Money Rx: Your Prescription to Sound Financial Health
1. Money RX
Your Prescription for Sound
Financial Health
Jerry Love, CPA/PFS, CFP
AICPA Personal Financial Planning
Executive Committee
2. Starting at the End
⢠âLetâs start with the end in
mind.â -Steven Covey
⢠For most people, thatâs
retirement
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3. Americaâs Financial Literacy
⢠The average American family spends $1.22 for every dollar
it earns
⢠One in five American families with annual household
income of less than $50,000 is spending 40% of after-tax
income to service its debt
⢠Average card debt among people who have at least one
card is $9,205
⢠In 2003, 1.6 million Americans filed for bankruptcy â the
highest amount in history
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4. The Problem
⢠Average per household debt in the U.S., not
counting mortgage or debt on cars, is about
$14,500
⢠A typical credit card purchase ends up costing
112 percent more than if cash were used
⢠About 60 percent of active credit card accounts
are not paid off monthly
⢠A typical American family today pays about
$1,200 annually in credit card interest
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5. Living Paycheck to Paycheck
⢠Some 40 percent of American families annually
spend more than they earn
⢠The average college student has $2,700 worth of
credit card debt by the time they graduate
⢠The median debt for school loans for college
graduates in 2006 was $17,125
⢠The average graduate student has six credit cards
and one in seven owes more than $16,928 (plus
school loans in excess of $40,000)
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6. You must understandâŚ
YOU CAN BORROW MORE
MONEY THAN YOU CAN
AFFORD TO REPAY
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7. Financial ABCs
⢠Attitudes â âPay myself firstâ
⢠Behaviors â âIâm saving every paydayâ
⢠Control and Confidence â âI can do thisâ
⢠This reduces financial distress and increases
oneâs sense of financial well-being
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8. A Sound Financial Plan Helps YouâŚ
⢠Be in control so you can:
â Pay down debt
â Budget (spend less than you earn)
â Establish some basic financial goals
â Create a revolving savings fund
â Save for short-term goals
â Make contributions to long-term savings
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10. Do the Math
⢠Net worth basics
â Determine your average income
for the most recent 10 years
â Multiply by your age
â Divide by 10
⢠This is your target net worth
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11. Target Net Worth Illustration
⢠Assume Family Income
of $70,700
⢠Assume 2% annual raises
⢠Saving 15.1% annually
starting age 24
⢠Investments earning 7.5%
annually
November 9, 2010 Money Rx
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
Age
35
Age
45
Age
50
Age
55
Age
65
Net Worth
Slide 11 of 20
12. What Youâll Earn
November 9, 2010 Money Rx
Saving 15.1%
each year
will fund it
with:
â˘$1,657,930 at 55
â˘$3,736,679 at 65
Retire
at 55
â˘Family income of $130,625 the
year before retirement
â˘Need $5,261,978 for 33 years of
retirement (w/o Social Security)
Start
career at
24
â˘Earn $3,126,851
over 32 years
Slide 12 of 20
13. Questions to Ask
⢠When do you want to retire?
⢠Where do you want to live after you retire?
⢠How much money will you need to have the
type of life you want to lead?
⢠Who will share your retirement with you or
otherwise depend on you financially?
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14. What Youâll Need to Save
⢠General rule of thumb for retirement expenses
will be 60 to 80 percent of your pre-retirement
income
⢠That means youâll need to have $1,655,930 at
the time you retire
⢠Must save $472,154 or an average of $14,755 per
year (15.1%)
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15. THEIR MONEY IS WORKING
FOR THEM, NOT THE
OTHER WAY AROUND
People have peace of mind when
spending 80% and saving 20% because
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16. Spending Plan Basics
⢠Setting up a spending plan
⢠Monitor expenses
⢠Mortgage payment, insurance and property
taxes should not be more than 28 percent
⢠Maximum total monthly debt shouldn't be
more than 36 percent
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17. IT IS A MATTER OF
PLANNING FOR LIFEâS
MILESTONES
Financial literacy isnât just a matter of knowing
what you have and knowing your optionsâŚ
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18. Seek Professional Guidance When:
⢠Getting married or divorced
⢠Having a baby or adopting a child
⢠Paying for your child's college education
⢠Buying or selling a business
⢠Changing jobs or careers
⢠Planning for retirement
⢠Developing an estate plan
⢠Coping with the death of your spouse
⢠Receiving an inheritance or a financial
windfall
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19. KNOWING WHAT YOU
NEED TO KNOW TO ACHIEVE
YOUR FINANCIAL GOALS
Financial Literacy:
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20. Need More Information?
⢠Contact me: jlove@dkcpa.com or
www.DKCPA.com
⢠www.ValueYourMoney.org â free TSCPA
consumer website
⢠www.360financialliteracy.org â free AICPA
consumer website
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