taking control of your money - american
TRANSCRIPT
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Taking control of your money
November 2020
1 PwC | Financial wellness learning series
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About PwC
• The PwC Financial Education and Wellness Practice is focused on providing personal financial education and counseling.
• Our sole purpose is to improve the financial well-being of employees.
• We do not sell financial products.
PwC | Financial wellness learning series
Please note, this webinar is meant to provide you with only general financial education and guidance and the information provided by PricewaterhouseCoopers should not be viewed as specific investment, tax or legal advice. PricewaterhouseCoopers strongly recommends that you consult with your personal investment, tax, legal and/or financial advisor before taking any action regarding your personal finances.
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What we will cover 1
Taking control of your cash flow
and finding ways to save 2
Using debt wisely and
managing costs 3
Understand your credit score and how to improve or maintain it
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Take control of your cash flow and find ways to save
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We’re not prepared!
ONLY ONLY ONLY ONLY
46% 41%42% 30%
OF BABY BOOMERS OF GENERATION X OF MILLENNIALS OF GENERATION Z
feel prepared to meet basic needs if they were out of work for an extended time.
*PwC 2020 Employee Financial Wellness Survey
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Importance of emergency fund
3-6 Months SavingsJob Loss
ID Theft Leaky Roof
Death of loved one
Car Trouble Unexpected Illness
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Map out a money plan Consider the 50-20-30 rule
50% of take home pay Essential Expenses
• Mortgage or rent • Groceries • Utilities • Insurance • Child Care
20% of take home pay Financial Goals and Obligations • Create an emergency
fund • Saving for a down
payment on a home
30% of take home pay Personal Choices/Expenses
• Dining Out • Shopping • Entertainment • Cable package
PwC Tip: Make coffee at home instead of buying it on the go. This could save you over $1,000/ year!
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Smart ways to improve your budget!
Create a grocery list before the trip.
Fund FSA/HSA.
Bundle insurance.
Avoid bank fees.
Fewer visits to favorite restaurant & coffee shop.
Cut down cable bill and subscription services.
Pack your lunch.
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Using debt wisely andmanaging costs
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Debt ratios
Housing debt – 28% of Gross Pay
Consumer debt – 20% of Take-Home Pay
Total debt ratio – 36% of Gross Pay
Example:
Monthly debt payments: • Credit Cards - $500 • Student Loans - $700 • Auto Loan - $300 • Personal Loan - $500
Annual income = $60,000
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4 : Compare to total debt ratio guideline 40% > 36%
3 : Calculate your total debt ratio $2,000/$5000 = 40%
2: Calculate your monthly gross income $60,000/12 = $5,000
1: Calculate your total monthly debt $500 + $700 + $300 + $500 = $2,000
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Create a debt payment plan
Take inventory of Choose a debt Get Started your debts repayment method
• Lender • Debt snowball • Decide and take action! • Monthly Minimum Payment • Debt avalanche • Interest Rate • Other • Total Balance
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Approaching debt repayment
Debt snowball List out all your debts in order of lowest balance to highest balance and pay them off in that order. Any extra funds above the minimum payments go toward the debt with the smallest balance.
Additional debt payment
$100 Minimum payment
$90 Minimum payment
$134 Minimum payment
$230
Additional debt payment
$100 Minimum payment
$90 Minimum payment
$134
Debt avalanche List out all of your debts in order of highest to lowest interest rate and pay them off in that order. Any extra funds above the minimum payments go toward the debt with the highest interest rate.
Minimum payment
$90
Additional debt payment
$100
Student loan A Student loan B Credit Card Balance: $7,700 Balance: $10,250 Balance: $11,500 Interest rate: 7.08% Interest rate: 9.66% Interest rate: 14.53%
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Avoid the minimum payment trap
Interest can be costly, so always try and pay more than the required minimum payment!
Don’t turn a $6,000 bill into a $14,000 burden! If each month you pay Total you will pay Years to pay off Minimum $14,038 20.0 Minimum plus $10 extra $11,946 13.6 Minimum plus $50 extra $9,101 6.3 Minimum plus $100 extra $7,981 3.8 Assumptions: Initial charge of $6,000; no new charges. Interest rate of 18.0% per year (1.5% per month) on outstanding balance. Minimum payment of 2.5% of outstanding balance each month (no less than $25).
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Debt consolidation
Advantages
• One payment • Payments lower due to longer term • Possible tax deduction (home equity loan)
Disadvantages
• Higher interest rates • Conversion to secured debt (home equity loan) • High fee
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A retirement plan loan – More expensive than you think
You may think: $12,093• Easy credit
• Low fees
• Replacement over several years
But don’t forget to consider: • Double taxation on interest!
• Non-deductible interest payments
• Loss of growth $2,788 • Decreased take home pay during
repayment of the loan
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Lost Earnings Lost Growth to Retirement
Assumes: $30, 000 initial loan, 5% interest rate, 7% annual rate of return. Initial loan term 5-years,+ 30 years until retirement.
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Managing debt
• Take inventory of your debt
• Make at least minimum payments • Pay on time every month
• Be careful with balance transfers
• Cut-up credit cards
• Focus extra payments on highest interest rate debt in order to save the most in interest*
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Understanding yourcredit score
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Importance of good credit
Good credit directly impacts:
Your ability to obtain a new line of credit.
What you may pay in interest.
Your ability to rent.
Employment opportunities in certain fields.
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Why does your credit score really matter?
Let’s see the impact interest will have if an individual were to take out a 36 month new car loan of $25,000.
Credit score Interest rate (APR) Monthly payment Total interest 750 (high) 3.212% $729 $1,257 650 (medium) 9.265% $798 $3,731 580 (low) 14.704% $863 $6,068
Interest rates are estimates and for illustration purposes only. Source: www.myfico.com
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Your FICO score
What is it?
• A standard measure of your credit risk.
• Based on a snapshot of your credit report at a particular point in time.
How do you obtain it?
• Some banks and credit card companies are now providing your credit score at no cost.
PwC | Financial wellness learning series
Fair Credit 670-739
Poor Credit Good Credit 580-669 740-799
Bad Credit Excellent Credit 377-579 800-850FICO
Score
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What determines your credit score?
What’s considered?
Types of credit used, 10%
New credit, 10% Payment history,
35%
Length of credithistory, 15%
Amounts owed, Source: Fair Isaac Corporation 30%
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Improving your credit score
Keep credit inquiries down.
Open new credit accounts only as needed.
Pay off debt rather than moving it around.
Keep balances low on credit cards.
Get current and stay current.
Pay your bills on time.
*Chart shown for illustration purposes only
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Your credit report
What is in your credit report?
• A compilation of your bill-paying history. • A status report of all past and present credit accounts. • A listing of all credit inquiries. • A listing of late payments and bankruptcies. • Used as the basis for calculating your credit score
Visit www.annualcreditreport.com to obtain a free copy of your credit report. During COVID-19 the three bureau s are now of fering free weekly online reports through April 2021!
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Reviewing your credit report
When reviewing your report look for the following:
1 Inquiries not initiated by you. 6 Identity theft.
2 Accounts you didn’t open. Different names (ex. Bob Jones instead of 7 Robert Jones).
3 Account status. 8 Incorrect Social Security numbers.
4 Creditor’s Statement. 9 Input errors.
5 Your statement. 10 Payments applied to incorrect accounts.
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How to fix an error
How do you fix an error on your credit report?
Note all errors
Contact the credit agency
Contact the creditors
FOLLOW UP!
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Conclusion
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Action items
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Determine if you are prepared for unexpected expenses. Set a goal to build your emergency fund.
Develop a budget to meet expenditure and savings goals.
Take inventory of your debts.
Come up with a debt paydown plan.
Check your credit score and obtain and review your credit report.
Implement a plan to improve your score.
PwC | Financial wellness learning series
Be sure to consult with your advisor for further guidance on your specific situation.
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Questions? Please note, this workshop is meant to provide you with only general financial education and guidance and the information provided by PricewaterhouseCoopers should not be viewed as specific investment, tax or legal advice. PricewaterhouseCoopers strongly recommends that you consult with your personal investment, tax, legal and/or financial advisor before taking any action regarding your personal finances
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