What I Wish I Knew about Personal Finance in College

R.J. WeissCERTIFIED FINANCIAL PLANNER®

www.GenYwealth.com

"The most powerful force in the universe is compound interest" - Albert Einstein

Photo via Flickr: Mansionwb

The Magic of Compound Interest

• Invest $5,000 a year into 401K or IRA• From the ages of 22-70• Earn 9%• At 70, you’ll have $3,729,328

Northwestern Nick vs. Fighting Illini Fred

Northwestern Nick

• Invests $5,000 a year from the ages of 22-35

• Total Investment of $65,000

• Does nothing for 35 years• Continues to earn 9%• At 70, he has $2,553,706

Fighting Illini Fred

• Invests $5,000 a year from the ages of 35-70

• Total Investment of $175,000

• Earns 9%• At 70, he has $1,175,624

The Downside of Compound Interest

Q: What will $3,729,328 be worth in 48 years?

The Downside of Compound Interest

A: $715,309 in 48 years

• 4% Withdrawal Rate = $28,612 a year or $2,384 a month

• NOT MUCH!!!

"Focusing on the things that matter and the things we can control will go a long way to avoiding investor overconfidence." - Carl Richards CFP®, Founder of BehaviorGap.com

Controllable

• How much you spend, save, and invest

• Career (how much you make)

• Education• Debt• Asset Allocation, Asset

Location, and Investment Expenses

Uncontrollable

• Stock market returns• Inflation• Real estate prices• What others say• Financial upbringing• Previous mistakes• Tax hikes

Credit Score 101

Applying for Mortgage with Excellent Credit

• Mortgage Amount = $250,000• Mortgage Term = 30 years• Interest Rate = 5%• Monthly Payment = $1,342• Total payments over 30 years =

$483,138

Applying for Mortgage with Average Credit

• Mortgage Amount = $250,000• Mortgage Term = 30 years• Interest Rate = 6%• Monthly Payment = $1,499• Total payments over 30 years =

$539,597

• Difference of $56,459

The 5 Credit Score Factors

How Much Does That TV Really Cost?The Downside of Compound Interest

Q: How much does it cost to buy a TV on your credit card, if you make minimum payments?

• $1,200• Interest Rate of 18%• Minimum payment = Interest +

1% of balance OR $30Photo via Flickr from ebmorse

How Much Does That TV Really Cost?The Downside of Compound Interest

Q: How much does it cost to buy a TV on your credit card, if you make minimum payments?

• $1,200• Interest Rate of 18%• Minimum payment = Interest +

1% of balance OR $30Photo via Flickr from ebmorse

A: $2,423

The Three Minute Guide to Getting Out of Debt

# 1 - Build emergency fund of $1,000

# 2 - Pick one expense category each month to reduce

# 3 - Set goal to cut expenses in that category by X amount

# 4 - List all debts in order of highest to lowest interest rate

# 5 - Apply the amount saved in step # 2 to pay extra principal on debt with   highest interest rate

# 6 - Maintain minimum payments on all other debt

# 7 - Once you pay off the debt with the highest interest rate, move on to the   next listed debt

The 2nd Best Investment You'll Ever Make - Paying Off High-Interest Debt

• Guaranteed rate of return - Pay off 18% credit card, return 18% after-tax return

• Stock Market only returns 8-9% on average, not guaranteed

• Break Even Point = 6%o Pay off all debts above 6%o Start investing before paying off debts with interest rate

below 6%

The 3rd Best Investment You'll Ever Make - 401(k) Match

• $50,000 annual salary

• Your contribution = 10% of your income

• Employer matches 50% of contribution

• Annual increase in salary of 5%

• Annual rate of return of 9%

• In 40 years, you'll have $5,226,366

The 4th Best Investment You'll Ever Make - Roth IRA

“For all long-term investors, there is only one objective — maximum total return after taxes.” – Sir John Templeton

  

Roth IRA

• Invest $5,000 a year from 22 to 70

• Earn 9%• Accumulate $3,729,328

Taxable Account

• Invest $5,000 a year from 22 to 70

• Earn 9%• Marginal tax rate of 15% • Accumulate $2,350,649

The Best Investment You'll Ever Make - Investing in Yourself

Books

• Read These First:o The Richest Man in Babylono Get a Financial Lifeo I Will Teach You To Be Richo The Millionaire Next Door

• Read These Second:o The Boglehead's Guide to

Investingo Your Money or Your Lifeo Random Walk Down Wall St.

Blogs

• Gen Y Wealth

• The Simple Dollar

• The Finance Buff

• Get Rich Slowly

• I Will Teach You To Be Rich

• The Oblivious Investor

Any Questions?

Get slides at www.genywealth.com/nu-slides