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for childrens education, or even effectively

Building Wealth: A Beginners Guide to Securing Your Financial Future

managing the family budget now requires offers introductory guidance to individuals and families seeking help

more financial sophistication than ever to develop a plan for building personal wealth. While a comprehensive

before. Financially literate consumers discussion of accounting, finance and investment options is beyond

make the financial marketplace work the scope of this workbook, it presents an overview of personal wealth-

building strategies. For more information and assistance, consult the

better, and they are better-informed

resource guide at the back. For additional copies of this workbook (also

citizens as well. available in Spanish), call (800) 333-4460, ext. 5254, or order from the

Ben S. Bernanke, Chairman, Dallas Feds web site, www.dallasfed.org. An animated CD-ROM ver-

Federal Reserve System sion of this guide has been developed for individuals to use at their

home computer or for multiple users in classrooms and computer

labs. This interactive program is also available at www.dallasfed.org.

Building Wealth: A Beginners Guide to Securing Your Financial Future

may be reproduced in whole or in part for training purposes, provided it

includes credit to the publication and the Federal Reserve Bank of Dallas.

Building Wealth

You can create personal wealth. Its possible to meet your financial

goals. By choosing to budget, save and invest, you can pay off debt,

send your child to college, buy a comfortable home, start a business,

save for retirement and put money away for a rainy day. Through

budgeting, saving and investing, and by limiting the amount of debt

Now that you have defined what wealth means to you, how do you

Building wealth requires having the right information, planning

and making good choices. This workbook provides basic informa-

tion and a systematic approach to building wealth. It is based on

time-honored principles you probably have heard many times

beforebudget to save; save and invest; control debt; and protect

the wealth you accumulate.

Federal Reserve Bank of Dallas 1

➀ Wealth Creation:

Learn the Language

You want to create personal wealth, right? So does Bob.

Bob is 35 and works for a manufacturing company. He looked

at his finances and realized that at the rate he was going, there

wouldnt be enough money to meet his familys financial goals.

So he chose to embark on a personal wealth-creation strategy.

His first major step was to pick up a copy of this workbook for guid-

ance. Bob began by learning the language of wealth creation. The

first lesson was to understand the meaning of assets. liabilities and

net worth. They make up this very important formula:

Bob

AssETs LIABILITIEs = NET WorTH

Accumulating wealthas distinct from A wealth-creating asset is a possession that generally increases in

value or provides a return, such as:

just making a big incomeis the key to

your financial independence. It gives you A savings account.

control over assets, power to help shape A retirement plan.

the corporate and political landscape, Stocks and bonds.

A house.

and the ability to ensure a prosperous

future for your children and their heirs. Some possessions (like your car, big-screen TV, boat and clothes)

Rev. Jesse L. Jackson, Sr. and Jesse L. Jackson, Jr. are assets, but they arent wealth-creating assets because they dont

Its About the Money!

earn money or rise in value. A new car drops in value the second its

driven off the lot. Your car is a tool that takes you to work, but its not

a wealth-creating asset.

A liability . also called debt, is money you owe, such as:

A home mortgage.

The market value of a home is an asset; Credit card balances.

the mortgage, a liability. Lets say your house is A car loan.

worth $120,000, but your mortgage is $80,000. Hospital and other medical bills.

That means your equity in the home is $40,000. Student loans.

Equity contributes to your net worth.

Net worth is the difference between your assets (what you own) and

your liabilities (what you owe). Your net worth is your wealth.

2 Federal Reserve Bank of Dallas

To calculate how much he is worth, Bob used the following formula: