your free credit reports (if you have one), and get your free credit score (if you have it) at www.Creditkarma.com 45 Summary (continued) • D. Use wisely the “D” Word - Debt • Minimize and eliminate debt as much as possible • Understand the priority for financing school: • 1. Free Money • 2. Family Money • 3. Employment • 4. Loans • 5. Credit Cards 46 Summary (continued) • E. Share the “G” Word - Give • Make giving a part of your everyday goals • Learn to give: • Of your time • Of your talents • Yes, and even of your meager resources 47 Leadership A Leader is one who knows the way, goes the way, and shows the way. Poster in my daughter’s 7th grade classroom 48 Tools to Teach Personal Finance • The BYU Marriott School Personal Finance Website is a great and free resource • • We have prepared a website of Personal finance information from a gospel perspective to help you to know, go, and show the way. It is at: http://personalfinance.byu.edu It contains a number of beginning, intermediate, and advanced courses, with its purpose is to help students and non-students get their financial houses in order. All information from the website is freely shareable with others without cost. 49 BYU Website 50 BYU Website 51 Assignments • Want something to do before school starts? • 1. Pull your credit report. Go to www.annualcreditreport.com. • See how you have handled credit • 2. Get your credit score. Go to www.Creditkarma.com for a free score • How have you done? • 3. Get on a budget • Determine where your money comes from • Determine how much you will spend • Try to plan where your money goes as well as you can 52 Assignments (continued) • Want something to do before school starts? • 4. Do a free beginning personal finance course. Go to http://personalfinance.byu.edu, • Click on Beginning courses, and then click on MoneyWise financial workshop • 5. Then try an intermediate course. Go to http://personalfinance.byu.edu, Click on Intermediate courses, and then click on Freshman College course • Complete that course. You will be very well prepared financially for the monetary challenges in College ahead. • 6. Take a personal finance course at BYU, or later on, go and do the Advance College Course. 53 Thank You • I leave you with my excitement, my testimony of the gospel, and one of my favorite scriptures, D&C 45:62: “For verily I say unto you, that great things await you.” For they truly do As you have the courage to lead out in Personal Finance! 54