Statewide Campus Practice Management Seminar October 19, Personal Financial Planning For Informed Physicians

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1 Statewide Campus Practice Management Seminar October 19, 2012 Personal Financial Planning For Informed Physicians Presented by: Charles L. Nemes, CFP Senior Vice President, Investments Investment Management Consultant Nemes Rush Private Wealth Management of Raymond James & Associates (888) (248)

2 Asset & Financial Management Keys to successful financial planning - Have a plan (Hope is not a plan) - Pay yourself first - Save regularly - Do it pretax - Start early - Never make your total debt load payments more that 35% of your take home pay!

3 STUDENT LOAN & LIABILITY MANAGEMENT Determine your star.ng point! All future progress can then be correctly analyzed Net worth Analysis - Example Assets Checking/Savings $ 10, Car 25, Residence 200, Total Assets 235, Liabilities (Loans) Home mortgage (150,000.00) Auto loans (22,000.00) Student loans (200,000.00) Total Liabilities (372,000.00) Net Worth (Deficit) $ (137,000.00)

4 Need to answer four queszons: Where did I start? Where did I finish? What happened in between? Where am I going?

5 When analyzing your debt/ liabilizes always consider: Interest Rate You re Paying Gi?? Confiscatory? Term Of Loan Short Term? Long Term?

6 WHEN ANALYZING YOUR DEBT/LIABILITIES ALWAYS CONSIDER Tax Effect Deduc&ble Mortgage Home equity loan 6% is 4% tax which compares to a 4% non- deduc.ble loan Subject to Congress & president Non- Deduc&ble Car loans Consumer debt (i.e. charge cards) Most student loans

7 CATEGORIZE ALL LOANS AS FOLLOWS: DeducNble Type of loan Interest Rate A?er Tax Interest Rate Loan Amount Payment Mortgage 4.12% 3.25% $125,000 $1,250 Home Equity 6.00% 4.00% $20,000 $125

8 CATEGORIZE ALL LOANS AS FOLLOWS: Non- DeducNble Type of loan Interest Rate A?er Tax Interest Rate Loan Amount Payment Car loan 4.00% 4.00% $22,000 $520 Student Loan xxx123 Student Loan xxx223 Student Loan xxx % 6.80% $58,000 $ % 2.30% $72,000 $1, % 5.60% $43,000 $705 Charge Cards 15.25% 15.25% $11,500 $250

9 Interest rate Low High Term of loan Short term Less than 10 years Long term STUDENT LOAN 2.30%, 9 YRS (3) MORTGAGE 3.25%, 30 YRS HOME EQUITY LOAN 4%, 5 YRS (2) STUDENT LOAN 6.80%, 20 YRS Short term Less than 10 years Long term More than 10 years (4) (1) More than 10 years

10 Pay off highest AFTER TAX interest rate loans first! Do not pay off low interest, long term debt early! See it as a gi?. Save a?er tax money instead! Then work your way to the next loan, and so on.

11 A?er you have stranfied your debt/loans: GO TO THE CALCULATOR ON Fill in applicable informanon you wish to apply to the high, a?er tax, interest loans Eliminate them one by one over Nme REMEMBER: Do not pay off low, a?er tax interest loans early, They are a gi?!

12 What is your risk tolerance? ConservaNve Investor Moderate Investor Aggressive Investor 30% stocks 70% bonds 50% stocks 50% bonds 80% stocks 20% bonds

13 Investment Concepts What is Dollar Cost Averaging? A very powerful way to invest The same amount invested at regular intervals - Pre-Tax: 401(k) Payroll deduction - After-Tax: savings only when pretax is maxed out Forces a buy low strategy - If price is up, fewer shares bought - If price is down, more shares bought - Avoids small investor emotions ( 1.87% v. 8.77% )

14 Ø What is a loan - Being a creditor - No control in entity - Earns interest only - Principal paid back by a specified date Ø Being a loaner (bonds) v. being an owner (stock)

15 The Advantage of Tax-Deferred Savings & Investment Increased Rate of Saving at No Additional Cost Saving Without 401(k) Employee A Saving With 401(k) Employee B $16,700 Monthly Gross Pay $16,700 $0 Monthly Pre- tax Saving ($1,170) ($5,010) Federal Tax at 30% ($4,660) ($670) State Tax at 4% ($620) ($1,170) Monthly Post-tax savings $0 $9,850 Spending Money $10,250 Additional after tax cash per month $400

16 DISABILITY INSURANCE Worst Case Scenario 48% of all foreclosures Know the terms of the contract!!

17 Terms to know and understand Own OccupaZon TransiZonal own occupazon Any occupazon Residual

18 Terms to know and understand Guaranteed Physical Insurability (GPI) EliminaZonPeriod Step Up/Update OpZon Offset Provisions (Social Security, Group Plans) Personal Pay vs. Company Pay

19 Life Insurance 3 Major Categories Whole Life Term Life Universal/Variable

20 Term Whole Life Term Insurance Universal/Variable Level Ø Premium Stays the same Increases every year Changes Stays the same for fixed number of years Term of the contract UnZl the term ends Ø Coverage Whole life (usually year to year) Can change (i.e. 10, 20, 30 yrs) Ø Cash Surrender Value Yes None Possibly None Ø Investment Vehicle Yes (?) No Yes No Ø Rent vs. Own Own Rent Own Rent

21 Universal/ Variable Life Insurance Premium changes depending on performance of the mutual funds you selected Your death benefit can change based on performance of the mutual funds you selected Policy could die before you do!

22 LEVEL TERM Advantages Disadvantages Fixes the death benefit for a number of years (say 10, 20, 30,40 years) Premium guaranteed not to increase during fixed period Allows you plenty of Zme to accomplish your financial objeczves/goals If you haven t accomplished your goals by term end, you may not be insurable! No build up of Cash Surrender Value in the policy Premium costs will be substanzally higher when the term ends

23 Paid Up Whole Life You have paid so much in premiums that you no longer have to pay in anything else for the life of the policy DL 7 plans allow you to pay in a lifenme of premiums in 7 years. Most are now 10 Pay

24 Thank A copy of this presentazon and other resources can be viewed by visizng our website at Presented by: Charles L. Nemes, CFP Senior Vice President, Investments Investment Management Consultant Nemes Rush Private Wealth Management of Raymond James & Associates (888) (248)