St. Paul, Minn. | Financial Literacy 101

Back to the Basics Budgeting –Tracking Income and Expenses –Reducing Expenses Credit as a Consumer –Credit Reports –Credit Scores –Improving Credit Power Pay Debt

Budgeting 101 Benefits: maximize assets, minimize debt Step 1: Calculating Income Step 2: Calculating Expenses -Tracking Step 3: Develop a Spending Plan Step 4: Minimize Expenses -Distinguish: necessities and luxuries

Calculating Income, Basics –Always underestimate income –Include subsidies (insurance, housing, food) –Income fluctuates by # hours or days worked –Include financial aid, but deposit into draw account Deposit lump sum into account and withdraw monthly pay –Miscellaneous income: VA payments, child support, disability payments IncomeWeek 1Week 2Week 3Week 4Week 5Total FA Draw Pay 1 Pay 2 Misc.

Tracking Expenses, Basics -Determine where the money goes -Goal: get your money to last longer -Methods: -Keep receipts -Balancing a checkbook -Notebook or ledger -Calendar -Software or websites -Envelops with Money

Tracking Necessity Expenses Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total rent/mortgage gas/electric water/sewer phone car costs gasoline groceries household items internet debt payments insurance

Tracking Luxury Expenses Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total cable TV meals out clothing cigarettes entertainment vacation hobbies pets

Ways to Reduce Spending Standard of living expectations –Live large now with debt, live smaller later and longer –Eliminate or reducing eating out –Studio apt v. 1-bedroom apt –Living with roommates –Smart phone v. cellphone Shop with Lists

Increasing Income for Students Full-time students: work 20 hours or less –FT: 12 credits or more –On-campus or off-campus Part-time students: work 40 hours or less –PT: 11 credits or less –Downside: May add time to graduation –Benefits: Time for more work experience for resume Earning income to reduce need for financial aid debt Lower cost per credit at 11 credits

Credit Reports Purpose: to determine whether you will pay your debts in the future by looking at your past and current debt and payment history *** Created by Creditors for Creditors***

Credit Report v. Credit Score Credit Reports: list of debt obligations with new obligations fist -Free from -Transunion (Midwest), Experian (west coast), Equifax (east coast) -Used to calculate credit score Credit Score: numerical value of your credit risk -the higher the number, the less risk you are -Utilizes 45 data points from credit report

Making the Most of Your Credit Report Information includes: -Employment & Address History -Number & Types of Inquiries -Payment History on All Debt -Amount, Age, and Types of Debts -Public Records: evictions, bankruptcies, court judgments -Negative information lasts 7 or 10 years

Improving Credit # 1 Correct Errors -Send updates on addresses to credit bureaus -Contact credit for errors in payment history # 2 Pay Off Debts or Collections -Get payment plans or settlements in writing -Payments on collections will refresh for an additional 7 years

Paying Down Debt Standard: paying minimum payments Accelerated: paying more than the minimum payments –Tip: Once 1 debt is paid off, use that payment towards the next debt –Tip: Pay extra to only 1 debt Saves most money: highest interest debt Most rewarding visually: lowest balance

Power Pay with Student Loans Benefit of payoff of student loans: few bankruptcy options and few limits on collectability Advantageous to pay down private student loans before federal loans Generally less flexible repayment terms, variable interest rates, and few discharges in the event of death or permanent disability Thinking about ICR or IBR? –Have to balance interest rates with possible loan forgiveness eligibility –Federal student loans have flexible payment amounts, impacted by income: most debt has fixed payment

Payment Example: Debt TypeDebt AmountDebt PaymentInterest RateRepayment Term Stafford Loans$61,500$4266.8%25 years Plus Loan$90,000$6897.9%25 years Mortgage$237,000$ %30 years Credit Card #1$5,000$ %Variable Credit Card #2$2,000$ %Variable Car Payment$21,000$3843.9%5 years Total Debt: $416,500 Total Monthly Payment: $2923 Total Payments without Power Pay: $848,475 and takes 30 years Total Paid with Power Pay, highest interest: $734,558 and takes 21 years Total Paid with Power pay, lowest balance: $739,405 and takes 21 years, - $109, 070 in savings or 13% If an extra $100 is paid per month: $701,821 and takes 19 years - $146,654 in savings or 17%

Questions? Call: Want a free spreadsheet to track your debt? Coming Attraction: October 23 and October 27 Financial PLP on Federal Loans and Public Service Loan Forgiveness