Presentation on theme: "1 FINANCIAL PLANNING for a Successful Transition Michael A. McIsaac Michael A. McIsaac Personal Financial Management Specialist Marine & Family Services,"— Presentation transcript:
1 FINANCIAL PLANNING for a Successful Transition Michael A. McIsaac Michael A. McIsaac Personal Financial Management Specialist Marine & Family Services, Building 14 MCRD San Diego (619-524-1204) (619-524-1204)
2 Keys to a Successful Transition Take Responsibility for Your Money! Take Responsibility for Your Money! Do Your Financial Planning for Transition Do Your Financial Planning for Transition Make Financial Comparisons between Staying in and Getting out - Numbers! Make Financial Comparisons between Staying in and Getting out - Numbers! Take Advantage of Services to Help You Plan & Prepare for your Transition Take Advantage of Services to Help You Plan & Prepare for your Transition Think WIIFM and Be Proactive! Think WIIFM and Be Proactive!
3 What is Financial Planning? Process A Hands-On Process that leads to becoming financially stable & includes on-going planning, execution and review in the areas of: Money Management (Over 55%) Risk Management Investment Planning Tax Planning Retirement Planning Estate Planning
4 Responsible Money Management To be Successful in Life and with your Money, take Personal Responsibility: Set SMART goals and focus on what you want Set SMART goals and focus on what you want Know everyday where your money is going Know everyday where your money is going Know exactly how much money you have Know exactly how much money you have Know how much you owe, to whom & why Know how much you owe, to whom & why Take immediate action to control your cash flow Take immediate action to control your cash flow Create a spending plan, and work your plan Create a spending plan, and work your plan The Choices you make – Make You! The Choices you make – Make You!
5 Money Management ( Planning, Execution & Review) 1. Set SMART Goals (Short & Long Term) 2. Determine Present Financial Position ( p32-36 ) 3. Draft a Spending Plan to support your Goals 4. Reduce Debt – focus on high interest rates 5. Establish a Transition Fund (at least 3 months) 6. Avoid Financial Drains - be a Savvy Consumer 7. Keep Records, Track Progress, Adjust
6 Ways to Reduce Your Debt n Pay more than the minimum & Focus your $$ n Use low-interest savings to pay off debts n Get on a cash-only diet (freeze credit cards) n Spend only for necessities (Needs vs. Wants) n Avoid credit rip-offs (e.g., predatory loans) n Comparison shop for anything over $100 n Clean up Credit Reports & Improve Scores n Request lower interest rates – keep asking n Improvement requires PERSISTANCE!
7 Saving for a Transition Fund n Goal is to cover 3 months of Basic Living Expenses (see page 34 of TAP Book) without tapping your Savings, Investments, or Credit Cards: 4Mortgage / Utilities$ 1,800 4Car payment$ 350 4Food$ 400 4Gas$ 250 4Insurance$ 200 TOTAL$ 3,000
8 Saving for a Transition Fund Goal is 3 Months of Basic Living Expenses 4Monthly BLE = $3,000 4Transition Fund = $9,000 4Months to GoSavings Required n 6$ 1,500 / mo n 12$ 750 / mo n 18$ 500 / mo n 24$ 375 / mo
9 Avoid Financial Drains n Credit cards & high interest rate debt n New car loans, & auto leases n Rent-to-Own stores n Payday, pawnshops, and title loans n Window shopping and impulse buying n Distinguish between Needs & Wants – remember, little things count & Debt Sucks!
10 Financial Points to Compare (Military to Civilian) n Medical / Dental Benefits n Life Insurance / Survivor Benefits n Commissary / Exchange Privileges n Recreational Facilities and Services n Family / Legal / Financial / Tax Services n Retirement Benefits and Savings n Guaranteed Pay & Allowances
11 Pay Comparison Single LCpl Over 3 n Marine Corps Pay n Base Pay 1859.70 n BAH 1472.00 n BAS 323.87 n Taxes --241.32 n FICA --142.27 n Net Pay 3271.98 n Civilian Pay ($21/hr) n Base Pay 3655.57 n Taxes --680.26 n FICA --279.65 n SDI --29.24 n Medical --183.00 n Net Pay 2483.42 n Diff (788.56)
12 Pay Comparison Single Sgt Over 4 n Marine Corps Pay n Base Pay 2334.90 n BAH 1680.00 n BAS 323.87 n Taxes --331.61 n FICA --178.62 n Net Pay 3828.54 n Civilian Pay ($25/hr) n Base Pay 4338.77 n Taxes --907.14 n FICA --331.92 n SDI --34.71 n Medical --183.00 n Net Pay 2882.00 n Diff (946.54)
13 Pay Comparison Married GySgt Over 12 n Marine Corps Pay n Base Pay 3577.50 n BAH 2159.00 n BAS 323.87 n Taxes --432.37 n FICA --273.68 n Net Pay 5354.32 n Civilian Pay ($35/hr) n Base Pay 6060.37 n Taxes --929.77 n FICA --463.62 n SDI --48.48 n Medical --467.00 n Net Pay 4151.50 n Diff (1202.82)
14 Pay Comparison Single Capt over 8 n Marine Corps Pay n Base Pay 5197.20 n BAH 2085.00 n BAS 223.04 n Taxes--1201.58 n FICA --397.59 n Net Pay 5906.07 n Civilian Pay ($43/hr) n Base Pay 7505.24 n Taxes --2007.64 n FICA --574.15 n SDI --60.04 n Medical --206.00 n Net Pay 4657.41 n Diff (1248.66)
15 How Much Can you Expect to Make in Your Civilian Job? n Salary-whats your minimum requirement? n Benefits (Do a cost analysis!) n Total COMPEN$ATION PACKAGE is (Salary + Benefits = Total Compensation) (Salary + Benefits = Total Compensation)
16 Benefits Package n Medical / Dental / Vision n Short / Long term Disability n Annual Leave / Sick Leave n Family Friendly Benefits n Employee Assistance Programs n Car / Computer / Cell Phone n Out-of-Pocket Expense Account n Tuition Assistance n Employer Retirement Plan (Pension) n 401k / 403b / TSP Contribution Plans
17 Salary Comparison by Geographic Location Based on $60,000 of San Diego Salary - Orlando$38,426 - Virginia Beach$44,449 - Dallas$37,992 - Chicago$51,690 - Boston$52,161 - San Francisco$76,535 Source is http://www.bestplaces.com/ Also see page 141 in TAP Manual for Wage Chart
18 Will You Relocate? n How much can you expect to make in the new location? (How much do you need?) n How much can your spouse expect to make? n What is the cost-of-living in your new location? n Will you rate unemployment? (How long?) n What will your out-of-pocket expenses be? n Have you established a moving fund? n Will you rent or buy a place to live? n Do you have a relocation plan? Is it written?
19 Financial Services to Help You Make a Smooth Transition n n Financial Planning and Analysis n n Spending Plan Development n n Review of Credit & Debt Usage n n Review of Credit Reports n n Review TSP Withdrawal Options n n Tax Planning and Preparation
20 WIIFM? 1. Chance to avoid/eliminate financial problems 2. Opportunity to map-out and test alternate courses of action – run the numbers 3. Knowledge to implement immediate action 4. Financial Peace of Mind – youre good to go! Remember, happiness is a Positive Cash Flow, and you create it one step at a time 5. The information and assistance necessary to develop your own Financial Transition Plan
21 Summary of Key Points n Develop a Financial Transition Action Plan n Set Up a Transition Fund – and Save! n Pull Credit Reports – Review / Correct! n Estimate Relocation Expenses and the Cost of Living in a New Location n Research Salaries - How Much Are You Worth? Look by Geographic Location. n Review Benefit Packages and Compare n Have a Plan B and Seek Help if Needed
23 To Succeed 1. You must Believe that it is possible to achieve a smooth transition (Concept) 2. You must believe that You Can achieve a smooth transition (I Can Do It) 3. You must have a Plan that works; and 4. You must Work your Plan (Action) 5. You must provide the Motivation to follow through (Commitment)
24 Setting Goals n How do you do it? 4Write down what you want. 4Decide when you want it. 4Look at where you are. 4Compare the difference. 4Determine the how. 4Take Action! 4Track and Revise!
25 Develop a Spending Plan to Control Your Outcomes n Determine present monthly income n Determine current living expenses n Identify required debt payments and ratios n Calculate present monthly cash flow (+/-) n Determine Net Worth (Benchmark) n Develop Plan for future income & expenses n Review, revise & improve on a regular basis
26 What is a Spending Plan? A monthly breakdown of how bills and debts are to be paid, and how / when money will be saved and invested.
27 General Spending Plan (Using Net Income) n 70% Living Expenses n 20% Indebtedness n 10% Savings Living Expenses Net Income 70% Debt Payments Net Income 20% Savings Net Income 10% (Note: Net Income is Gross Income minus Taxes)
28 Ways to Improve Your Spending Plan n Increase income n Decrease living expenses n Decrease indebtedness n Set Goals n Take Action!
30 Reduce / Eliminate Debt n Make debt reduction 1 st priority! (Discipline) n Monitor your Debt-to-Income Ratio n Get on a cash-only diet (freeze credit cards) n Use low interest savings to pay off debt n Pay more than the minimum & Focus your $$ n Clean up Credit Reports & Improve Scores n Move balances to a lower interest rate card n Renegotiate terms with your creditors n Set up a Debt Management Plan if needed
31 Debt-to-Income Ratio n Total of all monthly debt payments (non-mortgage) divided by net monthly income x 100: <15% In control - some additional debt may be considered (with caution) <15% In control - some additional debt may be considered (with caution) 15 - 20%Fully extended – Slow Down! 21 - 30%Overextended – You have a Problem! >30%Red Alert! Seek help Immediately! >30%Red Alert! Seek help Immediately!
32 Beware the Myth of the Minimum Payments $1,000 credit card balance, 18% APR Payment Pay OffInterest Paid 2% ($10 min) 19 yr 4 mo $1,931 5% ($10 min) 5 yr 10 mo $ 382 10% ($10 min) 3 yr 1 mo $ 168 $207 yr 10 mo $ 862 $50 2 yr 0 mo $ 198 $1000 yr 11 mo $ 92
33 Beware the Myth of the Minimum Payments $5,000 credit card balance, 18% APR Payment Pay OffInterest Paid 2% ($10 min) 46 yr 1 mo $ 13,931 5% ($10 min) 9 yr 7 mo $ 2,097 10% ($10 min) 4 yr 7 mo $ 874 $1007 yr 10 mo $ 4,311 $250 2 yr 0 mo $ 989 $5000 yr 11 mo $ 458
34 Who Should Check Their Credit Report? EVERYONE!! Over 70% of Credit Reports have errors and/or omissions! Get One Free Credit Report each Year from each Credit Reporting Agency at: www.annualcreditreport.com
35 Information on Your Credit Report n Personal Information 4Name, Address, and Social Security Number Security Number n Public Record Information 4Judgments, Liens, Evictions n Account Information/History 4Revolving, Installment, Collection accounts n Inquiries
36 Credit Scores n n Called FICO (Fair Isaacs & Co.) n n www.myfico.com n n Rates potential risk of default n n Not the decision maker for credit n n 300-850 points n n Permissible inquiries include self, employer, landlord, etc. and do not affect your FICO score n n Inquiries for pursuit of credit cost you points each time!
37 Your Credit Score, Whos looking? n n Lenders n n Employers, including the military n n Auto Insurers n n Landlords n n Utility companies n n IRS n n ?
39 Where do you stand? n 780-850 4Excellent credit rating n 720-779 4Great credit rating n 690-719 4Average credit rating n 620-689 4Below average credit rating n 300-619 4Credit challenged
40 Self-Insure for Minor Risks with your Emergency Fund n n Raise Deductibles on Vehicle Insurance n n Drop Collision Coverage on Older Vehicles n n Drop Road Service Coverage unless traveling n n Pay for Dental / Vision Care out of pocket n n Pay for Appliance Repairs as needed n n Pay cash for out of pocket travel / relocation expenses rather than using a credit card n n Supplement unemployment with cash from your emergency fund rather than using a credit card