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CHAPTER 2: CAR – YOUR CAR SHOULDN’T BE A STATUS SYMBOL

Compare insurance quotes at Nerd Wallet: http://www.nerdwallet.com/insurance/compare-car-insurance-rates

When shopping for a quote, remember that insurers offer different levels of service and may have different reputations. I suggest checking their complaint history. A list is available through the National Association of Insurance Commissioners at the following link: www.naic.org/state_web_map.htm.


 

CHAPTER 4: A MILLION DOLLARS ON $10 A DAY – THE MAGIC OF COMPOUNDING

Table 1:

 

Betty

      Bob  

Ages

Annual Investment Total Wealth   Ages Annual Investment

Total Wealth

21

$2,000 $2,240 21 $ 0

$ 0

22

$2,000 $4,749 22 $ 0

$ 0

23

$2,000 $7,559 23 $ 0

$ 0

24

$2,000 $10,706 24 $ 0

$ 0

25

$2,000 $14,230 25 $ 0

$ 0

26

$2,000 $18,178 26 $ 0

$ 0

27

$2,000 $22,599 27 $ 0

$ 0

28

$2,000 $27,551 28 $ 0

$ 0

29

$2,000 $33,097 29 $ 0

$ 0

30s

$ 0 $37,069 30s $2,000

$2,240

40s

$ 0 $115,131 40s $2,000

$46,266

50s

$ 0 $357,580 50s $2,000

$183,005

60s

$ 0 $1,110,589 60s $2,000

$607,695

65

$ 0 $1,957,238 65 $2,000

$1,085,197

Total $18,000 Total

$72,000


CHAPTER 5: INVEST TO BUILD WEALTH

How does your your company’s 401(k) website compare to these: http://www.bloomberg.com/graphics/2015-401k/

Table 2:

 

Traditional 401(k) Roth 401(k)
Gross wages

$2,000

$2,000

Traditional 401(k) contribution (pre-tax)

($200)

Adjusted gross wages

$1,800

$2,000

Withholding taxes pad (estimate)

($487)

($544)

Roth 401(k) contribution (post-tax)

($200)

Net wages (take-home pay)

$1,313

$1,256

 

Table 3:

Duration

Total Cumulative Contributions

Total Wealth

One year

$3,650

$4,004

Five years

$18,250

$24,300

Ten years

$36,350

$62,903

20 year

$73,000

$221,663

30 years

$109,500

$622,351

40 years

$146,000

$1,633,636

50 years

$182,500

$4,185,983


CHAPTER 6: CHILDREN – KIDS ARE EXPENSIVE

Table 4:

Category

Expense

Percent

Public university

$88,812

24%

Housing

$87,120

23%

Childcare and education

$66,650

18%

Food

$40,830

11%

Transportation

$33,960

9%

Misc.

$20,070

5%

Healthcare

$18,180

5%

Clothing

$15,810

4%

Total

$371,292

 

CHAPTER 7: DEBT– BLACK IS THE NEW BLACK

Table 5:

  Average owed by households carrying this type of debt Total debt owed by all households
Credit cards $15,762 $733 billion
Mortgages $168,614 $8.25 trillion
Auto loans $27,141 $1.06 trillion
Student loans $48,172 $1.23 trillion
Consumer debt $130,922 $12.12 trillion

Table 6:

Here are a few theoretical examples to illustrate how long it would take to pay off various balances just by paying the minimum amount due each month. (We will assume the minimum amount due is 2 percent of the outstanding balance and that the interest rate is 18 percent.)

Outstanding Balance Balance Payoff Total Payments Principal Total Interest Paid
$1,000 150 months $2,397 $1,000 $1,397
$5,000 30+ years $17,556 $5,000 $12,556
$10,000 30+ years $35,113 $10,000 $25,113
$15,762 30+ years $55,344 $15,762 $39,582
$20,000 30+ years $70,225 $20,000 $50,225
$30,000 30+ years $105,338 $30,000 $75,338
$40,000 30+ years $140,450 $40,000 $100,450

The center column in the chart above “Total Payments” is the actual amount of money that you would have paid – the amount that you borrowed on the credit card plus the interest that you were charged, added together during the time it took to pay off the debt. You can see how quickly these debt totals add up and how debilitating that mountain of debt can become.

~~~~~~~

In order to get out of debt, you have to pay much more than the minimum. Let’s look at a few scenarios. I’m going to use varying debt levels and varying payments to illustrate how long it would take someone to repay their balance and get out of debt. (Again, we will assume that the APR is 18 percent. Note: These charts are assuming NO additional credit card debt. Obviously, if the borrower were to continue to incur additional debt, the possibility of ever paying off that debt decreases, potentially dramatically.)

Table 7:

Outstanding balance: $5,000

If my monthly payment is: I will be debt free in: My total payments would be: Principal

repaid:

Total interest

paid:

$250 24 months $5,989 $5,000 $989
$500 11 months $5,458 $5,000 $458
$750 8 months $5,308 $5,000 $308
$1,000 6 months $5,238 $5,000 $238

 

Table 8:

Outstanding balance: $10,000

If my monthly payment is: I will be debt free in: My total payments would be: Principal

repaid:

Total interest

paid:

$250 62 months $15,386 $10,000 $5,386
$500 24 months $11,978 $10,000 $1,978
$750 15 months $11,241 $10,000 $1,241
$1,000 11 months $10,916 $10,000 $916

 

Table 9:

Outstanding balance: $15,762 (the average outstanding balance in 2016)

If my monthly payment is: I will be debt free in: My total payments would be: Principal

repaid:

Total interest

paid:

$250 196 months $48,924 $15,762 $33,162
$500 44 months $21,503 $15,762 $5,741
$750 26 months $19,077 $15,762 $3,315
$1,000 19 months $18,119 $15,762 $2,357

 

Table 10:

Outstanding balance: $20,000

If my monthly payment is: I will be debt free in: My total payments would be: Principal

repaid:

Total interest

paid:

$500 62 months $30,772 $20,000 $10,772
$750 35 months $25,734 $20,000 $5,734
$1,000 24 months $23,957 $20,000 $3,957

 

Table 11:

Outstanding balance: $30,000

If my monthly payment is: I will be debt free in: My total payments would be: Principal

repaid:

Total interest

paid:

$750 62 months $46,159 $30,000 $16,159
$1,000 41 months $30,155 $30,000 $10,155

CHAPTER 10: A FEW TIPS TO LIVE WITHIN YOUR MEANS

Below is a chart illustrating how much wealth you can build on a modest salary, provided you are disciplined enough to save 15 percent annually.

Table 12:

Age Annual Salary 15% Invested Net Worth
21 $25,000 $3,750 $4,050
22 $25,750 $3,863 $8,546
23 $26,523 $3,978 $13,526
24 $27,318 $4,098 $19,033
25 $28,138 $4,221 $25,114
~~~ ~~~ ~~~ ~~~
30 $32,619 $4,893 $66,016
35 $37,815 $5,672 $130,750
40 $43,838 $6,576 $231,243
45 $50,820 $7,623 $385,130
50 $58,914 $8,837 $618,467
55 $68,298 $10,245 $969,690
60 $79,176 $11,876 $1,495,461
65 $91,786 $13,768 $2,279,247

(This table above assumes a consistent 8 percent return on your investment annually. This is just for illustrative purposes. Your actual investment – while it may earn a compounded annual growth rate of 8 percent – will not have a consistent return. Some years it will earn more, some years it will earn less, some years it will lose money, but using historical data, you should expect an 8 percent compounded return on your investment.)