Achieving Your Financial Goals Presenter Name | Presenter Title America’s Financial Literacy • The average American family spends $1.22 for every dollar it earns. • One in five American families with annual household income of less than $50,000 is spending 40% of after-tax income to service its debt. • Credit card debt has tripled in past two decades, and the average American household owes more than $9,000 ($2600 in 1989). America’s Financial Literacy • 2 out of 3 households will probably fail to realize life goals • Financial illiteracy is passed to the next generation • Average high school senior failed 2006 financial knowledge survey What is Financial Literacy? Financial Literacy • The ability to effectively evaluate and manage one’s finances in order to make prudent decisions toward reaching life’s goals • The understanding of: - Money - Cash flow - Basic economic/financial concepts - Debt/risk management Financial Literacy Key areas of personal finance: • Money & income • Spending & debt • Savings & investments • Risk management • Life’s milestones Money & Income Money & Income • Time is money • How many hours do you need to work to pay for your mortgage, car insurance, electricity bills, extras, etc? Money & Income Developing a budget: • A plan for coordinating income and expenses • No average budget to follow • Unique to your financial situation • Depends on set savings/spending priorities Money & Income Budget exercise: • Enter your net income or take-home monthly income. • Enter your fixed expenses, such as car payments and rent. • Enter your flexible expenses, using figures you gathered from a typical month, such as your phone or electricity bill. • Enter your discretionary expenses, such as clothing and entertainment. • Enter the amount you put into savings. • Now total all of your expenses and your savings and subtract this total from your net income. • If you have money left over, you may want to use it to increase your savings. Spending & Debt Spending & Debt • Weigh benefits and costs of spending alternatives • Credit can be a friend — and not a foe — as a basic financial tool Spending & Debt Use credit wisely: • Beware of credit card intro rates • Avoid having multiple credit cards • Pay in full every month • Pay on time • Avoid cash advances Spending & Debt Use credit wisely: • Stay within your credit limit • Review your statements carefully • Protect your credit history • Report lost/stolen cards immediately • Protect personal information • Access and review your free credit report annually at www.annualcreditreport.com Spending & Debt How to reduce debt: • Cut back on spending • Consolidate your debt • Seek out payment options • Don’t miss payments or default • Homeowners: use your equity • Home equity credit is often cheaper Saving & Investing Saving & Investing • Saving means not spending money. • Investing means that you earn a return on the money you put into it. Saving & Investing Saving money: • Save on a regular basis • Willpower + a good plan = success • You’ll feel the power • You’ll be motivated Saving & Investing Small changes add up: • Get out your piggy bank– again! • Feed the Pig • Small amounts add up to big savings Saving & Investing 7 steps to get started: • Think small • Be consistent • Make it easy • Pay yourself first • Allow for slip-ups • Team up • Congratulate yourself Saving & Investing Small money saving tips: • Brew your own coffee — at 1/8th the price of latte • Cook on the weekends; eat portions during the week • Borrow library DVDs; save on rental and cable fees • Use your own bank’s ATMs; avoid other banks’ charges • Find out whether your health insurer covers gym dues • Don’t spend your next raise; bank it • Sign up for payroll deductions • Invest in savings bonds or CDs • Sign up for payroll direct deposit Saving & Investing Investing money: • Compound interest • Rule of 72 • Planning for wealth • Make the most of a 401(k) Saving & Investing Compound interest: • Consistent steps, even small ones, can add up • $25/week for 10 years @ 5% = $16,950 • Add $1 a week, and you’ll have $17,840! Saving & Investing The Rule of 72 Growth over Time $30,000 $20,000 4% Value 6% $10,000 8% $- 5 yrs 10 yrs 15 yrs 20 yrs 4% $6,083 $7,401 $9,005 $10,956 6% $6,691 $8,954 $11,983 $16,053 8% $7,347 $10,795 $15,861 $23,305 Years Saving & Investing Short-term investment options: • Certificate of Deposit (CD) • Money Market Funds • Savings Account Saving & Investing Long-term investment options: • Mutual fund • Stocks • Bonds Saving & Investing Retirement investment options: • 401(k) • Individual Retirement Account (IRA) • Social Security Risk Management Risk Management • Insurance • Identity theft Risk Management Health care insurance: • Types of Managed Care Plans > Health Maintenance Organizations (HMOs) > Preferred Provided Organizations (PPOs) > Point-of-Service Plans (POS) Risk Management Long-term disability insurance: • Benefit amount • Term • Elimination period • Noncancelable • Guaranteed renewables • Own vs. any occupation • Workers’ compensation • Social security disability • Veterans benefits • Federal Employees Retirement System Risk Management Life insurance: • Choosing coverage > premiums > family need > time period • Term vs. Permanent Risk Management Permanent life insurance options: • Whole life • Universal life • Variable life Risk Management Identity theft: • Make a list of all of your credit cards, and store in a secure place that is easily accessible. • Keep your credit card in sight when you use it to pay for a purchase, if possible. • Don't carry your birth certificate or Social Security card in your wallet. • Install a locked mailbox to prevent mail theft. • When dining out, keep your purse or wallet secure. • Use drive-through ATMs or use only in safe, well- trafficked area, if possible. Risk Management Identity theft: • Shred pre-approved credit card or loan applications. • Check your bank statements as soon as you receive them, and order a copy of your free credit report once a year. • Ask DMV to remove Social Security number on your driver's license and assign random number. • Never give your Social Security, credit card or bank account numbers to anyone who calls you. • If you are concerned about a potential scam, call the local police. Life’s Milestones Life’s Milestones Buying your first home: • Establish good credit • Understand ―real costs‖ • Assess risks Life’s Milestones Getting married: • Understand ―financial partnership‖ • Establish separate and joint credit/bank accounts • Create wills and trusts • Identify beneficiaries • Choose owners on title assets Life’s Milestones Finance a family: • Budget - Education - Health care - Child care • Manage risk, insurance • Create wills • Instill financial literacy Life’s Milestones Starting a business: • Understand - cash flow - expense timing • Manage income and expenses Life’s Milestones Planning for retirement: • Determine how much money you will need. • Determine where your retirement income will come from. • Devise a budget and investment strategy to help you meet your goals. Life’s Milestones Preparing a will: • Designate beneficiaries • Determine asset distribution • Identify insurance Life’s Milestones Tax planning: • Make the system work for you • Get a tax credit for any dependent care you provide • Keep good records to document your deductions • Deduct mortgage interest and real estate taxes • Plan your investment gains to minimize taxes • Bank your tax refund Life’s Milestones Planning for unexpected milestones: • Loss • Sandwich generation • Divorce Financial Education Resources Financial Education Resources • Lifelong learning courses • Financial media • Internet resources • Your CPA • Organizations: > Virginia Society of CPAs (www.vscpa.com) > American Institute of CPAs (www.aicpa.org) > Virginia Jump$tart Coalition for Personal Financial Literacy (www.vajumpstart.org) Financial Education Resources Virginia Society of CPAs: • www.FinancialFitness.org • Financial planning articles • Personal budget guide & spending plan • E-newsletter • ―Ask a CPA‖ E-mail Program (free advice from CPAs) • Financial check-up quiz • Consumer workshops • Speakers Bureau • Nonprofit pro bono assistance • Tax help programs Financial Education Resources American Institute of CPAs: • www.360financialliteracy.org • Financial education to help consumers at every life stage • Feed the Pig Ad Council campaign • www.feedthepig.org Financial Education Resources Your friend Benjamin Bankes: • A joint creation of the AICPA, state CPA societies and the Ad Council. • Help is available at www.FeedthePig.org • Take charge of your money and your life! Financial Education Resources Free weekly e-mail savings tip: www.FeedthePig.org Financial Literacy: Knowing What You Need To Know To Achieve Your Financial Goals Thank You!