YM Fall09Issue

7/30/2019 YM Fall09Issue

1/21

fall 2009youngmoney.com

Earn It. Invest It. Spend It. Cdt Caand Std

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digginout o

deb

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Comfotabl Ft

start savin

do ityourselfLvng th Flanc Lf

Making it andkeeping itHp-Hop Fnancal Ltacy

PotYos

geinsure

Make your Moneywork for you

Bdgts and Banks

y l, y M pbs Donald Faison, Host

Special Edition Guide:


2/21

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200olume

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contents

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Published by

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ea quartere n unt a ey, ary an , oungoney, was create to c ange t e way

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3 LetterfromtheEditor

4 ItsYourLifeandYourMoney Learn how to manage both

6 MakingitandKeepingIt Hip-hop nancial literacy

8 MakeYourMoneyWorkforY Budgets & banks

11 DiggingOutofDebt Credit cards & student loans

14 StartSavingThe key to a comfortable futu

16 GetInsuredProtect yourself

18 DoItYourselfLiving the freelance life

6 11 14

Coege Journists

Want to wt fo

Yong Mony? Contact:

[email protected].

DonaldFaison,Host


3/21

your life, your money on pbs

September 2009

ear Young MoneyReaders,

Financial education for young adults has never been more important. If the current

ecession has shown us anything, its that the lack of nancial literacy has devastating

implications. It is vital that we make a change, and that we make it now. This is why the

Your Life, Your Money and Young Money teams have collaborated to produce this very

special edition ofYoung Moneymagazine. We hope that you nd it valuable and that, at

he very least, it sparks dialogue about the basics of nancial education.

Your Life, Your Money is a PBS television outreach venture aimed at young adults.

ctor Donald Faison hosts the program which features a dynamic group of young adults

rom all over the country. These young adults allowed us a look into their lives so that we

ay learn from their real life personal nance stories.

e invite you to watch the PBS special, Your Life, Your Money, airing on your local

ublic TV station this fall*. We hope that you read this specia edition ofYoung Money

agazine and save it as a helpful planning tool as you confront different nancial topics

and issues throughout your life. In addition, we encourage you to visit the Your Life,

our Money website at www.pbs.org/yourlifeyourmoney for great media clips, tools

and games. We also ask that you help spread the word: tell your friends and family about

hese entertaining and timely resources.

hank you for your interest and most importantly, thank you for taking an important

step toward empowering yourself.

Sincerely,

our Friends at Your Life, Your Money & Young Moneymagazine

*Check your local listings for air times.

Your Life,

Your MoneY

outreach and

ProMotion teaM

National Outreach & Web:

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National Promotion:

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4/21

Learn how to manage both

every day the news covers stories about the recessiondefaulted mortgages, rising unemploymen

failing bankswe are constantly bombarded with information about the current economic problem

Because of this, the timing of Your Life, Your Money, an informative and entertaining approach

nancial literacy produced by public TV station WNED in Buffalo, NY and Working Dog Productions, could

be better. A broad range of fundamental nancial information is shared through the telling of real-l

storiesreal people with real issues. Financial experts, celebrities, and everyday people contribute th

personal experiences and expertise. From topics such as basic banking, savings, and money manageme

to credit, debt, loans, and insurance, Your Life, Your Money encourages young people to be smart an

proactive when it comes to managing their money.

ItsYourLie

andYourMoney DonaldFais

ByCaraNewman


5/21

DonaldFaison

onald Faison, the host of Yourife, Your Money, is known for hisoles in Clueless, Waiting to Exhale

and Remember the Titans but he iserhaps best known for playing theeloved character Dr. Chris Turk on

the popular television series crubs.

ven though he is doing well now, heasnt always famous and he didntalways have money. In the beginningof Your Life, Your Money Faisonsays, When I got my rst big movieole I took that paycheck and boughtyself a shinyew jeep. Man,loved that

car, but by thetime the third

ayment camedue I was outof money and

ad to hustleand try to holdon to it.

o matterho you are,

or where youcome from,you needto learn the

asics. Ifyoure like me,dealing with

oney wasot something

you learned inschool. I pickedit up by trialand error, andm still learning, says Faison.

Whynancialliteracyisimportant

inancial literacy is the understandingof basic money management. It is

important to know where your moneyis going, how to make a spendinglan, and how to manage your debt.

ts also vital that you recognize thateverything in our current economicsystem is intertwined; therefore, some

orld events are likely to affect youersonally.

hen a recession hits, everyone isaffected. When the stock marketdropped, many people lost large

ortions of their retirement savings.his means less people will be able

to retire when they had previouslyexpected. Less people retiring, coupledwith companies cutting back and highunemployment rates, means it willbe harder for new graduates to nd ajob. As if this wasnt enough, incomefor 25 to 34 year olds has declinedfrom 2001-2007, and it doesnt looklike that downward trend is going tochange anytime soon. In fact, 48%of young adults are worried aboutmaking ends meet.

For too long our society has shiedaway from talking about money.Now, we are unfortunately seeing

the results ofour nancialignorance. Itsup to you totake care ofyour life andyour money.

Its also up toyou to learnhow to keepyour nancesin check.These lessonsarent difcult.Financialliteracy isnot rocketscience orbrain surgery,but it is just as

important, ifnot more. If youlearn how tomanage yourmoney nowyoull be better

equipped to deal with the things lifewill throw at you. The producers ofYour Life, Your Money and YoungMoney are here to help. In both the

program and this issue we cover thebasics; you will meet students in debt,young people learning how to save,

and even someone who started his

own business. In fact, this Your Life,Your Money Special Edition Guide isstructured to complement the show.

As Donald Faison tells us in Your Life,Your Money: Its a jungle out there;a nancial jungle. And its easy to getlost, unless you have the skills to ndyour way.

All statistics, young adult voices, andexpert quotes throughout this specialedition are courtesy of Your Life, YourMoney.

If youre like me,

dealing with

money was not

something you

learned in school.

I picked it up by

trial and error, and

Im still learning.

Cara Newman is the editor ofYoung Moneymagazine and YoungMoney.com.

what is the averagedebt of 22-29 year olds?

) $10,250

b) $16,120) $25,175

) $36,250

answer:b


6/21

Theeconomytoday:Whatisarecession?

The National Bureau ofEconomic Research denes

economic recession as asignicant decline in the

economic activity spreadacross the economy, lastingmore than a few months.During a recession theGross Domestic Product

(GDP) growth slows,businesses stop expanding,

employment falls,nemployment rises, andousing prices decline.

ecessions have occurred

throughout the history ofthe world.

We are currently in arecession. This recessionstarted in December 2007,and as this is being writtenis ongoing. So, how did thisrecession begin? It startedwith the collapse of thehousing market. Next, bankbegan to tighten the amouof credit they were loaning

Without credit, consumercondence plummeted, anas people purchased fewerproducts, more jobs werelost; as the unemploymentrate climbed people hadless money to spend. As youcan see, a recession can be vicious circle.

Recessions are nowconsidered part of thenatural cycle of the moderneconomic system. Americaisnt the only country tobe plagued by recessions;Germany, the U.K., Chinaand Japan have all been hitby recessions. If one countris in a recession (especiallya key country, such asAmerica) it will affect therest of the world in one

way or another before therecession is over.

P 1907Cause: run on KnickerbockerTrust Company deposits

caused a monetarycontraction

P Wl W ir 1918-1921

ause: hyperinations inEurope, lost production

t end of WWI

t G dp1929-1938

ause: the 1929 Stock

arket Crash, bankingollapse, unemployment

r 1945Cause: demobilizationfrom WWII

r 1953ause: post Korean War,

change in Federal Reserve

policy

r 1960Cause: high unemploymehigh ination, low GNP

Making It

Keeping ItHip-hop fnancial literacy

and

ByCaraNewman

Timeline o 1900s recessions/depressions in history

A recession

is when yourneighbor

loses his job.

A depression

is when you

lose your job.

Anonymous


7/21

Whatisnancialliteracy?

Financial literacy is theability to understandnance. It is anunderstanding of spendingplans, credit managementand savings.

In the past decade, nancial

literacy has become moreimportant. The U.S. Treasuryestablished its Ofce ofFinancial Education in

002; and the U.S. Congressestablished the FinancialLiteracy and EducationCommission in 2003. In

006, the Commissionpublished its NationalStrategy on FinancialLiteracy. And on January 22,

008, President George W.

Bush signed an executiveorder creating, for the rsttime, a Presidents Advisory

Council on Financial Literacyto improve nancial literacyamong all Americans.

However, most experts stillbelieve that Americans arenot nearly nancially literateenough. A 2008 survey bythe Jump$tart Coalition forPersonal Financial Literacyshowed that a majorityof high school seniors inAmerica failed a test onbasic personal nance. Theconsequences of this lackof nancial knowledgeare signicant. In fact, ourcurrent economic problemsmay be directly attributedto our lack of nancialknowledge. If people trulyunderstood mortgages,loans, interest and nancing,would they have bought

houses with mortgages theycouldnt possibly afford?

Hip-HopSummitActionNetwork

ussell Simmonsas been calledhe Godfather

of hip-hop; he ishe co-founder of

ef Jam records,creator of theclothing line,

hat Farm, andounder of Rush

Communications,one of the mostsuccessful African

merican-ownededia business

in the country.e is the third

ichest hip-hop

entertainer, withan estimated net-worth of$325 million.

ut Russell Simmonsisnt your typical multi-

illionaire. He is determinedo give back to society. Likehe man who teaches aillage to sh, Simmonsght against poverty and

social injustice involvesroviding young peopleith the skills they need

o manage their ownoney and make their own

educated decisions.

n 2001, Russell Simmonsco-founded the Hip-HopSummit Action NetworkHSAN which puts on the

Get Your Money Rightseminars on personal

nance.

ccording to Simmons,

Financial literacy is notaught in schools, and its

not necessarily handeddown from generation togeneration.

With the backing of Visa,Simmons released theRushCard and BabyPhatRushCard; re-loadable Visadebit cards for people whohave problems getting acredit card account. Thesecards enable their users tobuild up their credit without

going into debt. Simmonssays, I made some badchoices early on, but, Iwas a little conservative, Iwas lucky enough that myparents taught me somethings. You learn aboutmanaging your life, youknow, kind of a trial anderror.

The HSAN brings togetherstars of the hip-hop world,music industry executives

and nancial experts to

1970 l Cause: oil crisis,stagation, Vietnam

980 rause: Iranian revolution,harp increase in oil prices,

high interest rates

1990 rCause: Long-term effects of BlackMonday (October 1987), savings &

loans crisis, beginning of Gulf War,spike in oil prices

ely 2000 rCause: dot com crash,September 11 attacks

rCause: collapse of housing market,tightened credit, banks & nancial

institutions collapse

activity: how much do you know about

Go through this listand make a check inthe appropriate box

g ll

b

g g

by

m l

g

setting a budget

choosing a bank

paying bills online

choosing a creditcard

how compoundinterest works

saving forretirement

health insurance

any other kind ofinsurance

different kinds ofexpenses

student loans

inancial literacy resources

continued on page 13


8/21

make your

moneywork or you

Min

inLwinisanengineerlivinginChicago.Hesliving

onhisownforthersttimeandtryingtomanagehismoney.Minsays,TherstthingIdidwhenIgotmy

offerletterfromwork,ImadeanExcelspreadsheetandIsaid,

Okay,thisistheamountofmoneyImgetting.Andthesearethe

expensesthatImgoingtoanticipate.IdecidedIwantedtosave

liketenthousanddollars.Andtoreachthatgoal,thenIdhave

totrytokeepmyweeklyexpenditurestoacertainamount.But

theproblemis,itsreallyhardtoanticipateexpenses.Itsnotlike

yourespendingthesameamounteveryweek.

Budgets and banks

m

By Emily Torres

With any

nancial plan

the bottom

line is relatively

simple: dont

spend more

than what

you make.


9/21

Whatisabudget?

A budget is an itemized inventory of income and expensesin a given period. A budget includes:

all sources of monthly income

all required, xed expenses (rent/mortgage, utilities,phone, etc.)

any other possible and/or variable expenses

You can prepare a budget using a spreadsheet, nancialsoftware, or with pencil and paper.

SettingaBudget

he rst step to creating a budget is listing your xedexpenses and your variable expenses. Fixed expenses areexpenses that dont change, such as rent, car payments,or insurance premiums. Variable expenses are expensesthat change according to how much you use them.

xamples of variable expenses are food, clothes, creditcard payments, and entertainment. It is also a good idea todivide your list into wants and needs. Wants could consistof entertainment, trendy clothing, and cable TV. Needs areent, food, gas, electricity and possibly your phone bill.

efore you make your budget, you need to know how muchyou are spending in each categoryyou should not guessor estimate your expenses. To get an accurate picture of

your spending you should keep a money diary. Write downevery thing you spend. You may be surprised to discover

ow much you are paying on little things like coffee andottled water. Once you know how much you are truly

spending, you can easily see where you can cut back, andfrom there you can go on to create an accurate spending

lan.

ts important to realize the difference between wantsand needs. Michelle Singletary, the author of he Power

to Prospersays, Anytime you go shopping you should askyourself, is this a need or a want?

A budget makes it easier to keep track of your bills and paythem on time. It will also help you to set nancial goals andactually reach them.

When you are rst starting out in life, its hard to always bepractical. It is way too easy to buy things on impulse. You

dont have to nickel and dime every part of your life, buttaking a minute to check yourself when buying anything isgood practice. Take the advice of Michelle Singletary, Everypenny ought to have a purpose.

It is important to build a contingency plan, or emergencyfund, into your budget. If you lose your job, youre going tohave a hard time making ends meet without a paycheck.A typical emergency fund should cover your expenses forthree months.

With any nancial plan the bottom line is relatively simple:dont spend more than you make. How can you be sure thatyoure not making this mistake if you dont keep track ofwhats coming in and whats going out?

It takes dedication and it does take time, but keeping trackof your money can bring you rewards that will last long into

your life.

Every penny ought to have

a purpose.

Michelle Singletary

n lw mmm bl

atM wk m

Py

cmp g

ol

what to look for in a bank

setting a budgetsp m w

c pg pl


10/21

Choosingabank

ith your rst job comes your rstpaycheck. You will need a bankaccount to cash your check or depositit. When searching for a bank, thinkabout what you want and need froma bank. Are you going to bank online?Do you need a bank with ATMs and/ora main ofce close to your house? Doyou want free checking? Make a listof everything you want and need in a

bank. Next, add these items: no or lowminimum balance, interest rates, anda list of fees.

When Min was looking for a bankhe was looking at interest ratesand maybe any kind of benets orbonuses.

Some online banks may have better

interest rates, but you wont be ableto go into an ofce. You need to

decide what matters to you. Mosttraditional banks also have onlinebanking. You can do most of yourbanking online: pay bills, transfermoney, and check your statements.No matter what type of bank youdecide to use, its a good idea to payyour bills online. Paper statementscan be easily stolen, and with themyour identity.

You may want a checking accountthat comes with a debit card. A debitcard is like a credit card, except thatthe money automatically comes outof your checking account. When facedwith the debit or credit question you

should answer credit. The moneycomes from the same place, but yourPIN number cannot be accessed byidentity thieves. Also, your friendlyshop clerk is charging you an extra 50cents each time you say debit. Thosesmall charges really add up.

When you are just starting out it isimportant that you choose a bank

account with no, or a low, minimumbalance. You dont want to get hit

with high fees if you go under theminimum.

You may also want to consider a crediunion. A credit union differs from abank because credit unions are ownedby the members who have accountswith the credit union. In other words,a credit union is owned by you.Credit unions may have lower feesand better loan rates. Many creditunions are smaller than banks, butthey often offer the same nancialservices; including savings accounts,checking accounts, credit cards, debitcards, online banking, and certicatesof deposit. Credit Unions are insuredby The National Credit UnionAdministration (NCUA), the federalagency that administers the NationalCredit Union Share Insurance Fund

(NCUSIF). The NCUSIF, like the FDICsDeposit Insurance Fund, is a federalinsurance fund backed by the U.S.government. As long as you choose abank or credit union that is either FDIor NCUSIF insured, your money shouldbe safe if anything happens.

Emily Torres is a San Francisco-based writeshe has written for Salon.com, YoungMoneycom and many other publications.

activity: make a budget

1.

3.

5.

7.

I decided I wanted to save like ten

thousand dollars. And to reach that goal,

then Id have to try to keep my weekly

expenditures to a certain amount. But the

problem is, its really hard to anticipate

expenses. Its not like youre spending thesame amount every week.

budgetguidelines

30%

g

20% y

mly

k-m

py b

pym

10% g


11/21

Creditcards

Our rst experience withdebt is usually throughcredit cards. Theyre easy,convenient and spend justlike cash. But as FloridaState University studentAmanda McCormick foundout, credit cards can also

be dangerous. Amandaused her new credit card topay for college necessitieslike food and books, butshe quickly found herselfin serious debt. Sheremembers the day shereceived her card, Theysent it to me in the mail. I

activated it in 45-seconds,spent money on it twentyminutes later. Over thenext six months, betweenve cards, she spent lessthan $4,000, but aftercompiling interest, late fees

and penalties, she foundherself over $30,000 indebt. Amandas story is notuncommon. In fact, 66%of college students have acredit card and the averagegraduating student hascredit card debt of $2,623.

Amanda could have avoideda considerable amount ofdebt if she had selected acredit card that was a littlemore user friendly. As

DiggingOut O DebtCredit cards & student loans

Amanda McCormick

By Matthew Brandeburg

Deferment: time

period in whichpayments are notrequired

Forbearance:temporarily stopsloan paymentsbecause of nancialhardships

Debt is a four-letter word we all have to face. Any time we spend more

than we make, were probably making up the difference by gaining

some debt. Its a common problem, yet its something many of us

know very little about. For example, did you know that having some debt

can actually be a good thing? Did you know that the way you manage debt

affects your credit score? Do you know what your credit score is? These

are just a few of the questions you should know the answers to, but more

importantly, theyre questions you should be asking yourself.


12/21

Beth Kobliner, authorofGet a Financial Life,points out, When yourecomparing credit cardoffers, you want to getthe lowest interest ratepossible, and you dont

ant to pay annualfees. Also, make sureyou read the ne print

to understand how yourinterest rate can changeand what your APR is.APR stands for annualpercentage rate, and itshows your monthly feesand rates in annual terms.Make sure when yourecomparing credit cardsyoure always comparingthe APRs.

he two most important

rules to using credit cardsresponsibly are to alwayspay your balance on timeand to watch how muchyou spend. These mayseem like easy concepts,but an MIT study showedthat when credit cardsare used, consumers tendto spend anywhere from30% to 100% more than ifthey used cash! The key tosmart spending is to resist temptation

and make sure you only buy what youhave enough cash to pay for whenyour bill comes.

If you nd yourself in credit carddebt, take a deep breath. Fortunately,theres plenty of help available.If youre in debt, try contacting aconsumer credit counselor who willhelp you explore your options andform a payment plan. Thats whatAmanda McCormick did when she

found herself $30,000 in debt andwithout any foreseeable way of

paying it off. She met with consumercredit counselor Duana Palmer whowas able to help Amanda work withher creditors to reduce her interestrates and consolidate her bills intoone monthly payment. By followingDuanas plan, Amanda was able tostart chipping away at her debt so itwont follow her through her life. Evenpaying as little as $10 more than theminimum monthly payment couldsignicantly reduce the length of time

it will take for someone tobecome debt free.

Studentloans

Remember, not all debt isbad. Take student loansfor example, they allowyou to get an educationand increase your earningspotential. With so manydifferent types of studentloans available, this typeof debt can be confusing.To simplify student loansyou should rst learnthe two basic types ofloans: subsidized andunsubsidized. As FinancialAdvisor Peter Bielagusexplains, Subsidizedstudent loans arethose loans where thegovernment is paying the

interest while you are inschool. These types ofloans are more attractivethan unsubsidized loans,where the interestcontinues to accrue evenwhile youre still in school.Peter explains that havingan unsubsidized loancould mean that a $10,000loan taken out during your

freshman year could grow to $14,000by graduation day. Because so much

money is at stake, its important toknow what your monthly paymentwill be on your student loans whenyou graduate. According to Peter,this is crucial because when youreapplying for your rst job, you need toknow if the salary youre being offeredis enough to cover the loans youvetaken out.

Creditscore

Between student loans and creditcards, many young people ndthemselves in signicant debt as theyenter the real world. This debt willimpact the rest of their lives becauseits reected on something veryimportantyour credit score. Yourcredit score contains the history ofevery credit relationship you have,including credit cards, student loans,car loans, home loans, etc. The goalis for your credit score to be as highas possible, and as you pay your billson time, your score improves. If youmiss a payment or max out your credit

activity: manage your debt (example)

name of debt unpaidbalance

interestrate

order topay off

visa $18,000 11.99% 2

american express $8,000 14.99% 1

best buy $3,000 1.99% 5

car loan $6,000 .99% 3

student loan $25,000 6.80% 4

total $60,000

In order to manage your debt effectively, you rst need to getorganized. Try this activity, which will help you calculate your totaldebt and form a plan to pay it off efciently. Fill out the table aboveand rank your interest rates from highest to lowest. This becomesthe order that you should pay off your debt.

activity: manage your debt

name of debt unpaidbalance

interestrate

order topay off

what tolook for ina credit card

Lw

n l

n pl

g


13/21

cards, your score suffers. Banks and lenders use yourscore to determine your level of credit risk. A high creditscore means you are a low risk and you will subsequentlybe charged lower interest rates on your loans. As PeterBielagus explains, Maybe tomorrow, you and I bothgo to buy the exact same car on the exact same day.Because of my terrible credit score, I will pay $7,000 moredollars in interest to buy that car than you will, simply

because of this one number. Because your credit scoreis so important, you need to check it regularly. In fact,youre entitled to receive a free copy of your credit reporteach year; you can get this at www.annualcreditreport.com. You can also visit the three reporting bureaus:TransUnion, Equifax and Experian.

Remember, you want a high credit score and low to nodebt. The next time you think about using your creditcard, think about Amanda McCormick. She is still tryingto dig herself out of debt. However, her experience hastaught her a lot. According to Amanda, The simpleststructure is always the best; spending money you donthave just complicates things.

Matthew Brandeburg, CFP has six years of fee-only nancial planningexperience and runs his own nancial advisory practice based inColumbus, OH.

help young people learn that managing their money isan essential life skill. According to the HSAN website,The HSAN uses the cultural relevance of hip-hop musicto serve as a catalyst for education advocacy and othersocietal concerns fundamental to the empowerment ofyouth. In addition, they foster the belief that hip-hop is

an enormously inuential agent for social change, whichmust be responsibly and proactively utilized to ght thewar on poverty and injustice.

Dr. Benjamin Chavis, the President and CEO of the Hip-Hop Summit Action Network, and a 40-year veteranof the Civil Rights Movement, says, When we rststarted the Hip-Hop Summit, we found out we hadunderestimated the readiness, the thirst and hunger of

young people for this material.

You know, no matter how rich you are, you need to beable to afford your lifestyle, says Simmons. The summithas given many people their rst steps. They come outempowered, connected, feeling like they can get theirnancial situation in order, get their house right, or theirmoney right.

Cara Newman is the editor ofYoung Moneymagazine andYoungMoney.com.

Statistics and quotes courtesy of Your Life, Your Money.

Making it and Keeping ItContinued

Maybe tomorrow, you

and I both go to buy the

exact same car on theexact same day. Because

of my terrible credit

score, I will pay $7,000

more dollars in interest

to buy that car than you

will, simply because of

this one number.

Peter Bielagus

When we rst started

the Hip-Hop Summit,

we found out we had

underestimated the

readiness, the thirst andhunger of young people

for this material.

Dr. Benjamin Chavis


14/21

Balancing school,busy social livesand budding

careers may makesaving money thelast thing on theto-do list of most20-somethings, butaccording to experts,young adulthood is theprimetime for planninga secure nancialfuture.

D. Woods, a memberof the platinum-sellingpop group Danity Kane,moved back home tolive with her mother soshe could start savingmoney. Even thoughthe success of DanityKane brought Woods

some fame, she wasstill working on makingher fortune. Mymother denitely satme down when I gotmy rst big check, andshe said, Take this andput it over here, forgetthat you even haveit. And it denitelycame in handy becausethere was a big dryspell, and it was scary,

says Woods. To makesaving easier, sheorganized her moneyinto three differentbank accountsachecking account, asavings account, andan account at a creditunion. She also putsome money into CDswhich she cant touch,but earn her moreinterest.

Any nancial plannerwill tell you that thosewho start saving earlybenet the most; theyare putting time ontheir side. Just ask yourparents if they aresaving for retirement

The key to a comortable uture

Maria Cortez

By Shawna Kenney

$tartaving


15/21

and when they beganthen ask themif they wish they had started savingearlier. Many of us can learn from our

arents choices, both good and bad.Maria Cortez, for example, is partowner of her familys restaurant in

ew York City, which has caused herto think about her own future.

My mom just showed me what shesgoing to be getting for Social Security,and honestly, its very little, she says.I want to be in a better situation.Cortez sought the help of a nancialadvisor to help plan for her parentsetirement as well as her own.

According to Greg Plechner, aetirement Advisor and Director ofinancial Planning for Greenbaum

and Orecchio, Inc., there are two

approaches to saving for retirement:One approach is to open up aetirement plan through yourusiness. Alternatively, you can

establish an IRA account.

Stuart Ritter, who works as a Certiedinancial Planner at T. Rowe Price and

as an Instructor of Personal Financeat Johns Hopkins University, tells hiscollege students, Its easier to save

now, as a youngperson, because theamount you have toput away if you startearly is smaller. Asyou get older, youllhave actual nancialresponsibilities, whencurrently they mayonly be pizza andbeer. He suggestssaving 10-15% ofyour income forretirement using anIndividual RetirementAccount (IRA) or Roth

IRA (which are not tax-deductible,but usually have fewer withdrawalrestrictions). IRAs allow you to setaside money each year that will

accumulate interest tax-free or tax-deferred.

Another option is to participate inyour companys 401(k) plan, if oneis offered. A 401(k) is an employer-sponsored retirement plan. Theseoften offer a company match, whichmeans the company matches part,or all, of what you put in. This is free

money, so if your company offersa match you should denitely takeadvantage of it.

In addition to saving for retirement,most experts suggest that everyoneshould have an emergency fundconsisting of at least three monthsworth of living expenses. You shouldbe able to get your money if you

Y p ira w ll $100.

starting early can make a big difference

Comprinci dinter esan a sayat ag n.By th 0inves

COMPOUND INTEREST CHART

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20 5 $159,602

30 35 $73,927 $85,676 54%

$34,242 $125,360 9%

50 15 $15,861 $143,741 90%

Rate of return: 8%*How much less money you have than if youd started at age 20

c g Y lg 65

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20 5 $1,932,528

$861,584 $1,070,944 55%

40 25 $365,530 $1,566,998 81%

50 15 $135,761 $1,796,768 93%

Rate of return: 8%* How much less money you have than if youd started at age 20

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16/21

I

f you live in the U.S. and want to protect your nancial future, get good health

insurance. Barely anyone in this country (besides the extremely wealthy, likeBill Gates) can afford a major medical crisis without health coverage. The

biggest reason people go bankrupt, says nancial counselor Ann Diamond, is

because they had a health emergency and the bills were so overwhelming that

theres no way they could possibly pay them. A Harvard study published in

2005 found that medical expenses contributed to 50 percent of all bankruptcy

lings. Every 30 seconds someone in the U.S. les for bankruptcy following a

costly health crisis.

Rochelle James is now an electrician with a union job, but things werent always so good for her.

I didnt come from a poor background, she says. But because of unfortunate circumstance, Idid end up at the very bottom.

Every 30

seconds

someone

in the U.S.

les for

bankruptcy

following a

costly healt

crisis.

GetInsured

ProtectyourselBy Lisa Montanar

Rochelle Ja


17/21

Insurance

Its amazing to me, says Beth Kobliner, author ofGet aFinancial Life, that with all the talk in our country abouthealth insurance, 20 million people age 18 to 34 still donthave it. Its a huge problem. You may think you dontneed health insurance because youre young, but youprobably know or have heard of someone who received anunexpected diagnosis or had an accident that led to massivemedical expenditures. Its unsafe to assume this can never

happen to you. Were all at risk, and insurance allows us tomanage our risk: we agree to a small guaranteed loss (themonthly premium we pay the insurance company) and inreturn, that company protects us against a huge unforeseenloss that might ruin us nancially.

Then why stop at health insurance? Why not auto insurance,life insurance, pet insurance, kidnap and ransom insurance,and any number of other bulwarks to save us from thepoorhouse?

You dont need insurance for things you dont have or near-impossible disasters. Volcano insurance probably doesntmake much sense, unless you live in Hawaii, and you dontneed crop insurance if youre not a farmer.

But what cant you afford to lose? Here are some kinds ofinsurance you may need as a young adult living in the U.S.

Healthinsurance

As we said, youneed it. If you workfull-time, youremployer mayprovide healthinsurance through a group plan. The way this works isthat every member pays a premium, and the premiums of

those who dont have high medical expenses help cover thecost of those who do. If youre self-employed, youll needto nd and purchase your own health insurance throughan individual or group plan. Many individual plans dontcover pre-existing conditions, which can include anyhealth issue that requires medical treatment before thedate your new coverage starts. If youve had no recent orchronic health problems requiring medical attention, youmay be ne with individual insurance. But most individual

plans exclude people with certain pre-existing conditionsthat may cost the companies millions of dollars. Read thene print carefully. If you have one of these conditions,your best bet may be to join an organization or union(such as the Freelancers Union) that offers a group plan.Health insurance policies vary widely, so be sure to read thebenets carefully. Dont just get the plan with the cheapestpremium. A policy with a $10,000 deductible wont help ifyou cant come up with $10,000 out of pocket.

Dont forget about dental insurance. Many employersno longer offer dental in their suite of benets. Do some

research on how much a cleaning, check-up and lling willcost without it, and then decide if you need it. Even if younever have a major mouth problem, everyone needs theirteeth cleaned at least once a year.

Disabilityinsurance

If youre like most of us, your most valuable asset is notyour home or your car, but your capacity to work and earna living. The U.S. government provides Social SecurityDisability Insurance (SSDI) and Supplemental SecurityIncome (SSI). These two programs would ideally provide asafety net for every citizen who is disabled, blind, or over 65

renters insurance

Average annual cost: $150-$300

Average coverage: $35,000

continued on page 21

Its amazing to me, that withall the talk in our country

about health insurance,

20 million people age 18 to

34 still dont have it. Its a

huge problem.

Beth Kobliner

1 3 yg l lkl

$3,300: g pl


18/21

n todays bleak job marketany people who never

considered self-employmenefore are venturing out

on their own. These newlyinted entrepreneurs haveuch to learn about the

freelance life, including howto nd their market, attractegular stream of clients, do

their taxes, and ensure thatthey have the best possibleealth insurance.

Self-employment can beanything from working as afreelancer (or a contractor)to starting your own

usiness. While there areany differences between

eing a freelancer andowning a business, bothof them involve makingopportunities for yourself

and being smart enough toandle your nances.

im Bouchard, a Webdesigner in Buffalo,

ew York, started hisown business before theecession, but hes still

discovering the ins and outof self-employment. WheTim rst graduated fromcollege, he got a job wita Web design rm. But

after learning the tricksof the trade, he explainI decided to break offinto my own businessbecause I personally lovehaving creative controland a close relationshipwith the clients fromstart to nish.

Tim is in the process ofbuilding his clientele.One disadvantage of

self-employment is thatyou dont always know

Remember the old, pre-recession days when the career gurus asked, Are

you living for your passion or your paycheck? Rocketing layoffs havechanged the nancial landscape and posed new questions: Are you

living from unemployment check to unemployment check, or are you using

your new free time to turn a hobby you love into the career of your dreams?

diy

op Wyedia

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Pbl PPainter

My Ky a osmetics

(Mary Kay)

P.t. BmEntertainment

(Barnum &Bailey Circus)

Blonstruction

J BzInternet (Amazon)

amous reelancers

Living thereelance lie

: , :

al alyDance

:


19/21

where your next paycheck iscoming from. The workowisnt always consistent. Ispend about 20 percent ofmy week searching out newjobs.

Entrepreneurs also haveto manage their ownbusiness nances. Thismeans knowing your dailyoperating costs. For instance,Tim has to make sure hisWeb design company, SharpCut Media, has the mostup-to-date technology andsoftware. He also pays forcopy paper, gas mileage,Web hosting, and manyother necessities that hisemployer would cover if hestill worked for a Web designrm.

Since self-employed peoplehave to spend moneyto make money, the IRSallows them to deduct theirbusiness expenses fromtheir gross income, butthey also have to put asidepart of their gross incomefor taxes. When you workfor an employer, you paysome taxes automaticallyas you earn money: partof your income is withheld

from each paycheck to coveryour taxes, social security,

Medicare,and possiblyyour healthinsurance.

hen youwork foryourself,nothing iswithheld.You haveto keepmeticulousrecords ofyour income and businessexpenses. If the IRS thinksyou owe them more thanyouve paid, they may audityou. Its a pay-as-you-gotax system, explainsWashington Postpersonalnance columnist MichelleSingletary. The governmentwants their money as you

earn your money. If you havenot paid enough into thetax system based on yourincome, you are penalizedfor that. The IRS does notplay. They will come afteryou, and the penalties fornot paying are stiff.

Freelancers are generallyadvised to save a thirdof their gross income fortaxes. Tim puts aside 30 to

35 percent for taxes and 15to 20 percent for business

expensesand healthinsurance.His father,a certiednancialplanner,advises himto save 10percent for

retirementas well. Ifyoure self-

employed,you also have to provideyour own pension. You donthave an employer who offersyou a pension and 401(k)plan and directly depositspart of your wages into yourretirement account.

Freelancers have to keeptrack of their own money,or hire someone to do itfor them. Some freelancersare great at saving andinvesting, but many hireaccountants and certiednancial planners to helpwith ling taxes, investing,and saving for retirement.

Health insurance is amongthe thorniest challengesfreelancers face. When youwork for yourself, there are

no pre-selected employerhealth plans you can signup for, you have to scoutout your own. You have theoption of applying for anindividual plan, or joining aunion or organization thatoffers a group plan like theFreelancers Union based inNew York City).

hether you are workingfor yourself or as part of

a company, what mattersmost is that you are happy.

Everything is an opportunityfor us to better ourselves.

he important thing ishat you do with the

opportunities you have; ifyou continually aspire upyou will prosper.

As Tim Bouchard says, I livea life of not knowing what I

ill make in two months orhat I will be working on.

You could say that it is theultimate motivational tool. I

ork more hours than I usedto, but I do get the exibilityto work those hours intomy day as I see t. Everyoneloves feeling accomplishedin one way or another, I amno different.

Visit Tims site atww.sharpcut.net

Melicia Trumball has been self-employed for more than 10 years.

l BlmbgFinancial Information

r BVirgin Group

aw gteel (US Steel)

d bb flookies

(Mrs. Fields)

Wl dyEntertainment

Bll Goftware

(Microsoft)

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activity: are you living for your passionor your paycheck?

set aside 30% for taxes

15% for businessexpenses andhealth insurance

10% for retirement

SampleExpenses

Ofce supplies:$150/year

Latest software:$200/year

Ofce equipment:$2,000

Mileage: $50/month

Web hosting:

$220/year


20/21

need it, while it is also earning someinterest. If you hide your savingsunder your mattress you will actually

lose money in the long run due toconstant ination. Your best bet is toopen up a savings account or CD.

Beth Kobliner, author ofGet aFinancial Life, explains that, a CD, orcerticate of deposit, is like a savingsaccount, except that you promiseyoull keep your money in for a setlonger period of time. Because ofthis promise, the interest rate on a

CD is usually higher than that of a

bank savings account. Whether youare considering putting your moneyinto a savings account or a CD, make

sure the nancialinstitution is FDIC-insured. This meansthat the governmentis insuring yourmoney up to a setamount, and if yourbank goes out ofbusiness you wontlose your savings.Currently, the basicinsurance amountis $250,000 per

depositor, per insuredbank. Check FDIC.gov

for the most up-to-date information.

Putting money aside doesnt have tobe painful. Ritter suggests everyonetry saving 15% of their monthlyincome for at least three months, asa test. This isnt as hard as it sounds,think about it this way: if you putaside 5% of your paycheck each monthand your company matches you 5%,you are already saving 10%.

percentage youll need to save for retirement

____________

Amount you have

already saved for

retirement:

____________

Annual salary:

Round this number

to the nearest

multiple below____________=

Multiple:

Example: If you are 35 years old and have already saved half of your salary (multiple = .5), you

need to save at least 15% of your salary each year from now until your retirement date.

ve already saved, assuming you retire at age .

ax-deferred account before retirement. When you retire, it assumes your initial withdrawal amoun will be 4% ofyour alance a t a t me.

Curren

tage

MULTIPLE OF AMOUNT OF SALARY ALREADY SAVED

25

30

35

4045

50

55

10%

14%

18%

25%37%

56%

95%

8%

11%

15%

22%33%

51%

89%

5%

8%

12%

19%29%

47%

83%

3%

5%

9%

15%25%

42%

77%

-

2%

6%

12%21%

38%

71%

-

-

3%

9%18%

33%

65%

0x .5x 1x

-

-

-

5%14%

29%

59%

3x2.5x2x1.5x

If youre in thisrange, yoursavings strategyis on track.

its never too early to start saving for retirementJust remember, these days, there arefew sources of retirement incomeother than your own savings. StuartRitter reminds us that, there are noloans, scholarships or work-studies inretirement. You might be able to workbut thats about it.

Shawna Kenney is an author, freelance writerand writing instructor. She co-teaches onlinewriting workshops at www.lifesabitchbooks.com. Her works have appeared in Veg News uxtapoz, Transworld Skateboarding, and the L

eekly among others.

harts courtesy of T. Rowe Price.

inancial terms

activity: make a budget

1.

2.

D. Woods at the recording studio

start saving Continued


21/21

and uninsured or underinsured. But the monthly stipends areso low that many people cant get by.

Many employers offer optional disability insurance for asmall fee. Its usually worth the cost. As a general rule, youshould keep enough money in savings to cover your livingexpenses if you cant work for three months. But what if you

eed more time to recover, or become permanently disabled?Sometimes even minor accidents cause debilitating painthat makes it hard to get to work or do your job, and itseassuring to know that if you cant work for a long time, you

ight still receive 60 percent of your income. If youre self-employed, some insurance companies offer individual plans

and some unions and organizations that offer group healthinsurance let you opt for disability insurance as well.

One major issue with disability insurance is that mostdisabled people want to continue working in some capacity,and most disability plans penalize you for working. Onlyown-occupation disability insurance allows you to claimdisability if you can no longer work at your regular job, butchoose to do something else.

Lifeinsurance

Life insurance is primarily for people who are nanciallysupporting children, spouses, domestic partners, disabledpeople, or older adults. If no one depends on you earningincome, you probably dont need life insurance.

AutoinsuranceAlmost all states in the U.S. require car owners to haveauto insurance, though states vary in the minimum levelof coverage set by law for liability insurance. Some statesrequire you to show proof of nancial responsibility if youchoose not to purchase insurance. If you drive, but dont owna vehicle, its still wise to have insurance in case you have anaccident when youre behind the wheel of someone elsescar.

Rentersinsurance

If you rent an apartment and dont own anything of value,

you may not need renters insurance. But if you have a brandnew LCD HDTV or other expensive property, you mightconsider this kind of coverage. Estimate how much your stuffwould cost to replace, because this will determine the cost ofyour premium. Some landlords require you to have it in caseof an accident, such as a re or overowing bathtub.

Lisa Montanarelli is co-author, most recently, ofThe First Year Hepatitis C:An Essential Guide for the Newly Diagnosed.

activity: research a type of insuranceyou dont have. i y l, .

Questionstoaskwhenshoppingforanindividualinsuranceplan:

e requ re o prov e

get insured protect yoursel Continued

Rochelle James at work

other types of insurance to consider:

homeowners insurance:Necessary if you own your own home.

laptop insurance:Your renters or homeowners insurancemight cover a stolen laptop but what if youdrop it, or it gets stolen outside your home?

identity theft insurance:

It might not be worth the cost, but if youare really worried ask your bank or nancialadviser.

pet insurance:If you have a dog or cat you should lookinto this. Pet insurance premiums areusually low. Hopefully your faithfulcompanion will never need hip surgery ordialysis, but even regular visits to the vetcan be expensive, and pet insurance canhelp you cover a large part of the cost.

YM Fall09Issue

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