Transcript Document

How Money
Works
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How Money Works
Most people are concerned
about money matters, but
few truly understand how
money works. What is
Wrong attitudes
money!?
Misconceptions
Disrespect
Doubt
Fear
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Positive
Attitudes = $$$
Taking Control of Your Finances
What You Can Do…
•Pay yourself first. (p.2)
Save, Save, Save! Save!! Save!!!
•Adjust your priorities and establish a budget. (p.1)
•Avoid the credit trap. (We’ll get there..)
•Don’t be afraid to give to charity
•Earn additional income……….
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How Money Works (Page 7)
Traditional Financial Institutions
Banks, Credit Unions, Insurance Companies = Historically
Low Rates of Return
What is a Rate of Return (ROR)???
CDs and savings accounts are generally FDIC insured up to $100,000. Cash value life insurance offers life insurance components in addition to the investment component.
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$200 Monthly Savings for 35 Years
Age 30 - 65
3%
6%
12%
$148,680
$286,370
$1.3 Million
“Compound interest is the most powerful force in the universe.”
Albert Einstein, as quoted in Dow 40,000 by David Elias (1999)
One of the biggest reasons people don’t save: too much debt
Rates of return are nominal rates, compounded monthly. Contributions are assumed to be made at the beginning of the month. The chart above is not indicative of any particular investment or savings vehicle.
It does not take into consideration taxes or other applicable deductions.
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The Rule of 72 (p. 4)
A simple concept called “The Rule of 72” shows the dramatic effect of time and compounding.
The Rule of 72 says that your money will approximately DOUBLE at a point in time determined
by dividing 72 by the interest rate you earn. The Rule of 72 illustrates the amazing way money
can compound if you just give it enough time.
Your Money Will Double In…
36 years
72 ÷ 2%
18 years
72 ÷ 4%
12 years
72 ÷ 6%
72 ÷ 8%
72 ÷ 12%
9 years
6 years
With 12% interest, your money will
double in approximately 6 years!
Hypothetical percentage rates and values. Subject to applicable taxes.
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With 2% interest, your
money will double in
approximately
36 years.
The Power of Compound Interest
The Rule of 72
This simple calculation gives you the approximate number of
years it will take to double your investment.
Number
of Years
3%
6%
12%
0
6
12
18
24
30
36
$10,000
$10,000
$10,000
$20,000
$40,000
$80,000
$160,000
$320,000
$640,000
$20,000
$20,000
$40,000
$80,000
Based on the Rule
of 72, a one-time
contribution of
$10,000 doubles
almost five more
times at 12%
than at 3%.
The table serves as a demonstration of how
the Rule of 72 works and is only an
approximation of accumulations. It is not
intended to represent any specific investment,
in which rates of return will fluctuate.
How many doubling periods do you have in your life?
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Scary Statistics
At the current rate of wealth creation, by the year
2005, out of 100 workers at age 65:
1
— Will be wealthy
(net worth of $5 million or more)
4
— Will be financially independent
(net worth of $1 million to $4.9 million)
41 — Will be working
54 — Will be DEAD BROKE
Which category will you want to be a part of?
Source: Smart Money, April 2001
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The Three-Legged Stool
of Retirement
No one source of retirement income is enough. In fact, government
experts admit “Social Security was never intended to be your only
source of income when you retire. Social Security can’t do it all.”
It takes…
____________
•Social Security
________________
•Company Pensions
•Personal Savings
To Begin Building a Sound Retirement Game Plan
Source: The Social Security Administration
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It Pays to Start Early (p. 3)
If your goal is to save $500,000 for retirement
at age 65, look at the difference time makes.
Goal: $500,000 at age 65
Monthly Savings Required
Begin at:
Save:
Cost to Wait:
Age 25
$78
Age 35
$219
3 times more!
Age 45
$653
8 times more!
Age 55
$2,421
31 times more!
Assumes a hypothetical 10% rate of return. Actual investments may fluctuate, and an investment, when redeemed, may
be worth more or less than its original value. Subject to applicable taxes. Rate of return is a nominal interest rate
compounded on a monthly basis.
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Avoid the credit trap (p.5)
WOW! #1
WOW! #2
If you have a $3,000 balance
at 19.8% interest…and you
pay the required minimum
of 2% of the balance or
$15.00, whichever is
greater… and you make no
new purchases…
It will take 39 YEARS to pay
off the loan! You will also
pay more than $10,000 in
interest charges!
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Most People Don’t Plan to Fail,
They Fail to Plan
On a scale of 1-10, 10 being
the highest, how would you
rate your desire to
be debt free as adults and
financially independent?
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The Four Ways to Earn Income
EMPLOYEE
BUSINESS
Has a job. Income based on
position, not the person.
Owns a system. Has others
working for them. Unlimited
income potential via
manufacturing, marketing, etc.
SELF-EMPLOYED
INVESTOR
Owns a job. Dentist, doctor,
lawyer, hair stylist, real estate
agent, salesperson.
Has money working for them.
Enjoys complete freedom and
lives the dream.
Which two ways to earn income
appeal to you the most?
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Learn it, Apply it!
Don’t just gather information,
apply the concepts you learn.
Take action and do it
now! (Legally and Morally of
Course!)
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Reaching Your Goals
Reaching your goal of achieving financial freedom can become a
reality. Start taking action to make your dreams come true. Take these
six steps toward reaching your goals:
• Set a specific goal.
• Have a specific time to achieve it.
• Write your goals down.
• Develop a plan to reach them.
• Decide what price you are willing to pay to reach
your goals.
• Focus on reaching your goals every day!
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• Rich Dad, Poor Dad
• The ABC’s of Making Money
• Think and Grow Rich
© 2004 Primerica Financial Services
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