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Financial $uccess
Presented by:
NameFamily Financial Education SpecialistUniversity of Missouri ExtensionWebsite: http://extension.missouri.edu/hes/Phone:E-mail:
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1. Goals and Decisions2. Managing Financial Resources3. Managing Credit4. Managing Risk5. Consumer Information
Financial $uccess
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What Matters Most?
Family Well-being(Primary Objective)
Use ofLimited Resources
Trade Offs
VALUES
Needs Vs.Wants
GOALS
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Decision Making Process
• Why must I decide?
• Making WISE decisions What is the decision?
Inform yourself
Select the “best” alternative
Evaluate the outcome
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Activity
• How Do I Decide?
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Short-Term GoalsShort-Term Goals == Within next 6 monthsWithin next 6 monthsMid-Term GoalsMid-Term Goals == Within next 2 yearsWithin next 2 yearsLong-Term GoalsLong-Term Goals == More than 2 years from nowMore than 2 years from now
Time Limited
Relevant
Specific
Measurable Attainable
Setting SMART Financial Goals
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Activity
• What My Family Wants to Accomplish
• Setting Financial Goals– Short-term– Mid-term– Long-term
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1. Goals and Decisions
2. Managing Financial Resources
3. Managing Credit
4. Managing Risk
5. Consumer Information
Financial $uccess
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Identifying Financial Resources
Income - money from earnings or other sources
Savings - money from past income
Credit - money from future anticipated income• borrowed from future income
at a price (interest rate)
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Net Worth:Your Financial Snapshot
Net Worth = Assets – Liabilities
1. Add up value of what you own (assets)
2. Add up value of what you owe (liabilities)
3. Subtract liabilities from assets
Aim – positive net worth
Review net worth regularly
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How to Make a Spending Plan
1. Determine Income 2. Estimate Expenses
• Fixed, flexible, occasional• Saving, include saving for your
goals and emergencies!
3. Balance the plan• Income-Expenses=0
4. Follow plan and keep track of progress
5. Make adjustments as necessary
• Reduce expenses• Increase income
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Determine Income
Money for use today comes from several sources Paycheck Public assistance Social security Relatives Sale of goods Alimony or child support Investments or savings Credit
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Estimate Expenses
Fixed expensesare the same each month.
Flexible expenseschange each month.
Occasional expensesoccur 1-3 times a year.
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Activity
• Developing a Spending Plan
• Financial $uccess depends on:– knowing where you are now,– knowing where you
want to be, and– having a specific plan
for getting there.
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Record Keeping
• What records to keep
• Where to keep records
• How long to keep records
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1. Goals and Decisions
2. Managing Financial Resources
3. Managing Credit
4. Managing Risk
5. Consumer Information
Financial $uccess
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What is Credit?
Using your future income in the present.
Types of Credit– Installment Credit– Service Credit– Revolving Credit
• Credit cards
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Sources of Credit
• Banks, S&L, credit unions• Credit cards, department
stores• Mortgage companies• Utilities• Rent-to-own stores• Refund anticipation loan
(RAL)• Title loans, payday loan
companies• Pawn shops
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Costs of Credit
• Annual percentage rate (APR)
• Annual fees
• Late fees
• Over-the-limit fees
• Transaction fees
• Penalty APRs
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Costs of Credit
Balance APR Total $$ Payoff Time
$2,500 18% $3,157 31+ months $2,500 22% $3,375 33+ months $5,000 12% $5,782 28+ months $5,000 18% $6,314 31+ months $5,000 22% $6,750 33+ months $10,000 18% $12,627 31+ months $20,000 18% $25,254 31+ months
Based on minimum payment of 4% of the original balance, with no new debt added
Example: Credit Card
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Activity
• Shop for Credit
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Danger Signs
• Paying bills late
• Fees and penalties on bills
• Creditors calling
• Checks bouncing
• Juggling payments
• High debt-to-income ratio
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Appropriate Use of Credit
It may be appropriate to use credit:• when you pay balances in full
and make payments on time• when you have a financial emergency• for convenience or safety
of a credit card• for additional security for
a purchase• when cash is not appropriate
(such as with on-line purchases)
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Alternatives to Credit
• Rethink your goals
• Pay cash
• Save for emergencies and goals
• Use a debit card
• Postpone or do without
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Activity
• When to Use Credit
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What is a Credit Report?
Your financial management report card:
• Financial information
• Personal information
• Bankruptcy filings
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Who Uses my Credit Report?
• Potential employers
• Rental landlords
• Lenders
• Insurance agencies
• Credit card companies
• Retailers
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Who Provides Credit Reports?
• 3 major credit reporting bureaus are:– Equifax– Trans Union– Experian
Can I see a copy of my credit report?• One free annual report per person from each credit
reporting bureau
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What if There is a Mistakeon my Credit Report?
• Contact the credit bureau
• Contact the creditor directly
• Write a 100 wordstatement
• Beware of “creditrepair” scams
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Your Credit Score (FICO)
Payment History
35%Debt Load
30%
Length of Credit
15%
Other Factors10% New Credit
10%
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Why FICO Scores Matter
• Myfico.com scores 300 - 850
• How your credit score affects your interest rate / cost ofyour mortgage loan: 30 year, $85,000 mortgage loan
FICO® Score Int. Rate Payment Interest Paid 720 - 850 6.221% $522 $102,833 700 - 719 6.346% $529 $105,324 675 - 699 6.882% $559 $116,163 620*- 674 8.029% $625 $140,151 560 - 619 8.752% $669 $155,774 500 - 559 9.332% $704 $168,559
Source: www.myfico.com
* Indicates the cut off point between prime/sub-prime loans
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Rebuilding Your Credit
• Check your credit report regularly
• Pay bills on time• Set up a financial plan• Apply for a secured credit card• Have someone co-sign a loan• If one lender turns you down,
try another
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Credit and Bankruptcy
• Following bankruptcy, pay more for a loan• Automobile loans may be available
– You could face an APR = 20% or 22%, compared to 7%, prior to bankruptcy.
• Monthly payments for a $25,000 car, for 4 years would be – $760.76, at 20% (Total = $36,516.48)– $598.66, at 7% (Total = $28,735.68)
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How Can I Protect my Credit?
• Keep personal information safe
• Shred or destroy receipts, applications and documents
• Report stolen cards immediately
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• Truth in Lending
• Fair Credit Reporting
• Fair and Accurate Credit Transactions Act
• Equal Credit Opportunity
• Fair Debt Collection Practices
• Fair Credit Billing
Consumer Credit Laws
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1. Goals and Decisions
2. Managing Financial Resources
3. Managing Credit
4. Managing Risk
5. Consumer Information
Financial $uccess
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What is at Risk?
• What is at risk?– The possibility of
financial loss from events we do not anticipate
– Risk is everywhere
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How to Manage Risk
• Methods of handling risk– Avoid (e.g., do not
participate)– Reduce (e.g., use
precautions)
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How to Manage Risk
– Transfer(e.g., buy insurance)
– Retain(e.g., establish emergency fund)
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Common Insurance Policy Terms
• Policy = contract
• Coverage = what insurancepays for
• Term = length of contract
• Premium = cost of contract
• Deductible = what you pay before insurance company pays
• Claim = request for payment
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How Insurance Works:Term Life Insurance
• Application– Private history– Demographics
• Underwriting– Company tries to match the probability of
paying out with the premium
• Policy delivery
• Pay the premiums to continue coverage
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Term Life Insurance…continued
• 2 possibilities– The term of the policy
ends; no dependents to take care of.
– Death, life insurance pays out the face value to take care of the dependents.
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Activity
• Life’s Big Gamble
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Types of Risk & Insurance• Loss of Property
– Auto Insurance– Homeowners/Renters Insurance
• Loss of Health– Health Insurance
• Loss of Income– Life Insurance– Disability Income Insurance
• Liability– Auto Insurance– Homeowners/Renters Insurance
• Living too Long– Retirement Savings– Annuities
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Types of Insurance
• Other– Flood– Travel/AD&D– Long term
care/disability– Burial
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Generally Unnecessary Insurance
• Credit insurance (e.g., life, disability, unemployment)
• Life insurance on the lives of children
• Dread disease (e.g., cancer insurance)
• “Double Indemnity” insurance riders
• Hospital indemnity policies
• Flight insurance
• Car rental collision-damage waivers
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Shopping For Insurance
• Decide coverage you need
• Decide risk you want to retain
• Get three quotes for each type of insurance
• Try several different marketing channels
– Agents
– Mail order
– Online
– Insurance Broker
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1. Goals and Decisions
2. Managing Financial Resources
3. Managing Credit
4. Managing Risk
5. Consumer Information
Financial $uccess
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Consumer Information
• Opt out numbers:– Pre-approved credit card offers
• 1-888-5OPTOUT (1-888-567-8688)
– No call list• 1-866-662-2551 • http://www.ago.state.mo.us/nocalllaw/nocalllaw.htm
• ID Theft Clearinghouse • 1-877-438-4338• www.consumer.gov/idtheft
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Consumer Information
• MU Extension– http://extension.missouri.edu/
• Federal Citizen Information Center (FCIC)– http://www.pueblo.gsa.gov/– 888-8 PUEBLO (888-878-3256)
• Missouri Attorney General’s Office– http://www.ago.state.mo.us/consumers.htm– Consumer Protection Hotline 800-392-8222
• National Fraud Information Center– http://www.fraud.org/– 800-876-7060
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Creating Financial $uccess
• Make SMART goals and WISE decisions
• Every small step makes a difference
• Pay yourself first for goals and emergencies
• Consider future income before seeking credit
• Follow “The Rule of Three”
• Recognize your own personal needs and wants
• Buy insurance for large financial risks
• Develop a workable spending plan
• Start now on the road to financial success!
