An Orderly Financial House

1. An Orderly Financial House Grant McQueen With special thanks to Ned Hill, Barrett Slade, Bryan Sudweeks, and my friends and colleagues at BYU’s Marriott School

2. Benjamin Franklin Money can help you to get medicines but not health. Money can help you to get soft pillows, but not sound sleep. Money can help you to get material comforts, but not eternal bliss. Money can help you to get ornaments, but not beauty. Money will help you to get an electric earphone, but not natural hearing. Attain the supreme wealth, wisdom, and you will have everything. Source: www.quotedb.com/quotes/1016

3. A Perspective on Money “I am satisfied that money is the root of more trouble in marriage than all other causes combined.” “There would be fewer rash decisions, fewer unwise investments, fewer consequent losses, fewer bankruptcies if husbands and wives would counsel together on such matters and unitedly seek counsel from each other” Gordon B. Hinckley, Cornerstones of a Happy Home [pamphlet, 1984]

4. The Richest Man In Babylon • Start thy purse to fattening • Control thy expenditure • Make thy gold multiply • Guard thy treasures from loss • Make of thy dwelling a profitable investment • Insure a future income • Increase thy ability to earn George S. Clason

5. Life Insurance Health Insurance Wills and Trusts Other Insurance Budget/Plan Garbage: Consumer Debt Taxes Gambling Derivatives Home Buying Identity Theft Tax-advantaged Retirement Fund Other Investments ( Index Funds) Rainy Day Fund (Safe, liquid) Happiness Self-Sufficiency Attitude

6. Priorities • While Balancing the Budget (behavior, relationships, values, human capital): • Manage the Misfortune (basic life, health, disability, auto, and home insurance), • Discharge the Debt (credit cards, bondage, FICO), • Anticipate the Adversity (rainy-day fund, will), • Snatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), • Fund the Favored (IRA, Roth IRA, 529, Annuities), • Stuff the Savings (diversify across assets and time), • But Possess a Purpose and Preserve a Perspective

7. Money and Happiness Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of its filling a vacuum, it makes one. If it satisfies one want, it doubles and trebles that want another way. That was a true proverb of the wise man, rely upon it; "Better is little with the fear of the Lord, than great treasure, and trouble therewith.” - Benjamin Franklin Source: www.quotedb.com/quotes/463

8. Money and Happiness The conviction of the rich that the poor are happier is no more foolish than the conviction of the poor that the rich are. - Mark Twain Source: www.quotedb.com/quotes/1981

9. Money and Happiness Because gratification of a desire leads to the temporary stilling of the mind and the experience of the peaceful, joyful Self, it's no wonder that we get hooked on thinking that happiness comes from the satisfaction of desires. This is the meaning of the old adage, “Joy is not in things, it is in us.” - Joan Borysenko (a medical scientist and psychologist) Source: www.quoteland.com/author.asp?AUTHOR_ID=228

10. Money and Happiness

11. Self-Sufficiency Old Definition: “Did you make the nails?” New Definition: “I teach them to contribute more than they consume.”

12. Self-Sufficiency • Financial Capital • Marketable assets • Invest in securities • Human Capital • Marketable skills • Invest in yourself

13. Self-Sufficiency I think that much of the advice given to young men about saving money is wrong. I never saved a cent until I was forty years old. I invested in myself - in study, in mastering my tools, in preparation. Many a man who is putting a few dollars a week into the bank would do much better to put it into himself. - Henry Ford Source: www.quotedb.com/quotes/2899

14. Self-Sufficiency

15. Self-Sufficiency Note: Data are 2007 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers. For updates go to: http://stats.bls.gov/emp/emptab7.htm

16. Self-Sufficiency “Be like JoLene.” “But be like Grant, too.”

17. Self-Sufficiency—Human Capital “In times of change, learners inherit the earth while the learned find themselves beautifully equipped to work in a world that no longer exists.” Eric Hoffer

18. Self-Sufficiency “Self-reliance, the height and perfection of man, is the reliance on God.” Ralph Waldo Emerson

19. Attitude • “Our attitude towards what has happened to us in life is the important thing to recognize. Once hopeless, my life is not hope-full, but it did not happen overnight. The last of human freedoms, to choose one's attitude in any given set of circumstances, is to choose one's own way.” • “The last of the human freedoms is to choose one's attitudes.” • -Victor Frankl • Source: www.quoteland.com/author.asp?AUTHOR_ID=239

20. Money and Attitude Money can help you to get medicines but not health. Money can help you to get soft pillows, but not sound sleep. Money can help you to get material comforts, but not eternal bliss. Money can help you to get ornaments, but not beauty. Money will help you to get an electric earphone, but not natural hearing. Attain the supreme wealth, wisdom, and you will have everything. - Benjamin Franklin Source: www.quotedb.com/quotes/1016

21. Attitude “Now when Jesus heard these things, he said unto him, Yet thou lackest one thing: sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me. “And when he heard this, he was very sorrowful: for he was rich.” Luke 18:22-23

22. Money and Attitude A wise man should have money in his head, but not in his heart. - Jonathan Swift

23. Money and Attitude He is richest who is content with the least. - Socrates Source: www. quotedb.com/quotes/1582

24. Life Insurance Health Insurance Wills and Trusts Other Insurance Budget/Plan Garbage: Consumer Debt Taxes Gambling Derivatives Home Buying Identity Theft Tax-advantaged Retirement Fund Other Investments ( Index Funds) Rainy Day Fund (Safe, liquid) Happiness Self-Sufficiency Attitude

25. Inappropriate Debt • Consumer Goods • Vacations • Expensive Cars • Credit Card Debt

26. Self-Test:Do I have too Much Debt? • Can I pay off my credit card balance completely each month? • Do I skip some bills to pay others? • If I lost my job today, do I have enough in liquid assets to pay living expenses for at least three months? • Do my spouse and I often argue about money? • Do I receive calls from creditors about overdue bills? • Have I postponed medical or dental appointments because I can’t afford them right now? • Am I using an increasing percentage of my monthly income to pay off debts?

27. Sometimes we find ourselves in a financial pit By Patty Slade

28. We have to stop digging By Patty Slade

29. Mr. Ashton’s Debt Elimination Calendar May start with debt with highest interest rate or earliest payoff Currently owe minimums of $60, $70, $50, $75, and $235 Save and pay an extra $50 per month

30. Reducing Unproductive Debt • Plastic surgery • Reduce spending • Use assets to pay off debt • Reduce interest rate • Consider a home equity loan • Use another lower cost source of borrowing • Make a plan -- stick to it • Talk to a reputable credit counselor if needed

31. Credit Counseling Services • National Foundation for Consumer Credit • American Consumer Credit Counseling • American Debt Management Services • Debt Counselors of America

32. Q: How Many Payments?

33. Q: How Many Payments? A: With 21% APR, 103.2 payments or 8.6 years Stereo $999.74 Interest $1,167.56 Total $2,167.30

34. Reducing Your Balance

35. J. Reuben Clark on Interest (1938) Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; . . . it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

36. What are the Costs? • Annual fee • Over-limit fee • Late payment fee • Cash advance fee • Finance charges • About ¼ of credit cards don’t have grace period • If you don’t completely pay off previous month’s balance, the grace period doesn’t apply (the balance could be one penny)

37. What Rate are the Paying? Survey conducted on Dec. 13, 2005, rates on right column are from Utah Community Credit Union

38. Be careful where you borrow! • Finance companies • Credit cards • Banks • Credit unions • Savings

39. Credit Cards Interesting Tidbits • An American typically carries from one to three credit cards, and owes $9,000. • An average household has eight credit cards. • Only 35% of cardholders pay off the total balance each month. • Twenty-five percent of college students owe more than $10,000 on their cards. • 20 % of credit cards are maxed out. Seewww.cardweb.com

40. Credit Reports • Three major credit reporting agencies (check all 3) • Experian—www.experian.com (888-397-3742) • Equifax—www.equifax.com (800-685-1111) • TransUnion—www.transunion.com (800-916-8800) • Almost ½ contain inaccurate info • Free copy of report if denied credit • Dispute inaccuracies by requesting investigation (Agencies have 30 days to respond) • May file statement presenting your point-of-view (100 words) • Fair Credit Act 1996 allows consumer law suits

41. Credit Reports, Continued • Bankruptcy remains for 10 years, other negative information for 7 years • Pay off credit cards before closing account • Be careful about retail store discount promotions • Risk scoring • Limit inquiries • Credit repair services often encourage illegal activities

42. Credit Reports, Continued • Free Credit Report • www.AnnualCreditReport.com • 877-322-8228 • Cheap FICO score • myfico.com • Opt out • 1-888-5OP-TOUT or 1-888-382-1222 • Do Not Call • www.donotcall.gov

43. Credit Reports, Continued • FICO score (between 300 and 850, 725 average) • Factors that determine risk score: • Payment History—What is your track record? • Amounts Owed—How much is too much? • Length of Credit History—How established is your? • New Credit—Are you taking on more debt? • Types of Credit Used—Do you have a healthy mix? • Limit authorized inquires (prescreen by creditors has no impact)

44. Gambling vs. Investing Investments: - positive expected return (stocks) or - eliminate or transfer existing risk (insurance) Gambling: - negative expected return or - creates a risk

45. Gambling vs. Investing • Gambling makes a miserable investment, for example in roulette: • House has 5.26% edge • Statistical certainty: you will lose money over time • Compare this to investing in stocks: • 12.6% average return over last 50 years • High probability that you will earn money over time

47. Derivatives • Examples: Options, futures, swaps • “Zero sum game” • Money-losing proposition over time • Extremely volatile • Placing bets against the pros • Appropriate use in hedging

48. Derivatives • Extremely complex • Inappropriate for virtually all non-professional investors • Better idea: stick to what you know Black-Scholes Options Pricing Model

49. Derivatives We view them as time bombs both for the parties that deal in them and the economic system ... In our view ... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. Warren Buffett, Chairman’s Letter, Berkshire Hathaway 2002 Annual Report Different people understand different businesses. The important thing is to know which ones you do understand and when you’re operating within your circle of competence. Warren Buffett, Berkshire Hathaway Annual Meeting

50. Now Showing: The Two Andys Want a second full-time Job? I’m Andy! Believe me now! My name is Andy Holmes. Do not listen to this suit wearing man. He is a liar!! NO, I’m Andy! What the…Hey, I’m Andy! Get your identity stolen!!! Hi, I’m Andrew L. Holmes... Hi, I’m Andrew Lee Holmes...