St. Paul, Minn. | www.wmitchell.edu

Practical Wisdom

Financial Literacy 101

Back to the Basics• Budgeting

– Tracking Income and Expenses– Reducing Expenses

• Credit as a Consumer– Credit Reports– Credit Scores– Improving Credit

• Power Pay Debt

Budgeting 101Benefits: maximize assets, minimize debt

Step 1: Calculating Income

Step 2: Calculating Expenses- Tracking

Step 3: Develop a Spending Plan

Step 4: Minimize Expenses- Distinguish: necessities and luxuries

Calculating Income, Basics– Always underestimate income– Include subsidies (insurance, housing, food)– Income fluctuates by # hours or days worked– Include financial aid, but deposit into draw account

• Deposit lump sum into account and withdraw monthly “pay”

– Miscellaneous income: VA payments, child support, disability payments

Income Week 1 Week 2 Week 3 Week 4 Week 5 Total

FA Draw

Pay 1

Pay 2

Misc.

Tracking Expenses, Basics- Determine where the money goes- Goal: get your money to last longer- Methods:

- Keep receipts- Balancing a checkbook- Notebook or ledger- Calendar- Software or websites- Envelops with Money

Tracking Necessity Expenses Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total rent/mortgage

gas/electric

water/sewer

phone

car costs

gasoline

groceries household items

internetdebt payments

insurance

Tracking Luxury Expenses

Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total

cable TV

meals out

clothing

cigarettes entertainment

vacation

hobbies

pets

Ways to Reduce Spending• Standard of living expectations

– Live large now with debt, live smaller later and longer

– Eliminate or reducing eating out– Studio apt v. 1-bedroom apt– Living with roommates – Smart phone v. cellphone

• Shop with Lists

Increasing Income for Students• Full-time students: work 20 hours or less

– FT: 12 credits or more– On-campus or off-campus

• Part-time students: work 40 hours or less– PT: 11 credits or less– Downside: May add time to graduation– Benefits:

• Time for more work experience for resume• Earning income to reduce need for financial aid debt• Lower cost per credit at 11 credits

Credit ReportsPurpose: to determine whether you will pay your debts in the future by looking at your past and current debt and payment history

*** Created by Creditors for Creditors***

Credit Report v. Credit ScoreCredit Reports: list of debt obligations with new obligations fist- Free from www.annualcreditreport.com- Transunion (Midwest), Experian (west coast),

Equifax (east coast)- Used to calculate credit score

Credit Score: numerical value of your credit risk- the higher the number, the less risk you are- Utilizes 45 data points from credit report

Making the Most of Your Credit ReportInformation includes:- Employment & Address History- Number & Types of Inquiries- Payment History on All Debt- Amount, Age, and Types of Debts- Public Records: evictions, bankruptcies,

court judgments- Negative information lasts 7 or 10 years

Improving Credit# 1 Correct Errors- Send updates on addresses to credit bureaus- Contact credit for errors in payment history

# 2 Pay Off Debts or Collections- Get payment plans or settlements in writing- Payments on collections will refresh for an

additional 7 years

Paying Down Debt• Standard: paying minimum payments• Accelerated: paying more than the

minimum payments– Tip: Once 1 debt is paid off, use that payment

towards the next debt – Tip: Pay extra to only 1 debt

• Saves most money: highest interest debt• Most rewarding visually: lowest balance

Power Pay with Student Loans

• Benefit of payoff of student loans: few bankruptcy options and few limits on collectability

• Advantageous to pay down private student loans before federal loans• Generally less flexible repayment terms, variable interest rates,

and few discharges in the event of death or permanent disability

• Thinking about ICR or IBR?– Have to balance interest rates with possible loan

forgiveness eligibility– Federal student loans have flexible payment amounts,

impacted by income: most debt has fixed payment

Payment Example:Debt Type Debt Amount Debt Payment Interest Rate Repayment

TermStafford Loans $61,500 $426 6.8% 25 years

Plus Loan $90,000 $689 7.9% 25 years

Mortgage $237,000 $1309 5.25% 30 years

Credit Card #1 $5,000 $65 14.97% Variable

Credit Card #2 $2,000 $50 21.97% Variable

Car Payment $21,000 $384 3.9% 5 years

Total Debt: $416,500Total Monthly Payment: $2923Total Payments without Power Pay: $848,475 and takes 30 yearsTotal Paid with Power Pay, highest interest: $734,558 and takes 21 yearsTotal Paid with Power pay, lowest balance: $739,405 and takes 21 years,

- $109, 070 in savings or 13%If an extra $100 is paid per month: $701,821 and takes 19 years

- $146,654 in savings or 17%

Questions?Email: finaid@wmitchell.edu

Call: 651-290-6403

Want a free spreadsheet to track your debt?

Coming Attraction: October 23 and October 27Financial PLP on Federal Loans and Public Service

Loan Forgiveness