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									                             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!!

    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
Credit History

                              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?
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
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%

    Budgeting Assessment
    5 Step Process

       1. Assess Situation

          2. Set Goals

      3. Establish Priorities

         4. Take Action

            5. Review

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.
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
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

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

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