Welcome to Building Your Fortune, the fundamentals of personal finance.
This presentation is brought to you by America's most prestigious news magazine,
U.S. News and World Report. And now here's the host of our program, Steve Crowley.
Hello everybody, Money Basic Training, the fundamentals of personal finance all wrapped up in one easy to understand package.
We believe we've accomplished this special goal for the very first time, and I hope you'll agree.
During the next few minutes we'll be taking a fascinating voyage through the world of money,
starting with where you stand today, financially speaking, and then transporting you to where you'd like to be,
five, ten, even twenty years into the future.
So now it's time to sit back and enjoy while you're taking down quite a few mental notes,
because we're going to start building your fortune.
In ancient times, having money meant owning plenty of gold and controlling lots of property.
It isn't much different today. Having a fortune then meant being able to enjoy a happier, more secure lifestyle.
This hasn't changed very much either. In fact, achieving happiness and having a personal fortune
have been so closely linked over the years that early economists talked about units of hapies
as a way to relate and equate wealth to happiness.
Today, as we head through the 1990s, building our fortune starts with our lifestyle of choice.
First we have to decide the lifestyle that makes us the happiest, and this becomes our primary goal.
Maybe it's staying active in sports, physically fit. Maybe it's the joy that children and family life can bring.
Or we could be into boating, flying our own airplane, or even racing cars down a fast track.
Are there any career opportunities here, or are these merely hobbies for enthusiasts?
It could be that being on the move makes you the happiest.
Perhaps you're set on seeing the world by plane or behind the wheel of a camper.
Of course, where we choose to live has everything to do with lifestyle.
Are you the urban type? You like the bright lights, the action. You'll put up with traffic jams.
Or would you prefer to live in the country, commuting to work on back roads?
And what climate do you prefer? Cold weather with a change of seasons?
Or beach weather, month in and month out? It's all about what makes you happy.
Don't think these things have much to do with building your fortune?
Well, they do. In fact, the most savvy financial planners today use lifestyle goals
as the starting point in building that sound financial plan that pays us back over time.
Living where we want to and doing all the things we enjoy are certainly key ingredients.
Choosing a rewarding and enjoyable career also ranks right up near the top.
Back away from the ball a little bit more.
Many people change careers mid-life now. Joe Pace finally chose the career he wanted.
After running a restaurant for many years, Joe took a pay cut to become a golf pro.
He's living his dream, so he smiles more now.
I have a position that people love and very few of us get paid to do what we love.
And I'm one of those people.
John Moleco liked fishing, so he chucked his executive job and clothes for a fishing boat business.
And a different dress code.
Dress code, yeah. I got my own dress code, alright.
Haven't worn socks in eight years. Don't have a tie. Don't wear a coat.
That's not to belie anybody. It's just the way that I like to live.
Some advice here. Make sure you want to change careers and not just your job.
If you do make the jump to another career or to your own small business,
research the market, test the waters, while you still have a paycheck coming in.
Then check out your income prospects.
Remember, the best of both worlds combines going into a career you prefer with a higher paycheck.
Try to key in on your basic talents and skills to ease the emotional strain of changing careers.
You might even want to go back to school to get re-educated.
Five million Americans are reason number one for advancement in their current job.
Reason number two, to get a new and better job in the same field.
If you go back to school, good news, you might not have to pay for it all yourself.
You might qualify for money from a grant, fellowship, scholarship, or a loan.
Expert Dan Cassidy says many are targeted to adults.
Don't exclude yourself because I'm too old to get a scholarship.
At San Francisco State, they have one you must be over 60 years of age.
And don't forget that one out of three students are over the age of 25.
And many of these are women going back to finish degrees after starting families.
Sarah Cussell chucked her job to go back to school,
and she'll have her doctorate in psychology just two years from now.
Going from two incomes back to one took some family planning and budgeting.
Giving up her old public relations job was a tough decision.
There were a lot of exciting aspects to the job.
There were a lot of things that I liked about it, the writing and meeting the people and so forth.
But there was just something missing.
I finally got to a point where I realized that it just wasn't as fulfilling as I would have liked for it to have been.
Not as fulfilling, not as rewarding.
We hear this a lot these days, but maybe you don't need a new job or a whole new career.
Maybe you just need a promotion and a raise.
In any case, having a well-paying job and career is building block number one
and being able to save for tomorrow.
That's exactly what we'll talk about when Building Your Fortune continues.
Coming up, how to double our savings and keep on doubling our dollars as fast as possible.
Steve explains the Rule of 72 and how we can use it to make our money grow.
Plus, we'll meet people who invest their money wisely.
All this and a whole lot more when Building Your Fortune continues.
The very first step in figuring out how much and how fast you're going to build your fortune
is to figure out how much you're worth in dollars right now.
Two important three-letter words to remember here, how much you own and how much you owe.
It's fairly simple.
The difference between the total of these two numbers is how much you're worth.
Here's how to figure it all out.
First, visit your bank.
Pick up a blank personal financial statement or personal balance sheet.
Here are the same thing.
Follow the form.
List today's value of everything you own from savings to your home, if you have one,
your car, life insurance, all investments, and even personal items like furniture, stereos, and jewelry.
On these items, though, don't overdo it.
Estimate what you could sell them for today, and next, total up all these assets.
Now, on the other side, be sure to list everything you owe, bank loans and mortgages,
credit card balances, store and gas card balances, even loans payable to friends and relatives
like mom and dad count.
Total these up, you'll have a rough idea of what your net worth is today
after you subtract this total debt number from the total asset number.
Now, let's say this net worth number is $20,000.
Is that good or bad?
Well, if you're young, say under 25, you're doing fine.
If you're older, say in the over 50 crowd, you're falling way behind
and it's time to get serious about building your fortune.
Did you ever hear the story that it's easier to turn $1 million into $10 million
than to turn $100 into $1,000?
It's true.
Is there some mystery behind how money works?
Are there secrets behind building our wealth?
Do millionaires and billionaires have tricks up their sleeve
that makes their money grow faster?
Yes, but there's no mystery.
It's just mathematics and most of us just don't pay attention
to how pure math and time can accelerate our savings.
Let's take a look at how fast money can grow when we let it.
Let's start with newborn babies.
Let's put away a measly $1 a day for these children starting the day they're born.
Let's call it $30 a month to keep things simple.
Let's use an 8% return to keep it simple.
When the child turns 20, he or she will have $17,800.
Save $5 a day, $150 a month, the child will have a tidy nest egg of $88,900.
I don't think there will be any college worries for this child.
The money will be there.
Let's get aggressive with our investment plan.
Let's plan on earning 12% on our $1 or $5 a day savings plan over the same 20 years.
Quite a difference, $30,000 for $1 a day, $150,000 for $5 a day.
I know several parents and grandparents who say for their kids and grandkids this way,
and they tell me it's working.
Of course it works. It's the way money grows mathematically.
And now let's turn this compounding curve onto you and me.
Let's talk about retirement.
Let's talk about a savings plan that starts early in life
and one that starts quite a bit later.
Having a full 30 years left to save makes it easier.
If you're 35 now and want to retire at 65,
you're willing to sock away $10 a day, about $3,600 a year, for the next 30 years.
You'll have a substantial amount of money.
Using an 8% return on average, you'll have $450,000.
And with a more aggressive 12% return, $1,059,000.
So retiring comfortably in this case wouldn't be a problem.
Except for inflation.
Even a 4% inflation rate cuts our dollars right in half about every 18 years.
A higher 6% inflation level chops our savings in half once every 12 years.
So it's very important to factor in inflation
when we're figuring how much we need to save for retirement.
Rule of thumb here, we'll need somewhere between $250,000 and half a million dollars
in nest egg money to retire comfortably, depending on our lifestyle.
All this is in today's dollars.
Now let's move on and talk about the reasons to save for the future.
Peace of mind is certainly the number one reason to build your fortune
through a regular systematic savings plan.
Simply put, when we have money behind us, we live in a less stressful situation
by not having to survive paycheck to paycheck.
Having an emergency nest egg of from three to six months available cash
in the bank or in a money fund is the cornerstone of personal planning,
the first place to start your nest egg.
The next reason, with more savings behind us,
over time we'll have fewer loans and charge balances hanging over our heads.
We'll live less on credit, so we'll pay less interest.
And our cost of living goes down.
But it's saving for our children's college education,
for those of us who are parents, and then for our own retirement
that's foremost on our minds, and it should be.
Because in both cases, we'll need a lot of money saved up.
Need some help with all this?
Well, learning how to save more money is where professional financial planners come in.
Certified planners like Susan Bradley can chart your course to build your fortune.
Look for credentials and letters, though, when you're picking a pro.
CFP for a certified financial planner, CHFC for a chartered financial consultant,
and even CPA for a certified public accountant when you're leaning towards
cutting a hefty income tax bill and need a math whiz or own a small business, too.
After 32 years of marriage, Ed and Pat McGowan decided they needed help.
They decided on a certified planner.
We've worked very hard for our money, and we knew now that investment
and retirement time was coming that we needed to invest it somewhere.
We decided we needed a professional.
One, we didn't have the expertise nor the time, really, to get into financials
or making money.
We checked our credentials, we checked our track record,
and then I guess really what we were looking for was somebody who could
understand what our goals were and what kind of risks we're willing to take.
That says it all, because the first things a pro often analyzes are our goals,
where we want to be 10, 20, even 30 years down the road,
and how to get there from here.
They'll figure out what level of risk we're willing to take,
compare this to what risk they believe we should be taking based on our age,
our income, and our net worth today.
So, step number one in picking the planner, I'd ask for references.
Once you ask for the references, by all means, use them, call them.
I think that's one of the biggest mistakes.
I can give people two pages of references, and they might never call any of them.
They just get impressed with the references.
Maybe you think your situation is small potatoes.
You don't really need professional help because you don't have enough money
or you don't earn enough money yet.
Well, here are my guidelines.
Ask yourself five key questions.
Is your household income more than $50,000?
Is your total worth more than $100,000, including your home equity?
Are you saving less than 5% of your annual income?
Do you need a more diversified portfolio of investments,
earning more like 10 to 15% a year rather than 5 to 8% a year?
Do you need a solid plan for building your retirement nest egg?
Well, if the answer to one or more of these questions is yes,
you're a good candidate for visiting a financial planner,
a professional who meshes well with your personality and your financial goals.
Just make sure you're not being pushed into a lot of high-commission investments.
Remember, the ultimate decisions about your money,
how much to save and where to invest it are yours.
There are even some books available on being your own financial planner,
and you might want to go down the do-it-yourself road
if you have enough time and the determination to do it.
Music
Now, before we get into doubling our money
and learning how the important rule of 72s works,
let's take a look at what happens when our finances get out of control,
when we spend too much, borrow too much,
don't get into the good habit of putting money away
every single week or month as personal savings.
It's not a pretty sight, no fun to live through either.
Music
For many of us, it starts around the holidays.
This special time of year and the gift-giving mood
almost makes us spend and charge up a storm.
It's the end of the year, and our philosophy sometimes is,
we'll pay for everything next year.
That's what Terry and Judy Doyle used to say.
No more.
They got burned badly on a holiday shopping spree a few years back.
They racked up $14,000 in charges, bills they could not afford.
We couldn't afford even to pay the minimum monthly payments,
so I knew we needed to do something.
You know, we considered bankruptcy.
We went and talked to a lawyer,
and we realized that that wasn't the way to go.
It really wasn't.
Terry and Judy took the smart way out.
They asked for free help from Consumer Credit Counseling Service,
a nonprofit organization with offices nationwide.
CCCS put them on a strict, no-charge budget.
The best part, harassing phone calls and letters from creditors stopped,
so they bailed out their finances and, most important, their credit rating.
Of course, they had to change old habits.
They took our lunches with us. We didn't eat out for lunch anymore.
Luckily, we only worked a couple blocks away from each other,
so we just drove one car.
So try to control your spending and how much you borrow in charge.
If you don't, as a last resort,
you could end up consulting with an attorney like Charles Tatelbaum.
He specializes in personal bankruptcy.
On advice of counsel, you'll have to decide to file or not to file
and to face the cold, hard realities.
I think the myth is that it's easy, it's simple, it's painless,
and to put it in a medical vernacular, there are no side effects.
And that's not true because your credit is ruined,
virtually ruined for 10 years following a bankruptcy.
An alarming number of Americans are going bankrupt personally,
more than 600,000 this year alone.
This number could easily grow to one million newly bankrupt Americans by the year 2000,
one out of every 150 households going under financially.
And the culprit is primarily credit cards.
Would you believe? $40,000 is the average total charge card balance
for the average American declaring personal bankruptcy.
It's true.
Cherie Pauls built herself a mountain of credit card debt
and was forced into bankruptcy.
Today, she's a good deal more disciplined,
shopping with cash on a budget instead of plastic on a shopping binge.
Those were the old days.
The more credit cards I received, the more I would spend,
and the more I would have to pay back.
And it got to the point where I knew I couldn't pay it all back.
It seems amazing, but you'll see people who literally have 25 or 30 credit cards
and $60,000 or $70,000 of credit card debt.
I mean, it just seems incredible that you could run up so much credit card debt.
It is amazing, but it's not so surprising.
You see, easy credit is a way of life in America,
and it's very easy for anyone to get into trouble,
including doctors, lawyers, business owners,
and other people with very high incomes who overspend
and especially who overborrow.
If only we would have the same temptation to save money.
What would life be like then?
We'd have a lot of cash behind us.
We wouldn't have to live from day to day.
We would pay less consumer interest, so we'd pay less.
Plus, we'd get onto the earnings side of the coin.
We'd earn interest instead of paying it out.
Then our savings dollars would begin to double and double again
through the magic of compounding.
It's been called the eighth wonder of the world.
Why does compounding work so well?
This is easy to explain.
It's because of something called the Rule of 72s.
Now, the Rule of 72s is so simple to remember,
and it's important to remember.
It explains precisely how fast our money doubles,
no matter where we invest it.
Let's say we have $1,000 to invest.
When will our one grand turn into two grand?
How long will that take?
And how does the Rule of 72s work for us?
It's simple.
Divide the rate you're earning, say 8%, into 72
to find out how fast your money will double.
In this case, the answer is nine years.
At 12% a year, our money doubles in only six years,
and at 15%, it takes only 4.8 years.
But earn a lowly 6%, it'll take 12 long years
to turn our one grand into two grand.
Whatever rate you're earning, be sure to factor in inflation,
at least 4% to 5% a year, so subtract inflation.
And then also subtract how much current income tax you'll pay, if any.
Now you're left with your real rate of return.
Remember, many financial planners use 12% a year as a goal
for making money on investments.
Be sure to factor in inflation and current income tax
to get a clear picture of reality,
how fast your money is doubling in real or constant dollars,
because it's your future spending power that really counts.
How can we possibly hope to earn 12% a year
without risking too much money?
I'll show you how when Building Your Fortune continues.
Still ahead, seven ways to build your fortune,
seven keys that help unlock the door to wealth and financial security.
Plus, we'll learn how to diversify our savings dollars
from real estate to gold to zero-coupon bonds.
There's a lot more advice still to come
when Building Your Fortune continues.
Welcome back. During the next few minutes,
we'll be learning about the seven keys
that can unlock the door to your personal fortune,
everything from mutual funds to real estate
to earning high interest rates to building good credit.
But first, let's take a brief look at several different people
with specific money problems and concerns
they'd like to find solutions for.
And I'll offer up some answers, too,
on what I call the people side of money.
Like so many of us, Jim and Charlene Sousa would like to be on a budget,
but aren't. They'd like to save more money every month, but don't.
Here they are trying to make ends meet.
We've gone over all our bills and realized that we have $700 extra a month
for play money, and it seems like we never have any money.
It seems like we're always broke, so we're trying to figure out where this money goes.
We know what has to be, what bills have to be paid
and how much money's coming in, which time of the month and all,
but what we're trying to do to see where that $700 a month is going is
we're starting to write down everything we spend money on.
The big things are obvious. It's the little things.
It's the running down to the store and get milk.
There's a $5 bill, or it's going out to the movies and buying popcorn with the movie.
There's $15, or just going out to dinner one night with the family.
There's $25. It just seems to go real fast.
It's not as though they're not trying hard enough. Jim works hard as a fireman.
Before he hits this second job, he runs a lawn cutting service on the side,
so he'll have a two paycheck family.
And Charlene is thinking of getting a part-time job, too.
Now that Courtney has turned two years old, this will certainly help.
Here's my money plan for the Suses. Jim has a payroll deduction plan at work.
Ten percent gets taken out before he sees it. Terrific.
He should find out how much is in there and then start investing it.
Plus, the Suses need to put themselves on that budget
and squeeze out at least another $300 each month in savings.
They can save this at $70 a week with some careful planning.
Then $200 should go toward their retirement savings in an IRA-type plan,
and $100 as college savings for little Courtney.
And they should have at least a $10,000 emergency savings nest egg put away
in a bank or money fund. This is their permanent cash cushion.
We all need one for rainy days.
Now on to the case of Sal and Lisa Biviano.
We've followed this happily married couple since they were dating.
Four years later, they're a CPA and banker combination.
Talk about financial savvy.
And yet they have the same kinds of money problems and concerns we all do.
Let's take a look.
Music
Yes, it all started three years ago when they were married,
and they've done a lot of things right along the way.
They both have terrific jobs with healthy incomes.
Lisa is the bank manager and Sal's the certified public accountant.
They're both still young, and the $66,000 a year they make between them
will continue to grow every year.
A wise move, from their honeymoon they moved right into their new home
from down payment money they had saved.
On the lifestyle side, they both love boating.
And surprise, they paid $14,000 cash for their boat,
what from savings not with a great big installment loan.
And they enjoyed building their fortune as a working couple team,
separately and together.
So I have my own checking account.
My paycheck is direct deposited directly into the checking account.
That sweeps a certain percentage for savings automatically,
as soon as it's transferred in,
which is fine because I don't need all that money.
It's nice to be able to afford things,
but I don't want to get into that situation where you just think of it
as plastic and not as money, you know.
So save your money and be real frugal with what you're doing,
and you'll be all right.
They have more than $15,000 in savings now,
and they're adding to this at least $1,500 every month.
They should start spreading this money around, though,
by adding half in high-quality stock mutual funds,
up to 25 percent in high-yielding tax-sheltered annuities.
The rest can stay right in the bank.
After all, Lisa works there.
But the point here is Sal and Lisa are young.
They can take some minor degree of risk with a goal of earning
12 to 15 percent a year on average in stock mutual funds,
at least five different ones.
Because their incomes are high with growing tax brackets,
the annuities with tax-sheltered incomes will help supplement
the retirement plans they have at work.
Their savings dollars will double up faster in both places.
Remember the Rule of 72s?
Sal and Lisa are clearly on the right track.
Unfortunately, many of us wait about 20 years too long
before we get very concerned about savings
and all this retirement nest egg business.
Of course, while it's still possible to start saving midlife,
the trouble is it's not as easy.
With fewer years left, we have to start saving like crazy,
also cutting back like crazy.
Take the Jordans, for example.
They have their home equity plus about 100 grand set aside for retirement.
The trouble is they'll need about $600,000 minimum in the year 2011 dollars
to retire comfortably in the manner they're accustomed to living today.
I'd like to be comfortable and I would like to enjoy my retirement,
be able to travel.
They'll be able to, but only if they start saving between $100 and $150 every week
with the goal of earning 9 percent overall after taxes over 20 years.
If they can do this with a diversified investment plan,
they'll need a certified financial planner, in my opinion,
to accomplish these goals and objectives.
I'm an avid bass fisherman and someday I hope to own a nice bass boat to fish with.
There's the lifestyle goal again,
but unless Richard and Mary Ellen start saving more money every week,
I'm concerned they're putting their golden years in jeopardy
and that they'll have to struggle some 20 years from today.
The Jordans can do it.
They're a terrific example of a middle-aged couple that needs to save a little bit more money
each and every week.
And now it's on to one single parent, a woman who's been struggling to make it on her own.
And the story sounds all too familiar.
How do mother and son survive on $17,000 a year?
That's the question Diana Sendone has been asking herself.
Diana is a young single mother who works while little Anthony is at daycare.
In this case, the answer is sheer determination with some help from her family.
Diana pays her parents low rent and her brother got her a car.
She sold her a newer car with a $300 monthly payment.
I like to buy a house.
I'm not going to pay $600, $700 a month for an apartment.
It's ridiculous.
If I'm going to pay that much money, I want to own it.
Diana's number one goal of buying a home is smart.
She should start saving $250 a month for the down payment on a small starter home.
Another goal, private school for her son.
Putting aside $10 a week more in savings will start her down this road.
Another way for Diana to build her fortune, because she's dealing with a modest income for now,
it's okay to budget small savings each week or month.
Different savings should include $5 to $10 a week for emergency money
and $10 more a week for an IRA.
Good news, she can still deduct all IRA contributions.
Diana is covered by a pension plan at work, but she also earns less than $25,000 a year.
So the deduction cuts her taxes, very important in Diana's case.
Buying a home would work the same way.
Mortgage interest and taxes would put Diana on the deductible side
and slash her total federal tax way down, probably to zero.
Next, it's on to the seven fundamental fortune builders,
seven keys to wealth and financial security, starting with ready cash.
Have you ever heard the expression cash is king?
I'm sure you have, and the reason cash is king is simple.
Those of us who have enough cash readily available
can always get through some hard times and we can always invest
in things like stocks and real estate when prices are way down low.
So let's focus on how much ready cash we need
and where we should keep this money, not under the mattress.
Key number one, save up ready cash.
Set aside three to six months' income as emergency rainy day money.
Earn $30,000 a year.
Your primary goal should be to have savings in the range of $7,500 minimum
to $15,000 maximum ready to back you up,
just in case you lose your job, need repairs to your home or car,
need emergency medical or dental work.
You name it, you'll have it.
Some positive psychological factors come in, too.
You won't have to worry as much about money and living paycheck to paycheck.
You'll have an established backup system that most people just don't have.
Key number two is to power up by building a powerfully strong credit rating.
You know, so many people these days are sloppy about building
and maintaining a solid credit history because they're not meticulous
about paying their bills and loans on time.
What happens when our credit rating starts to spiral down?
Well, we might start getting turned down on loans, mortgages,
and charge card applications.
Remember, in this day and age, Big Brother is watching.
It's true.
$983, and this is state-lead...
Well, who is this Big Brother anyway?
Well, it's not a he, but an it, a computer.
In fact, a maze of computers and files on you and me.
Files that track our personal lives, like our addresses and dependents,
our job history, and yes, a fairly complete list, a track record of sorts,
of how we've paid our bills and loans.
On time, a history of late payments, or worst-case scenario,
debts we didn't pay back at all.
How much do we owe? High and low credit balances.
Most of this data is electronically there.
So it's important to visit, call, or write the major credit bureaus
with files on you at least once a year.
Are the files complete and flawlessly accurate?
Apparently, many times they need updating, corrections or explanations
to be completely accurate.
Ask for a copy of your credit history or credit file.
If you haven't been denied credit recently, you'll be asked to pay a small fee.
Look at the yellow pages under credit bureaus.
Two big bureau names to look for, TRW and CBI.
Then, protect your credit rating by keeping it clean and correct.
It's one of our most valuable financial tools.
Lose it or damage it, it will take many years to get it back on track.
And speaking of financial tools, using our bank or Banks Wisely
is one of the most important tools we have.
And that's Fortune Building Key Number 3, say yes to the bank.
These people have bank accounts. You probably do too.
But you might be surprised to find out it's been estimated
more than one quarter of all working Americans don't even use a bank.
They take their paychecks straight to the check cashing store,
bypassing the bank.
And while most check cashing stores offer convenient services for a price,
it makes more sense to manage our money using one or more bank checking accounts
and two or more savings accounts.
Keep your eye focused on two key areas here.
How high should I keep my balances to avoid high bank transaction and account fees?
And how can I manage my money at the bank to earn the highest rates they offer
on checking and savings balances?
Match the two up, you might be able to get considerable free or low-cost services.
Remember, building a solid bank relationship means a lot when it comes time to borrow money.
For a home mortgage, a new car, a boat, or maybe a personal loan or even an equity loan
to help put the kids through college, for example.
One service to avoid at the banks, low-rate passbook and statement savings accounts.
With hundreds of billions of dollars still sitting in these accounts paying less than 6 percent,
it's fairly clear that many Americans either haven't gotten the word that they can earn higher rates
or they haven't taken the time to move the money to a six-month or a one-year savings CD,
which would make a lot more sense.
With all the bad news about savings and loan banks losing money, many selling out or closing up or both,
it's no wonder many of us as bank customers are asking the question, how safe is my money?
Of course, you can always ask the bank for a recent copy of its quarterly and annual reports
and try to read them, or you can pay a small fee to get the scoop on any bank in town.
Bob Ritter was concerned. He wanted to check up on his bank's financial health.
Bob used the services of Vera Bank, a company in Wakefield, Massachusetts.
Vera Bank checked out the bank's health and sent Bob a report.
It was very easy to understand, and it was in plain English,
and any layman could understand the information that they had sent to me in a booklet.
Most Vera Bank fees range from $10 to $20.
We can get either an instant analysis over the phone or a report will be sent out by mail.
And whether you need to use Vera Bank or not, one, find out if your money is covered by federal deposit insurance,
and two, find out if the bank itself is in sound financial shape to avoid hassles later on.
And remember, it's always okay to split our savings between two or more banks.
Bob Hedy, author of The Bank Rate Monitor, advises his readers to make sure their savings dollars are covered by insurance at all times.
The biggest misconception about federal insurance is, number one, it's really safe,
but number two, that the accounts are insured up to $100,000 per person, not per account, per person.
Of course, staying safe and insured with bank savings is fine for part, but not for all of our money.
Financial planners always talk about owning and not just loaning our money,
and what they're really recommending here is the equity market, the stock market.
And the best way to buy into a piece of the action for the small investor who doesn't want to worry about individual stocks is with stock mutual funds.
Owning shares in mutually terrific stock funds, that's my fourth key to building your fortune.
I went to visit the man I refer to as the father of mutual funds, John Templeton.
He lives in the exclusive Liferd Key section, right near Nassau in the Bahamas.
For over 30 years, John Templeton has masterminded some of the most successful mutual funds in the world,
and he's always been a leader in investing internationally and globally.
Let's listen to John's wisdom about investing in stock mutual funds.
There is no better advice anywhere, no better basic training for investing.
Listen and learn.
The best time to invest is when all of your neighbors are frightened,
and the best time to avoid investing is when all your neighbors are bragging about their profits,
because it's such times that bargains are not there.
So John Templeton tells us to buy stock funds the heaviest when news about the stock market is bad, when prices are down.
On the other hand, he's telling us to sit tight, invest the least in stock funds when the news is good,
and prices are soaring at record levels.
What about inflation? How can we stay ahead of rising prices?
How can we out-distance mere interest-paying investments?
There's no way to get protection against inflation unless you invest in something that can go up and down in price.
So you have a choice.
Either you invest in a savings account in which you have no inflation protection,
or else you invest in real estate or common stocks or mutual funds,
which will go up and down, both up and down, but in the long run, more up than down.
So in the long run, you will have inflation protection in those things,
but you have to live through sometimes two or three years of unfavorable prices.
My advice here, one, use stock mutual funds to achieve returns in the 10 to 20 percent range over many years.
Remember, most mutual funds over the past five years have average returns of 15 percent a year or higher.
And two, diversify. Invest in three to five mutual funds at once to spread your risk and your money.
Three, choose mutual funds with super profitable track records over five, 10, and even 20 years if the fund was around then.
Four, read the prospectus and the sales brochures before you invest in nickel.
Know what kinds of stocks the fund invests in, what management's policies and thinking are, before you decide to invest there.
Five, putting a fixed amount of money into the fund each month takes advantage of dollar cost averaging, lower prices on the buying side.
Six, commissions and loads, sales charges.
Now they're not everything, but we should always know how much we're paying.
All things being equal, a low or even no upfront or back-end fees are better than big fat commissions that eat into our savings.
Seven, we don't have to be wealthy to start investing in stock mutual funds.
Most funds require only $1,000 or less to open the account.
In short, they're the best way for the small investor to join in the action and profits of the stock markets.
Mutual funds began only 60 years ago and they began for this purpose because they are literally millions of people who have modest amounts of money
and they're important to them, but they don't have the time or the talent to select their own investments.
Some very wise words of advice on mutual funds from John Templeton.
And I'm sure you'll follow my seven rules of investing in mutual funds and then be patient.
Don't be upset if your investment drops in value for a while.
These are up and down investments, so remember what John Templeton said about more up than down over many years.
And now it's on to my fortune building tip number five, playing the real estate game to win.
Music
Playing the real estate game to win is also simple when we stick to the basic rules of play.
Get away from these rules, we can get sidetracked in the short run and yes, even lose money.
Number one, buy and own your own home when you're probably going to stay in that home for at least five years.
No, homes do not appreciate steadily every single year.
Have to move out and say two or three years, yes, you could lose money compared to what you paid after commissions and selling expenses.
Two, calculate how much income tax you'll save by buying versus renting.
Figure in mortgage interest, first year points paid and the property taxes you'll pay.
Most home buyers' tax deductions go up by at least eight or ten thousand dollars even in year one.
Three, over many years, count on fixed rate mortgages to offer more stability and protection on the size of your monthly payment.
Adjustable rate loans may be all you can qualify for just starting out.
The best of both worlds is usually the convertible mortgage, starting out as an adjustable,
but you can still choose to switch to a fixed rate sometime in the future.
Four, rental property, it's still a good deal if you manage it yourself and learn about how to manage by reading books and talking to other landlords.
Ask a CPA to help you forecast profits or losses and the tax angles before you buy.
And five, for vacation properties, most real estate experts say to shy away from time sharing units.
They tend not to appreciate and they're tough to sell for at a fair price.
This isn't always the case, but most people who've coughed up money for time shares end up wishing they hadn't.
And next, earning the highest interest rates possible. Is there a trick to it?
Yes, and that's my fortune building key number six.
It's very important to go after the high rates as long as we don't have to risk our savings dollars to do it.
High rates at the bank, high rates in money mutual funds, high rates in bond income mutual funds,
and with very many of the high rate junk bond mutual funds, let the investor beware.
Coming up, secrets to earning the highest interest rates possible without taking too much risk.
Plus, the games we can play with savings to force ourselves to build an even bigger fortune.
There's a whole lot more still ahead on Building Your Fortune.
Welcome back. You know, earning high rates is incredibly important because the more interest we earn compounded,
the faster our money doubles under the rule of 72s.
Just be careful with super high rates, stick with quality, and avoid the junk.
It's okay to start looking at our local banks. Go with the highest savings rates.
Then search for banks with the higher rates within a 25-mile radius of where we live and work.
The local newspapers can help here.
When rates are running relatively high, consider locking up your savings for two and a half to five years.
Otherwise, stick with six-month and one-year CDs, and always consider combining two or three banks for high yields.
Author and expert Bill Donahue recommends all of us should seek out the highest money mutual fund rates.
The best money funds pay higher rates short-term than banks do, and most offer checking privileges.
Do you have savings in a money fund account yet? You probably should.
With money market mutual funds, you get safety because no one has ever lost money.
You get liquidity, and you get high yields.
At the banks, they say safety, liquidity, and yield. Pick two.
With income mutual funds, most invest in corporate or municipal bonds, the tax-free kind.
But remember two things here. One, share prices and bonds and bond funds go up and down.
Bond prices tend to drop with rising interest rates, and the values tend to go up with falling interest rates.
So playing the bond market is tricky business.
Point number two, the higher the rates paid by the bond or bond fund, the more our principal is at risk.
Bonds paying very high rates compared to higher rate bonds are called junk bonds.
Don't fall into the junk bond trap on Wall Street and Main Street.
If you're chasing high rates with a hefty part of your savings invested in junk bonds, understand the risk.
Watch out for losses.
And finally, let's talk about hybrid money pockets, special places to put part of our savings.
Not all, not a big part, just a small corner of our total savings plan.
We all should have some wealth tucked away in special places for fun and for profit.
And this is my fortune building tip number seven, so let's run down the list.
Gold, silver, and platinum bullion coins. Not much collectability here.
Just a safe and sure way to own the metals themselves.
Now, compare these with collecting rare investment grade coins.
These coins have metal and numismatic value.
Rarity and condition count the most, so buy all your coins in person from a reputable, knowledgeable coin dealer.
Then there are double-E U.S. savings bonds. They're discounted to half their face value.
Cash them in someday at full value.
They don't pay very high rates, but income tax is deferred until we cash them in.
And for some people, they seem to save easier with double-E's.
Zero coupon bonds are a hybrid investment in three types.
Corporate zeros, U.S. Treasury zeros, and tax-free municipal zeros.
Now, rates on most of them range from about 6 to 15 percent.
And remember, also with zeros, the higher the rate, the longer the term, the riskier they are.
And then we have the wide range of collectible investments, from rare stamps and autographs to model trains.
It's true. Some seem more like hobbies than investments. And some are.
However, we can combine an interesting hobby with something that has lasting and even appreciating value, like art, for example.
Odds are, in the long run, we'll have a money-making winner.
Well, there you have it, the fundamental fortune builders, the seven keys that help unlock the doors to wealth.
And that's not all. There's lots more advice still ahead.
Still to come, kids and college, an expensive combination.
How can we save enough money to take the financial worries out of higher education?
There's just ahead, when Building Your Fortune continues.
Plus, we'll learn why owning our first and second homes is a terrific way to create a retirement nest egg.
Stay with us.
Getting our children through college, being able to save enough to pay for it all years from now, ranks right up near the top of our money concerns.
And the truth is, when we start early enough and discipline ourselves to save enough, there's nothing to worry about.
By the time these newborns are in college, it's projected a four-year degree at a state or city college will average $85,000.
This number doubles to $170,000 for the average private college or university, early in the decade, 2010.
So as parents, we should start our children's college fund early on, at the rate of $150 per child each month.
That's $3 a day for the state college.
Save $300 every month per child, $6 a day for private schools.
And be sure to diversify. Stock mutual funds, savings bonds, zero-coupon bonds, bank CDs, all should be considered for a well-rounded investment plan.
When little Skyler Ansel came into the world, mom and dad, Darcy and Eric, had to face reality.
They want the money to be there 18 years from now.
We're going to do something. At first we had not planned on it, but I think we need to do that.
And it'll probably be some kind of zero-coupon bond or something that will mature about the time that he's ready for college age.
And after their nest egg starts climbing to five and ten grand, I'd set up a formal education trust to shelter the income and tax.
Now it's on to real estate. Many homeowners will admit that after working hard for 30 years, the biggest part of their life savings is in their home equity.
That's why we see so many, maybe too many, home equity loans these days, as the homeowners run out the cash in their chips.
Well, of course, real estate authors and experts often jump on this bandwagon, telling us we can do it over and over again with rental properties,
buying the home next door, for example, and then renting it out for a profit. The question is, does this work?
Well, many people who've become knowledgeable in the rental property area by studying and attending seminars like this one say it's very possible to make money with real estate.
Knowledge, hard work, and courage are the three major ingredients. At age 27, Bill O'Kyson got the knowledge and quit his job.
When I talked with him in the past 18 months, he had bought and sold 60 properties.
That's right. It's already happened. It's happened.
I'm to the point where I don't have to work for that major corporation anymore, and I'm financially independent at a certain level.
And that's a big feeling. That's a great feeling.
So if you're interested in rental properties, I recommend reading at least five books on real estate and attending one or more courses to learn the ropes.
Remember, many of the tax advantages are gone or greatly reduced now, so you'll have to learn to make money by buying right and getting a positive cash flow.
Rental income versus expenses. Remember, making mistakes with investing in real estate is very costly. A negative cash flow can wipe you out.
But expert Robert Allen says don't be afraid. Learn by doing. That's what he teaches.
We said we're not going to give you knowledge. We're going to give you experience that helps you blow away your fear, and then we're going to take you in the marketplace and hold you, hand hold you, you know?
Get you on the phone and show you exactly how to do it, and then take you in the marketplace and look at real properties and examine them, analyze them, and actually buy the properties.
Well, it's been said the best real estate investment is to probably buy a home in our own neighborhood where we can watch it very closely, fix it up, and then rent it out.
Well, appreciate while someone else is paying the tab. Hopefully it'll work this way every time because owning one or two pieces of rental property can be a wonderful way to build anyone's fortune over five and ten year periods.
Well, our time's up for this program. So on behalf of U.S. News and World Report, thanks so much for joining us for this edition of Building Your Fortune.
I sincerely hope you'll be doing just that in the months and years ahead. I'm Steve Crowley.
This presentation has been brought to you by U.S. News and World Report, America's most prestigious news magazine.
Thank you.