Humanities
Columbia College Life After College How Do I Fare Budget Excel Project

Columbia College

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Personal Finance Seminar Presented through the generous donation from Alumni Edwin Schiffer Professor Ron Richter Messages from Alumni Edwin Schiffer Professor Dyer presented Alumni Ed Schiffer with the following: 1. 2. 3. 4. 5. 6. 7. 8. The key to creating wealth and securing financial independence is to spend less than one earns throughout your working career. Regardless of the absolute amount of earnings, it is imperative to save and invest on a regular basis. Take advantage of tax advantaged plans: IRAs, 401k and pension plans. Once saved, the way the funds are invested is critical to how those savings will grow over time. Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan. There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears. High quality dividend paying common stocks historically have generated a 10% compounded rate of return for the last 100 years. In the long run, a buy and hold strategy that reinvests dividends will likely beat trading and eliminates transaction fees and minimizes taxes, each of which detracts from the ultimate return. Center for Management Development 2 The Value of Budgeting in your Financial Plan “The key to creating wealth and securing financial independence is to spend less than one earns throughout your working career.” Why is budgeting difficult? Let’s watch a short video on… Why Budgeting is Hard. Center for Management Development 3 The Value of Budgeting in your Financial Plan “The key to creating wealth and securing financial independence is to spend less than one earns throughout your working career.” Center for Management Development 4 The Value of Budgeting in your Financial Plan “The key to creating wealth and securing financial independence is to spend less than one earns throughout your working career.” PAY YOURSELF FIRST!!! Let’s look at Average 401K balances What does Pay Yourself First mean? Excel Budget Template Center for Management Development 5 A Tale of Two Savers… “Regardless of the absolute amount of earnings, it is imperative to save and invest on a regular basis.” What is the value of starting early? Let’s take a look at two different savers: Anna and Shawn Center for Management Development 6 The Value of Starting Early “Regardless of the absolute amount of earnings, it is imperative to save and invest on a regular basis.” Center for Management Development 7 The Current Value of Tax Deferral – Traditional 401K or IRA “Take advantage of tax advantaged plans: IRAs, 401k and other pension plans.” Without 401K Contribution With 401K Contribution Income $100 Income $100 0% 401K Contribution ( $0) 10% 401K Contribution ($10) Taxable Income $100 Taxable Income $ 90 Tax at 30% ($30) Tax at 30% ($27) Take Home Pay $ 70 Take Home Pay $ 63 401K Savings $ 10 Center for Management Development Total $ for Now & Later $ 73 8 Tax Deferral or Even Tax-Free Growth for Retirement Plans “Take advantage of tax advantaged plans: IRAs, 401k and other pension plans.” Let’s watch a quick video on the value of tax deferral Center for Management Development 9 Traditional or Roth –That is the Question? “Take advantage of tax advantaged plans: IRAs, 401k and other pension plans.” Trading off a current tax deduction for future tax-free growth… what to do? Center for Management Development 10 The Rule of 72…How do I double my money “Once saved, the way the funds are invested is critical to how those savings will grow over time.” Let’s watch a video on the Rule of 72 Center for Management Development 11 Growth of $100 invested in 1928 to 2017 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” $400,000 S&P 500 $399,860 Avg Return of 9.7% $350,000 $300,000 $250,000 High quality dividend paying common stocks historically have generated a 10% compounded rate of return for the last 100 years. $200,000 $150,000 10 Year T-Bonds $7,310 Avg Return of 4.9% $100,000 $50,000 3 Month T-Bills $1,989 Avg Return of 3.4% 1928 1930 1932 1934 1936 1938 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 $0 S&P 500 Center for Management Development 3-month T.Bill 10-year T. Bond Source of data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html 12 Growth of $100 invested in 1960 to 2017 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” S&P 500 $24,852 Avg Return of 10.0% $25,000 $20,000 $15,000 10 Year T-Bonds $3.407 Avg Return of 6.3% $10,000 3 Month T-Bills $1,333 Avg Return of 4.6% $5,000 $0 S&P 500 3-month T.Bill 10-year T. Bond Center for Management Development Source of data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html 13 Discussion of risk and return regarding investments Risk vs. Reward Relationship “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” Center for Management Development 14 Cash and Cash Equivalents? “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” • They are low risk investments that can be converted to cash in a few days or less. • Usually have very little interest rate risk because they are short term (< 1 year) • Popular examples include Treasury Bills and Commercial Paper. – A Treasury-Bill is a short-term security (expires in < 1 year) issued by the U.S. Government. – Commercial Paper is a short-term security issued by corporations. Center for Management Development 15 Bonds – Fixed Income “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” • A bond is just a promissory note. The bond issuer, or borrower agrees to pay the holder, or lender a specified amount of interest each year, as well as repaying the original principal. • Bonds typically pay interest and face or principal value. – Since the amount and timing of the cash flows are usually known, they are sometimes called fixed income securities – Priority Claim-holders Center for Management Development 16 Who Are the Issuers of Bonds?? “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” • Corporations • The Federal Government, State and Local Governments & Agencies (municipal bonds) and Corporations. • Federal securities are exempt from State taxes. • Municipal securities may be exempt from federal, state, and local taxes. Center for Management Development 17 Bond Ratings “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” Investment Grade Moody’s S&P FITCH DBRS JCR Prime Aaa AAA AAA AAA AAA High Grade Aa1 to Aa3 AA+ to AA- AA+ to AA- AA AA Upper Medium Grade A1 to A3 A+ to A- A+ to A- A A Lower Medium Grade Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB BBB Below or Non-Investment Grade Below Investment Grade Ba1 BB+ BB+ n/a n/a Speculative Ba2 to Ba3 BB to BB- BB to BB- BB BB Highly Speculative B1 to B3 B+ to B- B+ to B- B B Substantial Risk Caa CCC+ CCC CCC to C CCC In Poor Standing n/a CCC to CCC- n/a n/a CC Extremely Speculative n/aCa n/a n/a n/a C May Be in Default C n/a n/a n/a LD D DDD to D D D Center for Management Development Default n/a 18 Stock or Equity “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” • What is stock or equity? – Stock is ownership of a Business – Elect Board of Directors – Class of Common Stock • Class A Common Stock • Class B Common Stock • How do stockholders get paid? – Capital appreciation – Dividends Center for Management Development 19 Annual Returns from 1928 to 2017 S&P 500 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 60.0% 40.0% -20.0% -40.0% -60.0% Center for Management Development S&P 500 Source of data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html 20 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 1958 1956 1954 1952 1950 1948 1946 1944 1942 1940 1938 1936 1934 1932 1930 0.0% 1928 20.0% Annual Returns from 1928 to 2017 10 Year T-Bonds “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% -10.0% -15.0% Center for Management Development 10-year T. Bond Source of data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html 21 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 1958 1956 1954 1952 1950 1948 1946 1944 1942 1940 1938 1936 1934 1932 -5.0% 1930 0.0% 1928 5.0% Annual Returns from 1928 to 2017 3 Month T-Bills “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% Center for Management Development 3-month T-Bills Source of data: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html 22 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 1958 1956 1954 1952 1950 1948 1946 1944 1942 1940 1938 1936 1934 1932 1930 0.0% 1928 2.0% Distributions of S&P 500 Returns 1928 - 2017 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 20 18 16 14 12 10 8 6 4 2 0 Center for Management Development S&P 500 23 Distributions of 10 Year Treasury Returns 1928 - 2017 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 10 Year Treasuries 60 50 40 30 20 10 0 Center for Management Development 10 Year Treasuries 24 Distributions of 3 Month Treasury Returns 1928 - 2017 “Understand the pluses and minuses of various forms of investments and the role they can play in your overall investment plan.” 3 Month T-Bills 100 90 80 70 60 50 40 30 20 10 0 Center for Management Development 3 Month T-Bills 25 Putting Together a Portfolio of Investments “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” Center for Management Development 26 Asset Allocation and Long-Term Investment Considerations “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” Annual Asset Class Returns – an Interactive Chart The Risk of Timing the Market Common Investment Pitfalls • Aversion to loss – take no risk!!! • Regret Avoidance – stick with the status quo • Overconfidence – Think you know more than you do? • Gambler’s Fallacy – Things now have to go my way!!! • Hot Hand Fallacy – Interpret accident as skill for Management Development • Center Herding – follow the group as I would rather be wrong with others 27 Managing investments over time to fit your financial plan “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” Issues to consider: Return objective Risk tolerance Investment policy Current income Capital gains Center for Management Development • Risk tolerance Schwab questions • Return objectives • Liquidity needs • Time horizons or future fund needs • Tax issue 28 What are Mutual Funds? “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” Mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains and/or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Let’s take a look at… The Growth Fund of America – Large Growth Stock Fund T. Rowe Price Total Return Fund – A Credit Worthy Bond Fund USAA Growth and Tax Strategy - A Balanced Fund Center for Management Development Mutual Fund Definition | Investopedia https://www.investopedia.com/terms/m/mutualfund.asp#ixzz5VGhrGbNW 29 What are Target Date Mutual Funds? “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” A target-date fund is a fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. Target-date funds are usually named by the year in which the investor plans to begin utilizing the assets. The funds are structured to address a capital need at some date in the future, such as retirement. The asset allocation of a target-date fund is therefore a function of the specified timeframe available to meet the targeted investment objective. A target-date fund’s risk tolerance become more conservative as it approaches its objective target date. Let’s take a look at… Vanguard Target Retirement Funds American Funds Target College Series Target-Date Fund | Investopedia https://www.investopedia.com/terms/t/target-date_fund.asp#ixzz5VGlwXVjx Center for Management Development 30 What are Exchange Traded Funds? “There is an advantage to balance and diversify investments. Don't put all your eggs in one basket, no matter how attractive that basket appears.” An ETF, or exchange-traded fund, is a marketable security that tracks a stock index, a commodity, bonds, or a basket of assets. Although similar in many ways, ETFs differ from mutual funds because shares trade like common stock on an exchange. The price of an ETF’s shares will change throughout the day as they are bought and sold. The largest ETFs typically have higher average daily volume and lower fees than mutual fund shares which makes them an attractive alternative for individual investors. While most ETFs track stock indexes, there are also ETFs that invest in commodity markets, currencies, bonds, and other asset classes. Many ETFs also have options available for investors to use income, speculation, or hedging strategies. Let’s take a look at… S&P 500 ETF - I Shares Small Cap Stock ETF – I Shares Bond Fund ETF – Vanguard Total Bond Fund Exchange-Traded Fund (ETF) Definition | Investopedia https://www.investopedia.com/terms/e/etf.asp#ixzz5VGnVquvw Center for Management Development 31 Active vs. Passive Investing “In the long run, a buy and hold strategy that reinvests dividends will likely beat trading and eliminates transaction fees and minimizes taxes, each of which detracts from the ultimate return.” Actively managed funds work on the premise that experienced professionals can evaluate investment options and craft a portfolio that can strive to outperform an index. Center for Management Development Passively managed index funds use an algorithm to give the investor a return – positive or negative – based upon an index, minus the fee. Example of an index used in passive funds include the S&P 500 index (top 500 companies in the U.S.) Let’s look at some stats to see who the winner is… 32 Aspects of Credit What makes up your credit score? Center for Management Development 33 Aspects of Credit Does your credit score matter? YES…in many parts of your life…. • • • • • • • In how much interest you pay…looking at an example When looking to get hired When looking to purchase car insurance When looking to rent an apartment When looking to buy a house When looking to for a private student loan When looking to purchase utilities and other services Center for Management Development 34 Aspects of Credit Let’s look at a credit card agreement Creditcards.com Center for Management Development 35 Conclusions Center for Management Development 36 Life After College - How This is an exercise for you to evaluate your budget after you graduate college, incorporating your pr savings and investments. You are only to input items that are in RED. In order to complete the Life After College exercise, you will be evaluating the following items afte 1 - Projected annual salary (Sheet: Annual Income and Taxes) 2 - Taxes on your projected annual salary (Sheet: Annual Income and Taxes) 3 - Projected Budget (Sheet: Projected Budget) 4 - Calculate your monthly student loan payment (and theses calculations will be inco 5 - Determine the amount of savings (and how will you save: i.e. 401K traditional or 6 - Calculate the growth of your investments over time assuming an asset allocation m Summary of Results (no inputs as these are claculated form your inputs in the other workshee Net Monthly Income Projected Budget Excess/(Deficit) Monthly Student Loan Payments Monthly Savings Total Future Value of Investment Portfolio at Retirement ge - How do I Fare? incorporating your projected income, expenses, student loan repayments, taxes, and e following items after you graduate: me and Taxes) culations will be incorporated in your budget) (Sheet: Monthly Student Loan Payment) . 401K traditional or Roth or after tax investments) (Sheet: Projected Budget) g an asset allocation mix of investments (Sheet: Savings and Investment Growth) the other worksheets) REVIEW YOUR BUDGET - YOU ARE IN A DEFICIT!!! REVIEW YOUR BUDGET - YOU ARE IN A DEFICIT!!! REVIEW YOUR BUDGET - YOU ARE IN A DEFICIT!!! REVIEW YOUR BUDGET - YOU ARE IN A DEFICIT!!! REVIEW YOUR BUDGET - YOU ARE IN A DEFICIT!!! ent) Annual Income and Tax Instructions: Input your projected annual salary after you graduate (all other numbers are calculations) Annual Salary Assumptions: $ 70,000.00 Income Tax Assumptions 2019 Federal Income Tax Table for Unmarried Individuals Unmarried Individuals, Taxable Tax Rate income over 10% $ 12% $ 9,700.00 22% $ 39,475.00 24% $ 84,200.00 32% $ 160,725.00 35% $ 204,100.00 37% $ 510,300.00 2019 Itemized Deduction $ 12,200.00 $ $ (7,000.00) (2,400.00) $ $ $ $ (6,506.50) (2,316.50) (4,340.00) (1,015.00) Output (Calculations) Gross Income Adjustments to Income 401K or IRA Contribution Medical from company Total Adjustments to Gross Income Adjusted Gross Income Standard Deduction Taxable income Taxes Income Tax Federal Income Tax State Social Security Medicare Tax Total Taxes Total Annual Income After Taxes Net Monthly Income Used for Budget Purposes ncome and Taxes Calculation are calculations) RED INPUT!!! 2019 New Jersey Income ...
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Running head: LIFE AFTER COLLEGE PROMPT

Life After College Prompt
Name of Student
Name of Institution

1

LIFE AFTER COLLEGE PROMPT
How did you determine your annual salary after you graduate for the Annual Income and
Taxes spreadsheet? What sources did you use, and did you look at various career options,
and use multiple annual salary assumptions?
During a career mentorship program in my high school, I gained some background
information about the career and the expected annual salary right from junior level to advanced.
Additionally, I did extensive research on the internet to understand the areas of specialization in
the course, which are marketable. From our school career guidance department, I was guided on
various career options I would choose with reference to my grades and passion. However, I did
not use multiple annual salary assumptions since salary tends to vary depending on the position
and a firm. Therefore, I tested what I thought was directly related to my career of choice in the
field of wealth management.
When completing the Projected Budget spreadsheet, what challenges did you face? Was it
difficult or easy to “pay yourself first” with savings for your 401K or additional savings?
Why was it difficult or easy?
There were several challenges that I encountered when completing the projected budget
spreadsheet. As a young graduate, I had the pressure of balancing between necessities and
luxuries. For instance, I was contemplating on whether to purchase a car to use for work or save
the resources and invest. Therefore, I came to understand that when drafting the spreadsheet, I
was tempted to pay myself first and save later. In employment, salary is constant, thereby
making a person comfortable, thus devaluing preparation of retirement. Therefore, it was a
challenge to account for and put into action for what I could not realize.

2

LIFE AFTER COLLEGE PROMPT

3

If you have student loans, were you surprised at the monthly debt service payment shown
on the Monthly Student Loan Payment spreadsheet? Why were you either surprised or not
surprised by the monthly debt service payment?
The loan amount on the payment spreadsheet did not surprise me since it was fair. One is
not prompted to pay the whole amount at once when...

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