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Personal Finance Training

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Personal Finance Training January 2010 Personal Finance Topics Budgeting Mortgages Credit Cards Budgeting What is a Budget? Why should I create a budget? – PowerPoint PPT presentation

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Title: Personal Finance Training


1
Personal Finance Training
January 2010
2
Personal Finance Topics
  • Budgeting
  • Mortgages
  • Credit Cards

3
Budgeting
4

Budgeting Topics
  • What is a Budget?
  • Why should I create a budget?
  • Getting Started
  • Sample budgets
  • Dos and Donts

5
What is a budget?
  • An estimate, often itemized, of expected income
    and expense for a given period in the future.
    (dictionary.com)
  • Defining how you want to spend your lifes energy
  • Step 1- You show up at work and trade your time
    and energy for money
  • Step 2- You spend your money (But do you know
    where it is all going?)

6
Why should I create a budget?
  • Lifespan
  • The average lifespan in the U.S. is 78 years
  • The average age of retirement is 62
  • Control
  • Being able to set and meet goals
  • Being able to cope with the unexpected
  • Communication
  • Can be a tool to resolve personal differences in
    a relationship about the handling of money
  • Know what is going on
  • We all work hard for the money that comes into
    our lives
  • We should all be making a conscious decision
    about how we consume the money that we work so
    hard to earn
  • It is not about saying what we can or we cannot
    do with our money!

7
Getting Started
  • Set Goals
  • Is your current money situation where you want to
    be 5 years from now? (10, 15, 20, etc)
  • Retirement savings, home, car, vacation, college
    fund, etc..
  • Where is it all going?
  • Keep track of all your income and expenses
  • If you dont know where it is all going, you
    cannot do anything to change it
  • Information is power (write it down)
  • Establish a budget
  • Use available tools in conjunction with your
    goals
  • Track your progress against your budget (write it
    down)
  • At least monthly, preferably weekly

8
Sample Budget Worksheet
  • http//www.free-financial-advice.net/budget.xls

9
Sample Budget
  • The 60 Solution (http//moneycentral.msn.com/home
    .asp)
  • 60 Committed Expenses
  • 10 Retirement Savings
  • 10 Long-term Savings
  • 10 Short-term Savings
  • 10 Fun money
  • All items are calculated off of gross income

10
Sample Budget
  • 60 Committed Expenses (All normal recurring
    bills)
  • Basic food and clothing
  • Essential household expenses
  • Insurance premiums
  • Utilities (even non-essentials, cable, internet,
    cell phone)
  • Taxes
  • Charitable contributions
  • 10 Retirement
  • 401K
  • IRA

11
Sample Budget
  • 10 Long-term Savings
  • Pay down debt
  • Investments
  • Savings for longer term goals
  • Emergency fund
  • 10 Short-term Savings
  • Vacations
  • Repairs
  • New appliances
  • Holiday gifts
  • 10 Fun Money
  • Hobbies
  • Anything else you may want

12
Budgeting Dos and Donts
  • Dos
  • Come up with a plan
  • Write everything down (all income and expenses)
  • Automate when possible (direct deposit)
  • Use available tools (internet/books)
  • Include your spouse/significant other
  • Monitor progress (at least monthly)
  • Donts
  • Use credit cards or other accounts to make up for
    budget shortfalls
  • Leave items out of your spend tracking
  • Get discouraged if you dont succeed
    immediatelythis is about progress

13
Last Thoughts
  • Budgeting is not about seeking perfection, but
    rather continuous improvement.
  • It is very easy to get discouraged and throw away
    the budget
  • Learn to incorporate mistakes or experience from
    prior budgets into new budgets
  • Keep a long-term focus
  • Chart progress each month / year

14
Mortgages
15

Mortgage Topics
  • Why own a home? (Pros and Cons)
  • Mortgage Trivia
  • Sample Calculations
  • Dos and Donts

16
Home ownership Pros and Cons
17
Trivia Question 1
  • What is the average mortgage amount for a house
    in Chautauqua County, NY?
  • A.) 47,000
  • B.) 63,000
  • C.) 79,000
  • D.) 88,000

18
Trivia Answer 1
  • What is the average mortgage amount for a house
    in Chautauqua County, NY?
  • A.) 47,000
  • B.) 63,000
  • C.) 79,000
  • D.) 88,000

19
Trivia Question 2
  • How much cash do you need to close on a 65,000
    house if you are going to put a 5 down payment
    (hint includes taxes, appraisal, title ins,
    etc)?

A.) 3,200 B.) 4,500 C.) 6,500 D.) 8,400
20
Trivia Answer 2
  • How much cash do you need to close on a 65,000
    house if you are going to put a 5 down payment
    (hint includes taxes, appraisal, title ins,
    etc)?

A.) 3,200 B.) 4,500 C.) 6,500 D.) 8,400
21
(No Transcript)
22
Sample calculations
  • http//www.bankrate.com/calculators/mortgages/mort
    gage-calculator.aspx

23
Mortgage Statistics Summary
24
What about tax deductions?
  • Standard deduction vs itemized deduction
  • 2010 Standard deduction rates
  • Single- 5,700
  • Married- 11,400
  • Itemized deduction
  • Mortgage interest, property tax, medical bills
    (above 7.5 of AGI), state income tax, charitable
    contributions, etc
  • Tax savings
  • (Itemized deduction standard deduction)
    tax rate

25
Mortgage Dos and Donts
26
Credit Cards
27

Credit Card Topics
  • Credit Card Statistics
  • Credit Card Billing Cycle
  • Credit Card Dos and Donts
  • What new legislation (Credit CARD Act of 2009)
    means for consumers
  • Reducing Credit Card Balances

28
Credit Card Statistics
  • What is the average credit card debt for the 78
    of households that have a credit card at the end
    of 2008? (Nilson Report, April 2009)

10,679
At the end of 2008, what was Americans total
credit card debt? (Nilson Report, April 2009)
972.73 billion
What is the average number of credit cards per
consumer as of the fourth quarter of 2008?
(Experian, March 2009)
5.4 cards
One out of every how many families pay only the
minimum due every month? (VISA USA statistics, Q4
2006)
One out of every six families pay only the
minimum due every month
29
Credit Card Statistics (Contd)
What is the average interest rate for purchases
on credit cards? (Consumer action credit card
survey, July 2008)
13.54
What percentage of people surveyed say they read
the terms and conditions of their credit cards?
(CreditCards.com survey, June 2007)
Only 25 of people say they read the terms and
conditions of their credit cards.
30
  • Credit Card Billing Cycle

Start
31
Pros and Cons of Using Credit Cards
  • Pros
  • Convenience
  • Making large purchases
  • Build credit/improve credit score
  • Rewards (cash back, merchandise, travel, etc.)
  • Cons
  • Interest and fees to be paid if balance not paid
    off within grace period
  • Convenience (easier to spend)
  • Can hurt credit score if you do not make payments
    on time

32
Dos and Donts of Using Credit Cards Responsibly
(Contd)
  • Dos-
  • Do make sure you know the terms of your credit
    card agreement (interest rates, fees, etc.)
  • Do make smart decisions about buying things you
    want vs things you need
  • Do call your credit card company to request a
    lower interest rate
  • Do notify your credit card company in advance if
    you wont be able to make a monthly payment on
    time
  • Do maintain lower credit card balances to keep
    your credit score higher

33
Dos and Donts of Using Credit Cards Responsibly
  • Donts-
  • Dont pay only the minimum payment as this will
    increase the amount of time it takes to pay off
    your debt and will also increase the amount of
    interest you pay.
  • Dont use your credit card to buy things you
    cant afford.
  • Dont use your credit card to make everyday
    purchases.

34
New Credit Card Legislation (Credit CARD Act of
2009)
  • No interest rate increases during the first 12
    months of opening a credit card (unless rate
    increase was disclosed when account opened)
  • Promotional rates must last at least 6 months
  • If your credit card company increases your
    interest rate, they must give you 45 days advance
    notice and they cannot increase the interest rate
    on existing balances, only new balances

35
New Credit Card Legislation (Credit CARD Act of
2009) (Contd)
  • Any payment made above the minimum payment amount
    must be applied to balances with the highest
    interest rates
  • You cannot be charged fees to make your credit
    card payment online, by mail or over the phone
    (unless you make a last-minute payment over the
    phone and your bill is due the same or next day)
  • You cannot be charged over the limit fees unless
    you request the over the limit transactions be
    processed (otherwise transactions will be denied)

36
New Credit Card Legislation (Credit CARD Act of
2009) (Contd)
  • Billing statements must be sent 21 days before
    the due date, giving more time to pay bill before
    penalties and late fees are assessed
  • Limits the number of fees that can be charged per
    billing cycle
  • Requires credit card companies to consider
    payments as on time if your due date falls on a
    weekend or holiday and your payment is received
    the following day

37
Reducing Credit Card Balances
  • Determine how much money you have monthly to pay
    down your credit card balances and use that money
    towards your credit card debt
  • If at all possible, to reduce your credit card
    balances you will need to pay more than the
    minimum payment
  • Pay off higher interest rate credit cards first,
    saving you interest
  • Contact your credit card company to discuss
    options such as lowering your interest rate, that
    may be able to help you reduce your credit card
    balances

38
Reducing Credit Card Balances (Contd)
  • http//www.bankrate.com/calculators/credit-cards/c
    redit-card-payoff-calculator.aspx

39
Reducing Credit Card Balances (Contd)
40
Summary
41
Summary
  • Create a budget
  • Set your goals
  • Write everything down!
  • Learn to expect the unexpected
  • Track progress
  • Dont get discouraged
  • Mortgages
  • Dont buy more house than you can afford
  • Importance of good credit
  • Plan for the unexpected
  • Understand how tax savings really work
  • Pay more than minimum monthly payment if possible
  • Credit Cards
  • Only spend what you can pay off at the end of the
    month
  • Never make just the minimum payment
  • Never finance short-term spend items on a credit
    card (i.e. groceries)
  • If you cant afford to pay for it now, you cant
    afford to pay for it later with interest added on

42
Summary
  • You are responsible for your financial success or
    failure
  • Kids will get sick and have injuries
  • Vehicles will need maintenance
  • Christmas is going to happen again next year
  • Learn to plan for the unexpected
  • You have the power!

43
Questions?
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