Understanding Finances and Credit

Ed LevesqueBridgewater State Grand Third Councilor

What we’ll cover

• The Rule of 72

• Cash flow

• Your personal budget

• Your obligation to your organization

• Tips for your organization’s finances

• Your Credit

The Rule of 72

• Divide 72 by the interest rate (“APR”) you are getting/paying – The result equals how long it takes to double

your money in savings, or double how much you owe

– Minimum payments on credit cards, mortgages are geared to extend the money you owe

What is your “Cash Flow”?

Income(e.g. paycheck)

Expenses(e.g. monthly bills)

Assets(what makes you $; e.g., DJ equipment)

Liabilities(still owe payments, e.g., car)

Fold a piece of paper four ways, and fill it in for a typical month as follows:

• To keep it simple, just total your Income and Expenses only• Your net result is + or – cash flow

Budgeting

• Understand your cash flow– Improve it: increase income, reduce expenses– 12 monthly cycles

• Considerations– Future needs (repairs, savings)– Current liabilities

• For some folks….rent / mortgage / lodging – 32% to 45% of total dues;

• similar to owning a home

– Usually monthly or at start of semester

Some budgeting tips

• Pay yourself first!• Plan your income one month ahead of

expenses• If you can store it in bulk, compare the

bulk price, then buy bulk• Comparison shop• ‘Auto payment’ and ‘normalization’ plans

The Credit DilemmaBefore you use a credit, consider:

• Why do you need ‘it’ vs. paying with cash?• How soon will you pay the credit back?• Can you pay more than the monthly

minimum? • Do you understand the interest rate? • Don’t be fooled by ‘low APR’ deals.

Your Credit Report

• What type of information is on your credit report?– Identifying Information– Credit Information– Public Records– Recent Inquiries

• Where does this information come from

Your Credit Report

• Why should you police your credit?

• How do errors in reports happen?

• How are errors corrected?

• How long are items on the report?

How to get a free copy of your credit report

EquifaxPO Box 105873Atlanta, GA 30348http://www.equifax.com(800) 685-1111

Experian (formerly TRW)PO Box 2104Allen, TX 75013-2104http://www.experian.com(888) 397-3742

Trans Union LLCConsumer Disclosure CenterPO Box 390Springfield, PA 19064-0390http://www.transunion.com(800) 916-8800 or (800) 888-

4213

Establishing and Using Credit

• Savings and Checking Accounts• Loans

– Personal– Secured (non-real estate)– Real Estate

• Credit Accounts• Utilities

Establishing and Using Credit

• Loans– How interest is paid– Loans vs. Lines– Credit Implications

Establishing and Using Credit

• Credit Cards/Revolving Credit Lines– General Credit Cards– Charge Cards– Consumer Finance– Home Equity Lines of Credit– Overdraft Lines of Credit

Establishing and Using Credit

• Credit Cards/ Revolving Credit– How interest is paid– Loans vs. Lines– Credit Implications

Establishing and Using Credit

• Which credit card is right for me?– How will you use the card?

• Pay in full monthly, carry a balance, cash advances, earn points for travel

• What is the APR structure?• Multiple APRs, Fixed, Variable

– What is the grace period and fees?

• Truth in Credit

Credit Problems

• Over credit limit• Delinquency• Balance to Limit

Ratios• Foreclosure

Credit Problems• Credit Repair: Self Help May Be BestYou see the advertisements in newspapers, on TV, and on theInternet. You hear them on the radio. You get fliers in the mail.You may even get calls from telemarketers offering credit repairservices. They all make the same claims:

• “Credit problems? No problem!”• “We can erase your bad credit — 100% guaranteed.”• “Create a new credit identity — legally.”• “We can remove bankruptcies, judgments, liens, and bad• loans from your credit file forever!”

Credit Problems• Do-It-Yourself Check-UpEven if you don’t have a poor credit history, some financial advisors and

consumer advocates suggest you review your credit report periodically

• because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.

• to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.

• to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Fraud and Identity Theft

• Credit Card– Phishing, Skimming, Truncation of Receipts,

Mail Fraud

• Mortgage Fraud– Foreclosure Bailout, Straw Buyers, Broker-

Lender Fraud

• Personal Loans– Payday Loans, Advance Fee Scam

For More Information

Federal Trade Commission• http://www.ftc.gov/bcp/conline/pubs/credit/repair.shtm

Federal Reserve Bank of San Francisco- Public Information/Publications

• http://www.frbsf.org

Consumer Reports• http://www.consumerreports.org/cro/personal-finance/cre

dit-cardoffers-8-06/overview/0608_credit-cards-offers_ov.htm

Standards

– Scholarship

– Accountability

– Knowing the ritual and local and international history

Your Organization’s Finances

• Don’t hide behind the word ‘brother’ – Pay your dues in full, on time (probably worded in

many ways in many organizations’ manuals, bylaws)

• Officers need to set an example• Unless you set up a welfare system, don’t

practice one• Follow through on procedures

WHY MUST your chapter budget?

• Chapter must plan ahead for activities and lodging

• Grand Chapter obligations

• Members can plan ahead for their share

What MUST your chapter budget?

For the Grand Chapter…• Insurance / Programming ($500/chapter;

$155/member)– Payable November 1

• Chapter (Convocation) Assessment ($350)– Payable Dec 1, Apr 1

• Pledge fee ($150) / Initiate fee ($350*)– Payable upon pinning/initiation

• Colony fees (if applicable, $2000 one time)• Fines and late fees (just in case….)

* $325 if person was a properly registered pledge prior to 7/1/08

What MUST your chapter budget?

For your chapter…

• Rent / mortgage / lodging– Usually monthly or at start of semester

• Chapter Activities– Prioritize against chapter goals– Philanthropy, Fundraising, Alumni,

Brotherhood, Socials

What MUST your chapter budget?

For your chapter…

• Chapter Activities– Prioritize against chapter goals– Philanthropy, Fundraising, Alumni,

Brotherhood, Socials

• Rent / mortgage / lodging– Usually monthly or at start of semester

What MUST your chapter budget?

Tips for planning your budget• Define fall’s budget in spring

– Approve budget before you leave for break– Start collecting in summer when members are working

• Consider your chapter’s goals and “ROI”– Rush is easy to overspend vs. results– Fundraising and Alumni– Focus on philanthropy and brotherhood

• Other considerations– Competition in other houses– Cosponsoring events

HOW MUCH must your chapter budget?

• Chapter Activities ~ % of remaining dues– Philanthropy 20%– Rush 8%– Fundraising 10%– Brotherhood 20%– Alumni 17%– Socials 20%– Other 5%

.

This example assumes an emphasis on philanthropy. Semesters and

overall goals may vary

HOW should your chapter budget?Incentives instead of Fines

• Individual dues + 10%– Pay on time = ‘discount’ 10%; Pay late = no change– 10% used to cover shortfalls, build ‘rainy day’ fund,

special events

• Social privileges based on a good payment record

• Normalize payments over 9 months- always have $, easier to manage (more pay ahead)

• Committees get more funding for their member’s good payment behavior

Third party collectors

• Omega Financial, Tom Harner (Sigma Pi alumnus), Automated Payment Highway (APH)

• Charge fees and/or % of gross A/R

• Handle delinquencies, etc.

• Contact Exec Office for more information

Summary

• Assess your personal situation

• Understand how credit works

• Obligation to your organization

• Plan your budget well in advance

• Set an example

• Be creative with dues, fines, and incentives

Questions?

Thank you!

Acknowledgements:Frederick Rheaume, HH