Career Career Financial PlanningFinancial Planning

ObjectivesObjectives

• Annual Budget’s dueAnnual Budget’s due– Did you gain insight into more/less expenses Did you gain insight into more/less expenses

you will encounter in your future?you will encounter in your future?

• Career Financial PlanningCareer Financial Planning– Preparing for you financial futurePreparing for you financial future– Understanding retirement plans Understanding retirement plans

• Guest Speaker Tom Halasz from the CRCGuest Speaker Tom Halasz from the CRC– Understanding the job offer processUnderstanding the job offer process– Salary & benefits negotiationSalary & benefits negotiation

A Billion is Chump ChangeA Billion is Chump ChangeIs turning down the money stupid or brave?Is turning down the money stupid or brave?

• Po walked away from a $300,000 salary offer Po walked away from a $300,000 salary offer selling bonds, because he knew his calling was in selling bonds, because he knew his calling was in writing. The other bondsmen stayed even if it writing. The other bondsmen stayed even if it wasn’t their calling.wasn’t their calling.

• ““Failure’s hard, but success is far more dangerous. Failure’s hard, but success is far more dangerous. If you’re successful at the wrong thing, the mix of If you’re successful at the wrong thing, the mix of praise and money and opportunity can lock you in praise and money and opportunity can lock you in forever. It is so, so much harder to leave a good forever. It is so, so much harder to leave a good thing.”thing.”

• Have you ever stayed somewhere because you were Have you ever stayed somewhere because you were good at it, even though you wanted something else?good at it, even though you wanted something else?

• Has high income been a distraction for you?Has high income been a distraction for you?

The Lockbox FantasyThe Lockbox FantasyGetting Rich Changes YouGetting Rich Changes You

• Po describes people who wanted to get rich, Po describes people who wanted to get rich, then follow their dream. He ran across plenty of then follow their dream. He ran across plenty of rich people, but they had become accustomed to rich people, but they had become accustomed to their lifestyle. They dreamed about quitting and their lifestyle. They dreamed about quitting and changing their life, but they couldn’t. They changing their life, but they couldn’t. They wanted the “golden key to unlock their golden wanted the “golden key to unlock their golden handcuffs. No matter how much they earned, it handcuffs. No matter how much they earned, it was never quite enough to free them.”was never quite enough to free them.”

• Do you feel that it is better to make money, then Do you feel that it is better to make money, then follow your dream or go straight for your follow your dream or go straight for your dream?dream?

How much is enough?How much is enough?

““Put your money where your values are” Put your money where your values are” - David Bach, Finish Rich - David Bach, Finish Rich

Inc.Inc.

Why is money important to you?Why is money important to you?

What does it represent?What does it represent?

What does it buy?What does it buy?

The Value of MoneyThe Value of Money

SecuritySecurity

SafetySafety

PrestigePrestige

BelongingBelonging

AccomplishmentAccomplishment

PowerPower Self-esteemSelf-esteem

ComfortComfort

AcceptanceAcceptance

FreedomFreedom

StatusStatus

LoveLove

ConfidenceConfidence

GoalsGoals

• Knowing your primary goals in life Knowing your primary goals in life (hopefully determined by your (hopefully determined by your values) values) can help you determine if can help you determine if something is a necessity or a something is a necessity or a desire. desire.

• Spending on needs vs wants can Spending on needs vs wants can help you help you attain your financial goals much attain your financial goals much faster.faster.

Live within your meansLive within your means

The key principle to The key principle to survive at any salary survive at any salary is to …is to …

spend less than you spend less than you make!make!

Would you rather work harder to make Would you rather work harder to make more money or cut back on your expenses more money or cut back on your expenses to afford your dream job now?to afford your dream job now?

Where can you cut Where can you cut today?today?

Keep track of where your money is going to Keep track of where your money is going to helphelp

determine where you can cut back.determine where you can cut back.

Saving $5 per day = $150 per month = $1,800 Saving $5 per day = $150 per month = $1,800 per yearper year

Are you thinking about your Are you thinking about your future?future?

Why start now?Why start now?

• How many of you have an IRA or Roth How many of you have an IRA or Roth now?now?

• Who thinks it is too early to think about Who thinks it is too early to think about retirement?retirement?

• Are you planning to retire or do you Are you planning to retire or do you expect to work until you die to afford expect to work until you die to afford your expenses?your expenses?

Start early – get there Start early – get there quickerquicker

• Compound Interest Example: Compound Interest Example:

Invest $10 at 10% annual interest for 5 yearsInvest $10 at 10% annual interest for 5 years

Year InvestYear Invest InterestInterest ValueValue11 $100$100 $10$10 $110$11022 $11$11 $121.00$121.0033 $12.10$12.10 $133.10$133.1044 $13.30$13.30 $146.40$146.4055 $14.60$14.60 $161.00$161.00

Now imagine if you added a few zeros or continued Now imagine if you added a few zeros or continued to invest additional money!to invest additional money!

Time Value of MoneyTime Value of MoneySusan (10% return)Susan (10% return)

AgeAge InvestInvest ValueValue1919 $3000$3000

$3300$3300…… $3000$30002727 $ 0$ 0 $41,512$41,512…… $ 0$ 06565 $ 0$ 0 $1.55 $1.55

milmil

Total Total $21,000 invested$21,000 invested x 73.8x 73.8

Kim (10% return)Kim (10% return)

AgeAge InvestInvest ValueValue1919 $0$0 $0$0…… $0$02727 $3000 $3000

$3300$3300…… $3000 $3000 6565 $3000 $3000

$1.32 mil$1.32 mil

TotalTotal $114,000 invested$114,000 invested x 11.6x 11.6

It’s about time in the market, not timing the market!

Regular vs RetirementRegular vs Retirement

• Regular account is taxableRegular account is taxable• Retirement account has tax benefitsRetirement account has tax benefits

– IRA and 401(k) are not taxed until IRA and 401(k) are not taxed until money is withdrawn at retirement.money is withdrawn at retirement.

– Roth is taxed before money is invested, Roth is taxed before money is invested, but the growth is not taxed. Withdrawn but the growth is not taxed. Withdrawn tax-free.tax-free.

• Both are invested in the same ways Both are invested in the same ways with stocks, bonds, mutual funds or with stocks, bonds, mutual funds or other types of investmentsother types of investments

How to Invest Your How to Invest Your MoneyMoney

• Asset allocationAsset allocation divides your money divides your money among different asset classes, among different asset classes, according to your: according to your: – Objectives (i.e. retirement, buying a Objectives (i.e. retirement, buying a

home)home)– Time horizon (1, 5, 10 or 20 years)Time horizon (1, 5, 10 or 20 years)– Risk tolerance (high, medium, low)Risk tolerance (high, medium, low)

Asset ClassesAsset Classes• StocksStocks represent ownership of a company represent ownership of a company

– You receive part of the company’s profits (dividends)You receive part of the company’s profits (dividends)– As the value of the company increases or decreases, As the value of the company increases or decreases,

so does the value of your stock (just like owning a so does the value of your stock (just like owning a home)home)

– Much more volatile, so they provide a greater returnMuch more volatile, so they provide a greater return

• BondsBonds represent loans to a company represent loans to a company– Issuer promises to pay you a fixed rate of return Issuer promises to pay you a fixed rate of return

(interest)(interest)– When the bond matures, you get back your principal When the bond matures, you get back your principal

plus interestplus interest– Less risky so they offer a lower returnLess risky so they offer a lower return

• CashCash equivalents are conservative and safe equivalents are conservative and safe investmentsinvestments– They offer high liquidity (easy access to money)They offer high liquidity (easy access to money)– They are extremely low risk and offer very little They are extremely low risk and offer very little

returnreturn

Higher Risk = Higher Higher Risk = Higher ReturnReturn

• As your level of risk increases, so does As your level of risk increases, so does the variance of your portfoliothe variance of your portfolio

Riskier

Safer

StocksStocks Int’l Int’l

Small Cap Small Cap

Mid Cap Mid Cap

Large CapLarge Cap

volatility volatility riskrisk

BondsBonds Specialty Specialty

City City (Municipal)(Municipal)

StateState

FederalFederal

inflation inflation riskrisk

CashCash Money MarketMoney Market

SavingsSavings

CheckingChecking

CashCash

inflation inflation riskrisk

Mutual FundsMutual Funds

• A combination of stocks or bonds that A combination of stocks or bonds that diversify their portfolio with a variety of diversify their portfolio with a variety of individual companiesindividual companies

ValueValue GrowtGrowthh

LargeLarge XXMidMid

SmallSmall

The Case for The Case for DiversificationDiversification

• DiversificationDiversification is reducing risk by is reducing risk by spreading around the investmentsspreading around the investments

Perf

orm

an

ce

401(k) Plan401(k) Plan

• A type of employer-sponsored retirement planA type of employer-sponsored retirement plan• Works like an IRA where employee is able to Works like an IRA where employee is able to

put aside income and deferring taxes until put aside income and deferring taxes until withdrawal and select from a variety of withdrawal and select from a variety of investment options investment options

• You can join the plan during You can join the plan during enrollment enrollment which which is usually once per quarter.is usually once per quarter.

• Other salary-deferral retirement plans include:Other salary-deferral retirement plans include:– 403(b) for educational, religious or non-profit 403(b) for educational, religious or non-profit

organizationsorganizations– 457 plans for state and local government employees457 plans for state and local government employees

Retirement Plan Retirement Plan WithdrawalsWithdrawals

• If you leave the company, you may transfer If you leave the company, you may transfer your 401(k) into an IRA without penalties or your 401(k) into an IRA without penalties or you may withdraw your money for the you may withdraw your money for the following reasons:following reasons:– Retirement (age 59½)Retirement (age 59½)– Disability or DeathDisability or Death– Financial hardship “immediate and severe financial Financial hardship “immediate and severe financial

need” for:need” for:• College educationCollege education• Purchase of primary residencePurchase of primary residence• Prevention of eviction or foreclosurePrevention of eviction or foreclosure• Medical expensesMedical expenses

• Withdrawing money before the age of 59½ Withdrawing money before the age of 59½ subjects you to a 10% penalty tax in addition subjects you to a 10% penalty tax in addition to the ordinary income tax already taken upon to the ordinary income tax already taken upon withdrawalwithdrawal

Retirement Plan Retirement Plan MatchingMatching

• An employer may An employer may matchmatch certain funds which certain funds which are the employees to keep once are the employees to keep once vestedvested..

• Example: Income of $100,000 per year Example: Income of $100,000 per year – the company will match a max of 5% ($5,000) per the company will match a max of 5% ($5,000) per

yearyear– If they will match up to 20% of your contributions, If they will match up to 20% of your contributions,

you must put in $2083 per month to receive the you must put in $2083 per month to receive the company’s max contribution:company’s max contribution:• $2083.33 (per month) * 20% = $416.67 * 12 (months) = $2083.33 (per month) * 20% = $416.67 * 12 (months) =

$5,000$5,000

Retirement Plan Retirement Plan VestingVesting

• Your money is always yours!Your money is always yours!• The money the company contributes The money the company contributes

is yours based on their vesting is yours based on their vesting scheduleschedule

Retirement Plan Retirement Plan OptionsOptions

• Most plans are participant-directed Most plans are participant-directed allowing the employee to select from allowing the employee to select from a number of investment options, a number of investment options, usually mutual funds or company usually mutual funds or company stockstock

Other BenefitsOther Benefits

• Companies offer a variety of other Companies offer a variety of other benefits that are of value to an benefits that are of value to an employee:employee:• Stock optionsStock options

• Health insuranceHealth insurance• Life insuranceLife insurance• Vacation, Sick Vacation, Sick

leave, Time offleave, Time off• FlextimeFlextime• Performance-based Performance-based

BonusesBonuses

• Child Care Child Care AssistanceAssistance

• Tuition Tuition ReimbursementReimbursement

• Relocation BenefitsRelocation Benefits• Signing BonusesSigning Bonuses• Expense AccountExpense Account• Salary ReviewsSalary Reviews• ParkingParking

For next week…For next week…

• Business EtiquetteBusiness Etiquette

• Mock Interview dueMock Interview due

Salary NegotiationSalary Negotiation

• Tom Halasz, Associate DirectorTom Halasz, Associate DirectorCareer Resource CenterCareer Resource Center