making money work cd-rw debt management powerpoint - making money

Copyright 2008 Willie Glenn Page, Inc.

Making Money Work: A Christian Guide For Personal Finance

WelcomeDebt Management

Debt Management

“Live within your income even if you have to borrow money to do it”—Josh Billings, Humorist 1818-1885 (Charles J. Givens, Wealth Without Risk, Simon And Schuster, Copyright 1998 by Charles J. Givens, page 97).


Debt Management

While God does not prohibit borrowing, God does discourage it.

Proverbs 17:18—“A man void of understanding striketh hands, [and] becometh surety in the presence of his friend” (KJV).

“Surety is simply taking on an obligation to pay later without a certain way to pay it”—Larry Burkett, The Financial Guide For The Single Parent, Copyright 1997 by Larry Burkett, Moody Press, Chicago, page 218.

Proverbs 22:7–“The rich ruleth over the poor, and the borrower [is] servant to the lender” (KJV).


The Associated Press Poll Stresses Of Being Buried Under Debt

(1,002 adults, taken 3/24/08-04/03/08, +/or - 3.1% margin of error)

31%

15%

4%8%

4% 3%

51%44%

29% 27%23%

6%

0%

10%

20%

30%

40%

50%

60%

MuscleTension

(Back Pain)

Migraines(Headaches)

SevereAnxiety

Ulcers(DigestiveProblems)

SevereDepression

Heart Attack

Which of the following illnesses and other health problems, if any, have you had in the past 12 months?

Low Debt Stress

High Debt Stress


Debt Management

Principal = borrowed money.

Interest = the amount you pay on principal (borrowed money).

Interest = Principal x Interest Rate x Time.


Debt Management

Cardinal rules:

Borrow as little money possible at the lowest interest rate possible and for the shortest timeframe possible.

Live within your means.

Establish an emergency fund to avoid debt—e.g. $1,000 then 3-6 months expenses and then 6-9 months expenses.

Practice delayed gratification—save for items and pay cash.

Credit cards—pay the balance off in full each month or consider canceling the cards in order to control your deficit spending.

Understand the difference between “Good Debt”—helps to build your future net worth—and “Bad Debt”—diminishes your future net worth.

Avoid “impulse buying”—understand the difference between needs, wants and desires.


Differentiating Between Needs, Wants And Desires

Need Want Desire

To drink:

Water Bottled Water Cola

To tell time:Use free available clocks An inexpensive watch--

TimexAn expensive watch--Rolex

Transportation:

Use public transportation

Used car New car—Rolls Royce


Can Drinking Tap Water Make You A Millionaire?


Understanding “Opportunity Costs” For Needs, Wants And Desires

MayoClinic.com, The Institute of Medicine

Recommended Beverages/Day

Oz.'s (1.057 quarts = 1 liter) x Total Oz.'s

Men 3.0 liters 33.824 3 101.472Women 2.2 liters 33.824 2.2 74.4128 Average: 87.9424



Recommended Oz.'s of

Beverages/Day Days/Year Years In LifeGallons Oz.'s (128 oz./gallon) Cost Cost/oz. 87.9424 365 76

Cost Per Day Cost Per Year Cost Per LifetimeHousehold Water Bill--Includes Tap Water 8,000 1,024,000 $91.03 $0.0000888965 $0.0078177702 $2.85 $216.86

Local Grocery Store: Per Case Oz.'s Cost Cost/oz. Cost Per Day Cost Per Year Cost Per LifetimeBottled Water 24/9 oz. 216 $5.99 $0.0277314815 $2.44 $890.15 $67,651.56Cola 12/12 oz. 144 $5.49 $0.0381250000 $3.35 $1,223.77 $93,006.78



Need Want DesireTo drink:Tap Water Bottled Water Cola

Cost/year = $2.85

Cost/lifetime = $216.86

Cost/year = $890.15

Cost/lifetime = $67,651.56

Cost/year = $1,223.77

Cost/lifetime = $93,006.78

If savings is invested @ 8% growth over 76 years:

$2.85 (Need Cost) - $1,223.77 (Desire Cost) = $1,220.92 at 8%/year for 76 years = $5,278,966.47

$890.15 (Want Cost) -

$1,223.77 (Desire Cost) = $333.62 at 8%/year for 76 years = $3,848,795.99

$0.00 (-$93,006.78 in opportunity costs)


“Opportunity Costs” is the cost of passing up the next best choice when making a decision.

Your values determine your perception of needs, wants and desires. Everyone has different values.

Complete The SS44 Values And Spending Exercise (CD-RW).

Realistically, few people will go through life only drinking tap water. Few people will be able to invest for 76 years during their lifetime. The purpose of this example is to point out how a shift from “spending on wants and desires” to “spending on needs and then saving and investing the difference” can have a profound impact upon your finances.


Calculating The “Opportunity Cost” For An Expensive Watch Using The Rule of 72

Need Want Desire

To tell time:Use free available clocks An inexpensive watch--

TimexAn expensive watch--Rolex

e.g. $10,000

The Rule of 72:

At 10% interest, money doubles every 7.2 years.

If a person works 28.8 years, their money should double 4 times.


Calculating The “Opportunity Cost” For An Expensive Watch ($10,000 Original Cost)Using The Rule of 72

1st 7 years

2nd 7 years

3rd 7 years

4th 7 years

$20,000 $40,000 $80,000 $160,000


“Compound Interest” Works As A Powerful Ally To Build Wealth—It’s Antithesis “Bad Debt” Works To

Destroy Wealth.

Compound Interest: +1 +2 +4 +6 +8 +16 +32 +64 +128 +256 +512Bad Debt Interest: -1 -2 -4 -6 -8 -16 -32 -64 -128 -256 -512

Example Of Growth/or Decline

Pay off all of your “bad debt” as soon as possible—you will be happier, healthier and wealthier!


4 C’s Of Credit (What Creditors Look At)

Collateral— “secured loan”—an asset of value the lender can take from you if you fail to repay the loan.

Capital—items of value that could be sold to repay the loan—e.g. investment accounts, your home (in some states).

Capacity—ability to repay a loan. Income and employment history.

Character—your credit record. Do you have a history or paying bills on time.


Credit Report—your credit history, a record of your personal financial transactions. Tells lenders any credit you have, loan amounts, your credit card balances and limits, history of paying bills. It covers the last 7 to 10 years. It may be checked when you get a cell phone, buy a car, rent an apartment, apply for a job, etc. You are entitled to a free credit report every year—correct any mistakes.

Credit Score—based on the 4 C’s. It is a number that reflects your creditworthiness at any point in time. The most popular credit score is the FICO score which ranges from 300 to 850—a score of 680 or more is considered good.

The 3 main credit reporting agencies: Equifax, Experian, and TransUnion.


You may request one “free” annual copy of your credit report at www.annualcreditreport.com or by calling 877-322-8228—sponsored by Equifax, Transunion, and Experian.

You may get free personal information from www.Quizzle.com including your credit rating, home value, budget information, and mortgage information.

http://www.annualcreditreport.com/

http://www.quizzle.com/


Order of expenditures per $100.00 of income earned:

1. Tithe (example: 10% to God) $10.00

2. Savings (example: 10% to your 401K) $10.00

3. Federal taxes (example: 25% Federal taxes) $25.00

4. State Taxes (example: 7% to your state’s tax program) $7.00

5. FICA Taxes (e.g.: 6.2% Social Security + 1.45% Medicare Ins. = 7.65%; or self employed 12.4% Social Security + 2.9% Medicare = 15.3%):

$7.65$15.30

6. Balance to spend on other items--employed by others: Self-employed:

$40.35$32.70


Budgeting

Small children can start with 3 jars labeled “giving”, “saving”, and “spending.” For each dollar, they put 10 cents in giving, 10 cents in saving, and 80 cents in spending.

Teenagers might want to use an envelope system similar to the jar system above for all of their expenditures.


Step 1: List Financial Goals—

• Short-term Goals (one year goals)—e.g. immediately save $1,000 and then 3-6 months expenses and then 6 to 9 months expenses in a liquid emergency fund account. Take full advantage of employer-matching funds up to the full “matching limit.” Pay off all credit card debt. Pay off credit cards in full each month. • Mid-term Goals (2 to 5 years)—e.g. purchase a used car within 3 years. Pay off all student loans. Save 20% for a down payment on a home purchase. • Long-term Goals (over 5 years)—e.g. After maximizing savings up to the full employer match in retirement savings accounts, invest in a Roth IRA. Eliminate all debt—car payments, home mortgage, etc.

Basic Budgeting Beginning Steps



Step 2: Conduct A Credit Card Debt Analysis

Suggestion: open up the “SS13.a Calculator—Debt Management.xls” and click on the “Credit Card Analysis” sheet tab to prepare your own credit card debt analysis.



Step 3: Conduct A Cash Flow Analysis

• Analyze all income and expenditures. Use pay stubs, check books, billing statements, and any other statements showing money flowing into and out of your accounts.• List all “fixed” expenses—e.g. those that have little or no flexibility such as rent and insurance.• List all “discretionary expenses”—e.g. those that can be easily changed such as dining out, entertainment, vacations, hobbies, etc.• “Total Income” – “Total Expenses” = a “cash surplus” (discretionary income) or a “cash deficit.”

Suggestion: open up the “SS13.a Calculator—Debt Management.xls” and click on the “Cash Flow Statement” sheet tab to prepare your own cash flow analysis.



Step 4: Determine Your Net Worth

• This is a listing of what you own and what you owe. The goal is to increase your net worth each year.• Compare your net worth statement each year to prior years.• Adjust your spending/or saving habits as needed.

Suggestion: open up the “SS13.a Calculator—Debt Management.xls” and click on the “Net Worth Statement” sheet tab to prepare your own net worth analysis.


Budget

If you are unable to live within your means—you are deficit spending — you should prepare a very detailed budget.

Use the “Making Money Work SS13 Calculator-Budget.xls” worksheet for a more detailed household budget (Making Money Work Book CD-ROM calculator).


Budget Guidelines

Budget Category %Tithing/Giving 10% or > Of Income Income - Statutory Payroll Deductions: Federal Income Tax, Medicare, Social Security, State/Local Taxes, etc.

Savings 10% or >

Of Income minus Statutory Payroll

Deductions

Total Housing Costs < 30%


Deductions

Total Transportation Costs < 18%


Deductions

All Other Expenses < 18%


Deductions

All Other Debt < 15%


Deductions


Steps To Becoming Debt Free

Pray—when you work, you work. When you pray, God works. Stop accumulating debt. Destroy credit cards if necessary and pay by cash,

check, or debit card. Practice “delayed gratification.” Be happy with what you have. Do not spend “tomorrow’s money” today. Institute the 24-hour rule: before buying anything over $50, wait a day to make sure your really need it.

List all of your assets and determine if any need to be sold and the proceeds used to reduce/or eliminate debt.

List all of your liabilities—know where you stand financially. Establish a written budget. Analyze spending habits to determine where you

can cut back or eliminate expenses. Establish a debt-repayment plan. By looking at the debt amount and interest

rates charged, decide which debts you should pay back first. Typically, you save the most money by paying off the highest interest rate charges first. As each credit card is paid off, use the savings to pay off the next card(s) until all are paid in full.


Steps To Becoming Debt Free

If you have a line of credit with a low rate, you might consider using it to pay off higher interest rate debt such as credit cards—warning: only do this if you are certain you can make the payments and do not put your home at risk.

Earn additional income to pay down debt—e.g. non-working spouse gets a job, working spouse gets an additional part-time job.

Consider an extreme change in lifestyle—e.g. the elimination of non-wealth producing activities such as luxury vehicles, boats, etc. Moving to a smaller house with a lower mortgage payment.

Work hard at reducing your debt and never give up—the Lord said, “I am with you always.” Support groups such as Debtors Anonymous www.debtorsanonymous.org helps correct spending habits and stop impulse buying.The National Foundation for Consumer Credit www.nfcc.org 800-388-2227 offers free or low cost credit counseling.

http://www.debtorsanonymous.org/

http://www.nfcc.org/


SS12 Calculator-Liquid Assets Versus Current Liabilities.xls (Making Money Work Book CD-ROM calculator):

The % of current liabilities to current assets should be less than 50%--for individuals and companies.

SS14 Calculator-Loan Payment.xls (Making Money Work Book

CD-ROM calculator):

Exercise:

Given the following:

You wish to purchase a car. It cost $5,000. You have a 20% down payment. There are 12 payments per year at a 12% interest rate. Your loan is for 36 months.

How much are your monthly payments?

What are your total payments over the life of the 36 month loan?

How much will you have to pay in interest charges over 36 months?

Credit Score Chance of defaulting within 2 years

Credit Score up to 499 83%

500-549 70%

550-599 51%

600-649 31%

650-699 14%

700-749 5%

750-799 2%

800+ 1%

Consumer Report: A person with a credit score of 720 and up would be eligible for a 5.55% interest rate on $150,000 30-year mortgage and a $856 monthly payment. Someone with a score of 620 to 674 could pay $1,034/month for the

same loan. If you are in the 580 to 620 range, you will probably still qualify for a mortgage loan, but at a higher rate.

Most lenders use scores calculated by Fair Isaac Corp.—uses a formula with 22 pieces of data. Scores range from 300 to 850. They predict how

likely you are to pay bills on time.

www.myfico.comChance of defaulting within two years, by credit score

http://www.myfico.com/


FICO Score APR Monthly Payment Total Paid*720-850 5.933% $1,191 $428,580700-719 6.059% $1,207 $434,411675-699 6.601% $1,277 $459,882620-674 7.760% $1,434 $516,314

Example Of Average Amounts People With Various Credit Scores Would Pay For A 30-Year Fixed $200,000 Mortgage Loan

How Does Your Credit Score Impact You Financially?

*Numbers do not include property taxes, insurance, or points--only interest paid + the $200,000 borrowed. Example is based on 2008 APR averages.


Romans 13:7-8--“Discharge your obligations to all men; pay tax and toll, reverence and respect, to those to whom they are due, Leave no claim outstanding against you, except that of mutual love.”

Luke 19:8-10—Zacchaeus said to Jesus “‘Here and now, sir, I give half my possessions to charity; and if I have cheated anyone, I am ready to repay him four times over,’ Jesus said to him, ‘Salvation has come to this house today!”’

Debt is a burden affecting not only your living, but also your giving.

Debt prevents you from being able to give everything God intended for you to give!


Please complete the “Chapter 4 Debt Management--Extra Learning Module” (CD-RW).

making money work cd-rw debt management powerpoint - making money

Economy & Finance

credit history

free credit

credit record

cs of credit

credit cardspay

desire cost

nd7 years

rd7 years