VIEWS: 5 PAGES: 16 POSTED ON: 8/28/2011
Creating a Budget That Works for You Ed Darley USAA Relationship Manager This information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. This is not a solicitation for any USAA product or service. Step 3: Budgeting is near the base!! 2 Budgeting effectively can help reduce debt A Debtor Nation • In October 2010, the Federal Reserve reported that Americans owed over $800 billion on credit cards / revolving debt • The average American family has about $15,788 in credit card debt • The savings rate in the U.S. is 5.3%! 3 Information classification – edit in master Reduced Debt can help improve your credit score Types of Credit Payment History New Credit 10% 10% 35% Length of 15% Credit History 30% Amounts Owed 35% Payment History 30% Amounts Owed 15% Length of Credit History 10% New Credit 10% Types of Credit Used --Source: Fair Isaac Corporation Know Your Score!! What is a credit score? It’s used by lenders, employers, and insurers to make decisions about you Scores range from 300 - 850: Score Rating 750 - 850 Excellent 660 - 749 Good 620 - 659 Fair 300 - 619 Poor The cost of higher interest rates $20,000 car, with a 5-year loan Poor Credit Rate: 10.5% = $25,792 total Excellent Credit Rate: 5.25% = $22,782 total Difference = $3,010 $3,000 vacation, 13.5% interest on a credit card Pay minimum of 2% or $25 every month = $6,634 paid over 16 years Pay $150 every month = $3,323 paid over 2 years Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. Sample costs and loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend. How much debt is too much? Example: This ratio can be used $3,000/month gross income to diagnose debt problems: • Rent/house payment • Car payment Total Debt-to-Income Ratio • Credit card payments Total Monthly Payments (including housing) • Child support Gross Monthly Income • Debt payments (student loans, etc.) It should be less than 36%! Should add up to less than $1,080 per month (36% of gross income) Budget Basics 1. Analyze your cash flow • Inflows (Income) – Outflows (Expenses) = Net Cash Flow 2. Develop a saving and spending plan 3. Set up an emergency fund • 3-6 months of living expenses 4. Manage debt responsibly 5. Debt ratio guidelines: • Total Debt to Income Ratio = < 36% • Consumer Debt Ratio = < 20% 8 Budgeting Assessment 5 Step Process 1. Assess Situation 2. Set Goals 3. Establish Priorities 4. Take Action 5. Review 9 The First Step of Budgeting - Know what you owe! 1. Gather all statements, open them 2. Highlight current balance, credit limit, interest rate, minimum payment due 3. Add it all up 4. Decide on your plan of attack Pay off high-rate debt first Attack highest-rate debt first After paying off one debt, It’s ok to pay off redirect your additional money small-balance, to the next highest-rate account “nuisance” accounts to build a feeling of When comparing rates, consider progress. tax-deductibility Find money for your debt elimination plan Track your spending for two months — every single dollar Cut back on optional expenses — dining out, cable TV, clothing, etc Raise extra cash by selling things you don’t really need See if you qualify for reduced interest rates on credit cards and mortgage loans during deployment Consider downsizing from your current car or home Digging out Stop adding new debt Reduce your rates Make timely payments Good Debt versus Bad Debt Good Debt Bad Debt For things that increase in For things that decrease in value value For things that offer long- For things that are term value enjoyed temporarily Has a low interest rate Has a high interest rate Tax-deductible interest Non tax-deductible interest *USAA and its affiliates do not provide tax advice. Consult your tax advisor regarding the deductibility of interest. Key take-aways Attack your debt aggressively but intelligently Know the difference between good and bad debt Realize the impact your debt decisions have on your credit score Monitor your credit report and score Establish an Emergency Fund Remember that Budgeting isn’t a one-time deal…it takes hard work and commitment!! USAA Financial Advice Center 800-633-3312 USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Planning Services Insurance Thank you!! Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312 ), and USAA Financial Advisors, Inc., a registered broker dealer.
Pages to are hidden for
"Budgeting"Please download to view full document