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Pay Yourself First to Achieve Financial Freedom!

Pay Yourself First to Achieve Financial Freedom!. Achieve your personal goals. Why Do You Work?. Make a short list. Why Do you Work?. Income to: Provide for basic needs Food Shelter Clothing Achieve your personal goals Home ownership Travel Retirement Children’s Education.

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Pay Yourself First to Achieve Financial Freedom!

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  1. Pay Yourself First to Achieve Financial Freedom! Achieve your personal goals

  2. Why Do You Work? Make a short list

  3. Why Do you Work? • Income to: • Provide for basic needs • Food • Shelter • Clothing • Achieve your personal goals • Home ownership • Travel • Retirement • Children’s Education

  4. Goal Setting Guidelines • Goals should be SMART: • Specific: know what your goals are to create a plan • Measurable: with a specific amount • Action-oriented: identify the personal financial activities • Realistic: utilizing your income and life situation • Time-based: identify the time frame to achieve the goal Example: To save $20,000 by 2015 to make a down payment on a house by increasing savings by $200/month. 1-5

  5. What are your goals? • Write a short-term goal • Write an intermediate goal • Write a long-term goal • Include an action plan of how to achieve each

  6. Philosophy for Success • “Pay Yourself First” • What does this mean to you? • Why is it important? • Definition: Set aside a certain dollar amount each pay period to save and invest for the future. • Ideally, have the amount automatically deducted from your check so that you never see the money

  7. How to Adopt “Pay Yourself First” • Needs vsWants • Focus on Needs • Set goals to meet Wants • Keep a daily spending diary for at least a month to determine where your money goes • Reduce spending, increase savings

  8. 4 Ss of Resource Allocation • Spend—Reduce • Save--Increase • Share—Support • Sacrifice--Required

  9. Importance of Daily Spending Diary • Challenge: • Begin a Daily Spending Diary Today • Track Every Penny You Spend • Determine things that you can reduce • Save that money and begin paying yourself • So, what can you do without? (50-30-20) • 50% on Needs • 30% on Wants • 20% on Savings and Debt Repayment

  10. Save Now

  11. Example of Time Value “Let’s assume you make $50,000 a year. That’s about $2,000 every two weeks, so to save 10 percent of your income, you’d have to save $200 every two weeks or $14 a day. Result: Invest $200 every two weeks for 35 years in a retirement account that earned an annual return of 10 percent what would you have? $1,678,293.78.” Source: D. Bach, “The Automatic Millionaire”:

  12. Investment Options • Savings accts and certificates of deposit • U.S. savings bonds • United States treasury bills • Municipal bonds • Corporate bonds • Preferred and income common stocks • Income mutual funds • Real estate rental property

  13. Investment Growth • Growth means increase in value • Growth companies pay little or no dividends, but reinvest in the company • Mutual funds, government and corporate bonds, and real estate offer growth potential • Gemstones and collectibles - more speculative • Real Estate lacks liquidity

  14. Asset Allocation • The process of placing your assets among several types of investments which lessens your risk in different market cycles • Dependent on: • Time Factor—the longer the better • Your Age—type will change as you age • Financial Goals • Risk Tolerance—How comfortable are you with exposure? Are you young enough to recover?

  15. Retirement Planning Misconceptions • My expenses will decrease when I retire • My retirement will only last 15 years • Social Security & my pension will pay for my basic living expenses • My pension benefits will increase to keep pace with inflation • My employers health insurance plan and Medicare will cover my medical expenses • There’s plenty of time for me to start saving for retirement • Saving just a little bit won’t help

  16. Time Value of Money • If from age 25 to 65 you invest $300 a month (9%), at age 65 you’ll have a nest egg of $1.4 million • Wait ten years until age 35 to start and you’ll have about $550,000 at age 65 • Wait twenty years until age 45 and you’ll have only $201,000 at age 65

  17. Future of Social Security • Many people are concerned about the future of Social Security. • Longer life expectancies means retirees collect benefits longer • People are retiring earlier and entering the system sooner and staying longer • The baby boomers will begin retiring soon and the ratio of workers to retirees is doing down • In 1945 there were 42 workers per retiree, • In 2008 there are three workers per retiree, by 2032 it will drop to 2.1 workers per retiree

  18. Types of Retirement Plans • Employer Pension Plan • 401K • IRAs • Social Security • Annuities

  19. Summary • Pay yourself first • Start Small if you must • Find ways to cut spending • Set goals to guide your saving/spending • Time Value of Money • The earlier you begin, the more likely to achieve your goals • Monitor, review and revise annually

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