Finance 101

ASSIGNMENT #7 FINAL PART A (WRITING)

ANNA MCCRITE

Financial Principles
1 FINANCIAL PRINCIPLE #1 CHAPTER 1
The very first principal that is very important to understand is that of paying the
Lord first before doing anything else. This is the most important thing to do out of all
the principals that could possibly be talked about. Tithing helps to instill a couple
different things into our character that if learned will make a lot of the struggles in
life, financial or otherwise, a lot easier to handle. Even if it doesnt change the
actual situation it will help improve the outlook that we have.
Faith is one thing that tithing teaches. Reliance on the Lord is completely necessary
to reach the full potential of being a child of God. It is only through Jesus Christ that
it is possible to repent, to progress, and to return to a loving Heavenly Father. It is
through the plan of happiness that Heavenly Father has for his children that we will
be able to do any of these things. Why should it be any different with finances?
Heavenly Father is mindful of everything, down to the smallest details, and he wants
to bless his children. He wants them to find happiness. All we have to do is trust him
and do what he asks of us. Do the same with your budget and he will help you to
find that happiness.
Priorities is the second thing that tithing teaches you. Priorities and self-discipline.
What is more important to you, your relationship with your Heavenly Father and his
work, or the latest video game or newest model of car? It may not be that extreme
when you run into whatever the conflicting desires are. Regardless, it illustrates the
importance of things in a more eternal viewpoint. Holding onto this kind of thinking
and prioritizing helps not only when it comes to paying a full tithe, but when making
other financial decisions and in deciding how to spend time in general.

2 FINANCIAL PRINCIPLE #2 CHAPTER 1

Collect interest and avoid paying interest. Interest is a wonderful thing when used
properly and can either be a huge blessing or the chains of bondage. The whole
point of interest is like a stool. Its to make life easier. A stool comes in handy. It can
be sat on and its especially great for standing on to get things of the annoyingly,
very high top shelf in the kitchen. However, if the stool were to be turned upside
down, with the seat on the ground, then it is no longer a helpful tool but an

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impediment in the middle of the kitchen floor. No one can sit on it or use it to reach
things, it is simply taking up needed space and should one of the kids come running
into the kitchen they would very likely trip over it and get hurt.
Interest is here to make life easier. There is already so much to worry about that
there is no need to willingly sign up for more worry by turning the stool upside down
and paying credit. Rather, it would be much nicer to hand some of that worry over
to your money and let it worry about providing for the family by earning credit. This
can be done by putting money into a savings account or into a retirement plan and
letting it earn interest over time. Then that can be used for buying the necessary
big purchases.

3 FINANCIAL PRINCIPLE #3

CHAPTER 1

Make financial goals, long and short term. Having a plan and a way to accomplish
the plan is half the battle already. Not making these kinds of goals is like going to
college without knowing what major or degree you are going for. You can take as
many random classes as you want but you will never get a degree without having a
plan or degree picked out and knowing the requirements of that plan.
Heavenly Father knows the power of goals and has given us a goal, to return back to
Him. The means of returning back to Him is the gospel. We have a goal in mind and
because of that we can made needed course adjustments when we make mistakes.
With financial goals there is also a way to make those adjustments but only because
there is a goal in mind. That goal keeps us on track

4 FINANCIAL PRINCIPLE#1

CHAPTER 2

Keep financial records. 1 Nephi 9:5, Wherefore, the Lord hath commanded me to
make these plates for a wise purpose in him, which purpose I know not. Heavenly
Father has blessed his children with a record of the Nephites and Lamanites. It is
through this record that many great and marvelous thing pertaining to the gospel
are learned.
Financial records help us learn as well. They demonstrate our spending habits and
the areas that we need to work on. People often learn through mistakes that they
have either made personally or that they have seen others make. It is often said
that history repeats itself. In this particular case, keeping a record is to help keep
history from repeating itself when it could result in negative consequences and to
promote its repetition in good areas such as making regular payments on time.
Records keep everything organized and at any given time they can show where the
money is going. This allows for revision to take place in the budget. Records in this
way engender a safety of mind in knowing that you are paying everything and not
forgetting random bills and then getting fined.

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5 FINANCIAL PRINCIPLE#2

CHAPTER 2

Build a strong financial position. You want to be as financially stable as possible, it

makes the quality of life better. This involves building a good net growth. The steps
for doing that is saving money, obtain appreciating assets (a house), paying off
debt, and not acquiring anymore debt. All of these should help grow the net worth
and help keep the total of the liquid assets higher than liabilities.
Basically, this is the way to be financially independent. To help build the kingdom of
God we need to be as financially independent as possible. Christ repeatedly tells his
disciple in to not worry about money or where to get their next meals or clothes
while they help him. He says much of the same in the Doctrine and Covenants. To
be as useful as we possibly can be we need to not be worrying about money, so we
need to do all we can to take care of that so it doesnt have to be a worry and then
focus on the things that are eternally more important.

6 FINANCIAL PRINCIPLE#3

CHAPTER 2

Make a budget. Budgets are the life blood of being able to manage your finances.
Its the realization of your plan, the step by step, detailed instructions of the
monthly goals to reach the larger goals. Its what keeps the whole thing working.
Budgeting involves knowing what money is coming in, and all the ways in which
money is going out and balancing them. You need to always keep the amount that is
going out less than the amount coming in. Its a no brainer when you think about
that, but cease to pay enough attention and you very easily start to exceed to
amount youre bringing in.
Part of the balancing act is to understand the difference between the constant
expenses and the variable expenses and knowing how to work with them to stay in
the correct range. There are all kinds of percentages talked about in other principles
that help you keep each expense, constant and variable, within a decent range so
there is enough to go around to all of the expenses.

7 FINANCIAL PRINCIPLE#1

CHAPTER 3

When it comes to investing, or even in a source of income in general, diversify.

Dont keep all the eggs in one basket or all the jewels in one safe or all your money
in the same hiding place under the bed. Those arent safe places if youre going to
go all or nothing into it. Financial security comes from having multiple sources of
income going all at the same time so that if something should happen to one then
there are others to fall back on until things can be remedied. Otherwise there is
suddenly no income to meet the demand of expenses.
Ways of having more than one source of income include: have a second job; a
savings account that is earning interest; investing in stocks, bonds, or mutual funds;

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having assets that increase in value over time such as real estate. The more of
these you put into action the better.

8 FINANCIAL PRINCIPLE#2

CHAPTER 3

Ignore world events. The scriptures tell us to be in the world but not of the world. In
Lehis vison of the tree of life he sees a great and spacious building that represented
the pride of the world. It was the very essence of worldliness and the people that
resided within were in the attitude of mocking those that were focused on more
spiritual matters. Their purpose was to cause shame, fear, and doubt in those
following the correct path. To get the righteous to lose faith and step away from
what they know to be right.
Temptations never go away and neither do those in that great and spacious building
stop trying to spread fear, doubt, and shame. All the time people will say not to
invest in certain ways or panic because some stock allegedly is going to fall
drastically. There are always going to be scams but you have to trust the Lord and
then hold onto whatever you feel good about regardless of what other people say
about it. Just do what feels right. A lot of the times if you hold out everything will be
alright especially since its better to buy and then hold onto things anyway instead
of having a really high turn over rate with stocks and such.
Another way that the world should be ignored is in all the fads and fashions that are
going on. New things are coming out all the time but that doesnt mean that you
have to run right out and buy it just because its new. The neighbors might have the
newest car and the lady down the street might have all of the latest line of fashion
design clothes but in the end the car that you have works and the clothes that you
have still look nice. It is perfectly okay to ignore the worldly hype about having the
best and latest because it often leads to debt and stress.

9 FINANCIAL PRINCIPLE#1

CHAPTER 5

Understanding the advantages and disadvantages of credit. Credit is great in the

sense that you can get what the desires and needs of your heart now and pay for
them later and like most things, everything has a price. Credit has a darker side as
well. The hardest thing about credit is that it is very easy to spend way too much
your credit card and that the cost of credit is very high.
However, if used correctly credit can be a very good thing. To buy a house or a car
you generally need to get a loan. Without good credit there is no way that theyll
hand you that loan. Good credit shows responsibility and self-discipline and has the
added perks of being able to get loans and in some cases, lower certain monthly
payments because of the responsibly.

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10 FINANCIAL PRINCIPLE#2

CHAPTER 5

Credit capacity. Quite a bit of credit capacity or the amount of credit that you can
afford to pay every month is a matter of opinion and personal preference. Anything
bought on credit is going to end up being more expensive than its original price but
then there is the luxury of having it sooner than saving up for it and then
purchasing the item. The sacrifice comes in the allotment of fund made to paid
credit that month versus what is allotted to other areas of expenditure.
The general rule with what is an acceptable amount a month to spend on credit is
15 to 20% on the net monthly income. Going above that amount could cause drastic
problems. Keeping your credit to the lower end though is safest because then when
there is an emergency, going to the ER for instance or your car needs repair, then
you can put it on your credit card and still be okay because you left some wiggle
room to make things work. Its unwise to always go right up to the boundaries that
you have set because then should anything go wrong, there isnt a good way to take
care of it and recover well.

11 FINANCIAL PRINCIPLE#3

CHAPTER 5

Cost of credit and minimal payments. Simple truth is that credit is expensive and
the longer it takes to pay it all back the more expensive its going to be. The best
thing to do if using a credit card is to use it to make small purchases or at least ones
that you can pay back entirely immediately to avoid the interest. Otherwise the
actual amount you pay sky rockets.
For things that arent within the easily paid off price range it is better to save it the
money and then buy the object. It goes back to the principle of earning interest.
Both ways there is interest. The only question is do we want to be standing on the
stool getting what we want after taking the time to put the stool where we wanted
in or would we rather stand on the floor with the stool upside down at our feet
looking at the shelf that is currently unreachable. Its much better to save and have
interest working in your favor than working against you.
Minimal payments for credit cards are a disaster. The amount you pay back in the
end is ridiculously high and some of those credit cards have exorbitant rates. In
most monthly payments if the minimal amount is what was paid most of what was
paid goes to paying the interest generated and very little to the principal. Months
con go by and hardly a dent will be made in the principal.

12 FINANCIAL PRINCIPLE#1

CHAPTER 6

There are lots of ways to get around just like there are lots of ways to do your hair in
the morning. Here in Salt Lake there are the trax and frontrunner, public buses,
several people have cars while others have bikes, and then some just simply walk to
where they plan on going. The Hopefuls have several children and so the most likely

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transportation for them would probably be a car. However, for example, should
Brother Hopeful need to go to work and its just going to be him he may not need to
take the car. Maybe he could take public transportation such as a bus. Perhaps the
family lives close to the school. The children can all walk to school instead of
driving. All of these modes of transportation may be used to help lower the cost
while still being able to get around.

13 FINANCIAL PRINCIPLE#2

CHAPTER 6

Do you own a car or lease a car? The Hopefuls already have two cars and one of
them is already paid of which is great! But should something happen to one of the
cars that they have and should they need to acquire a new one, it would be
important to know what option they should take in that acquisition.
Leasing a car is great for short periods of time or if you are trading in cars
frequently so you can drive newer cars all the time. The Hopefuls could do that but
they have a few children still and its going to be a little while before those kids are
grown up and moved out. Plus, children are rough on a lot of things, their clothes,
the furniture, the house, and the car. With both of those things put together, the
timeframe before they are old enough to be on their own trying to make this very
same decision, and the wear and tear that they put everything through, it would be
wisest to own a reliable car that will give several years worth of service before going
the way of all the earth. Not to mention that it will be cheaper in the long run.

14 FINANCIAL PRINCIPLE#3

CHAPTER 6

Do you own a new car or a used car? Looking at the previous principle, this is
almost exactly the same thing and we look at a lot of the same factors. The most
important thing is to get a reliable car for a reasonable price. Remember, you arent
your car, it is a means to an end and it doesnt need to be fancy or new or anything,
it just needs to function properly.
For the Hopefuls, it would be best to go with a used car. It would be cheaper and
they would be able to find one that wasnt terribly old with plenty of life still left to
give that will still fit all of the children.

15 FINANCIAL PRINCIPLE#1

CHAPTER 7

Do you rent or own a house? This is a very similar question to buying a car or
leasing a car. Owning a house may be cheaper in the long run whereas renting is
very convenient for short periods of time or if there is a lot of moving. The added
perk of owning a house is that the house and land count as an asset that will
increase with time.

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16 FINANCIAL PRINCIPLE#2

CHAPTER 7

Find an affordable house for you. Finding a house that works for you means you
have to look at whether you want to rent or buy and then find an area where the
housing and rate of living arent very high. The guideline is to not spend more than
25% to 30% of your take home pay on housing and that you can afford a home that
is 2 and a half times your annual income.
On top of those you will need to make sure that you have enough to pay for the
down payment when first buying the house. The down payment is usually 20% or
more of the price of the house. Depending on the size of the house that can be
quite a bit that will either need to be saved beforehand or purchasing a private
mortgage insurance to help reduce the price of the down payment.

17 FINANCIAL PRINCIPLE#3

CHAPTER 7

Amortization schedule and paying off early. An amortization schedule is a chart that
shows the monthly payments on the house and how much of what was paid went to
the interest, how much went to the principal, how much interest was generated that
month and what the current balance is. It also can show how much faster the loan
will be paid off if the payment is added to a little bit. Sometimes a little bit more can
take off quite a bit of time off the loan. The reason is because every month the
payment is first used to pay off the interest generated and then whatever is left is
used against the remaining principal. Anything added on top of what is already
being paid is used directly against the principal without going through interest first
meaning that the loan gets paid off sooner.
Paying off sooner is always a good idea if possible. Sometimes it isnt possible and
thats alright but if it is then do it. That allows you to put that money towards paying
off other debt or investing it and earning more.

18 FINANCIAL PRINCIPLE#1

CHAPTER 8

Apply risk management. Everything in life gets kind of risky but being smart,
careful, and cautious helps to lower and sometimes eliminate risk. Nothing is ever a
hundred percent safe and theres going to be risk but by doing little things like
locking your house, having a fire extinguisher, or learn basic first aid.
Pretty much all risk has the possibility of impacting a person financially. To help
soften that blow financially should anything happen, people can get insurance.
Some common insurances are, life insurance, health insurance, disability insurance,
car insurance, and home insurance. All of those cover items or situations that deal
with large sums of money. There are other insurances that are for items less
valuable if you deem the risk too high for your liking, such as renters insurance or
even insurance on the package that you mail at the post office.

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19 FINANCIAL PRINCIPLE#2

CHAPTER 8

Make sure to have health insurance. For the Hopeful family there are a lot of people
involved and the likely hood of something happening goes up the more people are
involved because they are all doing their own thing and taking their own risks.
Health insurance is a little more complicated it seems, than some of the others
when it comes down to figuring out what you pay but most have, copay for every
doctors visit, coinsurance for prescriptions, a deductible amount which is a set
percentage of the bill that you pay, and stop-loss provision that keeps what you pay
under a certain amount per year. If that amount is reached then the insurance
company will may everything else.
No one really enjoys going to see the doctor and the best way to avoid that is to
apply the principle above. Heavenly Father is the Ultimate creature and he knows
exactly what our bodies need and lucky us, he told us what they need in a general
fashion in the word of wisdom. By following that and being aware and cautious the
use of health insurance can be limited.

20 FINANCIAL PRINCIPLE#2

CHAPTER 8

Life insurance. Families are one of the most important things here on earth.
Heavenly Father sent us here specifically to get bodies and to have a family.
Families are the best place to learn the gospel, to grow, and be tested. Life
insurance is a way to help protect the family should the provider die.
The amount needed to cover for the family is different for every situation based off
of if there are children and if only one parent works or if they both work, and how
much debt there is. If there are children then the standard is that the family needs
$10,000 every year until the youngest child is 18.
Life insurance isnt only to insure your family but anyone who is financially affected
or dependent on the person dying. That is why when figuring out how much
insurance is needed, debt is added in. Everyone affected will receive compensation
after the death.

21 FINANCIAL PRINCIPLE#1

CHAPTER 9

Invest in stocks, bonds, and mutual funds. Each one of these have their own
advantages but they all are for the same thing and that is to put your money to
work and have another source of income. Stocks are a share of a company, youre
actually buying part of the company. Several of them will pay a small dividend every
year but normally isnt very much. The hope is that the value of the stock itself will
appreciate and that when the time comes, should you need to sell it or want to then
youll be able to sell it for more than you bought it.

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A bond is when you lend your money to the company and after a period of time
they promise to repay the amount plus the interest. The value of the bonds change
based on the economy. They also vary in length of time that it takes for them to
mature.

22 FINANCIAL PRINCIPLE#1

CHAPTER 10

Retirement income needs. There are a lot of factors that come into play when
looking at how much is needed to live comfortably in retirement. There are some
simple calculations that involve percentages of the working yearly income. Other
things to look at are the normal cost of living, inflation, debt, entertainment or
hobbies, family.
Somethings will change and be less expensive after being retired. Youll probably
commute less since work is no longer involved. Things like medical bills and
expenses on hobbies or even schooling may go up because there is more time to do
things than before. Debt is a big one to look at and when planning for retirement it
should be planned in such a way that by the time you retire all debt should be paid
off. Otherwise it has to be paid off while not working.

23 FINANCIAL PRINCIPLE#2

CHAPTER 10

Alternate sources of retirement income. Just like transportation there are lots of
options when it comes to preparing for retirement but unlike transportation, you can
and should utilize more than one method at a time.
Some of the different ways to prepare for retirement and save up to have enough
include the following programs, 401K, IRAs, a Roth IRA specifically, savings
accounts, and then other types of investments as well. Roth IRAs are good in the
fact that the money that is put into it is post tax money which means that later you
dont have to pay taxes on that money when you make a withdrawal and you can
continue paying into that account after you are 70 and a half years old. Other
programs tend to have caps of how long you can pay into it.
Another thing to look at when planning for retirement is not just the different ways
in which to prepare but also the way in which you plan to make what you have
saved work after retirement. The options are to either save an amount and then live
off of that savings eventually using it up completely or to save enough money that
you can live off of the interest generates by that amount. I would personally prefer
to live off the interest and save the principal as that sounds like the easiest and
least stressful. You dont have to worry about living too long and out living your
savings.

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24 FINANCIAL PRINCIPLE#3

CHAPTER 10

Start early. Theres no need to procrastinate and when you do it only causes
problems. At the beginning it doesnt seem to but later when the stress starts to
mount and there isnt enough money and the deadline is approaching, there is
nothing but problems. The wonderful thing about this principal is that it doesnt just
apply to a retirement program or to a savings account, but to everything in life.
Heavenly Father tells us in D&C 88: 124, , retire to thy bed early, that ye may not
be weary; arise early, that your bodies and your minds may be invigorated.
Benjamin Franklin tells us that going to bed and waking up early makes a man,
healthy, wealthy, and wise. These are the results of starting early and staying on
top of things with a continuous effort.
By starting early to prepare for a retirement plan y the time you hit the age of
retirement you wont have to worry about it. You wont even have to think about it.
But starting early by applying all the principles discussed in this paper will make you
healthy (from a lack of worry and stress), wealthy (because you will being be using
all of the different tools to manage your money), and wise (wise in making financial
decisions).

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