time Job?

Priorities

While Balancing the Budget (behavior, relationships, values, human capital): 1. Settle the Sacred (tithes and offerings), 2. Manage the Misfortune (basic life, health, disability, auto, and home insurance), 3. Discharge the Debt (credit cards, bondage, FICO), 4. Anticipate the Adversity (rainy-day fund, food storage, will), 5. Snatch the Match (401k, 403b, 457, SEP, Keogh, SIMPLE), 6. Fund the Favored (IRA, Roth IRA, 529, Annuities), 7. Stuff the Savings (diversify across assets and time), But Possess a Purpose and Preserve a Perspective

Tithing

“Pay an honest tithing. I often wonder if we realize that paying our tithing does not represent giving gifts to the Lord and the Church. Paying tithing is discharging a debt to the Lord. The Lord is the source of all our blessings, including life itself.” N. Eldon Tanner, “Constancy Amid Change,” Conference Oct. 1979

Tithing

“Tithing is not income insurance.” Grant McQueen

Tithing

“Bring ye all the tithes into the storehouse, that there may be meat in mine house, and prove me now herewith, saith the Lord of hosts, if I will not open you the windows of heaven, and pour you out a blessing, that there shall not be room enough to receive it.” Malachi 3:10

Tithing

“The payment of tithing is a commandment, a commandment with a promise that we will ‘prosper in the land.’ This prosperity consists of more than material goods -- it may include enjoying good health and vigor of mind. It includes family solidarity and spiritual increase. As you discharge this obligation to your Maker, you will find great, great happiness, the like of which is known only by those who are faithful to this commandment.” N. Eldon Tanner, “Constancy Amid Change,” Conference, Oct. 1979

President Hinckley on Tithing

“Now, do not get me wrong. I am not here to say that if you pay an honest tithing you will realize your dream of a fine house, a Rolls Royce, and a condominium in Hawaii. The Lord will open the windows of heaven according to our need, and not according to our greed. If we are paying tithing to get rich, we are doing it for the wrong reason. The basic purpose for tithing is to provide the Church with the means needed to carry on His work.” Ensign, May 1982, p. 40.

Tithing

“Pay your tithing as a declaration that possession of material goods and the accumulation of worldly wealth are not the uppermost goals of your existence.” Jeffrey R. Holland, “Like A Watered Garden,” Conference, Oct. 2001

Tithing, How Much?

“The simplest statement we know of is the statement of the Lord himself, namely, that the members of the Church should pay 'one-tenth of all their interest annually,' which is understood to mean income. No one is justified in making any other statement than this.” First Presidency letter to stake presidents and bishops, March 19, 1970 quoted in A Companion To Your Study of the New Testament, p. 308.

Offerings

“I think we should be very generous and give instead of the amount we saved by our two meals of fasting, perhaps much, much more--ten times more where we are in a position to do it.” Spencer W. Kimball, Conference, April 1974

Offerings

“Respecting how much a man of property shall give annually, we have no special instructions to give; he is to feed the hungry, to clothe the naked, to provide for the widow, to dry up the tear of the orphan, to comfort the afflicted, whether in this church or in any other, or in no church at all, wherever he find them.” J oseph Smith, Times and Seasons, 15 March 1842

Offerings

“Then shall the righteous answer him, saying, Lord, when saw we thee an hungred, and fed thee? or thirsty, and gave thee drink?

When saw we thee a stranger, and took thee in? or naked, and clothed thee?

Or when saw we thee sick, or in prison and came unto thee?

And the King shall answer and say unto them, Verily I say unto you, Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me.” Matthew 25:37-40

Offerings

“…such a fast would be a cure for every practical and intellectual error; vanity would disappear, love for our fellows would take its place, and we would gladly assist the poor and the needy.” Joseph F. Smith, “Observance of Fast Day,” The Improvement Era, Dec. 1902

Offerings

“Yeah, I made that.” Grant McQueen, Bishop’s Storehouse, 1987

Self-Sufficiency

“And again, verily I say unto you, that every man who is obliged to provide for his own family, let him provide, and he shall in nowise lose his crown; and let him labor in the church.” D&C 75:28

Self-Sufficiency

Old Definition: “Did you make the nails?” New Definition: “I teach them to contribute more than they consume.”

Human Capital •Marketable skills •Invest in yourself

Self-Sufficiency

Financial Capital •Marketable assets •Invest in securities

Self-Sufficiency

I think that much of the advice given to young men about saving money is wrong. I never saved a cent until I was forty years old. I invested in myself - in study, in mastering my tools, in preparation. Many a man who is putting a few dollars a week into the bank would do much better to put it into himself.

- Henry Ford Source: www.quotedb.com/quotes/2899

Self-Sufficiency

Note: Data are 2007 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.

For updates go to: http://stats.bls.gov/emp/emptab7.htm

Self-Sufficiency

“Be like JoLene.” “But be like Grant, too.”

Self-Sufficiency—Human Capital

“In times of change, learners inherit the earth the learned find themselves beautifully equipped to work in a world that no longer exists.” while Eric Hoffer

Self-Sufficiency

“Can we see how critical self-reliance becomes when looked upon as the prerequisite to service, when we also know service is what Godhood is all about. Food for the hungry cannot come from empty shelves. Money to assist the needy cannot come from an empty purse. Support and understanding cannot come from the emotionally starved. Teaching cannot come from the unlearned. And most important of all, spiritual guidance cannot come from the spiritually weak.” Marion G. Romney, “The Celestial Nature of Self-Reliance,” Conference, Oct. 1982

Self-Sufficiency

“Self-reliance, the height and perfection of man, is the reliance on God.” Ralph Waldo Emerson

Attitude

“...the Lord gave the greatest success formula I know when He said: ‘Seek ye first the kingdom of God and his righteousness, and all these things shall be added unto you.’” (Matt. 6:23) N. Eldon Tanner, “Constancy Amid Change,” Conference, Oct. 1979

Attitude

“The worst fear I have about members of this church is that they will get rich in this country, forget God and His people, wax fat, and kick themselves out of the church and go to Hell... But my greater fear for them is that they cannot stand wealth...” Brigham Young, The Man and His Works (1936)

Attitude

“Now when Jesus heard these things, he said unto him, Yet thou lackest one thing: sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me.

“And when he heard this, he was very sorrowful: for he was rich.” Luke 18:22-23

Attitude

Wealth is not a sign of righteousness • While financial blessings may be a result of righteousness, more often than not, the blessings are spiritual • The true sign of righteousness is the conforming of our life to the example of Jesus Christ

Attitude

“Out of the experience of nearly a quarter of a century in organizing and reorganizing scores of stakes, I can say that the financial worth of a man was the least of all considerations in selecting a stake president.” President Gordon B. Hinckley, “Tithing: An Opportunity to Prove Our Faithfulness,” Ensign, May 1982

Brigham Young on “Affluenza”

“There is any amount of property, and gold and silver in the earth and on the earth, and the Lord gives to this one and that one—the wicked as well as the righteous—to see what they will do with it, but it all belongs to him. He has handed over a goodly portion to this people, and, through our faith, patience and industry, we have made us good, comfortable homes here, and there are many who are tolerably well off, and if they were in many parts of the world they would be called wealthy. But it is not ours, and all we have to do is to try and find out what the Lord wants us to do with what we have in our possession, and then go and do it. If we step beyond this, or to the right or to the left, we step into an illegitimate train of business. Our legitimate business is to do what the Lord wants us to do with that which he bestows upon us, and dispose of it just as he dictates, whether it is to give all, one-tenth, or the surplus.” Discourses of Brigham Young

Money and Attitude

A wise man should have money in his head, but not in his heart.

- Jonathan Swift

Money and Happiness

The conviction of the rich that the poor are happier is no more foolish than the conviction of the poor that the rich are.

- Mark Twain Source: www.quotedb.com/quotes/1981

Money and Happiness

Money never made a man happy yet, nor will it. There is nothing in its nature to produce happiness. The more a man has, the more he wants. Instead of its filling a vacuum, it makes one. If it satisfies one want, it doubles and trebles that want another way. That was a true proverb of the wise man, rely upon it; "Better is little with the fear of the Lord, than great treasure, and trouble therewith.” - Benjamin Franklin Source: www.quotedb.com/quotes/463

Garbage :

President Gordon B. Hinckley’s Counsel On Debt

“I urge you as members of this Church to get free of debt where possible and to have a little laid aside against a rainy day.” “The Times in Which We Live,” Ensign, Nov. 2001

Debt and Bondage

1. Revelation to Martin Harris: “Pay the debt thou hast contracted with the printer. Release thyself from bondage ” (D&C 19:35).

2. Heber J. Grant: “If there is any one thing that will bring peace and contentment into the human heart, and into the family, it is to live within our means. And if there is any one thing that is grinding and discouraging and disheartening, it is to have debts and obligations that one cannot meet.” (“ Gospel Standards,” Improvement Era, 1941, p. 111) 3. “The rich ruleth over the poor, and the borrower is servant the lender” (Proverbs 22:7).

Counsel On Debt

“But no man is truly free who is in financial bondage . ‘Think about what you do when you run in debt,’ said Benjamin Franklin, ‘you give to another power over your liberty.’ ‘…pay thy debt and live…’ said Elisha (2 Kings 4:7). And in the Doctrine and Covenants the Lord says, ‘…it is my will that you shall pay all your debts’ (D&C 104:78).” President Ezra T. Benson, “Prepare Ye,” Ensign, January 1974, pg. 68

Appropriate vs. Inappropriate Debt

• Home Mortgage • Education • Business?

• Transportation?

Some debt—such as for a modest home, expenses for education, perhaps for a needed first car—may be necessary. But never should we enter into financial bondage through consumer debt...

Elder Joseph B. Wirthlin. General Conference, April 2004

Hinckley on Mortgages

Appropriate to borrow

“I recognize that it may be necessary to borrow to get a home, of course. But let us buy a home that we can afford and thus ease the payments which will constantly hang over our heads without mercy or respite for as long as 30 years.” “To the Boys and to the Men,” Ensign, Nov. 1998

Be modest in your wants

“You do not need a big home with a big mortgage as you begin your lives together…You may have to borrow money to begin ownership of a home. But do not let it be so costly that it will preoccupy your thoughts day and night.” “Living Worthy of the Girl You Will Someday Marry,” Ensign, May 1998

Hinckley on Education

“Perhaps some college students need to borrow to complete their education. If you do, see that you pay it back. And do so promptly, even at the sacrifice of some comforts that you might otherwise enjoy.” “Thou Shalt Not Covet,” Ensign, Mar. 1990

Hinckley on Business Debt

Be Prudent

“ Prudent borrowing may, of course, be necessary and proper in the management of business. But be wise, and do not go beyond your ability to pay.” “ Thou Shalt Not Covet,” Ensign, Mar. 1990 “We are witnessing in society tremendous business failures to a degree and an extent we have not seen in a long while. Many of these are the fruits of imprudent borrowing, of debts so large they cannot be paid.” “I Believe,” Ensign, Aug. 1992

Hinckley on Transportation

“ The modern automobile is a wonderful machine. In some societies it is almost a necessity. But when I see persons borrowing heavily to buy cars with exorbitant prices, I wonder what has happened to our values. To satisfy our desires, we go into debt, dissipate our resources in the payment of high interest, and become as slaves working to pay it off.” “Thou Shalt Not Covet,” Ensign, Mar. 1990

Inappropriate Debt

• Consumer Goods • Vacations • Expensive Cars • Credit Card Debt

Self-Test: Do I have too Much Debt?

• Can I pay off my credit card balance completely each month?

• Do I skip some bills to pay others?

• If I lost my job today, do I have enough in liquid assets to pay living expenses for at least three months?

• Do my spouse and I often argue about money?

• Do I receive calls from creditors about overdue bills?

• Have I postponed medical or dental appointments because I can’t afford them right now?

• Am I using an increasing percentage of my monthly income to pay off debts?

Sometimes we find ourselves in a financial pit

By Patty Slade

We have to stop digging

By Patty Slade

Elder Ashton’s

Debt Elimination Calendar

Debt-Elimination Calendar

May start with debt with highest interest rate or earliest payoff Currently owe minimums of $60, $70, $50, $75, and $235 Save and pay an extra $50 per month

March April May June July August Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

March Credit Card 110 110 110 110 Dept.

Store 70 70 70 70 180 180 180 Dentist Piano Loan 50 50 75 75 50 50 50 50 75 75 75 75 50 230 230 75 75 75 305 305 Auto Loan 235 235 235 235 235 235 235 235 235 235 235 540

Lord’s Council on Getting out of Debt And inasmuch as you are diligent and humble, and exercise the prayer of faith, behold, I will soften the hearts of those to who you are in debt, until I shall send means unto you for your deliverance.

Doctrine and Covenants 104:80

Reducing Unproductive Debt

• Plastic surgery • Reduce spending • Use assets to pay off debt • Reduce interest rate – Consider a home equity loan – Use another lower cost source of borrowing • Make a plan -- stick to it • Talk to a reputable credit counselor if needed

Credit Counseling Services

• National Foundation for Consumer Credit • American Consumer Credit Counseling • American Debt Management Services • Debt Counselors of America

Q: How Many Payments?

A: With 21% APR, 103.2 payments or 8.6 years Stereo Interest Total $999.74

$1,167.56

$2,167.30

Reducing Your Balance

How long it takes to eliminate your credit card debt.

Initial balance Percentage of the initial balance you will pay each month Interest Rate* Number of months to pay your debt (7.76 Years) $ 2,000 2% 18% 93.11

J. Reuben Clark on Interest (1938)

Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; . . . it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

What are the Costs?

• Annual fee • Over-limit fee • Late payment fee • Cash advance fee • Finance charges – About ¼ of credit cards don’t have grace period – If you don’t completely pay off previous month’s balance, the grace period doesn’t apply (the balance could be one penny)

What Rate are the Paying?

RC Willey Sears Old Navy Mervyns Dillards JC Penney Meier and Frank 21.00% 24.15% 19.80% 22.30% 24.15% 21.00% 21.60% Home Equity Loan Home Equity Line of Credit Visa Platinum 6.5% 7.0% 8.0% Visa Gold 12.25% Survey conducted on Dec. 13, 2005, rates on right column are from Utah Community Credit Union

Be careful where you borrow!

• Finance companies • Credit cards • Banks • Credit unions • Savings

15 10 5 0 30 25 20 FC CC B CU S

Credit Cards

Interesting Tidbits • An American typically carries from one to three credit cards, and owes $9,000.

• An average household has eight credit cards.

• Only 35% of cardholders pay off the total balance each month.

• Twenty-five percent of college students owe more than $10,000 on their cards.

• 20 % of credit cards are maxed out.

See www.cardweb.com

Credit Reports

• Three major credit reporting agencies (check all 3) – Experian—www.experian.com (888-397-3742) – Equifax—www.equifax.com (800-685-1111) – TransUnion—www.transunion.com (800-916-8800) • Almost ½ contain inaccurate info • Free copy of report if denied credit • Dispute inaccuracies by requesting investigation (Agencies have 30 days to respond) • May file statement presenting your point-of-view (100 words) • Fair Credit Act 1996 allows consumer law suits

Credit Reports, Continued

• Bankruptcy remains for 10 years, other negative information for 7 years • Pay off credit cards before closing account • Be careful about retail store discount promotions • Risk scoring • Limit inquiries • Credit repair services often encourage illegal activities

Credit Reports, Continued

• Free Credit Report – www.AnnualCreditReport.com

– 877-322-8228 • Cheap FICO score – myfico.com

• Opt out – 1-888-5OP-TOUT or 1-888-382-1222 • Do Not Call – www.donotcall.gov

Credit Reports, Continued

• FICO score (between 300 and 850, 725 average) • Factors that determine risk score: – Payment History—What is your track record?

– Amounts Owed—How much is too much?

– Length of Credit History—How established is your?

– New Credit—Are you taking on more debt?

– Types of Credit Used—Do you have a healthy mix?

• Limit authorized inquires (prescreen by creditors has no impact)

Gambling

The pursuit of a game of chance may seem like harmless fun. But there attaches to it an intensity that actually shows on the faces of those who are playing. And in all too many cases this practice, which appears innocent, can lead to an actual addiction. The Church has been and is now opposed to this practice. If you have never been involved in poker games or other forms of gambling, don't start. If you are involved, then quit now while you can do so.

President Gordon B. Hinckley,

Gambling

, 175 th Annual General Conference, Priesthood Session, April (2005).

Gambling

There can be no question about the moral ramification of gambling. As it has in the past, The Church of Jesus Christ of Later-day Saints stands opposed to gambling, including government-sponsored lotteries.

Ezra Taft Benson, Gordon B. Hinckley, and Thomas, S. Monson, First Presidency Statement, 26 September 1986, see Concerning Gambling pamphlet ( 1988)

Gambling vs. Investing

Investments: - positive expected return (stocks) or - eliminate or transfer existing risk (insurance) Gambling: - negative expected return or - creates a risk

Gambling vs. Investing

• Gambling makes a miserable investment, for example in roulette: – House has 5.26% edge – Statistical certainty: you will lose money over time • Compare this to investing in stocks: – 12.6% average return over last 50 years – High probability that you will earn money over time

Gambling

“The spirit of gambling is a progressive thing. Usually it begins modestly; and then, like many other hazardous habits, it often grows beyond control. At best it wastes time and produces nothing. At worst it becomes a ruinous obsession and fosters false living by encouraging the futile belief that we can continually get something for nothing.” Richard L. Evans, “On Taking a Chance,” Improvement Era, vol. 49 (December 1946)

Gambling

“Whenever we as Latter-day Saints engage in any kind of conduct that is inconsistent with the companionship of the Spirit of the Lord, we pay an enormous price…There can be no question that gambling dulls the spiritual sensitivities of those who participate in it.” Dallin H. Oaks, “The Evils of Gambling,” Ensign, Nov. 1972

Gambling

Derivatives

• Examples: Options, futures, swaps • “Zero sum game” – Money-losing proposition over time • Extremely volatile • Placing bets against the pros • Appropriate use in hedging

• Extremely complex

Derivatives

Black-Scholes Options Pricing Model • Inappropriate for virtually all non-professional investors • Better idea: stick to what you know

Derivatives

“Don’t invest in speculative ventures” N. Eldon Tanner, “Constancy Amid Change,” Conference Oct. 1979 “Different people understand different businesses. The important thing is to know which ones you do understand and when you’re operating within your circle of competence.” Warren Buffett, Berkshire Hathaway Annual Meeting

Believe me now!

time Job?

Holmes. Do not What wearing man. He Hi, I’m Andrew Lee Holmes...

A Word on Identity Theft: What is it?

Identity theft occurs when someone uses:

•Your name •Address •Social Security number (SSN) •Bank or credit card account number •Other identifying information without your knowledge to commit fraud or other crimes

How do they get your identity?

•From businesses

- by stealing records or bribing an employee

•Rummage through trash, aka “dumpster diving”

- including un-shredded pre-approved credit card apps!!

•Steal credit and debit card numbers

- as your card is processed, aka “skimming”

•Pose at landlord or employer to obtain credit report •Pose as a legitimate business person or government official to obtain information

(aka “Phishing”)

How do they get your identity? (cont.)

•Use personal information shared on the Internet

- on unsecured sites

•Buy personal information from inside sources •Call credit card issuer, pretend to be you, and ask to change mailing address on accounts •Steal mail, then complete a change of address

…Then???

•Establish phone or wireless service in your name •Open bank accounts in your name and write bad checks •Purchase vehicles by taking out auto loans in your name •Create counterfeit checks or authorize electronic transfers in your name •File for bankruptcy in your name to avoid paying debts incurred in your name or to avoid eviction •Get job or file fraudulent tax returns in your name

What should you do to prevent it?

•Protect your SSN them you do not know (don’t carry SS card, don’t write it on checks) •Minimize the number of credit card accounts open •Check statements for unusual activity AnnualCreditReport.com

•Destroy, i.e. shred unwanted credit card offers before discarding •Never give out personal information over the phone to someone •Have your mail stopped by the Post Office when leaving town •Use Passwords on Credit/Bank accounts (not obvious like birth date) •Never click on unsolicited e-mails

What if it happens to me?

•Contact the police and file report •Call all your creditors (close tampered accounts) •Call the Identity Theft Hotline 801-579-1400 •Contact all major credit reporting agencies: TransUnion,

Equifax, and Experian (place a “Fraud Alert”)

•Report theft to the Federal Trade Commission

(www.ftc.gov/idtheft)

•State by State protection information is available: www.identity-theft-protection.com/states.htm

Garbage :

Rainy Day Fund

“…we must all eventually learn to discipline ourselves, our appetites, and our economic desires. How blessed is he who learns to spend less than he earns and puts something away for a rainy day.” N. Eldon Tanner, “Constancy Amid Change,” Conference, Oct. 1979

Rainy Day Fund

“For age and want, save while you may; no morning sun lasts a whole day.” - Benjamin Franklin

Rainy Day Fund

Insured but low interest rates Checking Account Savings Account and Money Market Deposit Acct.

Certificates of Deposit Not insured and higher interest rates Money Market Mutual Funds -Treasury Bills -Certificates of Deposit -Commercial Paper

Rainy Day Fund—How Much?

Salary Consideration

The higher the salary, the bigger the rainy day fund (i.e., five month’s salary)

Net Worth Consideration

The higher your net worth, the smaller the rainy day fund (i.e., three month’s salary if you own stocks and bonds)

Retirement

“Buying a lottery ticket every week doesn’t count as retirement planning.” Ric Edelman

Prepare for Retirement

Some Retirement Myths • “I’ll live on Social Security benefits” – SS will replace only 25% of your income • “Someone else will take care of me” • “Better be safe and invest conservatively” • “I can use my retirement funds for other things”

Sources of Retirement Money

– Social Security – Pensions – Real Assets 13% – Financial Savings 12% – TOTAL 25% 21% 71%

Albert Einstein “Compound interest is the eighth wonder of the world.”

Start Early!

$4,000 per year for 20 years : 38 39 40 Age 20 21 22 : 41 57 58 59 Amount Inv.

Value Jack $4,000 $4,000 $4,000 : $4,000 $4,000 $0 : $0 $0 $0 $0 $80,000 $1,541,270 Jill $0 $0 $0 : $0 $0 $4,000 : $4,000 $4,000 $4,000 $4,000 $80,000 $229,100

How Does This Work?

• Compound interest (interest on interest) • Bill started earlier—compound interest has more time to work its miracle • If the Manhattoes

(who sold Manhattan to the Dutch West India company for trade goods worth $24)

invest in an account in 1626 at 8% interest how much would the account have in it today? $24(1.08) 381

$130,215,000,000,000 !!

How Much Will I Need in Retirement?

Money Magazine Survey • Estimates: 53% Actual: 71% • One third of retirees support children and grandchildren and many support parents • Health care costs generally higher • Biggest regrets for retirees: – Didn’t take full advantage of tax deferred investments – Didn’t start earlier to save for retirement

Life Cycle Savings

(000’s) 700 600 500 400 300 200 100 0 -100 20

Borrowing

Save 10%

30 40

Save 20%

50 60 65 70

Retirement Soc. Sec. & Pension To heirs

80 Age

What Should I Invest In?

• Principle: risk-return trade-off – High risk—high return – Low risk—low return • What?

– Stocks—ownership in a company (risky) – Bonds—loan to a company/government (less risky) – Deposit accounts—(insured, no risk) • How?

– Mutual funds – Tax-advantaged investing

How Much Will I Need?

Use a worksheet to estimate how much you will need to save each month to achievement your retirement savings goal AARP Calculator Link to retirement worksheet

Social Security—How much will I get?

• Annual SS report near birth date • Benefit amounts vary depending on: • Lifetime earnings • Age at retirement • Nonworking spouses get benefits equal to 50% of their working spouses benefit • If both spouses worked, each is eligible for benefits based on own earnings or based on 50% of spouse’s benefit, whichever is greater SS Benefits Calculator

When Can I Retire With Full Social Security Benefits?

Those Born In

1937 or earlier 1938 1939 1940 1941 1942 1943 to 1954 1955 1956 1957 1958 1959 1960 and later

Can Retire With Full Benefits At

65 years 65 years, 2 months 65 years, 4 months 65 years, 6 months 65 years, 8months 65 years, 10 months 66 years 66 years, 2 months 66 years, 4 months 66 years, 6 months 66 years, 8 months 66 years, 10 months 67 years

SS Benefit Assuming You Are 62 And Retire At 65 1/2 (estimated in year-2003 dollars)

Current Earnings PIA Assuming Age 62 (monthly) Single Person (annual) Spouse same age or dependent child

$20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000 $85,000 $87,000 $736 $832 $928 $1,025 $1,121 $1,217 $1,313 $1,410 $1,506 $1,558 $1,603 $1,649 $1,693 $1,738 $1,755 $8,832 $9,984 $11,136 $12,300 $13,452 $14,604 $15,756 $16,920 $18,072 $18,696 $19,236 $19,788 $20,316 $20,856 $21,060 44% 40% 37% 35% 34% 32% 32% 31% 30% 29% 27% 26% 25% 25% 24% $13,248 $14,976 $16,704 $18,450 $20,178 $21,906 $23,634 $25,380 $27,108 $28,044 $28,854 $29,682 $30,474 $31,284 $31,590 The taxable maximum for 2003 was $87,000. See www.ssa.gov

to estimate your benefits.

Important Distinction

Vehicle vs. Engine •IRA •SEP •Keogh •SIMPLE •401k •Stocks •Bonds •Mutual Funds •REITs

Three Kinds of Retirement Plans

Employer Funded Pension Plan (Defined Benefit Plan) Individual Retirement Accounts Employer Sponsored Retirement Plan (Defined Contribution Plan)

Defined Benefits Plan

• Employees don’t contribute to plan • Employee receives promised or defined payout at retirement • Payout is generally based on formula – Formula variables include: – Age at retirement – Salary level – Years of service

Example of Payout Formula (BYU)

• • Calculate average of five highest annual salaries within the last ten years Multiply final “average” salary by 1.5% and by years in service (max 30) Ex: $60,000 x .015 x 25 yrs = $22,500 or 37.5% of final salary

Defined Contribution Plans

• Employer contributes to a fund • Generally employee also contributes to fund • Employer has no obligation to provide fixed amount when you retire • Pension is determined by: – How much is invested – How much it grows

Types of Defined Contribution Plans

Type Contribution Money Purchase

Employer contributes to plan based on a f ormula that covers all participating

Plans

employees

Profit Sharing Plans

Employer contributes percentage of prof its; some plans are based on total prof its; w hile others use a sliding scale

Employee Stock Ow nership Plans

Employer contributes stock or subsidizes employee purchase as stock

Thrift or Savings Plans

Employer matches some or all of the amount an employee def ers f rom pre tax salary into the plan.

401 (k) Plans 403 (b) Plans

Employee contributes pre-tax salary to the plan; employer may, and of ten does, contribute an amount based on an announced f ormula. Restricted to employees of non-prof it, tax-exempt employers.

Emplyee contributes pre-tax salary to the plan; employer may and of ten does, contribute an additional amount. Restricted to state and municipal w orkers.

Section 457 Plans

Employee contributes pre-tax salary to the plan

Sour ce : Wall Str e e t Jour nal Guide to Planning Your Financial Futur e

Salary Reduction Plans

[401(k), 403(b), & 457] • 60 million employees participate in 401(k) plans • Employees contribute before tax dollars reducing their taxable income • Earnings accumulate tax deferred

Salary Reduction Plans (cont’)

• Employers may match employee contributions • 89% of 401(k) plans have matching contributions • Example: BYU 401(k) Plan Employee Contribution 1% 2% 3% 4% 5% to 21% Employer Contribution 1% 2% 3% 3.5% 4% Total Contribution 2% 4% 6% 7.5% 9% to 25%

Salary Reduction Plans (cont’)

Employees direct the funds into different investment options (you choose the engine) • Fixed income • Equities • Money market

Contribution Limits

• For a 401(k) plan the employee contribution cannot total over 25% of compensation (before and after tax).

• Before tax employee contribution cannot exceed $15,500 (2008) with a “catch-up” for those over age 50.

401(k) Tax Considerations

• Retirement income taxed as ordinary income • 10% penalty rule applies for early withdrawals before 59 ½ , with some exceptions • 20% tax withholding requirement • Certain loan provisions may apply • Mandatory annual distributions begins after age 70 ½ • Possible high tax bracket (winners curse)

Payout/Distribution Options

• Lump Sum Distribution – Pro: Control over investing, spending, gifting – Con: Tax due immediately – Con: No assurance of lifetime income • Annuity (can purchase contract inside or outside) – Pro: Stable payments usually for life – Con: Generally no COLA – Con: Tax due on amount received each year

Payout/Distribution Options (cont’)

• Periodic Payments – Pro: Regular payments at regular intervals – Pro: Relatively large payments – Con: No assurance of lifetime income – Tax rate may be high due to high income • IRA Rollover (Be careful, don’t touch funds) – Pro: Defer taxes until you withdraw funds – Pro: Can direct investment – Pro: Enjoy tax deferred growth – Con: Begin withdrawals at 70 ½ or penalty

IRA Options Tax Deferred Retirement Plans

Traditional Roth

Also consider SEP, Keogh, or SIMPLE plan for self-employed or small businesses

What are the characteristics of traditional IRA’s?

• Contribution is often tax-deductible – income limits if you participate in ESP (e.g., 401k), $85,000 – income limits for spouse of ESP participant, $159,000 * * joint AGI joint AGI • Choice of investment engine • Contributions and gains are taxed when the money is withdrawn catch-up) (Lower rate?) • Maximum contribution is currently $5,000 (+ • Not all are eligible (under 70½ w/ earned income or spouse) * Start of the phase-out

When can withdrawals be made?

• After 59 ½ for whatever purpose • Prior to 59 ½ withdrawals are subject to federal penalties (10%) unless money is used for: – Qualified education expenses – First-time home purchase ($10,000) – Death or disability – Annuity payments – Medical expenses greater than 7.5% of AGI • Federal law requires that you begin withdrawals by April 1 st of the year after you reach 70 ½

What are the characteristics of a Roth IRA?

• Contributions are not tax-deductible • Can contribute if in ESP or over age 70½ • Contributions can always be withdrawn tax and penalty free (Earnings if over 59½ and Roth >5 years) • Earnings grow tax-free • Pass tax-free to heirs (5-year required distribution) • Avoids Winners Curse (70½)

Traditional vs. Roth IRA

Summary Tax-deductible contribution Traditional IRA

Yes

Roth IRA

Maximum total annual contribution to all IRA programs

*Maximum contribution for a marred couple is $10,000, or $5,000 each.

*Maximum contribution for a married couple is $10,000, or $5,000 each.

Eligibility

Must be under age 70 1/2 and have earned income, Limits if ESP Any age with earned income not exceeding AGI limits.

Spousal IRA's

*Contributions from non-earning spouses are based on earnings of employed spouse

Tax-free withdrawals

Age to begin required minimum distributions

70 1/2 *Contributions from non-earning spouse are based on earnings of employed spouse Yes None

IRA Tax Law Changes (Bush 2001

)

• IRA annual contribution limit will increase as follows: Year 2007 2008 2009 IRA Contribution Limit $4,000 $5,000 $5,000+index

Food Storage

“We reaffirm the previous counsel the Church has always given, to acquire and maintain a year’s supply--a year’s supply of the basic commodities for us…” Spencer W. Kimball “…the righteous will have listened to prophets and stored at least a year’s supply of survival food…” Ezra Taft Benson, Conference, Oct. 1973

Food Storage

“Church members can begin their home storage by storing the basic foods that would be required to keep them alive if they did not have anything else to eat.” First Presidency, Jan 20, 2002

Food Storage

“Members should be prudent and not panic or go to extremes in this effort.” First Presidency, Jan 20, 2002

Food Storage

Suggested amounts per adult for 1 year: Grains 400 lbs.

Legumes Powdered milk Cooking oil Sugar or honey Salt Water (2 weeks) 60 lbs.

16 lbs.

10 qts.

60 lbs.

8 lbs.

14 gals.

Food Storage is not Fungible

“The rainy day fund can be turned into: rent, utilities, medicine, transportation, and FOOD.” “Money grows and is easy to store and move.” The Gospel According to Grant Nevertheless, the McQueens store food.

Other Investments

Investment options: Bank Savings Bills and Bonds Stocks Real Estate Annuities Mutual Funds (bills, bonds, stocks, & real estate) What can we learn from the past?

Wealth Index for U.S. Capital Markets 1947:12 to 2007:12 S&P500 SmallCap T-bond T-bill CPI $10,000 $ 2827 $1,000 $ 844 $100 $10 $32 $16 $9 $1 19 47 12 $0 19 52 12 19 57 12 19 62 12 19 67 12 19 72 12 19 77 12 19 82 12 19 87 12 19 92 12 19 97 12 20 02 12 20 07 12 S&P 500 11.88% Small Cap 14.16% T-bond 5.95% T-bill 4.75% CPI 3.74%

Long-Term Return on the Stock Market

The Long-term Return on the Stock Market Stock market risk-premium = market return - risk free return 7.13% = 11.88% 4.75% … but the U.S. in the last half-century has been “lucky” compared to other developed markets and time periods.

Going forward, the expected stock market risk-premium is about 5.0 percent. With the risk-free rate at about 3.0 percent, the long-term expected return on stocks is about 8 percent per year (standard deviation of 20 percent per year)

Managing Stock Risk

1. Diversity Across Stocks 2. Diversity Across Time 3. Buy and Hold an Index Fund

Diversify Across Stocks

It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket.

Miguel de Cervantes

Diversify Across Stocks

49%

24%

Diversifiable Risk 19%

Total Risk 1 Nondiversifiable Risk 10 20 Number of stocks in portfolio 25

Diversify Across Time

Even a diversified portfolio is risky in a given month or year. However, given enough time, the probability of a loss becomes manageable

Diversify Across Time

Best and Worst Annualized Returns (1948-2007) 60% 45% 30% 15% 0% -15% -30% 1 5 10 Holding Period (years) 20 S&P 500 T-Bonds T-Bills

Brother Fly-By-Night Guarantee

“Consideration should also be given to investing wisely with responsible and established financial institutions. We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes… While all investments carry and element of risk, that risk can be managed by following sound and proven financial principles: First, avoid unnecessary debt, especially consumer debt; second, before investing, seek advice from a qualified and licensed financial advisor; and third, be wise…” First Presidency letter, February 27, 2008. (“To be read in sacrament meeting.”)

Index Funds

Ten-Year Annualized Return on the 30 Largest Mutual Funds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Investor return for calendar years 1995 to 2004; largest funds as of year-end 1994 Fidelity Magellan Investment Company of America Washington Mutual Investors Vanguard Windsor American Century Ultra Janus Fidelity Growth and Income Fidelity Contrafund Vanguard Windsor II Fidelity Equity-Income II Fidelity Equity-Income MSDW Dividend Growth Putnam Growth and Income American Mutual Growth Fund of America 10.16

13.04

13.54

12.81

10.40

9.32

11.04

13.82

13.71

11.65

11.94

9.62

10.76

11.93

14.79

16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Fidelity Growth Opportunity AXP New Dimensions Pioneer II American Centuary Growth Lord Abbett Affiliated American Century Select AIM Weingarten Putnam Voyager Putnam Growth and Income B Fidelity Blue Chip Growth Fidelity Destiny T. Rowe Price Equity Income Fidelity Independence Waddell & Reed Fidelity Growth Company Average mutual fund return: 10.78% Vanguard 500 Index fund return: 12.0% Funds outperforming the index: 9 out of 30 (30%) 6.81

10.64

8.98

8.73

12.89

9.50

6.16

9.10

9.94

8.82

6.76

13.00

10.63

10.37

12.57

Index Funds Have Low Fees

Performance comes and goes, but costs roll on forever.

- Jack Bogle Value of $100,000 investment 33% of your retirement to manager

Low Fees or Low Amounts

Vanguard is a pioneer in low cost index funds (passively managed diversified mutual funds with fees often below 0.2% per year) www.vanguard.com

Homestead Funds is a pioneer in managing small accounts (minimum of $200 for IRA and $500 for regular accounts—NO minimum if automatic scheduled investments) www.homesteadfunds.com

The Futility of Trying to Time the Market

Period of Investment

January 2, 1985 - December 30, 2005 Less the 10 biggest days Less the 20 biggest days Less the 30 biggest days Less the 40 biggest days

Data Source: CRSP Value-Weighted Index with Dividends

NYSE/AMEX/ NASDAQ Return Annualized

+12.48%

Value of $10,000 Invested in Jan. 1985

$118,089 + 9.81% +7.84% +6.13% $71,389 $48,827 $34,854 +4.60% $25,695

Q: What Should I Invest In?

A: What is your risk tolerance and investment horizon?

Asset Allocation Breakdown During the Early Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc.

1926-1998 Stock/bond mix Annual compound return Years with loss (out of 73) 80/20 10.4% 19 1964-1998 Stock/bond mix Annual compound return Years with losses(out of 35) 80/20 11.6% 8 Stocks 80% Bonds 20%

Approaching Retirement –The Golden Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. 1926-1998 Stock/bond mix Annual compound return Years with loss (out of 73) 60/40 9.5% 16 1964-1998 Stock/bond mix Annual compound return Years with losses(out of 35) 60/40 10.8% 7 Stocks 60% Bonds 40%

During the Retirement Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc.

1926-1998 Stock/bond/Treasury Bill mix 40/40/20 Annual compound return 8.0% Years with loss (out of 73) 14 1964-1998 Stock/bond/Treasury Bill mix Annual compound return Years with losses(out of 35) 40/40/20 9.6% 6 Treasury Bills 20% Bonds 40% Stocks 40%

During the Late Retirement Years Source: Stocks, Bonds, Bills & Inflation 1999 Yearbook. 2000 Ibbotson Associates, Inc. 1926-1998 Stock/bond/Treasury Bill mix 20/60/20 Annual compound return 6.8% Years with loss (out of 73) 12 1964-1998 Stock/bond/Treasury Bill mix Annual compound return Years with losses(out of 35) 20/60/20 8.7% 5 Treasury Bills 20% Stocks 20% Bonds 60%

Grant’s day-trading buddy

– $500,000 in stocks X 2% – 250 days X 1 trade X $15 - 3,750 – $0.125 X 100 shares X 250 trades - 3,125 $10,000 – Gross Trading Profit – Tax @ 39.6% – Net Profit 3,125 - 1,237 $ 1,888

Grant’s day-trading buddy

Trading Profit $1,888 10 hours/week X 52 weeks 520 hours Equals $3.63 per hour!

Not to mention the costs of an office, computer, internet fee, real time data fee, and … …THE FACT THAT HE DIDN’T BEAT THE MARKET.

Garbage :

Budgeting

“Our pioneer forebears lived by the adage, ‘fix it up, wear it out, make it do, or do without.’” Gordon B. Hinckley, “I Believe,” Ensign, Aug. 1992

Budgeting

“Dear, you can’t save money by spending.” Grant McQueen

Budgeting Make Saving Easy Make Spending Hard

Budgeting

-The root cause of most family financial problems is bad behavior, not bad math - Good governance, communication, and controls are essential - Budgeting is about values (priorities), not money

The Millionaire Next Door

• “The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.” (Stanley & Danko) • “Planning is typically found to be a strong habit among people who have demonstrated propensity to accumulate wealth.” (Stanley & Danko)

Budgeting 1,000,000 750,000 350,000

Scott Marsh’s Clients

Spending Traps

• Impulse Buying (checkout or end-of-aisle, not hungry, list, counter argue) • Failure to Plan (Costco vs. convenience, raw vs. packaged) • Hidden Price Tags (computers need a screen, printer, software, internet) • Opportunity Costs (snowmobiles eat up time, energy, and emotions) • Sales Tricks (assume “yes,” reciprocity, evaporating incentive) • Per Use Costs (RV used twice a year) • Conspicuous Consumption (Polo ponies and Nike swooshes) • Delayed Price (Disneyland, captive audience —breakfast and pictures) • Perfected Visions (Cruise —people get sick, it rains, not all are sexy) • Upgrades and Extras (time delayed start button with extended warranty) • Underestimating Adaptation (stereos)

Budgeting “Wherefore, do not spend money for that which is of no worth, nor your labor for that which cannot satisfy … and come unto the Holy One of Israel, and feast upon that which perisheth not…”

Jacob the brother of Nephi, 2 Nephi 9: 51

Budgeting

Q: What is the cost of a soft drink at lunch?

A: $20/month * 12 months/year * 40 years = $9,600 $9,600 ÷ (1-.4) = $16,000 before tax and tithing income Q: What is the future value of investing $20 per month for 40 years at 8%?

A: $69,820

Shaker Hymn

‘Tis the gift to be simple ‘Tis the gift to be free George Fox “Simple Gifts” by Joseph Brackett, Jr. in 1848 Who owns whom?

Grant McQueen

We’re Number one!

The Budgeting Process The Traditional Approach

Income Tithing Expenses Available for Savings Personal Goals

The Budgeting Process

“After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. That leaves you a balance of your income to budget for taxes, food, clothing, shelter, transportation, etc. It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing.” L. Tom Perry, “Becoming Self-Reliant,” Ensign, Nov. 1991

The Budgeting Process A Better Approach

Income Pay the Lord Pay Yourself Expenses Other Savings Personal Goals

Personal Balance Sheet

Basic characteristics – Point in time – Assets • Value of what you own • Ordered by level of liquidity – Liabilities • Debts you owe – Net worth • Difference between assets and liabilities

Personal Balance Sheet Continued

Balance Sheet for Joe and Jain Jones, April 2002 ASSETS Current Assets

Cash Savings Account Checking Account Certificate of Deposit Total Current Assets

Property

Home Furnishings/Appliances Stereo System Clothing Television and VCR Personal Computer Market Value of Vehicles Market Value of Home Total Property

Investments

Vanguard Mutual Fund Individual Retirement Account SEP Retirement Plan Total Investments

Total Assets

$140 $3,700 $1,700 $3,000 $8,540 $23,000 $800 $4,000 $1,200 $3,000 $27,000 $250,000 $309,000 $4,300 $18,050 $6,000 $28,350

$345,890 LIABILITIES Current Liabilities

Credit Card Debt Short-Term Consumer Loan Total Current Liabilities

Long-Term Liabilities

Mortgage Car Loan Total Long-Term Liabilities

Total Liabilities

$4,200 $3,800 $8,000 $185,000 $23,000 $208,000

$216,000 NETWORTH Total Assets - Total Liabilities $129,890

Income Statement

Basic characteristics – Considers a period of time – How money has come and gone – Excellent monitoring mechanism – Difference between income & expenses provides opportunities for savings/investments

INCOME Regular Income:

Salary/Appraisal Earnings $90,000 Interest Income

Total Income

Income Statement Continued

Income Statement for Joe Appraiser

January 1, 2000 - December 31, 2000 $375 $400

$90,375 EXPENSES Fixed Expenses

Mortgage Payment Car Payments Auto Insurance Homeowners Insurance Life Insurance Income Taxes Social Security Taxes Tithing Offerings Property Taxes Savings Program Total Fixed Expenses

Variable Expenses

Food Clothing Car (fuel, oil, tires, etc.) Utilities Entertainment Telephone Medical Care/Medication Personal Care (hair, laundry) Gifts Total Variable Expenses $19,200 $5,000 $1,200 $1,000 $600 $20,600 $5,100 $9,000 $750 $1,520 $8,945 $72,915 $5,000 $2,500 $2,000 $3,000 $1,200 $970 $1,700 $840 $250 $17,460

Total Expenses Net Gain (+) or Net Loss (-) $90,375 $0

Tax (Credit vs. Deduction)

Tax Credit Dollar-for-dollar Tax Deduction Percentage A $1 credit saves $1 in taxes i.e., $1,000 child tax credit is worth $1,000 A $1 deduction saves $1 x t in taxes i.e., $3,000 tithing deduction is worth about $3,000 x .25 = $750

Tax Ideas

• Itemize deductions (if > $10,900 standard deduction, joint in 2008) • Child Tax Credit ($1,000 per child under 17) • Hope and Lifetime Learning education credits • Tax preferred savings (i.e., IRA, Roth IRA, 401k, SEP) • Donation of appreciated securities • “Cafeteria Plans” (Flexible Spending Accounts: pay for heath, drugs, and childcare with pretax dollars) • Education savings plans (i.e., 529 plan and Coverdell Ed. IRAs) • Estate Taxes (46 percent over $2.0 million until 2009) ($3.5 mill. after 2009)

Taxes (itemize deductions)

• Charitable Contributions (tithing, offerings, missions, BYU!!!) • Mortgage Interest (2 nd home, 2 nd mort., equity line of credit, points) • State Income Taxes (or sales tax option in 2007 and perhaps beyond) • Real Estate and Personal Property Taxes • Medical and Dental (> 7.5% of AGI, timing, limits) • Casualty and Theft Losses (>10% of AGI, after insurance) • Interest on qualified student loans (up to $2,500) • NOT: social security tax, federal tax, sales tax, consumer interest, fees to governments, fees to lenders…

Taxes (education credits)

• HOPE – Up to $1,800 credit per eligible student – Only for first 2 years of postsecondary ed.

– Only for 2 years per eligible student – At least ½-time for at least one semester • Lifetime Learning – Up to $2,000 credit per return – All years of postsecondary ed.

– Unlimited number of years – For one or more courses Mutually exclusive in a given year

Taxes (529 “College” Savings Plans)

• State Tax Incentives – Contributions are deductible ($3,240 for couples per child) for UT taxes – Earnings are exempt from state income tax (if used for qualified higher education expenses) • Federal Tax Incentives (10% penalty for non-qualified withdrawals) – Earnings are exempt from federal income tax – Gift limit of $12,000 < College limit of $55,000 ( w/control) • Rollover to other family members ( w/o penalty ) • Utah Ed. Savings Plan is Outstanding – Nine investment options (Vanguard Funds) – Minimum payment per month of $25 • Grandmas, Grandpas, Aunts, Uncles, Friends

Home Buying

• Renting – Mobility and liquidity – Repairs and maintenance – Low initial cost – Low on going cost – Low price risk • Buying – Permanence and pride – Payments for ownership – Control – Tax benefits – Property appreciation (?) – Leverage – Nicer neighborhood, school, and ward?

Home Buying Steps

Develop a financial plan (pre-qualify vs. pre-approved, set limits) Develop a needs plan (location, size, features, age, condition, etc.) before driving around Take your time (rent for a while?) Search diligently (use the internet, drive around, realtors work for seller, follow plan, talk with people) Do your homework (inspections and appraisals)

Financing a Home

• Credit (income stability, debt-to-income, loan-to value, history/FICO) – FICO score > 620, approved?

– FICO score < 590, subprime?

• Cash – Down payment (typically 3% to 20%) – Closing costs or fees ($2,000 to $3,000) – Minimum reserves (two months of payments, not gifted) • Cash Flow (i.e., income) – Mortgage payment – Mortgage insurance, property taxes, home insurance, etc…

Home Buying Fees

• Loan Origination Fee (points) • Escrow Fees • Homeowner’s Insurance • Legal Fees?

• Private Mortgage Insurance • Document Preparation Fees • Title Insurance • Appraisal Fees • Credit Report Fees • Tax Service Fees • Survey Fees?

• Property Taxes • Pest Inspection Fee • Notary Public Charge • FedEx Fee Ask for a so called “good faith” estimate of fees

How Much Can You Afford?

Two Ratios: Front-end and Back-end (Must meet both, but a large down payment covers many sins) • Front-end: House payment (PITI)/ gross income < 0.28

– Principle, Interest, Taxes, & Insurance • Back-end: PITI + other finance charges/ gross income < 0.36

– Car lease, student loans, minimum payment on credit cards • Some lenders allow back-end ratios as high as 65%!

How Much Can You Afford?

Here Comes a Really Important Slide Pay Attention There is a Difference Between What You Can Get Finance and What you Can Afford!

How Much Can You Afford?

• Professor Holmes’ Rule: • “Never let your back-end ratio, with tithing, surpass 0.4” (PITI + other + tithing)/income < 0.25, “life is OK” (PITI + other + tithing)/income < 0.4, “feel poor” (PITI + other + tithing)/income > 0.4, “tithing = burden”

Anatomy of a Mortgage

• Size – Less than $417,000 (in most areas) is “conforming” by Federal National Mortgage Association (FNMA) standards • Interest Rate – APR (origination and discount points) – A 7 % interest rate may have a 7.3% APR – Fixed-Rate or Adjustable Rate Mortgage (ARM) • Teaser rate, cap, adjustment frequency and maximums • COFI, Hybrid (fixed for 3 yr’s then ARM), Two-step (5/25 * or 7/23) • Term – 30 and 15 year most common – Balloon *Fixed rate for 5 years then a new fixed market rate for the next 25 years

Garbage :