The Unique Alternative to the Big Four®
Personal Finance 101
By Kirsten Crame & Chris Morton
Disclaimer: the opinions expressed in this presentation are those
of Chris Morton and/or Kirsten Crame and are not necessarily
the opinions of Crowe Horwath.
The Unique Alternative to the Big Four®
EVERYTHING YOU NEED TO KNOW ABOUT FINANCE
 Spend less money than you make.
 -The end
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Agenda
 Savings & Debt
 Personal
 Government
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Investing
Credit Cards & Credit Scores
Insurance
HSA vs FSA’s
Your new job and where to move
Buying a House
Q&A
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Personal Savings & Debt
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Some not so fun facts about America’s saving problem…
We’re right back where we started before
the crisis…. at a 2% savings rate!
Other OECD Countries 2013
Personal Savings Rates
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Switzerland 13.9%
Germany 10.3%
Australia 10.2%
Sweden 12.4%
http://www.oecd-ilibrary.org/economics/household-savingrates-forecasts_2074384x-table7
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http://www.economist.com/blogs/freeexchange/2013/04/saving
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US Government Savings & Debt
 Since 2008, the government debt has nearly
doubled.
 Deficit= Annual Spending – Annual Revenue
 Debt = Cumulative Deficits
 Harmful effects of high government debt:
 Reduced private investment in productive capital
 Federal spending on interest payments rises
 Higher taxes are needed to cover interest
obligations
 Risk of fiscal crises
http://research.stlouisfed.org/fred2/data/GS10.txt
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www.brillig.com/debt_clock/
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US Government – A Going Concern Problem
 Why don’t we feel the pain of the US debt doubling over
the last ~5/years?
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Historically low interest rates
The gov’t is currently rolling over their debt in short term
>5/yr maturities (although the trend is to lengthen maturities
in the future)
No current fire sale
•
Here’s a hypothetical; if interest rates on the 2
year went up to what they were in 2000,
interest expense would be $1 TRILLION, up
from $416 billion! (using the current $16.7T
outstanding debt) – Larger than the Social
Security Administration
•
Currently, the FED gov’t takes in $2.7T in gross
receipts, that would mean 37% of our
taxes/fines/etc would go to servicing the debt
alone! (currently 15%)
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http://www.usgovernmentrevenue.com/fed_revenue_2013USrn
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
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Saving
(“The aim of the wise is not to secure pleasure, but to avoid pain.” – Aristotle)
 The first step to living debt free is to create a budget
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Know what to prioritize
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Eg. Room/board, then food, then transportation, etc
Separate out your needs (rent/food/beer) versus wants
(new phone/restaurants/movies)
• There are plenty of resources to create your own
budgets including…
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Excel default spreadsheets
https://www.mint.com/how-it-works/accounts/ (1:30/min
video)
• Learning to save is critical in today’s world of immediate
gratification and a global flexible work force
• Above all else, do SOMETHING!
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Once you’ve got the savings down, now the fun part… Investing!
• Rule of 72 (doubling time)
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Ex, if you were to invest $1,000 with compounding interest at a rate of 9% per annum,
the rule of 72 gives 72/9 = 8 years required for the investment to be worth $2,000.
“Compound interest is the eighth wonder of the world. He who understands
it, earns it ... he who doesn't ... pays it.”
― Albert Einstein
• How to invest?
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401k: $17.5k for 2013 annual limit
IRA & Roth IRA: Lesser of earned income or
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$5.5k for 2013 annual limit
Be careful of expense ratios…
Start your own business!
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Traditional IRA vs. Roth IRA
 Traditional IRA- money contributed is pre-tax and will be taxed when it is distributed
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“tax deferred” earnings & current year deduction on page 1 of your 1040
Qualified distributions begin at age 59½.
Required minimum distributions begin at age 70½.
No AGI limits on who can contribute
Beneficiaries pay taxes on inherited IRAs.
After 5 years, up to $10k can be withdrawn penalty free to cover first time homebuyer
expenses, but tax will be due on the distributions.
 Roth IRA- money contributed is post tax and will not be taxed when distributed
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“tax exempt” earnings because the principal was taxed, and now will grow tax free
Single people- Modified AGI< $125k
Married people- Modified AGI< $183k (this is an example of a marriage penalty)
Qualified distributions begin at age 59½.
No required minimum distributions
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wealth can be transferred without beneficiaries owing income tax
 After 5 years, up to $10k can be withdrawn penalty free to cover first time homebuyer
expenses, no tax on distribution
http://www.rothira.com/traditional-ira-vs-roth-ira
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Traditional IRA vs. Roth IRA- so which one should I have?
 You can have both!
 People who believe their current tax rate is lower now than it will be when they
retire typically invest in Roth IRAs so that they are taxed currently at their low
rate, and then they plan to take distributions tax free when taxes are higher.
 People who are currently in a high tax bracket contribute to their traditional IRA
to reduce their taxable income in the current year. The higher your tax rate is
currently, the more benefit you get by contributing to a traditional IRA.
 People can “hedge” themselves by investing in both- just not more than $5.5k
total for 2013 amongst IRA & Roth IRA accounts
2013
Income
Tax Rates
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/pdf/individual_rates.pdf
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What if you need to take money from your retirement account?
 Avoid taking money from your retirement if possible
 401k withdrawals before age 59 ½ are subject to tax and a 10% penalty
 Early Roth IRA distributions of income are subject to tax (they wouldn’t be if it was a
regular distribution instead of an early distribution) and a 10% penalty.
 There are some exceptions that will get you out of tax & penalty such as certain
medical expenses, home purchases, disability & a few other things.
 Major point: You can withdraw the Principal you contributed to a Roth IRA at
any time with no tax or penalty!
 If you change jobs, you can rollover many types of retirement accounts from one
company to another (usually must happen in a 60 day window)
 The tax document you will receive if you do this is a 1099-R
 Double check the coding in box 7 to make sure its coded correctly
 Report any early distributions (regardless of if they are taxable or not) on form 5329
of your tax return.
http://taxes.about.com/od/retirementtaxes/a/early_penalty.htm
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What should I invest in?
• This is ultimately your decision and based on risk tolerance, however someone
under 40 typically should be in high risk assets
• Small cap stocks (Russell 2000) (2012 returns of 17.28%) – Source Russell.com
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Using the rule of 72, your investment will double in 72/17.28 ~=4.2/years!
• Mutual Funds
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An investment program funded by shareholders that trades in diversified holdings and is
professionally managed
• Exchange Traded Fund (ETF)
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ETFs seek to track an underlying index’s performance over time
A mutual fund that is traded on a stock exchange
Emerging market or foreign stocks through an ETF
• What’s an index?
• An imaginary portfolio of securities representing a particular
market or a portion of it
• It’s a group of stocks, bonds, or both!
• Ex. Vanguard Total World Stock Idx Fd (Symbol VT)
• 2012 performance of 15.55% - Source Google Finance
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ETF expense ratio comparison
Similar ETFs 
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Personal Risk Tolerance
 There are several risk tolerance calculators on the internet
 These help you decide how to invest
 For example, a young professional with no children and a full time job probably has
a higher risk tolerance than an older person who is not working and is dependent
on social security.
 Investments for people with low risk tolerance tend to be value stocks/mutual
funds/ETFs and short/medium term bonds.
 Investments for people with high risk tolerance tend to be growth oriented
stocks/mutual funds/ETFs
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Diversification
 Stocks
 Bonds
 Commodities
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Crops
Steel
Precious metals
Timber
REITS
Cash
Personal Home
Rental Properties
Collectables
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Credit Cards
• These can be a blessing or a curse depending on how you use them, here
are some things you should know:
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Is there an introductory rate? When, and by how much, will it increase?
Is there an annual fee? How much is it?
What is the grace period?
Is online banking available?
What is the credit limit?
No interest if you pay the full bill every month
What other fees are attached to the card and how are they assessed? (ex:
transaction fees foreign exchange fees)?
• Are there any offers or rebates associated with the card (ex: frequent flyer miles)?
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What type of offers/rebates are relevant to you? (e.g. do you travel, like to shop, need
0% intro APR)
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Credit Cards www.creditcards.com allows people to compare credit cards
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Typical Current Interest Rates
 Student Loans- about 6%
 Credit Card Debt- about 19% - 25%
 Cash Advances (such as AMSCOT)
10% - 250%
 Checking Accounts 0%
 Short Term CDs .25%
 Long Term CDs 1.1%
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Car Loans- about 2% - 9%
House Loans- about 3% - 7%
Savings Accounts .1%-.25%
Money Market .2%
https://partnersfcu.org/everyday-banking/rates/#certificates
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The Unique Alternative to the Big Four®
How to Get out of Debt
 Pay off your highest interest rate debt first
 For most people, this is usually credit card debt. It is normal for credit card debt to accrue
interest at 20% APR or more. The average household has $15,950 of credit card debt.
 Some student debt loans are higher than others, you may be able to chose which ones
you pay first
 Don’t put double payments towards your mortgage if you’ve got other debt at a higher rate
 Write down everything you buy so you see where your money goes, then eliminate
nonessentials.
 Pay credit cards in full monthly- do not carry a balance
 Be a member at a credit union instead of a bank- usually lower fees/no fees
http://money.cnn.com/magazines/moneymag/money101/lesson9/index.htm
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How to Get out of Debt…continued
 Do a balance transfer to a 0% balance transfer credit card to buy yourself time to
pay off credit card debt with little or no interest (there usually is a 4% fee for this.)
 Absolutely do not take PayDay loans or cash advances. These typically have
interest rates of 10%-250%!
 Be weary of things like Angie’s List:
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Automatic credit card charges & renewals
Almost impossible to get out of
Bad reviews all over the internet
Allegations of “rigged” ranking of vendors
You can get the info you’re looking for from the Better Business Bureau for free
 Learn how to cook & buy groceries. It’s cheaper and healthier than restaurants
 Consolidate/Negotiate debt down
 Alternative methods
 Pay off lowest “total debt” first to feel accomplished that you have less debts.
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This is less rational than the methods above, but it may give you an emotional boost.
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Your Credit Score
 DO NOT SIGN UP FOR “FREE CREDIT REPORT
SERVICES” or any kind of credit monitoring
• Can pull your credit once a year from each of the 3
bureaus
•
I pull mine once every 4 months
• FICO score doesn’t matter as long as you pay your
credit card off each month and use less than 50% of
your credit card limits
• Check out www.creditkarma.com for free account
monitoring and FICO score
• Worried about identity theft? Freeze your credit!
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The Unique Alternative to the Big Four®
Building Credit
 Start building credit by getting a credit card- preferably one with no annual fees
and some sort of rewards.
 Open credit accounts with stores you love- Macy’s, Rooms to Go etc.
 Have things in your name such as apartments, utilities and phone contracts
 Don’t carry high balances on lines of credit.
 Buy a car (if you need one)
 Get a job and keep it
 Don’t get evicted
 Pay your bills in full and on time.
 Open a savings account if you don’t already have one
 Avoid bankruptcy- “the credit equivalent of poison”
 Mars your credit report for 10 years
 Don’t get arrested
 Criminal convictions stay on your credit report forever
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Sneaky Bank Tricks
 Subtracting Electronic payments early
 Payments were deducted from customer accounts but not paid to the creditor on same day
 Wachovia (now Wells Fargo) and other banks got in trouble when customers learned funds
were taken out 2-5 days before payment was due, thus giving the banks several days of
float
 Ordering transactions from high to low
 Banks used to post transactions chronologically, but now are choosing to process
transactions by size paying the highest ones first when they realized this increased
customers chances of over drafting
 Debit Card Overdraft Fees
 The purpose of debit cards was to prevent the customer from spending more than hey had
 Banks found that approving over draft fees for the “convenience” of their customers was
very lucrative
 In fact, many banks now make it difficult to opt out or even say they cannot prevent
payments from clearing even though there is no money in the account
 “Privacy Assist” security monitoring services offered by banks
 Unneeded and difficult to get out of- monthly automatic fees deducted from accounts
 Prey on the poorest people by then charging overdraft fees
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http://www.businessweek.com/articles/2013-06-11/debit-card-overdraft-fees-remain-profitable-for-banks
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america-sued-for_n_475694.html
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Insurance
• Remember that the goal of insurance is solely to mitigate risk
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Only buy the coverage you absolutely need
• When you need life insurance
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If no one is depending on your income (children/spouse) then you probably don’t need
life insurance.
Most accounting firms give life insurance to workers as one of their benefits.
• Whole vs term
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Whole
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Can access up to 2/3 of value while still alive if there is a terminal illness
More expensive
Cash surrender value
Guaranteed rate of return
Term
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Cheaper
For specified time
Only pays out if someone passes
• How much do you need and why?
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HSA & FSA
• Health Savings Accounts (HSA) and Flex Spending Accounts (FSA) are becoming
more common health insurance plans.
• HSA details:
• Contribution limits- Individuals $3,250 & Families $6,450
• Requires a HDHP (high deductible health plan) and minimum required
deductibles
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Deductibles- Individuals $1,250 & Families $2,500
Lower premiums and much higher deductibles than a traditional health plan.
Also called catastrophic illness plans, great for young people due to low premiums
Contributions to HSAs can be carried over year to year, and they can be invested.
• FSA Details
• $2,500 employee cap
• Allows you to contribute money to the FSA for costs not covered by insurance:
deductibles, co-pays, and coinsurance. In addition, you can use your FSA to
pay for health care costs that health insurance doesn’t cover.
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HSA & FSA continued…
• Compare/Contrast
• Unlike HSA’s, funds in FSA’s that are unused over $500 when the plan year is
over are lost and cannot be carried over to the following year. (updated
11/1/13)
• Neither allow expenses for over the counter drugs except insulin or if
prescribed
• Unlike health savings accounts or health reimbursement accounts, FSAs are
more commonly offered with traditional medical plans
• Contributions to HSAs can be
made for the 2013 tax year up
until April 15, 2014.
• Contributions to traditional and
Roth IRAs for the 2013 tax year
also can be made up until April
15, 2014.
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New job and where to move
• Check out the Robert Half salary guide (2014 now available)
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Know what the cost of living will be when looking at salaries
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Other things to look for: (Google/Wikipedia)
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Total unemployment/job growth
Cost of living/median home price
Average Salary
School system
Age
Things to do
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Buying a house
• How much down payment?
• How much house can you afford?
• Items to be wary of when buying
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Ask your lender/Realtor how they make money
Closing costs (Typically 3% of home cost)
Buying furniture after the purchase, security deposits, etc.
• Consider 10 or 15 year loan instead of 30 year loan
•
15 year loans typically are .25% lower interest than 30 year
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http://www.realtor.com/home-finance/buyers-basics/what© 2013 Crowe Horwath LLP
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Mortgage Options
 Conventional mortgages
 Meet the funding criteria of Fannie Mae or Freddie Mac
 About 35-50% of the market (depending on location)
 May be fixed-rate or adjustable-rate (certain circumstances interest-only)
 Fixed = interest rate doesn’t change
 Adjustable = interest rate adjusts to prevailing rate (usually based on an
index plus a certain margin – ex- libor +1)
 Interest only – Pay only interest, balloon payment due after certain duration
http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml
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Mortgage Options
 FHA mortgages
 Benefits include 100% financing (minimum of 3% down,
can be gifted and applied to closing costs)
 Sellers must pay part of the closing costs
 Disadvantage is that the PMI (private mortgage insurance)
does not go away after meeting a certain equity threshold
(usually 20% for conventional)
 In most cases, borrower pays 1.5% of loan amount at closing along
with a .5% annual renewal premium paid over life of loan
 May qualify for partial refund after 5/yrs under certain circumstances
http://www.bankrate.com/finance/mortgages/4-mortgages-that-require-little-money-down-2.aspx
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Mortgage Options
 First time home buyer loan programs
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Offers vary by state and lender
Little or no down payment & reduced closing costs and fees
Allow lower credit scores & higher debt ratios
Typically total loan would be less than conventional loan
Must be primary residence & may be difficult to refinance
 Department of Agriculture (USDA) Rural Development loans
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No mortgage insurance, but 2% guarantee fee
Intended for first time home buyers
Not confined to farmland
Income restrictions
 Veterans Administration (VA loan)
 Qualified veterans can get zero down payment mortgages with no mortgage
insurance and reduced rates (2.15%-3.3%)
http://www.bankrate.com/finance/mortgages/4-mortgages-that-require-little-money-down-2.aspx
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http://portal.hud.gov/hudportal/HUD?src=/program
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For more information, contact:
Kirsten Crame
Direct 813-209-2464
Kirsten.Crame@crowehorwath.com
Chris Morton
Direct 813-209-2466
Chris.Morton@crowehorwath.com
Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate
and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any
other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or
any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member
of Crowe Horwath International. © 2013 Crowe Horwath LLP
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Mint.com https://www.mint.com/how-it-works/accounts/
Choose to save.org http://www.choosetosave.org/calculators/
Debt Clock http://www.usdebtclock.org/
Vanguard https://personal.vanguard.com
Free credit monitoring & FICO score www.creditkarma.com
Freeze your credit http://www.clarkhoward.com/news/clark-howard/consumerissues-id-theft/credit-freezes-are-effective-tool-against-data-bre/nMgx3/
Credit Cards.com www.creditcards.com
Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate
and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any
other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or
any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member
of Crowe Horwath International. © 2013 Crowe Horwath LLP
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