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What’s Next?
Managing your financial life
after graduation
A presentation by the
Oregon Society of CPAs
A presentation by the
Oregon Society of CPAs
Where we are
• The average American family spends
$1.22 for every $1.00 it earns
• The national savings rate is at its lowest
since the Great Depression
A presentation by the OSCPA
OSCPA Financial Literacy Project
• Two out of three Americans will
probably not reach one or more major
life goals (such as home ownership or
college) unless they receive more
financial training
•You are not immune
because you have a
college degree
A presentation by the OSCPA
Overview
• Budgets
• Debt
• 401(k) plans and saving
• Credit scores
• Buying a house
• Entering a practice
A presentation by the OSCPA
Salary
• Let’s assume this is your opening
offer: ($show me the money$)
– $50,000 – gross annual salary
– $4,167 – gross monthly salary
A presentation by the OSCPA
But what about taxes?
A presentation by the OSCPA
But what about taxes
with a 401(k)?
A presentation by the OSCPA
Total Wealth
A presentation by the OSCPA
401(k) ‐ $4000 per year,
5% rate of return
A presentation by the OSCPA
Student loans – 10 years
• Assume you have loans of
$120,000
• Interest rate of 6.8%
• Loan payment period is 10 years
• Monthly payment = $1,380.96
• After tax income is $2,854.95
• Income after loan payment =
$1,473.99
A presentation by the OSCPA
Student loans – 30 years
• Assume you have loans of
$120,000
• Interest rate of 6.8%
• Loan payment period is 30 years
• Monthly payment = $782.31
• After tax income is $2,854.95
• Income after loan payment =
$2,072.64
A presentation by the OSCPA
How much interest on that loan?
10 year loan 30 year loan
• Interest paid = • Interest paid =
$45,715.88 $161,631.87
• Total paid = • Total paid =
$165,715.88 $281,631.87
A presentation by the OSCPA
What do I pay off first?
• Assume you have $8,000 in credit card
debt with a 13% interest rate
• You also have $8,000 left in student
loans with a 7% interest rate
• So what do you pay down first?
A presentation by the OSCPA
What’s the difference?
Student Loan Credit card
• $8,000 balance at • $8,000 balance at
7% interest, 13% interest,
minimum payment minimum payment
of $92.89/mo of 2% of balance or
• 10 years to pay off $10, whichever is
balance greater
• $3,146 in interest • More than 30 years
to pay off balance
• $9,080 in interest!!
Credit card companies are hiking up interest rates,
even for good customers! A presentation by the OSCPA
Things to consider
Where do I cut back?
• Transportation
• Groceries
• Rent
• Daily habits (like coffee, bottled water,
smoking, eating out)
A presentation by the OSCPA
There are a lot of reasons people spend
more than they make, but here are a few:
• “I’ll have more • “Someone will pay
money later” (Best it off for me” (Are
not to count on you sure about
future income…it that? Do you want
may not appear.) to be that kind of
• “It’s an emergency” person?)
(Good to have
emergency cash
• “I need it now, but I
available, but what don’t have any
will happen if you cash” (Do you mean
don’t have cash and need or want?)
your credit card is
maxed out?)
A presentation by the OSCPA
Constructive vs. Destructive Debt
Constructive debt: Destructive debt:
• student loans, home • consumer items
mortgages, business – No investment
loans, etc. – Examples are
– A loan you take out clothes, CDs,
as an investment vacations, even
– Get something in cars!
return
A presentation by the OSCPA
Playing offensive debt
management
• Monitor your bills
– Beware of teaser rates
– Keep balance low or at zero
– Keep track of your interest rate—
negotiate a lower one if you have a good
history
– Know when the bills are coming
• Pull your credit report
– Experian, TransUnion, and Equifax
– www.annualcreditreport.com
A presentation by the OSCPA
Playing defensive debt
management
• DON’T wait until the credit company
calls (or worse, the collection
agency!)
• DON’T create more debt to pay off
other debts
• DON’T become a victim of fraud or
identity theft by not checking out
bills or credit reports
A presentation by the OSCPA
How do I avoid getting
in too deep?
• Your credit card is NOT free money—it’s
really a loan you have to pay back
• Make sure you have enough to pay off the
balance each month
• If you’ve already spent too much, pay more
than the minimum balance consistently
• Pay ON TIME—not only does it affect your
credit score if your payments are late,
the late fees will dig you deeper into debt
– Default interest rates range from
28.99% ‐ 32.24%3
A presentation by the OSCPA
When it comes time to buy…
• Leave your credit card at home if you’re too
tempted to spend when you go out
• Take time to think about your purchase—
avoid impulse buys
• Make sure you know how much interest
you’re being charged, annual fees, etc. so
you know the actual cost of your purchase
4Generation Broke: The Growth of
A presentation by the OSCPA
Debt Among Young Americans
• AICPA & Ad Council teamed
up to encourage young
people to save
• Pay yourself first!
• Making small changes can
add up
• Make interest work FOR
you, not against
• Sign up for Feed the Pig
podcasts for more tips!
Credit scores
• Credit scores – “creditworthiness” or a stat that
represents the likelihood that the person will
pay the debt timely
• Lenders use this score to mitigate risk and
determine terms of loan
• Many organizations use it (cell phone providers,
utilities, auto insurance, employers, gov’t depts,
etc.)
• Different ways to calc, but generally the same
– FICO – used by mortgage lenders
– Equifax’s Beacon, TransUnion’s Empirica,
Experian
A presentation by the OSCPA
Credit score breakdown
• Ranges from 300 to 900
– 35% based on payment history
– 30% based on outstanding debt
• How much is on car/home?
• How much on credit cards?
• Debt balance to available credit
• Debt in relation to income
• Maxed out cards?
– 15% on length of time you’ve had credit
– 10% on number of inquiries on your report
• FICO counts only within the last 12 months
– 10% on type of credit you have
A presentation by the OSCPA
How does it affect the rates?
30 Year fixed mortgage, $300K loan
FICO® APR Monthly
score pmt.
760‐850 5.847% $1,769
700‐759 6.069% $1,812
660‐699 6.353% $1,867
620‐659 7.163% $2,029
580‐619 9.730% $2,573
500‐579 10.844% $2,822
A presentation by the OSCPA
What’s in a credit report?
• What’s in a credit report?
– Personal identifying info – SSN, DOB,
addresses, names
– History of how you’ve paid your bills
– How much open credit you have
– Employment history
– Public records (tax liens, court judgments,
bankruptcies)
– Dispute statements
A presentation by the OSCPA
Establishing credit, if you don’t
already have it
• Get utilities in your • Secured credit cards
name • Sources ‐ Banks, dept.
• Consistent store, auto/tire (verify
residence/rental that they report to credit
history bureaus)
• Use credit only when • Use it carefully
you need it • Make payments on time
• Keep balances low • Start now. It takes time to
• Don’t max out credit get your credit reports
cards ready for a home loan (9‐
12 mo.)
A presentation by the OSCPA
How can I improve my score?
• Pay your bills on time!
• Review each credit report & correct errors
• Keep old accounts open (to establish longer
credit history)
• Close accounts you don’t use (call or write)
• Reduce balances on cards to <75% of
available credit (25% is preferable)
• Limit inquiries ‐ mortgage or car shopping
• Don’t open new accounts just to increase
available credit
• If you’re turned down, find out why and try
to correct those adverse situations
A presentation by the OSCPA
Resources
• 1‐888‐5‐OPTOUT to limit “soft inquiries”
(pre‐approved credit cards and auto ins)
• www.ftc.gov/bcp/edu/pubs/consumer/credi
t/cre21.shtm ‐ Federal Trade Commission
sample dispute letter and steps for credit
disputes
• www.annualcreditreport.com – Free annual
copy of report from each agency
A presentation by the OSCPA
Is it time to buy a house?
• Buying a home for the right reason
– Don’t get caught up in the
real estate boom
•Residence
•Investment
– Plan on staying for awhile
A presentation by the OSCPA
Don’t overextend yourself
Purchase price should be reasonable and
what you can afford
Remember the other costs
Closing costs
Property taxes
Mortgage insurance
Furnishings
Utilities
Maintenance & repairs
Homeowners association costs
Don’t use additional credit card debt for
home items!
A presentation by the OSCPA
Pre‐approval
Lender willing to lend you the greatest
amount may not be the clear choice
Don’t overextend yourself
Maximum offered may be more than you
should borrow
Recognize the importance of the service
provided by lender
A presentation by the OSCPA
Lender options
• Be selective
• Research on Web
• Note that if you’re shopping for rates,
lenders may be pulling your report and
affecting your score
• Recommendations from associates, friends
and family
• Numerous financing options
– Conventional loan
– Adjustable rate mortgage
– Family or friends (be careful)
A presentation by the OSCPA
Pre‐approval process
Getting ready to apply
What documents to bring to initial
meeting: 2 years of W‐2s, income tax
return, anything that proves your
income
A presentation by the OSCPA
Time to shop
Does it meet your priorities?
Room for everyone and
everything?
How does it fit your plans and
needs for next 2‐5 years?
Are modifications easily done?
Cosmetic?
A presentation by the OSCPA
Checking out the house
A presentation by the OSCPA
“A day in the life”
• What would my day be like in this
house, start in the morning and think
about everything you would do that
day. Would it work?
• How would things change throughout
the seasons? If it’s summer what will
this be like in winter?
A presentation by the OSCPA
Checking out the neighborhood
A presentation by the OSCPA
Checking out the neighborhood
• Check out the greater neighborhood
– Portland Police Bureau web site:
www.gis.ci.portland.or.us/maps/police/
– www.rmls.com
– www.portlandmaps.com
A presentation by the OSCPA
Using a realtor
• The right realtor will…
– Help assess needs and wants, help decide
what’s affordable for you
– Find the right home, advise on pricing,
and help in negotiation
– Find potential problems and advise on
professionals
– Direct you to a good lender
A presentation by the OSCPA
Pros and cons
A presentation by the OSCPA
Decisions, decisions…
• If you choose to use a realtor
– Ask for references
– Ask about repeat business
• If you choose not to use a realtor
– Use a professional team
• Get an inspection
• Hire an attorney to review documents
• Possibly get a 3rd party valuation
A presentation by the OSCPA
Making the offer
• If there’s something removable that
you want, specify (window coverings,
etc.)
• Ask seller to fix anything that needs to
be fixed or that came out of the
inspection
A presentation by the OSCPA
Closing
(the devil is in the detail)
• How are you going to hold the title?
(single, unmarried, joint tenancy,
separate property etc.)
• Are you going to use escrow to pay
closing costs?
• Will seller pay the closing costs?
• Think about location of title company
for convenience
A presentation by the OSCPA
Having a plan
• As you can see, it’s important to have a
financial plan
– Road map for your goals
– Gives you a realistic picture of how long to
meet goals
– Keeps you focused when temptation
knocks
– Be flexible
A presentation by the OSCPA
Correcting credit reporting errors
• Start 6‐9 months before applying for loan
• Pull Credit Report
www.equifax.com
www.experian.com
www.transunion.com
• Correct reporting errors
– http://homebuying.about.com/
cs/yourcreditrating/a/correct_errors.htm has tips
for challenges on resolving disputes
A presentation by the OSCPA
Considerations when entering
a practice
A presentation by the OSCPA
Considerations when buying into
a practice
A presentation by the OSCPA
Remember this?
Two out of three Americans will probably
not reach one or more major life goals
(such as home ownership or college)
unless they receive more financial
training
Have the life you want…
be the 1 in 3!
A presentation by the OSCPA
THANK YOU!
• For more information on Financial
Literacy contact the OSCPA at:
– www.orcpa.org
– 503‐641‐7200
1‐800‐255‐1470, ext. 12
A presentation by the OSCPA
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