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Finding Financial Freedom
Lesson 1: The Power of Investing
(Money Management for KMHS Seniors)

Introduction: Don't Follow The Crowd!

IBM Motto: “Think”
Apple Computer Motto: “Think Different”

A Tale of Two Families

Family #1: Jenny and Jim.
Family #2: Tom and Theresa

What "The Crowd" is doing: Americans and Their Money

Step #1: Learn the Awesome Power of Multiplication

Multiplication Illustration #1: Need Some Grain? 

The Checkerboard: How much grain would be on the 64th square?

Multiplication Illustration #2: So You Like to Tear Paper?

How thick would the paper be after the 50th tear? 

Step #2: Invest Wisely! ( Let Multiplication Work For You.)

Money Multiplication Made Easy: The Laws of 10's and 7's.

Ways to Get This Amount of Return on Your Investment

For the Median Income Family

Cobb County median (average) family income in Cobb County =  $58,000 per year. Invest 10% of your income. That's $5800 per year ($16.01 per day), invested at 10% interest = over $1,000,000 in 30 years.  

For the Low Income Family

Story: Oseola Enjoys Life and Saves a Fortune. Secrets to her success:

a. Work hard. 
b. Enjoy life within your means.  
c. Invest regularly. In her own words, ''The secret of building a fortune is compounding interest.  It's not the ones who make big money, but the ones who know how to save who get ahead.  You've got to leave your investment alone long enough for it to increase.'' (Simple Wisdom, p. 18)  
d. Don't allow yourself to pay interest to others. ''I save my money till I can buy something outright.'' 

Action Points

My Financial Goals: 

Mark McCormack, in his book, What They Don't Teach You at Harvard Business School, tells of a Harvard study finding that 83% of Harvard School graduates had no goals 10 years after graduation; 14% had goals, but not in writing. The remaining three percent had written goals -- and were earning 10 times as much as the group with no goals. 

I'd like to retire and be financially independent by my __ birthday. 
That means I'll need to average saving __ per week, or __ percent of my income.
Now, I'll begin saving __ per week, and start investing it ____ (where?).

Homework: Ask your parents and other adult friends for their advice on money management. Example questions:

1) Thinking through your life experiences, what are some things you've done with your money that you'd recommend me to do as well? 
2) What regrets do you have that you think I should avoid? 
3) Are there other extended family members or family friends you'd recommend I go to for financial advice? 

 

Step #3: Avoid Debt! (Don't Let Multiplication Work Against You.)

“Debt is a disease and credit cards are one of the easiest ways to get sick. Nobody ever got wealthy borrowing money for gifts, clothes, restaurants, entertainment, or travel.” (Consumer advocate Clark Howard)

Your greatest financial question:  "Will you harness the awesome power of multiplication to work for you or allow others to drain your money by having multiplication work against you in the form of 'easy payments?'"

The X-Box Dilemma: What would you do?

Beating the System: Credit Cards and "Easy" Payments 

“The Forbes 400 is a list of the richest 400 people in America as rated by Forbes Magazine. When surveyed, 75 percent of the Forbes 400...said the best way to build wealth is to become and stay debt-free.” “I have met with thousands of millionaires in my years as a financial counselor.... They all lived on less than they made and spent only when they had the cash. No payments.” (Dave Ramsey, p. 23)

$400 - Advertised price for X-Box and two accompanying games
$520 - Amount actually paid by credit at 13% with minimum payment of 3% over 51 months. 

$9,000 = Average family credit card debt 
$1170 = Average amount paid in interest per year (Like throwing a $100 bill out the window every month!)

Other fun stuff you could do with $1170 per year besides throw it out your window in interest. 

  • Take a cool vacation.

  • Use $100 per month for something cool.

  • Invest that $1170 per year at 10% interest and have 1/4 million dollars in 32 years or 1 million dollars in 46 years. 

Beating the System #2: Car Payments

Benji's Story

Benji's almost 17. His dad said he would pay $2100 toward his first car. Add this money to his savings, and he could purchase a  nice sports car. Instead, he acquired a wrecked 1993 Honda Accord free of charge and fixed it up with the help of a friend for $1,000, parts and labor. This very reliable car should last 200,000 thousand more miles. Now, he doesn't have to work for car payments or expensive insurance. He just works for gas and expenses. His dad still gave him the $2100.00, which he plans to invest. He's also free to invest his savings, which would have gone toward the sports car. He has $8,000.00 invested in a foreclosure house, the profit of which he will reinvest in each new house he acquires.  At this rate, he should be able to double his money every two years. Even with the impact of taxes, if he keeps living within his means and his investments keep paying off, he could conceivably retire with a fully paid off house and $1,000,000 by the age of 30.   

“USA Today notes that the average car payment is $378 over 55 months. Most people get a car payment and keep it throughout their lives. As soon as a car is paid off, they get another payment because they “need” a new car.” (Dave Ramsey)  

Just save that money for 8 months and you’d have $3,000.00, enough to pay for an older, but reliable car. So then you put the $378 per month in a total stock market mutual fund. If it averages 12% interest, and you pay in the money each month from when you’re aged 25 to 65, you’d have $4,447,084.01 at age 65.

Unless you have tons of money, buy reliable, used cars.  

1. They cost less.
2. Cars last longer these days, so that many are reliable for 200,000 or more miles.
3. A new car depreciates greatly in value the day you drive it off the lot.

Beating the System #3: House Payments (Mortgage)

The problems people run into include:

What people pay for the same house: 

$100,000: The cash price
$151,894: Paid over 15 years at 6% interest 
$215,000: Paid over 30 years at 6% interest

The bottom line: Pay the maximum you can pay comfortably each month on your house payment.

Action Points: 

Sources of Financial Wisdom:   

Money Management Guru's:

http://www.daveramsey.com - Dave Ramsey is a popular talk show host who helps people move from paying debts to building wealth. 
http://clarkhoward.com - Consumer advocate who has advice on buying cars, finances, etc. 
http://www.vanguard.com - Great mutual fund company website with great articles to learn about investing in stocks and bonds. 

Interest Rate Calculator (Lots of these on various sites.)

http://www.bankrate.com/gookeyword/rate/calc_home.asp - Offers many helpful online calculators for car payments, mortgages, investing, etc. http://www.tcalc.com/tvwww.dll?Save - Play around with interest calculators like this to find out how fast your money will grow as you invest various amounts of money at various interest rates.  
http://www.cardratings.com/creditcardtrapcalc.html - Calculator to find out how much you pay over time if you carry a balance on your credit card. 

Sites recommended by the Atlanta Journal for Compulsive Shoppers 

www.stoppingovershopping.com - Gives treatment options.
www.4therapy.com/consumer/assessment/taketest.php - Take a self-assessment to see if you need help for a shopping addiction.
www.debtorsanonymous.org A 12-step recovery problem, including self-assessment questions.
www.addictionrecov.org/spendaddict.htm From the Illinois Institute for Addiction Recovery.

Helpful Radio Personalities: Clark Howard and Dave Ramsey.

Some Good Financial Books to Read (with a critical mind!) Read reviews on Amazon.com to learn the strengths and weaknesses of each book.