First – A Perspective “It is a gloomy moment in history. Never has the future seemed so dark and incalculable. The United States is beset with racial, industrial and commercial chaos, drifting we know not where. Of our troubles, no one can see the end.” Harper’s Magazine , 1847 C HAPTER 1
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“It is a gloomy moment in history. Never has the future seemed so dark and incalculable. The United States is beset with racial, industrial and commercial chaos, drifting we know not where. Of our troubles, no one can see the end.”
Harper’s Magazine, 1847
Personal Financial Planning in Action
“It is not money that brings happiness, it is lots of money.” – Russian Proverb
How would you define personal financial planning?
“My Goodness! Does anybody really do all this?!”
… and then spend some more
“Lots of anybodies have done this!”
Example/Discussion: “There is no such thing as a free lunch!”
What are the opportunity costs of attending college?
(time, effort, health)
(automobile, home, college education, investments, insurance, retirement fund, lifestyle)
)Opportunity Costs and Financial Results Evaluated When Making Decisions
Your Money or Your Life, Joe Dominguez & Vicki Robin, simpleliving.net
Face-to-Face and OnLine Study Groups
Can you guard against all risks?
Should you try?
Taking this course is a great start!
Life situation and personal values
Millennial tee-shirt worn by an SDSU student.
But since none of us has much, if any, control over these matters, we will focus on the things that we can and do have control over.
The above are the book’s time frames. Here are mine:
Which time frame does this belong to?
How would you measure the success of the goal?
Is the goal reasonable?
Will $200 per month at 7% be enough to reach this goal?
We are going to learn how to calculate the future value of this stream of investments.
Is this goal reasonable?
Which of the following goals would be the easiest to implement and measure its accomplishment?
The correct answer is (C).
Spend everything that you earn!
And then spend some more!
Most Americans Live Beyond Their Means
“Honey, Can We Make It to the Next Paycheck?”
Discussion: How do we do it? Why do we do it?
Is 10% a reasonable goal?
“The magic of compound interest. Thirty dollars a month, a dollar a day, can magically turn into over a million dollars. And do you know what is even more impressive? You know someone who has done it,” Roy, our barber, said proudly.
“Thirty-five years ago, I started my savings with thirty dollars a month, approximately 10% of my earnings. I have achieved just under 13% return per year. In addition, as my income rose, my savings rose accordingly. Thirty dollars a month became sixty dollars, then a hundred, and eventually hundreds of dollars a month.”
“You three are looking at a very wealthy man.”
The Wealthy Barber, David Chilton
“One of my early students only followed the ‘Pay Yourself 10% First’ lesson. He bought the wrong life insurance, abused credit cards, overpaid for his mortgage, did not take advantage of his 401(k) at work, and lost all $15,000 of an inheritance playing the commodities market.”
“This is a real upbeat, encouraging story, Roy,” said Tom.
“Today, his net worth is $850,000, Tom. $300,000 of it is the equity in his house but the rest is his 10% savings.”
“He did everything else wrong but –” Cathy started.
“Because he had saved 10% of each paycheck and invested it for long-term, compounded growth, today he is in great shape,” Roy finished.
The Wealthy Barber, David Chilton
But let us get more precise…
Interest = Principal * Rate * TimeInterest = $100 * 6% * 1 year = $6.00In one year you have $106 ($100 + $6.00)
But the next year, you will earn interest on your interest…
$106 x 6% x 1 = $6.36
After the next year, you will have $112.36
I know what you are thinking, “Big Deal, Paiano!”
Start investing now to take advantage of the future value of money.
Future Value = Principal * (1 + Rate)Time
(1+Rate)Time - 1
Future Value = Deposit * ──────────Rate
Do not worry about the math. We use the future value of money tables.
Not only is present value harder to comprehend, it is also not as important for personal finance. (We use present value very much in the BUS-123, Introduction to Investments, class.)
Present Value = ───────────
(1 + Rate)Time
Present Value = Deposit * ─────────── Rate
Please do not drop the class. We are not going to do any present value calculations.
Okay, let us do some exercises…
Future value handouts
As of March 31, 2010
Do you have a Job or a Career?
“A job is something you do for a paycheck. A career is something you do regardless of the paycheck.”
Source: U.S. Census Bureau Survey, 2004
The key is to set a goal for yourself & start investing early.
In fact, your career is not your most important financial decision.
But if your career is not your most important decision, what is?
Who You Marry!
And then subsequently divorce …
“They are ambitious, they are demanding and they question everything, so if there is not a good reason for that long commute or late night, do not expect them to do it. When it comes to loyalty, the companies they work for are last on their list – behind their families, their friends, their communities, their co-workers and, of course, themselves.
But there are a whole lot of them. And as the baby-boomers begin to retire, triggering a … worker shortage, businesses are realizing that they may have no choice but to accommodate these curious Gen Y creatures. Especially because if they do not, the creatures will simply go home to their parents, who in all likelihood will welcome them back.”