© 2006 ACA International all rights reserved Personal Finance 1.Creating a budget 2.Saving and...
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Transcript of © 2006 ACA International all rights reserved Personal Finance 1.Creating a budget 2.Saving and...
© 2006 ACA International all rights reserved
Personal Finance
1. Creating a budget2. Saving and investing3. Credit and debt
© 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
4 steps to success
1. Create a budget spreadsheet (or get one online ): http://www.vertex42.com/ExcelTemplates/personal-budget-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
© 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
2. Saving & Investing• Must do both to build wealth
• Begin with saving: goal is to set aside at least 3 months of living expenses
• 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
• Investing is a lifelong learning process
• Wide variety of investment choices (we did this a month ago, right?)
© 2006 ACA International all rights reserved
3. Credit & Debt
• What is credit, anyway?
• Establishing credit
• Credit cards
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• 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:
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• Credit Reporting Agencies– Equifax
– TransUnion
– Experian
• Credit report– Reputation
– Past history is an indicator of future performance
– 7 years of info
Your Credit
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• Check your report:– Once a year
– Before major borrowing decisions
– Any time you are denied credit
– If you suspect fraud
Obtaining your credit report
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• Secured vs. Unsecured– Collateral or none required?– risk
• 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
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?• 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!
• Fees• Perks• Evaluating
– bankrate.com
– cardweb.com
© 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
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Balance: $2,748
APR: 18%
Typical min. payment:$68
• How long to pay off…?
the minimum payment trap…
© 2006 ACA International all rights reserved
the minimum payment trap…
• At minimum payment: $68.70213 months (nearly 18 years!)
$3,545 in interest
• At $100/month payment36 months (3 ½ years)
$821 in interestBankrate.com Calculator
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vs.Durable goodsMp3 playerSnowboardNew tires for car
Consumable goodsConcert ticketsGasolineGroceriesDining out
Should I use my credit card???
© 2006 ACA International all rights reserved
Live Within your Means• Paying for living expenses on credit
– Denial
• Savings - make it a habit…& don’t “raid”
• Lifestyle changes are difficult– Justification
– Entitlement
• See the “big picture”– Set goals
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Debt: How much is too much?
• How much of your monthly budget is going to debt payments?
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
– Practical
– Avoid emotion
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• Shop for the loan carefully– Find the financing before you find the car
– Know your credit score
– The shorter the term, the better
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
• That’s it…we’re done!
• No more econ notes at HHS
(well…most of you anyway )