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					Personal Finance
YOUR FINANCIAL
FUTURE DEPENDS
    ON YOU!
                      Budgets

 Do you have a budget?
 Why should you have a budget if you don’t?
 After considering what you spend money on, where
  can you cut so that you can save that money?
 How can a budget help you achieve your financial
  goals?? Short term and long term?
 What is the top two ways to become a millionaire?

 Education
 Pay yourself first!!
   10% of your paycheck – GROSS not NET
                    Ways to save at a bank

Regular savings
  $10 to start
  Linked to checking for protection
  Very liquid = low interest rates

  Money market
    $2,500 to start
    Only three transactions a month
    Linked to checking
    Less liquid = higher interest rate

     Certificate of Deposit
     Any amount and any amount of time
     Less liquid = more interest (more than the other two)
     Can not withdraw without penalty until the CD matures
        Credit cards….good or EVIL???

 Good way to build credit
 Credit cards do go on your credit report
 When shopping for a credit card, look for
   APR – Annual percentage rate

   Introductory rates

   Late fees

   Any perks of the card
         Good things about credit cards

 It builds credit – proof of financial maturity
 It allows you to buy now
 It is better for booking or securing a flight, room, or
  deposit
 It is good to have for an emergency
 You do not pay interest unless you can not pay off
  your card (balance) at the end of the month.
 If used wisely, you can be debt free, but get the
  benefits of the card perks, like sky miles.
         Bad things about credit cards

 Compound interest 
 Debt
 Hurts your credit if you do not pay the minimum on
  time.
 It can sometimes influence you to buy items that you
  may not need.
 How do you know if you are in credit card trouble?

 You are worrying about how to pay your bills
 Are can only pay the minimum payment
 You are late making payments
 You use credit for food or gas, when you always paid
 cash for those items before

 THE KEY – keep track of what you spend and make
 smart choices.
              Pay more than the minimum

 Look at the example as to why you should pay more
 than the minimum payment every month

 Balance $1,000 interest rate per yr = 10%
 Paying on the minimum                     paying 10% of the balance
 Payment                  $ 20                                      $100
 Amount applied            $11.67                                   $91.67
 to principal
 Interest pd               $8.33                                    $8.33
 Total time to pay         5.4 years                                11 months
 Total cost to borrow      $300                                     $48
 *Pay at the least the minimum b/c it will get reported on your credit report if you are
    late.
           Compound vs. Simple Interest

Compound interest
 Pays on the principle and the accrued interest from the previous
 month.
 it is the contributor to debt by credit cards
 it is great for saving money
 credit cards are the only ones that really use this interest rate
Simple interest
 a rate that is applied to only the principle
 principle x rate x time (PRT)
 $10, 000 x 5% x 10 years = $5,000 interest
 $10,000 + $5,000 = $15, 000
 Loans for cars and homes use this interest rate
               Compound example

 Example of compound interest with an interest rate
  of 5% on a savings account of $1,000

 Principal      4 calculating   interest   balance
     1,000      1,000           50         1,050
                1,050           52.50      1,102.50
                1,102.50        55.13      1,157.63
                1,157.63        57.88      1,215,57
                    Credit Report

 Created by credit bureaus
 A credit report is a report card of your credit
 It tells potential creditors how responsible you are
  with credit and the likelihood that you will pay back
  a loan.
 It determines your interest rates on loans
 Determine the score using: character (history),
  collateral (assets), and capacity (job/earning
  potential).
          Credit Scores


750-850 – Excellent
720-750 – Good-Excellent
690-720 – Good
620-690 – Fair
300-619 – Poor
         Factors that make up your score

 These are essentially five categories of
 information that comprises your credit score.
  Payment        History – 35%
  Amounts Owed - 30%

  Age of Accounts - 15%

  Inquiries - 10%

  Types of Credit In Use - 10%

 * Cosigning does get reported on your credit report and makes you just as
   liable as the person you signed for! Maybe more liable!
               What’s not in a score

 Age
 Race
 Salary or occupation
 Interest rates on previous accounts
 Child support or rental obligations
 Where you live
 Martial status
          How long can the bad stuff last?

 Most “bad” items on a credit report can stay on it for
 7 years.
    Ex. Of something bad might be: late payments, bankruptcy,
     foreclosures, or collections. Unpaid taxes are usually seven
     years, but those can stay on your report INDEFINITELY
       Examples of benefits of good credit

 FICO score          rate          payment
   720-850           5.6%          $861
   700-719           5.72%         $873
   675-699           6.26%         $924
   620-674           7.41%         $1,039
   560-619           8.53%         $1,157
   500-559           9.29%         $1,238

    This is a $150,000 mortgage on a 30 year fixed loan. What do
     you want to pay monthly for THIRTY years?
              Cost/Benefits of credit

 Costs – finance charges, late fees, costs may be
 higher for the item, danger of identity theft

 Benefits – get the item now, get to take advantage of
 sales, easy to pay and keep track of spending, safer
 than cash
Loans to stay away from..


PAYDAY LOANS
STORE CARDS
TITLE PAWN LOANS
                   Types of Insurance

 Health – doctor, specialist, emergency room visits
 Life – death
 Car – protects you if you hit someone or if someone hits
    you (liability vs. full coverage)
   Gap insurance – covers negative equity in the car if the
    car is totaled
   Disability – coverage if you become disabled or unable to
    work – about 60% of your income
   Homeowners – protects your home against fire, burglary,
    natural disaster
   Renters – protects your property if you rent
      Fed and Fiscal Policy on your budget!

 If the Government (Fiscal Policy) raises taxes, this
 could effect your paycheck and your budget. This
 will lower the amount of money that you have to pay
 bills, live on, and save. This could also affect your
 tax returns in April causing you to possibly have to
 pay the government instead of gaining a return.
    Gross Income – money earned BEFORE taxes are taken
    Net Income – money that is on your paycheck – taxes have
     already been taken out.
 If the Fed increases or lowers rates, this will affect
 your accounts and loans that you are considering –
 maybe a new house (a mortgage). It will not affect
 loans that you already have.
   Fed and FP on your budget - Continued

 If the Fed increases or lowers rates, this will affect
 your accounts and loans that you are considering –
 maybe a new house (a mortgage). It will not affect
 loans that you already have.
Types of taxes that come out of your income

 State income tax – money paid to the state based on
    your income to fund state programs.
   Federal Income tax – money paid to the Federal
    government based on your income to fund Federal
    programs
   Sales Tax – tax paid on the purchase of
    good/services at places like Walmart.
   Property tax – tax paid on your property – ex. House
   Tag Tax – tax paid on your car – due on your
    birthday

				
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