© 2006 aca international all rights reserved personal finance 1.creating a budget 2.saving and...

© 2006 ACA International all rights reserved

Personal Finance

1. Creating a budget2. Saving and investing3. Credit and debt


Creating a Budget

Why is it important?

• to live within your means

• to reduce careless spending

• to build financial security


Budgeting• A budget is:

– About the future

– Continuous

– Flexible

– Individual

– About getting what YOU want!

– The best tool you have for financial success

– Not about restriction


4 steps to success

1. Create a budget spreadsheet (or get one online ): http://www.vertex42.com/ExcelTemplates/personal-budget-spreadsheet.html

2. Use actual numbers if known, guesstimate where necessary


3. Keep track of where you spend money and how much! Replace any guesstimate numbers in your budget with actual #’s

4. ADJUST your lifestyle and or budget


Prioritize• Needs

– Should always come before wants

– Reflected in your budgeting & bill paying habits– Examples: savings, housing, reliable transportation, insurance coverage,

groceries, clothing, utilities, existing financial obligations.

• Wants– cable/satellite TV– Toys: boats, snow mobiles, expensive jewelry, I-Pads

– Vacations

– Dining out


2. Saving & Investing• Must do both to build wealth

• Begin with saving: goal is to set aside at least 3 months of living expenses

• Continue to set aside a % of EACH paycheck forever (5-10% would be good)


• Investing is different from saving …it’s all about having your money make money over the entire course of your life

Start early …time + compounding WORKS

• Investing is a lifelong learning process

• Wide variety of investment choices (we did this a month ago, right?)


3. Credit & Debt

• What is credit, anyway?

• Establishing credit

• Credit cards


• Credit – the amount of money available to you through lenders

• Debt – the amount of credit you’re using at any given time

• Creditor – any person / business that extends credit

Important definitions:


• Credit Reporting Agencies– Equifax

– TransUnion

– Experian

• Credit report– Reputation

– Past history is an indicator of future performance

– 7 years of info

Your Credit


• Check your report:– Once a year

– Before major borrowing decisions

– Any time you are denied credit

– If you suspect fraud

Obtaining your credit report


• Secured vs. Unsecured– Collateral or none required?– risk

• Installment vs. Revolving – Installment: has set period of time

• auto loan

• mortgage

– Revolving: open line of credit

• credit card

Types of Debt


Establishing credit

• 3 possible situations– Good credit history

– Bad credit history

– Insufficient credit history

• Getting started – Credit cards

– Co-signed loans

– Start small

– Start with familiar institution


• Good or bad?• Unsecured loans• Higher risk = higher rates &

fees

Credit cards


Choosing your first card• APR

– Lower is better

– Read the fine print!

• Fees• Perks• Evaluating

– bankrate.com

– cardweb.com


Guidelines for using credit cards:

• Always pay more than the minimum! – Pay at least 2x the minimum– Pay off every month when possible

• Always pay on time!– Avoid late fees– Pay by phone or online for

convenience

© 2006 ACA International all rights reserved© 2006 ACA International all rights reserved

Balance: $2,748

APR: 18%

Typical min. payment:$68

• How long to pay off…?

the minimum payment trap…


the minimum payment trap…

• At minimum payment: $68.70213 months (nearly 18 years!)

$3,545 in interest

• At $100/month payment36 months (3 ½ years)

$821 in interestBankrate.com Calculator


vs.Durable goodsMp3 playerSnowboardNew tires for car

Consumable goodsConcert ticketsGasolineGroceriesDining out

Should I use my credit card???


Live Within your Means• Paying for living expenses on credit

– Denial

• Savings - make it a habit…& don’t “raid”

• Lifestyle changes are difficult– Justification

– Entitlement

• See the “big picture”– Set goals


Debt: How much is too much?

• How much of your monthly budget is going to debt payments?

20% or higher = potential problem


Warning Signs• no budget plan

• no savings

• denied for a loan

• debt increasing month after month

• total monthly debt payments ≥ 20% gross income

• making only minimum payments

• hiding purchases from others

• cash advances/payday loans

• late fees, over limit fees

• creditors/collectors calling


Auto Loans

• Borrow conservatively• It’s just a car

– Not a status symbol

– Practical

– Avoid emotion


• Shop for the loan carefully– Find the financing before you find the car

– Know your credit score

– The shorter the term, the better

Auto Loans


Buying a car

• New vs. used

• Negotiate!

• Consider all the costs before you buy– Insurance

– Reliability/maintenance

– Gas mileage


• That’s it…we’re done!

• No more econ notes at HHS

(well…most of you anyway )

© 2006 aca international all rights reserved personal finance 1.creating a budget 2.saving and...

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