Basics of Personal Financial Planning

1. Basics of Personal Financial Planning [date] [venue] [contact information]

2. You gain an enhanced understanding of the basics of financial planning and how a company’s compensation and benefits programs add to your financial well-being You gain an enhanced understanding of basic investing concepts and how to develop your investment plan You gain an enhanced understanding of how a Company’s compensation and benefits programs can contribute to the success of your investing You identify and commit to taking the actions you can to significantly enhance your financial well-being Paying off a credit card-Credit Card Calculator Today’s Objectives

3. Life’s Financial Trade-Offs CURRENT NECESSITIES FUTURE NECESSITIES Basic shelter, food Basic shelter, food clothing, transportation clothing, cash for emergencies and medical care and nursing home care Trade - offs CURRENT EXTRAS FUTURE EXTRAS New kitchen, new car, L arger home, private vacation, family gifts college, retirement travel, bequests/charity

4. A financial plan will help you to clarify: Your financial goals Strategies to achieve the goals Specific steps to implement the strategies The Value of a Financial Plan

5. Saving Managing debt Insurance Investing Education funding Retirement funding Pre-retirement planning Incapacitation planning Estate planning Company stock ownership Areas to Explore

6. What do you want? What will you have? Will you have a shortfall? What strategy will you employ? What actions will you take? The Financial Planning Process

7. These are your financial planning goals Each goal will have its own horizon For the period of accumulation For the period over which it will be spent Make a list and refine as you go along Start with broad ideas and work toward increasingly specific and measurable goals Fill out your goals worksheet What Do You Want?

8. What you have now What you will save from future income Future investment earnings on the above if invested Expected future benefits What Will You Have?

9. Managing Debt

10. Conquering excessive debt Using debt wisely: Credit cards 401(k) plan loans Home mortgages Home equity loans Automobile debt Maintaining a good credit history What Managing Debt Means

11. Housing expense ratio Housing expenses (mortgage, taxes and insurance) should not exceed 28% of gross pay Gross pay is before taxes and deductions Debt to income ratio Total consumer debt (not including mortgage) should be less than 20% of take-home-pay Take-home pay is after taxes and deductions Debt Ratios

12. Unable to save 10% or more of gross income Habitually pay only the minimum monthly payments on your credit cards Borrowed from one lender to pay another Asked a friend or relative to co-sign a loan because credit record is weak Unable to figure out how much you owe Would be in immediate financial trouble if you lost your job tomorrow Warning Signs of Too Much Debt

13. Stop borrowing Start using a debit card Prioritize your debt repayment Seek lower rates Determine the maximum you can pay Repay highest cost debt first Continue paying the maximum Conquering Debt

14. Determining whether buying is appropriate Choosing the right type of mortgage Deciding if you should refinance Knowing whether to pay points Deciding whether to prepay mortgage principal Buying a house in San Francisco- Check out this article Using Home Mortgages Wisely

15. Is Buying a Home Right for You?

16. Tax Benefits of Home Ownership

17. Types of Mortgages

18. You intend to live in your home for a significant period of time, or You anticipate rising interest rates in the future Consider a Fixed Rate Mortgage When:

19. Fixedrate is at least 2% points greater than adjustable rate You expect your income will increase enough to cover any potential payment increases You expect to move before the rate increases (beware of prepayment penalties) Buy a home and finance it. Bankrate Mortgage Calculator http://www.realtor.com/ Consider an ARM When:

20. Establish a good credit history Obtain your credit report Understand your credit report Correct mistakes in your credit report Maintaining a Good Credit History

21. Saving & Investing

22. If you don’t have the following Sufficient assets fully devoted to your goal(s) Expected future benefits from third parties Expected future borrowing Then you will need the following to reach your goal(s) Future savings devoted to your goals Future earnings from investing the above if you invest those assets Importance of Saving and Investing

23. Saving versus investing Combining saving and investing Saving and investing early Tax-deferred saving and investing Tax-deductible saving and investing Saving and investing using employer contributions Key Saving and Investing Concepts

24. Saving Versus Investing

25. Saves $2,000 per year Starts at age 25 Saves in a non-interest bearing account Saves $2,000 per year Starts at age 25 Invests and earns an 8.9% pretax and 6.68% after-tax return Vickie Stan Combining Saving and Investing

26. Vickie Stan Combining Saving and Investing

27. Saves $2,000 per year Starts at age 35 Continues for 30 years Invests and earns an 8.9% pre-tax and 6.68% after-tax return Saves $2,000 per year Starts at age 25 Stops after 10 years Invests and earns an 8.9% pre-tax and 6.68% after-tax return Vickie Stan Saving and Investing Early

28. Vickie Stan Saving and Investing EarlyAARP Calculator

29. Saves $2,000 per year Starts at age 25 Continues for 40 years Invests in a taxable account and earns an 8.9% pre-tax and 6.68% after-tax return Saves $2,000 per year Starts at age 25 Continues for 40 years Invests in a Tax-Deferred account and earns an 8.9% pre-tax return Vickie Stan Tax-Deferred Earnings

30. Tax-Deferred Earnings Vickie Stan

31. What do you want? What will you have? Will you have a shortfall? What strategy will you employ? What actions will you take? Identify your specific savings goals Identify your time horizon Quantify your saving goals Prioritize your saving goals The Saving Process

32. Pay down existing debt Create an emergency fund Save for retirement Accumulate a down payment for a house Build a college fund for your children’s education Set aside money for a specific goal (vacation, fun and games, etc.) Buy a car and finance it. Bankrate Auto Calculator Identify Your Specific Saving Goals

33. Set aside 2 to 4 months of living expenses Use it for a crisis (i.e., roof leaks) Use it and replace it Don’t use it for discretionary spending (i.e., vacation) Create an Emergency Fund

34. Do everything possible NOW Start early—you’ll end up with more Figure out what you need for retirement. Bankrate Retirement Calculator Save for Retirement

35. Identify number of months or years until goal Allow as much time as possible: You can accept a lower investment risk Your monthly saving and investing commitment will be less Identify Your Time Horizon

36. Keep a list of all spending for one month Compare total spending to take-home pay Examine closely if you have a substantial unexplained gap Become highly knowledgeable about your expenses Examine Your Spending Habits

37. Save your next raise Save your next bonus Reinvest dividends and interest Save all cash gifts Rent instead of buying (books, videos, etc.) Delay buying a new car upon paying off present car loan Save the “donut money”—and lose weight! Buy generic products Trim your spending by 5% Be creative Identify Ways to Save More

38. Combined with savings, a key resource for achieving your financial goals Investing skills are needed to prudently utilize Company 401(k) investments IRAs investments Savings invested outside these plans All investments involve risks Approach investing carefully Take the Rutger’s Risk Quiz Rutger's Risk Quiz What About Investing?

39. Phase I: Learn investing basics Phase II: Develop your investment plan Phase III: Implement your investment plan What Investing Carefully Means

40. Investing Basics and Planning

41. ALL investments involve risks Even so-called risk-free investments like a cash As such, approach investing carefully Learning basic investing concepts is part of investing carefully Why Learn Basic Investing Concepts?

42. What Are The Major Asset Classes? * Pretax return over 75 years through 2008

43. What Risks are Involved in Investing?

44. How are These Risks Managed?

45. Higher Return 20% 15% Small Company Stocks Annual Return Large Company Stocks 10% Intermediate-TermGovernment Bonds 5% Cash Lower Return Lower Deviation Higher Deviation Degree of Volatility However, Stocks Have More Volatility Risk

46. Manage Volatility Risk by Investing Over Time 150% One-Year Holding Periods 125% Volatility Risk Over Time Five-Year Holding Periods 100% Twenty-Year Holding Periods Average Return 75% 50% Ranges of Return 25% 12.7% 10.4% 3.7% 5.4% 0% -25% -50% Small Company Stocks Large Company Stocks Long-Term Government Bonds Cash -75% Range of compound annual returns over the period 1926-2002. Source: Ibbotson Associates, 2004.

47. Risk / Return Trade-Offs: Example 2Cash vs. Bonds vs. Stocks

48. Risk / Return Trade-Offs: Example 3Sub-Categories Within Major Asset Classes High Risk/ High Return Potential Hard Assets International Small Company Stocks Large Company Stocks Stocks Long Term Intermediate Term Short Term Bonds Low Risk/ Low Return Potential Cash

49. Risk / Return Trade-OffsBetween Differing Portfolios Portfolio A 6.61% Return 4.25% Risk* Portfolio B 6.61% Return 3.60% Risk* Portfolio C 7.06% Return 4.25% Risk* * Risk = one standard deviation

50. What One Factor Most Influences Your Return? Your Asset Allocation Source: Brinson, Singer, Beebower