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Personal Finance 101

Presented by: Krista Peace, Financial Aid Coordinator

Financial Aid Staff: Stacey Glidden, Director of Student Financial

Services Karen Rieck, Associate Director of Financial Aid

Tony Hoveln, Financial Aid Assistant


Topics for Today



Creating a Budget to Plan for Financial Goals


What are your Financial Goals?

• Short Term – Pay your tuition – Pay rent – Pay for children’s childcare/school – Buy lunch

• Long Term – Buy a car– Pay off student loan debt – Own your own home– Retire


Begin by Developing a Budget

• How will a budget benefit me?– Self-discipline – Track your progress – Reach financial goals • Tuition & Fees

• Books• Living

Expenses• Food• Transportation • Insurance


Where to Begin?

Creating a budget typically requires 5 steps…


Step 1: Assess your Financial Situation

Track how money comes in and how it goes out.


Step 2: Identify Needs vs. Wants

Take a look at what you have or want and determine what you can't live without. As hard as it is, you may need to give some things up.


Step 3: Understand your Financial Behaviors

Only by evaluating your current spending habits can you find budgeting strategies that work for you.


Step 4: Create your Budget

Creating a budget is nothing more than simple math. Once you deduct your expenses from your income, you'll know how much you have left to save or spend on your "wants”.

Budget Builder: http://www.youcandealwithit.com/borrowers/calculators-and-resources/calculators/budget-builder.shtml

http://www.youcandealwithit.com/borrowers/calculators-and-resources/calculators/budget-builder.shtml




Budget Category Examples

• Home/rent• Tithing • Utilities • Food/Groceries • Personal • Everything else

NetflixClothingPersonalGasHome CareEntertainmentMedicalGiftsBaby Supplies

NetflixClothingPersonalGasHome CareEntertainmentMedicalGiftsBaby Supplies

Electricity: $75Gas/Heating: $75Cell Phone: $140Internet/Cable: $100Water/Waste: $40Auto Insurance: $78

Electricity: $75Gas/Heating: $75Cell Phone: $140Internet/Cable: $100Water/Waste: $40Auto Insurance: $78

Subcategories


Jan Feb March April May June July Aug Sept Oct Nov Dec Year

Total expenses $3,040 $3,050 $2,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 $8,890

Cash short/extra $60 -$150 $280 $0 $0 $0 $0 $0 $0 $0 $0 $0 $190

Wages $1,000 $1,000 $980 $2,980

Student loan $1,700 $1,700 $1,700 $5,100

Miscellaneous $400 $200 $400 $1,000

Total $3,100 $2,900 $3,080 $0 $0 $0 $0 $0 $0 $0 $0 $0 $9,080

Mortgage/rent $870 $870 $870 $2,610

Utilities $0 $0

Home telephone $0 $0

Cellular telephone $50 $50 $100

Total $920 $920 $870 $0 $0 $0 $0 $0 $0 $0 $0 $0 $2,710

Groceries $350 $370 $350 $1,070

Child care $0 $0

Dining out $75 $75 $150

Total $425 $445 $350 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1,220

Gas/fuel $150 $150 $75 $375

Insurance $50 $50 $50 $150

Repairs $0 $0 $0

Total $200 $200 $125 $0 $0 $0 $0 $0 $0 $0 $0 $0 $525

Total $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Insurance $150 $150 $150 $450

Prescriptions $0

Total $150 $150 $150 $0 $0 $0 $0 $0 $0 $0 $0 $0 $450

Tuition $1,100 $1,100 $1,100 $3,300

Total $1,100 $1,100 $1,100 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,300

Gym fees $20 $20 $20 $60

Total $20 $20 $20 $0 $0 $0 $0 $0 $0 $0 $0 $0 $60

Church $100 $100 $150 $350

Charity $0 $0

Total $100 $100 $150 $0 $0 $0 $0 $0 $0 $0 $0 $0 $350

Clothing $75 $75 $20 $170

Books $50 $40 $15 $105

Total $125 $115 $35 $0 $0 $0 $0 $0 $0 $0 $0 $0 $275

Total $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Education

Personal

Recreation

Tithing

Home

Daily living

Transportation

Income

Health

Expenses


Step 5: Maintain your Budget

Track your spending to make sure it stays within those guidelines.

Review and revise as your situation changes.


How to Keep your Budget on Track

1. Involve the entire family.2. Make a list of short-term and long-term goals. 3. Enter payment due dates on your calendar. 4. Start your new budget at a time when it will be realistic to follow. 5. Find a budgeting system that fits your needs.

– Written budget – use excel spreadsheet – Budget software– such as Quicken (http://quicken.intuit.com/)– Online budget- (www.mint.com)– Budget App – SPENDEE (http://www.spendeeapp.com/)

6. Distinguish between expenses: Essential or Discretionary 7. Avoid using credit cards to pay for everyday expenses.8. Build rewards into your budget. 9. Stick with your plan and resist temptation of

unnecessary spending.

http://quicken.intuit.com/

http://www.mint.com/

http://www.spendeeapp.com/


Backwards Budgeting (GNITEGDUB) 1. Determine the total amount you will need in order

to reach your financial goal(s). 2. Decide how much you will need to put into the

savings account every month in order to reach that total in a specified period of time (i.e. 10 years).

3. How much do you have left after putting money into savings?

4. Create your budget accordingly. Can you hit your savings goals? – If not, look for may ways to make money…freelancing,

selling goods, part time jobs, babysitting, yard sales, etc…


Average Monthly Living Expenses

Housing/Utilities

33%

Transportation

20%

Food 13%

Insurance 8%

Clothing 5%

Entertainment

5%

Education 4%

Healthcare 3%

Source: US Department of Labor, Bureau of Labor Statistics

Charity 3%

Misc. 6%


Ways to Reduce Expenses

Get a roommate

Shop at thrift stores

Use discount coupons

Go to matinee movies

Use public transportation

Be energy efficient

Find free stuff

Leave credit cards at home

Wait for sales and avoid impulse purchases

Cancel cable

Eat meals at home

Use a grocery list

Don’t shop for groceries when hungry

Avoid overdraft fees


Resources

Sites that offer free tools for planning and managing your budget:

– www.mint.com – www.feedthepig.com– www.budgetsimple.com – www.nefe.org (National Endowment for Financial

Education) – www.foundationsu.com – www.youcandealwithit.com – Spendee app– HomeBudget app – http://

www2.ed.gov/offices/OSFAP/DirectLoan/BudgetCalc/budget.html (Federal Student Aid budget calculator

http://www.mint.com/

http://www.feedthepig.com/

http://www.budgetsimple.com/

http://www.nefe.org/

http://www.foundationsu.com/

http://www.youcandealwithit.com/

http://www2.ed.gov/offices/OSFAP/DirectLoan/BudgetCalc/budget.html





Credit & Credit Cards


Understanding Credit

• Credit = Borrowed money that allows you to purchase things

• Credit Score = The likelihood that you will pay back these loans and be approved to take out new ones

• Borrowed money can take many forms, such as a care loan, home mortgage, student, or credit cards for product purchases.


What is a Credit Score?

• A rating that shows how well a person manages his or her debt

• Ranks a person against other consumers and industry standards

• Is used to determine how qualified a person is to receive lines of credit or other loans.

• Helps lenders determine how much money you’ll be able to borrow and what interest your loans will have.

• Your credit score is determined by three credit agencies (Experian, TransUnion, & Equifax)


Impact of Credit Scores


What’s a Good Credit Score?

800 & Above

Excellent

750-800 Very good

700-749 Good

650-699 Fair

600-649 Poor

Below 600 Very Poor


How to Build Good Credit History

Set up payment reminders– On-time payments are one of the biggest factors in credit

scoring– More recent delinquencies have greater impact on your score

Reduce the amount of debt you have– Pay down accounts with low balances or highest interest

Check your credit report– If you find errors, dispute them with credit bureau(s) and

creditor(s)


How to Order a Credit Report You have a right to request a copy of your credit report at any time and can get one for free from each agency once per year.

Contact credit bureaus:

Experian - www.Experian.com

TransUnion – www.transunion.com

Equifax – www.equifax

Print Annual Credit Report Request Form:

www.ftc.gov/credit

Mail to: Annual Credit Report Request ServiceP.O. Box 105281Atlanta, GA 30348

Source: Nelnet Education Loan Servicing

http://www.ftc.gov/credit


Student Loans and your Credit

• Always make your loan payments on time or else your credit score will be negatively affected!

• Pay off your student loan debt as fast as possible.• Make interest-only payments while you are in school to avoid capitalization.• Graduated repayment - lower payments in the early years and larger payments later. • Extended repayment - Extend the term you have to repay your loans. Over the longer term,

you'll pay a greater amount of interest, but your monthly payments will be smaller.• Income-based repayment plans - Tie your monthly payment to your level of income; the

lower your income, the lower your payment. • If you have several student loans, consider consolidating them through a student loan

consolidation program. • If you're in default on your student loans, don't ignore them--they aren't going to go away!

Ask your lender about loan rehabilitation programs; successful completion of such programs can remove default status notations on your credit reports.

• https://studentaid.ed.gov/repay-loans

https://studentaid.ed.gov/repay-loans


Credit Cards


Credit Card Usage Tips

Pay cash instead of using your credit card Set a monthly limit on charging that is based on

your budget…not your credit allowance Limit the number of credit cards you have Don’t apply for credit cards just to get a free gift

or discount Pay bills on time to avoid late fees or charges Pay more than the minimum payment



Planning your Tax Strategy


Taxes and Financial Planning

• Tax planning – Taking advantage of tax benefits while paying your fair share of taxes.

• An effective tax strategy is vital for successful financial planning.

• Understanding tax rules and regulations can help you reduce your tax liability.

**For more information and personalized advice, always consult with a tax professional.**


Types of Taxes


Tax Forms1040A 10401040EZ


Who Should File?• 2014 filing requirements*:

• Even if you do not have to file, you should because you MAY get money back if any of the following conditions apply: You had federal income tax withheld You qualify for earned income tax credit You qualify for the additional child tax credit You qualify for the health coverage tax credit You qualify for the American Opportunity or Lifetime

Learning credit• http://www.irs.gov/pub/irs-pdf/p17.pdf

IF your filing status is… THEN file a return if your gross income was at least…

Single $10,150

Married filing jointly $20,300

Married filing separately $3,950

Head of household $13,050

http://www.irs.gov/pub/irs-pdf/p17.pdf


Computing Your Tax Liability


Tax Deductions

• The purpose of tax deductions is to decrease your taxable income, thus decreasing the amount of tax you owe to the federal government.

Examples*: • Job expenses that are not reimbursed by your employer: These include union dues,

required uniforms you're must purchase, and business-related vehicle expenses, such as gas and repairs.

• Student loan interest that your parents pay: If your parents don't claim you as a dependent, you can deduct up to $2,500 of the interest your parents paid on a student loan for you. (Loan must be in your name.) See chapter 4, page 30 of IRS Publication 970.

• Self-owned business: You can deduct office equipment, sales tax on business purchases, health insurance premiums, anything "necessary and ordinary" to perform your business.

• Charity: To see if an organization is eligible for a tax-deductible donation, check out the IRS's Publication 78.

• Casualty and theft: Unexpected loss of property due to theft, fire, natural disaster • Home mortgage interest: Interest paid on your mortgage for the year can be deducted.• State and local income or sales tax paid: Usually, deducting state income tax is better, but

some states have sales tax and no income tax. You choose one or the other to deduct.• Personal property tax: These deductions are based on personal property taxed like boats or

cars.

*For personalized and accurate advice, always consult with a tax professional.


Tax Credits

• A tax credit is an amount subtracted directly from the amount of taxes owed

• Tax Credit vs. Tax Deduction– $100 Tax Credit reduces your taxes by $100– $100 Tax Deduction reduces taxes by $28 (if you are in the 28%

bracket)• Examples*:

– Earned Income Tax Credit – Education Credits – Hybrid car tax credit– Child and Dependent Care Credit – Adoption Credit – Health coverage Tax Credit– Saver’s Credit – For more information please visit: http://www.irs.gov/Credits-&-Deductions

*For personalized and accurate advice, always consult with a tax professional.

http://www.irs.gov/Credits-&-Deductions





Tax Credits vs. Deductions Video

• http://www.investopedia.com/terms/i/incometax.asp

http://www.investopedia.com/terms/i/incometax.asp

http://www.investopedia.com/terms/i/incometax.asp


Tax Benefits for Students

http://www.irs.gov/pub/irs-pdf/p970.pdf *For assistance or more information, consult a tax professional or IRS Publication 970, Tax Benefits for Education.

http://www.irs.gov/pub/irs-pdf/p970.pdf



Saving & Investing Basics


Why Save?

Reach financial goals Build up a “rainy day” fund for emergencies Save for major purchases or expenses Develop a personal financial/investment plan Retire


Will you save up for 4,5, or 6 months? • Do what you can, but an emergency fund is not something to skimp on.

It is recommended that you have at least 6 months worth of income in your emergency fund.

Will your calculations be based on losing one income or both incomes?

• It’s up to you, but if you choose the one-income scenario, make sure it’s the higher income

What needs will you include in your calculations? • Plan as if you won’t be getting any help. Calculate how much your life

costs each month.


What are you worth?

• Consider paying yourself every time you get a paycheck• What it takes…

Commitment Discipline Delayed gratification

• Ways to do it… Set aside from each paycheck Collect change and/or set up “save the change” transfer Save unexpected money

Remember…the amount saved isn’t as important as getting into the habit!


What is Interest?

Earning InterestWhen you invest or save money, you often earn interest.

Paying Interest When you borrow money, you have to pay interest.

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on a an annual basis, known as annual percentage rate (APR).

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on a an annual basis, known as annual percentage rate (APR).

Source: Investopidia.com


Simple Interest

Deposit x Interest Rate x Number of Years = Interest Earned Example: •You have $1,000 in a savings account that pays 1.5% simple interest. •During the first year you would earn $15 in interest.

•After 20 years you would earn $300 in interest.

YEAR 1 $1000 x 0.015 x 1 = $15$1000 + $15 = $1015 (total value)

YEAR 1 $1000 x 0.015 x 1 = $15$1000 + $15 = $1015 (total value)

YEAR 20$1000 x 0.015 x 20 = $300$1000 + $300 = $1300 (total value)

YEAR 20$1000 x 0.015 x 20 = $300$1000 + $300 = $1300 (total value)


Compound Interest

Earning interest on your interest – “Compound interest arises when interest is added to the principal.

From that moment on, the interest that as been added to the principal also earns interest.” – Investopedia

Example: You have $1,000 in an account that returns 6% interest, compounded annually, During the first year, you would earn $60 in interest.

At the end of 10 years, you would have earned $790.85 for a total value of $1,790.85.

YEAR 1 $1000 x 0.06 = $60$1000 + $60 = $1060 (total value)

YEAR 1 $1000 x 0.06 = $60$1000 + $60 = $1060 (total value)

YEAR 2$1060 x 0.06 = $63.60$1060 + $63.60 = $1123.60 (total value)

YEAR 2$1060 x 0.06 = $63.60$1060 + $63.60 = $1123.60 (total value)


Understanding Savings Products • What are they?

– Savings Accounts – Money Market Accounts – Certificates of Deposit (CDs)

• How do they work?– You can easily take money out and put money in.– The bank pays you interest in exchange for the opportunity

to hold your money. – Interest rate on savings is generally lower compared with

investments.• Investments are riskier, thus higher interest rate. • Low interest rate may not keep pace with inflation.

– Saving accounts & money markets accounts are secure!• Insured by FDIC.

Source: U.S. Securities Exchange Commission


Savings Accounts

• Able to make withdrawals and deposits. • Interest bearing, but minimum balances required. • Establishing an account is easy and can be

initiated by as little as a $25 deposit.• Your savings are insured by the FDIC.• Interest rates are low, but your savings are

secure.


Money Market Accounts

• A money market account is a deposit account that is offered by banks and credit unions. (Similar to savings accounts).

• The accounts earn interest and checks can be written, but with various restrictions .

• They usually pay slightly higher interest and have a higher minimum balance.


Certificate of Deposit (CD)

• Relatively low-risk investment • Typically offers a higher rate of interest than savings account. • FDIC insures up to $250,000 per bank, per owner.• You “lend” the bank a fixed sum of money for a fixed period

of time – six months, one year, five years, or more. • When you cash in or redeem your CD at maturity, you receive

the money you originally invested plus any accrued interest. • If you cash in your CD before it matures, you may have to pay

a “early withdrawal” penalty.

Source: FDIC


Understanding Investment Products

• What are they?– Stocks– Bonds– Mutual funds

• How do they work?– All investments have higher risks but potentially higher

returns than savings products. – Over many decades, the investment that has provided

the highest average rate of return has been stocks.

Source: U.S. Securities and Exchange Commission


Stocks

• Also called “equities”• Stocks are a share of ownership in a company• You can make money in two ways from owning a stock.

1. Capital Gains = The price of the stock may rise if the company does well and you make money through capital gains. 2. Dividends = Companies sometimes pay out parts of profits to stockholders. You can keep the cash from your dividends or reinvest dividends.

• There is no guarantee that the stock you hold will grow and do well. When the company performs poorly, you loose money.

• Risky! – Your investment could loose all value and be worth 0$

Source: U.S Securities and Exchange Commission


Bonds

• A bond is a debt security. • When you purchase a bond, you are lending money to a

government, municipality, or a corporation for a certain amount of time.

• The issuer promises to pay you a specified rate of interest during the life of the bond and repay the principal when it “matures”

– Maturity is the length of time that you hold the bond.

• You can loose your entire principle if the issuer goes bankrupt.

• Not as risky as stocks but riskier than a savings account.



Mutual Funds

• You can think of a mutual fund as a company that brings together a group of people and groups their money together to invest in stocks, bonds, and other securities.

• Investors purchase shares in from a mutual fund company • Mutual funds have fees because the fund is managed by

professionals at the mutual fund company.



Risk and Return on Investment

• The higher the risk, the higher the reward.• Every saving and investment product has different risks and returns. • Remember, investments are not deposits into a savings account, they can

loose value.• Because of the risks associated with any investment, always deal with a

reputable, licensed financial advisor and research the product before you make a purchase.

• Buyer beware! Avoid investment scams. – Nothing is “guaranteed” or “risk free” when it comes to investing. – If it sounds too good to be true…it probably is.


Preparing for Retirement

• Life expectancy continues to rise. • The length of retirement is increasing as the average

retirement age hovers at 63. • The average American spends 20 years in retirement. • Many people mistakenly believe that Social Security will pay

for all or most of their retirement needs. One should not count solely on Social Security.

• When should you start saving for retirement? NOW!!

Source: Center for Retirement Research at Boston College


The sooner you begin saving, the more time your money has to grow.

http://money.cnn.com/retirement/guide/basics_basics.moneymag/


Example – Fred vs. Steve

Fred and Steve each save $2,000 a year into an Individual Retirement Account (IRA).

– Fred started saving at 22 and stopped at age 31 (9 years).– Steve started saving at age 31 and will continue to do so until he

retires (34 years).

•Assuming both IRAs earn 9%, who will have more money fro retirement at the age of 65?

– Fred will. His account will grow to $579,504. Steve’s account will grow to only $470,247.

•How can this be? Fred invested only $18,000, while Steve will invest $68,000.

– The answer is compounding interest! While Fred invested less money, he started 9 years sooner than Steve did. Steve’s money just didn’t have enough time to grow.

Source: youcandealwithit.com – Financial Management presenter’s guide, pg. 5


Resources

• Saving, Investing, & Retirement– http://money.cnn.com/retirement/guide/basics_basics.moneymag/ – http://www.investopedia.com/

• Budgeting and Money Management: – www.mint.com – www.feedthepig.com– www.budgetsimple.com – www.nefe.org (National Endowment for Financial Education) – www.foundationsu.com – http://www.spendeeapp.com/ – HomeBudget app– www.youcandealwithit.com

• Federal Student Loans & Repayment Plans – www.studentloans.gov– www.nslds.ed.gov

• Live Life Smart Guide – http://www.nelnetloanservicing.com/library

• Federal Income Tax Information & Benefits – http://www.irs.gov/– http://www.irs.gov/uac/Tax-Benefits-for-Education:-Information-Center

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