money management 101 cindy marrs default aversion consultant, tg

Money Management 101

Cindy Marrs

Default Aversion Consultant, TG

Did you know?

• The estimated total amount of U.S. consumer debt today: $2.5 trillion

• The percentage of undergraduate students with at least one credit card: 78%

• The average credit card debt for these students: $2,748

• The average interest rate for a student credit card: 14.57%

Sources: Federal Reserve, NellieMae, and IndexCreditCards.com

In this session

• Knowing where your money goes• Distinguishing between needs and wants• Minimizing debt• Investing in your future • Keeping good financial records

Knowing Where Your Money Goes

Establishing a spending plan

• Determine your expected monthly income from all sources, including:– Financial aid (paid directly to you)

– Wages (after tax, take home pay)

– Family contributions

Establishing a spending plan

• Determine your expected monthly expenses:– Housing

– Food

– Loan/credit card payments

– Savings

– Utilities

– Transportation

– Other

Average monthly living expenses

Source: US Department of Labor, Bureau of Labor Statistics

Clothing5.2%

Housing/Utilities33.2%

Healthcare2.5%

Transportation20.1%

Education4.5%

Entertainment4.8% Charity

2.2%

Food13.9%

Misc.5.5%

Insurance/Pension8.1%

Know where your money goes

• Keep a daily spending diary.• Use a monthly payment calendar to be sure

you are able to cover your expenses as they are due.

• Use a computer program to help you track income and expenses.

Getting organized

• Organize your financial records and keep copies of important documents.

– Receipts– Bank account records– School transcripts– Pay stubs– Insurance forms

– Investment logs– Loan documents– Tax returns– Legal decrees

Distinguishing between Needs and Wants

Comparing needs and wants

Needs

Food

Housing

Utilities

Tuition

Books

Clothes

Child care

Transportation

Wants

Eating out

Cable TV

MP3 player

Vacation

Movies/music

Video games

Wireless Internet

Following through with your plan

• It’s not difficult to distinguish wants from needs.

• The difficulty comes in sticking with your plan and resisting the temptation of unnecessary spending.

• Short-term sacrifices can bring long-term rewards.

Ways to reduce expenses

• Get a roommate.• Shop at thrift stores.• Use discount coupons.• Go to matinee movies.• Use public transportation.

Ways to reduce expenses

• Eat meals at home.

• Don’t shop for groceries when you’re hungry.

• Cancel your gym membership.

• Wait for sales and avoid impulse purchases.

• Find free stuff.

Ways to increase income

• Take advantage of all types of financial aid.• Get a part-time job.• Ask for practical birthday/holiday presents, such as:

– Household items

– Phone cards

– Gift cards to school bookstores

Minimizing Debt

“The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments.”

— Mad Magazine

Borrow conservatively

• Don’t automatically borrow the full amount offered to you.

• Consider your earning potential — total student loan debt should be less than or equal to your starting annual salary after graduation.

• Use student loans for educational expenses only.

Borrow conservatively

• Look for other types of financial aid, such as grants and scholarships.

• Take advantage of the federal student loan programs before considering private education loans to take advantage of lower interest rates and better borrower benefits.

Undergraduate credit card behavior

• Percentage of undergraduates who have a credit card = 78%

• Average credit card balance for undergraduates = $2,748

• Percentage of undergraduates who have credit card balances between $3,000 and $7,000 = 16%

Source: Nellie Mae, “Undergraduate Students and Credit Cards,” May 2005

• Whenever you can, try to pay more than the minimum payment due for your credit card.

• If you have a $2,000 balance at a 14% interest rate — and make the minimum monthly payment (2% of the total balance) — it will take you more than 14 years to pay off that debt plus the interest.

Pay more than the minimum

Credit card strategies

• Limit yourself to one credit card for emergencies and to establish a good credit history.

• Understand all credit card terms.

• Know applicable fees and interest rates.

• Pay off your balance every month.

Beware of credit card fees

• Annual fee• Cash advance fee• Balance transfer fee• Late payment fee• Over the credit limit fee

• Credit limit increase fee• Set up fee• Return item fee• Other fees

Source: www.federalreserve.gov

What to do if you fall behind on your credit card payments

• Cut recreational expenses.

• Call the credit card company (they may be willing to work out a repayment schedule).

• Develop and stick to a spending plan.

• Consider credit counseling services.

Investing in Your Future

Save, save, save!

• In the short term, set aside a little every month for emergencies.

• In the long term, consider setting a savings or investment goal.

If you save …

$100 per month at 5% average annual interest (compounded monthly) from age 22, by the time you turn 55,

you will have over $100,000!

Education is the ultimate investment!

The higher your degree, the higher your income potential.

Source: U.S. Department of Labor, Bureau of Labor Statistics

Keeping Good Financial Records

Maintain bank accounts

• Use both checking and savings accounts.

• Balance your checkbook regularly.

– Deduct bank fees and service charges

– Add interest earned

– Keep track of your balance with online bank services

• Compare your checkbook to your monthly statement.

Check your bank balance frequently

• Know that debit card expenses and ATM withdrawals are deducted from your account the same day.

• Remember to have sufficient funds in your account when automatic payments are scheduled.

Important financial records

Remember to keep copies of:

• Paid bills for the last three months

• Paystubs and W-2s for tax filing

• Car insurance paperwork, repair receipts, and registration

• All bank statements, either paper or electronic

Get into the habit

• Write down all of your expenses including ATM withdrawals and upcoming automatic payments.

• Balance your accounts every month.

Tools can make it easier

• Keep a filing box handy for receipts and other financial documents.

• Organize categories with labeled folders.

• If you bank online, keep electronic copies of monthly statements.

• At the end of each year, store the past year’s documents in an envelope and file them away.

Questions?

This presentation is available for download at

www.tgslc.org/tgconference.