Chapter One First Things First Ken Long New
- Slides: 74
Chapter One First Things First Ken Long New River Community College Dublin, VA 24084 http: //www. nr. cc. va/fin 107 1
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Why does the average person pay 1/3 their income in interest? Because they borrow a lot and because of compound interest 3
What is compound interest? You owe interest on the unpaid balance every month 4
What is simple interest? You are not penalized for making early payments on a loan 5
Give me an example of compound interest and simple interest. . . Mortgage loans 6
What’s my monthly payment on a mortgage? Monthly payment is calculated by a set formula 7
What’s my monthly payment on a $100, 000 mortgage, 10% loan? At 30 years your payment would be $877. 57 8
What’s my monthly interest payment on a $100, 000, 10% loan? $100, 000 x. 10 = $10, 000 / 12 = $833. 33 9
What percent interest am I paying the first month? 833. 33 / 877. 57 = 95% 10
How do I calculate the interest I owe the second month? $100, 000 - $44. 00 = $99, 955 x. 10 = $9, 956 $9, 955 / 12 = $830 11
How do I calculate interest I owe third month? $99, 956 - $45 = $99, 910 x. 10 = $9, 991 / 12 = $833 12
How much will I pay in principle third month? $878 - $833 = $45 13
How much interest will I pay the first year? $9, 975 14
How much principle will I pay the first year? $556 15
What is the percent principle the first year? $556 of $10, 530 is 5. 3% 16
What percent interest the first year? 100% - 5. 3% = 94. 7% 17
Where can I find financial calculators? http: //www. smartcalc. com/ 18
When I pay interest, who receives my money? People who save 19
So when I pay interest am I working for other people? YES, its just like working for others 20
How do I get other people to work for me? SAVE! 21
Can I duplicate myself through saving? Yes! You can duplicate yourself the same as a business owner does through employees 22
What are the advantages of duplication? § More money § More flexible time § More security 23
How does a business owner duplicate himself through other people? Because a part of every workers day is devoted to the employer 24
Can you explain to me what you mean? Yes! Consider your situation when you work for someone else 25
With a job, how many working hours are there in a day for me? 8, 10, 12, but certainly not more than 18 hours a day 26
Why is there a limit to the number of hours I can work on a job? Because you are trading hours for dollars 27
Explain to me how it is different for a business owner? 28
What’s it like if I get credit for one hour each day that an employee works for me? Its just like you worked that one hour each day 29
What’s it like if I had 100 employees? It’s just like you worked 100 hours each day! 30
With a job if I decide to take an unplanned trip to Florida, what will happen? Not only will you not get paid but you will lose your job 31
As a business owner what happens If I take an unplanned trip to Florida? You will continue making the same amount of money because your employees continue to work 32
If I retire, get injured, or die, what happens to my income from the job? Your income stops because your income was based on your ability to perform 33
If I own a business and retire, get injured or die, what happens my income? The income continues as long as the business continues 34
So what is the point to the above illustration? Through the process of duplication you can make more money, have more time and have more security than anyone with a job 35
How can I duplicate myself without owning a business? You can duplicate yourself through your savings 36
How does this work? 37
§You put money in a bank §The bank lends your money out to others §Borrowers work to pay back the bank §The bank pays you interest from what they receive from borrowers 38
Why is saving better than owning a business? 39
§With a tax deferred savings plan you can defer paying taxes on your current income §The bank takes care of the paper work §You have no obligations to anyone 40
What the first step to saving? Pay yourself first 41
But I have so many bills, what can I do? Pay yourself first! 42
How do I pay myself first? With a working savings account 43
What is a working savings account? The money is used to pay for unexpected or infrequent expenses 44
What is a personal contract? A contract with yourself specifying the reasons you will take money out of the savings account 45
Can you give me some examples? § new tires § birthdays § Christmas § clothes § appliances § new television § tools § repairs 46
What is the best way to save? Make it automatic 47
How do I make my savings automatic? Request that a certain amount be taken out of your checking account once a month and put into your savings account 48
What is the first step to get out of debt? Not to go deeper into debt 49
How do I prevent from going deeper into debt? Use your working savings account 50
Is it a good idea to make as large payments as I can to pay off my debts? No! If you do you are simply planting the seeds for more debt 51
How can making myself debt free as my number one goal only condemn me to a life of debt? Because you will not have money to buy new tires, birthday gifts etc. 52
Where will I get money for these expenses if I do not have it in savings? You will have to borrow the money 53
How much money should I put into this savings account? 54
§If you do not put enough money in there will seldom be enough to pay for emergencies §If you put too much money in savings you will not have enough money to pay for necessities 55
What is the next step in my savings program? A second savings account 56
Why should I have a second savings account? To pay for things such as a new car 57
If I can save $4, 000 in this second savings account, should I take the money out for a car? No! Borrow the $4, 000 from yourself 58
How do I borrow money from myself? Most banks will lend your own money for about 2% more than the interest you are earning 59
Is my savings available to me if I borrow it? In most cases each dollar is frozen until you pay it back 60
Why should I borrow the money from myself? Because your savings is a tool, if you use it you no longer have it 61
Where else can I borrow from myself? 62
§Consolidation loan §Your credit union §Whole life insurance policy §Home equity loan §Your 401 K plan §Stocks or bonds §Certificates of deposit 63
What is the next step in my savings program? A third savings account 64
Why should I have a third savings account? This is your retirement account 65
I want a million dollars in savings when I retire how much should I save monthly? That all depends on how long you have to save and your average return 66
What has been the average return in the stock market over the past 50 years? 10% 67
If you have 40 years at 10% average return. . . save $158 monthly 68
If you have 30 years to save then. . . $442 monthly 69
If you have 20 years to save then. . . $1, 317 monthly 70
If I had a million dollars in savings and could get a 5% return how much would my income be? $50, 000 a year 71
According to The Richest Man in Babylon, what are the 7 steps to wealth? 72
1)Pay yourself first 2) Control your spending 3) Make your money multiply 4) Guard your wealth from loss 5) Own your own house free and clear 6) Put aside for retirement 7) Increase your ability to earn 73
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