Dr. Daad Rizk
301 Outreach Building
University Park PA 16802 dar39@psu.edu
814-863-0214

• Identify debts and track spending
• Understand needs versus wants – make behavioral changes
• Build a sustainable budget, cut spending painlessly and reduce waste
• Create a strategy to survive tough economic times
• Discuss tools, tips and ways to make little changes that save money overtime
MoneyCounts: A Financial Literacy Series

MoneyCounts: A Financial Literacy Series

Isla Fisher (2009 romantic comedy) http://www.youtube.com/watch?v=pLon5nJBjIE
MoneyCounts: A Financial Literacy Series

• According to the United States Census Bureau,(2010)
– 69 percent of Americans are in debt by an average of $70,000.
• Consumers with the greatest amount of growing debt were those in the age group of 35 to 45, with roughly $108,000 in debt.
• Those aged 45 to 55 were carrying $86,500 in debt
• And people aged 55 to 65 were saddled with $70,000 in debt.
• College students graduate with an average of $27,000 in student loans
• Penn State Adult students graduate with an average of $40,000 in student loans
MoneyCounts: A Financial Literacy Series

• According to the Office of Student Aid At Penn State
– 66% of students who graduate each semester are carrying student loan debts
– The average student loan debt is $35,639 (2012-2013)
– Adult students graduate with $40,000 (2012-2013)
– Repayment of student loan debt ranges between 10-30 years depending on payment plan
– Average monthly payment on a standard 10 year plan is $700
MoneyCounts: A Financial Literacy Series

• You have no savings
• You are paying more than 10% of your net monthly income on your debt monthly payment
• You are paying the minimum bill payment on your credit card bill (s)
• You are having to pay late fees
• Your utilities are threatened to be disconnected
• Vendors are calling your cell phone number
• You are getting debt collection calls
MoneyCounts: A Financial Literacy Series

• Overspending can lead to excessive debt
• Overspending makes it difficult to set and reach financial goals
• Overspending prevents building financial wealth
– College fund
– Retirement
– Vacation
• Overspending can ruin your financial reputation
• Overspending can push you into bankruptcy
MoneyCounts: A Financial Literacy Series

• Careless Spending leads to Overspending
– Impact of purchasing on financial big picture
– Spending gets out of hand
• Conduct an assessment of all recent purchases
– Make a list of everything you bought in the last few months
– Assess every purchase
• Bring your spending habits to a higher awareness level
– Keep a spreadsheet for one complete year and become aware of variances
• Utilities depending on seasons
• Holidays and debt management
• Periodic expenditures – insurance, property tax, memberships, health, vision, dental, subscriptions, etc.,
MoneyCounts: A Financial Literacy Series

• Divide your purchases between 2 categories
– Needs
– Wants
• Check validity by giving justification for each item on each list
• Use a critical eye as you evaluate each item on each list
– Mortgage – did you need this big of a house or mortgage?
– Food – did you need to eat out # of times a week?
– Cell phone – did you need this cell phone calling plan?
• Reduce waste whenever possible – go Green!
MoneyCounts: A Financial Literacy Series

MoneyCounts: A Financial Literacy Series

Recommended Budgeting as a Percentage of Net Income
1. Saving
2. Housing
3. Utilities
4. Transportation
5. Food
10.00%
30.00%
5.00%
10.00%
20.00%
6. Entertainment
7. Debt
8. Other
5.00%
10.00%
10.00%
1. Saving
2. Housing
3. Utilities
4. Transportation
5. Food
6. Entertainment
7. Debt
8. Other
MoneyCounts: A Financial Literacy Series

– Conduct an ongoing review of your budget, choose any of the methods to help make your process easy:
• Use paper ledger
• An electronic spreadsheet
• Personal finance software
• Free services by your bank
• Free trusted site on the internet
– Maintain a level of saving throughout the year
• Pay yourself first (decide on a %$ of net income)
• Keep an emergency fund (lowest tolerable level)
MoneyCounts: A Financial Literacy Series

• Target areas with indirect impact on your spending
– Car Insurance Premium – evaluate your risk tolerance
– Reduce spending gradually
• Instead of eating out 5 times a week, reduce to 2-3 times
• Instead of renting movies, check them out for free from the library
• Instead of ordering latte each morning, skip one or two mornings and make coffee at home
– Turn down the heat/cool a few degrees – make sure you stay comfortable and healthy
– Watch groceries spoilage and waste
• Use items before expiration date
• Buy what you and your family eat
– Clean and organize closets and garage – have a garage sale
• Open a saving account with proceed
MoneyCounts: A Financial Literacy Series

• Holt “ALL” spending you can “LIVE” without
– Go back to basics
– Stretch your savings – do not deplete fast
• Review your existing expenses against your income and adjust accordingly
• Recognize spending leaks and stop them
– Combine trips to the market and save on gas
• Find creative ways to increase income and/or control spending
– Garage sale
– Barter for things that you need
– Have pot luck gathering instead of going out to dinners with friends and family
MoneyCounts: A Financial Literacy Series

• One Bottle of water, Vending machine = $1.50
• Cost per week = 1.50 x 5 = $7.50
• Cost per year = 7.5 x 50 = $375
• Cost per 10 years = 3,75 x 10 = $3,750
• Cost per 20 years = 3,750 x 20 = $7,500
• Cost per 30 year = 3,750 x 30 = $11,250
• Pre-tax $11,250 x 1.3 = $14,625 Gross Income
MoneyCounts: A Financial Literacy Series

• Identify debts
– Make a list of all money owed stating principal, interest rate, minimum monthly payment broken between principal and interest
• Separate good debts from bad debts
– Mortgage (good if less than 30% of net income)
– Credit Card Debts (Bad if more than 10% of net income)
MoneyCounts: A Financial Literacy Series

MoneyCounts: A Financial Literacy Series

– Add “Debts” required payments per month, excluding mortgage
• Credit Cards
• Car Loans
• Student Loans
• Personal Loans
– If total payment is more than 10% of net monthly income, find extra money in your budget to pay off
MoneyCounts: A Financial Literacy Series

– Find additional payments in your budget to allot to the highest monthly interest amount
– If a credit card, call creditor and negotiate to lower the interest rate
– Freeze the use of the card – stop using it for charges
– Focus on paying the balance down quickly
– If you transfer balance to a lower interest rate, pay within the grace period to avoid financial problems.
MoneyCounts: A Financial Literacy Series

• To keep debt in check, follow the rule of 20/10
– Debt such as credit card, student loan, car loan, personal loan
(excluding mortgage), should not be more than 20% of your total yearly net income
– Monthly payment should not exceed 10% of your monthly net income
MoneyCounts: A Financial Literacy Series

• To Keep mortgage in check, follow this rule:
– Monthly payment, including insurance, tax, and interest should not be more than 30% of your net monthly income
MoneyCounts: A Financial Literacy Series

• Decide on your goals – tolerance level of debts
– Reduce
– Eliminate
– Pay down
– Become debt free
MoneyCounts: A Financial Literacy Series

• Make a commitment – set SMART goals
• Stop impulse buying – Back to basics
• Develop a plan – create a sustainable budget
• Research money saving options – cut out waste
• Take actions – baby steps – change behaviors – include family members
• Keep credit cards open – do not close paid accounts
• Pay on time and in full each month
MoneyCounts: A Financial Literacy Series

• Select one of each
– Visa
– MasterCard
– Other (American Express, Gas card, Department
Store)
• Pay balance in full and on time
• Total charges should not exceed 30% of credit limit
(Debt to credit limit ratio)
• Keep the cards with no annual fee, no added charges, lowest interest rate, and best rewards for your money!
MoneyCounts: A Financial Literacy Series

• Loans should be last resort to finance education
– “HUNT” for scholarships and grants
– Save during the summer and throughout the year
– Ask for family support
• Borrow only what you “NEED” not your eligibility in student loans
• Imagine the financial future and borrow accordingly!
• “Factor” the destination in your present planning!
• If in repayment, keep a good relationship with your servicer
MoneyCounts: A Financial Literacy Series

• Depending on your level of debt, there are different options for different situations
– Settlement
– Negotiation
– Repayment plans
– Consolidation
– Bankruptcy (consider all options before you go this route)
MoneyCounts: A Financial Literacy Series

• Debt Settlement
– Offering % to settle the debts, a step before full bankruptcy, take 3-5 years to complete and affects credits 7-10 years
– Acceptance of settlement is optional – it could be rejected by creditors
– Fees and interest keep accruing while settlement is in process
– Cost of services is an added burden to the debts and is usually required up front
MoneyCounts: A Financial Literacy Series

• Debt Negotiation
– Negotiating to adjust terms of debts
– The concept is to convince creditors to reduce the total amount of money owed in lieu of a set fee.
– The set fee is required to be paid up front
– Creditors are under no obligation to accept debt negotiation
MoneyCounts: A Financial Literacy Series

• Repayment plans
– Restructuring for easier monthly payments
– Usually higher interest rates
– Longer # years
– Higher overall cost
– Creditors are under no obligation to accept
– Fees for service required up front
MoneyCounts: A Financial Literacy Series

• Debt Consolidation
– Taking one new debt to cover all debts
– New interest rate, terms of payment
– Reduce or eliminate all late fees and penalties to debtor
– Overall higher cost but easier monthly payments
– Fees of service required up front
MoneyCounts: A Financial Literacy Series

• Bankruptcy
– Chapter 7 - Liquidation – assets are sold to satisfy debts – gets rid of unsecured debts such as credit cards - low income
– Chapter 13 – Reorganization – Income is used to satisfy debts -
Repayment plan – assets are kept – pays non dischargeable debts such as child support or alimony
– Student loans are not dismissible in a bankruptcy!
MoneyCounts: A Financial Literacy Series

• The Federal Trade Commission offers the following warning signs for identifying fraudulent debt negotiators:
– They will promise they can reduce your debt to the point that you’re paying pennies on the dollar for what you actually owe
– They will promise that some of your debt will be eliminated entirely
– They lie and tell clients that unsecured creditors do not sue debtors for non-payment
– They claim they can remove negative information from your credit report
MoneyCounts: A Financial Literacy Series

• Best Debt Management Programs
– National Debt Relief
– Curadebt
– CareOne Debt Relief Services
– American Debt Enders
– Ready for Zero
– Savvy Money
– Franklin Debt Relief
– Debt Consolidation Care
– Fast Track Debt Relief
MoneyCounts: A Financial Literacy Series

MoneyCounts: A Financial Literacy Series

Dr. Daad Rizk
MoneyCounts: A Financial Literacy Series
301 Outreach Building
University Park PA 16802 dar39@psu.edu
814-863-0214