Modern Financial Management Jaffe by jba60919

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									Financial Flexibility:
A Key to Career/Life Success

    Developed and presented by:
   Gerry Neault, Life Strategies Ltd.
           (604) 464-2382
      email: gfneault@telus.net
        www.lifestrategies.ca
    Overview
   Numeracy
      One of HRSDC‘s nine essential skills

   Financial management
      A specific numeracy skill

   Benefits of good financial management
      Financial flexibility as an employability skill

   Tips for developing financial management skills
    within career development programs
Essential Skills
   Reading Text
   Document Use
   Numeracy
   Writing
   Oral Communication
   Working with Others
   Continuous Learning
   Thinking Skills
   Computer Use
     http://srv600.hrdc-drhc.gc.ca/esrp/english/general/home_e.shtml
Numeracy
                 Numeracy
                  refers to
       the workers' use of numbers
         and their being required
      to think in quantitative terms
http://srv600.hrdc-
   drhc.gc.ca/esrp/english/general/Help_section26.shtml
Workplace Financial Management
   Balancing the till
   Tracking expenses
   Understanding budgets
   Calculating costs
   Negotiating
       Salaries
       Contracts
Personal Financial Management
   Tracking income and expenses
   Calculating income tax
   Setting budgets
   Saving
       For   emergencies
       For   times ―between jobs‖
       For   education
       For   retirement
   Controlling credit and debt
Money Management Attitudes

                What's money?
              A man is a success
         if he gets up in the morning
            and goes to bed at night
  and in between does what he wants to do.
                                  ~Bob Dylan
A Business Case
for Financial Education
   Research shows that personal financial wellness
       Increases a worker's job productivity
       Reduces absenteeism (to take care of personal $ matters)
       Reduces HR admin costs
            To process wage garnishments and requests for advances/loans
            To answer financial questions
       Decreases stress-related illnesses and substance abuse
       Reduces health care premiums
       Reduces accidents (on and off the job)
       Reduces turnover
       Reduces pressure to increase salaries and wages
       Increases morale, work satisfaction and employer loyalty
       Increases ―on time,‖ rather than delayed retirements
    www.ethomasgarman.net/speeches/BusinessCaseGarman1.pdf
    A Personal Case for
    Financial Flexibility
   Money management increases freedom to
        Leave an unsatisfactory job
        Transition to a new field
        Take a ―sabbatical‖
             Travel
             Stay home while parenting
        Return to school
        Start a business
        Relocate
        Retire
Financial Freedom

     A big part of financial freedom
   is having your heart and mind free
 from worry about the what-ifs of life.
                            ~Suze Orman
Money Management 101
   Tracking income and expenses
   Understanding payroll deductions
   Banking
   Paying bills
   Building a ―safety cushion‖
   Budgeting
       Lifestyle choices
       Major purchases
       Long term goals
Strategies to Introduce the Basics
   Do a ―pulse check‖
       Identify common challenges
       Respect the delicate balance
            Don‘t assume they don‘t know something
            Don‘t assume they do know something
   Present a ―business case‖ / relevance
       Answer the ―why‖ question…
            Why is this important to me???
More Strategies for the Basics
   In groups with diverse needs
       Use a case study approach
            i.e., This isn‘t about ―you‖…it‘s a chance to
             demonstrate your skills and/or help others
       Divide into working groups
            Groups could have similar needs
                 e.g., Understanding payroll deductions; contributing to
                  RSPs; consolidating/managing credit card debt
            Groups could have diverse strengths / challenges
                 Provides opportunities for coaching/mentorship
       Offer relevant, modularized workshop choices
Money Management 101 Topics
   Income/Expenses
   Net Pay
   Cash Flow
   Budgets

       It's not your salary that makes you rich,
                it's your spending habits.
                                        ~Charles A. Jaffe
Average Household Expenditures
(2004-Canada)
Food           $6,910    Transport.   $8,626
Shelter        $12,200   Recreation   $3,678
Household      $4,790    Tobacco      $1,495
operation,               products &
furnishings,             alcoholic
& equipment              beverages
Clothing       $2,506    Misc.        $2,645
Health &       $2,587    Total        $45,437
Personal                 current
care                     consump.
  Average Household Expenditures
  cont‘d (Source - Stats Canada)
Total current   $45,437   Gifts of        $1,652
consumption               money and
                          contributions

Personal        $12,902   Total           $63,636
income                    expend.
taxes

Personal        $3,645
insurance
payments
and pension
contributions
Cash Flow
Net Pay
Less:
 Debt payments (loans/credit cards)

 Housing (rent, utilities, cable/Internet,

  mortgage)
                                 Money talks —
 Food/Clothing

 Transportation             but credit has an echo.
 Leisure                                    ~Bob Thaves
Plus:
 Annual bonus/Tax refund

= Surplus / Deficit
      Annual Expenses
House Insur.   $ 250

Christmas      $ 300

Vacation       $ 300

Car Insur.     $1,200   Subtotal           $3,300

Savings        $1,250   Less Annual        -$ 300
                        bonus/Tax return
Subtotal       $3,300   Total              $3,000
Monthly Expenses
Annual        $250   Medical/       $ 50
(Previous)           L/I
Heat/Light    $ 90   Charity        $ 50
Cable         $ 35   Auto/Gas       $100
Rent/Mtg.     $750
Loan/Credit   $300   Total         $1,670
card
Phone         $ 45   Divided by   2 / 2.166
Net Pay
  Net Pay       Monthly     Semi-    Bi-Weekly
                           Monthly
  Net Pay       $2,400     $1,200     $1,108

  Expenses      - $1,670   - $ 835   - $ 771

Food/Clothing    $ 730      $ 365     $ 337
    etc.
  Balanced Cash Flow
Semi-         1st Pay   2nd Pay
Monthly
Annual Exp.   $165      $ 85

Other Exp.    $670      Rent
                        $750
Bi- Weekly    1st Pay   2nd Pay       Extra Pay
                                      (2x yr.)
Annual        $122      0             $771

Other         $649      $771 (rent,
Expenses                etc.)
Credit
   Pay credit cards in full monthly
   Have overdraft protection, but limit use
   Use mortgage interest vs. other credit
       It‘s least expensive
   Useful for buying larger ticket items
    (car/property) without having to save first
       Easy to get, harder to eliminate
       Instant credit may take years to repay

               Modern man drives a mortgaged car
        over a bond-financed highway on credit-card gas.
                                                 ~Earl Wilson
    Money Management: Advanced
   Calculating ―net worth‖
   Savings and investments
       How long can you afford to not work?
   Strategic Retirement Savings Plans (RSPs)
       Beyond Retirement
            Buying a home
            Funding education
            Bridging periods of unemployment
   Self Employment
Strategies for Advanced
Money Management
   Review Financial Status (Health Check)
   Create a Net Worth Statement
       Assets / Liabilities
   Establish and Prioritize Financial Goals
       e.g., Retirement, paying down debt, buying
        assets, building emergency fund
       Prioritize goals
       Set time frame
       Calculate amount required per pay period
       Commit to paying yourself first!
   Debunk the Myths of Self-Employment
       e.g., tax ―write-offs,‖ high fees
   Sample Net Worth Statement
          ‗92   ‗94   ‗96 ‗98 ‗00 ‗02 ‗04   ‘06 ‗08
NonRSP    10    10    30 11    10   21
Auto      3     9     19 15    14   13
House     34    70    --   110 120 115
RSP       1     2     4    4   4    1
Mort‘ge   26    50    6* 90    85   65
Net       22    41    47 50    63   85
Worth
Gain      22    19    6    3   13   22
Savings and Investments
   Have a regular investment plan
       Pay yourself first (e.g., retirement/savings)
   Build an emergency reserve
       e.g., GIC / Money market fund
       Have enough to cover 3-6 months of living
        expenses and possible relocation expenses

               Money is a good servant but a bad master.
         L'argent est un bon serviteur, mais un mechant maitre.
                                                    ~ Aristodemus
Savings / Investment Planning
   Retirement savings – 18% of earnings
   Non-retirement savings -- 10%
   Long term investments
       Considerations: Time, Knowledge, Risk Tolerance
          Very conservative portfolio -- 10% stocks, 90% bonds

          Balanced – 50% stocks, 50% bonds

          Very aggressive – 90% stocks, 10% bonds


   Short term investments (less than five years)
       Short term bonds, GIC‘s, Money market funds
   Mutual funds provide diversification
       Otherwise buy 20 - 25 different stocks on exchange from
        various sectors (i.e., industrial, retail, energy, technology)
Retirement Savings
   Long Term Investing
       10 years equities/stocks average 5.2% return
       GIC/ST bonds average 3.70% return
       Balanced portfolio average 4.45% return

Saving from age 25 to 55
   $7,900 per year for 30 years @4.45% = $499,000
Income from $499,000 @4.45% for 30 years
(i.e., 55 years to 85 years old) = $21,260 per year

NB Invest $237,000 Receive $637,800
Registered Education
Savings Plan
Unlike an RRSP…
   Contributions are not tax deductible but
    earnings are tax-free until withdrawn
   Government grant of 20% on first $2,000
    ($400) contributed each year per child per
    year will be contributed to RESP.
   Grant lifetime maximum per child to age 17 is
    $7,200
   Can contribute $4,000 per year per child to a
    lifetime maximum of $42,000 per child
Minimizing Taxes
   Split income wherever possible
       Pay children from business vs. allowance
   Split RSP‘s / Pensions
       Use spousal RSP contributions
   Put non-RSP investments in name of spouse
    with lower income, if possible
   Maximize RSP contributions
       Contribute early – after notice of assessment
   Credit charitable donations to highest earner
Tracking Expenses for Tax Purposes
   Be aware of capital gains / dividends /
    interest earned
   Keep medical receipts
       Include premiums paid and taxable
        benefits (paid by employer)
   Keep all receipts and information slips
    in one place during the year
   Consider using Quick Tax
Allowable Business Expenses
   Home office
       Percentage of mortgage interest (or rent),
        utilities, property taxes, maintenance
   Meals
       50% is allowable, if clear business purpose
   Auto expenses
       Percentage of use for business / mileage
Business Income/Expense Projections
     Sales:

Minus Expenses:
     Materials          = Net Income/Loss
     Advertising
     Licenses / Fees
     Office Supplies
     Rent
     Salaries / Wages
     Miscellaneous
Financial Flexibility…
                 Who becomes wealthy?
    Usually the wealthy individual is a businessman
             who has lived in the same town
                  for all of his adult life.
  This person owns a small factory, a chain of stores,
                  or a service company.
      He has married once and remains married.
                    He lives next door
         to people with a fraction of his wealth.
         He is a compulsive saver and investor.
        And he has made his money on his own.
         Eighty percent of America's millionaires
                 are first-generation rich.
                            ~The Millionaire Next Door (p. 3)

								
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