Financial Literacy

Parable of the Talents
Math 25:14-30
14 ¶ For the kingdom of heaven is as a man traveling into a far country, who called his own servants, and delivered unto them his goods.
15 And unto one he agave five talents, to another two, and to another one; to every man according to his several ability; and straightway took his journey.
16 Then he that had received the five talents went and traded with the same, and made them other five talents.
17 And likewise he that had received two, he also gained other two.
18 But he that had received one went and digged in the earth, and hid his lord's money.
19 After a long time the lord of those servants cometh, and reckoneth with them.
20 And so he that had received five talents came and brought other five talents, saying, Lord, thou deliveredst unto me five talents: behold, I have gained beside them five talents more.
21 His lord said unto him, Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
22 He also that had received two talents came and said, Lord, thou deliveredst unto me two talents: behold, I have gained two other talents beside them.
23 His lord said unto him, Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
24 Then he which had received the one talent came and said, Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strawed:
25 And I was afraid, and went and hid thy talent in the earth: lo, there thou hast that is thine.
26 His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed:
27 Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury.
28 Take therefore the talent from him, and give it unto him which hath ten talents.
29 For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.
30 And cast ye the unprofitable servant into outer darkness: there shall be weeping and gnashing of teeth.

We must be wise stewards over all that the Lord has blessed us with. To that end we will discuss our personal finances.

What we will discuss:
-Terms: Income, Expense, Debt, Asset, Liability, Cashflow, Appreciation, Depreciation, Retirement Plans
-Tracking—Financial Statements
-Targeting—Budgets (Spending Plans) *(Attach a sample budget that could be used)
-Trimming—Goal Setting, Pay God and Self first, Live within means
-Training—Continue to learn about money and Investing

Terms: Income, Expense, Debt, Asset, Liability, Cashflow, Appreciation, Depreciation, Retirement Plans
Income
3 Types of Income
1. Earned Income
-Job, Self Employed
-Highest Tax (50% money)
-Requires time, energy, and me
-No Residual effects
2. Portfolio Income
-Paper Assets, Stocks, Some Real Estate (Based on appreciation)
-Capital Gains, (20% money)
-Little or No Cash Flow
3. Passive Income
-Rental Real Estate—Some Businesses and Royalties from Intellectual Property
-Lowest Tax/Tax Deferred (forever?) (0% money)
-Little or no work
-Residual effect for generations
-Hedge against Inflation
Tracking—Financial Statements
-Track Money Daily—write down every penny you spend. The very process of tracking what you spend will help you cut back on wasteful habits and let you see the cracks that leak out your hard-earned money.
-Create monthly Financial Statements (Financial Report Card) See attached sample Financial Statement (Simple) This lets you know how you are doing financially. Are you on track for retirement, are you meeting your goals, etc. Most people don’t realizing that they are failing life and only get this report card when it’s too late (at retirement or at the bankruptcy attorney’s office.) If you know how you are performing, you can adjust and make changes early while it’s easy and possible.
-Spending Habits—Cashflow Patterns
-Poor people have poor spending habits (generally). They earn money and blow it straight out the expense column.
-The middle class has many liabilities (some of which they think are assets) and few if any assets. They earn money, it goes into their liabilities column and then right up out of the expense column.
-The Rich Earn money and put it towards assets. Their income from assets goes to cover their expenses and liabilities and buy even more assets.



*You become financially free when Income from Assets exceeds Expenses. This is how you can measure wealth: If you stopped working today, how long could you survive? *The rich get richer because they create more income than they spend and reinvest the extra into their asset column to produce even more income. (See also Jacob 2:17-19)

Debt: A powerful tool of leverage—can be used for you or against you.
If used wisely to obtain income-producing assets (business/rental real estate) you can grow your money so much faster—Make sure the asset services the debt adequately: Banks want to see it cover it 130% for commercial properties. Have other people pay your debts and when it’s paid off, you’ll have that much more income for retirement.
Example of Leverage:


Asset vs. Liability
An Asset is anything that produces income or appreciates in value. It puts money in my pocket and feeds me.
A Liability is anything that costs money or depreciates in value. It takes money from my pocket and eats me.
Appreciation vs. Depreciation
Appreciation is a Positive change in value over time
Depreciation is a Negative change in value over time: A useful tax shelter tool in rental real estate. It allows us to write off the depreciation of the property over a period of time even while it’s appreciating in value—must be recaptured when sold, unless you roll it into a new property—can be deferred indefinitely and even forever when done properly.

Retirement Plans
-Used to shelter money from taxes.
-Can be inherited or passed from generation to generation.
-Can be invested in anything allowed by law: Stocks, Real Estate, Gold, etc. (only a few exceptions)
-You can retire at any age with only a few stipulations depending on the type of plan.
Standard IRAs and 401ks vs. ROTH IRAs and 401ks
-Standard gives a tax break now, grow tax free and you pay tax as you take it out. (You’re assuming a lower tax bracket in retirement than currently—you’ll be poorer)
-ROTHs goes in after tax but grow and come out tax free. (Is good if you plan to retire rich and if you grow it quickly) There is a way to get it in a ROTH tax free as well.

Targeting—Goal Setting, Budgets (Spending Plans)
-Plan to get out of debt and establish a financial emergency reserve as soon as possible. When getting out of debt, it’s best to pay off the smallest amount first and snowball the same payments into the larger and larger accounts until they are all paid off. And once paid off continue putting that money towards your emergency fund and assets if possible.
-When we budget, we are not trying to deprive ourselves of things, our plan is to spend the whole paycheck. But we want to make sure that we spend it on the most important and wisest things possible and not waste it frivolously.
You can budget monthly, but I would recommend a mixture of monthly and weekly budgets. Monthly go over what you plan to spend all the monthly bills, tithing, food, gas, emergency/repair fund, entertainment/fun fund, etc. Divide up those things that will be spent weekly into weekly allowances. Weekly go over all your needs and plan when you’ll go to the store and how much you plan to spend. The other benefit is that you will have more time dealing with your finances and keep them more in mind so as not to forget or splurge.
This could be part of your weekly family council or family home evening, etc. It doesn’t need to be anything big or long. Also, it will help you adjust to meet your monthly budget goals.
This is not an exact science, the more you budget and practice and work at it the more you’ll understand where your money goes and how to cut back on waste. You’ll be able to make very accurate budgets. Try to live within that spending plan.

Trimming—Pay God and Self first, Live within means. Learn to live on 80% or less of your income. This is where you try to improve and streamline your budget. Cut back on expenses. If you want to increase your expenses, first increase your means through your asset column. Use your desire to consume to motivate you in creating more wealth.

Training—Continue to learn about money and Investing. Go to workshops and seminars. The more you know the more effective you will be—not only in finances, but you will also be more able to serve and give and build the kingdom of God. It is hard for God to use a financially floundering ship. Learning to responsibly manage our finances will help us learn to better manage other areas in our lives.
*Let us always consult with the Lord in all our decisions (Alma 34:17-27)

May we become better and wise stewards over the things the Lord has given us and use them to build up the Kingdom of God on the earth and establish Zion—that the day may come that the Lord will say to us: “Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.”

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My understanding of Rich Dad's advice from reading his books is not to mortgage your house, business and children out to the max in order to speculate in real estate. I feel that his advice is exactly the opposite. His point on using debt to build wealth faster is simply the idea that the bank lends me most of the money to buy the house, other people pay off that debt for me, give me extra money on top of my mortgage and expenses, the house (might) go up in value, while I'm taking tax deductions in the process--so after 30 years, the house is paid off, I made good income while it was being paid off and saved a lot in taxes. Now that it's paid for, your income from rent jumps up dramatically.

It is never recommended that you do anything of this sort unless you can meet the above criteria—speculation is like gambling, good investing is like good business—unless you consider all businesses and businessmen gamblers. He also never said that you have to do this with debt, it's just that you'll have to save for 30 years to buy your first house and start benefiting from it, while if you buy it with the banks money, you can buy more and more as your financial base becomes stronger and stronger.

I actually think that the "Rich Dad" advise is exactly what LDS people should be doing because then they become more financially responsible, do not have to rely on the government or an employer and are truly self-sufficient, and as we build more wealth, the more resources and time we will have to aid in the building of the kingdom. It's very similar to the parable of the talents--if you are given 1 talent, how much can you increase it. The one that saved his talent in the bank lost even what he was given, the other two invested their talents and were able to bring back more at varying success--only these were accepted and even rewarded. We all face risk with money and life, it's what we do to learn how to manage that risk and reduce our liabilities that we become assets in the hands of the lord.

The difference here is Kiyosaki's distinction between good debt vs. bad debt. Good debt gives you money, creates value and makes you more secure and more free, bad debt drains you of money creates little or no value and enslaves you to money. He does recommend that we have no credit card or consumer debt, that we pay off our cars and houses as soon as possible—I’ve never seen that he suggests otherwise. You don't have to agree with his distinction and can consider all debt bad (which is fine), but I feel that those who use debt to leverage their efforts can do more—faster, than those who insist on being completely debt free.

The difference is that you go into debt to buy a nice, comfortable house, pay it off as quickly as possible to be debt free, I go into debt to buy other houses that pay for my bills, car, and house, so that my earned income can be used to buy another house to help pay for medical bills, insurance, and give to the poor, while my earned income is still generating money to put toward other assets. After 30 years you'll only have a nice house, I'll have a nice house (also paid for) as well as many other houses and apartment buildings (also paid for) that generate so much money every month that I have to think of ways to spend or donate it, most of this money is tax free. Now I have wealth to pass to my children, help the poor, build temples, do missionary work, now I can quite my time-wasting job and serve multiple missions, finish raising my kids, grandkids, etc. I can be a more effective bishop or stake president or teacher; I will be even more useful to my family and my fellow men.

Which is more in harmony with gospel teachings?
1. Spend my life as a slave to money and working for IT all my life (in debt or not), letting fear, ignorance, and the power of money to run my life.
Or
2. Free myself from it and become a master of money; having it work for me (rather than working for IT), gaining mastery of myself and learning how to direct the power of money for good.

Lessons I’ve learned from the Rich Dad books I’ve read:

1. The rich don’t work for money—money works for them
2. First and Only Rule is to understand the difference between assets and liabilities and buy assets
3. Assets put money in my pocket, Liabilities take money out of my pocket
4. Public education is good, but not sufficient to be financially successful—One must become financially literate
5. The poor have only expenses, the middle class has many liabilities and few if any assets, the rich have few liabilities and many assets that pay for their liabilities and expenses
6. There are 3 types of income: earned (50% money), passive (0% money), portfolio (20% money)
7. Debt is a two-edged sword and a powerful tool for creation or destruction. We must handle it carefully and treat it with respect. It accelerates wealth growth or financial disaster.
8. One of the great secrets to getting rich is to "make" money.
9. Controlling the emotions of fear and greed/desire which are often attached to money is the much more important lesson which is applicable to all aspects of life.