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

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Presentation on theme: "PERSONAL FINANCES 101. AGENDA Creating and Managing a Budget Power of Compounding Pros and Cons of Credit Cards Smart Borrowing: Student Loan Programs."— Presentation transcript:


2 AGENDA Creating and Managing a Budget Power of Compounding Pros and Cons of Credit Cards Smart Borrowing: Student Loan Programs Credit Fitness: Why it is important! Protecting Your Identity

3 CREATING AND MANAGING A BUDGET: KNOW YOUR HABITS First, know your habits by tracking your expenses to fully understand how you spend your money

4 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$ C REATING AND MANAGING A BUDGET : INCOME V EXPENSES

5 LITTLE SAVINGS ADD UP… ITEMANNUAL COSTALTERNATIVEANNUAL COST One Cup of coffee daily at a Coffee shop ($3) $1,095 Gourmet 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) $1,250Bring your lunch to work 5 days a week ($1.50 per lunch) $375 Total Annual Savings of $2,354!

6 CREATING AND MANAGING A BUDGET: WANTS V NEEDS Wants versus Needs! Do I have to have it today? What will happen if I dont buy it? How have I managed this long without it?

7 N EW C AR VS. O LDER C AR New 2009 Honda Accord EX Cost: $24,000 Payment: $476 Insurance: $ 78 Monthly difference: $176 Annual difference: $2,112 Used 2003 Honda Accord EX Cost: $14,483 Payment: $305 Insurance: $ 73 Car Cost/Payment Source: Based on financing for 60 months. New car interest rate of 7.11%; Used car interest rate of 7.35%. Car Insurance Cost Source: Insurance rates for a 25-year-old single male with a clean driving

8 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, emergencies a down-payment on a car or house, charity RETIREMENT:10% Ideally, 10% of your gross income JUST FOR FUN:10% Everybody needs some fun

9 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

10 POWER OF COMPOUNDING: START SAVING NOW! SAVING $1 A DAYAMOUNT YOU PUT INACTUAL 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: Benjamin Franklin said: "If you know how to spend less than you get, you have the philosopher's stone."

11 PROS AND CONS OF CREDIT CARDS Although credit cards may seem like your ticket to buying anything you want…

12 …..but it is important to understand just how much that little piece of plastic could really cost you… PROS AND CONS OF CREDIT CARDS

13 What you may not be aware of are ALL the potential costs associated with using a credit card PROS AND CONS OF CREDIT CARDS

14 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…

15 Additionally, balances on your account accrue interest when you dont pay them off each month PROS AND CONS OF CREDIT CARDS

16 Once you have a balance, making the minimum monthly payment wont make much of a difference… PROS AND CONS OF CREDIT CARDS

17 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 dont charge anything else to this card

18 109 months or 9 Years + 1 month! (yes, thats right) PROS AND CONS OF CREDIT CARDS 109

19 PLUS…….Over those nine + years, you will have paid a total amount of $4,430 for initial charges of only $2,500 Thats $2,920 in interest alone!! Source: PROS AND CONS OF CREDIT CARDS

20 BENEFITS: Helps build credit history Builds financial management skills Provides emergency protection and enhanced security Makes purchases convenient

21 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 PROS AND CONS OF CREDIT CARDS

22 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, dont charge it! Think before you charge CREDIT CARD TIPS

23 ADDITIONALLY… Limit cash advances – they come with costly fees and higher rates Protect your identity – never lend your card to a friend

24 S TOP U NWANTED S OLICITORS National Do Not Call registry 888.382.1222 Curtail pre-approved credit and insurance offers 888.5OptOut

25 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

26 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

27 STAFFORD LOAN REPAYMENT CHART LOAN AMOUNT * MONTHLY PAYMENT 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

28 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)

29 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

30 CREDIT FITNESS: WHY IT IS IMPORTANT! Monitor and adjust your budget as needed Pay your bills on time If youre 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

31 O BTAIN A F REE C REDIT R EPORT Under the FACT Act, you can request a free credit report every 12 months from either Equifax, Experian, or TransUnion Go to 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

32 Identity thieves are always on the look out for your personal information… PROTECTING YOUR IDENTITY…

33 What should be protected? Social Security # Credit Card #s Bank Account #s Drivers License # Date of Birth Mothers maiden name Personal ID # (PINs) and passwords

34 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…

35 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…

36 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

37 P ROTECT Y OUR I DENTITY ! Shred documents before trashing Pre-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

38 P ROTECT Y OUR I DENTITY ! 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

39 SIGNS THAT YOU MAY BE A VICTIM… Failing to receive bills or other mail Receiving cards for which you didnt 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

40 WHAT TO DO IF YOURE 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

41 I DENTITY T HEFT R ESOURCES The Federal Trade Commission Identity Theft Prevention and Survival FDIC The Department of Justice

42 HELPFUL PERSONAL FINANCE WEB RESOURCES Student Loan Calculators – Debt Management Resource - Investment Planner - Project C.A.S.H.- Free Personal Money Management/Budgeting Software – Personal Money Management Resource –

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