Major Justin Knutzen

Personal History2007: I was leading a “Successful” life…

Personal History

2008: I started thinking about getting marriedWe openly discussed our finances and found

Student Loans still unpaid 8 years after collegeThree vehicle paymentsLine of Credit on the houseMajor credit card debtA Signature loan with a high interest rate

Over $100,000 in Non-Mortgage Debt!

Personal History

We had no liquid savings

We had very little retirement savings

Our debt would not permit us to have the wedding that we wanted

Time for a Change

I started to research personal financeI read books by the following authors:

Dave Ramsey Suze Orman Robert Kiyosaki James Cramer Thomas Stanley

We started a budget with a plan to pay off our debtsChanged our lifestyle

Key Lessons Learned

Learned difference between “Need” and “Want”Learned an important word… NO!A Budget is critical

Plan for where your money will go Before you get paidA debt reduction plan is important“Emergencies” happen, a credit card is not a planOpen communication about our finances is critical

Developing a Budget

30%

17.5%

10%

10%

7.5%

10%

10%

5%

Budget Percentages

Housing

Transportation

Savings

Personal

Debts

Food

Charity

Insurance

BudgetIncome

Total Pay (Gross Income)Minus Gov’t Deductions (Taxes, Soc Sec, Medicare)Minus Other Deductions (uncontrolled, ex: Alimony)Equals your Personal Disposable IncomeAdded to spouses income = Total Disposable Income (TDI)

Charity (10% of TDI)Place of WorshipAFAFCombined Federal CampaignOther

BudgetHousing (30% of TDI)

Rent/MortgageUtilities (gas, electric, water, trash, phone, cable, internet)Insurance (homeowner/renter)Maintenance (for homeowners)

Transportation (17.5% of TDI)Car Payment / Replacement savingsGasMaintenance (oil, tires, repairs, etc)Taxes and LicensingInsurance

BudgetFood (10% of TDI)

Groceries

Dining Out

Savings (10% of TDI)Emergency Fund

Retirement

College Fund

BudgetPersonal (10% of TDI)

ClothingPersonal CareEntertainmentVacationPocket Money

Debt (7.5% of TDI)Credit CardsStudent LoansLine of Credit

BudgetInsurance (5% of TDI)

Medical

Dental

Disability

ID Theft

Term Life Insurance

Long-Term Care (Over the age of 60)

Debt Elimination MethodsHigh Interest

Organize debts by interest ratePay off highest interest firstRoll payments into next highest, etc, until debt free

Debt SnowballOrganize debts by amount owedPay off smallest debt firstRoll payments into next largest debt, etc, until debt free

Northwestern University, Kellogg School of Management Study: Closing debt accounts led to higher success rate of paying off debt than paying high interest first

Retirement SavingsTraditional Thrift Savings Plan (TSP)

Every $100 contributed reduces take home pay by $75Money withdrawn in retirement is taxableBetter option for those planning to be in a lower income

tax bracket in retirement

Roth TSPEvery $100 contributed reduces take home pay by

$100Money withdrawn in retirement is tax freeBetter option for those expecting to be in a higher tax

bracket in retirementCalculations assume 25% tax bracket

TSP FundsVarying range of risks

Follow measureable index (Except G and L funds)

Low administrative expenses (0.027% in 2012)

TSP FundsCommon Stock Index Fund “C Fund”

Follows Standard and Poor’s 500 Index (S&P 500) 500 large to medium-sized companies

Price affected by gains/losses in the prices of the stocks and dividend income

Fixed Income Index Fund “F Fund”Follows Barclays Capital U.S. Aggregate Bond Index

Broad index representing the U.S. bond marketPrice affected by interest income on securities and

gains/losses in the value of securities

TSP FundsGovernment Securities Fund “G Fund”

Special U.S. Treasury securities specifically issued to TSP Interest rate based on weighted average yield of all outstanding

Treasury notes and bonds with 4 or more years to maturityEarnings are based entirely on interest from the securities

and affected by increases/decreases in U.S. Treasury security rates

International Stock Index Fund “I Fund”Follows Morgan Stanley Capital International EAFE

(Europe, Australia, Far East) Index Stocks of companies in developing countries

Price affected by stock gains/losses, dividend income, and foreign currency changes in relation to the U.S. dollar

TSP FundsSmall Capitalization Stock Index Fund “S Fund”

Follows Dow Jones U.S. Completion Total Stock Market Index Small and medium size companies not in the S&P 500

Price affected by gains/losses in the prices of the stocks and dividend income

Lifecycle Funds “L Funds”Diversify investments into G, F, C, S, and I FundsAutomatically modify investment mixes according to

targeted retirement dates

Conclusion

Today, my wife and I are debt free

We will have a full six month emergency fund when we PCS in July

My wife has asked to stay home with our children after we PCS…With no debt and a full emergency fund, she can