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Financial Seminar For Nurses
Patrick Heyman, Ph.D., ARNP
Financial Independence
No debt
Own house free and clear
Enough savings/investments
Benefits
Less stress
More security
Work for enjoyment
Able to freely contribute to God’s kingdom
Biblical Principles
All money is God's money
Stewards caring for what is not ours
To whom much is given, much is required –
Luke 12:48
He who is faithful in small things will be
entrusted with more – Matthew 25:14-28
Look at the ant's example - Proverbs
A borrower is slave to the lender - Proverbs
Biblical Principles
Work diligently
Give a tithe back to God
Save
Be generous toward those in need
Care for your family
Stay out of debt
“But I thought Jesus said, ‘Blessed are the
poor?’”
Crown Money Map
1) Emergency Savings (3 mos expenses)
2) Pay off credit cards
3) Pay off consumer debt
4) Save for major purchases
5) Buy home, begin investing
6) Home mortgage paid off
7) True financial freedom
Transforming Debt to
Wealth Plan
1) Pay off credit cards
2) Pay off consumer debt
3) Emergency Savings
4) Purchase/Pay off house
5) Begin investing
6) True financial freedom
Debt is the Single Biggest Obstacle
to Building Wealth
Example: You have $100 a month extra. You
want to buy a $1000 Widescreen TV
Save it for 10 months with 4.5% interest
1 $1000 widescreen TV
$20.86 left over in interest
Buy it now on a credit card at 8% interest
After 10 months you have 1 TV
You still owe $145
Net difference = $165.86 in lost wealth
To become financially independent
you must
Control Spending: live under your means
Resist credit
If you are in debt, pay it off as quickly as
possible
Do not earmark future raises for spending
Paying off a 9.6% credit card is the same as getting
9.6% in interest after taxes
Save/invest
If you don't have the self control, create artificial
scarcity
Counter Culture
Income vs Net Worth
Most high income earning households will never
become millionaires
Spend too much
Status symbols
Increased living expenses
Poor role models/peer support
Most millionaires are first generation
Savings is more important than income
Do I Really Need to Know All This?
I'm Young and Poor!!!
Sara starts working at 18 and invests $2000/
year for six years, and then never invests again.
Stephanie starts working at 25 and invests
$2000/ year until she retires at 67.
Ashley starts working at 35 and invests $2000/
year until she retires at 67.
And the Winner is...
Assuming 8% interest, at age 67
Sara invested $12,000 and has $468,332
Stephanie invested $84,000 and has $711,899
Ashley invested $64,000 and has $315,253
And if Sara decides to keep investing $2,000 a year
until she retires....
$1,239,343!!!!
Things to include in budget
Net income
Tithe and Charity (PBA alumni association)
Expenses
Savings
Monthly (rent, electricity)
Non-monthly (insurance premiums)
Unexpecteds (car repairs)
Retirement/Long term
Goal oriented (new car, vacation)
Some fun (personal allowance)
Destroyers of Wealth/
Creators of Misery
Debt
Divorce – number 1 wealth destroyer
(also happens to be counterbiblical)
Fighting about money
Poor
Rich
Spending styles
Number one predictor of millionaire????
Tips For Significant Other
If dating
Maintain separate accounts
Avoid buying high value items together (boat,
house, etc.)
If married
Agree on a budget; do a monthly evaluation
Keep a joint account for marital expenses
Keep an individual account for each spouse, and
give yourself a budgeted allowance that each
spouse can use or save how they want
Tips Continued
Designate one person to keep the books/pay
the bills
Make sure the other reviews regularly
Detect problems early (gambling or risky
investments)
Premature death
The Heyman Money Plan For
Marital Bliss
Husband
Salary
IRAs
Wife
Salary
Main Checking
Account
Short Term
Savings
Long term/
Emergency Savings
Husband
Allowance
Wife
Allowance
Arrows indicate automatic transactions. Bills are paid from main checking.
Protecting Your Small Fortune
Inflation
Debasement: Loss of the value of money
“Expansionist monetary policy”
Artificially low interest rates
Artificial bubbles
Boom/Bust cycle
Avoid debt
Invest in gold, commodities, stocks
Stay out of cash, bonds
This Is Only A Primer
Suggested Further Reading
www.crown.org/library
Stanley & Danko: The Millionaire Next Door
Suze Orman: The Money Book for the Young,
Fabulous & Broke
Larry Swedroe: The Successful Investor Today: 14
Simple Truths You Must Know When You Invest
John Cummuta: Transforming Debt to Wealth (Buy it
on E-bay if available)
P.J. O'Rourke: Eat The Rich
Libertarian Thoughts,aka Freedom
in American Society
Murray Rothbard, What Has Government Done
to Our Money?
http://mises.org/money.asp
Murray Rothbard, The Case Against the Fed
http://mises.org/books/fed.pdf
Peter Schiff, Crash Proof: How to Profit From
the Coming Economic Collapse
Creating Artificial Scarcity
Pay yourself first technique
Fund retirement accounts before the paycheck ever
gets to you
Have automatic transfer of money from checking to
a savings/investment account
Pay your bills as soon as you get them; do not wait
until they are due
Okay, I'm living
under my means
What do I do with all this money Lying around?
Pay off debts
Fund retirement accounts
Save for house
Pay off the house
Save/invest for retirement
Enjoy life a little
Retirement Plans
401(k), 403(b): Employer plans
Reduce before tax income
Grow tax free
Often have matching contribution programs
Vestment period
Traditional IRA: Personal Plan
Up to $4000/year
Reduces current taxes
Grows tax free
Retirement Plans cont
Roth IRA: Individual Plan
Up to $5000/year
Must pay taxes on contributions
Grows tax free, and is never taxed again
Other plans: SEP, Simple, etc.
More for Private businesses, self-employed
Retirement Plan Strategy
First Question: Should I fund my retirement
plan or pay down debt?
1) Contribute to 401(k), 403(b) to meet the employer
matching
2) Max out Roth IRA
3) Get your emergency savings
4) Max out 401(k), 403(b)
Retirement Accounts
One thing in common: reduce or delay income
tax
How income tax works
Income vs Taxable income
Marginal tax bracket
Marginal Tax Rates
In c o m e u p
T h e t a x is
to
$ 7 ,5 5 0
$ 3 0 ,6 5 0
$ 7 4 ,2 0 0
$ 1 5 4 ,8 0 0
$ 3 3 6 ,5 5 0
$0
$755
$ 4 ,2 2 0
$ 1 5 ,1 0 8
$ 3 7 ,6 7 6
$ 9 7 ,6 5 3
P lu s
10%
15%
25%
28%
33%
35%
Of t h e
am ount
o ve r
$0
$ 7 ,5 5 0
$ 3 0 ,6 5 0
$ 7 4 ,2 0 0
$ 1 5 4 ,8 0 0
$ 3 3 6 ,5 5 0
Concrete Examples Please
How do I get an
IRA or Roth IRA?
IRAs must be held by a financial institution
Can transfer between institutions
Can invest in a wide variety of options
Stocks, mutual funds, bonds, even real estate, gold,
silver, commodities
Depends on the financial institution
Mutual Funds are most popular
Income Tax Myths
Myth: Maximize deductions to reduce tax
burden
Example: Take a big mortgage, so you get the
interest deduction
Reality: Maximize taxable deductions by
minimizing taxable income AND maximizing
wealth (net worth)
Example: Fund retirement accounts
Investment Basics
Basic terms
Liquidity: ability to “use” an asset
Risk: possibility that value of an asset may go down
“No risk” investments
FDIC insured accounts
U.S. Treasury Bonds
Emergency Funds should be in “no risk”
relatively liquid accounts
i.e., savings account not stocks
What is investing?
“Americans live in a chosen country to which
has been vouchsafed a “new era” in which all
one has to do is buy “well-selected stocks at
any time, at any price, and hold with sufficient
patience in order to sell for more than one paid
and thereby realize a handsome return on the
investment” -- Chamberlain and Hay, 1927
What is investing?
Speculation
Purchase with the hope to sell it for more than you
paid for it in the future
The greater fool theory
Investing
Income now
Preservation of capital
Growth in value
Price matters
Investment Vehicles (Examples)
Equity – Owning a piece of something
Stocks
Real estate
Partnerships
Liability – Loaning money
Bonds
Mortgages
Bank account
Derivatives and Commodities
“Investment” Theory
Modern Portfolio Theory
It is impossible to consistently outperform the
market
Don't try to pick winners and losers
Select a “mix” of investments that corresponds to
your risk comfort, and sit back, enjoy the ride
Bottom line
Stock Terms
Company size (market cap)
Large cap
Mid cap
Small cap
Earnings Potential
Growth stock: earnings expected to grow rapidly;
typically do not pay dividends
Value: company is thought to have low growth
potential; usually pay higher dividends
Stock Indexes
GPA for a group of stocks
Groups of stocks that track a “segment” of the
market
Dow Jones Industrial Average
NASDAQ
Standard & Poor 500 (S&P 500)
Russel 2000 small cap index
Wilshire 5000 (overall American stock market)
Mutual Funds
A group of stocks which is then sold in shares
Actively managed funds
Passively managed funds
A manager tries to pick stocks that he thinks will
outperform the others
Use an algorithm or stock index to determine what
stocks they will have
Versatility: stocks, bonds, REITs, mixes
Mutual Funds
Broker funds (traditional):
Exchange traded funds (ETFs) more advanced
(look it up later)
Usually have a low barrier to entry, esp for IRA
accounts
Account maintenance fees, no commissions
Fees are usually waived for accounts higher than
$3000 - $5000
Are traded like stocks
Commissions, but no maintenance fees
401(k), 403(b)
Fund Expenses
Front load: upfront commission
Back load: back end commission
No load
ONLY PURCHASE NO LOAD FUNDS
Expense ratio
When given a choice between two equally
performing funds, go with the one with lower lower
expense ratio
Passive funds cost less than active funds
How to Buy a Fund
Choose a brokerage firm and open account
Decide what kind of investment strategy you
want to pursue
Buy the fund with the lowest expense ratio that
helps you achieve that goal
Comparing Funds
Don't be suckered by past performance
In any given year, 85% of actively managed
funds fail to outperform their benchmarks (stock
index)
Of the 15% that did outperform the market, less
than 1% will do so three years running
Active funds have higher expense ratios. You must
subtract that from your return
Bottom line: index funds are the way to go for
most investors
Diversification:
Building a Portfolio
Purpose of Diversification
Reduce risk
Balance losses in one are with gains in another
Stocks
Bonds
Money market
Real estate
Gold and foreign markets
Hey I Don't Need Think I Need to
Know About Mutual Funds
Yes you do.
Most 401(k)'s and 403(b)'s require you to invest your
money in on of several mutual funds that they provide.
For example, the VA offers: (tsp.gov)
G Fund: Government securities (T-bills)
F Fund: Bonds
S Fund: Small Cap
C Fund: Large Cap
I Fund: International
L Funds: Life
Too Lazy for All That?
Choose a “blended fund”
A fund that has a set mix of stocks and bonds
Usually, the company has a series of questions
Age
Planned retirement age
Desired return
Risk tolerance
Buy one fund and be done with it.
VA Lifecycle Funds
Too Boring?
Get really wild and crazy with specialty funds
Gold funds
Currency funds
Hedge funds
Biotech funds
Etc.
Generally speaking, don't buy individual stocks
unless you put in the effort to educate yourself
Sample Investment Mixes
Aggressive long term
All small cap/value stocks
Aggressive long term with some diversification
70% small cap/value stocks
20% large cap stocks
10% International stocks
Sample Invest Mixes cont
Lower Risk Long Term
20% large/growth cap
20% small/value cap
10% international
10% REIT (real estate)
30% bonds
10% Treasury bills
Sample Brokerage Firms
Vanguard
T. Rowe Price
TD Waterhouse
Fidelity Investments
Charles Schwab
Boutique
Euro Pacific Capital
“Full Service”
Merill Lynch
Morgan Stanley
Citigroup