2 Take Charge of Your Finances Reality Check – Salaries, Expenses, Budgets Credit and Debt Saving...
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Transcript of 2 Take Charge of Your Finances Reality Check – Salaries, Expenses, Budgets Credit and Debt Saving...
2Take Charge of Your Finances
Reality Check
– Salaries, Expenses, Budgets
Credit and Debt
Saving and Investing
3Roadmap for Success
Plan for Success: Security, Freedom, Legacy, Happiness
Set realistic and measurable goals
– Short- and long-term
Make a plan with timeframes
Create a budget
Reevaluate goals, plan and budget regularly
4The “Real” Real World
What can you expect to make?
Where will it go?
How much is left?
How to pay yourself more?
5
Snapshot: 2007 Starting Salaries
Source: National Association of Colleges and Employers, Salary Survey – Summer 2007
Degree/Field Average Salary Offer - 2007
Chemical Engineering $59,361
Computer Science $53,396
Finance $47,239
Accounting $46,718
Business Administration/Management $43,701
Marketing $40,161
Political Science/Government $34,590
Elementary Education $34,565
Communication $33,798
Psychology $31,631
6Housing CostsThe cost to rent an apartment can often exceed $1,000 a month – excluding utilities, cable, or phone bills
Moving back home for a year could save you $12,000 or as much as $19,440 for certain cities! Average Rental Prices: Nation’s Most Expensive Real Estate Markets New York, NY $2,507San Francisco, CA $1,863Los Angeles, CA $1,709Boston, MA $1,476Washington, DC $1,358Miami, FL $1,148Chicago, IL $1,016
Source: Property & Portfolio Research 2007 (PPR)
7
Benefits are as Important as SalarySalary vs. total package
Job 1 offers a salary of $50,000 with no benefits
Job 2 offers a salary of only $47,000 but pays
80% of your $350 per month health insurance premium and contributes 3% of your salary to a 401K
Job 2’s $47,000 base salary could actually be worthmore than $51,700
8Where Does $50,000 Go?
Graduate #1
Transportation 13%
$6,300
Housing 25%
$12,500
Social Security/Medicare 8%
$3,800
Federal/State Taxes 30%
$15,000
What’s Left 8%
$4,000Utilities
7%$3,600
Health/Dental Insurance 9%
$4,800
9Where Does $50,000 Go?
Graduate #2
Utilities 7%
$3,600
Savings 6%
$3,000
What’s Left 13%
$6,338
401 (k) Savings6%
$3,000
Transportation 11%
$5,550
Housing 20%
$10,000
Social Security/Medicare 7%
$3,572
Federal/State Taxes 28%
$14,100Health/Dental Insurance
2%$840
10Who has the Better Deal?
What’s Left?$4,000 / $333 per
month
What’s Left?$6,338 / $528 per month PLUS $3,000 Savings &
$3,000 Retirement Savings
Graduate #1$50,000 Salary
Total Taxes $18,800
Health Insurance $4,800
Rent $12,500
Transportation $6,300
Utilities $3,600
Graduate #2$50,000 Salary
Total Taxes $17,672
Health Insurance $840
Rent $10,000
Transportation $5,550
Utilities $3,600
11In Summary
Realistic salary expectations
Where will your money go?
Weigh your options before you spend
12Managing Debt
What is debt?
How can you manage debt?
How much debt can you afford?
How long will it take you to pay off debt?
Whose responsibility is it to pay off debt?
Is all debt bad?
13Student Loans
Repaying a student loan can be a big chunk of the monthly budget – The average student loan debt among graduating seniors
nationwide is $19,646 – Paying an additional $100 a month could reduce a 10-year
loan to 7 years and save $2,141 in interest.
http://studentaid.ed.gov
Student loan repayment is also key to establishing good credit
Source: The Project on Student Debt 2007
14How Credit Works
What is credit?
How to establish credit?
What determines your credit score? www.myfico.com
What’s in your credit report?www.annualcreditreport.com
Length of Credit History
15%
New Credit10%
Amounts Owed 30%
Types of Credit Used 10%
Payment History 35%
What is Your FICO Score?
15Why Credit Matters Who cares about
your credit?
Good credit = better interest rates
How can you control your credit history?
The Cost of Interest$20,000 Car Loan Over 48 Months
Interest Rate Monthly Payment
Interest Paid
6.0% Interest $469 $2,546
8.5% Interest $492 $3,662
16Avoiding the Credit Card Trap
Minimize the number of credit cards you have
Comparison shop for best rates and terms
Limit credit card use
Avoid impulse buying
Pay off balances in full each month
17
Booking a “cheap” $1,000 spring break trip on your credit card and paying just the minimum balance each month will take you 16 years to pay it off.
After paying interest, the trip will wind up costing $2,100!
*Based on 12% interest rate and $15 minimum payments
Did You Know…
18In Summary
Establish good credit early
Look at your credit report every year
Understand how credit affects your life
Keep debt manageable
Ultimately, credit and debt are your responsibility
19Why Save Money?
Establish an “emergency fund”
Plan for future purchases
Build wealth
Plan for retirement– Don’t count on Social Security
20Time Value of Money
Start early
The power of compounding
– Earn interest on your investment
– Earn interest on your interest!
Inflation
21Compounding Example
Starting Early Can Make a Big DifferenceBased on an 8% annual return, compounded monthly
Monthly Contribution
AnnualContribution
What You Could Have In: 5 Years 10 Years 20 Years 30 Years
$50 $600 $3,698 $9,208 $29,647 $75,015
$100 $1,200 $7,397 $18,417 $59,295 $150,030
$150 $1,800 $11,095 $27,625 $88,942 $225,044
$400 $4,800 $29,390 $73,178 $235,608 $596,143
22What Happens if You Wait?
If you put away just $400 a month starting at age 25, your savings would be $500,000+ by the time you were 55
If you wait until you are 35 to start, your savings would be less than $250,000
23Types of Investment Vehicles
Savings Account
CDs
Bonds
Money Market
Stocks
Mutual Funds
24Choosing the Best Vehicles
Timeframe
Risk/return tradeoff
Diversification
Do your research
25Choosing a Financial Advisor
Seek help from someone with verifiable credentials
Meet with a potential advisor to make sure they understand your needs and objectives
Find out up front how payment works
For more information visit:www.sec.gov/investor/pubs/invadvisers.htm http://www.finra.org/index.htm
26In Summary
Start early!
Invest on a regular basis
Understand your risk tolerance
Educate yourself
Do your homework on potential financial
advisors
27Gameplan for Success
Set goals, make a plan, develop a budget
Be responsible
Protect your credit rating
Start today – time is on your side
Reevaluate your plan regularly