FIN 101-03

Assignment 7

HOW TO ACHIEVE
INDEPENDENT WEALTH
By Jillian Prince Scott

Introduction
The purpose of this paper is to expound upon twenty-four principles that lead to
independent wealth. These principles have been proven by all those who have followed and lived
by them, including myself. In writing this paper my goal is to inspire the Hope family, and others
who read this, to make the necessary changes in their financial life to accommodate with these
principles, to pay off and avoid debt, be financially independent, and ultimately achieve
independent wealth. There is no reward in borrowing money, and the constant nagging to pay off
debt only brings stress and bondage into ones life. Being debt free, and financially independent,
however, will bring peace, assurance, and allows financial freedom and long awaited goals to
finally come true. The principles I will be addressing are pulled from the FIN 101 Text Book
from LDS Business College.
Financial Independence
Delay Gratification The ability to delay gratification is one of the greatest predictors of
success in life (FIN-101 Text Book). One of the main causes of debt is the need of instant
gratification. People want things now rather than waiting until what they want is affordable.
Being able to be disciplined enough to wait and save, brings so much more happiness, success
and a sense of accomplishment in ones life. As said in the book, it is just as important to be
disciplined and gain financial management skills as your capacity to earn an income. No matter
how much ones take home pay is, without the application of these skills, they will find
themselves in debt and unhappy. Delay gratification, and only purchase what you can afford.
Personal Financial Planning Take the time to create a personal financial plan. Too many
people skip the step of planning before they take action; this brings stress, anxiety, and often
times heart ache. It is important to know exactly where you stand financially, and to know where
you want to go, and what it will take to get there. The book suggests the six Ps of financial
planning Proper Prior Planning Prevents Poor Performance. I can attest to this principle. If you
know where you are, what you can afford, and you have the ability to stay disciplined, you will
not make unwise moves and find yourself in debt. Planning is essential in obtaining financial
independence. Take the time to budget.
Pay the Lord First, then Yourself This is one of the most important keys in obtaining financial
independence. All the money we make really isnt ours, it is the Lords. All He asks in return is
10% of our income. By paying an honest tithe, we become worthy of the Lords blessings in our
lives. He will give us help that we otherwise couldnt do for ourselves. Put the Lord first, and He
will put you first. After paying an honest tithe, it is essential to pay yourself. Put a portion of
your income aside to save and invest, and then dont touch it. When you set aside a savings you
will not be tempted to take money from it, and will be forced to use and spend only what you
have available. Saving and investing will help you more than you realize. The next following
sections will help in knowing how to invest wisely, and properly plan your finances.

Show Me the Money

Keep Financial Records and Statements Keep all of your legal records, financial management
records, tax records, transaction records, investment records, property records, personal records,
credit records, and insurance records in a safe and organized location, preferably in a file cabinet.
These records will be a benefit in keeping track of your personal finances, and in being prepared
for any unexpected emergencies. In addition, these records also help you create financial
statements such as a balance sheet, which helps you keep track of your assets and liabilities,
which in turn will help you see your net worth, which is what you own after all liabilities are
subtracted from your assets. Prepare the balance sheet as of the end of the previous month. Keep
this document also in a safe and organized place.
Prepare a Personal Cash Flow Statement It is also very important to create a personal cash
flow statement. This is a way to help you see where money is going out of your pocket in a
certain given period. Keep a cash flow statement for all of the previous month. You will be able
to see what income you actually take in, and what expenses are actually going out. Doing this
will be a great determiner of how you should budget your finances, and how to properly plan.
Prepare a Personal Budget I like to look at budgeting as a problem solver for financial
uncertainty. This is the best key in becoming financially independent and free from debt.
Keeping a month to month budget will, as stated in the book, help you spend less than you earn;
spend for needs rather than wants; and save for emergencies, major expenditures, and
investments. There are multiple ways to create a budget, but the best that works for my family
and I is to keep the money I can spend into organized envelopes. Doing this allows me to see
exactly what I have to spend for groceries, clothes, gifts, date night, transportation, etc. and helps
me see what I have left. This way I dont spend over what I have planned. Budgeting is what
helps you properly plan, and stay disciplined.
Putting Your Money to Work
Invest Your Money The biggest killer in debt is interest. Interest is the money consumer that
puts people so far in debt. In many situations, by the time you actually pay off the debt owed,
you have paid almost double the amount barrowed. However, interest isnt always a bad thing,
that is, if it is working for you. You can invest your money in stocks, bonds etc. and put your
money to work by earning interest off of your investments. Rather than paying interest you are
receiving interest. This really is the only way to become independently wealthy.
Follow the 5 Strategies There are important guidelines to follow, however, when investing. In
order to have successful investments one must become knowledgeable in the market, and be
patient. The FIN 101 text book gives the following guidelines: 1) Dollar Cost Average, which
means to invest the same amount of money every month in the same investments. This lessens
the risk of losing what you put in, and increases your earnings. 2) Buy and Hold. When buying
stocks, it is important to stay invested for at least five years. This also lessens your risk of losing

what you invest. The longer you stay in the more likely the rate of your investments go up.
Patience is the key in a successful investment. 3) Diversify. It is very risky to put all of your
money in one stock, because if that stock sinks, all of your money goes with it. However, if you
diversify your money into multiple stocks, when one stock sinks, it is more than likely that
another one is going up. This keeps your investments balanced and at a lower risk. 4) Beat
Inflation. Your investments must outpace inflation. When this happens you can guarantee that
you will receive a greater return. By diversifying your stocks, keeping a dollar cost average, and
staying invested for a long period of time, you will beet inflation, and receive a greater return on
your investments. And 5) Ignore World Events. When the economy gets bad people tend to pull
out of the stock market, and when the economy is good people tend to buy back into the stock
market. This only brings financial loss. There will always be world events that bring the stock
market down, and the only way to be successful in the stock market is to stay in and push
through. Ignoring world events is key to be successful. Wise investments are always gradually
growing over time, and can only be of benefit it allowed to grow with patience.
Invest in Mutual Funds Because buying stocks can be risky, and knowing which stock is wise
to invest in, it can be confusing. One of the safest ways to invest is to invest in mutual funds.
Mutual funds are a low risk investment. Because it is a low risk investment, the rate of your
return wont be as high or grow as fast, but it can almost guarantee a larger return than you
originally invested. Its better to have your money grow a little than not at all. Get started with
mutual funds.
Save Now Buy Later
Credit Capacity Of course it is counselled to never go into debt, except for a modest home, and
maybe a car and school loans. But if one needs to go into debt for whatever reason, I found it
interesting that there is a healthy limit to how much debt can be afforded without creating too
much financial stress. This concept is to stay within 15-20% of your take home pay in consumer
debt. This is how much you can afford if you must go into debt. By following this rule, you will
never find yourself in a poor financial situation, however, I still advise to stay clean of consumer
debt.
Saving Versus Borrowing To avoid consumer debt, you can save your money rather than
borrowing it. You are always better off financially to save and collect interest than to borrow
and pay interest. This is the most fundamental strategy to financial well-being in life (FIN 101
Text Book). As stated before, paying interest on loans causes you to pay far more than the
original amount borrowed. If you saved up your money to buy a $7,000 car you would avoid
paying any interest, and you would own the car clear of debt. However, if you took out a loan to
buy the car and the interest rate on the loan was 4%, you would end up paying $734.94 extra if
you had just saved up your own money for the car. Think of the what you could have done with
that $734.94. You could have put that in savings for something else, or used it for vacation, or
invested it. You save and do better financially by saving rather than borrowing.

FICO Score There is a time that credit is a good thing. As said before, buying a home is one of
those purchases that almost always needs to be bought with a loan; rarely will people ever have
enough money to buy a home with cash. A home is necessary for family living, and appreciates
in value, which is a wise investment; therefore, getting a loan for a home is justified. But, in
order to get a loan for a home you need to have a FICO score, or in other words a credit score.
This shows the bank that they can trust you to make your payments on time. To receive a FICO
score, you need to take out loans and pay them off on time. The best way to do this is by taking
out smaller loans, such as purchasing with credit cards, paying them off on time, which limits the
amount you pay in interest, increases your score. You want this to happen. The benefit of having
a high FICO score is it limits the amount you pay in interest when taking out a loan for a home.
Ultimately, this can save you thousands of dollars. Be wise with the credit you spend. Make sure
you have the money to pay off the credit before making any purchases, then pay it off quickly.
You are not Your Car
Transportation Alternatives Many people think that the vehicle they drive proves to the world
what kind of person they are. With this thinking, people often purchase expensive cars and find
themselves spending far more than they can afford. Choose a way of transportation that you
need, not necessarily what you want. Perhaps it is best for you to take the train, bus, or even ride
a bike to work and school! Think of how much money you can save by just making those
adjustments. There are many alternatives to transportation that you may find will meet your
needs more than an expensive car. Choose wisely what you need.
Purchasing New Versus Used Vehicles Now when you do need to purchase a car there are
always the two choices, New or Used. It is tempting to choose the New because of all of its
glamor and shine. But in reality, you are losing so much more money with a new car. The reason
being is that a new car depreciates in value almost up to 50% in the first two years of use,
meaning when you want to sell you will get less than have of you bought it for. Used cars on the
other hand, dont depreciate as fast, which means you will get more out of selling it. And, you
can buy a used car far less expensive than buying a new one. Be wise and save money.
What Can You Afford? When purchasing a car, you want to know how much you can afford
before searching for one. Dealerships will try to make you pay more than you need, and you may
think you can afford more than you can. It is important to calculate how much you will need to
spend in expenses and repairs when you buy the car, and how much out of your budget you
spend on the payments, if any, and the other costs. By doing this you will be able to stay within
your budget set aside for the car, and not find yourself spending more than you had planned. This
is why planning your finances is so important.
Location
Renting Versus Home Ownership When the time comes that you want to move into a home, it
is important to review the alternatives. It may be better for you to rent a home rather than buy a

home. Renting has more flexibility, low upfront costs, and lower maintenance costs. Owning a
home gives you tax benefits, and net worth. However, if you only want to live in a home for a
short amount of time, it may be wiser to rent one rather than buy one. It is important to run the
numbers to see how much it will actually cost to own a home versus renting for the allotted time
you plan on staying. It always pays to run the numbers, what you think will cost you less may
actually cost you more.
What Can You Afford? The same concept when buying a car applies to purchasing a home. You
need to know what you can afford. The steps in indicating what you can afford are as follows:
know the requirements for qualifying for a mortgage loan, should not spend more than 25 to 30
percent of your take-home pay on housing. Can afford a home valued at about 2 times your
annual income (FIN 101 Text Book). Again, run the numbers and see exactly what you can
afford rather than just what kind of house you want. Location is also an important factor. Prices
vary depending on where the location of the home is. It is also important to determine whether
there is hidden damage to the home that needs to be taken care of. Make sure it is in good
condition, and that you have a good real estate agent.
Amortization Schedule When making payments on a home, it is very important to calculate
your amortization schedule. This schedule shows you exactly how much you are paying each
month, how much is going into interest, and how much is going towards the principal, and how
long it will take to pay the home completely off. The key in increasing personal wealth is paying
more each month than is scheduled. This way more is going towards your principal, and you pay
off the house sooner. Who wouldnt want to do that? Make extra payments on your home, you
will save more money because you will not be paying as much in interest.
Risk
Home Insurance There are many risks in life, finances are one of them. Accidents are
unpredictable, and we can never count on avoiding all risks. This is why it is so important to
obtain insurance. Home insurance is a must because your home and all it contains is among your
greatest assets. The value of home insurance is that it will cover any living expense in case you
need to live elsewhere if your home is damaged and needs repair. There are two types of home
owners insurance, ACV and RV. ACV is the cheapest to get because it will give you a cash value
of all of the damage items at its depreciated value. You do not want to risk not having insurance.
Automobile Insurance This is also an essential insurance plan to have. You never know when
an accident will happen, whether it is or is not your fault you will have to pay something for the
damage caused. Make sure you have good coverage such as liability, bodily injury, collision
coverage, comprehensive coverage, and no-fault insurance. These will cover any cost you will
need to pay up to a certain point, which you will be very grateful for when the time comes. It is
required to have car insurance, so make sure you have a good plan.
Life Insurance This insurance isnt required, but it is very important to have. Again you never
know when an accident will happen and your spouse dies. Life insurance pays a certain amount

to help with any loss of income you might have lost due to the death of your spouse or anyone
else you were dependent on for finances. There are two types of life insurance: there is Term life
insurance, and Whole life insurance. Whole is a lot more expensive because you are paying over
the course of your whole life. Term, is cheaper, and is most of the time the better choice to take.
You are paying in terms rather than over your whole life.
Independent Wealth
Ultimate Financial Independence Financial independence is to live on less than you earn from
employment (FIN 101 Text Book). Independent wealth is accumulating enough money that you
can live off of what you have saved without needing to work for the rest of your life. This is the
ultimate goal for all of us. It can be obtained through following the principles listed throughout
this paper, and by properly planning and living according to that plan. The key to reaching
independent wealth is having a retirement plan. There are several types of retirement plans and
different ways you can reach that, but I want to focus on how you can reach your retirement goal
with any plan.
How Much Do You Need? First you need to calculate how much you will need when you retire,
and for how long you will need it. Doing this is essential in planning for retirement, otherwise
you may find yourself without the funds necessary to live, and you might outlive your funds.
Know exactly how much you will need, and then plan how much you will need to save each
month or year to reach your goal. Also take into consideration how much you will receive from
your employer, social security, and also how much inflation will grow when you reach retirement
age. Properly planning prevents poor performance.
Start Early This concept plays a huge role in how much you can make for retirement. When
you start early you have time on your side, which bumps up the return on your investment. Time
is key. Not only will you earn more over the years, but your tax rates will generally be lower
when youre younger, which will eliminate what you pay on taxes with you pull out your
retirement fund. There seems to be no grater advice than to start preparing NOW. There is no
better time to start.
In conclusion, I hope that the principles I have covered and expounded on have been a
benefit to you, and has inspired you to make the changes necessary to start planning and
obtaining financial independence and ultimately independent wealth. Be wise, spend less than
you make, save money, be disciplined, and follow through with your plans. I promise these
principles will lead you to your financial goals.