PERSONAL FINANCES 101. AGENDA Creating and Managing a Budget Power of Compounding Pros and Cons of Credit Cards Smart Borrowing: Student Loan Programs.

PERSONAL FINANCES 101

AGENDA

Creating and Managing a Budget

Power of Compounding

Pro’s and Con’s of Credit Cards

Smart Borrowing: Student Loan Programs

Credit Fitness: Why it is important!

Protecting Your Identity

CREATING AND MANAGING

A BUDGET: KNOW YOUR HABITS

First, “know your habits” by tracking

your expenses to fully understand

how you spend your money

SECOND, DO THE MATH!

DETERMINE YOUR

MONTHLY INCOME

MINUS EXPENSES

Total Monthly Take-Home Income (minus taxes, health insurance, other payroll deductions, 401K)

$

Household Expenses

Rent or Mortgage $

Utilities (water, sewer, gas/electricity) $

Home/Cell Phone $

Groceries $

Other Household (Cable, etc.) $

Transportation Expenses

Car Loan Payment $

Gas, Tolls, Parking, Other $

Car Insurance (set aside if paid annually or semi-annually) $

Other Expenses

Pet (Food, Vet) $

Insurance/Co-pays, Prescriptions $

Fun (entertainment, dining out, move rental, etc.) $

Minus Total Expenses $

Total Monthly Surplus/Shortage $

CREATING AND MANAGING

A BUDGET: INCOME V EXPENSES

LITTLE SAVINGS ADD UP…ITEM ANNUAL COST ALTERNATIVE ANNUAL COST

One Cup of coffee daily at a Coffee

shop ($3)

$1,095Gourmet

coffee brewed at home

$176

One CD weekly ($12.99)

$ 675 Download individual songs you like ($1)

$375

Pizza delivery once a week ($10)

$ 520 Gourmet frozen pizza at the grocery ($5)

$260

Eating lunch out 5 days a week ($5

per lunch)

$1,250 Bring your lunch to work 5 days a

week ($1.50 per lunch)

$375

Total Annual Savings of $2,354!

CREATING AND MANAGING

A BUDGET: WANTS V NEEDS

Wants versus Needs!

Do I have to have it today?

What will happen if I don’t buy it?

How have I managed this long without it?

NEW CAR VS. OLDER CAR

New 2009 Honda Accord EX Cost: $24,000 Payment: $476 Insurance: $ 78

Monthly difference: $176Annual difference: $2,112

Used 2003 Honda Accord EX• Cost: $14,483• Payment: $305• Insurance: $ 73

Car Cost/Payment Source: www.edmunds.com Based on financing for 60 months. New car interest rate of 7.11%; Used car interest rate of 7.35%. Car Insurance Cost Source: www.geico.com Insurance rates for a 25-year-old single male with a clean driving record.

INCOME Take-home pay minus taxes,

social security, health insurance, 401K

CREATING AND MANAGING A BUDGET:

SAMPLE BUDGET

Based on 60% solution from msn.Money

FIXED EXPENSES: 60%Rent/Mortgage, Utilities, Home/Cell phone, Commuting, Car payment, Insurance, Work-related (clothes, dry-cleaning), Student Loan Payments, Credit Card Payments

SAVINGS: 20%Money set aside for vacations, major repairs, new appliances, to pay down existing debt, emergenciesa down-payment on a car or house, charity

RETIREMENT: 10%Ideally, 10% of your gross income

JUST FOR FUN: 10%Everybody needs some fun

CREATING AND MANAGING A BUDGET: MONITOR YOUR

BUDGET Commit to your budget

Track and compare actual expenses against monthly budget

Make choices to reduce expenses

Start saving for your short and long-term needs

POWER OF COMPOUNDING:START SAVING NOW!

SAVING $1 A DAY AMOUNT YOU PUT IN ACTUAL WORTH*

Year 5 $1,825 $ 2,013

Year 10 $3,650 $ 4,591

Year 20 $7,300 $12,069

Year 30 $10,950 $24,250*Assumes $365 is deposited at the end of each year for the # of years listed. Return is compounded annually. Above amounts are pre-tax.

Source: www.taxtips.ca

Benjamin Franklin said: "If you know how to spend less than you get, you have the philosopher's stone."

PRO’S AND CON’S OF CREDIT CARDS

Although credit cards may seem like your ticket

to buying anything you want…

…..but it is important to understand just how much that little piece of plastic

could really cost you…

PRO’S AND CON’S OF CREDIT CARDS

What you may not be aware of are ALL the

potential costs associated with

using a credit card

PRO’S AND CON’S OF CREDIT CARDS

May charge late fees if you are late making a payment? Could be as much as $50!

May not have grace periods? Meaning interest starts accruing as soon as you charge.

May have low introductory interest rates that increase dramatically over time? That 2.9% could go to 22% just like that!

May charge annual fees? Could cost you $50 just to have the card!

May charge a transaction fee for cash advances and the interest starts immediately? A percentage of your cash advance amount is added to your balance.

May charge a fee for going over your limit, and for every month you remain over your limit? Another $50 added to your balance!

Did you know credit card companies…

Additionally, balances on your account

accrue interest when you don’t pay them

off each month

PRO’S AND CON’S OF CREDIT CARDS

Once you have a balance, making the minimum

monthly payment won’t make much of a difference…

PRO’S AND CON’S OF CREDIT CARDS

HOW LONG WOULD IT TAKE TO PAY OFF IF…

Your credit card balance is $2,500

You pay the $50 minimum monthly payment each month

The interest rate is 20%

You don’t charge anything else to this card

109 months or 9 Years + 1 month!

(yes, that’s right)

PRO’S AND CON’S OF CREDIT CARDS

109

PLUS…….Over those nine + years, you will have paid a total amount of $4,430 for initial charges of only $2,500

That’s $2,920 in interest alone!!

Source: www.bankrate.com

PRO’S AND CON’S OF CREDIT CARDS

PRO’S AND CON’S OF CREDIT CARDS

BENEFITS:

Helps build credit history

Builds financial management skills

Provides emergency protection and enhanced security

Makes purchases convenient

Saves you money

Qualifies you for better interest rates

Makes it easier for you to rent an apartment

Makes it easier for you to buy a car

PRO’S AND CON’S OF CREDIT CARDS

Limit yourself to one card

Read the fine print regarding rates, fees and introductory offers

Make your payments on time, and try to pay more than the minimum

Begin with and keep a low credit limit — one you can easily pay off (try $250 or $500)

Know your credit limit and NEVER go over

If you can eat it, wear it, or drink it, don’t charge it!

Think before you charge

CREDIT CARD TIPS

ADDITIONALLY…

Limit cash advances – they come with costly fees and higher rates

Protect your identity – never lend your card to a friend

STOP UNWANTED SOLICITORS

National “Do Not Call” registry

888.382.1222

www.donotcall.gov/

Curtail pre-approved credit and insurance offers

888.5OptOut

SMART BORROWING:FEDERAL STUDENT LOAN

PROGRAMS “SMART debt”, good investment

option if used wisely

Easy access to funds

No credit check involved

Interest paid by the Federal government for neediest students

Many borrow benefits not available to average consumer

SMART BORROWING: FEDERAL STUDENT LOAN

PROGRAMS Remember it is a loan, not free money, it must be repaid back at some point in time

Borrow wisely, only what you need

It is a loan to pay educationally related expenses, not a spring-break trip

Understand the total cost of the loan, (principal and interest)

Defaulting on a student loan will make you ineligible for additional financial aid

STAFFORD LOAN REPAYMENT CHART

LOAN AMOUNT *

MONTHLYPAYMENT

INTEREST PAID

TOTAL PAYMENTS

$10,000 $110.68 $3,283 $13,282

$15,000 $163.53 $4,624 $19,624

$19,000 $207.14 $5,857 $24,857

$27,000 $294.36 $8,323 $35,323

$30,000 $327.07 $9,247 $39,247

$35,000 $381.58 $10,789 $45,789

$40,000 $436.09 $12,330 $52,330

* Interest rate of 5.6%, 10 year repayment period

SMART BORROWING: PRIVATE LOAN

PROGRAMS Should be a “last resort” loan option after federal loan

programs

Usually requires a co-signer, credit check involved, loans can be denied based on no or poor credit history

Higher cost loans, variable interest rate loans, not fixed rates like federal loans

Tier-pricing based on credit history of borrower or co-borrower, good credit gets lowest fees and best interest rate

Principal and interest can be deferred but interest is being added to principal, (interest on interest)

CREDIT FITNESS: WHY IT IS IMPORTANT!

Credit history can impact:

Purchasing a car/home

The rate you receive on a loan

Renting an apartment

Auto and life insurance

Seeking employment

CREDIT FITNESS: WHY IT IS IMPORTANT!

Monitor and adjust your budget as needed

Pay your bills on time

If you’re having trouble, evaluate why

Lower your credit card balances

Pay off the higher interest rates first

Be realistic about how much debt you can afford

OBTAIN A FREE CREDIT REPORT

Under the FACT Act, you can request a free credit report every

12 months from either Equifax, Experian, or TransUnion

• Go to www.annualcreditreport.com

• Call 1.877.322.8228

• Complete the Annual Credit Report Request Form and mail it to:

Annual Credit Report Request Service

PO Box 105281

Atlanta, GA 30348-5281

Identity thieves are always on the look

out for your personal information…

PROTECTING YOUR IDENTITY…

PROTECTING YOUR IDENTITY…

What should be protected?

Social Security #

Credit Card #s

Bank Account #s

Driver’s License #

Date of Birth

Mother’s maiden name

Personal ID # (PINs) and passwords

How do they get your information?

Dumpster diving

Skimming, Phishing

Changing your address

“Old-fashioned” stealing

Wallet/purse

Mail, New Checks or Tax Info

New checks or tax info

PROTECTING YOUR IDENTITY…

How is stolen information used?

Change the billing address on your existing credit card accounts and then charge on them

Open new credit card accounts in your name

Access your bank accounts

Take out loans in your name (i.e., auto loans, student loans)

Establish phone or wireless service in your name

Write bad checks in your name

PROTECTING YOUR IDENTITY…

Source: Consumer Fraud and Identity Theft Complaint Data, January-December 2007; Federal Trade Commission, February 2008

ID THEFT BY PAYMENT METHOD JANUARY 1 – DECEMBER 31, 2007

PROTECT YOUR IDENTITY!

Shred documents before trashingPre-approved credit offers, bank/credit card statements, credit card receipts

Be careful at ATMs, or when using your debit card that others do not see your PIN

Have checks delivered to your bank rather than your home

Do not put checks in the mail from your home mailbox--drop them off at a U.S. Mailbox or the U.S. Post Office

Empty your wallet of all extra credit cards and social security numbers, etc.

Never give out any of your personal information over the phone

PROTECT YOUR IDENTITY!

Do not put your social security number on your checks

Do not put your telephone number on your checks

Do not put your credit card account number on the Internet (unless it is encrypted on a secured site)

Don't put account numbers on the outside of envelopes, or on your checks

In conjunction with a credit card sale do not provide your address, telephone number, or driver's license number

Monitor all your bank and credit card statements monthly

Check your credit at least annually

SIGNS THAT YOU MAY BE A VICTIM…

Failing to receive bills or other mail

Receiving cards for which you didn’t apply

Being denied credit, or being offered less favorable credit terms, like a high interest rate when you know your credit is good

Getting calls or letters from debt collectors or businesses about merchandise or services you did not buy

WHAT TO DO IF YOU’RE A VICTIM…

Contact the Federal Trade Commission to report it and get guidance

Call the three major credit bureaus (Equifax, Experian, TransUnion) so they can put an alert on your credit

File a report with your local police department

Contact any businesses where the identity thief fraudulently conducted transactions in your name

Contact your banks and credit card companies

Keep notes on every phone call, meeting, and conversation

Follow-up any phone conversations with an e-mail or letter

IDENTITY THEFT RESOURCES

The Federal Trade Commissionwww.consumer.gov/idtheft

Identity Theft Prevention and Survivalwww.identitytheft.org

FDICwww.fdic.gov/consumers/consumer/guard/index.html

The Department of Justice www.usdoj.gov/criminal/fraud/idtheft.html

HELPFUL PERSONAL FINANCE WEB

RESOURCES

Student Loan Calculators – www.finaid.org

Debt Management Resource - www.salliemae.com/bedebtsavvy

Investment Planner - www.salliemae.com/plan

Project C.A.S.H.- http://www.projectcash.unh.edu/index2.htm

Free Personal Money Management/Budgeting Software – www.mint.com

Personal Money Management Resource – www.doughroller.net