Transcript Lead Out in Personal Finance

Foundations of Leadership
Conference
Have the Courage
to Lead Out
in
Personal Finance
Bryan L. Sudweeks, Ph.D., CFA
August 25, 2015
Abstract
• Personal finance is simply part of the gospel of
Jesus Christ, like Sunday School, scripture
study, or Indexing. Whether you like it or not,
you are a leader. Others look up to you, and
you have an influence on what others may do or
become. As you lead in other areas, have the
courage also to lead out in personal finance.
Remember your ABCs: remember principles;
live on a budget; understand and use credit
wisely; minimize then eliminate debt; and learn
to give.
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Leadership
A leader is one who knows the way,
goes the way, and shows the way.
Poster in my daughter’s 7th grade classroom
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Objectives
A.
B.
C.
D.
E.
Remember the “A” List
Embrace the “B” Word
Tame the “C” Monster
Use wisely the “D” Word
Share the good “G” Word
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A. Remember the “A” List - Principles
• Elder Richard G. Scott commented:
• Joseph Smith’s inspired statement, “I teach them
correct principles, and they govern themselves,”
still applies. The Lord uses that pattern with us. . .
Your consistent adherence to principle overcomes
the alluring yet false life-styles that surround you.
Your faithful compliance to correct principles will
generate criticism and ridicule from others, yet the
results are so eternally worthwhile that they warrant
your every sacrifice (Richard G. Scott, “The Power
of Correct Principles,” Ensign, May 1993, 32).
• What are those correct principles that are so eternally
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worthwhile?
Principle 1: Ownership
1. Ownership: Everything we have is the Lord’s
• The Psalmist wrote:
• The earth is the Lord’s, and the fullness thereof;
the world, and they that dwell therein. (Psalms
24:1)
• The Lord is the creator of the earth (Mosiah 2:21),
the supplier of our breath (2 Nephi 9:26), the giver
of our knowledge (Moses 7:32), the provider of our
life (Mosiah 2:22), and the giver all we have and
are (Mosiah 2:21).
.
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Principle 2: Stewardship
2. We are stewards over all that the Lord has, is
giving, or will share with us
• The Lord said:
• Thou shalt be diligent in preserving what thou
hast, that thou mayest be a wise steward; for it is
the free gift of the Lord thy God, and thou art his
steward (D&C 136:27).
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Principle 3: Agency
3. We were given agency by a loving Father
• President David O. McKay:
• “Next to the bestowal of life itself, the right to
direct that life is God’s greatest gift to man. …
Freedom of choice is more to be treasured than
any possession earth can give” (italics added, in
Conference Report, Apr. 1950, p. 32; italics
added).
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Principle 4: Accountability
4. Accountability: We are accountable for every
choice we make
• The Lord through the prophet Joseph stated:
• For it is required of the Lord, at the hand of every
steward, to render an account of his stewardship,
both in time and in eternity (D&C 72:3).
• Elder Todd Christofferson recently stated:
• We control the disposition of our means and
resources, but we account to God for this
stewardship over earthly things (D. Todd
Christofferson, “Come to Zion”, Ensign,
November 2008 ).
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What is Really Ours?
• Elder Neal A. Maxwell stated:
• The submission of one’s will is really the only
uniquely personal thing we have to place on God’s
altar. The many other things we “give,” brothers
and sisters, are actually the things He has already
given or loaned to us. However, when you and I
finally submit ourselves, by letting our individual
wills be swallowed up in God’s will, then we are
really giving something to Him! It is the only
possession which is truly ours to give! (italics added,
“Swallowed Up in the Will of the Father,” Ensign, Nov. 1995,
22).
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B. Embrace the “B” Word - Budget
• President Spencer W. Kimball said:
• Every family should have a budget. Why, we would
not think of going one day without a budget in this
Church or our businesses. We have to know
approximately what we may receive, and we
certainly must know what we are going to spend.
And one of the successes of the Church would have
to be that the Brethren watch these things very
carefully, and we do not spend that which we do not
have (Conference Report, April 1975, pp. 166-167).
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Budgeting (continued)
• What is a Budget?
• It’s the single most critical tool in helping you
achieve your personal and financial goals
• It’s the process of making sure your resources
are used for the things that matter most—your
personal goals
• It is giving every dollar a name—a purpose
• Budgeting is a star (or tool) to set your sights by,
not a stick to beat yourself with.
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Budgeting (continued)
• What is the Budgeting Process?
•
•
•
•
•
1. Know what you want to accomplish
2. Track your spending
3. Develop your budget
4. Implement your budget
5. Compare it to actual spending, then make
changes where necessary to achieve your goals
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Budgeting (continued)
1. Know what you want—write it down
• What do you want to accomplish?
• Do you want to:
• Prepare for a mission?
• Prepare to be a worthy husband or wife?
• Graduate?
• Get a great job?
• Return to your Heavenly Father?
• Determine what you want to do, then write it
down. A goal not written is only a wish
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Budgeting (continued)
2. Track your Spending
• There are different methods to track spending:
• Checks and credit cards
• These leave a paper trail
• Cash
• Record spending in a notebook
• Computer programs, i.e., Quicken, Money
• These are useful, especially if tied to bank
and credit card companies
• The goal is to generate a record of everything you earn
and spend
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Budgeting (continued)
3. Develop a Budget--the better way
• What is a Budget?
• It’s a plan for controlling earning and spending
• Its purpose -- To help you spend your money
of what is really important to you
• Earnings/scholarships/gifts/grants:
• Determine what you earned last year, and make
adjustments for the current year
• Expenses/school costs:
• Identify all fixed (“must have”) and variable
(“would be nice to have”) spending
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Budgeting: The Old Way
Income
Tithing
Expenses
Available for
Savings
Personal Goals
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Budgeting: The Better Way
Income
Pay the
Lord
Pay
Yourself
Expenses
Other
Savings
Personal Goals
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The Better Way
(continued)
Elder L. Tom Perry said:
• 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, 64.)
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Budgeting (continued)
• 4. Implement your budget
• Try the budget for a month
• Record all earning and spending in a spreadsheet
• Sum all days or columns by category
• Note how much you have available in each
category at the end of each week
• Adjust the plan as necessary to maintain the plan
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Budgeting (continued)
5. Compare budget to spending
• Compare your budget to actual spending
• Adjust the plan or your expenses as necessary to
maintain the plan
• Don’t reduce payments to the Lord or
yourself
• If all else fails, this system will work!
• The Envelope System:
• Put money for each expense in an
envelope
• When the money is gone, its gone
• It forces you to make it work
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Budgeting (continued)
Elder Marvin J. Ashton stated:
• Some claim living within a budget takes the fun out
of life and is too restrictive. But those who avoid
the inconvenience of a budget must suffer the pains
of living outside of it. The Church operates within a
budget. Successful business functions within a
budget. Families free of crushing debt have a
budget. Budget guidelines encourage better
performance and management (italics added,
Marvin J. Ashton, “It’s No Fun Being Poor,”
Ensign, Sept. 1982, 72).
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Want help with Budgeting?
• You can download a copy of a budgeting
spreadsheet in the “better way” format from the
Personal Finance website at:
• http://personalfinance.byu.edu.
• Click on Teaching Tools and Teaching Tool 4 or
31: Budget spreadsheet (which includes tools to
help prepare your Budget and also get out of debt)
• You can use free programs:
• Mint.com
• You can also buy preprogramed software:
• Quicken, MoneyDesktop, Mvelopes, YNAB
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C. Tame the “C” Monster - Credit
• Know about Credit Reports, Credit Scoring,
and Credit Cards
• 1. Credit reports
• Information collected by credit bureaus from
private and public records
• 2. Credit scoring
• A numerical evaluation of your credit based on
specific criteria (similar to a grade in a class)
• 3. Credit cards
• Either the single most destructive financial
instrument in the history of mankind or a
financial tool to help you attain your goals
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1. Credit Reports
• What are credit reports?
• Credit reports are privately collected information on
all your existing and available credit
• It includes all your borrowing history, credit card
balances and payment history, mortgages, phone
payment records and the like
• Like it or not, it is a record of how well you handle
credit
• You can get a copy of your free credit report at
www.annualcreditreport.com
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2. Credit Scoring
• What is credit scoring?
• It’s a way of grading your ability to pay back loans
• 75% of all mortgage (home loan) applications
are sorted on credit scores
• It may help you get the lowest interest rate on many
types of consumer loans
• Home, car, and consumer
• It also may reduce the cost of your insurance
products
• You can get a copy of your credit score at
www.creditkarma.com
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Credit Scoring
• How does credit scoring work?
• Lenders base your interest rate on your score
• The higher the score, the lower the rate
• Research by Fico showed (Fico uses a 0-850 range):
$300,000 30-year fixed rate mortgage
• Scores 760+ paid 3.55% Scores 700+ paid 3.78%
• Scores 680+ paid 3.95% Scores 660+ paid 4.17%
• Scores 640+ paid 4.60% Scores 620+ paid 5.14%
• Source: http://www.myfico.com/HelpCenter/FICOScores 2012-05-02
• A mortgage at the bottom versus the top rate paid
$101,013 more in interest over the life of the loan
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3. Credit Cards
• What are credit cards?
• Either the most destructive financial instrument in
the history of mankind or a tool to help you achieve
your goals.
• What are the correct uses of credit cards?
• Guarantee / Emergency Use
• Convenience, float, or timing
• Free services
• What are the problems with credit cards?
• It is too easy to spend money
• It’s easy to lose track of what you spend
• Interest costs on credit cards are very high (1228%)
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Credit Cards (continued)
• Keys to effective credit card use:
•
•
•
•
•
Know your goals
Spend only on things planned in your budget
Don’t go into debt
Use wisdom in your expenditures
Don’t use credit cards to finance school
expenses!!!!
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D. Use Wisely the “D” Word - Debt
Median
Level of Education
Annual Earnings* Lifetime Earnings
Not a HS graduate
$24,325
$973,000
High school Diploma
32,600
1,304,000
Some College, no degree 38,675
1,547,000
Associate's Degree
43,175
1,727,000
Bachelor’s Degree
56,700
2,268,000
Master’s Degree
66,775
2,671,000
Doctoral Degree
81,300
3,252,000
Professional Degree
91,200
3,648,000
*Annual earnings is lifetime earnings divided by 40 years.
Source: Anthony P. Carnevale, Stephen J. Rose, and Ban Cheah, “The College Payoff:
Education, Occupations, Lifetime Earnings,” Georgetown University Center for
Education and the Workforce, 2012.
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Does Education Pay?
President Gordon B. Hinckley counseled:
• You young people, the little decisions that you make
can so affect your lives. Shall I go to school or not?
Shall I continue on with my education? That is a big
decision for some of you. Our doctrine suggests,
although there may be some circumstances that would
affect that decision, that the more education you receive
the greater will be your opportunity to serve. That is
why this Church encourages its young people to get the
schooling that will qualify them to take their places in
the society in which they will become a part. Make the
right decisions. Take a long look. (italics added, Pocatello, Idaho,
regional conference, Idaho State University, 4 June 1995).
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Use Debt Wisely
• What has been the prophet’s counsel on debt?
• President James E. Faust stated:
• Over the years the wise counsel of our leaders
has been to avoid debt except for the purchase of
a home or to pay for an education. I have not
heard any of the prophets change this counsel.
(“Doing the Best Things in the Worst Times,”
Ensign, August 1984, 41)
• How do we minimize debt while at the same time
getting an education?
• By using debt wisely and sparingly—using the
Priority of Money for Education
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The Priority of Money for Education
• Is there a priority of money for financing
school?
• Priority of Money for School
• 1. Free Money
• 2. Family Money
• 3. Employment
• 4. Loans
• 5. Credit Cards
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1. Free Money
• Get free money first--scholarships and grants
• This is free money which is not paid back
• If you pay to get a scholarship its a scam!
• Grants are need-based--complete the FAFSA
• Pell Grant: approximately $626-$5,775/year
• Scholarships from schools and private sources
• You may need a supplemental application
• Find out which ones you are eligible for on a
scholarship search engine and apply for each
• Armed Forces Scholarships: See recruiting offices
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2. Personal and Family Money
• Use personal savings and help from parents
• If you help pay for your education and missions,
they will likely use the resources more wisely, as
it’s your money you are spending.
• Start the process of financial self-reliance as
soon as you can.
• Do as much as you can to help yourself
• If parents and grandparents can help, that is
wonderful.
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3. Employment
• Work when to offset education expenses
• Most colleges offer federal College Work Study.
Some universities, including BYU, provide
thousands of student employment opportunities
from their own funds.
• Undergraduate students enrolled in 12+ semester
hours should work no more than 20 work hours per
week. This will help cover rent and food expenses
• Working summers to save for mission and college
is also very desirable.
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4. Loans
• Use (all) loans wisely—they are debt
• There are five main items to be aware of with loans:
• a. Who pays the interest during school?
• The borrower or the government?
• b. When must you start paying back the loan?
• Immediately or after graduation?
• c. Who takes out the loan?
• You or your parents?
• d. What is the interest rate cap?
• What is the highest rate you may pay?
• e. What are the costs?
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Loans (continued)
• Priority of loans (in this order) if needed:
• 1. Subsidized Federal loans
• These have a lower interest rate and the government
pays interest while you are in school
• 2. Subsidized Private Loans
• These are private but subsidized loans
• 3. Unsubsidized Federal loans
• These have lower interest costs but interest costs
accrue immediately
• 4. Alternative loans
• These are the most expensive--use with caution –
highest rates and begin accruing interest immediately
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Loans (continued)
• Remember the high costs of debt:
Borrow $1
Pay back $1.47
To Borrow
$1.00
• You must earn $1.47
to pay it back:
• Tithing @ 10%
.15
• Federal tax @15% .22
• State tax @ 7%
.10
• Available to
Pay back
$1.00
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5. Credit Cards
• These are the most expensive way to borrow
• They require you to pay it back immediately
• There is no help in the payment of interest
• The interest rates are extremely high and you are in
school
• This is the least advisable way to finance schooling
and is usually the result of poor planning!
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Loans (continued)
• Remember the high costs of credit cards:
Borrow $1.00, You must Earn $9.93 to Pay it Back at 14% interest
Now Borrow $1.00 on a credit card at 14%
Keep it for 4 years paying no interest, and
pay it back over 4 years after school
Borrow $1
Pay back $9.93
It will cost you:
Amount borrowed
$
Interest Rate
Amount at end of four years
Pay off in 4 years (annual pmt)
Total amount paid
Plus tithes and taxes @ 47%
1.00
14%
4.92
1.69
6.76
$9.93
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E. Share the “G” Word - Giving
• Someone wrote:
• We make a living by what we earn, but we make a
life by what we give.
• If you can’t learn to give when you are poor, you
will never learn to give when you are rich.
• Now is the time to continue your life-long habit
of giving
• Learn to give of what you have—your time,
talents, and resources.
• Make giving a part of each and every day
• Realize it is not what we have, but what we give,
that makes us rich, with the riches of eternity
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Summary
• A. Remember the “A” List - Principles
• Ownership: None of this is ours
• Stewardship: We are stewards over all we have
been, are, or will be blessed with
• Agency: The privilege and knowledge to choose is
a God-given gift and we are responsible for our
choices
• Accountability: We will be held accountable for all
our choices in life (including our financial choices)
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Summary (continued)
• B. Embrace the “B” Word – Budget
• Give every dollar a name
1. Know what you want to accomplish
2. Track your spending
3. Develop your budget
4. Implement your budget
5. Compare it to actual spending, then make
changes where necessary
• And budget the “better way”
44
Summary (continued)
• C. Tame the “C” Monster - Credit
• Understand and use credit wisely
• 1. Credit reports
• 2. Credit scoring
• 3. Credit cards
• Pull your free credit reports (if you have one), and
get your free credit score (if you have it) at
www.Creditkarma.com
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Summary (continued)
• D. Use wisely the “D” Word - Debt
• Minimize and eliminate debt as much as possible
• Understand the priority for financing school:
• 1. Free Money
• 2. Family Money
• 3. Employment
• 4. Loans
• 5. Credit Cards
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Summary (continued)
• E. Share the “G” Word - Give
• Make giving a part of your everyday goals
• Learn to give:
• Of your time
• Of your talents
• Yes, and even of your meager resources
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Leadership
A Leader is one who knows the way,
goes the way, and shows the way.
Poster in my daughter’s 7th grade classroom
48
Tools to Teach Personal Finance
• The BYU Marriott School Personal Finance
Website is a great and free resource
•
•
We have prepared a website of Personal finance
information from a gospel perspective to help you to
know, go, and show the way. It is at:
http://personalfinance.byu.edu
It contains a number of beginning, intermediate, and
advanced courses, with its purpose is to help students
and non-students get their financial houses in order.
All information from the website is freely shareable
with others without cost.
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BYU Website
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BYU Website
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Assignments
• Want something to do before school starts?
• 1. Pull your credit report. Go to
www.annualcreditreport.com.
• See how you have handled credit
• 2. Get your credit score. Go to
www.Creditkarma.com for a free score
• How have you done?
• 3. Get on a budget
• Determine where your money comes from
• Determine how much you will spend
• Try to plan where your money goes as well as
you can
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Assignments (continued)
• Want something to do before school starts?
• 4. Do a free beginning personal finance course. Go
to http://personalfinance.byu.edu,
• Click on Beginning courses, and then click on
MoneyWise financial workshop
• 5. Then try an intermediate course. Go to
http://personalfinance.byu.edu, Click on
Intermediate courses, and then click on Freshman
College course
• Complete that course. You will be very well
prepared financially for the monetary
challenges in College ahead.
• 6. Take a personal finance course at BYU, or later
on, go and do the Advance College Course.
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Thank You
• I leave you with my excitement, my testimony of the
gospel, and one of my favorite scriptures, D&C
45:62:
“For verily I say unto you,
that great things await you.”
For they truly do
As you have the courage
to lead out in Personal Finance!
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