Transcript Basic to Money Management

Managing Your Money
Financial Planning
U$iN $eN$e
Practical
Money Skills
For Life
Suhaila Kani CFPTM M.Comm BSc
Royal Bank of Canada
1
Contents
» About Financial Planning
» Life Goals
» Basics To Savings
» Time Value of Money
» Savings
» Loans
» Credit Cards
2
Financial Planning
 Essential part of our
everyday lives to help
BUILD YOUR MONEY
TREE
 Help to plan for YOUR
FUTURE future, your
children’s future and our
family as a whole.
 Determine how
individuals can meet their
LIFE GOALS through
proper management of
their financial resources.
 Can be used as a key to
getting yourself on the
road to FINANCIAL
INDEPENDENCE and
towards becoming
FINANCIALLY FREE!
3
What Are Life Goals?
What Are You Saving For?
$
$
$
$
$
$
$
$
$
$
$
Cars
Weddings
Having Babies
Travelling
Dream House
Business
Own/Children’s
Education
Retirement
Old Age
Unexpected
circumstance
Financial Security
4
How to get what you
want?
» Set Goals/Dreams/Targets
» Be Realistic - Differentiate between
A Need and A Want
» Need: A Must, Cannot Do Without e.g House
» Want: Can Live Without e.g 4 Story House
» Write Down Your Goals
» List according to
» Short Term Goals
» Medium Term Goals
» Long Term Goals
» Write the Number of Years Required
» Write Down the Amount Required
5
Example Of Written
Goals
Din’s Profile: Starts work age 21 with $2000 starting
salary. His Goals are as follows:
Short Term (0 – 5 years)
1 yr
Emergency
Funds
For the ‘Just In Case’
$10,000
2 yrs
Renovate
Batchelor’s Pad
$8,000
5 yrs
Car
A Sports Car
$40,000
Medium Term (5 – 25 years)
20 yrs
House
3 Bedroom 2 Storey
House
$250,000
25 yrs
Children’s
Education
Best College for 2
Children
$150,000
Long Term (>25 years)
35 yrs
Retirement
Age 55, financially free $1,000,000
with $3000 per month
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Where do you start?
How do you know how much to save?
Everyone’s life is different - Use this as a
benchmark
Dead Broke:
»
»
»
»
Don’t Save
Spend More than you Make
Borrow on Credit Card
Have Excessive Debt that Can’t be paid
off
Poor:
» Thinking about Saving but don’t do it.
» Spend Everything you make each month
and Save Nothing.
» Keep telling yourself, “Nantitah!!...”
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Use this benchmark
Middle Class:
Save 5% to 10%
of Gross Income
Upper Middle Class:
Save 10% to 15%
of Gross Income
Rich:
Save 15% to 20%
of Gross Income
Rich Enough to Retire Early:
Save 20% of Gross Income
8
Budgeting
»
»
»
»
»
Map of Your Finances
Breakdown of Income & Expenditure
Monitoring your finances
Do a monthly budget
Gives You Financial Control
Helps you to know:
» How much you
can save
» If you Spend more
than you Earn
» What pleasures you
can afford
9
Example of Making a
Budget
Din’s Profile: 21years old $2000 starting salary, Stays
with Parents, Has Car Loans. His Budget looks like this:
Income
Salary
2000
Interest & Dividend
-
Commission
-
Total Income
2000
Expenses
Rent
-
Electricity & Water
50
Telephone/Internet
100
Mobile Phone
150
Grocery & Eat Out
300
Home Maintenance
100
Clothes & Toiletries
80
Petrol
100
Credit Card
50
Car Loan
400
Entertainment
70
Support for Parents/Siblings
200
Total Expenses
1600
TAP
100
Total Expenses + TAP deduction
1700
Leftover (Income Less Exp)
300
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Do you have an idea
how much to save
now?
»$300 is left over after expenses
»What do you do with it?
»Spend on other things or Save?
SAVE
Treat this $300 as an expense that you
pay to yourself
‘PAY YOURSELF FIRST’
Before you pay your bills and other
expenses
‘PAY YOURSELF FIRST’
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Look at what $300/mth can do
for you!
If you ‘Pay Yourself First’
$300 per month at 5% Annual Return
$340,828
50,000
00,000
$249,678
50,000
00,000
50,000
$80,187
00,000
$46,585
50,000
$20,402
$7,556
$3,684
$0
1
2
5
10
15
30
35
Years
12
Look at what $300/mth can do
for you!
If you ‘Pay Yourself First’
$300 per month at 10% Annual Return
$1,138,991
,000
,000
,000
$678,146
,000
$124,341
,000
$61,453
$23,231
,000
$7,934
$3,770
$0
1
2
5
10
15
Years
30
35
13
Let’s See!
If you ‘Pay Yourself First’
$1 a day
$1 a day at 4% Annual Return
$27,412
0,000
5,000
$20,825
0,000
$7,388
5,000
$4,418
0,000
$1,987
5,000
$748
$367
$0
1
2
5
10
Years
15
30
35
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Small Savings Can Make A
Difference!
If you ‘Pay Yourself First’ $3 a day
$3 a day at 4% Annual Return
$82,236
0,000
0,000
0,000
$62,464
0,000
0,000
$22,148
0,000
$13,252
0,000
$5,967
0,000
0,000
$2,245
$1,100
$0
1
2
5
10
Years
15
30
35
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Small Savings Can Make A Big
Difference!
Just by Adding $2 a day
at 4% Annual Return
In 2 years the difference is $1,497
In 10 years the difference is $8,834
In 15 years the difference is $14,760
In 30 years the difference is $41,639
In 35 years the difference is $54,824
This is the effect of
Compounding Interest
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Going back to Din’s
Goals
Din’s Profile: Starts work age 21 with $2000 starting salary.
His Goals are as follows:
Short Term (0 – 5 years)
1 yr
Emergency
Funds
For the ‘Just In Case’
$10,000
2 yrs
Renovate
Batchelor’s Pad
$8,000
5 yrs
Car
A Sports Car
$40,000
Medium Term (5 – 25 years)
20 yrs
House
3 Bedroom 2 Storey
House
$250,000
25 yrs
Children’s
Education
Best College for 2
Children
$150,000
Long Term (>25 years)
35 yrs
Retirement
Age 55, financially free $1,000,000
with $3000 per month
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How much to save for
Din’s Car?
Din’s Goal is to buy a fancy Sports Car in 5 years time.
He need $40,000.
How much would he need to save now at 4% p.a?
»
»
Save $603 per month for 5 years at this rate.
BUT Din only can save $300 per month.
Now, What should he do?
Option 1
- Buy a Second Hand car for $20,000
- By saving $300 per month at 4% return p.a
Option 2
- Reduce expenses by $100 a month
- Save $400 per month
- $26,519 in 5 years at 4% p.a
Option 3
- Invest $400 per mth at 8% p.a
- $29,390 in 5 years
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How much to save for
Din’s Car?
»
Din has 1 month bonus yearly.
»
Save: 1 month bonus of $2000
each year at 4%, at the end of 5
years
Just his bonuses will amount to
$10,832
»
If Din really wants to save for his
Dream Sport Car,
save $400 a month at 4% p.a and
save $2000 (1 month bonus)
for 5 years, total savings
Equal to
$26,519+$10,832 = $37,351
»
OR save $400 a month at 8% p.a
and save $2000 (1 month bonus)
at 4% p.a for 5 years, total
savings
Equal to
$29,390+$10,832 = $40,222
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Car Loans
Some people say,
‘Save the Hassle and just Loan for the Car’
Here’s an example,
If Din takes out a loan of 40K at 9% reducing
rate with a minimum payment of $800 for 5
years.
BUT ONLY $300 is left after his expenses
Option 1
» Extend period payment to 7, 10, 12 years etc
BUT this will incur more interest
Option 2
» Try to finish his previous loans to keep to the
5 year period payment
Option 3
» Save enough for a down payment to reduce
Din’s Loan Interest
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Car Loans
Say Din takes option 2,
paying off his previous loans
and pay $800 minimum over 5 year
To Note:
» $800 goes to the bank not to yourself. Din in 5
years time will have NO SAVINGS
» Din will continue to work PAYCHECK TO
PAYCHECK just to pay for his Car
» $800 per month at 4% after 5 years will total up
to $53,039 which he could have saved for the car
and still have some left for his Wedding!
» GOOD TO WAIT! You might not know other things
might happen within 5 years of Savings. Examples:
»
»
»
»
Won a Lucky Draw for a Car
Parents Give Him a Car
New Car at lower cost in 5 years time
Priorities change
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Save Vs Loans
Which is the better
deal?
PAY YOURSELF FIRST!
MAKE PROFIT FOR
THE BANK
»
Save
»
Still HAVE SAVINGS at
the end of 5 years
»
Pay the Bank First so they
can earn money of you
»
EXTRA MONEY after 5
years can be for other
uses
»
At the end of 5 years, NO
SAVINGS
»
No DEBT
»
DEBT CYCLE that Never End
»
End up Paying thousands of
dollars more than $40K
»
Pay $40K Car in CASH
You have a choice, which one do you prefer?
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Credit Cards
Some of the things to know about Credit cards
• If you have a $4000 credit card balance,
• You pay $100 every month:
• HOW LONG WILL IT TAKE TO PAY?
100
81
80
60
Months
62
51
66
56
40
20
0
12.00%
15.00%
18.00%
20.00%
24.00%
Interest Rates
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Credit Cards
Some of the things to know about Credit Cards
• If you have a $4000 credit card balance,
• You pay $100 every month:
• HOW MUCH INTEREST WILL YOU PAY?
$5,000
$4,128
$4,000
$2,647
$2,155
$3,000
Months
$2,000
$1,580
$1,134
$1,000
$0
12.00%
15.00%
18.00%
20.00%
24.00%
Interest Rates
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Pay Yourself First
Invest $100 a month at 4%
p.a
$91,373
100,000
$90,000
$80,000
$69,405
$70,000
$60,000
$24,609
$50,000
$40,000
$14,725
$30,000
$6,629
$20,000
$2,494
$10,000
$1,222
$0
1
2
5
10
15
30
35
Years
25
Look at how much you
end up paying!
Interest
Rate
Time To Pay Off Debt
With This
Much Interest
To Pay
Total Amount
Paid for
$4000 worth
of items
12%
51 Mths 4.25 yrs
$1134
$5134
15%
56 Mths 4.66 yrs
$1580
$5580
18%
62 Mths 5.17 yrs
$2155
$6155
20%
66 Mths 5.50 yrs
$2647
$6647
24%
81 Mths 6.75 yrs
$4128
$8128
Would you rather
PAY YOURSELF FIRST or PAY THE BANK?
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Conclusion
» Financial Planning is for EVERYBODY
» Plan Early – Decide Your Life Goals
» Make YOU the biggest Expense so
Pay Yourself First
» Avoid Debt If Possible
» Take RESPONSIBILITY of your own
finance like you would yourself
» Have fun with financial planning
and ENJOY your wealth grow over
time!
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Credit Card
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THANK YOU
FOR
YOUR TIME
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