YOUR FINANCIAL FUTURE REVIEW

CREDIT & DEBT COSTS OF USING CREDIT  Interest can be costly when the balance is revolved  Additional penalty or fees  Tempting to overspend  Risk of identity theft  Applying for multiple accounts in a short period of time can lower your credit score

GOOD USES OF CREDIT  Student loans  Buying a home  Buying a car

ADVANTAGES TO USING CREDIT  Convenient payment tool  Useful for emergencies  Often required to hold a reservation  Able to purchase “big ticket” items and spread out payments  Protection against fraud  Opportunity to establish a positive credit rating  Online shopping is safer than using a debit card  Possibility of receiving bonuses

FACTORS THAT INFLUENCE ESTABLISHING AND MAINTAINING A GOOD CREDIT RATING  Acquire a small loan for an item that you already have the money available to pay for, then make the payments  Obtain a secured credit card  Pay bills consistently and on time  Maintain reasonable amounts of unused credit  Apply for credit sparingly, thus keeping credit inquiries to a minimum  Check credit reports annually and search for errors

NEGATIVE CREDIT USAGE  Routinely paying late on credit cards, utility and cell phone bills  Maxing our limits on credit cards  Numerous credit applications in a short period of time

2009 CARD ACCOUNTABILITY AND DISCLOSURE ACT (CARD)  Changed how young adults can receive certain types of credit  Consumers must be generally 21 years of age or older  Under 21 needs to have a co-signer or show documentation of sufficient income to make payments

1971 FAIR CREDIT REPORTING ACT  Enacted to protect the consumer  States consumers have the right to know what information is in their credit report and to correct any errors  Under the act, if you are denied credit, they must give you the name and address of the credit bureau that your information came from  If an error is found on a credit report, it is important to IMMEDIATELY contact the credit bureau by phone AND in writing

INSURANCE RISKS  Car accidents  House fires  Accidental death

TYPES OF INSURANCE  Auto Insurance  Homeowner’s Insurance  Renter’s Insurance  Flood Insurance  Life Insurance

COSTS OF INSURANCE  Premium – The amount paid to the insurance company every month in order to maintain insurance coverage  Co-Pay – Mainly for health insurance, it’s the amount owed each time you visit the doctor  Deductible – Refers to the amount you must pay before your insurance provider begins to cover costs; the higher the deductible, the lower your monthly payments

FINANCIAL RISK

SAVINGS  Amount of income not spent on consumption  Emergency savings should equal 3-6 months of expenses  If your expenses are $2,000 per month, you should save (for emergencies only) $12,000  PYF – pay yourself first, make your savings just like an expense and pay that money into your account just like you would a bill, then don’t touch it.

INTEREST RATES ON SAVINGS  When you are looking at interest rates for your savings, the HIGHER the BETTER  This is money you are EARNING on your savings  Compounding interest is earning interest on your interest

TYPES OF SAVINGS  Checking Account  Standard Savings Accounts  Money Market Accounts  CD’s (Certificates of Deposit)  Savings Bonds

CHECKING ACCOUNT  Account that provides an easy method for withdrawing or depositing money  Most liquid of all accounts

STANDARD SAVINGS ACCOUNT  Account at a depository institution that is designed to hold money not spent on current consumption  Some interest, but lower rates compared to other savings tools  More liquid than other savings tools

MONEY MARKET DEPOSIT ACCOUNT  Account at a depository institution  Usually has minimum balance requirement  Less liquid than standard savings accounts  You may pay a penalty for early withdrawal  Tiered interest rates  The more you put in the higher rate you will get

CERTIFICATE OF DEPOSIT (CD)  Account that is used for a fixed period of time  Allows restricted access to the funds  Interest rates vary depending on the length of time  The longer the time frame of the deposit, the higher the interest rate

PAYROLL DEDUCTIONS AUTOMATIC SAVINGS OPTIONS REFLECTIVE SPENDING PRACTICES ON FINANCIAL WELLBEING

INVESTING  You shouldn’t use investments for savings or short ‐ term goals/expenses because of two primary reasons:  1. Unlike insured savings tools, investments are not secure. There is a chance that some or all of your money invested could be lost.  2. Investments are less liquid than savings tools. That is, investments may not be easily converted to cash or you may have to pay a penalty to access the money. In fact, with some investments you may have to wait a long time, even years, to access the funds.

INVESTING Long term goals Less liquid Higher Risk Higher Returns (8-12%) Contributes to Net Worth

RATE OF RETURN Total Return Amount of Money Invested Rate of Return

STOCKS Stock is a share of ownership in a company Owner of the stock is called the Stock Holder If a company makes a profit, they may share that with the stockholders – this is called a dividend If you sell a stock for more than you bought it for you earn a capital gain

REAL ESTATE Can also be considered an investment Ways to earn money:  Rent  Selling for more than your purchase price Real Estate is more time consuming than other investments

MUTUAL FUNDS A mutual fund is created when a company combines the funds of many different investors and then invests that money into a diversified portfolio Mutual funds may include stocks, bonds, real estate and/or capital gains

RISK VS. RETURN The higher risk you are willing to take, the higher return you could potentially earn

HOW DO YOU PURCHASE INVESTMENTS? Stock Exchange – provides an organized, central service to buy and sell stocks, bonds, and other investments that are traded Brokerage Firm – facilitates the buying and selling of investments from a stock exchange; they offer investment advice; they act as a intermediary between stock exchange and investor; you must pay them a fee Discount Brokerage Firms – provides limited services; only completes orders you give them to buy and sell investments; they do not provide you with advice; they usually charge lower fees and/or commissions than full-service brokerage firms

401K – EMPLOYER SPONSORED RETIREMENT PLAN