Financial Literacy 101
St. Paul, Minn. | www.wmitchell.edu
Practical Wisdom
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 101
Benefits: 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
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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
FA Draw
Pay 1
Pay 2
Misc.
Week 1
Week 2
Week 3
Week 4
Week 5
Total
Tracking Expenses, Basics
- Determine where the money goes
- Goal: get your money to last longer
- Methods:
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Keep receipts
Balancing a checkbook
Notebook or ledger
Calendar
Software or websites
Envelops with Money
Tracking Necessity Expenses
Expenses
rent/mortgage
gas/electric
water/sewer
phone
car costs
gasoline
groceries
household
items
internet
debt
payments
insurance
Week 1
Week 2
Week 3
Week 4
Week 5
Total
Tracking Luxury Expenses
Expenses
cable TV
meals out
clothing
cigarettes
entertainment
vacation
hobbies
pets
Week 1
Week 2
Week 3
Week 4
Week 5
Total
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 Reports
Purpose: 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 Score
Credit 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 Report
Information 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
Term
Stafford 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: $416,500
Total Monthly Payment: $2923
Total Payments without Power Pay: $848,475 and takes 30 years
Total Paid with Power Pay, highest interest: $734,558 and takes 21 years
Total 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 27
Financial PLP on Federal Loans and Public Service
Loan Forgiveness