You can download the free PowerPoint and teaching matierials at: www.LisbonWC.org/free.htm
Welcome!
FINANCIAL FREEDOM WORKSHOP
Session 4
Developed using the books:Your Money Map: A Proven 7 Step Guide to True Financial Freedom and The Total Money Makeover.
REVIEW
- Hopefully you have been tracking all your expenses since this workshop began.
- Use these figures to make your spending plan more accurate.
- Make adjustments in amounts and categories so that income and expenses are balanced.
- Stick to your plan!
- This will be the most beneficial thing you will learn in this workshop.
- I am available for personal financial counseling.
Intro
- So far we have focused on getting out of debt.
- Tonight we will begin to plan for the future once you are debt free.
- If you are not there yet, see this as a goal that will give you hope that financial freedom is possible!
THE ROAD TO FINACIAL FREEDOM
MONEY MAP
Destination #1
- Begin using a spending plan
- Save $1,000 for emergencies
Destination #2
- Pay off credit cards
- Increase savings to one month’s living expenses
Destination #3
- Pay off all consumer debt
- Increase savings to three month’s living expenses
Destination #4
- Begin saving for major purchases (home, auto, etc.).
- Begin saving for retirement.
- Begin saving for children’s education.
- Begin saving to start a business.
(If this is a goal for you.)
Today we will focus on the fist half of destination #4: Major purchases and saving for retirement.
Proverbs 21:5 “Steady plodding brings prosperity.”
SAVING FOR MAJOR PURCHASES
- At this destination, you have gotten all debt out of your life except for your home.
- You have to live life from this point on hating debt and committing never to get in it again.
- The way you do this is by planning ahead and saving for major purchases.
Your saving priorities.
- Priorities for major purchases will be different for each person.
- Last time we spoke of how to get out of auto debt.
- Saving for your next car could be a good first step for many to stay out of debt.
- The stage of life you are in and your families situation will also affect your priorities.
- Also consider where your plans for your life. Where is God directing your path?
Reasonable down payment for a home.
- At least 20%
- Monthly payments will be smaller
- Eliminates need for expensive PMI (Private Mortgage Insurance)
- $65 - $70 per month per $100,000 borrowed (Cost avg. $840 - $1,680 per year)
- PMI is basically foreclosure insurance
Steady saving adds up.
- When you get out of debt and begin to save, interest becomes your ally
- It begins to work for you.
- Saving for a major purchase may take more time than the previous destinations.
- Stay on course and keep your goal in mind.
Compounding interest is a friend.
- Before, interest on your debt made it difficult to pay off your debt.
- Now interest on savings will accelerate you progress.
- The sooner you start to save the better.
- If you save $1000 a year at 10% interest, you will save $526,985.
- This will earn $4,392 each month.
- If you wait just one year to start saving, you will lose $50,899.
INVESTING FOR RETIREMENT
- “USA today reported recently that 56% of Americans of not systematically prepare for retirement age by investing” (Dave Ramsey).
- “The Consumer Federation of America found that of people making less that $35,000 per year, 40% said the best way for them to have $500,000 at retirement age is to win the Lotto” (Dave Ramsey).
- “Wealth Builder magazine’s poll found that 80% of Americans believe their standard of living will go up at retirement. Talk about living in a fantasy! (Dave Ramsey)
Don’t rely solely on a company or the government.
- The Social Security retirement age is being pushed back.
- It isn’t enough to live on in the world today.
- It was never intended as a retirement plan
- It was started as a way to help order people living in poverty.
- “A recent survey said more people under age thirty believe in flying saucers than believe they will receive a dime from Social Insecurity” (Dave Ramsey).
Start early!
- We mentioned earlier that compound interest makes all the difference in saving for retirement.
Two Savers Example
- Alice started saving $1,000 a year for retirement when she was 21 years old. She saved this much for 8 years and then stopped at age 29 but let the amount build interest until she was 65. She paid a total of $8,000 into her retirement plan.
- Ben waited until age 29 to start saving $1,000 a year for retirement and saved that much per year until he retired at age 65. He paid a total of $37,000 into his retirement plan.
- Who do you think ended up with the most? The one that paid in $8,000 or the one that paid in $37,000?
- Alice ended up with earning $64,693 more than Ben in the end because her money grew through compounded interest 8 years longer.
- Starting early makes a huge difference!
- What if you are not our of debt yet but don’t want to get behind on retirement saving?
- It is better to attack your debt and wait until you are debt free to work on saving for retirement.
- When you pay off a credit card charging you 25% interest, it is like making an investment that earns you 25% interest.
- “The stock market has averaged just below 12% return on investment throughout its history” (Dave Ramsey).
- You are better to pay of debt first and quickly so you can then start on saving for retirement ASAP!
- But on the other hand, some who are debt free want to wait until after they have sent a kid through college or pay off a home before they start saving for retirement.
- “Your kid’s college degrees won’t feed you at retirement” (Dave Ramsey).
It is never too late to start
“George Burns won his first Oscar at eighty. Golda Meir was prime minister of Israel at seventy-one. Michelangelo painted the ceiling of the Sistine Chapel lying on his back on scaffolding at seventy-one. Colonel Sanders never fried any chicken for money until he was sixty-five, and Kentucky Fried Chicken is a household name worldwide. Albert Schweitzer was still performing surgery in Africa at eighty-nine. Is it never too late to start. The past has passed. Start where you are, because that is your only option” (Dave Ramsey).
- However, a note to all of you under forty: All of those over forty are giving you a collective yell, ‘INVEST NOW!’” (Dave Ramsey).
How much should I invest?
Assignment from last week
- Find out what you are currently putting aside for retirement.
- Find out what percentage of your pay this amounts to compared to your income.
- “Invest 15% of your gross income (before taxes)” (Dave Ramsey).
- “Do not use you potential Social Security benefits in your calculations for retirement” (Dave Ramsey).
- Dave Ramsey says: “I don’t count on an inept government for my dignity at retirement, and you shouldn’t either”
- He also says, “If by some miracle Social Security is there when you retire, ... you’ll have some extra money to give away” (Dave Ramsey).
- “You are secure and will leave a nice inheritance when you can live off of 8% of your nest egg per year” (Dave Ramsey).
- “If you make 12% on your money and inflations steels 4%, 8% is a dream number” (Dave Ramsey).
- The average household income in America is $40,816 per year, according to the Census Bureau” (Dave Ramsey).
- If you can live with dignity on $40,000 per year, you need a nest egg of only $500,000.
- Dave Ramsey says, “I would recommend that you have the largest next egg possible because there are some really cool non-greedy things to do with it later, live giving it away.”
How do I invest?
- “Your tool for investing is Mutual Finds” (Dave Ramsey).
- Some think invest investing in the stock market is equal to gambling.
- “Ibbotson Research says that 97% of the five-year periods and 100% of the ten-year periods in the stock market’s history have made money” (Dave Ramsey).
- Most retirement investing in mutual funds will be done through 401K’s and Roth IRA’s.
DIRECTIONS TO INVESTING
Start with free money!
- If your employer matches a percentage of your retirement contribution, give at least that much.
- It’s free money!
- Do this before anything else when investing for retirement. It doubles you return!
- “When calculating your 15%, don’t include company matches in your plan” (Dave Ramsey).
Next use the Roth IRA
- 401 K Contributions are tax deductible. You pay income tax when you withdraw.
- Contributions to Roth IRA’s are not tax deductible, but they grow tax free and after age 59 1/2 , all withdraws are tax free.
- Fund Roth IRA’s first.
- “The Roth IRA will allow you to invest between $4,000 and $5,000 per year, per person” (Dave Ramsey).
- If you invest $3,000 per year from age 35 to age 65, and your mutual funds average 12%, you will have $873,000 tax-free at age 65. You have invested $90,000 ($3,000 x 30 years); the rest is growth” (Dave Ramsey).
- With the 401 K you would have paid income tax on the total $873,000.
- With the Roth IRA you only pay interest on the $90,000 you put in over the years.
What if you max the most you can place into the Roth IRA and you still do not meet 15% of your income?
Then move to 401K’s, 403B’s, 457’s, and SEPP’s
- 401K’s (Regular employer investing).
- 403B’s (non-profit employer investing)
- 457’s
- SEPP’s (for the self-employed).
- The overall goal is that you will invest 15% of your gross annual pay.
- “Most of you will have well over $2 million pass through your hands in your working life-time, so do something about catching some of that money” (Dave Ramsey).
Assignment for next week
- Do you have kids to send to college? If so, find out how much you have saved so far.
- Have you ever wanted to start a business, think about what kind it would be.
YOU CAN DO IT!
Butch (33) President of Finance Company
and Kelli (31) Mauldin Pharmacist
The most memorable moment of our Total Money makeover was saving $1,000 and having it in the bank in our name. This initial savings completion marked the beginning of a new future for Kelli and me. It wasn’t easy, and we gave up a lot to become savers rather than spenders.
All of our peers were beginning to rack of debt right as we were getting gazelle-intense and changing our money habits. We drove (and still drive) old cars, decided to live in a tiny, one bedroom home, and cut back on every frivolous expense. At that point, Kelli was still in pharmacy school, but I was bringing in a substantial income. So, we made a budget and sut up our credit cards (and will never carry one again).
Now that Kelli has finished school and is working a wonderful job, we are able to live off of my income and invest Kelli’s. Our future is limitless because our present has absolutely no money pressures! It is wonderful knowing that if either one of us lost our job tomorrow we would be fully covered due to our budgeting and saving plans. Now we go to work every day because we want to, not because we have to make ends meet. And, ot’s nice to know that when it comes time to retire, we won’t have to wonder if we’ll be okay financially or if it would be better to work an extra five or ten years. Our future is solid.
