st. paul, minn. | financial literacy 101
TRANSCRIPT
St. Paul, Minn. | www.wmitchell.edu
Practical Wisdom
Financial Literacy 101
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 101Benefits: 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– 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 Week 1 Week 2 Week 3 Week 4 Week 5 Total
FA Draw
Pay 1
Pay 2
Misc.
Tracking Expenses, Basics- Determine where the money goes- Goal: get your money to last longer- Methods:
- Keep receipts- Balancing a checkbook- Notebook or ledger- Calendar- Software or websites- Envelops with Money
Tracking Necessity Expenses Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total rent/mortgage
gas/electric
water/sewer
phone
car costs
gasoline
groceries household items
internetdebt payments
insurance
Tracking Luxury Expenses
Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total
cable TV
meals out
clothing
cigarettes entertainment
vacation
hobbies
pets
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 ReportsPurpose: 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 ScoreCredit 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 ReportInformation 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
TermStafford 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: $416,500Total Monthly Payment: $2923Total Payments without Power Pay: $848,475 and takes 30 yearsTotal Paid with Power Pay, highest interest: $734,558 and takes 21 yearsTotal 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: [email protected]
Call: 651-290-6403
Want a free spreadsheet to track your debt?
Coming Attraction: October 23 and October 27Financial PLP on Federal Loans and Public Service
Loan Forgiveness