It’s not about money, it’s about LIFE
Taking a first step to the rest of your financial lives…
“… A journey of a thousand miles begins with a single step…”
Lao Tzu
AGENDA
day 1
- Introduction:
- What is MONEY FLOW, MONEY GROW, MONEY PRO®
- Stages of life
- How does money affect all areas of my life?
- Statistics
- Why am I here today?
- My Financial Plan:
- What is a Financial Plan?
- ABC
- 5 Rules
- First block of my Financial Plan: MONEY FLOW®
- Step 1: My financial goals
- Step 2: My current situation
- Step 3: My budget
- Step 4: Design of a simple plan
- Step 5: Automatization
- Charity
- Why it should be part of my Financial Plan
- Charity Idea #1
- Smart habits
- Commitment
- Conclusions day 1
- Homework
MONEY FLOW ®
INTRODUCTION
- It is an educational program that covers all financial aspects of our lives, including the organization, growth and protection of our assets.
- It is organized into three blocks and four sessions.
- Its objective is to make a lasting impact in people’s lives and help them set a foundation to achieve their personal and family goals.
MONEY grOW®
2
- How do I make my money GROW?
- Understanding financial principles
- Identifying my risk profile and investment goals
- Investing in financial markets
- Investing for Retirement
- Investing in Real Estate
- Investing in a new business
- Staying informed: How economics and politics affect my financial decisions
MONEY FLOW®
1
- What is a Financial Plan and why we need it for our lives?
- First five steps of my Financial Plan:
- Step 1: My financial goals
- Step 2: My current situation
- Step 3: My budget - My FLOW
- Step 4: Design of a simple plan
- Step 5: Automatization
- Charity: Why it should be part of my Financial Plan
- Smart habits
- Commitment
MONEY pro®
3
- How do I PROTECT my money?
- Risk management and planning: Insurance
- Tax planning: fundamental concepts
- Estate planning: what will happen with my assets?
- Protecting my identity
- Getting organized: Filing and storage guides
- Commitment
MONEY FLOW ®
Life Stages
Entering workforce -early career years
Financial goals, credit history, investments and retirement accounts, health insurance, first significant purchases, different sources of income, MONEY FLOW® & MONEY GROW®
20-34
Family and career building years
Life & disability insurance, college education, buying a house, property & umbrella insurance, starting a business, estate planning, MONEY GROW & MONEY PRO®
34-44
Late career years
Pay off mortgage, investment and retirement accounts review, long term care insurance, MONEY GROW & MONEY PRO®
45-55
Pre-retirement years
Pay off mortgage, investment and retirement accounts review, planning for health costs, MONEY GROW & MONEY PRO®
56-66
Retirement years
Tax management, investments review, MONEY PRO®
67+
How MONEY affects our lives
Emotional
PERSONAL WELLNESS
Intellectual
Financial
Physical
Social
Professional
Spiritual
Environmental
Everything is connected
MONEY FLOW ®
Financial dimension of our personal wellness
- Managing our resources to live within our means
- Set realistic goals
- Prepare for short- and long-term needs
- Make informed financial decisions
- Prepare for emergencies
- Make informed investments
MONEY FLOW®
Some statistics
Gen Alpha: 2012-2024
Gen Z o “zoomers”: 1997-2012
Gen Y o “millennials”: 1981-1996
Gen X : 1965-1980
Boomers: 1946-1964
Silent Gen: 1928-1945
MONEY FLOW ®
The problem of financial illiteracy
Financial illiteracy is “the lack of skill and knowledge about financial matters to confidently take effective actions to achieve an individual's personal, family, and community goals.”
Source: National Council of Financial Educators
Problems caused by financial illiteracy:
- We do not understand or appreciate the value of money.
- We do not realize that when we make decisions influenced by our emotions or our mood, the expenses we make are not aligned with our budget, values and objectives.
- We make decisions that gratify us in the short term and have negative consequences in the long term.
- We spend more than our budget allows.
- We assume unsustainable debts.
- We do not save enough for our retirement.
- We make bad investment decisions.
- We do not fulfill our dreams and life goals.
- Stress
- Health problems
- Divorce
- Bankruptcy
- Property losses
- Foreclosures
- Unhappiness
The way we manage our resources affects our lives, our families, our communities and the world.
MONEY FLOW ®
Why do I need my
Financial plan?
To obtain personal wellness
To ensure that my relationships are not affected by money issues
To be prepared for unexpected events
To achieve my life goals
MONEY FLOW ®
MY Financial Plan:
ABC
5 RUles
WHAT IS MY CURRENT FINANCIAL SITUATION?
HOW DO I ENVISION MY FUTURE?
MY FINANCIAL GOALS
Everything is connected
WHAT IS MY
FINANCIAL
PLAN
MONEY FLOW ®
The ABC of our Personal Finances
C
I COMMIT to adopting positive financial habits to implement my financial plan and achieve my goals.
A
I am AWARE of my personal financial situation and of the world around me.
B
I desire to achieve prosperity and personal wellness, and
I BELIEVE that
I will.
MONEY FLOW ®
Rule #1
YOU DECIDE WHERE
YOUR MONEY GOES!
MONEY FLOW®
Rule #2
SOMETHING’S GOTTA GIVE
MONEY FLOW®
Rule #4
KEEP IT SIMPLE
ABC
Prosperity mindset
for me
and my family
(my why)
5 Money FLOW
rules
Everything is connected
MONEY FLOW ®
MY Financial Plan:
5 steps
MONEY FLOW ®
Step #1
My Financial Goals
MONEY FLOW ®
MY FINACIAL GOALS
S
SPECIFIC
What is my specific goal? Why is it important that I achieve it? Define what, how, when, and who is needed to achieve your goal.
M
MEASURABLE
How much money do I need to reach my goal? Define your goal in a way that you can track your progress and know when you succeeded.
A
ACHIEVABLE
What steps do I need to take to reach my goal? Make sure your goal is realistic and aligned with your resources and capabilities. How can I make my goal achievable? It might be challenging, but not impossible.
R
RELEVANT
Is my goal aligned with my values and my present circumstances? Why is this goal important to me? Create a goal that will have a positive impact in your life.
T
TIME FRAME
When do I want to achieve my goal? Setting a deadline for achieving each goal will encourage you to plan accordingly and follow through.
Writing your SMART goals down sets you up to be exponentially more successful
MONEY FLOW ®
Examples of SMART financial goals
SPECIFIC: I want to buy a house
MEASURABLE: I will buy a house that costs $120,000, and save money for a 20% down payment: $24,000.
ACHIEVABLE: I will save $1,000 a month by cutting discretionary spending, and looking for ways to increase my income.
RELEVANT: Homeownership is important for my family and me.
TIME FRAME: 2 years
- Planning my MONEY FLOW
- Paying off credit card debt
- Budgeting to create an emergency fund
- Planning for retirement
- Improving my credit score
- Saving for my children’s education
- Saving for the down payment on a home
- Developing skills to improve my income
- Going on vacation, purchasing a car or other large items
- Starting a new business
MONEY FLOW ®
My Financial Goals
Activity
Example
3
2
1
To buy a house
Specific
S
My budget is $120,000. I will save $24,000 for a down payment
Measurable
M
I will save $1,000 every month
Achievable
A
I want to become a homeowner
Relevant
R
Time frame
2 years
T
MONEY FLOW ®
My Financial Goals
Activity
Example
3
2
1
To create a monthly budget to save money for an emergency fund
Specific
S
I will start with a $6,000 emergency fund.
Measurable
M
I will save $250 monthly
Achievable
A
I want to be financially ready for an emergency
Relevant
R
Time frame
2 years
T
MONEY FLOW ®
Step #2
My Financial Situation
MONEY FLOW ®:
My Financial Situation: I am aware
3 Components of my financial situation
- My net worth:
What I own & what I owe
2. My debt and my credit profile
Credit history & score
3. My income & expenses:
What I earn and what I spend
(Checking and Savings, Money Market, CDs)
MONEY FLOW ®:
My Financial Situation
Ca | |
mm | |
Other | |
Assets
Liabilities
Cash
Real Estate Mortgages
Bank Accounts
(Checking and Savings, Money Market, CDs)
Auto Loans
Investments
HELOC: Home Equity Line of Credit
Retirement Accounts
Business Loans
Life Insurance cash value
Personal Loans
Business Interests or Partnerships
Student Loans
Personal Property
Credit Card Debt
Other Real Estate
Medical Debt
Automobiles
Loan taken from a retirement account
Other assets:
(Jewelry, artwork, cars, gold coins, collector’s items)
Income Taxes
MONEY FLOW ®:
My Net Worth
Activity
My Financial Situation
Assets
$
$
Cash
Checking Account
Savings Account
Investment Account
Retirement Account
Life Insurance
Businesses
Personal Residence
Vacation Home
Investment Properties
Other assets: Jewelry, artwork, arte, gold coins, collectors items)
Automobiles
Total Assets (A)
Real Estate Mortgages
Auto Loans
HELOC
Business Loans
Personal Loans
Student Loans
Credit card Debt
Medical Debt
Loan taken from a retierement account
Income Taxes
Other loans
Other loans
Total Liabilities (L)
MONEY FLOW ®:
My Financial Situation
My Net Worth
Activity
My Net Worth
$
TOTAL ASSETS (A)
- TOTAL LIABILITIES(L)
(ASSETS MINUS LIABILITIES)
= NET WORTH
MONEY FLOW ®:
My Debt
Type of Debt | ¿Secured? | ¿Revolving? | Open or Closed end Credit | Risk Level | APR | Comments |
Mortgage | Yes | No | CLOSED | Low | 7.5%-8% | |
Home Equity Lines of Credit -HELOC | Yes | Yes | OPEN | High | 9%-11% | |
Auto Loans | Yes | No | CLOSED | Medium | 5.5%-14% | |
Personal Loans | No | No | CLOSED | High | 8%-25% | |
Student Loans | No | No | CLOSED | Medium | 4.5%-17% | |
Credit Card Debt | No | Yes | OPEN | Very High | 20%-30% |
Monthly Payments: : Pay principal and interest at a relatively low rate for a defined period of time. Interest is tax deductible..
Monthly payments: Pay interest at higher rates than mortgages. It may have an interest-only payment period. It may not be tax deductible.
Monthly payments: Pay principal and interest at a rate that varies based on your credit score over a defined period of time. It may be tax-deductible if used for work purposes.
Monthly payments: Pay the principal and interest at high rates
The loan may be too high for the income level.
The monthly payment can vary. Very high interest rates.
MONEY FLOW ®
The effect of bad debt in time
Example:
Initial debt: $10,000
Annual Interest Rate: 25%
Time: 10 years
Monthly compounding
Final Value of Debt: $118,619
MONEY FLOW ®
Debt Reduction Plan
1. Stop using your credit cards if you have high balances
2. Assess your debt load: Log into your loan and credit card accounts and gather this information: remaining balance, monthly payment, interest rate
3. Develop your personal debt reduction plan and set debt priorities
4. Analyze your budget: Cut unnecessary expenses and reduce living expenses as much as possible.
Determine available cash.
GOALS
- To become debt-free as soon as possible
- To commit to a plan
- To avoid getting into high-risk debt ever again
MONEY FLOW ®
Debt Reduction Plan
Negotiate a payment plan and an interest rate reduction with creditors
1
Transfer the balance of your credit card(s) to another card with a 0% introductory interest rate for some period of time (transfer fees may apply). Have a clear plan in place for paying off the total balance before the 0% promotional rate expires. PAY ON TIME.
2
and / or
Consolidate your debts by taking out a new personal loan or a line of credit against your assets. Consider interest rates, term, minimum payments.
PAY ON TIME.
(least preferred)
3
Create a DEBT PAYMENT PLAN: 2 methodologies:
4
I.
II.
AVALANCHE
SNOWBALL
MONEY FLOW ®:
Debt Reduction Plan
Avalanche
- List all your debts by higher to lower interest rate.
- Calculate the minimum payment for each debt.
- Pay as much as your budget allows towards the debt with the highest interest rate.
- Continue to pay minimum payment on other debt ON TIME.
- When the highest interest rate debt is paid off, move on to paying extra towards the second highest interest rate debt.
- Continue until all debts are paid off.
Snowball
Cuotas mensuales: Paga capital e intereses a una tasa que varía por puntaje de crédito en un período de tiempo definido. Puede ser deduciblede impuestos si se utiliza para el trabajo.
- List all your debts by lowest to highest balance owed.
- Calculate the minimum payment for each debt.
- Pay as much as your budget allows towards the debt with the lowest balance.
- Continue to pay minimum payment on other debt ON TIME.
- When the smallest balance debt is paid off, move on to paying extra towards the one with the next smallest balance.
- Continue until all your debts are paid off.
Cuotas mensuales: Paga capital e intereses a una tasa relativamente baja por un período de tiempo definido. Los intereses son deducibles de impuestos.
Cuotas mensuales: Paga intereses a tasas más altas que las hipotecas. Puede tener período de pago de intereses solamente. Puede no ser deducible de impuestos.
Cuotas mensuales: Paga el capital y los intereses a tasas altas.
El préstamo puede ser demasiado alto para el nivel de ingresos.
El pago mensual puede variar. Tasas muy altas.
Two Methodologies
MONEY FLOW ®:
Debt Reduction Plan
Type of Debt
Bank/Creditor
Amount Owed
Interest Rate
Maturity
Activity
Comments
MONEY FLOW ®
My Credit Profile
Your credit profile is made up of your CREDIT HISTORY and your CREDIT SCORE.
Your Credit History:
- Companies with whom you have loans provide your information to Credit bureaus, who create your credit history.
- Your Credit History describes how you use money:
- How many credit cards do you have?
- How many loans do you have?
- Do you pay your bills on time?
- What debt balances do you have?
Credit Bureaus:
- They create a credit report, with details of all your loans for the past seven to ten years.
- They provide your credit reports to lenders and creditors to help them determine your creditworthiness.
- They provide your Credit reports to you, so you can better understand your credit situation.
- They provide your credit report to two credit scoring companies to generate your credit score.
MONEY FLOW ®
My Credit Profile
Activity: Request your credit report
Credit Report:
It is a summary of your credit history that lists:
- your name, address, and Social Security number.
- your credit cards.
- your loans.
- how much money you owe.
- if you pay your bills on time or late.
Benefits of Credit:
By law, you can get a free credit report each year from the three credit reporting agencies (CRAs):
AnnualCreditReport.com is the only website authorized by the federal government to issue free, annual credit reports from the three CRAs.
Your Credit Score:
- There are two main credit scoring companies:
- A credit score is a three-digit number designed to predict how likely you are to pay back a loan on time, based on:
- Your payment habits
- The amount of debt you have
- Creditors and lenders consider your credit score when deciding whether to approve you for a new loan.
- Your credit score impacts the interest rate and other terms on any loan or other credit account for which you qualify.
Consequences of Credit:
MONEY FLOW ®
My Credit Profile
ACTIVITY
- The factors that make the biggest impact on your score are:
- Paying on time
- Credit utilization or amount of available credit
- Length of credit history
- New credit accounts
- Types of credit
- To establish a lengthy and good credit history:
- Pay on time.
- Keeping your utilization below 30%
- Keep older accounts open.
Source: National Financial Educators Council
MONEY FLOW ®
Why is my credit profile important?
- Building and maintaining a good credit rating has a positive impact on your financial future.
- Good credit increases the probability that you will be approved for a new loan that you might need to achieve your financial goals.
- Good credit will qualify you for better loan terms, saving you money over time.
Example 1
MONEY FLOW ®
Why is my credit profile important?
Example 2
Source: www.myfico.com
+$542 monthly
+$195,120
in 30 years
at a 0% interest rate
+$544,447
in 30 years
at a 6% annual interest rate
MONEY FLOW ®:
Good practice to keep a good credit profile
Keep debts to a minimum
Build, repair, and maintain a good credit score
Pay your bills on time (set up automatic payments)
Keep inquiries to what is strictly needed
Check in detail your information on your credit report for signs of identity theft
COMMIT to review your credit score monthly and your credit report annually
MONEY FLOW ®:
My financial situation: My Income and Expenses
My Income
Salary
Bonus & commissions
Tips
Retirement income
Passive income:
Rental income
Dividends
Interest
Business income
Other
My Expenses
Fixed
Mortgage or rent
Auto: Loan or lease
Other debt payments
Auto insurance
Medical insurance
Property insurance
Home maintenance
Taxes: Income, social security, property
My Expenses
Variable
Food
Transportation: gas, registration
Utilities: Gas & electricity
Clothing
Medical expenses
Entertaining
Gifts
Other
Utilities: Phone, cable, internet
INCOME – EXPENSES =
CHANGE IN MY CASH OR DEBT POSITION ~ CHANGE IN MY NET WORTH
MONEY FLOW ®:
TOTAL INCOME
Income
Clothing | |||||
Utilities/Cel |
Salary
Bonuses & Commissions
Wages
Retirement income
Passive income:
Rent
Dividends
Interest
Business
Other income
Mortgage or rent
Car payments: loan or lease
Other loan payments
Health Insurance
Car Insurance
Property insurance
Home maintenance /Condo fees
Income taxes
Property taxes
Other fees or taxes
Other debt payments
Car expenses: Gas, repairs, parking
Groceries
Medical bills
Entertainment
Gifts
Account Fees/Late fees/Overdraft
Health & Fitness
Pets
TOTAL EXPENSES
$
My Cash Flow
Fixed Expenses
$
Activity
Other
Expenses
$
MONEY FLOW ®
Step #3
My Budget
MONEY FLOW ®:
#3 Donations
#2 Spending
#1 Savings and investments
THREE WAYS I CAN USE my money
MONEY FLOW ®
How I use my money
ACTIVITY
- I align it to my values, needs, goals and dreams – this is my WHY
- I choose the tool I will use: Notebook, Excel, Mint, Quicken - this is my HOW
- I determine how much I owe, and how much I can save - WHAT
- I establish how much my living expenses should be: housing, transportation, groceries, and other
- I decide how much money I can/want to donate
MONEY FLOW ®
Savings & Investments
Savings
Emergency Fund – 6-12 months of fixed expenses
Retirement – 5-10%
Goals– 5-10%
MONEY FLOW ®:
Savings & Investments
Emergency Fund
Example
My Monthly Fixed Expenses
Minimum
Security:
6-12 months of fixed expenses
Peace of mind:
24-36 months of fixed expenses
$4,000*
$1,000
$24,000 - $48,000
$96,000-$144,000
* Housing, food, transportation, insurance
Tips:
- If you don’t have any emergency savings, split your monthly savings between retirement savings and emergency savings until you have at least 6 months of fixed expenses saved.
- Once you are done funding your Emergency Savings, maximize your contributions to your Retirement Savings and start investing for your SMART goals.
MONEY FLOW ®:
Savings & Investments
Retirement Savings
My Monthly Gross Income (before taxes and deductions)
5%
$5,000
$250
10%
$500
SAVINGS FOR MY GOALS / DREAMS
$4,000
My Monthly Net Income (After taxes and deductions)
5%
10%
$200
$400
MONEY FLOW ®
Savings & Investments: How Much Should I Save
ExamPle
Annual Gross Income $60,000
Monthly Gross Income $5,000
401k Contribution* 5%
Effective Tax Rate 18%
Monthly Net Income $3,895
Additional savings - 10% of net income $390
Monthly retirement savings + additional $890
Annual Interest Rate 7.2%
Number of years 10
Number or periods 120 months
Future Value $155,753
If you are 23 years old, at your retirement age of 67 you would have saved for 44 years:
Number of Periods 528 months
Future Value $3,342,849
I Pay Myself first
* 401K: Contribute enough to make the maximum match
MONEY FLOW ®:
Savings & Investments: I pay myself first
%
Gross Net
Total Income (TI)
%
rule of thumb 28/36 – CONVENTIONAL MORTGAGE
MONEY FLOW ®:
Spending: How much should I spend in housing?
• Individuals should not spend more than 28% of their gross income for monthly payments associated with their home: Principal and interest payments, insurance, property taxes, and any association dues.
• 4 parts of your monthly mortgage Payment: PITI - Principal, interest, taxes and insurance.
• Individuals should not spend more that 36% of their gross income for expenses associated with their homes in addition to other debt payments such as credit cards and student or car loans.
Example
Gross Income
28% PITI
36% PITI + other expenses
Annual
$60,000
$16,800
$21,600
Monthly
$5,000
$1,400
$1,800
MONEY FLOW ®:
Spending: How much should I spend in housing?
rule of thumb 31/43 – fha LOANS
–Federal Housing Adminstration
• Individuals should not spend more than 31% of their gross income for monthly payments associated with their home: Principal and interest payments, insurance, property taxes, and any association dues and rent if applicable.
• Individuals should not spend more that 43% of their gross income for expenses associated with their homes in addition to other debt payments such as credit cards and student or car loans.
• An FHA loan is a type of mortgage geared toward borrowers with lower credit scores, or who otherwise do not qualify for a conventional loan. They require a lower down payments.
• FHA loan borrowers who put less than 20% down on their home purchase are responsible for paying two mortgage insurance premiums: upfront and annual (MIP – Mortgage Insurance Premium).
Example
Gross Income
31% PITI
43% PITI + other debt payments
Annual
$60,000
$18,600
$25,800
$5,000
$1,550
$2,150
MONEY FLOW ®:
Spending: How much should I spend in my car?
the 20 / 4 / 10 rule
- 20 % Down - We pay down at least 20% of the total purchase price.
- 4-year loan - We need to be able to pay off the balance in 48 months or less.
- 10% of your income - your total monthly auto costs should not be more than 10% of your monthly gross income - 15%-20% of net income
- Car expenses include:
- Car loan or lease
- Insurance
- Gas
- Maintenance
- Registration
- Taxes
- Repairs
- Service
Monthly
Annual
Example
Gross Income
$60,000
$5,000
10%
$6,000
$500
MONEY FLOW ®:
Spending: How much should I spend in groceries?
Example: Family of 4
26 year old man
63 year old man
22 year old woman
56 year old woman
TOTAL MONTHLY COST MODERATE PLAN: $1,356.70
WEEKLY (4.5 weeks): $301.50
MONEY FLOW ®:
Spending: Sample Budget
Activity: Excel spreadsheet
MONEY FLOW®:
Spending: My budget
TOTAL INCOME (TI) |
INCOME
ANNUAL
MONTHLY
Salary
Other Income
ACTIVITY
Pay myself first: First Payment
Annual
Monthly
%
Gross Net
Retirement Account
Taxes
First Payment Total
Net Income (NI)
Pay myself first: Second Payment
Annual
Monthly
%
Gross Net
Retirement Account
Taxes
Second Payment Total
Net Income (NI)
MONEY FLOW®:
Spending: My budget
Annual
Monthly
%
Gross/ Net
DEBT REDUCTION
Credit Cards
Other
Total
Debt Reduction
CHARITY
Annual
Monthly
%
Gross/ Net
DONATIONS
FIXED EXPENSES
Annual
Groceries
Housing
Health Insurance
Utilities
Monthly
%
Gross/ Net
Personal Care
TOTAL FIXED EXPENSES
Transportation
TOTAL EXPENSES
(TE)
Annual
Monthly
VARIABLE EXPENSES
Annual
Monthly
%
Gross / Net
Entertainment
Clothing
Other
TOTAL VARIABLE EXPENSES
Activity
NET INCOME - TOTAL EXPENSES |
NET BALANCE
Annual
Monthly
MONEY FLOW ®:
Spending: Ways to save
- Think twice before making an impulsive purchase. Does it align with your life goals? Does it get you closer to your financial goals, or further away?
- Remove the Amazon app from your phone.
- When shopping online, keep your items in the cart for 24/48 hours. You will probably empty the cart 90% of the time.
- Before going to CVS or Target, make a list and stick to it.
- Reduce coffee shop visits.
- Reduce dining out and ordering food.
- Remove saved credit cards from online stores.
- Use everything in your freezer and refrigerator before grocery shopping.
- Make a weekly menu and a grocery shopping list.
- Purchase important items on discount.
- Buy generic brands.
- Do not buy bottled water.
- Reduce fixed expenses.
- Buy essential cleaning products/school supplies at the Dollar Store.
- Switch to LED bulbs.
- Lower the thermostat.
Ways to save
MONEY FLOW®:
Donations
TALENT
Choose a good cause to support
Share your 3 Ts
TIME
TREASURE
Giving!
MONEY FLOW®:
Donations
“What is the meaning of success?
…To know that even one life has breathed easier because you have lived…”
Ralph Waldo Emerson
MONEY FLOW®:
Donations
why
It changes lives
Gives a deep sense of purpose
It has an impact on the world
It impacts your family and your community
It impacts your work
It is tax deductible
MONEY FLOW®:
Donations
Elderly
Orphaned Children
Illnesses
Nutrition
Education
Poverty
Women
SOME CAUSES
Infrastructure projects in impoverished areas
Housing construction
Entrepreneurship
Shelters for displaced people
Human Trafficking
Animal Shelters
MONEY FLOW ®
Step #4
A SIMPLE PLAN
MONEY FLOW®: A SIMPLE PLAN
SIMPLIFY
CHOOSE 2 BANK ACCOUNTS
CHOOSE 1 - 2 CREDIT CARDS
CHOOSE 1 - 3 INVESTMENT ACCOUNTS
MONEY FLOW®: A SIMPLE PLAN
CHOOSE 2
BANK ACCOUNTS
CHECKING ACCOUNT FOR MONTHLY EXPENSES/PAYMENTS
SAVINGS OR money market ACCOUNT FOR EMERGENCY SAVINGS
CHOOSE 1-2
CREDIT CARDS
- NEEDS
- WANTS
GOLDEN RULES
- SET YOUR MONTHLY SPENDING LIMIT
- PAY OFF EVERY MONTH
WHAT TO LOOK FOR
- INTEREST RATES
- CREDIT LIMIT
- PENALTIES AND FEES
- BENEFITS: AIRLINE MILES/POINTS, CASHBACK, DISCOUNTS, GAS, GROCERIES, HOTEL AND TRAVEL POINTS
CHOOSE 1-3
INVESTMENT ACCOUNTS
- SPARE CHANGE ACCOUNT (ACORNS)
- RETIREMENT ACCOUNT (MONEY GROW)
- INVESTMENT ACCOUNTS TO MEET OUR GOALS (MONEY GROW)
** WWW.ACORNS.COM
MONEY FLOW ®
Step #5
AUTOMATE
MONEY FLOW®: AUTOMATE
SETUP DIRECT DEPOSITS, AUTO BILL PAY, AND AUTOMATIC TRANSFERS
SAlary, wages, commissions/other income
1. Fund pre-tax RETIRement account (401k, IRA, HSA, OTHER)
2. transfer to the following accounts:
taxes (if applicable), emergency savings, Investments
3. credit card payments
4. bill payments
5. DONAtIONS
MONEY FLOW®
MY COMMITMENT
MONEY FLOW ®:
COMMITMENT
ONE HOUR A WEEK - MY COMMITMENT
THERE ARE 7 DAYS, 24 HOURS A DAY, A TOTAL OF 168 HOURS IN A WEEK.
100%
WE WORK 5 daYs, 8 hoUrs A dAY, A total OF 40 hoUrs A WEEK
24%
33%
WE SLEEP 8 hoUrs A DAY, 7 DAYS, A TOTAL OF 56 HOURS A WEEK
43%
WE STILL HAVE 72 HOURS A WEEK, OR 10 HOURS A DAY
0.6%
ONE HOUR A WEEK CAN CHANGE YOUR LIFE
Activity
Day: ____________________
Time: ___________________
How: ___________________
Where: _________________
With whom: ____________
MONEY FLOW®:
SMART HABITS
The Power of Habit contains an STIMULATING argument:
The key to exercising regularly, losing weight, raising exceptional children, becoming more productive, building revolutionary companies and social movements, and achieving success is understanding how habits work.
Habits are NOt destiny.
As Charles Duhigg shows, by harnessing this new science, we can transform our businesses, our communities, and our lives.
SMART HABITS
MONEY FLOW®:
SMART HABITS
NEVER FIGHT OVER MONEY - IT IS NOT WORTH IT!
ONE HOUR A WEEK:
CREATE THE HABIT!
AUTOMATE ALL YOUR PAYMENTS AND NEVER BE LATE
PAY YOUR MORTGAGE AND OTHER DEBTS EVERY TWO WEEKS IF POSSIBLE
PAY YOUR CREDIT CARD BALANCES EVERY MONTH
SET A LIMIT FOR YOUR “WANTS” SPENDING
SPEND LESS THAN YOU EARN
KEEP YOUR CAR AS LONG AS POSSIBLE
AVOID IMPULSE BUYING
INVITE FRIENDS OVER INSTEAD OF GOING OUT
INVEST EVERY DOLLAR YOU CAN
TRULY UNDERSTAND WHERE YOU ARE INVESTED
CHOOSE A FINANCIAL ADVISOR OR MENTOR THAT YOU TRUST
CREATE AS MANY SOURCES OF INCOME AS YOU CAN
MAXIMIZE YOUR 401k CONTRIBUTION
GET TO WORK EARLY
BE AWARE OF ALL THE DIMENSIONS OF YOUR PERSONAL WELLNESS
SHARE YOUR 3TS: TALENT, TIME AND TREASURE
REMAMBER THE ABC AND 5 RULES OF YOUR FINANCIAL PLAN
NEVER FORGET YOUR BIG WHY
“EARLY TO BED, EARLY TO RISE, MAKES A MAN HEALTHY, WEALTHY AND WISE” - BENJAMIN FRANKLIN
MONEY FLOW ®
CONCLUSIONS
MONEY FLOW®: 3 WAYS i CAN USE MY MONEY
#3 Donations
#2 Spending
#1 Savings & Investments
I PAY MYSELF FIRST
SHARE YOUR 3Ts
RETIREMENT ACCOUNTS: 5% OFMY GROSS INCOME (Befores taxes and deductions)
SAVINGS AND INVESTMENT ACCOUNTS: 10% - 15% OF MY NET INCOME (after taxes and deductions)
10%
15-20%
NEEDS
WANTS
70%
10% OF MY NET INCOME
60% OF MY NET INCOME
MONEY FLOW®
MY BUDGET
MY FINANCIAL SITUATION
my financial goals
60% NEEDS
10% WANTS
20% SAVINGS/paying off debt
10% DonaTIONS - THE 3 TS
SMART
MY NET WORTH
MY CASH FLOW
CREDIT REPORT
a simple plan
1 checking & 1 savings account
1-2 credit cards
2-3 investment accounts
automate
- transfers to RETIREMENT ACCOUNT
- transfers to INVESTMENT ACCOUNTS
- transfers to emergency savings account
- credit card payments
- utilities/bill payments
- donations
your commitment
one hour a week
COMMIT TO YOUR PLAN!
MONEY FLOW®: MY FINANCIAL PLAN
MONEY FLOW®
MONEY GROW®
MONEY PRO®
#3 DONATIONS
#2 SPENDING
#1 SAVINGS AND INVESTMENTS
ABC
5 RULES
5 STEPS
Be Aware
believe
commit
- YOU RULE!
- SOMETHING’S GOTTA GIVE
- EVERY PENNY COUNTS!
- keep it simple
- make a COMMITment
- ESTABLISH MY FINANCIAL GOALS
- EVALUATE my CURRENT financial situation
- create my budget:
- PLAN SAVINGS AND INVESTMENTS #1
- PLAN EXPENSES #2
- PLAN DONATIONS #3
- SIMPLIFY
- AUTOMATE
HOMEWORK
THURSDAY, NOVEMBER 2, 2023
- Continue thinking about your financial goals, values and priorities in your life.
- Determine your net worth and cash flow in detail.
- Decide which tool you will use to create your budget:
- Quicken, Mint, Excel, notebook, or other application.
- Create your ideal budget.
- Identify your debt and decide what debt reduction strategy you will use, if needed.
- Decide whether you want to donate, how much, and choose a cause that aligns with your values.
- Simplify your financies using few accounts and credit cards.
- Automate all payments and transfers as possible.
- Schedule the day/time of the week you will commit to review and update your financial plan - set an alarm on your phone until it becomes a habit.
MAXIMIZE YOUR TALENTS!
FOLLOW UP ON YOUR FINANCIAL PLAN
CREATE HABITS TO ACHIEVE RESULTS
MONEY FLOW®
ADDENDUM
- Different types of bank accounts
- Considerations when planning to start a family
- Benefits of buying vs. renting a house
- Types of mortgages
- Benefits of buying vs. renting a vehicle
MONEY FLOW®: DIFFERENTS TYPES OF BANK ACCOUNTS
CHECKING ACCOUNT
- use it as a distribution center: to receive your income and automatically allocate it among your expenses, savings and donations
- you WILL NOT earn interest - do NOt leave too much money here
- banks typically require a monthly minimum to avoid maintenance fees
- it usually offers unlimited checks
- choose a bank with convenient ATm locations
SAVINGS ACCOUNT
- use it for your emergency fundS
- it HAS A limited monthly usage, typically 6 withdrawals
- IT MAY have a minimum balance requirement
- pays you interest (some do nOt)
- GENERALLY, it does nOt charge fees
- it must be insured by the FDIC
MONEY FLOW ®: DIFFERENTS TYPES OF BANK ACCOUNTS
money market account
- Use it for your emergency fundS
- it may have a monthly usage restriction
- it may have a high minimum balance requirement.
- it earns more interest
- GENERALLY, fees are not charged
- GENERALLY, not backed by the FDIC
FDIC
- The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
- The FDIC insures $250,000 per depositor, per bank, per account category of ownership
MONEY FLOW®:
IMPORTANT QUESTIONS WHEN PLANNING FOR A FAMILY
- What financial situation does each of us have? What is our credit rating?
- Do we need to plan a wedding? How much will it cost us?
- Are we both working? Are we going to join our financial lives?
- Assets and Liabilities
- Budget
- Taxes
- Dreams and goals
- Where do we want to live?
- What type of house would we like to have?
- Are we going to buy or rent a house?
- Are we going to have children?
- How many would we like?
- When we have children, will one of us stay at home taking care of them?
- What kind of school will we take our children to? Private or public?
11.Are we going to send our children to University? What type, private or public?
12. When are we going to start saving for our children's education?
13. What financial values will we teach our children? What examples do we want to give them?
14. Are we going to learn about managing our finances together?
15. Is one of the two going to lead the family finances?16. Who is going to pay the bills every month?
17. How much are we going to spend, save, donate?
18. Are we going to buy life insurance policies?
19. What type of health insurance are we going to have?20. How are we going to divide the housework?
21. Are we going to have a prenuptial agreement?
22. Are we going to give our children a religious education?
MONEY FLOW®: SHOULD WE BUY OR RENT A HOME?
TENANT
HOMEOWNER
INITIAL FUNDS NEEDED
GENERALLY 3 MONTHS OF RENT
Down payment, at least 20% of the purchase cost plus closing costs, 2-4% of the property value
UTILITIES
VARIABLE
YES
MAINTENANCE & REPAIRS
NO
YES
PROPERTY TAXES
NO
YES
HOME INSURANCE
NO
Y
TENANT INSURANCE
YES
NO
LONG TERM COMMITMENT?
NO
NO
RISKS
INCREASE IN RENT OR CANCELLATION
Increase in interest rates if the mortgage is variable. Decrease in market value of the property.
TERM COMMITMENT
SHORT
LONG
HOUSEWORK
MODERATE
HIGH
MONEY FLOW®:
WHY SHOULD WE BUY A HOME?
YOU CAN FINANCE THE PURCHASE
A HOME CAN BE A FAMILY’S MOST IMPORTANT SAVING VEHICLE
MORTGAGE INTEREST IS DEDUCTIBLE
YOU ARE A HOMEOWNER
REAL ESTATE VALUES GENERALLY GROW IN TIME
iT IS AN ASSET THAT GENERALLY MAY BE TRANSFERRED FROM GENERATION TO GENERATION
“ Real Estate is the best vehicle to increase wealth”
David Bach
MONEY FLOW®: SHOULD WE BUY OR RENT A HOME?
- Consider the pros and cons of buying versus renting a home.
- Determine if you have the financial means to purchase.
- Discover all the expenses involved.
- Decide how much debt you can take on.
- Start your research: House types, sizes, prices, location, trends by area, traffic, parking, schools, plumbing and electrical situation of the house, types of windows and doors, type of fences, security, alarm, roof.
- Get pre-qualified and approved for your mortgage credit: Check your credit score.
- Contact your mortgage broker or bank that provides mortgages.
- Compare mortgage types and interest rates.
- Find the right real estate agent.
- Get Home Inspection and Appraisal.
- Obtain a real estate attorney to close the purchase transaction.
- Review all closing costs.
- Review all closing documentation.
- Keep documentation in a safe, electronic and physical place.
MONEY FLOW ®: TYPES OF MORTGAGES
TYPES OF MORTGAGES
INTEREST RATES
APR
30 YEAR FIXED MORTGAGE RATE - FHA
6.47%
7.38%
30 YEAR FIXED MORTGAGE RATE - VA
6.67%
6.79%
30 YEAR R\FIXED MORTGAGE RATE
7.53%
7.54%
15 YEAR FIXED MORTGAGE RATE
6.79%
6.84%
VARIABLE INTEREST RATE 5/1 ARM
6.56%
6.56%
Examples from Bankrate.com on September 2nd, 2023
FHA: Federal Housing Administration
VA: Veterans Administration
ARM: Adjustable-Rate Mortgage - Interest rate adjusts according to a formula with a spread over a reference rate.
5/1 ARM: Interest rate is fixed for 5 years and then adjusts yearly.
When interest rates are very low, it is suggested to take a long mortgage with fixed interest rate.
When interest rates are high and expected to be lower, it is suggested to take on a variable rate mortgage.
MONEY FLOW ®: ¿BUY OR LEASE A CAR?
PROS for leasing
- GENERALLY, the monthly payment is lower.
- GENERALLY, maintenance costs are lower.
- You can change models frequently.
- They usually have a guaranty
PROS for buying
- You own your car - create equity.
- You can sell your car if you need to.
- You can plan for years without a car payment.
- Payments are limited to the term of the loan
Depending on the type of car and other factors, it is generally more economical to buy in the long run.
How much should I spend in my car? Maximum 15% of my net income
MONEY FLOW ®: ¿BUY OR LEASE A CAR?
example
Gross annual salary: $60,000
Gross monthly salary: $5,000
Net monthly salary: $4,100 (18% effective tax rate)
Maximum you can spend in your car: $615 - $820.
(includes lease or loan, gasoline, insurance, registration, maintenance and repairs.)
monthly expense example
Loan/Lease: $300
Insurance: $100
Gasoline: $150
Registration: $10
Maintenance: $80
Total: $640 (15.6% of my monthly net salary )
Sources::
Dinkytown Car Lease vs Buy
Nerdwallet Car Payment Calculator
Nerdwallet Car Lease Calculator
Omni Calculators
AAA Newsroom
Car depreciation worksheet
MONEY FLOW ®: ¿BUY OR LEASE A CAR?
NEW CARS DEPRECIATE, ON AVERAGE, 20% THE FIRST YEAR AND 10% ANNUALLY THE FOLLOWING YEARS
SOME TIPS FOR BUYING A CAR
- ALWAYS Negotiate the price.
- Mileage: Miles per gallon city and highway.
- Investigate the depreciation rate of the car if purchased.
- Find out the ransom value if rented.
- Find out maintenance and repair costs.
- Tire cost.
- Guarantee cost
- Insurance cost
¡THANK YOU!