© 2006 ACA International all rights reserved Personal Finance 1.Creating a budget 2.Credit and debt 3.Saving and investing

© 2006 ACA International all rights reserved Creating a Budget Why is it important? to live within your means to reduce careless spending to build financial security

© 2006 ACA International all rights reserved Budgeting A budget is: –About the future –Continuous –Flexible –Individual –About getting what YOU want! –The best tool you have for financial success –Not about restriction

© 2006 ACA International all rights reserved The Budgeting Process 1.Assess your personal and financial situation (needs, values, life situation). 2.Set personal and financial goals. 3.Create a budget for fixed and variable expenses based on projected income. 4.Monitor current spending (saving, investing) patterns. 5.Compare your budget to what you have actually spent. 6.Review financial progress and revise budgeted amounts.

© 2006 ACA International all rights reserved 4 steps to success 1.Create a budget spreadsheet (or get one online ): spreadsheet.html spreadsheet.html 2. Use actual numbers if known, guesstimate where necessary

© 2006 ACA International all rights reserved 3.Keep track of where you spend money and how much! Replace any guesstimate numbers in your budget with actual #’s 4.ADJUST your lifestyle and/or budget GOAL: A “balanced budget”…expenses are NOT greater than income

© 2006 ACA International all rights reserved Prioritize Needs –Should always come before wants –Reflected in your budgeting & bill paying habits –Examples: savings, housing, reliable transportation, insurance coverage, groceries, clothing, utilities, existing financial obligations. Wants –cable/satellite TV –Toys: boats, snow mobiles, expensive jewelry, I-Pads –Vacations –Dining out

© 2006 ACA International all rights reserved 3. Credit & Debt What is credit? Establishing credit Credit cards

© 2006 ACA International all rights reserved Credit – the amount of money available to you through lenders Debt – the amount of credit you’re using at any given time Creditor – any person / business that extends credit Important definitions:

© 2006 ACA International all rights reserved All loans : either Secured vs. Unsecured –Lender assumes risk –Collateral or none required? Paying it back: Installment vs. Revolving –Installment: has set period of time auto loan mortgage –Revolving: open line of credit credit card Types of Debt

© 2006 ACA International all rights reserved Credit Reporting Agencies –Equifax –TransUnion –Experian Credit report –Reputation –Past history is an indicator of future performance –7 years of info FICO score Your Credit

© 2006 ACA International all rights reserved : Bad credit : Average/fair credit : Good credit 720 and up: Excellent credit

© 2006 ACA International all rights reserved Check your report: –Once a year –Before major borrowing decisions –Any time you are denied credit –If you suspect fraud Obtaining your credit report

© 2006 ACA International all rights reserved Credit and Interest Rates Why should you care about your own credit history? Credt & Int. Rate INFOGRAPHIC Excellent!.docx

© 2006 ACA International all rights reserved Establishing credit 3 possible situations –Good credit history –Bad credit history –Insufficient credit history Getting started –Credit cards –Co-signed loans –Start small –Start with familiar institution

© 2006 ACA International all rights reserved Good or bad? Are unsecured loans Higher risk = higher rates & fees Credit cards

© 2006 ACA International all rights reserved Choosing your first card APR –Lower is better –Read the fine print! What are the fees? Does it offer “perks”? Which card is right for me? –bankrate.com –cardweb.com

By law, every offer for a credit card MUST include a disclosure of ALL important terms of the offer

© 2006 ACA International all rights reserved Guidelines for using credit cards: Always pay more than the minimum! –Pay at least 2x the minimum –Pay off every month when possible Always pay on time! –Avoid late fees –Pay by phone or online for convenience

© 2006 ACA International all rights reserved

Balance: $3,600 APR: 29% Make only the minimum payment: How long to pay off…? the minimum payment trap…

© 2006 ACA International all rights reserved the minimum payment trap… At minimum payment: 261 months (almost 22 years!) $7,972 in interest At $125/month payment 50 months (~ 4 years) $2,633 in interest Bankrate.com Calculator

© 2006 ACA International all rights reserved vs. Durable goods I-Pad Snowboard New tires for car Consumable goods Concert tickets Gasoline Groceries Dining out Should I use my credit card???

© 2006 ACA International all rights reserved Live Within your Means Paying for living expenses on credit –Are you in denial? Savings - make it a habit…& don’t “raid” Lifestyle changes are difficult –Justification –Entitlement See the “big picture” –Set goals

© 2006 ACA International all rights reserved Debt: How much is too much? How much of your monthly budget is going to debt payments (not including mortgage/rent) ? 20% or higher = potential problem

© 2006 ACA International all rights reserved Warning Signs no budget plan no savings denied for a loan debt increasing month after month total monthly debt payments ≥ 20% gross income making only minimum payments hiding purchases from others cash advances/payday loans late fees, over limit fees creditors/collectors calling

© 2006 ACA International all rights reserved Auto Loans Borrow conservatively…it’s just a car! –Not a status symbol -- be practical –Avoid emotion

© 2006 ACA International all rights reserved Shop for the loan carefully –Know your credit score –Find the financing before you find the car…check with: Your bank Any credit union The car dealership –The shorter the term of the loan, the better…you’ll pay less total interest! Auto Loans

© 2006 ACA International all rights reserved Buying a car New vs. used Negotiate! Consider all the costs before you buy –Insurance –Reliability/maintenance –Gas mileage

© 2006 ACA International all rights reserved 2. Saving & Investing Must do both to build wealth Begin with saving: goal is to set aside at least 3 months of living expenses (financial advisors suggest 3-6 months minimum) Continue to set aside a % of EACH paycheck forever (5-10% would be good)

© 2006 ACA International all rights reserved Investing is different from saving …it’s all about having your money make money over the entire course of your life Start early …time + compounding WORKS MyCalculators.com |- Savings & Investment Calculator Investing is a lifelong learning process Wide variety of investment choices