Krista Coombs

Chapter 1
Principle #1: Pay the Lord first, and then yourself
I was taught at an early age that if you pay your tithing, you will receive many blessings. On top
of those blessings, if you paid your fast offering, you will be able to handle any financial
problems that arise. I loved reading about the promised blessings in the April 1994 general
conference talk given by Dallin H. Oaks. He refers to a talk given by Heber J. Grant in a 1912
general conference: I bear witnessand I know that the witness I bear is truethat the men and
the women who have been absolutely honest with God, who have paid their tithing,God has
given them wisdom whereby they have been able to utilize the remaining nine-tenths, and it has
been of greater value to them, and they have accomplished more with it than they would if they
had not been honest with the Lord (in Conference Report, Apr. 1912, p. 30). I love the part
about God giving us the wisdom to know how to utilize the remaining nine-tenths of our
money. That is a great blessing promised to us if we only pay what is owed to God in the first
place.
Principle #2: The Miracle of Compound Interest
If you avoid borrowing money and paying interest and instead save a portion of your earnings
and collect interest on your savings, you can achieve financial independence. The miracle of
compound interest comes into play when you earn interest on not only the principle amount of
your original investment/savings, but also on the interest earned from that original investment.
This interest is added onto the principle and earns interest from then on. So your money works
harder for you when the interest compounded. The more frequently interest is compounded, the
better so look for investment/savings opportunities that offer frequent compound interest like
monthly, quarterly, yearly.
Principle #3: Prepare Financial Goals and make Wise financial Decisions
To become financially independent and eventually financially wealthy, you have to make wise
financial decisions and prepare realistic financial goals. Here are some basic rules to follow
when making good financial goals: a) be specific; define your goals with as much detail as
possible, b) make it measurable in terms of time and results, c) make it important to you and your
own personal values, d) make it challenging, outside of your comfort zone, e) make it realistic;
something that you can control and make happen, f) share in the responsibility of making and
achieving these goals with those that will be inputting in the outcome

Chapter 2
Principle #1: Keeping Financial Records
You should keep your financial records organized so that you can utilize them to keep your
overall personal financial score. Your records should be organized in the following filing system:
1) Financial management records such as your budget & goals, and your financial statements, 2)

Tax records such as payroll & other taxable income records and tax returns & docs, 3)
Transaction records such as bank statements and unpaid bills, 4) Investments records of
brokerage and personal investment statements, 5) Property records such as home mortgage or
lease papers, auto titles, registration, & maintenance records, warranties, and operating manuals
for appliances, 6) Personal records such as birth certificates, passports, Social Security data,
wills, 7) Credit records of purchase contracts, and credit accounts list and phone numbers, 8)
Insurance records of policies (home, auto, life, medical), policy statements, medical records, and
claim records.
Principle #2: Understanding Your Personal Financial Statements
In order to move forward in your finances, you need to understand where you stand in the health
of your finances. You can do that by understanding and preparing your own financial statements.
First, the balance sheet is a record of everything you own (called assets) and debts you owe
(called liabilities). Once you know what you own and what you owe, you can determine your net
worth. Your net worth is what you have left over if you sold all of your assets and paid all of
your liabilities. Once you know your net worth, you can increase it by increasing your assets and
reducing liabilities. Second, you can also keep score by tracking your incoming (income) and
outgoing cash (expenses) over a period of time with a cash flow statement. It measures what
happened to your money during that time period. By preparing and understanding these
statements, you can adjust your monthly spending so that your income exceeds your expenses.
You can use these surpluses (excess) of cash to build assets by increasing your savings and
investments and earning interest. The goal is to spend less than you earn and save and invest the
difference.
Principle #3: Show Me the Money Budgeting
Budgeting is a prediction of what your financial score will be in the future. It is a method to
solve any potential problems in advance and is the key to achieving your goal of financial
independence. A budget is a forecast of your cash flow for a period of time, so a monthly budget
for a full year is a helpful tool in predicting your financial score. There are many methods to
budgeting but the most effective is in a written budget which allows you to know where your
money went. This method is most recommended by financial advisors. The key is to record every
purchase/expense. When you have a written record, you can control and make adjustments in
your budget and spending habits. To take the written budget to the next level, it is best done on a
computerized budgeting system that allows you to keep an extensive record of your cash flow
and produce financial statements when you need them. A computerized system records and
performs the calculations necessary to keep track of your financial score at any given time.

Chapter 3/9
Principle #1: Basic IDEAL Investor Strategies
If you follow these basic rules when deciding which investment strategy you will use, you should
be successful in creating financial independence: I) Invest consistently and dont attempt to time
the market, D) Diversify your investments and dont let current events or economic conditions

determine your investment strategy, E) Expect the market to go up and down, A) Always select
investments that outpace inflation, L) Look at investing with a long-term perspective.
Principle #2: Stock Investment Strategies
Investing is risky. Before you invest, you need to figure out what your risk tolerance is and how
you can minimize your risks. Dollar cost averaging is the best strategy for minimizing your risks
when investing. You invest the same amount every month in the same investments. You dont try
to time the market by attempting to buy low and sell high. You buy and hold for at least five
years, you diversify your investments in a broad range of securities in various industries and
categories, you buy securities that grow at a greater rate than inflation, and you ignore world
events. In short, you are using the IDEAL investor strategies.
Principle #3: Investment Alternatives
You can either be an owner or a lender or a combination of both when investing. An owner buys
appreciable assets whereas a lender puts his/her money into savings accounts or bonds. Owners
have equity, while lenders hold debt. Investing in stocks is an equity investment and the best way
to diversify your equity investments is to buy a mutual fund. A mutual fund is an investment
company who pool the funds of many small investors and buy a diversified portfolio of stocks,
bonds, or other securities. Once youve determined your investment goal, you can invest in a
mutual fund with the same goal. To further diversify and reduce your risk, you can also invest in
more than one mutual fund. Other equity investments include real estate, precious materials such
as gold & silver, and collectibles.
When you buy bonds, you loan your money to the company selling bonds, thus you are investing
in debt. Bonds are generally purchased by investors who want a lower risk and require the
income produced by the bond interest. Bonds are good investments for people who are retired,
who have short amount of time to invest, and who need steady income.

Chapter 5
Principle #1: Advantages of Credit
In this day and age, we need credit in order to make reservations, shop by phone and mail, rent a
car, or to provide identification. Consumer credit allows you to enjoy goods and services now
and pay for them in the future. Some credit cards also provide a rebate, cash bonus, or discount
on future purchases. If you buy an asset on credit that appreciates in value, you benefit
financially as long as the asset increases in value by more than you pay in interest or financial
charges. But, if you pay more for the debt than you realize in increased value or if the value of
the asset decreases in value, this reduces your wealth. Most cars and other consumer goods
decrease in value while most homes and investment assets increase in value. The key to making
credit work for you is to pay the total balance within the grace period every month. This will
provide many advantages and eliminate the disadvantage of consumer credit.

Principle #2: Disadvantages of Credit

Consumer borrowing is becoming a way of life in the materialistic world in which we live. When
you dont have the money to buy something you want or need, you can charge it to a credit card
account or put it on an installment loan contract. In either case you borrow money to make the
purchase now with the promise to pay later, plus interest. The major disadvantages of credit
cards, charge accounts, and installment contracts are overspending and the high cost of credit.
Spending what you dont have and cannot pay for will result in loss of goods, income,
reputation, peace of mind, and even your health. It can also result in court actions and
bankruptcy.
You need to employ a high degree of discipline to use credit. If you dont have the necessary
discipline, the best thing to do is to cut up your credits cards, dont apply for new one, and stop
buying on credit.
Principle #3: Saving Versus Borrowing
Rather than buying now and paying later with the interest charges that go with borrowing money,
you will always be better off financially to save and earn interest and then pay cash for your
purchases. Unwise use of credit or borrowing allows you to spend more than you earn and
increases the cost of each purchase, especially on depreciating assets. If you were to save and
invest the same amount of money you wouldve spent on payment to a purchase and bought the
asset at a later date with your savings, you would not only save money on the interest owed from
borrowing the money but make money in interest from your savings.

Chapter 6
Principle #1: You Are Not Your Car
Remember that all financial decisions should support your goal of increasing your net worth. It is
important to make good decisions and wise choices regarding how you manage your
transportation costs. Many people feel they must have an expensive car to have a good selfimage. I have fallen into this trap myself. Remember that you dont need expensive
transportation, but a dependable one. There are many transportation choices available such as
choosing to walk, riding a bicycle, using public transportation, leasing or buying a car. There is
significant discretionary spending involved in transportation so be careful not to make decisions
that significantly decrease your net worth.
Principle #2: New Versus Used Vehicles
The number one factor to consider in buying new vs used cars is depreciation. Depreciation is
the amount the vehicle will decrease in value over time. Most new vehicles depreciate by as
much as 50 percent the first two years of ownership. Buying a two-year-old used car minimizes
the loss in value caused by depreciation. The trade-off is that you get a full warranty with a new
car and little or no warranty with a used car. But todays high quality cars have fewer
maintenance problems in the first fifty thousand miles. So you will usually be better off
financially to buy a slightly used car than to buy a new one.

Principle #3: Negotiating the Deal

If you choose to purchase a used vehicle, the following are some suggestions in negotiating the
best buy: 1) know in advance what you are willing and able to pay, 2) do enough comparative
shopping to know the fair market price, 3) be willing to walk out on the negotiation when the
counter offer is unacceptable, 4) you should hire an expert to check out the car by inspecting the
exterior, interior, and engine, 5) take an extensive road test drive in varying conditions such as
steeps hills and freeways, 6) check the operation of all vehicle systems including heating cooling,
sound system, wipers, windows, and doors, 7) review vehicle history using an online service.

Chapter 7
Principle #1: What Can You Afford?
There are two general principles of housing you should consider: 1) you should not spend more
than 25 to 30 percent of your take-home pay on housing, 2) you can afford a home valued at
about 2 times your annual income. These two concepts were eye openers for me. Whether
youre renting or buying a home, the cost, including all the extra expenses that goes into either
option, should not exceed 30 percent of your take home pay. Also, if youre buying a home, you
shouldnt buy anything over 2 times your annual income. It sounds simple, but staying within
these guidelines are harder than you think. You want that dream home or rental with all the
amenities and before you know it, the costs far exceed your allotted budget and you start
rationalizing your decisions. As always, the best way to know what you can afford is to run the
numbers.
Principle #2: Renting Versus Home Ownership
The American dream is to own ones home so living in an apartment is generally viewed as a
temporary step while you save enough money for a down payment on a home and/or become
more established in a specific location. Here are some of the pros and cons of renting and buying
a home. Renting provides more flexibility, lower maintenance costs, and less up-front cash than
home ownership. Home ownership provides tax benefits and increasing equity, or net worth,
through appreciating in value and decreasing the loan principal. But you have to take into
consideration other costs of home ownership in addition to monthly mortgage payments such as
insurance, taxes, and maintenance costs. It is generally true that purchasing a home and paying it
off as quickly as possible is one of the best methods for increasing individual wealth.
Principle #3: Amortization Schedule
Amortization refers either to the gradual paying off of a debt in regular installments over a period
of time, or to the depreciation of the book value of an asset over a period of time. One very
important tool to increase your personal wealth is to purchase a home and then pay extra each
month on your payment. This extra amount goes directly to reduce the principal and significantly
decreases the cost of credit. The amortization schedule helps you see the benefits of the extra
principle payments. An amortization schedule is useful for any type of loan, not only home loans
but also for analyzing car loans, credit card loans or any other loans.

Chapter 8
Principle #1: Methods of Risk Management
You cant completely avoid risks and still have a productive life. But there are ways to manage
risks: 1) avoiding risks to a certain degree to be productive or avoid certain types of activities
completely that are high risk such as skydiving, 2) reduce risks by following safety procedures,
diligently studying, eating properly, and exercising, 3) assuming risks by taking responsibility for
the consequences or losses, 4) or transferring risks by buying insurance coverages, usually for
major risks. Risk, or the possibility of risk, is always there and therefore you need to take
measures to cover the gap between what you can afford and what you have to pay.
Principle #2: Automobile Insurance
In the past, Ive always bought just the minimum coverage necessary to be legally covered to
drive. But I was a little nervous after hearing the real-life stories in class so I checked my auto
insurance policy when I got home to make sure I have enough coverage. I was glad to see that
my policy covers all of the points mentioned in the chapter: liability (bodily and property
damage, collision, comprehensive, no-fault, and uninsured/underinsured coverage. I feel pretty
secure with the liability coverage of 250/500/100. Im going to make sure that all the small
details such as good driver discount and being over 25 years old have been applied to my costs. I
am also going to raise my deductible to a higher limit to lower costs.
Principle #3: Life Insurance
The risk of dying too soon can be transferred to an insurance company with the purchase of life
insurance. You purchase life insurance to provide for those who depend on you and who would
suffer a financial loss is you were to die. Your need for life insurance coverage is based on your
responsibilities to a spouse, children, parents, business partners, or others who would be
financially affected by your absence. You can keep those insurance costs to a minimum by
keeping your debts down, increasing personal equity, and keeping healthy. I love the quote you
dont buy life insurance because you are going to die, but because those you love are going to
live." - Unknown author.

Chapter 10
Principle #1: Estimate Your Retirement Income Requirements
Independent wealth is the ultimate goal one should strive for and being properly prepared
financially for your retirement allows you to live comfortably and enjoyably. For each person,
their retirement goal will be different and so here are some factors to consider when planning
your retirement: 1) mortgage/housing: hopefully you will have paid off your home but you will
still have other payments such as taxes and maintenance costs associated with your home costs,
2) transportation: you may only need one car after retirement thus reducing the cost of

maintaining a second vehicle, 3) food costs will most likely go down if you no longer have to
provide for a family but also consider that you might dine out more which will affect your
budget, 4) employment and the costs associated with employment such as clothing and travel
expenses will no longer be a cost, 5) taxes: hopefully you will be paying less in taxes on your
investment income, 6) medical expenses: you will likely have increased medical expenses for
insurance and health care needs, 7) leisure activities: you will have more time for travel and
other activities which will increase living expenses, 8) and finally you need to plan for inflation
in your retirement years.
Principle #2: Retirement Plans
There are many options for providing for your retirement needs. Social security benefits covers a
portion of your retirement needs. Some employers also provide retirement plans in two types: 1)
Defined benefit plan (pension): where your employer pays a specified monthly benefit payment
for life after you retire, determined based on your salary history and length of employment, 2)
Defined-contribution plan: most popular plan is the 401(K) plan where your employer pays into
the plan but no specific benefit is defined. You can also set up personal retirement plans such as
an IRA or Roth IRA. They both work similar to a 401(K) account except your employer will not
contribute and you dont get an immediate deduction from your taxable income. With the IRA,
you get the tax deduction when you file your annual income tax return and with the Roth IRA,
you dont get the tax deduction up front. It means you are investing after-tax dollars and your
investment grows tax free.
Principle #3: The Importance of Starting Early in Life
The earlier you start saving/investing, the more benefits you will see of compounding interest.
The difference in starting early, as little as 10 years, even if you stop saving after 10 years, is
startling. Below you can see the difference:
Begin saving
At age 25 for 10
years
At age 35 for 35
years
At age 25 for 45
years

Amoun
t
$2,000
$2,000
$2,000

Period/Interest
Annually @
10%
Annually @
10%
Annually @
10%

This is the miracle of compound interest!

Amount
saved

Compounded value at age

70

$20,000

$895,761

$70,000

$542,049

$90,000

$1,437,810