FIN102-Chapter 1 - Planning For Financial Success

Finance 102 - Personal Finance
Financial and Self-Reliant Principles
FIN 102-Personal Finance Chapter 1

CHAPTER 1 – PLANNING FOR FINANCIAL SUCCESS PA GE |1
Chapter 1
Planning for Financial Success
Lifelong Personal Financial Principles
“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.” D&C 136:27
Objectives
1. Understand the scope and value of personal financial skills you will develop.
2. Understand why the study of personal financial skills is so important.
3. Understand the math and structure of personal financial statements.
4. Understand the power of budgeting and net worth calculation in financial
management.
5. Recognize how financial records and statements will facilitate personal
money management.
FIN102 PERSONAL FINANCE

INTRODUCTION
In the October 1980 General Conference, President Ezra Taft Benson said the
following:
“For over forty years, in a spirit of love, members of the Church

have been counseled to be thrifty and self-reliant; to avoid debt;
pay tithes and a generous fast offering; be industrious; and have
sufficient food, clothing, and fuel on hand to last at least one
year. Today there are compelling reasons to reemphasize this
counsel.”
The counsel was good then. It is even better today. More than ever before, we
need to learn and apply the principles of economic self-reliance. We do not
know when a crisis involving sickness or unemployment may affect our own
circumstances; however, we do know that the Lord has decreed global
calamities for the future and has warned and forewarned us to be prepared. For
this reason, the leaders of the Church of Jesus Christ of Latter-Day Saints have
repeatedly stressed a “back to basics” program for temporal and spiritual
welfare. (Ensign, Nov 1980, “Prepare for the Days of Tribulation”)
From the Self-Reliance section of the Church’s website, the following information
sets the foundation for the principles of this course:
The purpose of becoming spiritually and temporally self-reliant is to become

better able to serve the Lord and care for others (see John 15:8). The Savior
invites us all to act, to stand independent, and to become as He is. He will help
us. He has promised: “It is my purpose to provide for my saints, for all things are
mine. But it must needs be done in mine own way” (Doctrine and Covenants
104:15–16). His way includes learning and living the principles of self-reliance—
“the ability, commitment, and effort to provide the necessities of life for self and
family” (Providing in the Lord’s Way: Summary of a Leader’s Guide to Welfare
[2009]).
Accepting and living the following principles of self-reliance will help us receive
the spiritual and temporal blessings promised by the Lord.
1. Exercise Faith in Jesus Christ. The Lord has all power. He can and will work
great tender mercies among those who trust Him in all things. As we
exercise faith in Jesus Christ, He can do miracles.
2. Be Obedient. Obedience to God’s laws, principles, and promptings leads
to spiritual and temporal blessings.

3. Act. Individual accountability and action activate blessings.

4. Serve and be united. Service and unity build Zion—this is the way of the
Lord. Elder Robert D. Hales of the Quorum of the Twelve Apostles said,
“Only when we are self-reliant can we truly emulate the Savior in serving
and blessing others” (“A Gospel Vision of Welfare: Faith in Action,” in Basic
Principles of Welfare and Self-Reliance [booklet, 2009], 2).
Prophetic Promises
The First Presidency has said: “We invite you to diligently study and apply these
principles and teach them to your family members. As you do so, your life will be
blessed. You will learn how to act on your path toward greater self-reliance. You
will be blessed with greater hope, peace, and progress.
“Please be assured that you are a child of our Father in Heaven. He loves you
and will never forsake you. He knows you and is ready to extend to you the
spiritual and temporal blessings of self-reliance” (First Presidency letter, in My
Foundation: Principles, Skills, Habits [2014], 2).
A Lifelong Financial Plan

This course will help you develop a lifelong financial plan based on sound
personal financial concepts. You will be able to utilize math and spreadsheet
skills gained in this course to develop and document your plan. Exhibit 1 offers a
template and example for creating goals and a plan.
The skills of saving, budgeting, accounting, using credit and financial services,
making major purchases, managing risks, investing, and planning for retirement
will be discussed in the chapters ahead. These skills are needed to prepare a
personal lifelong financial plan on a spreadsheet. You should update this plan
throughout your life as conditions change and as your life unfolds. You will have
a plan that will give you the power to achieve your goal of financial
independence throughout your life and independent wealth during your
retirement.

Why are the skills in this course so important?

Every year there seems to be a new “fashionable” concept that is the “latest
and greatest” way to make a fortune. However, knowing correct principles and
following the counsel we receive from church leaders provide a sure and steady
course to guide and direct our lives. It is the same today as it was when the
apostle Paul taught the Saints in Ephesus.
“That we henceforth be no more children, tossed to and fro, and

carried about with every wind of doctrine, by the sleight of men,
and cunning craftiness, whereby they lie in wait to deceive.”
(Ephesians 4:14).
For example, at the turn of this century, many creative ideas about how to
purchase real estate became very fashionable. This made it possible for many
people to buy a very nice home that would have seemed out of their reach just
a few years earlier. The thought was that anyone could buy a home that would
appreciate very quickly, and then it would allow them to buy an even larger or
nicer home that would continue the trend. Starting in late 2007, the housing
market started to crash. Huge numbers of foreclosures occurred because
sound financial principles were not followed. Then the thought process swung
the other way. By 2011, many financial magazines included articles that
questioned whether home ownership made any sense at all. Using the skills
learned in the course, you will be able to “run the numbers” for yourself and
know exactly what is best for you and your family.
As shown in Figures 1 and 2, another reason to learn the skills of this course is to
avoid the trend of debt. The prophets continually warn us of the danger of debt
(even calling it bondage), and yet the trend continues upwards. Some of the
end results of this debt trend are higher divorce rates (Some experts even
suggest that financial issues are the #1 reason for divorce.), increased personal
stress, health issues, increased bankruptcies, lack of preparation for the future,
and other social ills. Not the least of these consequences is the challenge of
working to build the Kingdom of God when you are struggling with financial
issues.

Figure 1. US Household Debt vs. Personal Savings
Figure 2. US Aggregate Consumer Debt

Beyond dealing with day-to-day realities is the challenge of making sure that
you are preparing for retirement. Retirement seems so far away that many
people think that they can postpone worrying about it until later in life. Sadly,
too many people do. The average amount of retirement income for those at
the age of retirement (65) in the year 2021 was $47,357. Try living on that for the
next 20 years of your retired life. No wonder so many older citizens recognize
that they must continue to work for the rest of their lives. Studies also show that
approximately 75% of wage earners save NOTHING each month. They live
paycheck to paycheck, either not caring about retirement or not having extra
money to save for retirement. How did they get into this predicament? And
how can you avoid the same?
Research finds that your ability to delay gratification is one of the best predictors
of success in life. This class is designed to show you WHY that is true and HOW to
accomplish your financial goals. How you manage your income will largely
determine your happiness and success in life. Therefore, your financial
management ability and discipline will be as important to you as your capacity
to earn an income.
You can use the knowledge and skills gained from this course every day of your
life. How you apply this knowledge and skills is as important as any education
you will experience.
So, we start by learning the following lifelong financial principles:
1. Set financial goals

2. Budget
3. Track Net Worth
4. Keep financial records
PRINCIPLE #1 - SET FINANCIAL GOALS
Planning is fundamental to success in life. Sadly, most people spend more time
planning their vacation than planning for financial success, but this does not
have to be true for you.
An element of planning involves goal setting. Among the many goals that you
will set in becoming financially successful, start with these two.
1. Become financially independent.

2. Become independently wealthy.

Financial Independence
Financial independence means you are self-sufficient and do not depend on
anyone for your financial support. This is the first worthy and achievable goal
that you should set. A person, or couple, is financially independent when they
can independently provide for their financial needs, preferably with little or no
debt.
Becoming financially independent is good, YET you can find yourself in debt and
not having enough money to achieve the quality of life you desire. That is why
the second worthy and achievable goal that you should set is to become
independently wealthy.
Independent Wealth
Independent wealth means you have accumulated enough funds to live
comfortably and do not need to work. You may choose to work or you may
retire, but you have the necessary financial resources to live comfortably. Your
investments will continue to earn the income that you will need.
Would you like to be independently wealthy and have sufficient money to live
comfortably and not have to worry about meeting your financial obligations?
Surprisingly, most people can achieve this goal if they really want it and make
the sacrifices required.
Other Financial Goals

Of course, the above two goals will not be achieved without setting many other
intermediate goals like getting an education, securing a good job, etc. Goals
that you set will be useful if they are…
1. Specific - well defined

2. Measurable - in terms of time and results
3. Important - focused on your personal values
4. Challenging - outside of your “comfort zone”
5. Realistic - largely within your control
6. Participatory - made and agreed upon by those responsible for their
accomplishment (e.g., husband and wife)

Financial goals vary by time-period and can be classified as follows:

• Short-term (less than a year)
• Annual (yearly)
• Long-term (more than a year)
The following is an example of potential financial goals and actions required to

achieve them.
Goals Actions required

Earn an income Education, training, experience
greater than $50,000
Get completely out of Debt elimination plan, no added debt
debt
Purchase a car Buy, savings, finance, lease, value

Purchase a home Rent, buy, initial cash required (including down
payment and closing fees), location, total cost
(insurance, taxes, maintenance)
Buy consumer goods, Savings, finance, value
appliances, furniture,
etc. without credit.
Investments Savings method, investment strategy
Manage life’s risks Insurance coverage, types, costs/benefits

Plan for Retirement Timing, length, savings needed
Exhibit 1, found in the Exhibit folder in our Learning Management System, shows
how these might be categorized and expanded upon in a useful goal planning
worksheet. Exhibit 1, therefore, offers you a template for recording your goals
and the decisions required to accomplish them.

Note that goals can relate to several subjects including education, housing,
transportation, insurance, etc. Many of these topics are discussed in upcoming
chapters.
Why Set Financial Goals?

Financial freedom is available to everyone who has (a) the health to work and
learn and (b) has the desire and discipline to make good financial choices.
Financial bondage will be the lot of those who lack the knowledge, the
discipline, and good judgment to make sound financial decisions.
As you work through the course units, ponder this quote from the Prophet
Brigham Young:
“If, by industrious habits and honorable dealings, you obtain

thousands or millions, little or much, it is your duty to use all that is
put in your possession, as judiciously as you have knowledge, to
build up the Kingdom of God on the earth.” (DBY, 313–14)
By following the principles taught in this course, you not only bless your life and
those of your family, but you put yourself in a position to help build the Kingdom
of God. Why set financial goals? The answer is that financial goals can lead to
financial freedoms that allow you to spend your days in service to others and
the Lord.
You can be financially independent in the short run and independently wealthy
in the long run, if you set financial goals and practice other personal financial
management principles.
PRINCIPLE #2 - BUDGET
Another principle that is key to financial success is keeping a budget.

Understanding budgeting requires understanding a Cash Flow Statement.

CHAPTER 1 – PLANNING FOR FINANCIAL SUCCESS P A G E | 10
Cash Flow Statement

The Cash Flow Statement helps you determine how much income you have left
over after all your fixed and variable expenses. This statement is based on one
simple calculation:
Total Income - Total Expenses = Net Cash Flow
1. Income. Your cash increases from income such as your payroll check, interest
on your savings, dividends on your investments, the sale of assets, rebates,
refunds and cash gifts, tax returns, inheritances, and funds that you borrow,
and any other sources of income.
2. Expenses. Your cash decreases from payments for expenses such as food,
clothing, donations, gifts, housing, utilities, transportation, entertainment,
taxes, insurance, medical expenses, loan payments, and all other purchases
and payments. Expenses are categorized into two categories: fixed and
variable.
• Fixed expenses. Expenses that are the same each month such as a
mortgage or other loan payments, insurance, rent, cable TV, etc. These
are fixed expenses that must be paid and over which you have no
short-term discretion. Fixed expenses reflect your long-term financial
decisions.
• Variable expenses. Expenses that change from month to month such
as the telephone bill, food, clothing, credit card bills, entertainment,
utilities, etc. There is generally some discretion regarding the amount of
these expenses based on the daily decisions you make.
Such a simple analysis can be done annually, quarterly, or monthly and is

usually a monthly exercise when personal finances are concerned. It is the
starting point in defining your personal financial reality. Knowing your "net cash
flow number" and whether it is positive, negative, or neutral is a critical step in
the process of succeeding financially.
Positive cash flow is the ideal and may allow for additional steps to save, invest
or even to treat yourself to something within reach that you have deferred
purchase on in times past.

Negative cash flow is generally an indication that you are living beyond your
means and are likely incurring debt that cannot be paid without a benefactor
(e.g., a parent or otherwise).
Neutral cash flow is very unlikely because most people don't spend, to the
penny, exactly what they earn. Ending up with a zero when calculating cash
flow would be unusual.
Still, knowing whether you are in the black (positive) or the red (negative) does
not exactly define where your money is being spent, does it? The goal is to
spend less than you earn and save and invest the difference. Once you know
whether you have positive or negative cash flow, you can turn to the process of
developing a budget.
Budget
A budget differs from a Cash Flow Statement in that a budget projects how you
expect to allocate income and expenses over time. With a budget in place,
you can track actual cash flow. Thus, the difference between "a budget
projection" and "the actual figures" allows you to see if you are succeeding in
forecasting correctly and achieving your goals.
Many people have a negative view of the word “budget”. However, if you
knew you were going to have a financial problem, wouldn’t you want to know it
in advance? What if you thought of budgeting as “Problem Solving in
Advance”? Viewing a budget as a method to stay out of trouble and to solve
any potential problem in advance should help change the concept of
budgeting in our minds.
Budgeting is also a game plan that encourages discipline and direction in
managing your finances. Preparing a budget is the key to achieving your goal
of financial independence. Budgeting will help you:
• Spend less than you earn.

• Spend for needs rather than wants.
• Save for emergencies, major expenditures, and investments.
Most income and expenditures recur monthly. However, income and expenses
may vary over a year. Bonuses, seasonal employment, tuition, gifts, holiday
celebrations, insurance, taxes, doctor bills, and vacations are examples of

periodic cash flows. Therefore, preparing an annual budget is the best way of
predicting upcoming financial problems.
Budgeting Methods
There are several approaches to budgeting that vary in effectiveness and

efficiency. They can be casual or comprehensive. Here are some possibilities.
Mental You may budget in your mind based on established spending

patterns and a “feel” for how much you can afford to spend.
While this is the most common method, it is also the least
effective method because there is no record, and you are
likely to end up with “too much month at the end of your
money.” Savings and disciplined spending are not likely to
result from this approach.
Envelope You may consider a cash method in which you put the
budgeted amount of cash in envelopes labeled “food,”
“clothing,” “entertainment,” “gifts,” and so forth. You only
need envelopes for variable expenses. Fixed expenses,
including savings, are paid before cash is placed in the
envelopes.
When an envelope is empty, you may borrow from another

envelope or do without in that category until the first of the
next month. Funds left over at the end of the month may be
carried forward to the next month to cover larger
expenditures in that category.

Written There is power in the exactness of a written budget. This is

the method most recommended by financial experts. The
key to making this system work is to write down each
expense. A written record allows you to know where the
money went. This is the “show me the money” approach to
budgeting.
When you have a written record of what you purchased, you

are in control. You can make adjustments in your budget
and in your spending patterns. You know what you can and
can’t afford. You know the score and what you must do to
maintain or improve the score.
You can keep a written record of expenditures in at least

three ways.
1. Notebook You can simply record every expenditure in

a notebook or hand-held device you carry
with you. You may want to have separate
pages for different categories of expense or
have columns for each expense category.
This will help in totaling the expenses at the
end of the month.
2. Checkbook Provides a record of some of your

expenditures. However, your checkbook
covers only part of your financial
transactions. Those that are placed on a
charge account are paid in a lump sum and
those paid in cash must still be recorded.
3. Computer A computerized budgeting system allows

you to keep an extensive record of your
cash flow and produce a balance sheet.
You can establish budgets, record income
and expenditures, and maintain balances of
assets and liabilities so you can produce
financial statements when you need them.
This is the most powerful score keeping

method. It provides a “written” record and
performs the calculations involved in
comparing a budget to actual cash flows
and in tracking all assets and liabilities.

There are many different computer

programs designed to help you in this area.
Many people accomplish this using their
online banking programs through their
individual banks. The “best program” is the
one that you will use on a regular basis.
Setting up and using a budget spreadsheet should begin a lifelong habit of

keeping on top of your personal financials.
PRINCIPLE #3 - TRACK NET WORTH
A third principle to being financially successful is tracking your net worth. To

understand net worth requires understanding what a Balance Sheet is.
Balance Sheet
A Balance Sheet is a record of everything you own (called assets) and debts
you owe (called liabilities). Your assets minus (-) your liabilities equal your wealth,
which is your net worth.
Assets – Liabilities Net Worth

What you Debts you Your wealth
own owe
Assets
What you own falls into the following basic categories:

1. Liquid Assets Includes (1) cash, (2) money in your checking or savings
accounts, and (3) other property that can be easily
converted into cash. For example, the cash value of
some whole-life insurance policies that you could
borrow, or a certificate of deposit that you could sell.
Note: Other property could be sold and converted into
cash, but it would take time to sell, and therefore, these
are not considered a liquid asset.
2. Investments Includes money that you save and invest in retirement

accounts, stocks, bonds, mutual funds, and other assets
that you expect to appreciate over time. These are
funds that you put to work to provide for future needs
and to achieve future goals, such as making major
purchases or attaining financial independence.
3. Personal Includes what you buy that has lasting value such as
Property furniture, appliances, clothing, automobiles, jewelry,
paintings, and so forth. Most of these possessions will
decrease or depreciate and will have a current or
market value of less than the price you paid for them.
Some may increase or appreciate such as quality
jewelry, original artwork, and some classic cars. You will
need to determine the present value of your personal
property based on the price that you believe they could
be sold.
4. Real Estate Includes a home, a vacation property, an apartment

building, or other buildings and the associated land.
These assets tend to appreciate in value but could
depreciate and should be valued at the current market
value.
Liabilities
What you owe falls into two categories:
1. Current Debts that you will need to pay in less than one year are
Liabilities current liabilities. These include:
• Charge accounts
• Credit card balances

• Other short-term loans

• Installment loans such as an auto loan
• Bills paid on an installment basis such as medical bills.
2. Long-term Debts you will not pay off for more than a year are long-
Liabilities term liabilities. These debts may be paid over a period as
long as thirty years and are generally repaid in monthly
installments. These include:
• Mortgages (loans used for the purchase of a home or
other real estate)
• Home equity loans
• Auto loans
• Student loans
All liabilities are included on the balance sheet at their present outstanding
balance and do not include future interest charges. Your balance sheet
includes only the amount that you owe as of the balance sheet date.
Net Worth
Once you know what you own and what you owe, you can determine your
wealth or net worth. Your net worth represents the amount that you have left
over if you sold all your assets and paid all of your liabilities. Therefore:
Net Worth = Assets - Liabilities
This formula means your wealth is measured in terms of the value of your assets if
you are debt free. Anyone who is out of debt has a net worth equal to their
total assets.
Is it possible to have a negative net worth? Yes. You could owe more than you
own. In this condition you may be faced with bankruptcy or with the need to
borrow to meet current expenses and payments. Some students may have a
negative net worth based on student loans used to finance their education.
Students may be partially or totally supported by their parents in which case
they can obtain the funds to meet their expenses, even if they have a negative
net worth.

Building a Strong Financial Position
A major objective of financial management is to build net worth and a sound

relationship of assets and liabilities. Net worth grows by increasing assets and/or
reducing liabilities. This happens by:
• Saving money
• Buying appreciating assets (investments, etc.)
• Paying off present debts
• Avoiding additional debt
The total of your liquid assets should be more than the total of your current
liabilities to avoid insolvency or the inability to pay debts and bills when they are
due. Providing adequate savings as a cash reserve would ensure that you are
able to meet current expenses and emergencies. Purchase personal property
with cash when possible. Finance real estate with long-term loans and
mortgages rather than short-term financing.
You can achieve financial independence by ensuring that your net worth is
positive and growing.
PRINCIPLE #4 - KEEP FINANCIAL RECORDS
The final principle to being financially successful is keeping track of key financial
records.
Whether you are a spectator or a participant in an athletic contest, it is

important to know the score. You want to know who is winning and by how
much. As you manage your financial affairs, you can imagine yourself as a
starting player who plays the entire game. You are also the main scorekeeper.
Other key players include those to whom you owe money and/or those who
owe you money. They will also keep score of their involvement in your finances

and send you periodic statements or bills. You should organize these documents
and utilize them to keep your overall personal financial score.
Keep the following records in an organized filing system:
1. Financial management records
• Financial Goals
• Budget
• Net Worth Statements
2. Tax records
• Payroll records
• Deductible receipts
• Taxable income records
• Tax returns and documentation
3. Transaction records
• Payroll records
• Checking, savings, and all bank statements
• Unpaid bills
• Payment books
4. Investment records
• Purchase and sales records

• Brokerage statements
• Retirement account statements (e.g., 401K, IRA, Roth IRA statements)
5. Property records
• Mortgage papers, title deed

• Lease (if renting)
• Home maintenance records
• Auto titles
• Auto maintenance records
• Auto registrations (in car)
• Auto owner’s manual (in car)

• Warranties
• Operating manuals for appliances
6. Personal records
• Birth certificates
• Passports
• Social Security data
• Employee benefit information
• Wills
• Trust Agreements
7. Credit records
• Purchase contracts
• Credit account list and phone numbers
8. Insurance records
• Policies (home, life, auto, medical, other)

• Policy statements
• Medical records
• Claims records
The above eight categories could represent simple penda flex folders in a filing
system. Within each penda flex folder could be manila folders for each
individual item. You will want to keep legal documents, such as contracts, titles,
deeds, certificates, policies, wills, and trusts, in a safe deposit box or fireproof
safe to protect against loss by fire or theft. You could also use a personal
computer financial management system to record, file, and prepare financial
transactions. If you keep digital copies, make sure that you back up data in a
safe place away from the computer.
However, you organize your records, it is important to start now and keep
records current. This will bring peace of mind now and provide a surviving
partner with a central location for critical documents upon the death of the
other partner.

6 KEYS TO PERSONAL FINANCIAL SUCCESS
Mastering the preceding four principles is key to financial independence and

becoming independently wealthy. Setting goals, reviewing them periodically,
and making course corrections are required to assure that you arrive at your
desired destination. Establishing and managing a budget is fundamental to
success. Periodically calculating your Net Worth ensures that your wealth is
growing, not shrinking. Keeping financial records current and readily available
brings peace of mind and a more comfortable transition in the case of the loss
of a marriage partner.
Add to these four principles the following six keys to financial success. These six
keys can make the difference between achieving financial freedom or having
continuous financial worries.
1. Pay the Lord first.

Elder Marvin J. Ashton stated in his talk “One for the Money: Guide to Family
Finance”:
“Successful financial management in every home begins with

the payment of an honest tithe. If our tithing and fast offerings
are the first obligation met following the receipt of each
paycheck, our commitment to this important gospel principle will
be strengthened and the likelihood of financial mismanagement
will be reduced.”
Personal financial management is about more than just money. It starts with the
mind and the heart of an individual or couple. By paying your tithes and fast
offerings first, you allow the Lord to bless you. You also prepare your heart and
mind for the understanding and skills necessary to properly manage the rest of
your financial affairs.

2. Pay yourself second.

After you pay your tithing and fast offerings, set aside a certain amount to pay
yourself (save and invest) and you will not be tempted to spend it. This will help
you to live on the money you have available instead of spending your savings.
Psychologically, the money does not exist for your daily and monthly living
expenses.
To pay yourself first and not have the savings money available, you must deduct
it before you receive it. You can do this by making the following arrangements.
Payroll Deduction. You can have your employer deduct your savings from
your paycheck along with your taxes. Put that money into a retirement
account, savings account, or an investment account.
Automatic Withdrawal. You can authorize the financial institution where you
have your checking account to withdraw a specific amount and transfer it to
a retirement, savings, or investment account of your choice.
By making these arrangements, you either do not get the money in your
paycheck or it is automatically paid out of your checking account like a
monthly bill. The result is that you will live on the funds that you have available
and never make your savings part of your standard of living. You are in control,
and you are free by paying yourself first. You then pay your bills and live on what
is left.
How much should you pay yourself? It is recommended that you save or invest
10 percent of your income! 10% should be your goal. Consider starting now to
pay yourself first by saving whatever you can manage until you reach the goal
of 10%. This will assure your financial independence and ultimately your
independent wealth.

3. Spend less than you earn.

Paying yourself second assures that some of what you make is available for
savings and investments… IF you don’t raid the account and spend it! This
brings us to the third key of financial success. Spend less than you earn. Sounds
pretty straightforward, doesn’t it? Then why don’t more people do it?
Study after study turn up the sad reality that most people live paycheck-to-
paycheck. They buy into the advertisements on television and covet what
others have. Wants become needs. To achieve the goal of independent
wealth, you must learn to delay gratification until you can truly afford wants.
You must also learn to buy modestly the things that you truly need for life (e.g.
modest wedding ring, reliable transportation, adequate housing, education
without excessive debt, etc.)
You create your own life everyday by the choices that you make that day.
Remember that it isn’t how much you earn, but what you do with what you earn
that allows you to achieve financial independence and independent wealth.
4. Save and invest the difference.

Having extra money each month brings peace of mind. Resist the urge to
spend it on things that you do not need. Develop instead the habit of saving
your surplus to first, build up an emergency fund and second, create a
retirement portfolio.
Emergency Fund
Wouldn't it feel great to have a buffer between you and the curveballs life
throws at you—a buffer that helps you sleep soundly at night and turn a crisis
into an inconvenience?
You can accomplish this by establishing an emergency fund.

An emergency fund is a reserve of three to six months of expenses that you set
aside to cover any sudden, unexpected costs such as a car wreck, hospital visit,
or leaky roof.
The reason to have an emergency fund is simple: You don’t know what’s going
to happen in life. Money magazine states that 78% of us will have a major
negative financial event in any given 10-year period. This might include losing
your job, being critically injured, or having the transmission in your car go out.
You need to have ready cash available to help out with such emergencies.
How big should the emergency fund be?

The more stable your money and household situation is, the less you need in your
emergency fund.
If you are part of a two-income household or you’ve had a steady job for
several years, then a three-month emergency fund is probably fine. But if you
are a one-income family, self-employed or earn straight commission, then a six-
month emergency fund is a better idea because a job loss would mean you
couldn’t pay the bills. You should also lean toward a six-month fund if someone
in your house has chronic medical issues that require doctor or hospital visits.
Even if there is room in your monthly budget to pay for medical attention, it’s still
a good plan to be prepared in case of a big emergency.
Where should I keep it?
Your emergency fund should be liquid, meaning you need to keep it in a place
where you can get to it easily and quickly. The best option is a simple checking
account or money market account that comes with a debit card or check-
writing privileges. That way you can pay that doctor or wrecker service with the
swipe of a card or stroke of a pen.
What’s an emergency?
When a sudden expense pops up, it can feel like an emergency, but that may
not always be the case. There are three questions to ask yourself to determine if
you need to tap into your emergency savings:

1. Is it unexpected?
2. Is it necessary?
3. Is it urgent?
The more you answer “yes,” the more likely it’s an emergency and the more it
justifies using money from your emergency fund.
What does the emergency fund do for you?
We all view the emergency fund differently. Some of us feel safer with a pile of
cash on hand for when life happens. Others don’t want money to just sit there.
They want to do something with it—like invest.
Remember, though, the emergency fund is doing something. It’s giving you
peace of mind. You sleep better at night when you have cash saved. That is a
great investment return on your money! You’ll feel an amazing sense of security
after having fully funded your Emergency Fund.
Retirement Portfolio
Once your Emergency Fund is funded, it’s time to begin multiplying your wealth
and save for retirement. When you put your money to work to earn interest and
dividends, and to appreciate, you are not dependent solely on the income you
earn through your employment. You can enjoy financial security now and
eventually retire to enjoy and utilize your independent wealth as you choose.
You will want your money to work hard for you. How much interest will your
money earn? This depends on several factors:
• The rate of interest or the percentage you earn on your savings.

• The length of time your money is on deposit or invested.
• How often and how much money you deposit to your savings or investment
accounts.

Your money will work 24 hours per day, seven days per week. It will never stop to
eat or sleep, and it will never take a vacation. That is the good news.
Chapter 3 is dedicated to teaching you the fundamentals of investing.
5. Do not pay interest… collect it instead.
Another key to financial success is to NOT pay interest but COLLECT it. Interest
can work for you or against you. It will work for you if you earn it. It can work
against you if you pay interest.
When you borrow money, you must pay interest or rent on that money. The
interest you pay will not stop to eat or sleep or take a vacation either. It will add
up 24 hours per day, seven days per week, and will work just as hard against you
as interest on savings and investments do for you.
Paying Interest
Paying interest is financial bondage from which you cannot be released until
the money you borrowed, plus the interest, has been paid. Ponder this
comment from President Gordon B. Hinckley when he urged Church members
during October 1998 general conference.
“I am suggesting that the time has come to get our houses in

order. Self-reliance cannot be obtained when there is serious
debt hanging over a household. One has neither independence
nor freedom from bondage when he is obligated to others.”
(Ensign, Nov 1998 p. 51-54)

Unfortunately, there are some assets (i.e. shelter, transportation, education) that
we might need to borrow money in order to acquire them. Borrowing money
comes with interest payments. Throughout this course you will learn ways to
illuminate and/or reduce the amount of interest you must pay. We start with a
discussion of the wise use of credit in Chapter 4.
Collecting Interest
No matter what your income, though, you can have financial independence, if
you successfully manage your debt and save a portion of your earnings, so that
you can collect interest on your savings. It is really that simple. SAVE your money
and put it to work earning interest for you.
Interest is paid on the savings that you deposit in a financial institution or loan to
a government or corporation. When you loan your money, the borrower pays
you “rent” for the use of your money. This rent is interest.
Interest is also the return you receive when you invest in a corporation. When
you put your money into the stock of a company, you own part of that
company. You are entitled to receive dividends and realize an increase in the
value of that stock as it increases in price. Investments will be discussed in
Chapter 3, but for now a dividend is a portion of the company’s income that is
paid to you and other stockholders. The increase in the value or price of stock is
called appreciation, which occurs when the company grows and expands.
You also receive interest when you own anything that appreciates in value such
as real estate or rare artwork.
The “Miracle of Compound Interest”
Your savings and investments will work harder for you when the interest is
compounded. Compounding means you earn interest on the original amount
plus the interest you have previously earned. The future value of your savings is

greater because interest is paid on both the original deposit and on the prior
interest earned. More will be discussed on this later. (See Exhibit 7)
6. Develop the personal will, desire, and

discipline needed to be a financial success
The final key to your financial success is developing the attitudes and discipline
needed to be a financial success.
If you know where you are, where you want to be, and what it will take to get
there, the likelihood you will arrive is greatly enhanced.
However, knowledge and skills are not enough. If you fail to be disciplined, you
will fail. Discipline comes from personal will and desire; therefore, if your desire
for a secure future is overruled by your desire for immediate satisfaction, you will
fail.
If you combine the knowledge and skill provided in this course with your
personal will, desire, and discipline, you can achieve the rewards of financial
independence and independent wealth.

Key Questions for Discussion
1. What is the difference between financial freedom and independent

wealth?
2. How can you get enough money to be financially independent?
3. What effect does inflation have on money? How could this affect your
future?
4. What are the two greatest expenses you will have in your personal
expenditures?
5. Why is it better to collect interest rather than pay it?
6. What do you think it would be like to be in financial bondage?
7. What will be the major elements of your lifelong financial plan?
8. How can you tell if your financial goals are realistic?
9. How do you measure success regarding financial goals?
10. How can you use payroll deductions and automatic withdrawals to help
reach your goals?

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Finance 102 - Personal Finance

Financial and Self-Reliant Principles

FIN 102-Personal Finance Chapter 1

“Thou shalt be diligent in preserving what thou hast, that thou

FIN102 PERSONAL FINANCE

“For over forty years, in a spirit of love, members of the Church

The purpose of becoming spiritually and temporally self-reliant is to become

FIN102 PERSONAL FINANCE

3. Act. Individual accountability and action activate blessings.

A Lifelong Financial Plan

FIN102 PERSONAL FINANCE

Why are the skills in this course so important?

“That we henceforth be no more children, tossed to and fro, and

FIN102 PERSONAL FINANCE

Figure 1. US Household Debt vs. Personal Savings

Figure 2. US Aggregate Consumer Debt

FIN102 PERSONAL FINANCE

1. Set financial goals

PRINCIPLE #1 - SET FINANCIAL GOALS

1. Become financially independent.

FIN102 PERSONAL FINANCE

Other Financial Goals

1. Specific - well defined

FIN102 PERSONAL FINANCE

Financial goals vary by time-period and can be classified as follows:

The following is an example of potential financial goals and actions required to

Goals Actions required

Purchase a car Buy, savings, finance, lease, value

Manage life’s risks Insurance coverage, types, costs/benefits

FIN102 PERSONAL FINANCE

Why Set Financial Goals?

“If, by industrious habits and honorable dealings, you obtain

Another principle that is key to financial success is keeping a budget.

FIN102 PERSONAL FINANCE

Cash Flow Statement

Total Income - Total Expenses = Net Cash Flow

Such a simple analysis can be done annually, quarterly, or monthly and is

FIN102 PERSONAL FINANCE

• Spend less than you earn.

FIN102 PERSONAL FINANCE

There are several approaches to budgeting that vary in effectiveness and

Mental You may budget in your mind based on established spending

When an envelope is empty, you may borrow from another

FIN102 PERSONAL FINANCE

Written There is power in the exactness of a written budget. This is

When you have a written record of what you purchased, you

You can keep a written record of expenditures in at least

1. Notebook You can simply record every expenditure in

2. Checkbook Provides a record of some of your

3. Computer A computerized budgeting system allows

This is the most powerful score keeping

FIN102 PERSONAL FINANCE

There are many different computer

Setting up and using a budget spreadsheet should begin a lifelong habit of

PRINCIPLE #3 - TRACK NET WORTH

A third principle to being financially successful is tracking your net worth. To

Assets – Liabilities Net Worth

What you own falls into the following basic categories: