Foundations of Leadership Conference

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Foundations of Leadership Conference

• Lead Out in
• Personal Finance
• Bryan L. Sudweeks, Ph.D., CFA
• August 25, 2009

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Abstract

• You are a leader, and others look up to you in
  all you do and say. Whether you like it or not,
  you have an influence on what others may do and
  become. Make leading out in personal finance
  another one of the important areas in which you
  lead, by internalizing the principles of
  finance, living on a budget, understanding and
  using credit wisely, minimizing debt, and
  learning to give.

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Leadership

• A leader is one who knows the way,
• goes the way, and shows the way.
• Poster in my daughters 7th grade classroom

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Objectives

• Remember the Principles
• Embrace the B Word
• Tame the C Monster
• Use wisely the D Word
• Learn to Give

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A. Remember the Principles

• Elder Richard G. Scott commented
• Joseph Smiths inspired statement, I teach them
  correct principles, and they govern themselves,
  still applies. The Lord uses that pattern with
  us. . . Your consistent adherence to principle
  overcomes the alluring yet false life-styles that
  surround you. Your faithful compliance to correct
  principles will generate criticism and ridicule
  from others, yet the results are so eternally
  worthwhile that they warrant your every sacrifice
  (Richard G. Scott, The Power of Correct
  Principles, Ensign, May 1993, 32).
• What are those correct principles that are so
  eternally worthwhile?

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Principle 1 Ownership

• 1. Ownership Everything we have is the Lords
• The Psalmist wrote
• The earth is the Lords, and the fullness
  thereof the world, and they that dwell therein.
  (Psalms 241)
• The Lord is the creator of the earth (Mosiah
  221), the supplier of our breath (2 Nephi 926),
  the giver of our knowledge (Moses 732), the
  provider of our life (Mosiah 222), and the giver
  all we have and are (Mosiah 221).
• Nothing we have is our ownits all Gods
• .

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Principle 2 Stewardship

• 2. We are stewards over all that the Lord has, is
  giving, or will share with us
• The Lord through the Prophet Joseph Smith stated
  
• It is expedient that I, the Lord, should make
  every man accountable, as a steward over earthly
  blessings, which I have made and prepared for my
  creatures. (DC 10413)
• The Lord through the prophet Brigham Young said
• Thou shalt be diligent in preserving what thou
  hast, that thou mayest be a wise steward for it
  is the free gift of the Lord thy God, and thou
  art his steward. (DC 13627)

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Principle 3 Agency

• 3. We were given agency by a loving Father
• President Marion G. Romney commented
• Agency means the freedom and power to choose and
  act. Next to life itself, it is mans most
  precious inheritance. (Ensign, May 1976, p. 120.)
  
• President David O. McKay
• Next to the bestowal of life itself, the right
  to direct that life is Gods greatest gift to
  man. Freedom of choice is more to be treasured
  than any possession earth can give (italics
  added, in Conference Report, Apr. 1950, p. 32
  italics added).

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Principle 4 Accountability

• 4. Accountability We are accountable for every
  choice we make
• The Lord through the prophet Joseph stated
• For it is required of the Lord, at the hand of
  every steward, to render an account of his
  stewardship, both in time and in eternity. (DC
  723)
• Elder Todd Christofferson recently stated
• We control the disposition of our means and
  resources, but we account to God for this
  stewardship over earthly things. (D. Todd
  Christofferson, Come to Zion, Ensign, November
  2008. )

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What is Really Ours?

• Elder Neal A. Maxwell stated
• The submission of ones will is really the only
  uniquely personal thing we have to place on Gods
  altar. The many other things we give, brothers
  and sisters, are actually the things He has
  already given or loaned to us. However, when you
  and I finally submit ourselves, by letting our
  individual wills be swallowed up in Gods will,
  then we are really giving something to Him! It is
  the only possession which is truly ours to give!
  (italics added, Swallowed Up in the Will of the
  Father, Ensign, Nov. 1995, 22.)

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B. Embrace the B Word - Budget

• President Spencer W. Kimball said
• Every family should have a budget. Why, we would
  not think of going one day without a budget in
  this Church or our businesses. We have to know
  approximately what we may receive, and we
  certainly must know what we are going to spend.
  And one of the successes of the Church would have
  to be that the Brethren watch these things very
  carefully, and we do not spend that which we do
  not have. (Conference Report, April 1975, pp.
  166-167)
• And if the Brethren watch these things very
  carefully, shouldnt we?

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Budgeting (continued)

• What is a Budget?
• Its the single most critical tool in helping you
  achieve your personal and financial goals
• Its the process of making sure your resources
  are used for the things that matter mostyour
  personal goals
• Budgeting is a star (or tool) to set your sights
  by, not a stick to beat yourself with.

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Budgeting (continued)

• What is the Budgeting Process?
• 1. Know what you want to accomplish
• 2. Track your spending
• 3. Develop your budget
• 4. Implement your budget
• 5. Compare it to actual spending, then make
  changes where necessary to achieve your goals

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Budgeting (continued)

• 1. Know what you wantwrite it down
• What do you want to accomplish?
• Do you want to
• Prepare for a mission?
• Prepare to be a worthy husband or wife?
• Graduate?
• Get a great job?
• Return to your Heavenly Father?
• Determine what you want to do, then write it
  down. A goal not written is only a wish

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Budgeting (continued)

• 2. Track your Spending
• There are different methods to track spending
• Checks and credit cards
• These leave a paper trail
• Cash
• Record spending in a notebook
• Computer programs, i.e., Quicken, Money
• These are useful, especially if tied to bank and
  credit card companies
• The goal is to generate a record of everything
  you earn and spend

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Budgeting (continued)

• 3. Develop a Budget--the better way
• What is a Budget?
• Its a plan for controlling earning and spending
• Its purpose -- To help you spend your money of
  what is really important to you
• Earnings/scholarships/gifts/grants
• Determine what you earned last year, and make
  adjustments for the current year
• Expenses/school costs
• Identify all fixed (must have) and variable
  (would be nice to have) spending
• Look for ways to reduce your variable spending

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Budgeting The Old Way
Available for Savings
Income
Expenses
Tithing
Personal Goals
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Budgeting The Better Way
Other Savings
Income
Expenses
Pay the Lord
Pay Yourself
Personal Goals
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Budgeting The Better Way (continued)

• Before
• You paid the Lord first, lived on the rest, and
  whatever money was left at the end of the month
  went into savings--your priorities were wrong
• Now
• Pay the Lord first, yourself second, and then
  live on the rest--your priorities are now in
  order
• Now you have twice the chance of achieving your
  personal goals

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The Better Way (continued)

• Elder L. Tom Perry said
• After paying your tithing of 10 percent to the
  Lord, you pay yourself a predetermined amount
  directly into savings. That leaves you a balance
  of your income to budget for taxes, food,
  clothing, shelter, transportation, etc. It is
  amazing to me that so many people work all of
  their lives for the grocer, the landlord, the
  power company, the automobile salesman, and the
  bank, and yet think so little of their own
  efforts that they pay themselves nothing. (L. Tom
  Perry, Becoming Self-Reliant, Ensign, Nov.
  1991, 64.)

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Budgeting (continued)

• 4. Implement your budget
• Try the budget for a month
• Record all earning and spending in a spreadsheet
• Sum all days or columns by category
• Note how much you have available in each category
  at the end of each week
• Adjust the plan as necessary to maintain the plan

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Budgeting (continued)

• 5. Compare budget to spending
• Compare your budget to actual spending
• Adjust the plan or your expenses as necessary to
  maintain the plan
• Dont reduce payments to the Lord or yourself
• If all else fails, this system will work!
• The Envelope System
• Put money for each expense in an envelope
• When the money is gone, its gone
• It forces you to make it work

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Budgeting (continued)

• Elder Marvin J. Ashton stated
• Some claim living within a budget takes the fun
  out of life and is too restrictive. But those who
  avoid the inconvenience of a budget must suffer
  the pains of living outside of it. The Church
  operates within a budget. Successful business
  functions within a budget. Families free of
  crushing debt have a budget. Budget guidelines
  encourage better performance and management.
  (italics added, Marvin J. Ashton, Its No Fun
  Being Poor, Ensign, Sept. 1982, 72.)

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Want help with Budgeting?

• You can download a copy of a budgeting
  spreadsheet in the better way format from the
  Personal Finance website at
• http//personalfinance.byu.edu.
• Click on Teaching Tools and Teaching Tool 31
  Budget spreadsheet (which includes tools to help
  prepare your Budget and also get out of debt)

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C. Tame the C Monster - Credit

• Know about Credit Reports, Credit Scoring, and
  Credit Cards
• 1. Credit reports
• Information collected by credit bureaus from
  private and public records
• 2. Credit scoring
• A numerical evaluation of your credit based on
  specific criteria (similar to a grade in a class)
• 3. Credit cards
• Either the single most destructive financial
  instrument in the history of mankind or a
  financial tool to help you attain your goals

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1. Credit Reports

• What are credit reports?
• Credit reports are privately collected
  information on all your existing and available
  credit
• It includes all your borrowing history, credit
  card balances and payment history, mortgages,
  phone payment records and the like
• Like it or not, it is a record of how well you
  handle credit

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2. Credit Scoring

• What is credit scoring?
• Its a way of grading your ability to pay back
  loans
• 75 of all mortgage (home loan) applications are
  sorted on credit scores
• It may help you get the lowest interest rate on
  many types of consumer loans
• Home, car, and consumer
• It also may reduce the cost of your insurance
  products
• These are based on your credit score
• Know your credit score!!!!!!!!

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Credit Scoring

• How does credit scoring work?
• Lenders base your interest rate on your score
• The higher the score, the lower the rate
• Research by Fico showed (Fico uses a 0-850
  range)
• 300,000 30-year fixed rate mortgage
• Scores 760 paid 4.873 Scores 700 paid 5.095
• Scores 680 paid 5.272 Scores 660 paid 5.486
  
• Scores 640 paid 5.916 Scores 620 paid 6.462
• Source http//www.myfico.com/ 26Jan09
• The above mortgage at the bottom versus the top
  rate paid 108,523 more in interest over the life
  of the loan

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3. Credit Cards

• Credit cards
• Either the most destructive financial instrument
  in the history of mankind or a tool to help you
  achieve your goals. It depends on you!
• What are the correct uses of credit cards?
• Guarantee / Emergency Use
• Convenience, float, or timing
• Free services
• What are the problems with credit cards?
• It is too easy to spend money
• Its easy to lose track of what you spend
• Interest costs on credit cards are very high
  (12-28)

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Credit Cards (continued)

• Keys to effective credit card use
• Know your goals
• Spend only on things planned in your budget
• Dont go into debt
• Use wisdom in your expenditures
• Dont use credit cards to finance school
  expenses!!!!

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Too Much Credit (Applications)?

• Getting too much junk mail (i.e., credit card
  applications)?
• Get rid of it! It also reduces the opportunity
  for identity theft.
• Take your name off the mailing lists of the major
  credit reporting agencies
• Call 1-888-567-8688 or 1-888-5 OPT OUT or go to
  www.optoutprescreen.com
• Answer the questions on the phone or online. It
  only asks your name, phone number, and social
  security number.

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D. Use Wisely the D Word - Debt

• Level of Education  Annual Earnings 
  Lifetime Earnings 
• Not a HS graduate  21,314 
  852,577
• High school graduate  30,560
  1,222,396
• Two-year vocational 36,833
  1,473,335
• Associate  38,118  1,524,703 
• Bachelors  49,334  1,973,760 
• Masters  57,676 2,307,025 
• Doctorate/Professional 71,573 
  2,862,914 
• Source Give Yourself the Gift of a Degree
  Vocational Education Worth Almost 1.5 Million
  Over Working Lifetime," an EPF News Release from
  the Employment Policy Foundation. December 19,
  2001, Washington, D.C..

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Does Education Pay?

• President Gordon B. Hinckley counseled
• You young people, the little decisions that you
  make can so affect your lives. Shall I go to
  school or not? Shall I continue on with my
  education? That is a big decision for some of
  you. Our doctrine suggests, although there may be
  some circumstances that would affect that
  decision, that the more education you receive the
  greater will be your opportunity to serve. That
  is why this Church encourages its young people to
  get the schooling that will qualify them to take
  their places in the society in which they will
  become a part. Make the right decisions. Take a
  long look. (italics added, Pocatello, Idaho,
  regional conference, Idaho State University, 4
  June 1995).

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Use Debt Wisely

• What has been the prophets counsel on debt?
• President James E. Faust stated
• Over the years the wise counsel of our leaders
  has been to avoid debt except for the purchase of
  a home or to pay for an education. I have not
  heard any of the prophets change this counsel.
  (Doing the Best Things in the Worst Times,
  Ensign, August 1984, 41)
• How do we minimize debt while at the same time
  getting an education?
• By using debt wisely and sparinglyusing the
  Priority of Money for Education

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The Priority of Money for Education

• Is there a priority of money for financing
  school?
• Priority of Money for School
• 1. Free Money
• 2. Family Money
• 3. Employment
• 4. Loans
• 5. Credit Cards
• Remember credit cards are last on the list!

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1. Free Money

• Get free money first--scholarships and grants
• This is free money which is not paid back
• If you pay to get a scholarship its a scam!
• Grants are need-based--complete the FAFSA
• Pell Grant approximately 976-5,350/year
• ACG Grant approximately 750-1,300/year
• SMART Grant approximately 4,000/year
• SEOG Grants not available at BYU
• Scholarships from schools and private sources
• You may need a supplemental application
• Find out which ones you are eligible for on a
  scholarship search engine and apply for each
• Armed Forces Scholarships See recruiting offices

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2. Personal and Family Money

• Use personal savings and help from parents next
• If children pay for their education and missions,
  they will likely use their resources more wisely,
  as its their money they are spending.
• Start the process of financial self-reliance as
  soon as you can.
• Do as much as you can to help your children, but
  dont do it all
• If parents and grandparents can help, that is
  wonderful.
• Express appreciation to anyone who helps!

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3. Employment

• Work when possible to offset education expenses
• Most colleges offer federal College Work Study.
  Some universities, including BYU, provide
  thousands of student employment opportunities
  from their own funds.
• Undergraduate students enrolled in 12 semester
  hours should work no more than 20 work hours per
  week. This may cover rent and food expenses.
• Working summers to save for mission and college
  is also very desirable.

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4. Loans

• Use (all) loans wiselythey are debt
• There are five main items to be aware of with
  loans
• a. Who pays the interest during school?
• The borrower or the government?
• b. When must you start paying back the loan?
• Immediately or after graduation?
• c. Who takes out the loan?
• You or your parents?
• d. What is the interest rate cap?
• What is the highest rate you may pay?
• e. What are the costs?

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Loans (continued)

• A. Subsidized loans
• 1. Subsidized Federal Loans
• Subsidized Stafford Loans Student loan where
  the government pays interest while the student is
  in school and repayment begins after graduation
• 2. Subsidized Private Loans
• Student loan from private institutions, such as
  the Woolley Law Loan or the Marriott School of
  Management Loan where the institution pays
  interest while the student is in school and
  repayment begins after graduation

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Loans (continued)

• B. Unsubsidized loans
• 1. Unsubsidized Federal Loans
• Unsubsidized Stafford Loans Student loan where
  interest accrues immediately and repayment begins
  after graduation
• 2. PLUS Loans Parent Loans for Undergraduate
  Students
• Parent loan where repayment begins 60 days after
  the loan is given and parent pays interest

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Loans (continued)

• C. Private Loans (also called Alternative Loans )
• Student loan where repayment begins immediately
  and interest rates are MUCH higher
• Caution -- these unsubsidized loans are much more
  expensive than federal unsubsidized loans
• These loans also may have higher up-front fees
  and may require a cosigner. Read the fine print
  VERY CAREFULLY BEFORE TAKING OUT THESE LOANS

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5. Credit Cards

• These are the most expensive way to borrow
• They require you to pay it back immediately
• There is no help in the payment of interest
• The interest rates are extremely high and you are
  in school
• This is the least advisable way to finance
  schooling and is usually the result of poor
  planning!

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E. Learn to Give

• Someone wrote
• We make a living by what we earn, but we make a
  life by what we give.
• If you cant learn to give when you are poor, you
  will never learn to give when you are rich.
• Now is the time to continue your life-long habit
  of giving
• Learn to give of what you haveyour time,
  talents, and resources.
• Make giving a part of each and every day
• Realize it is not what we have, but what we give,
  that makes us rich, with the riches of eternity

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Summary

• A. Remember the Principles of Finance
• Ownership None of this is ours
• Stewardship We are stewards over all we have
  been, are, or will be blessed with
• Agency The privilege to choose is a God-given
  gift
• Accountability We will be held accountable for
  all our choices in life (including our financial
  choices)

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Summary (continued)

• B. Embrace the B Word Budget
• 1. Know what you want to accomplish
• 2. Track your spending
• 3. Develop your budget
• 4. Implement your budget
• 5. Compare it to actual spending, then make
  changes where necessary to achieve your goals
• And budget the better way

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Summary (continued)

• C. Tame the C Monster - Credit
• Understand
• 1. Credit reports
• 2. Credit scoring
• 3. Credit cards

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Summary (continued)

• D. Avoid or use wisely the D Word - Education
  Debt
• 1. Free Money
• 2. Family Money
• 3. Employment
• 4. Loans
• 5. Credit Cards

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Summary (continued)

• E. Learn to Give
• Make giving a part of your everyday goals
• Learn to give
• Of your time
• Of your talents
• Yes, and even of your meager resources

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Leadership

• A Leader is one who knows the way,
• goes the way, and shows the way.
• Poster in my daughters 7th grade classroom

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Tools to Teach Personal Finance

• The BYU Marriott School Personal Finance Website
  is a great and free resource
• We have prepared a website of Personal finance
  information from a gospel perspective to help you
  to know, go, and show the way. It is at
• http//personalfinance.byu.edu
• It contains a number of beginning, intermediate,
  and advanced courses, with its purpose is to help
  students and non-students get their financial
  houses in order. All information from the
  website is freely shareable with others without
  cost.

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BYU Website
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Assignment

• Want something to do before school starts? Go
  to http//personalfinance.byu.edu, go to
• Courses of Study
• Beginning Courses, and
• Beginning Course for College Students.
• Complete that course. You will be very well
  prepared financially for the monetary challenges
  in College ahead. Then, later on, go and do the
  Advance College Course to really prepare yourself
  for life.

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Thank You

• I leave you with my excitement, my testimony of
  the gospel, and one of my favorite scriptures,
  DC 4562
• For verily I say unto you,
• that great things await you.
• For they truly do
• As you lead out in Personal Finance