ProtectYourWealthASSETSLIABILITIESNET WORTH!"#iCredit ReportBuild CreditandControl DebtSaveandInvestLearntheLanguageBudgetto SaveA Beginner’s Guide to Securing Your Financial FutureWealthBuilding Introduction: Building Wealth 1Learn the Language 2Budget to Save 4Save and Invest 8Build Credit and Control Debt 16Protect Your Wealth 22Review 26Glossary 27Wealth-Building Resource Guide 30Tools for Building Wealth 33!"#$%Building Wealth: A Beginner’s Guide to Securing Your Financial Futureoffers introductory guidance to individuals and families seeking helpto develop a plan for building personal wealth. While a comprehensivediscussion of accounting, finance and investment options is beyondthe scope of this workbook, it presents an overview of personalwealth-building strategies. For more information and assistance,consult the resource guide at the back.All Building Wealth materials are available at buildingwealth.org,including an online guide, a tablet guide and classroom lesson plans.For additional copies of this workbook (also available in Spanish),order online at buildingwealth.org or call "##-$$$-%%&#.Building Wealth: A Beginner’s Guide to Securing Your Financial Futuremay be reproduced in whole or in part for training purposes, providedit is not distributed for the purpose of private gain and is appropriatelycredited to the Bank.A new look forBuilding Wealth!We’ve updated thecharacters and thecontent to be relevant tothe financial choices weface in today’s economy. 1Federal Reserve Bank of Dallas Building WealthYou can create personal wealth. It’s possible to meet your financialgoals. By choosing to budget, save and invest, you can pay off debt,send your child to college, buy a comfortable home, start a business,save for retirement and put money away for a rainy day. Throughbudgeting, saving and investing, building credit and controlling debt,all these goals are within your reach.Defining WealthSome people consider themselves wealthy because they live in a veryexpensive house and travel around the world. Others believe they arewealthy simply because they’re able to pay their bills on time. What weare talking about here is financial wealth and what it means to you.Building wealth requires having the right information, planning andmaking good choices. This workbook provides basic information anda systematic approach to building wealth. It is based on time-honoredprinciples you probably have heard many times before—budget to save;save and invest; build credit and control debt; and protect the wealthyou accumulate.Some people might define wealth as:• being able to put my kids through college.• having enough money to buy a house.You have defined wealth.How do you acquire it?1.2.3.What is your definition of wealth?A Beginner’s Guide to Securing Your Financial FutureWealthBuilding Building Wealth Federal Reserve Bank of Dallas2 Building Wealth Federal Reserve Bank of Dallasi$!",###You want to create personal wealth, right? So does Anthony.Anthony is 35 and works for a manufacturing company. He looked athis finances and realized that at the rate he was going, there wouldn’tbe enough money to meet his family’s financial goals. So he chose toembark on a personal wealth-creation strategy. His first major stepwas to pick up a copy of this workbook for guidance. Anthony beganby learning the language of wealth creation. The first lesson was tounderstand the meaning of assets, liabilities and net worth. They makeup this very important formula:ASSETS ! LIABILITIES " NET WORTHA wealth-creating asset is a possession that generally increases invalue or provides a return, such as:• A savings account.• A retirement plan.• Stocks and bonds.• A house.Some possessions (like your car, household furnishings and clothes)are assets, but they aren’t wealth-creating assets because they don’tearn money or rise in value. A new car drops in value the second it’sdriven off the lot. Your car is a tool that takes you to work, but it’s not awealth-creating asset.A liability, also called debt, is money you owe, such as:• A home mortgage.• Credit card balances.• A car loan.• Hospital and other medical bills.• Student loans.If you make a good incomeeach year and spend it all,you are not getting wealthier.You are just living high.Thomas J. Stanley and William D. Danko,The Millionaire Next DoorLearn the LanguageHome EquityThe market value of a home is an asset; the mortgage is a liability. Let’s sayyour house is worth $120,000, but your mortgage is $80,000. That means yourequity in the home is $40,000. Equity contributes to your net worth.! 3Federal Reserve Bank of Dallas Building WealthFederal Reserve Bank of Dallas Building WealthASSETS#MINUS$LIABILITIES#EQUALS$NET WORTHAnthony’s Balance SheetWealth-building assets AmountCash $ 1,500Savings account 1,000Stocks, bonds and other investments 5,000401(k) retirement plan/IRA 25,000Market value of home 0Other assetsMarket value of car 14,000Total assets $ 46,500Liabilities AmountHome mortgage $ 0Home equity loan 0Car loan balance 13,000Credit card balances 3,000Student loan 5,000Miscellaneous liabilities 1,500Total liabilities $ 22,500Net worth $ 24,000Net worth is the difference between your assets (what you own) andyour liabilities (what you owe). Your net worth is your wealth.To calculate how much he is worth, Anthony used the followingformula: Assets – Liabilities = Net Worth. He made a balance sheetlisting all his assets and all his liabilities. He listed his wealth-buildingassets first.Anthony discovered his net worth is $24,000.Remember that net worth is your wealth.Are you where you want to be?Balance DueAccountStatementInvoice$!",###123 Figure Your Net WorthUsing Anthony’s balance sheet as an example, complete theblank balance sheet on page 33. Be sure to add any assets orliabilities you have that are not listed on Anthony’s sheet. Building Wealth Federal Reserve Bank of Dallas4 Building Wealth Federal Reserve Bank of Dallas$$$$$$$$$$$$You have set short- and long-term goals.How do you meet them?Set Financial GoalsMost people who have built wealth didn’t do so overnight. They gotwealthy by setting goals and pushing themselves to reach them.Anthony set two short-term goals: (1) to save $3,000 a year for threeyears to have $9,000 for a down payment on a house, and (2) to add$500 to his emergency fund in one year. Anthony also set two long-term goals: (1) to save and invest enough to have $25,000 in 15 yearsfor his children’s college education, and (2) to have $5,000 a month tolive on when he retires in 30 years.5 years from now? $10 years from now? $My short-term goals are:1.2.3.My long-term goals are:1.2.3.Budget to SaveIt takes as much energyto wish as it does to plan.Eleanor RooseveltWhat would you like your net worth to be?What are your short-term and long-term goals?Tip: Financial GoalsA personal wealth-creation strategy is based on specific goals.In preparing your goals:• Be realistic.• Establish time frames.• Devise a plan.• Be flexible; goals can change." 5Federal Reserve Bank of Dallas Building WealthFederal Reserve Bank of Dallas Building WealthDevelop a Budget and Live by ItWhen it comes to reaching your financial goals, are youdoing or wishing? The difference is doers put action totheir goals. And doers are much more likely to reachtheir goals and achieve their dreams.If you are a doer, you are more likely to:• Track spending.• Live within your means.• Stick to a budget.• Pay off credit cards in a timely way.• Deposit money into savings each month.• Make regular contributions to retirement savings.To maximize your wealth-creating ability, you want tobe a doer, like Sonya.Sonya is a single parent with one child. She budgets inorder to live on her modest income and tracks whereevery dime goes. Saving is very important to her. Whenher son was born, she started investing every monthin a mutual fund for his college education. Sonya is ahomeowner, has good credit and never loses sleep overpaying her bills. Sonya controls her future.Gabby, by contrast, doesn’t put action to her dreams.Gabby has a good job, makes good money and lives apretty comfortable life, but her bank statement tellsa different story. She has no savings or investments,owns no property and has no plans for retirement. Plus,she’s got a lot of credit card debt, lives from paycheckto paycheck and doesn’t budget.You can choose to be like Gabby, or you can followSonya’s road to wealth creation by learning to budgetand save.A budget allows you to:• Understand where your money goes.• Avoid overspending.• Find money for saving and investing to build yourwealth.To develop a budget, you need to:• Calculate your monthly income.• Track your daily expenses.• Determine how much you spend on monthly bills. 6 Building Wealth Federal Reserve Bank of DallasGabby’s Day-to-Day SpendingDate Expense Cash/debit/check Charge1/2 Breakfast, Get-N-Go $ 5.501/2 Coffee 3.751/2 Lunch $ 6.751/2 Gas for car 46.001/2 Drinks with friends 10.001/2 Groceries 50.001/2 Dinner 15.001/2 Music 10.001/3 Breakfast, Moonlight Diner 8.501/3 Coffee 3.751/3 Dress 50.001/3 Movies 15.001/3 Dinner 18.001/4 Breakfast, Get-N-Go 5.501/4 Coffee 3.751/4 Birthday present 20.001/4 Lunch 15.001/4 Household supplies 30.001/4 Coffee 3.751/4 Pizza 15.00Track Day-to-Day SpendingOne day, Gabby realized that to create wealthshe had to become more of a doer, like Sonya,and plan her financial future. To start, Gabbylooked at her finances to see how much moneyshe made and how she was spending it. She seta goal to save $125 a month to put toward herwealth-creation goals. First, she calculated herincome. Then she added up her monthly bills.She also kept track of her daily spending,whether by cash or debit card, check or creditcard. Here is a page from her notebook.You know how to track where your money is going.Do you need to make a change?123 Track Your Daily SpendingUsing Gabby’s spending log as an example, record your dailyexpenses on the blank day-to-day spending form on page 34.Include everything you purchase—whether with cash, debit card,check or credit card. 7Federal Reserve Bank of Dallas Building WealthGabby’s Monthly BudgetCurrentincomeIncomechangesNewbudgetTake-home pay $ 2,600 $ 2,600Overtime pay $ 40 $ 40Pension, Social Security benefitsAlimony/child supportOther incomeTotal income $ 2,600 $ 40 $ 2,640CurrentexpensesSpendingchangesNewbudgetRent $ 750 $ 750Renter’s insurance 30 30Utilities 155 155Telephone 100 100Cable TV/Internet service 75 $ –20 55Insurance (life, disability) 0 0Charitable donations 0 0Credit card payment 200 200Groceries 200 200Clothing 130 –30 100Day care/tuition 0 0Car loan 300 300Car insurance 75 75Gas for car 145 –20 125Meals out & entertainment 425 –50 375Miscellaneous daily expenses 100 –50 50Total expenses $ 2,685 $ –170 $ 2,515Monthly net (income – expenses) $ –85 $ 125Available to save or invest $ 0 $ 125Get a Handle on Income and ExpensesGabby used the information from tracking herday-to-day expenses to develop a monthlybudget. When Gabby reviewed her budget,she realized she was spending more than sheearned. This means she was building debt, notwealth. Gabby knew if she were ever going tosave $125 a month, she had to cut her expenses,earn more money, or both. She worked overtimeat her company, which increased her take-homepay. She bought fewer clothes, discontinuedpremium cable TV channels, carpooled towork to cut gas consumption and reduced herspending on eating out and entertainment.Tracking her expenses paid off. Gabby success-fully developed a budget that enables her tosave $125 each month.Here is her budget. If Gabby sticks to it, she willhave $125 a month that she can:• Put in a savings account.• Invest in a 401(k) retirement plan at work.• Invest in an individual retirement account(IRA).• Invest in stocks, bonds or mutual funds.• Use to pay off debt.These are just some of the wealth-buildingchoices available when you budget to save.You know how to successfully budget to save.How will you invest your savings?Tip: SavingTo help you maintain the discipline to save:• Save every month.• Have savings automatically deducted from yourpaycheck or checking account.• Base your budget on what’s left.In other words, get on automatic pilot and stay there.123 Budget to SaveUsing Gabby’s budget as an example, track your income andexpenses on the blank monthly budget sheet on page 35. Identifychanges you can make to increase your income or decreaseyour expenses. Then develop a new budget that includes moresavings. Be sure to make changes that you can live with frommonth to month.
