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SMDEP A national program supported by The Robert Wood Johnson Foundation with direction and technical assistance provided by the Association of American.

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Presentation on theme: "SMDEP A national program supported by The Robert Wood Johnson Foundation with direction and technical assistance provided by the Association of American."— Presentation transcript:

1 SMDEP A national program supported by The Robert Wood Johnson Foundation with direction and technical assistance provided by the Association of American Medical Colleges and the American Dental Education Association. The SMDEP Alumni Financial Planning Workshop: “You’re Still In Charge”

2 SMDEP The Original Workshop’s Objectives Articulate your own goals Explain how financial planning helps achieve your goals Describe the benefits of borrowing wisely and the pitfalls of not borrowing wisely Understand how small decisions lead to big results

3 SMDEP My Future* *Exercise created by and courtesy of Dr. Leon Johnson, Jr.

4 SMDEP

5

6 Debt and Income

7 SMDEP Looking at Debt and Income Average debt at graduation: –Medical School$122,279 –Dental School$145,465 The keys to managing your debt: –Be well informed about borrowing –Choose your actions carefully Sources: AAMC 2007 Medical School Graduation Questionnaire (average total educational debt); ADEA 2006 Survey of Dental School Seniors

8 SMDEP Debt Levels of Medical School Graduates, 2007 Source: AAMC 2007 Medical School Graduation Questionnaire

9 SMDEP Debt Levels of Black, Native American*, and Hispanic/Latino Medical Graduates, 2007 * Native American includes Native Americans and Native Alaskans. Source: AAMC 2007 Medical School Graduation Questionnaire, Non Program Evaluation R Table

10 SMDEP Debt Levels of Dental School Graduates, 2006 Source: ADEA 2006Survey of Dental School Seniors

11 SMDEP Debt Levels of Black, Native American, and Hispanic/Latino Dental Graduates, 2006 Source: ADEA 2006 Survey of Dental School Seniors

12 SMDEP How ‘bout some good news for a change?

13 SMDEP Medical Residents & Practicing Physicians Average Medical Residency Stipend: $44,669* Median Physician Compensation All Primary Care $171,159** All Specialties $322,259** Sources: * AAMC Survey of Housestaff Stipends, Benefits, and Funding (Autumn 2007 Report) **Medical Group Management Association (MGMA) Physician Compensation and Production Survey: 2007 Report Based on 2006 Data

14 SMDEP Dental Residents & Practicing Dentists Dental Residency Stipends: Vary from $0 to approximately what medical residents earn Some residency programs require trainees to pay a fee Average Net Dentist Income*: All full-time in private practice$204,500 Generalists$186,080 Specialists$317,560 *Source: Table 18: Net income from the Private Practice, Age, and Hours Worked for Solo Dentists by Hours Worked/Year, (ADA: 2005 Survey of Dental Practice)

15 SMDEP However!

16 SMDEP Average Education Indebtedness for Recent Medical School Graduates by Year Source: AAMC 2007 Medical School Graduation Questionnaire

17 SMDEP Average Education Indebtedness for Recent Dental School Graduates by Year Source: American Dental Education Association

18 SMDEP So, what’s that mean? You got’ta be a lot more financially sophisticated than Doctors that graduated years ago!

19 SMDEP PAYBACK TIME & LOAN CONSOLIDATION

20 Time table for a typical 2009 graduate’s student loan repayments Loan % Grace Period1st Pmt Due Sub-Staf~66 months~ Jan 1, 2010 UnSub~66 months~ Jan 1, 2010 Perkins59 months~ April 1, 2010 HPSL512 months~ July 1, 2010 Inst712 months~ July 1, 2010 Consolidationnone~ July 1, 2009

21 SMDEP So, just how big is $100,000?

22 SMDEP Repayment Schedules for $100,000* Repayment Period Monthly Payment Total Paid Interest Paid 10 years $1,110 $133,225 $33, years $716 $171,943 $71, years $600 $215,838 $115,838 *at a 6% interest rate; dollars are rounded

23 SMDEP Repayment Period Monthly Payment Total Paid Interest Paid 10 years $1,213 $145,594 $45, years $836 $200,746 $100, years $734 $264,154 $164,154 *at an 8% interest rate; dollars are rounded Repayment Schedules for $100,000*

24 SMDEP How to Use a Half-Time Payment Plan The amortization schedule below breaks down the first 10 payments on a $100,000 loan taken on over a 20-year term (240) payments at an interest rate of 8%. The notations in parentheses show how to make half-time payments. Published in New OD (a magazine for optometrists) Copyright © Lawrence H. McClure

25 SMDEP ALTERNATIVE REPAYMENT SCHEDULES FOR $100,000 TERM PMT/MO. % PAID $ PAID COMMENT 10 Yrs. $1,213$45,593$145,593 Standard Pd. 20 Yrs ,744200,744Consolidation 20+ 1,00750,538150,538Paid in 10 yrs. 30 Yrs ,157264,157Maximum ,245182,245Paid in 15 yrs. + monthly pmts. Gradually increase throughout repayment period

26 SMDEP A Dirty Little Secret “It’s too easy for you to borrow the max.” Max Student Loan! Max Mortgage!

27 SMDEP The SMDEP Financial Planning Workshop Secrets of Financial Success: Decisions that Put You in Charge

28 SMDEP Secrets of Financial Success Quotes from: The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich by David Bach, Broadway Books:NY, 2004 “…human beings don’t want to be controlled. We want to be in control.” “The only way to get the financial future you want is to begin creating it now!” “The problem is not how much we earn…it’s how much we spend.” “Most of us don’t really think about how we spend our money—if we do, we often focus solely on the big ticket items while ignoring the small daily expenses that drain away our cash.”

29 SMDEP How a small Decision is Really a BIG Decision Designer Cup of Coffee:$4.25 a cup/day Cost per month:~$ Cost per year:~$1550 If you didn’t spend this amount every day and saved it, you’d have: –~$21,375 after 10 years –~$60,030 after 20 years –~$130,360 after 30 years *Based on “Simple Savings Calculator.” Assumes 6% annual interest rate compounded monthly and an initial beginning balance of $129. Dollars are rounded.

30 SMDEP Tips for Making BIG/ small Decisions Buy a previously owned car Shop at consignment stores Buy groceries in bulk Watch for sales Avoid credit card debt (don’t use a credit card unless you can pay it off in full each month) Cut costs wherever reasonable

31 SMDEP Living on Less as a Student Consider: Roommates Location Transportation options—Do I really need a car? Coupons Cheap eats Splurge conscientiously—and carefully

32 SMDEP Living Below Your Means (LBYM) Approach student life with an LBYM* attitude Aim for living on 70% of what is available to you Put the other 30% in an interest-bearing savings account or money-market fund until needed—or reduce how much you borrow Pick up cost-saving tips from Motley Fool’s “Living Below Your Means” discussion board at: *Living Below Your Means and LBYM are trademarks of The Motley Fool, Inc. (Registration is required to use the Web site. It’s free, although some of Motley Fool’s services are not free.)

33 SMDEP A Primer on Financial Planning Back to the Basics Again!

34 SMDEP BASIC MONEY MANAGEMENT 101 Checking Savings Credit Cards Insurance Investments –Mutual Funds –Stocks & Bonds –Real Estate –Businesses

35 SMDEP CHECKING ACCOUNTS Go to a local - medium size bank Balance your account each month Obtain check protection –Line of Credit –Attach to Savings Account

36 SMDEP SAVINGS ACCOUNTS Save to Spend Accounts Save to Invest Accounts Should attempt to accumulate 6 to 9 months of living expenses Little to No Risk –Savings Accounts –Money Markets

37 SMDEP CREDIT CARDS OK, How many of ya got ‘em & How many have ya got?

38 SMDEP Credit Cards The Good Part Credit cards aren’t bad –c–credit-card debt is bad! Can carry instead of cash Helps track spending Covers emergencies Can sometimes get monetary benefits-- miles on an airline or a yearly cash- back bonus Only need one card

39 Credit Cards -- The Hard Part Up to you to use them wisely Easy to live beyond your means Dangerous when used to supplement your income High interest rates Can end up ruining your credit rating

40 SMDEP The Basis for Credit Scoring* Past payment history Amount owed on credit that’s been extended Length of time credit has been established Search for and acquiring new credit Types of credit established *For more information on credit scoring, go to: Your credit score is based on:

41 SMDEP Apply for credit only when you need it Don’t charge indiscriminately Avoid maxing out on your credit limit Pay on time Inspect your credit report Raising Your Credit Scores

42 SMDEP The higher your FICO® credit score, the lower your payments! For example, on a $300, year, fixed-rate mortgage FICO® score APR Monthly payment %$1, %$1, %$1, %$1, %$2, %$2,694 Interest rates accurate as of May 19, 2008:

43 SMDEP Finding Your Credit History Equifax Credit Information Services PO Box Atlanta, GA (800) Experian 475 Anton Blvd. Costa Mesa, CA or 955 American Lane Schaumburg, IL (888) Trans Union Corporation PO Box 2000 Chester, PA (800) Full name (including Jr., Sr.) Complete addresses for the last 5 years, including zip codes Social Security number If married, spouse’s full name Year of birth Copy of driver’s license or current billing statement Include the following information with your request:  To request a free copy of your credit report:

44 SMDEP Errors happen a lot Errors can reduce your credit score Checking your credit history helps catch identity theft Sources: – – – Correcting Errors in Your Credit Scores and Dealing with Identity Theft

45 SMDEP A Last Resort for Help with Your Credit Score The National Foundation for Credit Counseling

46 SMDEP Insurance Planning Health Insurance Disability Insurance Life Insurance –Term –Whole –Variable

47 SMDEP THE INVESTMENT PYRAMID High Risk Real Estate Stocks on Margin Medium Risk Stocks Bonds Low Risk Savings Accounts Money Markets

48 SMDEP MAXIMIZE TAX INCETIVES RETIREMENT ACCOUNTS –IRA’S –SEP’S –EMPLOYER RETIREMENT AND MATCHING PROGRAMS STATE EDUCATIONAL SAVINGS ACCOUNTS

49 SMDEP

50 Investing for Retirement -Life Stages- Starting Out 100% Equities Growing Families 90% Equities & 10% Fixed Income Sandwich Generation 80% Equities & 20% Fixed Income Empty Nesters 35% Equities, 35% Fixed Income & 10% Short Term Investments Retirees 45% Equities, 40% Fixed Income & 15% Short Term Investments

51 SMDEP What is the most powerful force in the Universe? According to Albert Einstein Compound Interest!

52 SMDEP The Power of Time & Money

53 SMDEP Start NOW Begin with...

54 SMDEP Budgeting

55 SMDEP Budget 10 - Sock away 10% of each paycheck in a retirement fund, preferably in before-tax dollars through an employee savings plan, such as 401(k) plan or 403 (b) Put 20% in a “save to spend” fund, preferably in a money market account Deposit the remaining 70 percent in a checking account to use for your routine living expenses.

56 SMDEP Debt Management and Good Record Keeping

57 SMDEP Educate Yourself READ

58 SMDEP Personal Finance Resources: Books ãThe Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko ãThe Wealthy Barber by David Chilton ãThe Richest Man in Babylon by George S. Clason  Making the Most of Your Money by Jane Bryant Quinn

59 SMDEP Personal and Professional Finance Resources: Magazines Smart Money Money Kiplinger’s Personal Finance Medical Economics

60 SMDEP Good articles on aspects of mutual-fund investing Teaches basics of mutual fund investing and retirement planning Good mix of education about mutual funds, individual stocks and bonds, annuities, and insurance Personal Finance Resources: Web Sites

61 SMDEP Basic information on personal finance (such as auto loans, home loans, insurance) Educational, often humorous, look at the world of investing Web Sites (continued)

62 SMDEP Getting Help from Professionals Financial-Planning Web Sites

63 SMDEP Where to Get Help

64 SMDEP Your Financial Team While In School –Financial Aid Officer As a Post-Graduate –Financial planner –Accountant –Insurance Broker –Attorney –Banker

65 SMDEP THERE ARE TWO KINDS OF PEOPLE IN THIS WORLD Spend Save Spend

66 SMDEP Thanks for Coming & Remember You’re still in charge!

67 SMDEP Investment Glossary Balanced Fund: A mutual fund that invests in both stocks and bonds: usually with an unbalanced ratio of 60:40 Bear Market: When stock prices generally fall as a whole. Bear markets are usually brought on by fears of declining economic opportunity

68 SMDEP Investment Glossary Blue Chip Stock: Dubbed after the blue chips in poker; the most valuable ones. These are shares in older, established companies, e.g., IBM, At&T, and GM. They have a long history of growth dividend distribution. The 30 Dow Jones Industrial Average are all blue chips.

69 SMDEP Investment Glossary Bond: A formal IOU (“certificate”) from a corporation, the U.S. Treasury or local governments to back a debt with interest at a specific time (“maturity date”). Unlike stockholders, bondholders own only the debt, not a share in the corporation.

70 SMDEP Investment Glossary Bull Market: When the price of stocks generally rises. Certificate of Deposit: Similar to a regular savings account, but they pay higher interest because the length and amount of deposit are locked in, from 14 days to several years. This is the most common type of money market instrument. CDS cashed in before matrity are subject to substantial penalties for early withdrawal.

71 SMDEP Investment Glossary Diversification: Reducing risk by investing in more than one type of security, such as stocks, bonds and money market devices. Mutual funds provide individuals with instant diversification by investing in many different securities

72 SMDEP Investment Glossary Dollar Cost Averaging: The strategy in which an investor buys the same dollar amount of a stock at regular intervals, regardless of the changing price of the stock. Since shares are bought at both high and low prices, this strategy averages those costs out over the long run.

73 SMDEP Investment Glossary Front-End Load: Up front commission fee (“or load”) investors pay when they buy shares in a fund. Loads are calculated as a percentage, such as 4 or 5% of the amount that an individual invests into a mutual fund. Investors pay this load to receive assistance in their investing from a registered representative.

74 SMDEP Investment Glossary Growth Stock: Shares, usually in small companies with potentially bright futures and fast growth. Income Stock: Shares of companies with a history of paying high dividends, but lacking fast growth. Utilitiy companies, such as gas and electric firms, with a constant customer base and income flow are some of the best known income stocks.

75 SMDEP Investment Glossary Money Market Account: Accounts opened at financial institutions where the money is invested into safe, short-term debt instruments, such as CDS and U.S. Treasury bills. They usually pay a higher return than regular savings accounts.

76 SMDEP Investment Glossary Mutual Fund: An investment company that pools money of individuals and invests it into stocks, bonds and other securities, under the guidance of a professional manager. A mutual fund offers shareholders the benefits of portfolio diversification: owning a wide set of shares to spread risk, gains, and losses.

77 SMDEP Investment Glossary Net Asset Value: The price of one share of a mutual fund, calculated by adding the toal investments in a fud, subtracting costs, and dividing by the total number of shares. No-Load Mutual Fund: A mutual fund that does not impose a sales charge, or load, when purchased. There may be a fee to withdraw your monies from the account.

78 SMDEP Investment Glossary Rate of Return: How much money you get back for your investment. For stocks, it’s the annual dividends divided by the purchase price. For bonds, it’s the acutal amount of interest earned. Stock: A security that represents partial ownership in a corporation. The value of a stock generally reflects the financial performance of a company

79 SMDEP Federal Direct Consolidation Loan Program To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in- school status cannot be included in a Direct Consolidation Loan. Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan. Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them, or intend to apply for a loan cancellation under the Public Sector Cancellation Program. Borrowers who have only a Direct Consolidation Loan cannot consolidate

80 SMDEP Federal Direct Consolidation Loan Program Standard Repayment Plan: You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness. Graduated Repayment Plan: Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness Extended Repayment Plan: To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s). You have two payment options: Fixed Monthly Payment Option -You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50. Graduated Monthly Payment Option - Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years. Income Contingent Repayment Plan (ICR): Monthly payments that are based on a borrower's annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years.

81 SMDEP Taxpayer Relief Act of 1997 and 2001 Student Loan Interest Deduction –up to $2,500 deducted from your taxable income Lifetime Learning Credit –up to $2,000 credit against your federal income taxes for qualified tuition and related expenses For more information on tax credits and deductions go to: –www.irs.gov Source: IRS Publication 970, 2004.

82 SMDEP Lifetime Learning Credit Income limits increased. The amount of your lifetime learning credit for 2008 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim a credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return).

83 SMDEP Student Loan Interest Deduction Your student loan interest deduction for 2008 is generally the smaller of: $2,500, or The interest you paid in 2008.

84 SMDEP Student Loan Interest Deduction You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form You can claim the deduction if all of the following apply: You paid interest on a qualified student loan in tax year 2008 Your filing status is not married filing separately Your modified adjusted gross income is less than $65,000 ($135,000 if filing jointly) You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See the instructions for Form 1040 to determine if your expenses qualify. If you file a Form 2555, Form 2555EZ or Form 4563, use Publication 970 instead of the worksheet in the Form 1040 Instructions. The deduction will start to phase out when the modified AGI exceeds certain amounts. To determine when the deduction is phased out, please refer to Publication 970, Tax Benefits for Education. If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.Publication 970Form 1098-E

85 SMDEP Retirement Planning There are several different plans that individual and corporations may utilize to invest monies for future retirement needs. Here is a brief description of some and the available maximum contribution to each

86 SMDEP Retirement Planning Keogh Plan: This plan is for self-employed individuals and the maximum contribution in any given tax year is $30,000. Money is contributed on a pre-tax basis. SEP-IRA: This plan is also for self-employed individuals and the maximum contribution in any given year is the lesser of 15% of income or $22,000. Money is contributed on a pre-tax basis.

87 SMDEP Retirement Planning Traditional IRA: This plan is for individuals without a corporate sponsored retirement plan, but are considered employees. The maximum contribution is $3,000 in any given tax year. Money is contributed on a pre-tax basis.

88 SMDEP Retirement Planning Roth IRA: This plan for individuals that may or may not possess a corporate sponsored retirement plan. The maximum contribution is $3,000 in any given tax year. Money is contributed on an after tax basis. 401(K): This retirement plan is employer sponsored. It will allow you to invest money on a pre-tax basis and your employer may “match” your contribution.

89 SMDEP Retirement Planning Traditional IRA: This plan is for individuals without a corporate sponsored retirement plan, but are considered employees. The maximum contribution is $3,000 in any given tax year. Money is contributed on a pre-tax basis.

90 SMDEP Your Professional Practice

91 SMDEP Your Professional Practice An Investment A professional practice has equity –Records –Real Estate Private Practice =‘s Higher Income Tax Advantages –Lease car –Write off’s and deductions

92 SMDEP Ten Facts About Loan Repayment (1) You are obligating a portion of your future income every time you borrow. (2) You can end up paying back as much as $3 or more for every $1 you borrow. (3) You don’t pay interest on the portions of a loan you have already paid off. There is also no prepayment penalty on student loans. Source: The Debt Management Workbook: A Five-Step Plan for Successfully Repaying Your Educational Loans; National Medical Fellowships, Inc., and Ruth Beer Bletzinger; U.S. Department of Health and Human Services; 1993

93 SMDEP Ten Facts About Loan Repayment (4) Repaying your student loans can get complicated because there are so many organizations involved with your loans. (5) Even if these organizations make mistakes, the responsibility for repaying your loans is yours. (6) You are the best source of information about your loans, if you keep good records. (7) Some of your loans will probably be sold from one organization to another. Source: The Debt Management Workbook: A Five-Step Plan for Successfully Repaying Your Educational Loans; National Medical Fellowships, Inc., and Ruth Beer Bletzinger; U.S. Department of Health and Human Services; 1993

94 SMDEP Ten Facts About Loan Repayment (8) When your expenses exceed your income, financial problems inevitably result. (9) If you are delinquent or in default on your education loans, EXPECT THE WORST! (10) With a certain amount of planning, the odds show you will successfully repay your loans. Source: The Debt Management Workbook: A Five-Step Plan for Successfully Repaying Your Educational Loans; National Medical Fellowships, Inc., and Ruth Beer Bletzinger; U.S. Department of Health and Human Services; 1993

95 SMDEP


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