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 Do not earmark future raises for spending

Resist credit If you are in debt, pay it off as quickly as

possible 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

Monthly (rent, electricity) Non-monthly (insurance premiums) Unexpecteds (car repairs)

Savings 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

Main Checking Account

WifeSalary

HusbandSalary

Short Term Savings

Long term/ Emergency Savings

IRAs

WifeAllowance

HusbandAllowance

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 PrimerSuggested 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

The tax is Plus

$7,550 $0 10% $0$30,650 $755 15% $7,550$74,200 $4,220 25% $30,650

$154,800 $15,108 28% $74,200$336,550 $37,676 33% $154,800

$97,653 35% $336,550

Income up to

Of the amount

over

 

Concrete Examples Please

How do I get anIRA 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 A manager tries to pick stocks that he thinks

will outperform the others Passively managed funds

Use an algorithm or stock index to determine what stocks they will have

Versatility: stocks, bonds, REITs, mixes

Mutual Funds

Broker funds (traditional): 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 Exchange traded funds (ETFs) more

advanced (look it up later) 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