Personal Finance Planning

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Personal Finance Personal Finance Planning Planning 2010 – 10 - 17 2010 – 10 - 17 The Church of God in San Francisco The Church of God in San Francisco Daniel Mui, Daniel Mui, BSc, MBA BSc, MBA

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Personal Finance Planning. Daniel Mui, BSc, MBA. 2010 – 10 - 17 The Church of God in San Francisco. Life planning – goal in life Know where is the $ from Know where does the $ go Purpose of $ $ spending habit. Agenda. What do you expect from workshop? - PowerPoint PPT Presentation

Transcript of Personal Finance Planning

Page 1: Personal Finance Planning

Personal Finance PlanningPersonal Finance Planning

2010 – 10 - 172010 – 10 - 17The Church of God in San FranciscoThe Church of God in San Francisco

Daniel Mui,Daniel Mui, BSc, MBA BSc, MBA

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Life planning – goal in lifeLife planning – goal in life Know where is the $ fromKnow where is the $ from Know where does the $ goKnow where does the $ go Purpose of $Purpose of $ $ spending habit$ spending habit

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AgendaAgenda

What do you expect from workshop?What do you expect from workshop? What is money for? How much is needed? Enough? Goal?What is money for? How much is needed? Enough? Goal?

Exercise 1 – Who do you know?Exercise 1 – Who do you know? Knowledge is wealthKnowledge is wealth Basic principle of MoneyBasic principle of Money

Earning = Expense (+Tax) + SavingEarning = Expense (+Tax) + Saving Exercise 2 – Where is the money from and where does it go?Exercise 2 – Where is the money from and where does it go?

Labor Vs CapitalistLabor Vs Capitalist ROI, Risk & Return on InvestmentROI, Risk & Return on Investment Leverage of moneyLeverage of money

Exercise 3 Case study on Mortgage examplesExercise 3 Case study on Mortgage examples Responsibility as a providerResponsibility as a provider Retire earlyRetire early

Work for money or money works for you?Work for money or money works for you? Q&AQ&A

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What do you expect from What do you expect from workshop?workshop?

Learn how to manage your bills?Learn how to manage your bills? Make more money?Make more money? Retire early?Retire early? Expand your knowledge?Expand your knowledge? Sit, hear, sleep and get rich?Sit, hear, sleep and get rich? Desire to get rich?Desire to get rich? Willing to work toward the goal?Willing to work toward the goal?

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What do you expect from What do you expect from workshop?workshop? This is purely a sharing session. This is purely a sharing session.

Neither the speaker or the organizer Neither the speaker or the organizer resumes any liability on the resumes any liability on the consequence of your own finance consequence of your own finance planning. Please discuss with your planning. Please discuss with your accountant for the detail of your accountant for the detail of your personal finance planning.personal finance planning.

Finance planning --- do it at your Finance planning --- do it at your own risk. Don’t do it at your destiny own risk. Don’t do it at your destiny of failure.of failure.

Life is fragile, handle with God!Life is fragile, handle with God!

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What is money for? What is money for? How much is needed? How much is needed? Enough?Enough?

Can you bring money to your Can you bring money to your coffin for your future usage?coffin for your future usage? TemporaryTemporary Only used on earthOnly used on earth

Need = Want ?Need = Want ? How much is enough?How much is enough?

Write down your expectation as of Write down your expectation as of today.today.

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Life planning with $Life planning with $

Money management habitMoney management habit Milestones in lifeMilestones in life

CarCar Master DegreeMaster Degree MarriageMarriage HouseHouse Other investmentOther investment BusinessBusiness ChildrenChildren College for childrenCollege for children RetirementRetirement Building ChurchBuilding Church Helping community and worldHelping community and world

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Exercise 1 – Who do you know?Exercise 1 – Who do you know?

Write down what do you think of Write down what do you think of finance planning. Do you have one finance planning. Do you have one already?already?

5 people that you spend most of your 5 people that you spend most of your time.time.

What do these 5 people do about What do these 5 people do about financial plan? What are their life financial plan? What are their life styles with their spending?styles with their spending?

Write down 2 people that you think Write down 2 people that you think are financially well planned. What are financially well planned. What are their value and how they are their value and how they succeed?succeed?

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Conclusion 1Conclusion 1

與智慧人同行的、必得智 與智慧人同行的、必得智 慧.和愚昧人作伴的、必 慧.和愚昧人作伴的、必 受虧損。 箴言 受虧損。 箴言 13:20 13:20

He that walketh with wise men He that walketh with wise men shall be wise: but a companion shall be wise: but a companion of fools shall be destroyed. of fools shall be destroyed. Proverbs 13:20 Proverbs 13:20

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How much is needed? Enough?How much is needed? Enough?

Warren Buffet, the 2nd richest American Warren Buffet, the 2nd richest American man who has donated ~ $31 billion to man who has donated ~ $31 billion to charity. charity. He still lives in the same, small 3-bedroom He still lives in the same, small 3-bedroom

house in midtown Omaha, that he bought after house in midtown Omaha, that he bought after he got married 50 years ago. He says that he he got married 50 years ago. He says that he has everything he needs in that house. has everything he needs in that house.

He drives his own car everywhere and does not He drives his own car everywhere and does not have a driver. have a driver.

He does not travel by private jet, although he He does not travel by private jet, although he owns the world's largest private jet company. owns the world's largest private jet company.

Warren Buffet does not carry a cell phone, nor Warren Buffet does not carry a cell phone, nor has a computer on his desk.has a computer on his desk.

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His advice to young people: 'Stay His advice to young people: 'Stay away from credit cards and invest away from credit cards and invest in yourself, and remember: in yourself, and remember: Money doesn't create man, but it is the Money doesn't create man, but it is the

man who created money. man who created money. Live your life as simple as you are. Live your life as simple as you are. Don't do what others say. Just listen to Don't do what others say. Just listen to

them, but do what makes you feel good. them, but do what makes you feel good. Don't go on brand name. Wear those Don't go on brand name. Wear those

things in which you feel comfortable. things in which you feel comfortable. Don't waste your money on unnecessary Don't waste your money on unnecessary

things. Spend on those who really are in things. Spend on those who really are in need. need.

After all, it's your life. Why give others the After all, it's your life. Why give others the chance to rule it?chance to rule it?

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Knowledge is powerKnowledge is power

If you can ask Warren Buffet If you can ask Warren Buffet one question, what will you ask?one question, what will you ask? Which stock you are going to Which stock you are going to

invest?invest? Warren answers:Warren answers:

He won’t tell it because it depends He won’t tell it because it depends on the time and marketon the time and market

What do we need to know to What do we need to know to make use of information?make use of information?

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Knowledge is wealthKnowledge is wealth

3 people paid their loans3 people paid their loans 3 men owed $100 each to a friend. When 3 men owed $100 each to a friend. When

this friend died, these three men came to this friend died, these three men came to pay back their loans.pay back their loans.

The first man put $100 money note at the The first man put $100 money note at the grave and said goodbye to his friend.grave and said goodbye to his friend.

The second man came. He took the $100 The second man came. He took the $100 money note and left a $200 cash check at money note and left a $200 cash check at the grave.the grave.

The third man came. He took the $200 The third man came. He took the $200 cash check and left a $300 cross check cash check and left a $300 cross check with payable only to the dead man.with payable only to the dead man.

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Basic principle of MoneyBasic principle of Money

1.1. Earning = ExpenseEarning = Expense2.2. Earning + Credit = ExpenseEarning + Credit = Expense3.3. Earning + Credit + loanEarning + Credit + loan = Expense + Tax = Expense + Tax

4.4. Earning = Tax + Offering + Donation + Earning = Tax + Offering + Donation + Saving + Expense Saving + Expense

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Exercise 2 Exercise 2 – Household balance sheet– Household balance sheet Balance SheetBalance Sheet A healthy budget should have 5-A healthy budget should have 5-

10% disposable income. 10% disposable income. The saving % will depend on The saving % will depend on

individual finance planningindividual finance planning

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Labor Vs CapitalistLabor Vs Capitalist

Price = Cost + Profit Price = Cost + Profit Labor Labor Work Work salary salary Capital Capital Investment Investment profit profit

e.g. Burger shop Vs McDonalde.g. Burger shop Vs McDonald hair stylist, engineer, workerhair stylist, engineer, worker Landlord, InvestorLandlord, Investor

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ROI, Risk & Return on InvestmentROI, Risk & Return on Investment

Investment – seedInvestment – seed RiskRisk ReturnReturn AssumeAssume

4%4% 10 years:10 years:

48%48%

Dow Jones IndustrialsNYSE CompositeNASDAQ Composite

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Risk of stockRisk of stock

Oct 19,1987 Oct 19,1987 Dow Jones Industrial AverageDow Jones Industrial Average (DJIA) dropped (DJIA) dropped

by 508 points to 1739 (22.6%) by 508 points to 1739 (22.6%) By the end of October, stock markets in By the end of October, stock markets in

Hong KongHong Kong had fallen 45.8%, had fallen 45.8%, AustraliaAustralia 41.8%, 41.8%, SpainSpain 31%, the 31%, the United KingdomUnited Kingdom 26.4%, the 26.4%, the United States 22.68%, and Canada 22.5%. New United States 22.68%, and Canada 22.5%. New Zealand's market was hit especially hard, falling Zealand's market was hit especially hard, falling about 60% from its 1987 peak about 60% from its 1987 peak

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Risk – 1997 Asia Financial CrisisRisk – 1997 Asia Financial Crisis

The Thai stock market dropped 75% in 1997. The Thai stock market dropped 75% in 1997. 20 October and 23 October the Hang Seng Index dropped 20 October and 23 October the Hang Seng Index dropped

23% 23% The HKG Government ended up buying approximately The HKG Government ended up buying approximately

HK$120 billion (US$15 billion) worth of shares in various HK$120 billion (US$15 billion) worth of shares in various companies.companies.

Singapore Straits Times Index was allowed to drop 60% Singapore Straits Times Index was allowed to drop 60% Property market crashed Property market crashed Negative assets for years! Negative assets for years!

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2000-2010 US stock market2000-2010 US stock market

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Changing environmentChanging environment

Know the change in the finance system. Know the change in the finance system. Learn the new system!Learn the new system! $50,000 could buy a house 20 years ago. $50,000 could buy a house 20 years ago.

House was taken as personal consumption but House was taken as personal consumption but now is an investmentnow is an investment

Most people were brought up with worker Most people were brought up with worker mentality but more and more people have their mentality but more and more people have their small businesssmall business

Buying stock was considered speculation before Buying stock was considered speculation before but it is a popular investment way. People but it is a popular investment way. People become share holder who own the business!become share holder who own the business!

Insurance was considered as lack of faith in Insurance was considered as lack of faith in God’s protection but now is more acceptable as God’s protection but now is more acceptable as a consideration for the familya consideration for the family

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Exercise 3 Exercise 3 – Mortgage leverage of money– Mortgage leverage of money

Loan & mortgageLoan & mortgage e.g. House of $500,000e.g. House of $500,000 10% down payment, 90% 10% down payment, 90%

mortgage loanmortgage loan House appreciate 5% annuallyHouse appreciate 5% annually Mortgage interest 4.375% Mortgage interest 4.375%

annuallyannually

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Mortgage leverage simple sampleMortgage leverage simple sample

House price $ 500,000    

Down payment $ (50,000) 10.000%  

Loan $ 450,000    

Mortgage interest $ 19,688 4.375% Annual

Appreciation $ (25,000) 5.000% Annual

Leverage gain $ (5,313)   GAIN

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Mortgage leverage detail sampleMortgage leverage detail sample

Must see spreadsheet for detail calculation and ASSUMPTIONS

House price $ 500,000    

Down payment $ (50,000) 10%  

Loan $ 450,000    

Mortgage interest $ 19,688 4.375% 30 years fixed

Appreciateion $ (25,000) 5% Annual

CD interest for down payment $ (1,000) 2% Annual

Saving in rent $ (18,000)   $1500 / mon

Tax benefit from mortgage $ (2,953) 15% Annual

Leverage gain $ (27,266)   GAIN

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Other discussionOther discussion-- 401K & retirement-- 401K & retirement The The 401(k)401(k) plan is a type of employer-sponsored plan is a type of employer-sponsored

retirement planretirement plan. It allows a worker to defer the . It allows a worker to defer the income up to $15,500/year for retirement. The income up to $15,500/year for retirement. The income taxesincome taxes on the saved money and earnings are on the saved money and earnings are also deferred until withdrawal (normally after age also deferred until withdrawal (normally after age 59.5). Very often employer may match a percentage 59.5). Very often employer may match a percentage or up to an amount of the 401k contribution.or up to an amount of the 401k contribution.

Benefit:Benefit: Employer matchEmployer match Allow borrowing for certain conditions (with tax & Allow borrowing for certain conditions (with tax &

penalty)penalty) First home, hardship, etcFirst home, hardship, etc

Deferred income tax on the 401k contributionDeferred income tax on the 401k contribution It may not be an advantage if your retirement income is It may not be an advantage if your retirement income is

more than your current incomemore than your current income http://www3.prudential.com/signature/retirement-10http://www3.prudential.com/signature/retirement-10

1.html#1.html#

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Retire early?Retire early?

HealthHealth Children Children Life styleLife style IncomeIncome

Social SecuritySocial Security 401k401k Social BenefitsSocial Benefits InvestmentInvestment

ExpenseExpense Vacation, travelVacation, travel Learning & sharingLearning & sharing

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ReferenceReference

http://www.consumercredit.com/budget-sheet.htmhttp://www.consumercredit.com/budget-sheet.htm http://financialplan.about.com/http://financialplan.about.com/ http://www3.prudential.com/signature/basics.htmlhttp://www3.prudential.com/signature/basics.html http://www.richdad.comhttp://www.richdad.com http://www.oneminutemillionaire.com/challenge/http://www.oneminutemillionaire.com/challenge/ http://www.studentfinancedomain.com/budgets/http://www.studentfinancedomain.com/budgets/

student_budget_plan.aspxstudent_budget_plan.aspx

Recommend reading:Recommend reading: Finance news, magazine e.g. Business Times, Finance news, magazine e.g. Business Times,

EconomicsEconomics Rich dad, poor dad – Robert Kiyosaki Rich dad, poor dad – Robert Kiyosaki The Road to Wealth – Suze OrmanThe Road to Wealth – Suze Orman The One Minute Millionaire – Mark HansenThe One Minute Millionaire – Mark Hansen

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Question & AnswerQuestion & Answer