Financial Seminar For Nurses Patrick Heyman Ph D

Financial Seminar For Nurses Patrick Heyman, Ph. D. , ARNP

Personal Finances Half self control One part economics One part politics Two parts current events Seasoned with math

Politics Monetary policy Government is largest payor of healthcare in U. S. Subsidies, bailouts, and regulations Fiscal policy Taxes National Debt

Economics Most important concepts Cost Scarcity Value (subjective and marginal) Wealth Cooperation Division of labor (specialization) Trade Money

Money Commodity Valued more for exchange than for use Medium of exchange Unit of account Store of value

Money Stages of Development Barter Commodity money Certificates of deposit Notes Fiat money

Inflation Increases in money supply above expected production of commodity Almost always result of government policy Currency debasement Coin clipping Printing money Quantitative easing, QE 2 Fractional Reserve Banking

Value of Money More money there is, the less it's valued. More money it takes to buy the same goods. Prices Demand/Supply of money Demand/Supply of goods Increases in money do not cause ALL prices to rise Bubbles: Dot com, Real Estate, Student Loan Boom/Bust Cycle

Why do it? Governments can only get money three ways Tax Borrow Inflate Buy votes by promising benefits Keynesianism Deficit spending Government spending Saving is bad

So the government is screwing me? I don't believe you!!!! National Bureau of Labor Statistics $100 in 2010 is worth what $4. 54 was worth in 1913 95% reduction in value in less than 100 years But doc, I'm not gonna live to be 100 $100 in 2010 is worth $59. 94 1990 dollars. If your parents gave you $20 in 1990, and you put it in a drawer, by 2010, you lost $8 dollars of purchasing power!!!! Now I know why Keynes didn't like savings!

STILL Don't Believe Me? http: //www. npr. org/blogs/itsallpolitics/2010/12/08/131903366/j on-stewart-busts-fed-s-chair-ben-bernanke-on-printingmoney http: //www. youtube. com/watch? v=PTUY 16 Ck. S-k

Inflation Summary Inflates bubbles Diverts resources to projects doomed to fail Higher prices Destroys value of money Punishes savers Encourages borrowing and irresponsibility Causes parents to tell their children about going to the movies for a nickel.

Okay, so inflation is important How is it measured? Money Supply Base, M 1, M 2, (M 3) Prices CPI (consumer price index) Core CPI PPI (producer price index)

Additional Resources Murry Rothbard, What Has Government Done to Our Money Hayek vs Keynes http: //www. youtube. com/watch? v=d 0 n. ERTFo-Sk Keynes was evil http: //mises. org/media/5728 Keynesianism and Business Cycle Explained http: //mises. org/media/4354

Bottom Line Your money is losing value in your wallet right now. But you probably don't have too much, so. . .

Financial Independence No debt Own house free and clear Enough savings/investments Benefits Less stress More security Work for enjoyment Better family relations Able to freely contribute to God’s kingdom

Biblical Principles All money is God's money Stewards caring for what is not ours To whom much is given, much is required – Luke 12: 48 He who is faithful in small things will be entrusted with more – Matthew 25: 14 -28 Look at the ant's example - Proverbs A borrower is slave to the lender - Proverbs

Biblical Principles Work diligently Give a tithe back to God Save Be generous toward those in need Care for your family Stay out of debt “But I thought Jesus said, ‘Blessed are the poor? ’”

Debt Elimination Strat 1 1) Emergency Savings (3 mos expenses) 2) Pay off credit cards 3) Pay off consumer debt 4) Save for major purchases 5) Buy home, begin investing 6) Home mortgage paid off 7) True financial freedom

Debt Elimination Strat 2 1) Pay off credit cards 2) Pay off consumer debt 3) Emergency Savings 4) Save Downpayment 5) Purchase/Pay off house 6) Begin investing 7) True financial freedom

Debt Snowball Cut expenses so that you have some money left over Apply all of that money to your smallest debt Once it is paid off, apply that money plus the money from the previous debt to the next smallest As each debt is paid off, the money grows (like a snowball rolling down hill)

Debt is the Single Biggest Obstacle to Building Wealth Example: You have $100 a month extra. You want to buy a $1000 Widescreen TV Save it for 10 months with 4. 5% interest 1 $1000 widescreen TV $20. 86 left over in interest Buy it now on a credit card at 8% interest After 10 months you have 1 TV You still owe $145 Net difference = $165. 86 in lost wealth

To become financially independent you must Control Spending: live under your means Resist credit If you are in debt, pay it off as quickly as possible Do not earmark future raises for spending Paying off a 9. 6% credit card is the same as getting 9. 6% in interest after taxes Save/invest If you don't have the self control, create artificial scarcity

Counter Culture Income vs Net Worth Most high income earning households will never become millionaire households Status symbols Increased living expenses Spend too much Poor role models/peer support Most millionaires are first generation Savings is more important than income

Do I Really Need to Know All This? I'm Young and Poor!!! Kaci invests $2000/year starting at age 18 for six years, and never invests again. Richter invests $2000/year starting at age 25 until she retires at 67. Amanda invests $2000/year starting at age 35 until she retires at 67.

And the Winner is. . . Assuming 8% interest, at age 67 Kaci invested $12, 000 and has $468, 332 Richter invested $84, 000 and has $711, 899 Amanda invested $64, 000 and has $315, 253 And if Sara decides to keep investing $2, 000 a year until she retires. . $1, 239, 343!!!!* *before inflation and taxes. . .

Financial Freedom: How to Make it Happen Finances is half self control Discipline Budget Spending Plan (failing to plan is plannin to. . . ) Stick to it

Things to include in budget Net income Tithe and Charity (PBA alumni association? ) Expenses Savings Monthly (rent, electricity) Non-monthly (insurance premiums) Unexpecteds (car repairs) Retirement/Long term Goal oriented (new car, vacation) Some fun (personal allowance)

Destroyers of Wealth/ Creators of Misery Debt Divorce – number 1 wealth destroyer (also happens to be counterbiblical) Fighting about money Rich Poor Spending styles Number one predictor of millionaire? ?

Tips For Significant Other If dating Avoid buying high value items together (boat, house, etc. ) Maintain separate accounts Include finances in pre-marital counseling If married Agree on a budget; do a monthly evaluation Keep a joint account for marital expenses Keep an individual account for each spouse, and give yourself a budgeted allowance that each spouse can use or save how they want

Tips Continued Designate one person to keep the books/pay the bills Make sure the other reviews regularly Detect problems early (gambling or risky investments) Premature death

The Heyman Money Plan For Marital Bliss Husband Salary Wife Salary Main Checking Account IRAs Husband Allowance Bills Short Term Savings Long term/ Emergency Savings Wife Allowance Solid arrows indicate automatic transactions.

Creating Artificial Scarcity If money burns a whole in your pocket. . . If money in your checking account cries out, “Spend me!!” Pay yourself first technique Fund retirement accounts before the paycheck ever gets to you Have automatic transfer of money from checking to a savings/investment account Pay your bills as soon as you get them; do not wait until they are due

Okay, I'm living under my means What do I do with all this money Lying around? Pay off debts Fund retirement accounts Save for house Pay off the house Save/invest for retirement Enjoy life a little

Protecting Your Small Fortune Inflation Debasement: Loss of the value of money “Expansionist monetary policy” Artificially low interest rates Artificial bubbles Boom/Bust cycle Avoid debt Invest in REAL assets Invest in gold, commodities, stocks Stay out of cash*, bonds

Invest in What You Know Stock up on items you know you will use Toiletries Food Cleaning supplies Invest yourself (your own business) Most millionaires are business owners Millionaire Next Door DO YOUR HOMEWORK!!!!!

Inflation: Avoid Debt Inflation makes debt SEEM Attractive Savings lose money in the bank Pay back loans with money that is worth less Reality Inflation makes bubbles People feel rich Go into debt because it's easy Bubble deflates Person's “wealth” disappears Debts remain

Inflation: Invest in Real Assets Real, not paper or digital Things you'll use anyway Land With an income Homestead Gold, silver Stocks Dividend paying please Avoid: Bonds

Inflation: Gold, Silver Gold and silver have been money for 5, 000 years 1914, all European powers went off gold to inflate to pay for WW 1 U. S. became only major currency backed by gold: $20 ≈ 1 ounce of gold To finance the New Deal, FDR “confiscated” gold and sold it to Federal Reserve at $35/ounce 1964, all silver coins became zinc coins

Why is Gold Valuable? Jewelry and industrial processes Unique metal Unreactive to acid Pretty: never tarnishes Malleable Ductile Conductive SCARCE Medium of exchange - central banks Historical store of value

What should I buy? Bullion, not numismatics Bullion is only worth the metal value Numismatics are collectors items Pay no more than 6% over spot for 1 ounce coins Buy your country's coin (preferred) South African Krugerrand (22 karat copper alloy) American Gold Eagle (22 karat, silver alloy) Canadian Maple leaf (24 karat) Fractional coins (1/2, 1/4, 1/10 ounce)

Right way to buy Bullion Physical delivery Buy the best Pay cash Take delivery Check the spot price: kitco. com Don't tell people how much you have or where you keep it!!!! Exchange Traded Funds (ETFs) Purchase like a stock Danger (leverage, counter party risk)

Where to Buy APMex. com NWTMint. com europacmetals. com gainesvillecoins. com caminocoins. com Locally coin shops www. rechantpreciousmetals. com

Where to Store Your Gold Don't keep it with the dealer Take possession Safe Hidden Cache Often lost forever Don't bury silver Beware of safety deposit boxes http: //abcnews. go. com/GMA/story? id=4832471&pa ge=1

Alternative to Physical Goldmoney. com Bullionvault. com ETFs (e. g. GLD) Mining stocks Be extremely careful Highly volatile KNOW WHAT YOU'RE GETTING INTO!!

What about Silver Gold is still held by central banks Silver was completely demonitized More industrial uses Tarnishes Tends to follow gold but is much more volatile “Poor man's gold

Recommended Reading Gary North, Gold Wars http: //www. garynorth. com/public/department 32. cfm Peter Schiff, Little Book of Bull Moves Charles Goyette, Dollar Meltdown Burt Blumert, Lew. Rockwell. com archives http: //www. lewrockwell. com/blumert-arch. html

Rules of Investing Run a surplus (don't use debt) Invest in what you know Do your homework Avoid loss; be risk averse MOST PEOPLE GET RICH BY OWNING A BUSINESS!!!!! Invest in your own business www. garynorth. com

Retirement Not Biblical Most Americans will never be able to afford to retire Social Security is a Ponzi scheme You will never collect It is bankrupt It paid out more money last year than it collected The “trust” fund is funded by IOUs Tell your parents to be nice to you. Goal: Calling vs occupation

“Retirement” Plans Trade some tax incentives for lack of control over your money and privacy Political risk Forces you to become a speculator/investor Three main kinds Employer Self 401(k), 403(b) IRA, Roth IRA Self-Employed, Small Business

IRA and 401(k), 403(b) Contributions reduce your income tax this year Money grows tax free Taxed when you withdraw money Can start withdrawing at age 59. 5 Must start withdrawing at age 70 Tax plus penalty is withdrawing early 401(k), 403(b) early only with “hardship” Gotcha

IRA, 401(k), 403(b) gotchas When you withdraw the money, it is taxed as ORDINARY INCOME, not capital gains. Scenario New nurse, makes $22. 5/hour = $45, 000/yr Taxable income = $39, 200 Marginal tax rate = 25% Assume no raises for rest of her career When she retires, she'll pay 25% tax As opposed to 15% long term capital gains tax

401(k), 403(b) Benefits Cons Grows tax free Higher taxes later Employer match Vesting period Reduces taxes now Difficult to access Taxes aren't that high when you're young REALLY Difficult to access Limited investment choices High fees

My Recommendation Avoid 401(k), 403(b) UNLESS 1) Compelling employer match (only up to it) 2) You'll stay at your job long enough to be vested 3) You are comfortable with the investment options (DO YOUR HOMEWORK) Reasonable Fees!!!!!! http: //www. youtube. com/watch? v=08 UPQ 3 Ja. Rek www. alanhaft. com/blog/wpcontent/uploads/2009/12/Hidden-401 k-Fees. Bloomberg. pdf

IRA, ROTH IRA Choice!!! Can be self directed Choose your custodian Can invest in almost anything ROTH IRA Best deal Up to $5000/year Pay taxes this year Never pay taxes again on the money or growth

Retirement Plan Strategy First Question: Should I fund my retirement plan or pay down debt? It depends Generally speaking I'd pay down debt before funding retirement plans unless you make enough money to do both. Roth IRA first Maybe 401(k) up to match or minimal to start vest ment period

Sure things in Life How income tax works Income vs Taxable income Marginal tax bracket Social Security Employee “Contribution” Employer “Contribution” Medicare

How do I get an IRA or Roth IRA? IRAs must be held by a financial institution – Just call the number or go to the website Can transfer between institutions Can invest in a wide variety of options Stocks, mutual funds, bonds, even real estate, gold, silver, commodities Depends on the financial institution Mutual Funds are most popular

2010 Marginal Tax Rates (Single) http: //www. obliviousinvestor. com/tax-brackets/ http: //www. irs. gov/pub/irs-pdf/i 1040 tt. pdf

Concrete Examples Please

Income Tax Myths Myth: Maximize deductions to reduce tax burden – Example: Take a big mortgage, so you get the interest deduction – Reality: Maximize taxable deductions by minimizing taxable income AND maximizing wealth (net worth)

What is investing? Speculation Purchase with the hope to sell it for more than you paid for it in the future The greater fool theory Investing Income now Preservation of capital Growth in value Price matters • Trading Rapid buying and selling to make quick profits Quick way to lose a bundle

What is investing? “Americans live in a chosen country to which has been vouchsafed a “new era” in which all one has to do is buy “well-selected stocks at any time, at any price, and hold with sufficient patience in order to sell for more than one paid and thereby realize a handsome return on the investment” -- Chamberlain and Hay, 1927

Investment Basics Basic terms Liquidity: ability to “use” an asset Risk: possibility that value of an asset may go down “No risk” investments FDIC insured accounts U. S. Treasury Bonds Emergency Funds should be in “no risk” relatively liquid accounts i. e. , savings account not stocks

Sample Brokerage Firms Vanguard T. Rowe Price TD Waterhouse Fidelity Investments Charles Schwab Boutique Euro Pacific Capital “Full Service” Merill Lynch Morgan Stanley Citigroup

Investment Vehicles (Examples) Equity – Owning a piece of something Real estate Stocks Partnerships Liability – Loaning money Bonds – Mortgages – Bank account Commodities Derivatives

“Investment” Theory Modern Portfolio Theory Don't try to pick winners and losers It is impossible to consistently outperform the market Select a “mix” of investments that corresponds to your risk comfort, and sit back, enjoy the ride Bottom line

Stock Terms Company size (market cap) Mid cap Large cap Small cap Earnings Potential Growth stock: earnings expected to grow rapidly; typically do not pay dividends Value: company is thought to have low growth potential; usually pay higher dividends

Stock Indexes GPA for a group of stocks Groups of stocks that track a “segment” of the market Dow Jones Industrial Average NASDAQ Standard & Poor 500 (S&P 500) Russel 2000 small cap index Wilshire 5000 (overall American stock market)

Mutual Funds A group of stocks (or bonds or other securities) which is then sold in shares Actively managed funds Passively managed funds A manager tries to pick stocks that he thinks will outperform the others Use an algorithm or stock index to determine what stocks they will have Versatility: stocks, bonds, REITs, mixes

Mutual Funds Broker funds (traditional): Exchange traded funds (ETFs) more advanced (look it up later) Usually have a low barrier to entry, esp for IRA accounts Account maintenance fees, no commissions Fees are usually waived for accounts higher than $3000 - $5000 Are traded like stocks Commissions, but no maintenance fees 401(k), 403(b)

Fund Expenses Front load: upfront commission Back load: back end commission No load ONLY PURCHASE NO LOAD FUNDS Expense ratio When given a choice between two equally performing funds, go with the one with lower expense ratio Passive funds cost less than active funds

How to Buy a Fund Choose a brokerage firm and open account Decide what kind of investment strategy you want to pursue Buy the fund with the lowest expense ratio that helps you achieve that goal Beware of “load”

Comparing Funds Don't be suckered by past performance In any given year, 85% of actively managed funds fail to outperform their benchmarks (stock index) Of the 15% that did outperform the market, less than 1% will do so three years running Active funds have higher expense ratios. You must subtract that from your return Bottom line: index funds are the way to go for most investors

Diversification: Building a Portfolio Purpose of Diversification Reduce risk Balance losses in one are with gains in another Stocks Bonds Money market Real estate Gold and foreign markets

Hey I Don't Need Think I Need to Know About Mutual Funds Yes you do. Most 401(k)'s and 403(b)'s require you to invest your money in on of several mutual funds that they provide. For example, the VA offers: (tsp. gov) G Fund: Government securities (T-bills) F Fund: Bonds S Fund: Small Cap C Fund: Large Cap I Fund: International L Funds: Life

Too Lazy for All That? Choose a “blended fund” A fund that has a set mix of stocks and bonds Usually, the company has a series of questions Planned retirement age Desired return Age Risk tolerance Buy one fund and be done with it.

VA Lifecycle Funds

Too Boring? Get really wild and crazy with specialty funds Currency funds Hedge funds Biotech funds Gold funds Etc. Generally speaking, don't buy individual stocks unless you put in the effort to educate yourself

Sample Investment Mixes Aggressive long term All small cap/value stocks Aggressive long term with some diversification 70% small cap/value stocks 20% large cap stocks 10% International stocks

Sample Invest Mixes cont “Lower Risk” Long Term 20% large/growth cap 20% small/value cap 10% international 10% REIT (real estate) 30% bonds 10% Treasury bills

In the End You're probably better off being in cash most of the time Only invest in something you're very familiar with. As long as the U. S. is printing money and running enormous deficits buy gold Invest in your own business Homestead Buy rental properties (esp, Duplex, Triplex, Quad)

This Is Only A Primer Suggested Further Reading www. crown. org/library Stanley & Danko: The Millionaire Next Door Dan Ariely, Predictably Irrational Peter Schiff, Crashproof 2. 0 How to Profit From the Economic Collapse Peter Schiff, How an Economy Grows and Why It Crashes Charles Goyette, Dollar Meltdown P. J. O'Rourke: Eat The Rich

More Resources Suze Orman, Money Book for the Young, Fabulous, and Broke Don Schreiber, All about Dividend Investing Johntreed. com John Schaub, Building Wealth One House at a Time Homesteading resources www. backyardfoodproduction. com permies. com thesurvivalpodcast. com

Economists/Investment Gurus Peter Schiff Marc Faber Mark Skousen Gary North Marketing/Home Business Jay Abraham Earlyto. Rise. com