Intro to Personal Finance
What is Personal Finance?
Personal finance is managing your own personal money.
A. Spending
B. Giving
C. Saving
D. Investing
Different views on Money
1. OPM (Other People’s Money)
A. Borrowing other people’s money to achieve your own financial goals.
2. Cash View
A. You can only afford to buy something if you have the cash to pay for it.
Income by Education
1. Income averages by education:
A. No high school degree: $24,000
B. High school graduate average income: $32,000
C. College graduate average income: $53,000
D. Professional degree: $80,000
What Millionaires Think
Take the Millionaire Game quiz. We will go over the quiz together when everyone is finished.
True or False?
a. Most millionaires are college graduates.
True or False?
a. Most millionaires are college graduates.
TRUE!!!
80% of millionaires have a college degree.
True or False?
b. Most millionaires work fewer than 40 hours a week.
True or False?
b. Most millionaires work fewer than 40 hours a week.
False!!
The average millionaire works 45-55 hours a week.
True or False?
c. More than half of all millionaires never inherited money.
True or False?
c. More than half of all millionaires never inherited money.
True!!!
Less than 10% of millionaires inherited their money.
True or False?
d. Most millionaires attended private schools.
True or False?
d. Most millionaires attended private schools.
False!!
Most millionaires attended public schools.
True or False?
e. Most millionaires drive expensive new cars.
True or False?
e. Most millionaires drive expensive new cars.
False!!
The average millionaire spends less than $30,000 for a car.
True or False?
f. Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech.
True or False?
f. Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech.
False!!
Most millionaires work in ordinary industries and jobs. They become wealthy because they invest and save.
True or False?
g. Most millionaires work for very large public companies.
True or False?
g. Most millionaires work for very large public companies.
False!!
About 75% of millionaires are self-employed and consider themselves entrepreneurs.
True or False?
h. Many poor people become millionaires by winning the lottery.
True or False?
h. Many poor people become millionaires by winning the lottery.
False!!
You are 6x more likely to be struck by lightning than win the lottery.
True or False?
i. A college graduate earns almost double the annual income of a high school graduate.
True or False?
i. A college graduate earns almost double the annual income of a high school graduate.
True!!!
Education pays off!!
True or False?
j. If a high school graduate invests the difference between his or her earnings and the earnings of a high school dropout, from age 18 until age 67 at 8% interest, the high school graduate would have $5.5 million more than the high school dropout by age 67.
True or False?
j. If a high school graduate invests the difference between his or her earnings and the earnings of a high school dropout, from age 18 until age 67 at 8% interest, the high school graduate would have $5.5 million more than the high school dropout by age 67.
True!!
This is a dramatic illustration of how important a high school diploma is!
True or False?
k. Investors who buy and hold stocks for the long-term have better long-term stock returns than those who buy and sell stocks more frequently.
True or False?
k. Investors who buy and hold stocks for the long-term have better long-term stock returns than those who buy and sell stocks more frequently.
True!!!
Studies show that those who buy and hold stock versus turning stock over quickly have greater net gains.
True or False?
L. Millionaires tend to avoid the stock market.
True or False?
L. Millionaires tend to avoid the stock market.
False!!
The S&P 500 has averaged a 10% return since 1926, exceeding the return on most investments.
True or False?
m. At age 18 you decide not to drink soda from the vending machine and save $1.50 a day. You invest this $1.50 a day at 8% interest until you are 67. At age 67, your savings from not buying soda from the vending machine is almost $300,000.
True or False?
m. At age 18 you decide not to drink soda from the vending machine and save $1.50 a day. You invest this $1.50 a day at 8% interest until you are 67. At age 67, your savings from not buying soda from the vending machine is almost $300,000.
True!!
Because of the power of compound interest, small savings can make a big difference!
True or False?
n. If you save $2,000 a year from age 22 to age 65 at 8% interest, your savings will be over $700,000 at age 65.
True or False?
n. If you save $2,000 a year from age 22 to age 65 at 8% interest, your savings will be over $700,000 at age 65.
True!!
The earlier you begin to save, the better! Regular saving can make you a millionaire, even if your salary is modest.
True or False?
o. Millionaires tend to be single rather than married.
True or False?
o. Millionaires tend to be single rather than married.
False!!
Most millionaires are married and stay married. Divorce is expensive!
Assignment: The Millionaire Rules
1. Title your paper “How to be a Millionaire” by _____ (your name)
2. Write down the “Millionaire Rules” and create a personal goal statement for each one.
Example: “I will go to ASU and graduate with a bachelor’s degree.”
Example: “I will find a degree that I am interested in, attend classes regularly, and complete my work.”
The Millionaire Rules:
1. Get a good education.
2. Work long, hard, and smart.
3. Learn money-management skills.
4. Spend less than you make.
5. Save early and often.
6. Stay out of debt.
7. Invest in common stocks for the long term.
8. Gather information before making decisions.