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Financial Management Made Simple By Dr. Owolabi Tiamiyu, ACA, CFE, CIA, CPA Chair, Accounting Department at Harris-Stowe State University, St. Louis, MO Financial Expert, HSSU Low Income Tax Clinic funded by IRS Grant 2010
THIS IS A GENERAL INTRODUCTION TOFINANCIAL PLANNING AND MANAGEMENTIT IS NOT A SUBSTITUTE FOR PERSONALIZEDFINANCIAL PLANNING OR CREDITCOUNSELLINGEACH INDIVIDUAL’S SITUATION VARIES,PLEASE TALK WITH AN APPROPRIATEFINANCIAL EXPERT BEFORE MAKING CRITICALFINANCIAL DECISIONS
1) GET MONEY (acquire wealth)2) USE IT (manage wealth), AND3) PASS IT ON (will, estate planning)
A) an endB) a servantC) a devilD) an angelE) a master
B. Money is a servant.It is a tool/servant/means ofexchange/magnifier of character. Accounting is the universal language of businessused for recording financial transactions and forcommunicating and evaluating financialperformances. Wealth is one of many factors used to measuresuccess.
MONEYIS THE ROOTOF ALL EVIL.
FALSE THE LOVE OF MONEY ISTHE ROOT OF ALL EVIL. Excessive love of money will make aperson do anything for money.
BY PROVIDING VALUABLE GOODS OR SERVICES TOOTHERS.Adam Smith in his famous work “The Wealth ofNations” noted that in a capitalist system, in order forpeople to acquire money they will be led by aninvisible hand to provide what others need.Zig Zigler, the great American salesman, stated thatto make a lot of money you have to satisfy the needof a lot of people. For example, NBA players,reputable Hollywood actors & CEOs of majorcorporations.
GENERALLY, THERE ARE THREE TYPES OFORGANIZATIONS USED TO MAKE MONEY.1.INDIVIDUALS OR SOLE TRADER2.PARTNERSHIP3.CORPORATIONSEACH HAS ITS OWN PROS AND CONS.
WE NEED TO APPRECIATE THAT MARRIAGE ISA CRITICAL PARTNERSHIP THEPARTNERS HAVE TO ALIGN THEIR GOALS LOVEFOR ONE ANOTHER HASSTRONGER THAN LOVE FOR MONEY ATOCOUPLE SHOULD HAVE HONESTMUTUALLY AGREED FINANCIAL GOAL(S)BEAND
oPHYSICAL STRENGTHoKNOWLEDGE / SKILLSoCHARISMA / PERSONALITYoA COMBINATION OF THESE RESOURCESoREMEMBER, LIFE IS A MARATHON
YOURSELFNOURISH YOUR BODY, MIND AND SPIRIT VERYWELL. LOVE YOUR WORK AND ENJOY SOMERECREATION ACTIVITIES.WRITE DOWN YOUR PERSONAL GOAL(S) ANDREVIEW AS NEEDED.SUCCESS MEANS YOU ATTAIN YOUR GOAL(S).
DO NOT BURY YOUR TALENTMeaning: Develop yourself and make yourmoney work for you.SEARCH FOR KNOWLEDGE EVEN TO CHINAMeaning: Seek knowledge continuously.BEST AMONG MANKIND ARE THOSE WHOBRING BENEFITS TO OTHERSCreate value for others and be charitable.GIVE ONTO CEASER WHAT IS CEASER’SPay your taxes when due, as a good citizen.
oooCREDIT IS A FORM OF MONEY THAT COULD BEUSED MORE EASILY TO MAKE MORE MONEY ORLOOSE MORE MONEY.IF ONE USES CREDIT WISELY ONE CAN CREATEMONEY FOR HIMSELF/HERSELF. (e.g. Buy an itemon credit sell it for cash with profit, keep theprofit and repay the cost - good credit usage)IF ONE USES CREDIT FOOLISHLY FOR PURECONSUMPTION OR SHOW-OFF, THE PERSON WILLWORK IN FUTURE TO REPAY THE DEBT WITHADDITIONAL INTEREST (bad credit usage)
CREDIT IS A FORM OF MONEY CREATED WHEN THESELLER OF A GOOD OR SERVICE TRUST THAT THEBUYER WILL PAY IN FUTURE.THEREFORE, A BAD NAME OR BAD CREDIT IS NOTONLY UNDESIRABLE, IT CAN ACTUALLY LEAD TOLACK OF MONEY OR CREDIT.THE BANKING SYTEM IS THEREFORE VERY IMPORTANTBECAUSEITCREATESCREDIT/MONEYANDALLOCATES IT.THE FINANCIAL PROSPECT OF A COUNTRY IS LARGELYCONTROLLED BY ITS BANKING SYSTEM.
THE BEGINNING OF FINANCIAL SUCCESS IS BUDGETING. A SIMPLE MONTHLY BUDGET SHOWS ALL YOUR EXPECTEDINCOME AND EXPENSES FOR EACH MONTH. IF YOUR INCOME IS MORE THAN YOUR EXPENSES YOU HAVESURPLUS MONEY WHICH YOU CAN SAVE FOR FUTURE USEOR FOR INVESTMENT.IF YOUR EXPENSES IS MORE THAN YOUR INCOME YOU HAVEDEFICIT WHICH YOU CAN CURE EITHER BY GETTING MOREJOB OR BY ELIMINATING SOME OF YOUR EXPENSES.IT IS GOOD TO SAVE AT LEAST 10 PERCENT OF YOUR MONTHLY INCOMEREGULARLY.
THE BEST WAY TO START BUILDING CREDIT ISTHROUGH SMALL SAVINGS AT A BANK ORCREDIT UNION.THEN USE PART OF YOUR SAVINGS TOOBTAIN A SECURE CREDIT CARD AS LITTLE AS 300.USE THIS CREDIT CARD TO MAKE YOURNORMAL MONTHLY PURCHASES AND PAY OFFTHE BALANCE EVERY MONTH.
KEEP BALANCE ON EACH CREDIT CARD LESSTHAN 40 PERCENT OF YOUR CREDIT LIMITDO NOT HAVE MORE THAN THREE CREDIT CARDSAND NOT MORE THAN TWO STORE CARDS FOREFFECTIVE CONTROL.PAY YOUR BILLS ON TIME AND ALWAYS PAYMORE THAN MINIMUM DUE ON CREDIT CARDS.BE PROACTIVE WITH YOUR CREDITORS, IF YOUHAVE DIFFICULTY PAYING CALL THEM BEFOREDUE DATE TO WORKOUT AN AGREEMENT.
CREDIT SCORES NORMALLY RANGE BETWEEN350 TO 850; THE BEST IS 850.IT IS A REFLECTION OF YOUR CREDIT HISTORYTO DATE.35 PERCENT OF THE FIGURE SHOWS PAYMENTHISTORY, LEVEL OF DEBT IS 30 PERCENT,DURATION OF CREDIT HISTORY IS 15PERCENT, INQUIRIES AND MIX OF CREDITCONSTITUTE 10 PERCENT EACH.
TRANSPORTATION IS AN ESSENTIAL. IF AVAILABLE, USE PUBLIC TRANSIT. YOU MAY BUY A RELIABLE USED CAR TO DRIVETO WORK AND RUN ERRANDS.IF YOU DECIDE TO FINANCE A USED CAR, MAKESURE THE RATE OF INTEREST IS REASONABLE ANDTHAT YOU CAN PAY OFF THE DEBT BEFORE THEEND OF THE USEFUL LIFE OF THE VEHICLE.
WHEN YOU RENT AN APARTMENT THINK SAFETY,ACCESIBILITY TO YOUR JOB, AND AFFORDABILITY.ALWAYS PAY YOUR RENT AND UTILITY BILLS ONTIME TO ENHANCE YOUR CREDIT SCORE ANDFACILITATE FUTURE HOME OWNERSHIP.BUY A STARTER HOME AND BUILD EQUITYTOWARDS A MORE SUITABLE HOME.WHEN BUYING HOME THINK SAFETY, AMENITIES,ACCESIBILITY, KIDS EDUCATION AND FUTUREPROPERTY VALUE.
REMEMBER YOU ARE YOUR BEST RESOURCE TO MAKEMONEY. ALWAYS KEEP UP YOUR APPEARANCE, HAVE REGULARHEALTH AND DENTAL CARE CONSTANT SELF DEVELOPMENT IS A MUST, BUT MAKESURE THE PROJECTED RETURN IS MORE THAN THE COST. DO NOT OVERLOOK PROFESSIONAL CERTIFICATIONS,USUALLY THEY ARE AFFORDABLE AND GIVE HIGH RETURNS. IF YOU COSIGN A LOAN IT MAY AFFECT YOUR CREDIT ANDYOU MAY BE ULTIMATELY RESPONSIBLE FOR THE DEBT.
IT IS CHEAPER FOR US TO DEVOTE TIME TO SUPPORT OURKIDS NOW THAN TO PAY LATER. GOOD EDUCATION WILL FACILITATE THEIR SUCCESS. PLAN AND SAVE AHEAD FOR THEIR COLLEGE EDUCATION LET THEM USE GRANTS, COMMUNITY COLLEGES,SCHOLARSHIPS, WORK-STUDY AND REASONABLE AMOUNTOF LOANIT IS ADVISABLE THAT A CHILD’S LOAN AMOUNT SHOULDBE LESS THAN 5,000 PER YEAR OF POST SECONDARYEDUCATION.
TO BE ABLE TO INVEST YOU FIRST NEED TO SAVE, NO CREDITOR WILLTAKE YOU SERIOUS IF YOU DO NOT HAVE EQUITY IN YOUR BUSINESS. INVEST ONLY IN PROFITABLE VENTURES YOU UNDERSTAND AND KEEPTHE CONTROL OVER YOUR INVESTMENT. FRANCHISE INVESTMENT IS ADVISABLE ONLY WHEN REALIZABLE REVENUEIS MORE THAN THE FRANCHISE FEES AND OTHER CHARGES. STOCK AND BOND INVESTMENT IS MOST SUITABLE FOR LONGTERMINVESTMENT WITH TAX BENEFITS OR PROFESSIONAL INVESTORS READ AND UNDERSTAND EVERY DOCUMENT BEFORE YOU SIGN, NOMATTER THE PRESSURE ON YOU. DO NOT BE GREEDY.
WITHOUT ACCIDENTAL DEATH, MANY U.S. RESIDENTS WILL LIVE TO 90YEARS, THEREFORE, WE NEED TO PLAN FOR OUR OLD AGE. WHERE ARE YOU GOING TO LIVE IN OLD AGE? WHAT AGE ARE YOUGOING TO RETIRE OR BE SEMI-RETIRED? FOR NOW, CONTRIBUTE AS MUCH AS POSSIBLE TO A RETIREMENT FUNDAND MAKE SURE YOU RECEIVE MAXIMUM MATCHING POSSIBLE FROMYOUR EMPLOYER. ALSO, EXPLOIT THE NEW TAX INCENTIVES.IF YOU LEAVE AN EMPLOYER, DO NOT CASH YOUR RETIREMENT FUNDBALANCE, INSTEAD TRANSFER IT TO A PERSONAL IRA WITH A REPUTABLEBROKER. ARE YOU CONTRIBUTING TO SOCIAL SECURITY? ARE YOU SAVING ANDPLANNING TO AUGMENT YOUR SOCIAL SECURITY BENEFITS IN FUTURE? A ROTH IRA IS VERY ATTRACTIVE FOR RETIREMENT PLANNING.
YOUR HOME IS A MAJOR ASSET, MAINTAIN IT PROPERLY TO ENHANCE ITSVALUE AND MAKE SURE YOU HAVE THE ABILITY TO REPAY ANY LOAN ONIT AND THAT THE LOAN TERMS ARE FAIR.BEFORE YOU REFINANCE ENSURE THAT THE LOAN COST IS REASONABLE,THE TOTAL LOAN ON THE PROPERTY IS NOT MORE THAN 90 PERCENTOF THE PROPERTY VALUE, AND YOU CAN REPAY THE LOAN.MAINTAIN GOOD CREDIT SCORE, BUY BOTH CAR AND HOMEOWNERSINSURANCE FROM ONE REPUTABLE COMPANY AFTER SHOPPING RATES,AND INCREASE YOUR DEDUCTIBLE TO ABOUT 1,000 TO REDUCEPREMIUM.IF YOU HAVE FINANCIAL DIFFICULTY DO NOT RUN AWAY, NEGOTIATEWITH YOUR CREDITORS. IF THIS FAILS AND THE DEBTS AREOVERWHELMING, IT SHOULD NOT BE END OF LIFE. FILE BANKRUPTCYAND CALMLY START OVER AND DO IT BETTER.REMEMBER, WHERE THERE IS LIFE, THERE IS HOPE.
BUYING AND MAINTAINING A LIFE INSURANCEPOLICY WITH A REPUTABLE COMPANY WILLENSURE THAT OUR FAMILY WILL BE FINANCIALLYSUPPORTED AFTER OUR DEATH.THERE ARE DIFFERENT TYPES OF LIFE AND TERMINSURANCES, AND SOME OF THEM CAN BE USEDFOR BOTH RETIREMENT AND DEATH PLANNING.ALWAYS SPECIFY THE BENEFICIARY OF YOURINSURANCE POLICY TO KEEP GOVERNMENT’SHAND AWAY FROM ITS PROCEED.
IT IS SMART TO START A PROJECT WITH THE END IN MIND.THEREFORE, EACH ONE OF US SHOULD MAINTAIN A WILLTO DECIDE WHO RECEIVES HIS/HER NET ASSETS AFTERDEATH OR ELSE MOST OF THE ASSETS WILL GO TOGOVERNMENT AND OTHER UNKNOWN OR UNINTENDEDPERSONS.YOU CAN MAKE A SIMPLE WILL BY YOURSELF, USINGINTERNETFORMSORSTANDARDFORMSFROMSTATIONERY STORES.ESTATE PLANNING IS NOT ONLY FOR THE RICH. IT IS GOODTO HAVE LIVING TRUST TO DECIDE WHO SERVES ASGUARDIAN IF ONE BECOMES IMPAIRED.
MANY THANKS.Please send any review or comments to:TiamiyuO@hssu.edu or owolabit@gmail.com(Dr. T.)
Financial Management Made Simple By Dr. Owolabi Tiamiyu, ACA, CFE, CIA, CPA Chair, Accounting Department at Harris-Stowe State University, St. Louis, MO Financial Ex
