Bethel Personal Finance Sept 26-27

8/11/2019 Bethel Personal Finance Sept 26-27

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Bethel Community Church


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Personal Finance Seminar

Thanks for coming glad you are here. Im Walt Cercavschi your presenter.

Timing: Friday: 7:00 to 9:00pm. Saturday: 9:00 to 12:30pm

Take breaks as you need them. No scheduledbreak Friday. One on Saturday.


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In our 5 hours, we will cover much: My strategy: expose you to much info. Maybe

overwhelming. OK-but you can follow up. 2 page handout. Slides are on website. Only 5 hours + lots to cover = little Q&A time. If I over-abbreviate or go too quick--just ask. Mainly a how -to but also bible principles.


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Heres what we will cover: Intro Cash flow tracking and budgeting Financial distress guidance / Bankruptcy Credit / Insurance Smarts /Mortgage / Education Investing Retirement matters / Estate Excess Money


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About Me About me a CPA. Been in practice 35 years.

Was a partner in a Big 4 firm and Director inanother large firm.

I love financial stuff. I love helping folks. I loveChrist. Thats why Im here.

Wife/I live frugally: 15+ yr cars; big DIYs; deal

hunters; garden; track cash flow, etc Im not a lawyer but will cover some legal

matters esp in estate matters.


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About the Info Presented

I believe all information presented is accurate.However, I am fallible and apologize inadvance for anything misleading or unclear.

Dont sue me. Im sharing general info to helpyou. Talk to a CPA/PFP for your cash and taxissues, a PFP/RIA/others for investing adviceand a lawyer for your specific legal matters.


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About You Why are you here?

Finances in order want even better (opportunity). Your financial house is not good (pain).

Dumping bad financial behaviors for good isvery hard. Need huge desire and till-I-diefollow-thru. Like weight loss: simple but hard.

Reality: only some here will change habits. Myrole: to challenge/encourage not shame orscare. But wont pull reality punches either.


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About You Reality: achieving financial success is 80%

behavior and 20% know-how. No secret formula youre missing. Need hard -

nosed, boring, sacrificial, simple, on-going habits. Do YOU believe this? (Whats your reaction to it?) I can help you with the 20%. The 80% falls on you. For some, biggest issue is admitting a problem.

Personal psychology plays huge role. You haveto want financial freedom baaaadly to change.


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Financial success Quote: If your outflows exceed your inflows,

your upkeep will be your downfall . -dn Huge part of financial success is living below

your income. Only then can you: get debt-free(hate debt!!), have savings/investments, helpothers, reduce stress, do what God has calledyou to, not be a burden to others, etc.

For many, a good goal is to becomeworthless. Move from owing to owning $.


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If you remember one thing

1. Hate debt. No new debt. Pay off all debt asap.2. Unless youre wealthy, do a monthly budget. But

all should track/review their spending.3. Save 10-15% of your earnings for retirement.4. Have the right insurance.5. Do a will/trust/POAs.6. God owns all you have. Youre a steward. He

gave you ability to make $. Tithe generously.


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Avg. USA Household Spending(Avg. household earns $50k yearly = $2M lifetime)

From BOL statistics (excludes taxes & debt repayment) $$ % Recomend

Housing (includes utilities) $17,115 34% 20-30%

Transportation 8,583 17 10-20%

Food ($2,700 outside home = $225/mo) 6,462 13 5-10%

Retirement and insurance 5,604 11 Savings:10-15%

Healthcare 2,979 6 5-10%

Entertainment (eating out is included above) 2,827 5 5%

Clothing 1,817 4 2-7%

Cash donations 1,717 3 10-15%Education 1,060 2 5-10%

Other 2,322 5

Total $50,486 100% 72%-122%Source: http://www.theatlantic.com/business/archive/2013/09/where-americans-rich-and-poor-spent-every-dollar-in-

2012/279727/


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Balance Sheet vs Income Statement

Important difference: Balance sheet tells whatyou own and owe today. Income statementtells how much cash came in and went outover a period of time (our main focus).

Both are very important. You should knowboth. Any lender will want to see both beforeextending credit.


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Balance Sheet Assets:

Cash 100 Fund Savings 15,000 Investments 20,000

Car 4,000 House 200,000 Total Assets 239,100

Liabilities: Credit Card Debt 8,000 Student Loans 22,000 Mortgage 140,000 Total Liabilities 170,000

Net Worth (Assets Liabilities) 69,100


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Cash Flow We will call your Income Statement your Cash

Flow. Its simply how much cash flows in toyou and flows out from you in a month.

You can track your cash after you spend it.Or you can budget your cash before youspend it. Few do it but very powerful. Abudget is you telling your $ where to go.

Do all need to track cash flow? Have budget? Lets walk thru a short example. Assumptions:


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Cash Flow Example Assumptions

Its zero -based. Every $ in is given a home. The cash we are budgeting came in last month

Have as many categories as you need. Some expenses are fixed (monthly mortgage

or rent). Some are variable (gas, entertmnt).

Actual spending is the sum of all spending inthat category for the month. Put categories in order of must pay this 1 st.


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Cash Flow Example Page 1 of 5CASH IN: Budget Actual Remaining Comments

Gross wages--Tim 3,000

Commissions-Sue 900


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Cash FlowExample Page 2 of 5CASH OUT: Budget Actual Remaining Comments

DONATIONS (tithe) 300 300 0 First fruits

HOUSING:-Mortgage-Property Taxes-Insurance-RepairsTOTAL HOUSING

500504010600

500504015605

000(5)(5)

Many fixed payments here


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Cash FlowExample Page 3 of 5CASH OUT: Budget Actual Remaining Comments

HEALTHCARE:-OOP-Insurance Premiums-Pharmacy

TOTAL HEALTHCARE

01000

100

5010050

200

(50)0(50)

(100)


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Cash FlowExample Page 4 of 5CASH OUT: Budget Actual Diff Comments

LOAN REPAYMENTS 200 200 0


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Cash FlowExample Page 5 of 5How Cash Flow Affects Fund Savings:

Beginning cash in Fund savingsaccounts (assume)

$15,000

Cash added to Funds this month 800

Ending balance all Funds $15,800 -Retirement: $8,000-College : 5,000-Replace car: 1,000-Emergency : 1,800TOTAL $15,800

Can also have Funds for:Vacation, Buying House,Furniture, Home Maint, etc.


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Budget Smarts --A Good Budget Page 1 of 6 The max I can spend this month is last months take home pay. If

I overspend in one category, I must underspend in another. Every dollar from last mos take home pay is in the bank. I assign

every $ a home at beginning of mo (think: envelope system). Thus, must save one month--not living paycheck to paycheck. Must track actual vs. budget and by category. Or else useless. My spending is unrelated to how much is in checking. If true emergency arises, then use Emergency Fund. Todays budget s/b based on past spending habits. Adjust for bad

habits. Create future Funds for your needs/desires. Look at our eg; are Funds growing sufficiently?

Can split categories by: Must pay vs. Optional Categories very important. Tradeoff: more detail = more work.


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Budget Smarts Overspending Page 2 of 6 If total actual spending > total budgeted spending (after taking all

reasonable steps), then harder action needed. Why? Increasing misery in life: Possible divorce, no med proc, job stress,

bad eg for kids, hurting others, legal action, staining Christs name Definition of insanity : Doing something over and over and

expecting a different result ae You must change. Forget what society thinks. God says: The wicked person borrows

but does not pay back (Psa. 37:21) and owe no man anything(Rom. 13:8). God says: pay your debts. More on bankruptcy later.

This is NOT an emergency Fund event. Ongoing. No surprise. The tighter cash is, the more often I must do budget (weekly). Pay all 3 rd parties before your lifestyle spending.


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Budget Smarts --Ideas to get cash Page 3 of 6 Balancing budget = hard lifestyle changes. Ideas:

Increase cash-in: ask for raise, get 2 nd job, reducewithholding, sub-rent if allowed, sell unneeded items:garage sale/Craigslist; teach others for pay; unclaimedproperty; paid surveys; learn to do tax returns; gifts, etc.

Reduce cash-out: Find cheaper housing; restrict eating out;stop cable/satellite TV; drink home brewed coffee;thoughtful but cheaper gifts; cheaper cell/data plan; shopat Aldis; sell car and use public transportation; dump gymmembership; no lotto or gambling; stop smoking; stopATM fees; use slow, cheap delivery on mail order; shop atsecond hand stores great bargains; dont waste food; useall gift cards; just because its on sale doesnt mean youneed it; wasting energy; product warranties; etc.


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Budget Smarts- Financial Software Page 4 of 6 Use personal finance software. Handout gives many

ideas. Learning curve with all. Here are just 3: YNAB resides on your computer. Data input required.

Excellent budgeting to get you in control of spendingand debt paydown. $54. No investment tracking.

Mint.com free, web based app. Good at trackingspending and investments. Some budgeting features.Need to provide all your passwords so software can

access all your financial info. Quicken resides on your computer. Data inputrequired. Robust software provides many features.$30--$100.


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Budget Smarts- Irregular Income Page 5 of 6 If you have irregular income, it is harder to budget--but

even more important. Review prior year income. If reasonable, assume you will

earn your lowest month, every month.

Build your budget in 2 categories: (a) Bare-bones livingexpenses: tithe, taxes, housing, food, utilities, medical,transportation, insurance. (b) All other expenses inpriority: debt repayment, Funds, personal, etc.

Put 25% of cash receipts in bank for taxes (15% is SE tax).

Use remaining 75% for budget items. Resist urge to spend beyond budget in good months. Having 6 month emergency Fund crucial if irregular cash.


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Budget Smarts --More details Page 6 of 6 Your budget must be written cant just be in your head. Call creditors if you will miss payments sell them your plan. Stick to it. ATM and Miscellaneous are NOT categories. You will perfect your budget and it will become 2 nd nature-- in 6 mos .

Benefit: intimate with your key numbers. Dont quit the software. If married, must do together until both proficient. Then agree who will do.

Discuss everything. Overall responsibility for finances falls to man. Budget I presented is combo of Burkett, Ramsey and YNAB. Be aware of this good resource: On Howard Daytons website:

compass1.org he offers free counseling service to those who desire it.Click on the connect with a coach area and fill in the information.


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If In Deep Debt Trouble Dont run away. Face the problem. Own it. Money stress #1 cause of divorce. Be encouraged thousands have succeeded! (Eg:

Kevin Deyoung: paid off $50k school/car debt in 4 yrs. using Ramsey plan).

Killing debt/building wealth requires sustainedlifestyle & behavior change. [Hard but worth it!]

Embrace the budget you learned here. Consider following Ramseys 6 step program

outlined in The Total Money Makeover book.


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If In Deep Debt Trouble Ramseys 9 steps (eating elephant one bite at a time):

1. Monthly prepare and follow your zero based budget.2. Get current (make min pymts) with all creditors.3. Start/keep $1k Emergency Fund (never credit cards!).

4. Pay off debt with debt snowball (will review shortly).5. Finish the Emergency Fund (4+ months of expenses) .6. If want to buy home, save now for down-pymnt.7. Start investing 15% of gross income for retirement.

Always save for retirement before kids college.8. Save for college.9. Pay off your home mortgage (your home is NOT an

investment).


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If In Deep Debt Trouble Maybe seek pro help (See Resource sheet for egs).

Ramsey shuns 3 rd parties. Feels theyre a band aidwith little lasting effect that will impede the hardwork of required lifestyle changes. Also, workingwith 3 rd party may impair credit standing.

But others (far from all) have had goodexperiences.

If you use a pro firm, make certain you know allcosts up-front. Ideally, they will be a NFPaccredited BBB A rated company.


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If In Deep Debt Trouble Debt-assistance services (sometimes big fees are charged):

Debt management program (DMP): The firm works with allunsecured creditors to: Consolidate all debts into one payment;possible reduction in debt and interest rate. Goal: pay off all debtin 2-5 years.

Debt consolidation: combines many loans into one. Usually alower, fixed interest rate.

Debt settlement/arbitration; The firm tries to negotiate areduction of debt, even up to 50%, for a lump sum payment to thecreditor. The debtor (you!) may be told to stop making evenminimum payments.

Counseling services: budgeting, re-building credit score, etc. Debtors on a DMP are flagged in credit reporting. Debt settlement may be a spiritual issue because you are

not paying the debt you agreed to pay originally.


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Debt Snowball in 8 slides(Note: smallest 1 stnot highest int. rate)


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Debt Snowball 100% repaid May 1, 2008

Took 40 monthsor 2 yrs torepay.


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Bankruptcy - Page 1 of 3 Not best option for Christians. Bible: The wicked

person borrows but does not pay back (Psa.37:21) and owe no man anything (Rom. 13:8).

Top causes of bankruptcy: medical bills/credit cards. Every effort (radical lifestyle change, using 3 rd

party to renegotiate payments, etc.) should beexhausted before considering bankruptcy.

However, a creditor may force a Christian intobankruptcy. Or, the Christians unstable healthmay be a factor.


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Bankruptcy - Page 2 of 3 Often complex process involving court, judge,

lawyers, trustee, creditors, etc. Stays on creditreport for 10 yrs. Hurts ability to rent, get loans, jobs, insurance, etc. Can haunt for looong time.

Likely cant discharge all debts: child support,taxes, student loans, alimony likely still due.

3 types of bankruptcy: Chapt. 11 is forbusinesses. Chapt. 7 and 13 for personal.

Chapt.7 more radical: Full elimin of debts withnearly all assets sold. Takes 3-6 mos . Creditorscan no longer call. Can do every 6 years.


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Credit Smarts Hate debt. Have zero debt. The ONLY

exception is a reasonable mortgage (Theborrower becomes the lenders slave -Prov. 22:7).

No credit card, car, education (Med school maybe). No debt! Have a credit card. If you ever pay even $1 of interest, cut it up. Review websites to find best credit card for you.

Loaning $ to F&F is rarely a good idea.

Co-signing a loan is rarely a good idea(A foolish

man becomes surety for his neighbor-Prov. 17:18). Keep teens away from credit cards.


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Insurance Smarts Auto/Homeowners

Auto/Homeowners: Shop > 5-10 carriers every other year. Use an indep

broker. Savings between carriers can be huge.

Use JD Powers/Consumer Reports/Checkbook surveys. Get high deductibles and high coverage. Set up a

deductibles Fund. Consider when to drop Collision. Best to combine--sometimes cheaper to split carriers.


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Insurance Smarts --LTD

LTD(can replace 50%-70% of income): 12x more likely to need than life insur. Get it. Maybe buy thru work: who owns policy? Start payments after 180 days. Set up Fund. Can

skip ST disability. Read lots before buying. Lots of things to consider

before purchasing. Skip rider on getting 50% back if not used.


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Insurance Smarts Life Page 1 of 3

Life Insurance: The purpose of any insurance is to protect against financial loss that you

cannot otherwise cover. Have $2M of cash or survivor benefits? You maybe able to self insure which is always the best scenario.

The purpose of insurance is NOT to make investment gains. Thats thepurpose of ETFs/mutual funds. Dont confuse the two.

2 types: Term & Permanent (whole life/universal/variable). Most FPs sayto buy 10-30 year level term. Much cheaper than permanent. If you are 30and buy 30 year term, it should cover you.

Almost half of all policies sold are term. But, historically, insurers have onlyhad to pay on 1% of term policies (99% cancelled before insured died).

Eg; 30 yr old normal male buying $1M face: (a) 30 year level term cost:$800 per yr for 30 years. Insured to 60 at which time similar annualpremium is $5k-6k. (b) Whole life policy costs $9-10k annually. Builds CSV.Most CFPs say invest the $9k difference (buy term and invest the rest)and at 10% return will grow to $1M in 26 years.


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Insurance Smarts Life Page 2 of 3 Universal and variable policies offer reduced premiums if they achieve

certain investment rates of return. But remember: keep insurance andinvestments separate.

Most people only need insurance for a term (like auto insurance as longas your driving). But, some unique circumstances where permanent maybe needed: Eg: handicapped child.

Consider how much you need. Many online calculators. Agents will neverestimate low. Many FPs say to get 10-12x your income (spouse and kidannual living expenses ($40k), mortgage ($200k), college ($75k), etc.

Over time, as you live your budget and build wealth, need for lifeinsurance diminishes or goes away. Kids thru school, mortgage paid, cashreserves built reduce the face value of your term insurance.


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Insurance Smarts Life Page 3 of 3 Vast majority of FPs dont advise buying life insur for

your kids. Ok to add a $10k child rider to your policyfor their funeral expenses. Cost is modest.

Some purchase term insur on life of non workingspouse so working spouse can stay home to raise kids.

Always shop all insurance. Work with an independentbroker or a several agents.

Check the rating of your carrier. But, you wont keepdoing this. 10 days before Met Life had to exit industry,they still had a high rating.

Proceeds not taxable to beneficiary.


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Insurance Smarts Other Long term care will cover later. Umbrella good idea for many. Depends on your

net worth/assets. Health Welcome to the changing world of

ACAObamacare. Way too much to cover. Many employers must provide and you must them

purchase. Often, uninsured now pay penalty. If no family member has employer insur, buy in ACA

mktplace (medals). Based on income, may qualify forsubsidies. Much, much more can be said.


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Paying for Education Page 2 of 3 How to fund college?1. Scholarships/Grants: Takes time to hunt but worth it. Beware

scams. Kaplan book. Can buy lists of all scholarships.2. Using home equity to pay tuition: Bad idea. good for paying college

but toxic to funding retirement.3. Student Loans: (Hate debt!). Bad idea. Often, only a % of total tuition.

Then saddled with debt. Harder to get mortgage.4. Saving in UGMA: Bad idea. Kid gets $ at 18 or 21. Can hurt getting

aid. Always save for kids education in your name.5. Prepayment plans: Fair idea. Good that it stops 10% inflation. But pay

cash today. Doesnt cover room/food. Kid may not get admitted -or

want to go there. And program may fail (eg; Colorado). Superior toCoverdell.6. 529 Plans: Most FP say this is best way to save for college. Grows tax

free, maybe state tax deduction; $350+k limit, no time limits,transfers, etc. IL Bright Start College Saving program gets high marks.


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Paying for Education Page 3 of 3 Other ideas: (a) Take AP/college credit classes in high school. (b)

Community college is excellent choice for general ed classes. Manyshould earn an associate degree for $14k and then transfer for final2 years. (c) Attend cheaper college. Where you went often notimportant. (d) Often, 60% of college cost is room/food. Live athome. (e) Finish in 3 years. 1 less year room/food. (f) Military. (g)Find an employer who will pay for school.

Tax helps: (a) American Opportunity Tax Credit: up to $2.5k for 4yrs. for degreed tuition. Limitations. (b) Lifetime Learning TaxCredit: up to $2k-oft used for post-grad or non-degree. Limitations.(c) Coverdell--aka ESA. (d) Other minor tax benefits.

Some kids earn full rides (rare) but choose to go elsewhere. Hmm. Avg. parent only saves 23% of total tuition. Start early. College often takes > 4 yrs. Costs go up even more. If you have > 1 child, consider that several may be college bound.


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Investing

Youve now followed my budget advice foryears. Surprise! You have money to invest.

Here is the formula for good investing: 1. Save regularly for retirement (15% if possible, with

an employer match if possible).

2. Hold your investments for very loooong periods.

3. Build a highly diversified portfolio.4. Periodically rebalance that portfolio.


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Investing Save regularly A study by Putnam Investments (see resource page)

found that far and away the most important factor ingrowing retirement funds was the savings rate.Increasing your retirement savings rate from say 7% of

your income to 10%, has a greater effect than anyother factor.

Consistently contributing $ in retirement stock fundsnaturally creates the wonderful dollar cost averaging.

Fancy lingo for: buying when prices are low enables thepurchase of more value and buying when prices arehigh limits buying overpriced securities.


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Investing Long Hold Periods Page 2 of 2 This is why you must buy and hold your investments on all days.

Few have this kind of patience. When markets move, peoplereact. Study after study shows people consistently buy high andsell low (uh, thats not good). Emotions play a HUGE role.

Say a fund that an investor has held a long time drops steeply.Emotions cause the investor to sell that fund and buy a wellperforming one. It is likely the bad fund is about to rise andthe good fund is about to underperform.

Find a good fund (low cost, tax-efficient, follows its statedstrategy, hasnt grown too big, not consistently in the bottom ofits peer benchmark, etc.) and stay with it a long time.

Long holding periods lower taxes. Taxes cannot drive investing.


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Investing Diversify Page 1 of 4 Investments generally boil down to 3 broad categories: stocks

(equities), debt and other (real estate, money mkt ). There is consensus that: stocks, small companies and emerging

markets tend to be more risky than debt, larger companies anddeveloped markets. But, there is a trade-off between risk/reward.

There are 82k public companies (public can buy their stock though majority aresmall/thinly traded) worldwide of which 22k are in the USA. They can be categorized in different ways: (a) By sector: (energy, financial,

healthcare) (b) By industry: (Coal, Oil/Gas; Insurance, Investment services ;Healthcare, Pharmaceutical (c) By geography (d) By asset class.

Depending on whos counting, there are 16 asset classes of

mutual funds: small/med/large cap: value or growth; emergingmarkets; short/intermed/long: corp. or government bonds; highyield bonds; foreign stocks; hedges: gold, real estate, naturalresources, etc.


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Egs of Asset Classes

Equity Debt Other(Hedges)

USA Foreign USA Foreign Various

LargeorMed

OrSmallCap

V a l u e o r G r o w t h

D e v e l o p e d

E m e r g i n g

C o r p . I n v . G r a d e

H i g h Y i e l d

T r e a s u r i e s

D e v e l o p e d

E m

e r g i n g

R e a l E s t a t e

G o l d ,E t c .


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Investing Diversify Page 2 of 4 We have seen the downside of not staying invested in

the stock market all the time. Another huge downside: not investing in all parts of

the total financial marketplace. For the same 10 year period ending 12/31/06, if we

would have been invested in all 16 asset classes, our avg.annual return would have been 11.1%.

But if we omitted the one class per year that made the

most money, our return would be 10.2%. But if we omitted the top two assets classes making the

most money (out of 16), our return would be 5.5%!


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Investing Diversify Page 3 of 4 This is why you must invest in all asset classes. Just like no investment advisor can tell you when to invest, they

also cant tell you where to invest. Lesson: by being invested everywhere, all the time, you will not

miss out. Over any longer period of time, the stock market (in total) out

performs all other classes: debt, money mkt, real estate, etc. (From1926 thru 2012 was 10% while for long-term government bonds was6.0%). However, to smooth the wild gyrations and risks of the stockmarket, virtually all advisors recommend a mixed portfolio ofstocks/bonds/other. In fact, the magic is in blending all the assetclasses.


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Investing Diversify Page 4 of 4 (Continued) There are many balanced mutual funds that hold a

blend of asset classes: stocks/bonds/hedges the fund manager picked.But most advisors prefer to customize the 16 asset classes forinvestors based on their risk appetites, time horizons and goals .

Study after study shows active investment managers (who activelyselect investments and actively manage them by buying/sellingfrequently) simply cannot beat the overall market consistently. Overeven several years, the overall market always wins (like the house).

The top managers/funds in one year become poor performers the next.Past performance is no indicator of future performance. This is whymutual fund ratings (which are based on past performance) have nopredictive quality.


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Investing Diversify Page 4 of 4 Therefore, almost all individual investors should select a fund that

provides huge diversification within an asset class. This is called anindex fund.

For eg , Vanguard has a Small -Cap Fund that holds stock in almost 1,500small cap companies. This represents almost the entire US small-cap market.

Investors should then find a blend of index funds representing all 16asset classes. That blend should fit their current particular goals andrisk appetite (recognizing which classes are more or less risky). Andmonitor those funds and hold them for a loooong time.


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Investing Rebalancing Page 2 of 2

When to rebalance? Can review portfolio at time intervals (monthly,

quarterly, etc). Or, when % change comes outside your

predefined limits (eg; when any asset classchanges by > 20%). This is best way but takesmore effort.


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Investing So, what to invest in? Page 1 of 5 Something every investor needs to decide for

themselves (with spouse if married), is which andhow much of the 16 asset class index funds toinvest in.

There are plenty of quality funds available. You needto do a little research. Recall, index funds representthe entire market. Thus, they are NOT activelymanaged. So their expense ratios should be tiny.

How much of each asset class to invest in is verypersonal and based on: risk appetite, health, lifestyle,other sources of cash you have, time horizon, etc. these will change over time. So should your holdings.


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Investing So, what to invest in? Page 2 of 5 Mutual fund indexes have been the darling of the

masses. But scandals, rising/hidden fees, etc. havetainted them. Ergo, many advisors are now steeringtheir clients into Exchange Traded Funds (ETFs).

Many similarities between ETFs and mutual funds. Butalso a number of important differences. There are prosand cons to each you should understand (see handout).But ETFs are typically very low cost and very tax efficient.

Eg; Vanguard has 60 ETFs and iShares has hundreds. Youcan allocate between the 16 asset classes as you please.


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Investing So, what to invest in? Page 3 of 5 Time horizons for your $ affects your asset class mix. Eg:

Youre 38 yrs. old and have budgeted, changed your lifestyle,done most of Ramseys 9 steps. Ergo, you have amassed $150k.

You will need $30k for a house addition and $20k for collegewithin 3 years. You decide you do not want to invest this $50k in

stock market ETFindexes since the market may tank and nothave time to recover. But 3 years is sufficient to invest in severalshort and medium term debt EFT index funds so you do.

You foresee no needs for your remaining $100k for at least thenext 8 years. Thus, you invest in ETF index funds as follows: 60%US stocks mixed between Large, Mid and Small Cap Growth andValue funds; 20% Intl stocks mixed between Value, Growthand Emerging funds; 12% Debt mixed between Short, Medium,and LT Government, Corporate and Intl funds; 8% Hedge mixedbetween Real Estate, Natural Resources and Cash.


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Investing So, what to invest in? Page 4 of 5 Employer retirement plans (while youre working):

Contribute the max pre-tax you are allowed if you can. Employers oft dont offer ETFs. Put all contribs into a

blend of stock index mutual funds if you will not use

the $ for at least 8 years. Then leave it. Dont focus on retirement date. If you have other incomesources: SS, pensions, work, earnings from non-retirementaccounts, etc , you wont need your employer retirement $ --perhaps for many years.

If allowed, NEVER borrow from your retirement planassets (unless dire emergency). Bad idea. And lots of rules. If your fund balances grow BIG, you should rebalance.


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Investing So, what to invest in? Page 5 of 5

Many advisors dont like Lifecycle ( eg: 2030Target) or Lifestyle Funds (Aggressive Portfolio):

Its the fund managers one size fits all guess. The fund manager knows nothing about you except

your retirement date. As noted, you may not evenneed your $ then.

These funds are simply comprised of other funds so

you are paying fees 2x. Using these funds with their asset class blend will

mess up your personal allocation plan.


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Investing Using an FP/Investment Advisor Reasons to use an FP/investment advisor:

You dont want to actively engage in learningabout investing and monitoring your assets.

You want someone to watch when to re-balanceand actually conduct the trades for you. You need a personal coach to hold you

accountable for your 4 investing goals: (save, holdlong, diversify, rebalance).

You want someone who knows your situation thatyou can ask personal finance questions of.


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Retirement Employer Account Page 2 of 2 For 401ks and IRAs can take distributions before 59

without 10% penalty if equal periodic payments for atleast 5 yrs or you are > 54 when terminate.

Can roll your 401k into Roth or Traditional IRA. Will

pay full tax if Roth (assuming not Roth 401k). No taxon Traditional. RMD rules tricky. A little different for 401k (if not

retired/not owner, can delay) and IRA (must take in yr

you turn 70 or one-time delay to 4/1 of followingyr.) Not smart to double up. All IRA/401k rule complex. Talk to a CPA.


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Retirement Some Roth facts Rules are complicated (of course). Some FPs say to make all contribs (401k or IRA) Roth (no

deduction). Others say only do Roth if lower incomebracket or known distributions. If high tax bracket,deduction worth much.

Can convert Traditional IRA to Roth. Beware: income hit. Earnings on Roth accounts are not taxable. Also, Roth

distributions (of contributions and earnings) are not taxableif qualified (held for > 5 yrs and 59 --and other rules). Ifdistrib is not qualified it is taxable and maybe subject to10% excise tax.

Max contribs for yr to 401k is $17.5k; IRAs only $5.5k. There is no RMD for the original Roth owner.


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Retirement Some facts Page 1 of 2 Q: When can I retire? A: 30 yrs after you start properly saving. Surveys tell us Americans are consistently confident of their ability

to retire in comfort. Many say theyll work after retirement. But only 12% are now

actually working and only 27% have ever worked.

Recent surveys say 55% of Americans fear not having enough $ inretirement that they will run out before they die. Yet, 63% saidliving for the here and now is more important than saving forretirement.

Retirees estimate theyll only incur 70% of their current expenses inretirement. This is because commuting costs, savings, clothing,lunch, tools, etc. go away. Many FPs now are saying costs inretirement will stay the same. Also, retirees are filing for bankruptcyat a faster rate than any other age group. And over 50% of adultkids are providing support for their parents (eg; LT health insur) .


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Retirement Some facts Page 2 of 2 The 4% rule says you wont outlive your retirement savings if you withdraw 4%

each year. (Eg; You need $50k yr to live on-and have no other income sources= you need $1,250,000 in savings.) Similar guide: You need $50k a yr. Double itand add a 0: $50k x2 = 100k +0 = $1M.

Most people today retire at age 62. Average length of retirement is 18 years.For the age group 45-62 that had no employer retirement plan, their avgsavings was $38k. For those with employer plans it was $88k. Other surveyshave these figures a little higher. All are woefully short!

Social Security is also a complex topic. Those who are eligible (40 quarters),can begin taking benefits at 62. But every year one delays, the benefit growsby about 7%. Go to www.ssa.gov to learn your specific info. Most FPs say towait as long as you are able to begin distributions. Spouse can take differently.

The old retirement model was a 3-legged stool: company pension, SS andpersona savings. Now 1/3 of retirees receive a pension (only 11% now- oftpublic employee)s. And SS is in trouble. Its all up to personal savings. Scary.
http://www.ssa.gov/http://www.ssa.gov/


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Retirement Assisted living Were living way longer : good/bad news;. But, of womenand 1/3 of men reaching 65 will spend time in nursing

home. And, 70% of people > than 65 will need LT care foravg of 3 yrs (per AARP).

Cost info: Median annual cost for 1 bedroom unit in asst.living facility (ALF) in IL in 2014 is $46k per yr. Semi-privatenursing home room cost is $80k annually. Avg stay innursing home is 2.5 years So avg. cost is $200k (2.5 x $80k).Licensed home aid costs $20/hr. x 12 hrs/day = $87k per yr.

Most LT care is at home or in ALF-for mom: meals, cleaning,take meds. Chance of 60 yr old using policy with 90 day exclis 35%. If no 90 day exclusion = 50%.

Your kids may take care of you.


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Retirement Long term health insur LT care can wipe you out financially. Medicare pays

little. Middle class crisis: Rich can afford $50k-$90k yr.Medicaid pays for the truly broke.

Insurance exists 8M have. When to buy-if insurable? Eg: The annual premium for a 3 year indiv policy for a 60

yr old paying $100/day (36,500/yr.)after 90 days with 5%annual increases is between $2k and $2.5k depending onthe insurer. If want $200/day benefit, double premiums. Asyou age, premiums rise quickly. Bigger issue: not insurable.

Semi private room in a nursing home is $80k annually. But$100 policy only covers $36k. $44k is self-insured.

Contracts are complex. Fine print hugely important.


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Estate Planning Page 1 of 5 We have already learned over 50% of adult kids

provide substantial support to their parents. It shouldnot be this way. It doesnt have to be this way if welive within our budget and invest wisely.

A good man leaves an inheritance to his childrens children. Prov. 13:33 What a blessing to be able to leave an inheritance to our

kidsand to Christ honoring activities. If all we have are liabilities, there is little need to do

estate planning. But assuming better, here are the 4things about estate planning you need to know:

Will, Trust, POA for Property, POA for Health Care.


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Estate Planning Wills Page 1 of 5 FPs say 70% of us die without a Will. Not good. All need a Will.

If you die without a Will, you may be allowing the State to determine whereyour assets and minor kids go.

The difficult decision of who is the kids guardian is the key reason peopledont do wills (assuming both parents die). Online questionnaires can help.Ask the prospective guardians if ok.

You must also name a fiduciary for your property. It can be the kids guardian but some think it is a good idea to separate the two. The fiduciary willmanage and disburse the property for the benefit of your kids. Advise themabout your assets and life insurance.

Never name your minor kids as direct life insurance or IRA/401k beneficiaries.The court wont give them the $. 3 solutions: (a) the beneficiary of theseassets could be a childrens trust you create in your will or (b) better, create aseparate Living Trust or (c) designate the beneficiary to be a custodian underthe UGMA/UTMA. Talk to a lawyer about this-pay the few hundred $.

If you are married, both you and your spouse need a Will. They should mirroreach other. Name an executor.

-Write a personal (non-legal) letter to your kids. Seal and give to guardian.


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Estate Planning Trusts Page 1 of 5 Living Trusts give you much more flexibility and control if you have assetsof a decent size (including life insur). Egs:

You can delay distributions of $ until certain ages are reached. You can grantaccess to interest only. You can ask that $ be used for certain purposes. Youcan name someone to do all this for you.

It avoids probate (you want that!) and thus makes proceedings private. It

saves much in legal fees. But it costs about $1k-$2k to draft a Trust/Will. You must retitle assets into the Trust (not hard but urgent). Trusts can be an estate tax planning tool. Not as relevant now since no tax

unless estate > $5M. Assets held in joint tenancy or contract (life insur or IRAs/401ks where

beneficiaries are named), are not controlled by the Trust. Review beneficiaries on all you own with lawyer. Landmines. (Eg; Trust / IRA). Pay on death accounts also transfer automatically upon your death. You can direct who/how to manage assets if you become incompetent. You can change it anytime during your lifetime. After death, its irrevocable


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Estate Planning POA: Health Care Page 1 of 5

Illinois has a Statutory Short Form Power of Attorney (POA)for Health Care (http://www.isba.org/resources/poaforms/healthcare )

You need to complete it. But understand it generally gives youragent full powers over all your health care decisions as thoughthey were you.

You will select one of three choices as to what type of lifesustaining care you wish to receive (from heroic to considerpulling the plug) if you are unable to make them for yourself(eg; comatose/profoundly incapacitated). Your agent has thelegal power to make medical decisions on your behalf.

You will decide when the POA for Health Care goes into effectand when it expires.

l
http://www.isba.org/resources/poaforms/healthcarehttp://www.isba.org/resources/poaforms/healthcarehttp://www.isba.org/resources/poaforms/healthcare


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Estate Planning Page 1 of 5

Generally, you should not own property in JTWROS with your kids: For tax reasons (lose step-up); child may die first; child may steal property; child may get sued; you

disinherit your other kids. Use a lawyer to draft the 4 documents. But come in knowing what you want. Your will or Trust is where you indicate what portion of your estate you wish your

children, other family, friends and Christian organizations to receive. A spouse will often (but not always) leave their portion of the estate to the surviving

spouse. Assuming they do not die together, the surviving spouse will have final say as toasset disposition. You may wish to update your four estate documents if: your marital status changes, you

move out of state, your income/net worth/health has materially changed or familymembers have died/been born.

If you are married and may be subject to lawsuits, consider owning your home asTenants By The Entirety. If successfully sued, you home cannot be seized if yourspouse is not part of the suit (and your home may still be put into your Living Trust.)

Your trustee, executor and agents need to have copies of your relevant executedagreements. Your trustee/executor must know the location of all your assets and legaleffects. Depending on their ages, your children should at least generally know the keyelements of your estate plan and who will be their guardian.

h h


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What To Do With Excess Money This is the fun part. You have budgeted for decades. You lifestyle has been

downwardly mobile. You denied and made sacrifices. But,you have had not had any debt for years. The house is paidoff. College is paid off or fully funded. And you have most ofyour retirement banked. And lots of emergency cash in thebank too.

What do you do with this surplus? It may be surprising toknow this surplus money carries some unintended risks.

Heres how: A farmer I read about got super wealthy. Hethen decided to massively increase his real estate holdings.After that he decided it was time to kick back and party likethere was no tomorrow.

Wh T D Wi h E M


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What To Do With Excess Money Jesus tells it this way: The farm of a certain rich man produced a

terrific crop. He talked to himself: What can I do? My barn isnt bigenough for this harvest. Then he said, Heres what Ill do: Ill teardown my barns and build bigger ones. Then Ill gather in all mygrain and goods, and Ill say to myself, Self, youve done well! Youvegot it made and can now retire. Take it easy and have the time ofyour life ! Just then God showed up and said, Fool! Tonight you die.And your barnful of goods who gets it? Thats what happens whenyou fill your barn with Self and not with God. Luke 12:16-21

The man was a FOOL. He gained the world but lost eternal life. Hiswealth showed his self centeredness. It may have been way betterhad he not gotten so rich.


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Th k Y F C i


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Thank You For Coming

Any questions?

Documents

Bethel Personal Finance Sept 26-27