Building Wealth Simple Steps to Financial Security
Introduction/ Background 1) First of two foundation building workshops 2) Presented by Stanley Greene 3) Subject matter experts will lead subsequent workshops The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 3
Defining Wealth late Middle English Commonwealth noun : commonweal ealth; • plural noun : the he Commonweal ealth; • • (originally as two words, denoting public • welfare; compare with commonweal); from co commo mmon + + w weal ealth. • The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 4
Defining Wealth Common Well-being Improve your financial well-being Have enough money to live • • worry free and secure The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 5
The Facts The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 6
Learn About Life’s Critical Threes Phases and How to Optimize Each One Phase I: Dependent Phase II: Working Phase III: Retirement AGE 0 to 18 AGE 18 to 60 AGE 60 to 80+ The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 7
Learn About Life’s Critical Threes Phases and How to Optimize Each One Phase I: Dependent • No income Little to no personal income • • We depend on our parents Dependent on our parents for food, shelter and • entertainment Enjoy life on very little money • Beliefs about what will make us happy in the next • two phases are ingrained (purchase of tangible assets or “stuff”) Media and advertising play a significant role in • shaping our beliefs about “The American Dream” and what we do with the money we EARN RN during the working phase Would benefit in the working and retirement phases • from a “pay yourself first” habit, saving at least $.10 on every $1.00 EARNED (10%) from chores, other work, and allowance The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 8
Learn About Life’s Critical Threes Phases and How to Optimize Each One Phase II: Working • No income Generate EARNE NED income for over 30 years • • We depend on our parents Must know our financial numbers: Cash Flow, Net • Worth, and Credit Score Understand and actively engage in constructing the • retirement phase’s “Three-Legged Stool”: Social Security, Pension, Personal Savings and Investments Understand and utilize the time value of money in • putting money to work Understand and leverage the following to ensure • desired levels of UNEA EARNED income during the retirement phase The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 9
Learn About Life’s Critical Threes Phases and How to Optimize Each One Phase III: Retirement • No income GOAL: Enjoy a long and happy retirement • • We depend on our parents Receive multiple streams of UNEA EARNED income from • retirement’s “Three-Legged Stool” constructed during the working phase: Social Security • Pension • Personal Savings and Investments • If needed, supplement UNEA EARNED ED income streams • with EARNED income from: Part-time Employment • Encore Career • Entrepreneurship • The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 10 10
Over the Life Cycle Six Keys to Personal and Financial Security 1) Peace of mind 2) High levels of health and physical energy 3) Loving relationships (family and friends) 4) Financial freedom/well-being 5) Worthy goals and ideals 6) Self-actualization (becoming what we are capable of becoming) The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 11 11
How to Determine Financial Wellness Health Financial Know Your Numbers! 1) Blood Pressure 1) Cash Flow (budget) 2) Cholesterol 2) Net Worth (snapshot) 3) Weight 3) Credit Score The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 12 12
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Pen ensi sion In Inco come me Soci cial al Secu ecurity In y Inco come me defined benefit or defined contribution (deferred comp.; 401K, 403(b), SEP IRA) Inco In come f me from m Savi avings (deferred comp, 401K, IRA, SEP IRA, Roth IRA, Cash) The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 16 16
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Social Security Income Administration established in 1935 • (FDR) Website www.ssa.gov • Establish online account and check • benefits The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 17 17
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Defined Benefit Pension Defined benefit formula • http://www.psers.state.pa.us/ • The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 18 18
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Personal Retirement Savings Deferred Comp, 401K, IRA, SEP-IRA • Goal: Build your own income producing asset base • Start with small amounts of money • Ex: $1,000,000 @ 3% = $30,000/year or $2,500/mo. The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 19 19
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Personal Retirement Savings $820/mo. @ 7% annual return x 30 years = $1,000,000 5 yrs. = $58,706 10 yrs. = $141,929 20 yrs. = $427,160 30 yrs. = $1,000,000 40 yrs. = $2,152,347 50 yrs. = $4,467,418 The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 20 20
Retirement’s Multiple Income Streams Unearned Income Stream (Three Legged Stool) Personal Retirement Savings $100/mo. @ 7% annual return x 30 years = $121,997 5 yrs. = $7,159 10 yrs. = $17,308 20 yrs. = $52,093 30 yrs. = $121,997 40 yrs. = $262,481 50 yrs. = $544,807 The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 21 21
Retirement’s Multiple Income Streams Earned Income Streams (Using Your Skills and Talents) 1) Encore career 2) Part time job 3) Entrepreneurship The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 22 22
Take Action Improve Current and Future Financial Well-being Increase the value you offer, thereby potentially improving income Drive expenses and debt down Participate in forced (and uninterrupted savings) The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 23 23
Think Like a Business Optimizing Cash Flow and Net Worth for Future Financial Security Cash Flow = Incoming cash - outgoing cash The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 24 24
Think Like a Business Optimizing Cash Flow and Net Worth for Future Financial Security Net Worth = Total assets Total liabilities (-)minus (everything you own) (everything you owe) The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 25 25
Cash Flow Statement The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 26 26
Net Worth Statement The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 27 27
Three Keys Improve Prospects of Additional Income During Retirement Phase 1) Drive up income 3) Aggressively by increasing the drive down value that you monthly costs provide 2) Create forced savings The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 39 39
Three Keys Drive Up Income By Increasing Value That You Provide a) Invest in education and associated credentials b) Stay positive and collaborative c) Exceed objectives The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 40 40
Three Keys Create Forced Savings Plans a) Establish automatic deductions for supplemental retirement plans and emergency savings b) Resist withdrawals from these plans c) Consider depositing increases in pay to savings The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 41 41
Three Keys Aggressively Drive Down Monthly Costs a) Challenge every expenditure (to yourself first, then gently with family members) b) Don’t be afraid to use discount coupons relentlessly (the doctor at the carwash) c) Always negotiate! Use leverage with competitive products and services (such as cable TV) d) Avoid using debt to finance perishables, holiday gifts, or depreciating assets The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 42 42
Future Workshops GOALS INDEMNIFICATION/ INSURANCE • • CASH FLOW WILLS/ ESTATE PLANNING • • NET WORTH INVESTMENT STRATEGY • • CREDIT WORTHINESS TYPES OF INVESTMENTS • • RETIREMENT PLANNING CREDIT/ DEBT MANAGEMENT • • OPTIMIZING EMPLOYEE BENEFITS IDENTITY THEFT • • BUYING VS. RENTING/ LEASING PAYING FOR HIGHER EDUCATION • • The Pennsylvania Treasury Department Building Wealth: Simple Steps to Financial Security 43 43
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