Basic Budgeting, Debt Elimination, & Deferred Compensation Basics
Brought to you by your 457 Plan Partners
What We Are Going To Talk About Today?
to develop & stick to a budget How to get out & stay out of debt Why is it important to become debt free How to budget for your retirement savings Q& A
How
Building your personal budget
worksheet (handout) Know your sources of income Live within your means Plan to pay off debt as part of your budget
Budget
How Does Being Debt Free Benefit Me?
Removes
the financial obligations that
bind you Strengthens your financial position; Security Upgrades your lifestyle More options Peace of mind FINANCIAL INDEPENDENCE!
How Do I Become Debt Free?
K.I.S.S.: Keep It Simple & Straightforward Know where your money is, and where it’s going Develop a budget Pay Yourself First Determine a Payment Enhancer Prioritize your debt Focus on attacking one debt at a time Apply the Payment Enhancer Repeat until ALL debt is eliminated
What Is A Payment Enhancer?
any money that you can put toward your debt beyond the minimum monthly payment Second income Cut-backs Raises Unexpected monies Payment Enhancer MUST be financially comfortable!
Simply,
How Do I Prioritize My Debt?
remember: K.I.S.S. Highest monthly payment Lowest monthly payment Highest interest rate Lowest interest rate Highest balanced owed Lowest balanced owed Whatever works best for you!
Always
Let’s See What This Looks Like!
An Example
Some Assumptions
debt structure Four debts total: -Two car payments -Two credit card payments Various balances and interest rates Monthly payments are at 2% of principle Payment Enhancer of $ 200 monthly
Typical
Example
Total Debt
Car 1
Monthly Payment
465
Interest Rate
11.99
Owed
17,250
Credit Card 1
Credit Card 2 Car 2
7,943
5,385 24,678
112
49 513
14.99
8.99 4.98
Note: The figures shown are representations of typical debt, and are to be considered illustrative for the purposes of this presentation.
Prioritizing The Debt
Total Debt
Car 1 Credit Card 1 Credit Card 2 Car 2
Monthly Payment
465 112 49 513
Interest Rate
11.99 14.99 8.99 4.98
Ranking Order
3 2 1 4
Owed
17,250 7,943 5,385 24,678
Remember K.I.S.S. – Prioritize based on the simplest method.
Determine Payoff Schedule
Total Debt
Credit Card 2 Credit Card 1 Car 1 Car 2
Monthly Payment
49 112 465 513
Interest Rate
8.99 14.99 11.99 4.98
Ranking Order
1 2 3 4
Owed
5,385 7,943 17,250 24,678
K.I.S.S.: Chose to prioritize payoff schedule by focusing on monthly payments. Ranked in descending order.
Add The Payment Enhancer
Total Debt
Credit Card 2 Credit Card 1 Car 1 Car 2
Monthly Payment
49 112 465 513 + + + +
Enhanced Payment
200 0 0 0 = = = =
Total Payment 249 112 465 513
Owed
5,385 7,943 17,250 24,678
Add Payment Enhancer Make minimum payments only on other debt Continue this method until the first debt is completely eliminated Repeat method on all debt until all debt is eliminated
Debt Elimination In Action!
Total Debt Credit Card 2 Credit Card 1 Car 1 Car 2 Owed 5,385 7,943 17,250 24,678
Monthly Payment 49 112 465 513 + + + +
Enhanced Payment 200 0 0 0 = = = =
Total Payment 249 112 465 513
Debt Free! 21.62 / mo.
Debt Elimination In Action!
Total Debt Credit Card 2 Credit Card 1 Car 1 Car 2 Owed 5,385 7,943 17,250 24,678
Monthly Payment 49 112 465 513 + + + +
Enhanced Payment 200 249 0 0 = = = =
Total Payment 249 361 465 513
Debt Free! 21.62 / mo. 22.00 / mo.
Debt Elimination In Action!
Total Debt Credit Card 2 Credit Card 1 Car 1 Car 2 Owed 5,385 7,943 17,250 24,678
Monthly Payment 49 112 465 513 + + + +
Enhanced Payment 200 249 361 0 = = = =
Total Payment 249 361 826 513
Debt Free! 21.62 / mo. 22.00 / mo. 20.88 / mo.
Debt Elimination In Action!
Total Debt Credit Card 2 Credit Card 1 Car 1 Car 2 Owed 5,385 7,943 17,250 24,678
Monthly Payment 49 112 465 513 + + + +
Enhanced Payment 200 249 361 826 = = = =
Total Payment 249 361 826 1339
Debt Free! 21.62 / mo. 22.00 / mo. 20.88 / mo. 18.43 / mo.
Debt Elimination In Action!
Total Debt Credit Card 2 Credit Card 1 Car 1 Car 2 Owed 5,385 7,943 17,250 24,678
Monthly Payment 49 112 465 513 + + + +
Enhanced Payment 200 249 361 826 = = = =
Total Payment 249 361 826 1339
Debt Free! 21.62 / mo. 22.00 / mo. 20.88 / mo. 18.43 / mo.
Debt Elimination In Action!
After applying the debt elimination method to the debt structure in this example, this person becomes DEBT FREE in 82.93 months.
That’s less than 7 years!
Debt Elimination In Action!
Once debt free, you now have
a positive monthly in-flow of $
1339!
That’s $ 16,068 a year!
Debt Elimination In Action!...recap
acquiring debt Determine a Payment Enhancer Develop and follow your payoff schedule Be patient Be disciplined Focus on the why you want to become debt free You can be debt free in a few short years!
Stop
What Now?
PAY YOURSELF FIRST Accelerate paying off your home (optional) Save and pay cash for things Save for college, - etc. Invest in the market - 457 Plan Help others – Charity, Church, etc.
DO
WHATEVER YOU WANT TO DO!
Deferred Compensation Illustrations
too early to start Difference between starting at different ages Effect on your paycheck Future account growth estimates
Never
Questions?