September Topic - Building Wealth

Achieving your goal does not happen quickly. Building wealth must be taken step by step. First, you must decide a realistic goal. Take a few moments and decide where you would like to be 5 or 10 years from now. Next, decide how you plan to get there. You must allow yourself enough time to accomplish your goals. Then, you must have a plan that you feel is going to work for you. Most importantly, you have to be open-minded. What was important yesterday may not be tomorrow. Your goals may change as time goes on.

01.  Start on a Budget
02.  Building Wealth
03.  Examples of Investment Options
04.  Sample Budget Worksheet
05.  Questions on Building Wealth

Start on a Budget

Budgeting is most likely going to be a key step to achieving your goals. When it comes to finances, generally speaking people usually fall into a certain group. You may be a planner who budgets to save. Then there is the struggler who finds it difficult to budget and often is just making it financially. Deniers often say that they do not need to budget and they will be just fine. Finally you have your impulse spenders who do not care about their financial situation. They just assume everything will work out. Do you fall into one of these categories? Do you know which one you want to fall in to? You probably guessed it right. It is the planner.

You need to be in control of your financial situation. In our August newsletter we focused on budgeting. In case you missed that issue, we will cover it briefly again. A budget allows you to track your spending to the penny. A budget will let you know if you are living beyond your means. There is a budget worksheet on page 4 that will help you figure out your own budget. To budget you must track your spending for at least a week and review it. Find out where you can make changes and cut back.

To ensure that budgeting works in your favor follow these steps. First, calculate your monthly take home income and then put that number to the side. Next, track your daily spending. Figure out every penny and dime that you spend daily. Then figure out how much money you spend on bills. Finally, you want to add together how much money you put out each month between your daily spending and your bills. You may be surprised to see how much you are spending verses how much you are bringing in. Hopefully, you have a surplus in your budget to contribute to your savings account. Most Americans though live paycheck to paycheck and if that is the case then budgeting is exactly what you need.

Building Wealth

Budgeting and debt work hand in hand. It is very difficult to budget while trying to pay off debt. America has the most debt in the world! 1.4 million people filed for bankruptcy in 2001. It is important to pay off your debts and budget at the same time. Credit is one of the most important things in today's world to acquire things. Paying off your debt is a top priority, since primarily that will raise your credit scores. Assuming that you are taking steps in that direction you are on your way to a secure financial future. Obviously, money that is going to debt can't be used to invest or save. However, the good news is that once your debts are resolved there will be extra money to go toward investments. You may not realize that you are already budgeting. All that money that you pay every month to creditors is not in your daily budget. So, once you no longer have debt that money can go into your investment future.

Once you have resolved your debt and budgeted, what do you do with that money? You need to invest the money. There are all different ways to invest money. You should get guidance on your specific situation by a professional. There are good investments that will make you money and there are also bad investments that will lose you money. Any investment that you decide to go into should be well planned and thought out. Talk to people in that industry and find out the risks, if there are any.

Generally speaking the higher the risk the greater the return. If you choose to go with a saving account or mutual fund that is fully insured by the bank then usually the return is less than a stock. The reason is with a stock you are taking a chance of losing all your money, whereas with an account or fund you are playing it safe.

There are many things to think about before selecting an investment path to go with. For instance, think about how long you can have your money invested. Do you need the money in a year for a down payment on a house, or do you plan to leave it invested for many years. There are many options and all investments have different requirements and penalties. Some have penalties if you take your money out before the specified time.

Examples of Investment Options

Chart One: No Risk to Low Risk
Savings Accounts	Money Market Accounts	Certificate of Deposit (CD)
Interest Bearing	Interest Bearing	Interest Bearing
Access your money at any time	No fees if you maintain minimum balance	Must leave money in account for term to avoid penalties
Money Insured	Money Insured	Money Insured

Chart Two: Moderate Risk to High Risk
Stocks: part owner of company.	Bonds: lending your money.	Mutual Funds: Investing in many companies
High risk	Money is held for a certain amount of time	High risk
Part owner of company, therefore as company does well you will receive money.	Interest Bearing	Could have a cost in obtaining and managing a mutual fund.

Sample Budget Worksheet

First Step: Organize your expenses.
It sounds simple but many people take this area too general. You want to think of everything you spend money on. Obviously most people will have food, utilities, and mortgage/rent, but you will also have personal categories. You must think of extra activities that you do such as golf, or another sport you may participate in. The purpose of doing this is to become more aware of where every dollar goes.

Download our printable Microsoft Word Version worksheet that will assist you in this.

Monthly Expenses-Housing
1st Mortgage or Rent	$
2nd Mortgage or Equity Loan	$
Property Taxes (monthly)	$
Heat/Electricity/Water	$
Telephone (home and cell)/Internet/TV-Direct TV or cable	$
Total	$
Monthly Expenses-Insurance and Food
Auto Insurance	$
Home Insurance	$
Life Insurance	$
Health Insurance	$
Medical/Dental/Prescriptions	$
Total	$
Monthly Expenses-Other
Savings	$
Education	$
Children's Expenses (Child Support/Child Care)	$
Recreation/Vacations/Health Club/Sports	$
Books/Magazines	$
Cigarettes/Alcohol	$
Beauty (hair, nails, dry cleaning)	$
Car repairs and maintenance	$
Charity contributions	$
Gas	$
Total	$
Monthly Expenses-Debts
Credit Cards	$
Student Loans	$
Car Loans	$
Total	$
Grand Total	$

Questions on Building Wealth

What is a wealth asset?
It is something that you have that will increase in time. Some examples of a wealth asset are real estate, savings accounts and stocks or bonds.

Is a car a wealth asset?
No, a car is an asset but not a wealth asset. Cars do not appreciate with time. They will actually decrease in value the majority of the time.

What is a liability?
Money that you owe is considered a liability. A mortgage, car loan, credit card debt is all examples of liabilities.

What is net worth?
Net worth is your wealth. It is the difference between your assets and liabilities.

How do I calculate my wealth?
Take your assets and subtract them from your liabilities. For example, if you have assets of $100,000 and liabilities of $40,000 your net worth is $60,000.

What does a budget do for me?
It shows you where exactly your money is going. It lets you know if you are spending too much money. It also helps you figure out how to build your wealth.

What is an investment?
An investment is something you have for future income.

What is a stockholder?
When you buy stock in a company you become part owner.

What is a dividend?
When you buy stock, it is the income that you earn that is distributed to you by the corporation.

What is the difference between a treasury bond and a treasury bill?
A bond has a term of no less than 10 years whereas a bill has terms of 3,6 and 12 months.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 09
Rev.1
Sep, 2005