How Money
Works
How Money Works
Most people are concerned
about money matters,
but few truly understand
how money works.
Marriage
Setting Up
&
Your Financial
Money
House
Marriage and Money checklist
Create a few simple plans in the
beginning of your relationship.
Create a household budget and stick to it!
Pay down any debt accrued before you got married.
Start saving for your future together.
Plan for the unexpected.
As a couple, create a total financial game plan.
Create a budget you can live with.
10%
35% Housing Savings
15% Transportation 35%
Housing
25%
15% Debt Other
25% Other 15%
Debt
15%
Transportation
10% Savings
Source: JeanChatzky.com, September 14, 2010
Most People Don’t Plan to Fail,
They Fail to Plan
The Theory of Decreasing Responsibility
Over the Years, Your Needs Change.
Today
At Retirement
1. Young children
1. Grown children
2. High debt
2. Lower debt
3. House mortgage
3. Mortgage paid
Loss of income would
Retirement income
be devastating
needed
Plan for tomorrow… today
Discuss with your spouse a
game plan if something
unexpected should happen.
Term life insurance
A will
Term Life Insurance
A term life insurance policy
protects your family if
something should happen.
“As a rule, most young people should have a
term life policy worth five to 10 times their
annual income.”
Smart Money, July 17, 2010
A Will
Talk about each other’s wishes
if one of you should die.
A will gives legally binding instructions for:
The distribution of your property
The care of your children if you pass away
Primerica does not offer will preparation services. Services are offered through Primerica Legal Protection Services.
Save for a rainy day… and more.
Saving and investing is key.
Emergencies: enough to cover 3 months of expenses
Short-Term Goals: save up for big-ticket expenses
Child’s Education: starting early makes a difference
Retirement: Social Security can’t do it all
Saving for: emergencies
“48% of Americans said last year they only had
enough resources to carry them for two months
before experiencing any economic hardship.”
CNN/Money.com, July 22, 2010
It’s essential to have cash on hand.
Build an emergency savings fund equal to three
to six months’ worth of living expenses.
CNN/Money.com, August 19, 2009
Saving for: short-term goals
Wants and Needs:
Summer vacation
New appliances
Travel
Big-ticket expenses
It’s better to pay cash than get locked
into high-interest credit card debt.
Taking Control
What You Can Do…
Pay yourself first.
Adjust your priorities and
establish a budget.
Earn additional income.
Avoid the credit trap.
Re-align your assets.
Learn the debt dos and don’ts.
DO break your bad debt habits.
DON’T delay paying off credit cards completely.
DO communicate honestly about your spending habits.
DON’T abuse your credit.
Starting a new marriage with a huge
debt load can be burdensome.
DO break your bad debt habits.
What’s more of a
financial downer than debt?
Two people’s debt!
“Debt is the leading cause of family strife during
the first few years of marriage, …”
FreeMoneyFinance.com, viewed July 28, 2010
DON’T delay paying off credit cards completely.
“The average American family carries
$8,000 to $10,000 in credit card debt.
CNNMoney.com, April 16, 2009
DO communicate honestly about your spending habits.
“The recession has pinched consumers, putting
additional pressure on money talks. If you are
having battles over financial decisions with your
spouse, then professionals suggest you start the
conversation about your bigger goals.”
CNN/Money.com, viewed August 25, 2009
DON’T abuse your credit.
Impulse purchases can really hurt.
“In2010 there were more than 1.5 million
personal bankruptcy filings.”
WSJ.com, July 5, 2011
The Power of Compound Interest
Look what happens when compound interest
works against you:
Mary started with a $500 balance on her credit card at a 19.8% interest rate. Each year, she made two
additional charges of $75 each and made only the minimum payment of 3.5% or $20, over 5, 10, 15, 20
and 25 years. After 25 years, Mary’s interest charges on her credit card balance amounted to $3,130!
5 years $580
10 years $1,200
15 years $1,840
20 years $2,480
25 years $3,130
Saving for: retirement
“Nearly three out of five middle-class retirees
will likely run out of money if they maintain their
pre-retirement lifestyles and don’t reduce
spending by at least 24%.”
BankRate.com, viewed July 28, 2010
The 2009 average monthly Social Security benefit
for retirees was just $1,153.
AARP.org, July 1, 2010
Could you and your spouse live on that?
It Pays to Start Early
The sooner you begin to save, the less you may have to put $12,914 a month
away each month. To potentially have $1 million at age 65,
would you rather save:
$158 a month from age 25 to age 65
$442 a month from age 35 to age 65
$1,317 a month from age 45 to age 65
$4,882 a month from age 55 to age 65 $4,882 a month
$12,914 a month from age 60 to age 65
$1,317 a month
$442 a month
$158 a month
25 35 45 55 60 65
At age 65, it’s too late!
This is a hypothetical and does not represent an actual investment. This hypothetical assumes a constant nominal
10% rate of return compounded monthly, unlike actual investments which will fluctuate in value, and does not
include taxes or fees which would lower returns.
Saving for: child’s education
Think about your child’s education
Tuition and fees at private 4-year schools rose 4.4% in
the current school year to $26,273, according to a
survey released by the College Board. Charges at public
4-year universities spiked over 6% for both in-state and
out-of state students, to $7,020 and $18,548,
respectively.
CNN/Money.com, October 20, 2009
The average debt for a graduate is now $23,000, that’s
up from $13,000 12 years ago.
CBS News, November 5, 2009
Starting early makes a BIG difference.
How Most People Save
You invest $10,000 at a four percent
rate of return with your local bank ...
You earn interest for the year: $400
But you pay $100 in taxes on that interest at 25%: -$100
So your net earnings are: $300
Your resulting balance would be: $10,300
... but if inflation is 3%, your buying power
would be reduced to: $10,000
You would have actually earned no gain to your purchasing power!
This is a hypothetical situation. If your tax bracket is not 25%, results will vary.
Can you afford a guarantee?
How Most People Save
Become an Owner, Not a Loaner
Traditional Financial Institutions
Your
Money Global
Economy
Savings Accounts, CDs, Cash Value Life Insurance =
Historically Low Rates of Return
CDs and savings accounts are generally FDIC insured up to $250,000. The $250,000 limit expires December 31, 2013.
The Rule of 72
A simple concept called “The Rule of 72” shows the dramatic effect of time and compounding.
The Rule of 72 says that your money will approximately DOUBLE at a point in time determined
by dividing 72 by the interest rate you earn. The Rule of 72 illustrates the amazing way
money can compound if you just give it enough time.
Your Money Will Double In…
With 2% interest,
72 ÷ 2% 36 years your money will
double in
72 ÷ 4% approximately
18 years
36 years.
72 ÷ 6% 12 years
72 ÷ 8% 9 years
72 ÷ 12% 6 years With 12% interest, your money will
double in approximately 6 years!
Hypothetical percentage rates and values. Subject to applicable taxes and fees.
Does not represent an actual investment.
One of the Most Effective Long-Term
Investment Vehicles?
Mutual funds. What are they?
Professionally
Individual Investors Managed Money Top Holdings Examples
CONSUMER TELECOMMUNICATIONS
The Procter & Gamble Company Verizon Communications, Inc.
(Folger’s, Crest, Duracell, (Wireless, long-distance telephone,
Gillette, Tide) broadband Internet)
ENTERTAINMENT CONSUMER
The Walt Disney Company McDonald’s Corporation
(ABC Television Network, Disney
Channel, Walt Disney World TECHNOLOGY
Theme Park) Microsoft Corporation
(Windows computer software, Xbox
PHARMACEUTICALS video game system)
Pfizer, Inc.
(Zyrtec, Zoloft, Celebrex)
Did you know?
The typical mutual fund holds more than 150 stocks on average.
Note: Each mutual fund invests differently. Read the mutual fund’s prospectuses to determine how a fund may invest and to determine its
current holdings. Mutual funds are actively managed portfolios and incur advisory fees and internal management costs. The val ue of a fund
fluctuates and, shares, when redeemed, may be less than the original value. Investments in mutual funds involve risk including loss of
principal. Source: Morningstar. Average based on 3,276 U.S. domestic equity open-end funds.
Rate of Return Is the Key
Growth of a $10,000 Investment
(December 31, 1980 to December 31, 2010)
S&P 500
Total Return 10.71% $211,896
Bonds 8.91% $129,803
30 Day T-Bills 5.12% $44,762
U.S. Inflation 3.15% $25,387
What kind of return do you need to reach your goals?
How can you invest to reach them?
Source: Morningstar. Past performance is no guarantee of future results. This chart is for illustrative purposes and does notrepresent an actual investment. Further, the
returns do not reflect the past or future performance of any specific investment. All investments involve risk including lossof principal. The figures in the c hart above assume
reinvestments of dividends. They do not reflect any fees, expenses or tax consequences, which would lower results.Because these indices are not managed portfolios, there
are no advisory fees or internal management expenses reflected in their performance. Investors cannot invest directly in anyindex. The figures represent an initial investment of
k
$10,000. The Standard & Poor’s 500, which is an unmanaged group of securities, is considered to be representative of the stoc market in general. Bonds are represented by the
Barclays Capital Aggregate Bond Index which is an intermediate term market capitalization -weighted index, meaning the securities in the index are weighted according to the market
size of each bond type. Most U.S. traded investment grade bonds are represented. The U.S. 30-Day T-Bills are government backed short-term investments considered to be risk-free
and as good as cash because the maturity is only one month. Morningstar collects yields on the T-Bill on a weekly basis from The Wall Street Journal. Treasury Bills are secured by the
full faith and credit of the U.S. Government and offer a fixed rate of return, while an investment in the stock market offersno such guarantee. Inflation history is gathered from the
Ibbotson Stocks, Bonds, Bills and Inflation module. Investors must evaluate their specific investment objectives and risk tolerance when considering the types of investment fortheir
portfolio. For example, an investment such as stocks represented by the S&P 500 Index may not be appropriate for an investorseeing a short-term investment or unwilling to
experience volatility including the potential loss of principal. Typically the potential for higher rates of return are accompanied by increased risk to principal.
Investing in mutual funds may be a very good way!
Take Advantage of Tax-Deferred Savings
Individual Retirement Account (IRA)
Other Tax-Deferred Savings Accounts*
Invest $10,000 per year for 30 years at a 10% rate of return
Tax-deferred $1,987,300
Taxable $1,189,400
*Earnings from tax-deferred accounts may be subject to taxation upon withdrawal. This chart represents a hypothetical investment, assuming
the stated annual nominal rate of return compounded monthly, over a specific time period. This hypothetical uses a constant r ate of return
unlike actual investments, which will fluctuate in value. This example does not take inflation or applicable fees into accoun t which will lower
results. The taxable account is calculated using a 25% income tax bracket. For purposes of comparison, if your tax bracket is not 25%, results
will vary. Also, withdrawals before age 59 1/2 are subject to ordinary taxes and may be subject to a 10% penalty. Lower maximum tax rates on
capital gains dividends would make the return of the taxable investment more favorable, thereby reducing the difference in performance
between the types of accounts shown. Investors should consider their personal investment horizon and tax bracket, both current and
anticipated, when making an investment decision as these may further impact the results of the comparison.
Systematic Investing: A Proven Method
Systematic Investing allows you to
use dollar-cost averaging to build
wealth over the long term.
Investor A invests $200 a month in a rising
market. Investor B invests $200 a month in a
fluctuating market.
Dollar-cost averaging is a technique for lowering average cost per share
over time. Dollar-cost averaging cannot assure a profit or protect against
loss in declining markets. Investors should consider their ability to continue
to invest in periods of low-price levels. These values are hypothetical and
not intended to reflect any specific market period.
$200 monthly investment
Number of shares bought
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Investor A 25.00 20.00 16.68 14.28 12.52 11.12
Investor B 25.00 40.00 66.68 100.00 50.00 25.00
Amount invested Average Cost Number of shares
in the six-month period Per Share accumulated over 6 months
Investor A $1,200 $12 99.60
Investor B $1,200 $4 306.68
Which example would you prefer?
Reaching Your Goals
Reaching your goal of achieving financial freedom can become a
reality. Start taking action to make your dreams come true. Take
these six steps toward reaching your goals:
Set a specific goal.
Have a specific time to achieve it.
Write your goals down.
Develop a program to reach them.
Decide what price you are willing to pay to reach
your goals.
Focus on reaching your goals every day.
Get your financial snapshot.
Planning for the unexpected, saving
for retirement, paying off debt …
as you start your new life together,
does all of this seem too hard?
It doesn’t have to be.
Get your financial snapshot.
Primerica offers a complimentary
Financial Needs Analysis.
The FNA: Gives a detailed overview of your
current financial situation
Personalized strategy for your financial security
– Complimentary
– Confidential
– Customized