Personal Finance
1. Creating a budget
2. Saving and investing
3. Credit and debt
© 2006 ACA International all rights reserved
Creating a Budget
Why is it important?
• to live within your means
• to reduce careless spending
• to build financial security
© 2006 ACA International all rights reserved
Budgeting
• A budget is:
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About the future
Continuous
Flexible
Individual
About getting what YOU want!
The best tool you have for financial success
Not about restriction
© 2006 ACA International all rights reserved
4 steps to success
1. Create a budget spreadsheet (or get one
online ):
http://www.vertex42.com/ExcelTemplates/personal-budgetspreadsheet.html
2. Use actual numbers if known,
guesstimate where necessary
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3. Keep track of where you spend
money and how much! Replace
any guesstimate numbers in your
budget with actual #’s
4. ADJUST your lifestyle and or
budget
© 2006 ACA International all rights reserved
Prioritize
• Needs
– Should always come before wants
– Reflected in your budgeting & bill paying habits
– Examples: savings, housing, reliable transportation, insurance coverage,
groceries, clothing, utilities, existing financial obligations.
• Wants
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cable/satellite TV
Toys: boats, snow mobiles, expensive jewelry, I-Pads
Vacations
Dining out
© 2006 ACA International all rights reserved
2. Saving & Investing
• Must do both to build wealth
• Begin with saving: goal is to set aside at
least 3 months of living expenses
• Continue to set aside a % of EACH
paycheck forever (5-10% would be good)
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• Investing is different from saving …it’s all
about having your money make money over
the entire course of your life
Start early …time + compounding WORKS
• Investing is a lifelong learning process
• Wide variety of investment choices (we did
this a month ago, right?)
© 2006 ACA International all rights reserved
3. Credit & Debt
• What is credit, anyway?
• Establishing credit
• Credit cards
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Important definitions:
• Credit – the amount of money available
to you through lenders
• Debt – the amount of credit you’re
using at any given time
• Creditor – any person / business that
extends credit
© 2006 ACA International all rights reserved
Your Credit
• Credit Reporting Agencies
– Equifax
– TransUnion
– Experian
• Credit report
– Reputation
– Past history is an indicator of future performance
– 7 years of info
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Obtaining your credit report
• Check your report:
– Once a year
– Before major borrowing decisions
– Any time you are denied credit
– If you suspect fraud
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Types of Debt
• Secured vs. Unsecured
– Collateral or none required?
– risk
• Installment vs. Revolving
– Installment: has set period of time
• auto loan
• mortgage
– Revolving: open line of credit
• credit card
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Establishing credit
• 3 possible situations
– Good credit history
– Bad credit history
– Insufficient credit history
• Getting started
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Credit cards
Co-signed loans
Start small
Start with familiar institution
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Credit cards
• Good or bad?
• Unsecured loans
• Higher risk = higher rates &
fees
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Choosing your first card
• APR
– Lower is better
– Read the fine print!
• Fees
• Perks
• Evaluating
– bankrate.com
– cardweb.com
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Guidelines for using credit
cards:
• Always pay more than the minimum!
– Pay at least 2x the minimum
– Pay off every month when possible
• Always pay on time!
– Avoid late fees
– Pay by phone or online for
convenience
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the minimum payment trap…
Balance:
APR:
Typical min. payment:
$2,748
18%
$68
• How long to pay off…?
© 2006 ACA International all rights reserved
the minimum payment trap…
• At minimum payment: $68.70
213 months (nearly 18 years!)
$3,545 in interest
• At $100/month payment
36 months (3 ½ years)
$821 in interest
Bankrate.com Calculator
© 2006 ACA International all rights reserved
Should I use my credit card???
Consumable
goods
Concert tickets
Gasoline
Groceries
Dining out
vs.
Durable goods
Mp3 player
Snowboard
New tires for car
© 2006 ACA International all rights reserved
Live Within your Means
• Paying for living expenses on credit
– Denial
• Savings
- make it a habit…& don’t “raid”
• Lifestyle changes are difficult
– Justification
– Entitlement
• See the “big picture”
– Set goals
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Debt: How much is too much?
• How much of your monthly budget
is going to debt payments?
20% or higher = potential problem
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Warning Signs
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no budget plan
no savings
denied for a loan
debt increasing month after month
total monthly debt payments ≥ 20% gross
income
making only minimum payments
hiding purchases from others
cash advances/payday loans
late fees, over limit fees
creditors/collectors calling © 2006 ACA International all rights reserved
Auto Loans
• Borrow conservatively
• It’s just a car
– Not a status symbol
– Practical
– Avoid emotion
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Auto Loans
• Shop for the loan carefully
– Find the financing before you find the car
– Know your credit score
– The shorter the term, the better
© 2006 ACA International all rights reserved
Buying a car
• New vs. used
• Negotiate!
• Consider all the costs before you buy
– Insurance
– Reliability/maintenance
– Gas mileage
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• That’s it…we’re done!
• No more econ notes at
HHS
(well…most of you anyway )
© 2006 ACA International all rights reserved