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Transcript of Creating Wealth
Marginal Utilities Define Wealth Cont'd Opportunity Cost- Is the cost of making an alternate decision with a positive or negative outcome.
Ex: You could stay home and study and not go hang out with your friends. You might get good grades but not have a very good social life. You could go out with your friends and possibly get poor grades, but have a good social life. Happiness = $75,000 Woodrow Wilson School at Princeton University conducted at a study stating that $75,000 a year would bring you overall happiness with your life. Angus Deaton & Daniel Kahneman, who conducted the study broke it down to 2 categories: "Enjoyment of Life" and "Life Satisfaction". Enjoyment of Life refers to day-to-day, such as laughing and smiling. Life Satisfaction is how you rate your life overall. The study found earning more than $75,000 annually would not make you happier although having the ability to purchase all these miscellaneous items may make your Life Satisfaction greater. Human Capital Human Capital deals with the value you hold
within yourself or an employer holds over you.
A relevant degree from a reputable College/ University or have a unique or advanced set of skills over other employees. Employers also need an emotionally stable employee in order to be of value to the company. Rule of 72 Definition: Divide the compound interest rate into
72, the result being the approximate amount of years
it will take to double your money. Law of Diminishing Marginal Utilities states the value of goods diminishes the more it is consumed. The first time you buy a car you feel really good about yourself. By your 3rd or 4th car it isn't as exciting. Experiential The Economic Problem: Scarcity is a main concern in the Economic Problem. People have a vast array of wants. Our world can only provide so much. Ex:The demand for jobs in the trades is high yet the younger generations with the skills is scarce. Ex: 5% interest. 72/5= 14.4 years. The more you make goals and achieve them the more significant you will feel, the higher your Human Capital will be. Define Wealth Material Material Wealth are things you have to show physically. I have a lot of music equipment, which shows I spend my money on Guitars and Amplifiers. Social Social wealth is the quality of friendship you have and how you go out and experience the world. If you stay at home alone and don't have quality friendships, your social wealth would be minimal. Health and Wellness Refers to how healthy you are. For example if you are always sick with the flu and have a disease such as Cancer. The more you experience the world the greater your Experiential Wealth will be. On the contrary if you live your life with the same routine everyday your Experiential Wealth will be extremely low. Expression At the top of the Maslow's Hierarchy of Needs is the Self-Actualization. Self Actualization talks about being the absolute best you can be, no exceptions. The more accomplished you feel the more you can produce in your job, or even in you own personal life. Manage Debt Leveraging vs Consumer Debt Leveraging your debt is investing your money in things like real estate to increase your return. Unlike in Consumer Debt if you purchase a lazy-boy or a new car you won't have any return. 3 C's
Better Lending Character: Does your history prove
you will be willing to pay the loan back on time? Capacity: Do you currently have a well paying job and/or the financial resources to repay the loan? Collateral: Is your property/assets sufficient enough to secure your loan? Debt to Build Equity Savings 10% Rule: Saving 10% of every paycheck starting at the age of 25, you will retire comfortably, having roughly the same amount "income" post retirement. Why: Some people are forced to work past the age of retirement because they don't have the funds to live on. If you only have to save 10% of your paychecks and live comfortably for the rest of your life, why would you not want to try? Pre-Authorized Saving Plans You authorize a bank to take money out of your bank account and put it into your savings account (ING). It takes the pressure of remembering to manually move the money over yourself. The bank will do it automatically. Dollar-Cost Averaging Purchasing a fixed amount of shares in a company. When stocks are low more shares are purchased and less when they are high. Risk Tolerance The amount of uncertainty a share holder can withstand when a negative change impacts their portfolio value. Risk and Return: Possible return rises with higher chance of risk. Therefore, low levels of uncertainty or low-risk results in minimal return. The more of a risk taker you are willing to be, the better your chances of receiving a larger return is. Investing Types of Investing 1.Bonds-Debt investment used by large entities 2.Stocks-Signifies ownership in a corporation and all it's assets/earnings 3.Mutual Fund-Collection of stocks and/or bonds 4.Real Estate-Even if it's your own home, value on property is always rising. 5. Business-Starting and Running a business is a risky investment with possible high return. Value
Growth Growth: Investing in a company
value to grow. Value: Investing in stocks that trade for less than intrinsic value. Economic Cycle The change in the economy between periods of expansion and recession. Understanding the Economic Cycle can help investors produce better investing strategies. The government also uses the cycle to determine it's economic policy's depending on the current "boom" or "bust" of the economy. Budgeting Track Expenses: Tracking and being aware of where your money is going, is very important. Blindly spending money will cause you to fall deep in debt. Tracking expenses may open your eyes to things you do not need to be spending money on and then you can make some cut backs. Anticipate Anticipating expenses is being prepared for what you owe. If you pay $100 every 2 weeks for groceries, you need to make sure you have that $100 set aside so you don't go hungry. Same as if you have a car or mortgage payment, you need your car to get around and a roof over your head. If you anticipate these expenses and are prepared, it will keep you on track to staying out of debt. Think Like a Millionaire Budgeting money early is one of the first steps to becoming a millionaire. You must put yourself in the shoes of other millionaires and using their techniques to reach optimal wealth. Such as learning to live on less to save more. Revenue Types of Income Earned Income: Is the first type of income. Earned Income is any income you receive by working, gambling or any other legal activity based on the time you spent doing it. Once you stop doing any one of these activities the money stops coming in. Portfolio Income: Is the second type of income. Portfolio Income is when you sell investments at a higher price then you paid for it. EX: Trading stocks, bonds, buying/selling Real Estate and anything else you own of value. Passive Income: This is the final type of income.
Passive Income is brought in by the money you make on assets you own. Ex: Rental on Real Estate, Business Income etc. Income Earners Strong work ethics
Constantly improve themselves
Only produce quality work
Keep good contacts (social network)
No lack of confidence Think Like a Millionaire: Earn More Wealthy people are always on the look at to make more money. You have to be aware of all the "cool" things in today's society. Be on notice of the things that people are buying. Then you have to think of ways to significantly improve the product.( Unless in the case of the Iphone the brand is enough). Using your mortgage, is a good way to build Equity. The value of your home will increase and if the Real Estate market is good then you can make back the money to pay it off and have some left over. Renting your home to other people or flipping houses can build you equity and raise your income thousands of dollars.