Real World Money Education

Tarek Dabbagh Steven Carlson

http://economicsfordummies.org/

Pop Quiz

• If you bought a TV for $3500 on credit and just made the minimum payments, how long would it take you to pay it off?

• Less than a year?• 1-5 years?• 5-10 years?

Objectives

• To attain financial independence• Setting and achieving goals• Basic Financial Institutions and accounts• Determine your financial health• Figure out where your money is going• Control your spending habits• What is credit?• Managing and understanding your debt• Planning and achieving your retirement

How to Attain Financial Independence

• Open a Checking AND Savings account– Do not touch your savings account– Don’t let your bills exceed your checking balance

• Spend LESS than you make• Budget your daily and monthly expenses• Make plans for big expenses (Car, House, etc.)• Be prepared for emergencies• Plan your work and work your plan!

Setting & Achieving Goals

• Write down your goals for the future– Are you setting aside money each month for these goals?

• How will you afford a car? House? Medical bills?– Financing and loans are beneficial if used correctly– Shop around for the best rates

• How long does it take to pay off debt?– Remember the opening example? Do not carry a balance on your

credit card– Pay off your debts before you start investing

• How much do you need at retirement?– The average American looking to retire at 60 and live until 90 will

need more than $1,000,000 in order to live comfortably

Basic Financial Institutions and accounts

• Options: Banks & Credit Unions • Bank- for profit company owned by “shareholders” who have voting rights to

elect board of directors to manage overall operations of the bank. Open to all.

• Credit Union- those who have accounts in the credit union are its members and owners. Mission to be "community-oriented" and "serve people, not profit. Only a member of a credit union may deposit or borrow money.

• Savings accounts – deposit money you don’t intend to spend but can withdraw without penalties. Aligns well with short to medium term goals.

• Checking accounts- easy access to your cash via checks or ATM cards, allows one to manage their daily finances with bank statements and apps.

Budgeting• An approach to manage a spending plan for a

specific period of time• Basic Formula : Income – Expenses = Surplus of Cash • Income: money that comes to you. It could be other than

wages such as from investments or the sale of ones belongings to even simple interest earned from a savings account

• Expenses: where your money goes, 3 types of expenses• 1. Fixed = consistently fixed such as rent and insurance • 2. Variable = vary in amount such as utilities in seasons• 3. Periodic = not paid constantly such as charity

Spending Habits

• Before you buy, is it a WANT or a NEED?• Can you REALLY afford it?– Is it following your budget guidelines– If Credit is used, you should be able to pay off your credit card

bill in FULL each month• Are you being smart about your money?– Track your spending– Set limits (Fast food, entertainment, dining out, etc.)

• Where can you save? – Walking, public transportation, discounts, coupons, etc*If a budget is followed with discipline many financial issues never arise

Stretching Your Dollar• Where are you spending too much?– Buy only the essential groceries– Are you driving too much?– Does your bank charge fees?

• What new changes can you make to save?• Are you conscious of your purchases?• Do you have friends that pressure you to

overspend?• Can you do anything to earn a second (or primary)

income?

Building and earning credit• Why do we need credit?

– Good credit will allow you to get car loans, mortgages, and even jobs• How to build credit

– Pay off your bill in full each month and on time– Use less than 20% of your available limit– No late payments

• When should we use credit?– Use credit on expenses that you have the cash in your account to pay for– Do not purchase anything on credit that you cannot afford

• Common mistakes– Purchasing more than you can afford– Only paying the minimum each month– Using one card to pay off another

Managing Debt

• Pay off your highest interest debts first– Credit cards have the highest rates, pay off these

bills first– Short term and student loans can be paid off next,

don’t take loans with early payment penalties– Mortgages

• Don’t add unnecessarily to your debts

Compound Interest

• Joey invested $20,000 at age 40 and $100 a month after

• Sarah invested $10,000 at age 25 and $50 a month after

• When they both retire at 60, who will have more assuming they both earn 5% a year

• Joey will have $92,745.10• Sarah will have $109,352.34

Conclusion

• Take the self initiative and plan for you own destiny

• With short, medium and long term goals you will be available to monitor your progress properly with accountability.

• Lastly, try to make more and spend less!