Financial planning 2014

• 1. Financial Planningfor College StudentsSeptember 25, 2014

2. Net worth: the difference betweenassets and liabilities Assets: things you ownat what theyre worth Cash $ 700 Computer $ 500 Car $2,500 Clothes $ 300 Total $4,000 Liabilities: bills you owe VISA $ 1,700 Verizon $ 300 Student loan $ 9,000 Total $11,000 3. Quiz: left or right? 4. Left!Current worth = $3,750Net worth = $3,750Current worth = $39,050Net worth = $0Monthly payments = $630Total cost = $45,280 5. Life stages: taking the long view College years: spending more than you earn The next decade: climbing out of the hole The middle years: accumulating assets Retirement: supporting yourself comfortably 6. Lifetime net worth 7. Where are you right now? Understanding what you owe is part of the net worth calculationand its disturbing to think about Youre not alone: The average student loan debt at graduation is $33,000 70% of the class of 2014 are leaving school with student loan debt The average undergraduate has 1 to 3 credit cards Graduating seniors owe between $1,000 and $3,000 on cards And credit card debt doubles in the years right after graduation 60% of surveyed students admitted to being surprised at howhigh their credit card balances were on their monthly statement Most students are anxious about repaying their debt 8. No one wants totalk about debt.Up to a third ofparents rarely ornever talk withtheir childrenabout finances. 9. Three ways to obtain funds Student loans Payday loans Credit cards 10. Good debt? Bad debt? Good debt helps youin the long run Mortgages buy houses Car loans buy cars Student loans buycareers Bad debt outlastswhatever its used for Food Clothing Phone Gas Vacations Gifts 11. Student loans Borrowing for college is real debt You absolutely must pay it back Terms are flexible and can be adjusted Do your research now and understand your loan But, borrowing to graduate is good debt Lifetime income almost doubles Gender gap still exists in womens pay 12. Median annual earningsSource: College Board, Education Pays 2013Male FemaleLess than high school $27,300 $20,700High school graduation $40,400 $30,000Some college $47,100 $34,600Bachelors degree $66,200 $49,100Masters degree $83,000 $60,300Professional degree $119,500 $80,700 13. Quiz: what are your lifetime earnings? 14. Be amazedIf you begin your career at $35,000and end your career at $85,000,working steadily for 47 years,you will earn:$2,820,000 15. Payday loans: just dont. Period. 16. Credit cards Credit cards can be useful To pay safely and conveniently To smooth out irregularities in income For emergencies To evaluate spending To build a credit history When no other reasonable source of credit exists Using credit cards wisely takes skill 17. The four rules of credit cards Understand your card Budget Understand wants and needs Keep your end of the deal 18. Rule one: understand your card A credit card is a contract, but not a long term loan Issuers are greedy. Whats your APR? Example: order a great burger at Outback: Cost of food, $25 ATM fees, $8 Overlimit fee, $35 Late payment fee, $35 per month (and if youre more than 60days overdue, its legal for them to raise your interest rate!) Interest, $52 Your burger will be paid off eleven years from now 19. Rule two: budget Answer honestly: did you ever have a month where youhad money left over? Spending just $150 more per month than you pay off onyour credit card means youll owe $7,200 at graduation Budget at the beginning of the month or at the end You can be as informal as you want, but there arebudget calculators that can help, especially at first 20. The simplest budget: write it down Budget: planned versus actual spending You cant budget without data! Write down all your spendingeach month Evaluate your activityperiodically Begin to set monthlybudgeted amounts 21. Be a good steward for your future me 22. Rule three: understand wants and needsHows your self control? 23. Would you eat the marshmallow? 24. Rule three: understand wants and needsHave you really thought about what makes you happy? 25. Mostly, its not about money 26. Rule four: keep your end of the deal Be good to your current issuers New law limits ability of many under age 21 to geta new card without a cosigner or proof of income Search bankrate.com for alternatives Recognize that your behavior is tracked Your credit history follows you for seven to ten years Credit bureaus collect data on you They, and others, use this data to create a FICO score FICO scores are used by auto lenders, insurancecompanies, landlords, and employers 27. Components of a FICO score 28. Check your credit score 29. That $40,000 cheeseburger Cost of food, $25 ATM fees, $8 Overlimit fee, $35 Late payment fee, $39 per month Interest, $52 Opportunity cost of lost job, $42,300NACE 2013 Salary Survey average starting salary of liberal arts graduates 30. Up out of the hole For the first decade after graduation, youregoing to be moving toward a positive net worth You can prepare now to make this processfaster and easier 31. Make it easy on yourself Maximize your salary Repay your loans Put all your accounts in one place Save 32. Maximize your salary Be aware of salaries and salary progression in yourfield after graduation Prepare for the best job you can imagine Maintain a minimum GPA of 3.0 Create and update a resume Engage in internships Develop your leadership skills; commit to something Enlist everyone you know in exploring and securing a job:professors, Career Services, family, family friends,professional organizations Expand your geographic horizons and push out ofyour comfort zone 33. Repay your loans Ask Financial Aid about repayment options Automate your loan payments Be aware of graduated repayment plans andforbearance provisions Remember the 10-year horizon and plan to paydown credit cards and student loans as you can Spend like a college student for the first few years 34. Put all your accounts in one place 35. Save Remember that youll be supporting yourself inretirement for as many years as you will be working Take advantage of tax-deferred retirement plans at work Make saving automatic and pay yourself first Understand the nature of compound interest Saving now and saving later are not interchangeable Small, regular amounts add up to a lot! 36. How money grows 37. Quiz: how much?How much will you accumulate if yousave $1 per day, every day, of your life?Hint: youll be alive 31,390 days. 38. A dripping faucet WILL fill up the sink!$4,300,000$31,390 is principal andthe remainder is interestcompounded at 8%for 86 years 39. How much for a million?If you... Youll end up withSave $190 per month starting at age 20 $1,000,000Save $670 per month starting at age 35 $1,000,000Save $1,700 per month starting at age 45 $1,000,000Save $2,900 per month starting at age 50 $1,000,000Save $5,500 per month starting at age 55 $1,000,000 40. In conclusion Your net worth is likely negative right now, whichis distressing Youre already in the hole, but dont make it worse! Finish your degree Live within your means as much as possible Begin to prepare to pay off debt with thoughtfulcareer preparation Remember that you have the resourcefulness anddetermination to create a financial plan that fits you 41. This CheeseburgerCosts $40,000No foolin!So, do you want fries with that?Presented by Professor Elaine [email protected]