What is Personal Finance?

• Financial management is a critical part of everyday life.

• Personal finance is learning how to manage our money to get most out of it.

• To become financially successful we need to learn how to plan and use money wisely.

Culture Difference in money use

• There is a cultural difference in money management style in Nepal and US

• In Nepal women are less involved in household budget and money management

• Personal loans are hardly used

• Everything from daily needs to buying a house or a car is done in cash.

• In Nepal most people feel shame to get a loan and vendors hesitate to sell you even with a check

• In contrast credit is a way of life in US

• We need to make good credit history to get a loan to buy bigger things such as house or car.

• The better credit history, better rate and larger loan you get.

Culture Difference in money use

Basic Banking• Checking account

– We need checking account for paying bills– select a free checking account or one with

no minimum balance – Have minimum or no interest return

• Debit Card or ATM Card – Use for drawing cash or for shopping– There might be charges for using an ATM

not associated with your financial institution

Basic Banking

• Saving account – Earns more interest rate than checking

account– Usually keep it to save money monthly basis– Can deposit and withdraw at any time

• Certificate of Deposit (CD)– More interest rate than saving account– Can withdraw only after funds mature– Longer you keep the higher the rate

Credit Card

• Why do you need credit card?– Is an important medium of transaction in US – Accepted in almost all stores where as

personal checks may not be accepted in stores outside your state

– Also important if you shop through internet– Good to have it but beware of interest rate

charged on balance not paid.

Credit History

• What is Credit history?– Credit History is record of money borrowed

and paid back – It is also a measure used by financial

institution to see if you are eligible for loan

• Why do you need credit history?– Credit history is crucial to get loans for larger

items such as buying a house, or cars

How to Built Credit History?

• There are many components that helps to built Credit History:– Employment history: Lenders wants to see

you have continuous job– Residence history: to see you have been

paying rents regularly– Utilities in your name: to see you have been

paying bills in time

Steps to Establish Credit History

• Start with your bank by opening and maintaining a checking account

• Apply for Credit Cards; if you don’t get one due to no credit history

• Consider a Department Store Card as it is easy to get than a credit card

• Secured Credit (Last Option)

Insurance• Insurance is also a new concept for us coming

from Nepal as we need insurance for everything in US.

• Important Insurances to consider are:– Auto: should not drive car without insuring it -

Liability– Home: need for disaster recovery– Renter: to save your personal property during

disaster– Life: to protect family from unexpected death

How to Save on Financial Charges?

• Auto Loan: – When you buy cars, deposit as much as you

can for a down payment – Take shorter term as possible – Shop around and compare price

How to Save on Financial Charges?

• Home Mortgage:– Can save a lots of money in interest charges

by shopping for shortest-term mortgage (15 years versus 30 years)

– Shop around for better rates– Can pay off mortgage faster if you make one

extra payment once a year through bi-weekly payments

– Consider direct payment

Mortgage Refinancing

• Consider refinancing your mortgage if you can get a rate that is lower (at least 1%) than your existing mortgage rate and plan to keep the new mortgage for at least several years.

• Calculate precisely how much your new mortgage (including points, fees and closing costs) will cost and whether, in the long run, it will cost less than your current mortgage.

Home Equity Loans

• Equity is the cash you would have if you sold your house and paid off your mortgage loans

• You can use this loan for emergency purpose with lower interest rate than personal loans

• Be careful this loan may reduce or even eliminate the equity that you have built up in your home

• If you are unable to make payments you could lose your home

Housing• Home Purchase:

– Good to have buyer broker who can get lower rate than seller

– Don’t purchase house without examined by professional inspector

– Shop around

• Renting a Place: – Again shop around and find where you want

to live– Make sure you understand all the terms

before you sign the lease

FICO Score

• What is Fico Score?– FICO is a credit score developed by Fair

Isaac Corporation– It is primarily used in credit decisions made by

banks and others – It is a numerical expression based on a

statistical analysis of person’s credit files to represent creditworthiness of that person.

• Why do you need to keep FICO score higher?– Credit scoring is not limited to banks. Other

organizations, such as cell phone companies, insurance companies, employers, and government departments employ the same techniques.

FICO Score

What’s In a Credit Score?• There are five categories that go into your credit

score: – Payment History – 35% – Total Amounts Owed – 30% – Length of Credit History – 15% – New Credit – 10% – Type of Credit in Use – 10%

• Majority of credit score comes from payment history and the total amounts that you owe.

• This means late payments and high balances have the greatest impact on your overall score.