Personal Financial Management

Personal Financial Management
The hidden job retention skill
Who will benefit from this training?
• Intensive service providers who work directly
with long-term unemployed job seekers.
– Understanding the effects of personal financial
management on the job search process is vital to
the task of helping job seekers reduce personal
stress, maximize the amount of income currently
earned, and allow job seekers an opportunity to
develop skills that will last throughout the working
By the end of this training participants
will be able to:
• Develop a realistic spending plan using an
example of an out of work job seeker.
• Design a credit reduction management
process for job seekers.
• Explain the FICO algorithm and its effects on
debt management.
• Explain how to correct adverse actions on a
credit report.
Spending Plan Review (budgeting)
A cash-flow (or income and expense)
Statement lists and summarizes income
and expense transactions that have taken
place over a specific period of time, such
as a month or a year. It tells you where
your money came from and where it went.
Debt to Gross income Ratio
The debt-to-income ratio (DIR) is
calculated by dividing debt repayments
by gross monthly income.
Debt to Gross Income (DIR)ratio =
Debt ÷ Gross monthly income.
Debt Payments-to-Disposable
Income Ratio
The debt payments-to-disposable
income ratio (DDIR) divides monthly
disposable personal income (not gross
income) into monthly debt repayments
(excluding mortgage debt).
Debt payments-to-disposable income
ratio = monthly nonmortgage debt
repayments ÷ disposable income.
Spending Plan review (budgeting)
A balance sheet (or net worth statement)
describes an individual’s or family’s
financial condition on a specified date
(often January 1) by showing assets,
liabilities, and net worth.
Spending Plan Review (budgeting)
A balance sheet consists of three parts: assets,
liabilities, and net worth. Assets include
everything you own that has monetary value.
Your liabilities are your debts – what you owe to
others. Your net worth is the dollar amount left
when what is owed is subtracted from the dollar
value of what is owned – that is, when liabilities
are subtracted from assets.
Asset-to-Debt Ratio
The asset-to-debt (liabilities) ratio
compares total assets with total liabilities
(debts). It provides you with a broad
measure of your financial liquidity. The
assets-to-debt ratio shows whether a
client is technically solvent.
Asset-to-debt ratio = total assets ÷ total
Monetary Management
“Moving at the speed of life”
Debit Cards
Electronic banking
Interest earning checking accounts
Spending vs. Savings tools & pitfalls
Commercial vs. Credit Unions
Guidelines for major Purchases
Control Buying on Impulse
Pay Cash
Buy at the Right Time
Don’t Pay Extra for a “Name”
Recognize the High Price of Convenience
The Credit Card Dilemma
 In order to profit from high interest rates, the
credit card industry is dependent on users
who don’t pay off their credit card balance
each month.
 Average credit card debt per household =
$15, 956
 Average APR on credit card with a balance =
12.78% as of Nov. 2011
 As of December 2011, U.S. revolving
consumer debt, 98% made up almost
entirely of credit card debt, was about $801
What is a Credit Score?
Credit scores are numerical calculations
that are supposed to indicate the risk that
you will default on your payments. High
credit scores indicate less risk, lower
numbers indicate potential problems.
The Three “c’s”
Capacity = the amount of debt you can
realistically payback given your income.
Collateral = assets that can be taken in
case you don’t pay your debt.
Character = objective factors that show
Fair Isaac Corporation (FICO®)
Your payment history (about 35% of the
Length of your credit history (about 15% of
the score).
Amounts you owe on credit accounts
(about 30% of the score).
Your new credit (about 10% of the score).
Types of credit (about 10% of the score).
How does a credit score affect you?
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