1. Personal Finance –
Boone County ATC
Terry Brett - February 23, 2018
Mother of Mercy Class of 1982/ University of Cincinnati - Finance 1987
P&G Finance Manager & Retiree – 1987-2017
2. 5 Things You Should Know About
Personal Finance
1. How to create a Budget/Spending Plan
2. The Importance of Savings
3. The Time Value of Money
4. Realities of Credit Cards
5. The Worth of being Frugal
3. How to create a Budget/Spending Plan
Budgeting is something that people either love or hate to
do.
Personally I hate it. But I keep a general budget because
it’s important to know where my money is going.
A friend of mine knows where every dollar he spends
goes. I’d rather divide my money into 2 different
accounts, business (Fixed) and pleasure (Variable).
I give myself an “allowance” to do whatever I want with
monthly, and the rest stays in my “business” account for
bills and other living expenses.
Plan Savings as a Fixed Cost
4. How to create a Budget/Spending Plan
To be fiscally responsible now and in the future, you
must learn how to create a monthly budget. Creating
a budget will help you:
Itemize and manage your income, expenses, and savings.
Recognize how you spend your money and how much you
spend in given time period.
Plan the savings you will need for unforeseen expenses or
changes in income.
Make decisions about your money both today and as your
circumstances change over time.
You do not need to make a 6 figure salary to create a
Budget/Spending Plan
5. What is a spending plan?
A tool used to record and track projected and actual income
and expenses over a period of time.
6. Spending Plans
Are simply road maps the help people reach
financial goals
Need to be flexible to change with various life stages
Are not difficult to establish but do take time and
commitment.
**Recommended to track spending prior to creating
a budget.
NOTE: There should not be any money left over in a
budget. If there is, it should be put into the savings
or charitable giving column.
7. Benefits of Spending Plans
A spending plan can help you:
Put aside money for savings goals
Prepare for regular expenses
Prepare for unexpected expenses
Control how you spend money
Reduce stress and increase confidence
Provide an excuse to calm excessive
spending
8. Consequences of NOT Using a Spending Plan
No idea where money has been spent
Bad spending habits are unidentified
Unprepared for emergencies
Strained relationships
Lack of savings plan
Wasted money
Stress
9. Opportunity Cost of Spending Plans
Consumers may feel like having a budget is confining or
restrictive, but it actually gives them more freedom and more
options.
By paying attention to where money is spend, wiser choices
can be made.
With more freedom, more options, wiser choices, more
money can be spent on items of value.
10. Before creating a spending plan…
Track your spending.
– Before making a budget, spend a couple of weeks writing down
every penny you spend.
– This will help you have a better idea of where your dollar amounts
should be when making a budget.
11. How do I make a spending plan?
1. Assess your personal financial situation
(needs, values, life situation).
2. Set personal and financial goals.
3. Create a budget for fixed and variable
expenses based on projected income.
4. Monitor current spending (saving, investing)
patterns.
5. Compare your budget to what you actually
spent.
6. Review financial progress and revise
budget amounts.
12. Pay Yourself First®
The idea that savings should be a
regular part of a spending plan and
should happen before variable
expenses.
Fixed expenses
Occur every period and are typically
about the same amount.
Variable expenses
May or may not occur every period and
do not have a constant value.
Earned income
Money generated from
employment or retirement funds.
Unearned income
Money received for no exchange,
such as a gift.
13. More expenses than income?
Negative cash flow
Negative cash flow typically results in debt.
Part of being financially independent is spending less than
you earn.
14. To Reduce Negative Cash Flow:
Reduce Spending
• Doing comparison shopping
• Using coupons
• Avoiding impulse purchases
• Buying items “on sale”
• Carpooling, walking, or riding a bike
• Eating at home
• Eliminating/reducing impulse purchases – vending
machines, convenience stores, etc.
• Shopping at thrift stores
• Wearing hand-me-down clothes
• Using “frequent shopper” cards
15. Increase Income
To Reduce Negative Cash Flow:
• After school/weekend job
• Additional chores around the house
• Yard work
• Babysitting
• Summer job
• Dog walking
• Housesitting
• Garage sale
• Provide a service
17. What tools help in budgeting?
Envelope System
Computer Programs
Paper Tracking
18. Envelope System
Each envelope is labeled for the category of
spending.
Each pay period, a pre determined amount of
money is placed in each envelope for each
category.
Each time money is spent from an envelope, the
transaction details (date, vendor, amount, etc.) is
recorded on the outside of the envelope.
When the envelope is empty, spending ceases!
21. Paper Tracking
Always record transactions in a check register or on the
outside of the envelope for each category.
22. REMEMBER!!!
It is important to remember that budgets can
and should change from time to time.
After following a budget for a month,
re-evaluate it and make changes as
necessary.
23. Large purchases
When adjusting a budget, consider future
large purchases and consider saving up for
that item and paying cash for it.
When a home or automobile is purchased,
other budget categories, such as
entertainment and clothes, may
need to be cut back in order to
compensate for the larger
purchase.
24. Review
A spending plan is a tool to assist one in
tracking and monitoring income and
expenses and avoiding negative cash
flow.
Financial independence is achieved by
reducing spending, earning more, saving
more, and avoiding negative cash flow.
25. The Importance of Saving
As a high school student, you may not yet realize the value of
saving your money. If you have enough money to pay for your
expenses, why should you worry about putting any money aside
each month? The answer is because you never know what the
future holds.
Having money in savings will give you financial security in case
of an emergency. As a high school student, that emergency
could be car trouble.
Once you graduate and begin your career, that emergency could
be an unexpected layoff, car accident, broken arm/medical
bills.
Setting aside money regularly will also help you meet your short
and long-term goals (i.e. college tuition, expensive vacation,
comfortable retirement, etc.).
26. Introduction
One of the alternatives to face financial
problems is to save money.
Saving money is neither a science nor an art;
rather it is somewhere in between and requires
your commitment and hard work
Saving money takes time to develop, needs to
be learnt, and brings benefits that will endure
for the rest of your life
27. Strategies To Save Money
Set Saving Goals
Short-term goals: it is easy.. If you want to buy a video game, find
out how much it costs,
Long-term goals: it is not so easy, such as retirement, need to do a
lot more planning and you’ll also need to figure and you’ll also
need to figure out how investments will help you achieve your
goals.
Establish a Timeframe
For example: "I want to be able to buy a house two years from
today."
Set a particular date for accomplishing shorter-term goals, and
make sure the goal is possible during that time period.
If it’s not possible, you’ll just get discouraged.
28. Figure Out How Much
Figure out how much you’ll have to save per week,
per month, etc.
Take each thing you want to save for and figure out
how much you need to start saving now.
If it is not realistic goal, adjust your timeframe until
you come up with a possible amount
Update your budget/spending plan to save the
needed amount
29. Ways to Save
Payroll deductions
Extra change in jar
Jar change into savings
account
Save wage increases
30. Ways to Save
Determine needs and wants
Pay Yourself First
Pay bills on time
Avoid check-cashing stores
Remember retirement
31. Reasons to Save
To purchase a planned good or
service in the future
To buy a good or service that is
suddenly wanted
Eliminate future stress
Emergencies
Unexpected events
32. Government Regulations
That Protect Savers
FDIC – Federal Deposit Insurance
Corporation
NCUA – National Credit Union
Administration
Insures each account in a federally
chartered bank or credit union up to
$100,000 per account.
Physical banks or on-line banks
33. Investing is the purchase of assets
with the goal of increasing future
income.
Investments
34. Risk, Return, and Liquidity
Risk
The chance that the value of an
investment will decrease.
Return
The profit or yield from an investment.
Liquidity
The ability of an investment to be
converted into cash quickly without
loss of value.
35. Risk, Return, and Liquidity
Savings
Low risk
Low return
High liquidity
Bank Accounts
CD’s
Investments
High risk
High return
Low liquidity
Mutual Funds
Stocks
Commodities
(Gold/Property)
36. Inflation, Savings and
Investments
Today, a large soft drink at
your favorite fast-food place
costs $1.00. You buy the
soft drink but also decide to
save some money for the
future as well. So you put a
dollar in your savings
account, where it earns 5%.
NEFE
37. Inflation, Savings and
Investments
One year later, the dollar in
your saving account is worth
$1.05. You take the money
out and visit your favorite
convenience store, hoping
to buy another delicious
beverage. Unfortunately,
drinks now cost $1.10.
NEFE
38. Inflation, Savings and
Investments
The point? Inflation can
work against your money.
You need to learn to invest
wisely, follow the rate of
inflation, and make sure your
investment rates are higher
than those of inflation.
39.
40. The time value of money
This is an important concept to learn as a high school student because time is on
your side.
The time value of money refers to the relationship among time, money, and rate of
interest. It means that if money can be invested to earn a return, then the same
amount of money is worth more today than at any point in the future.
For example, if you put $100 into a savings account today that pays 5% interest a
year, in one year you will have $105 because of earned interest. The key points to
take away from this concept are:
Begin saving/investing your money as soon as possible so it has more time to accrue
interest.
Save/invest as much as possible as your current budget allows (and make
adjustments as your situation changes).
opt for saving/investing avenues that offer higher rates of interest.
41. Think about how
you can make
savings a Fixed
Expense in your
Budget/Spending
Plan
42. Realities of credit cards
Credit cards are an interesting commodity.
They can either work for you or against you, depending on how much you
know about them and how smart you are with them
Obtaining a credit card has some advantages. It can help you build a good
credit score (if used wisely), and it gives you a sense of security in case of
a financial emergency (although we recommend building a savings fund
over using a credit card).
Obtaining a credit card also has some disadvantages if it isn’t used wisely.
These pitfalls can include paying high finance charges and accumulating
too much debt.
The most important lesson to learn about having a credit card is to pay
off the balance each month by the due date. If you follow this rule, you
reap the benefit of building a good credit score and avoid the pitfalls of
accruing too much debt, finance charges, and late payment fees.
43. Questions to Consider
What is credit?
Does credit cost?
What are the advantages of using credit?
What happens if I misuse credit?
44. Credit
A legal agreement to receive cash, goods, or
services now and pay for them in the future.
45. Credit in Utah
The average credit card balance for 2011 was
$6,576.00
Utah’s average was $5816.00
46. Types of Credit
Credit Cards
Installment Loans
Service Credit
Revolving Credit
Student Loans
IOU
Single Payment Credit
47. Credit Cards
Plastic cards with electronic information that can be
used by the holder to make purchases or obtain cash
advances using a line of credit made available by the
card-issuing financial institution.
48. Installment Loan
A loan in which the amount of payment and the
number of payments are predetermined, such as an
automobile loan.
Fixed payment
Set period of time
Set or varying interest rates
Examples: Car loans and mortgages
49. Revolving Credit
A type of credit that does NOT have a fixed number
of payments, such as a credit card.
No stated payoff time
Limit to credit
Minimum monthly payments
Finance charges
Example: credit card
50. Service Credit
A member's earned service, prior service, and
purchased service.
51. Student Loans
Loans offered to students to assist in payment of the
costs of professional education. These loans usually
charger lower interest than other loans, and are also
usually issued by the government.
Allows a person to finance their education and defer
payments until after graduation.
52. Debit Cards
Debit cards are plastic cards with
electronic information, that look
very similar to credit cards, that
you can use to take money out
against your checking account.
When you swipe your debit card
remember that the money is taken
immediately from your checking
account.
53. Sources of Credit
Bank
Credit Union
Finance Companies
Retail Stores
Savings & Loan Associations
Internet Stores
54. How to establish credit
Bank accounts
Employment history
Residence history
Utilities in borrower’s name
Department store or gas credit card
55. How to maintain a good credit rating
Establish a good credit history.
Pay monthly balance on time.
Use credit cards sparingly and stay within the limit.
Do not move balance to other cards.
Check credit report regularly.
57. Responsibilities of Credit
Know the real cost of debt.
Don’t use credit to live beyond your means.
It is all about the details…read the fine print!
Pay as much as you can, as early as you can.
58. Co-Signer
The person who agrees to be responsible for loan
payments if the borrower fails to make them.
59. Collateral
A form of security to help guarantee that a creditor
will be repaid.
60. Advantage
s
Convenient
Immediate
No need for
cash
Zero liability on
fraud
Helps on
reservations
Bonuses,
points
It is a loan
Interest rate
Additional fees
Easy to
overspend
Can promote
impulse
purchases
Risk of identity
theft
Disadvantag
es
61. The Cost of Using Credit
SCENARIO:
Interest Rate 17%
Minimum Payment 2.5% or
$10.00
Balance
Time to Pay
Off
Interest
Charged
Total Pay
$1,000.00 12 years $979.00 $1,979.00
$2,500.00 19 years $2,941.00 $5,441.00
$5,000.00 24+ years $6,210.00 $11,210.00
62. The Cost of Using Credit
SCENARIO:
Interest Rate 24%
Minimum Payment: 4% of current balance or
$10
Balance Time to Pay Off
Interest
Charged
Total Pay
$2,000.00 9 yrs & 9 mo $1,774.96 $3774.96,
$6,000.00 14 yrs & 4
mo
$5,775.08 $11,775.08
$10,000.00 16 yrs & 5
mo
$9,774.89 $19,774.89
63. How long will it take to pay off?
(Paying only the minimum
payment)
You owe $4500
APR = 21%
Minimum Payment:
4% of current balance or $15
64. How much will it cost?
(Paying only the minimum
payment)
You owe $4500
APR = 21%
Minimum Payment:
4% of current balance or
$15
65. 27” TV
$400.00
cash
If you have saved enough in your
“buy stuff” account, you can withdraw
your money and buy the TV. If you use
a credit card, and pay off the balance
within the billing cycle, you pay no
interest (if it is a credit card which has
the grace period).
Suppose you see a TV you want to
buy with a retail price of $400.
66. 27” TV On Sale
$350.00
by smart shopping
If you shop around and find the same TV for $350,
you just saved $50. But what did you save in terms of
your ability to earn money? If you are in an average
tax bracket of about 20%, you must earn $62.50
before you can spend $50. So if you avoid spending
$50, that is like earning $62.50. If you earn $10 per
hour, you just saved the equivalent of 6 1/4 hours of
work!
$50 / .80 = $62.50 earn
$62.50 / 10 = ~6 1/4 hrs
67. 27” TV $400.00
using a credit card
$59.00 / .80 = $74 earn
$74 / 10 = ~7.4 hrs extra to pay the
$59.
Balance
Time to
Pay Off
Interest
Charged
Total Pay
$400.00 18
months
$59.00 $459.00
Paying $26.00/mo
72. Financial Consequences of Debt
Overspending
Paying high interest rates
Lowers credit score
Difficulty getting a loan
73. Good Debt vs. Bad Debt
GOOD
A reasonable Mortgage Loan
A reasonable Auto Loan
Student Loans
Business Loans
Small Credit Load
These “GOOD” debts may be needed, but you
can over-leverage yourself. In that case, it
could be considered a bad debt.
74. Good Debt vs. Bad Debt
BAD
Excessive Credit Card Debt
Furniture Loans
Computer Loans
Retail Store Card Debt
Payday Loans
Tax Anticipation Loans
These “BAD” debts are a generalization. There
may be times when you get a loan for
something like a computer. REMEMBER, it is
always better to save up money beforehand
75. Who Looks at Your
Credit?
Lenders
Credit Cards
Store Cards
Auto Loans
Mortgages
Personal Loans
Furniture Loans
Computer Loans
Utility Companies
Cell Phone Companies
Insurance Carrier
Employers
Military (Security Clearance)
Rental agents
Bank
(checking/savings accts)
76. Which Accounts Build Credit?
YES
Credit Cards
Store Cards
Auto Loans
Mortgages
Personal Loans
Furniture Loans
Computer Loans
NO
Checking/Savings Accts
Cell Phone
Utilities
Insurance
Rental Agents (Housing)
Employers
Payday Loans
Title Loan Companies
77. Credit Scores Affect Financial Options
HIGH SCORES
Low interest rate on
loans
Ability to receive
loans/credit
Reflects borrower is
a low risk to lender
Ability to acquire
conveniences such
as cell phones and
credit cards
LOW SCORES
High interest rate
on loans
Inability to receive
loans/credit
Reflects borrower
is high risk for
lenders
Inability to acquire
conveniences
78. How Does A Credit Score Help Me?
Improves risk assessment
Lenders, Insurance, Employers, Housing
More equal treatment among borrowers
Able to qualify more quickly for credit
Credit “mistakes” will not affect your
ability to obtain lending as
drastically
79. Cost of Credit - Auto
Good Credit History
Pay $15000
Loan Terms 60 months at 4.5%
Payment = $297 a month
Total Cost of payments
= ($279.65) x (60 months) = $16,779
Poor Credit History
Pay $15000
Loan Terms 60 months at 26%
Payment = $372 a month
Total Cost of payments
= ($449.11) x (60 months) = $26,946
80. Cost of Credit – Mortgage
$200,000 home, 30 year fixed
750 FICO
4.5%
Total Cost of Payments
= ($1013.37) x (360 months) = $364,680
620 FICO
6%
Total Cost of Payments
= ($1199.10) x (360 months) = $431,676
DIFFERENCE = $66,996
81. How do I build credit if I have never had it?
Open a line of Credit: Credit Card
Buy things you would normally buy, pay off
at the end of each month
If you don’t qualify, consider a secured card
Take caution when asking for a co-signer
Buy things you would normally buy during
the month
Pay the account off in full at the end of each
month
82. Top 10 Questions to Ask Yourself Before You sign on the Dotted Line
1. Do I really need this item right now or can I wait?
2. Can I qualify for credit?
3. What is the interest rate (APR)?
4. Are there additional fees?
5. How much is the monthly payment and when is it
due?
83. Top 10 Questions to Ask Yourself Before You sign on the Dotted Line
6. Can I afford to pay the monthly
payments?
7. What will happen if I don’t make the
payments on time?
8. What will be the extra cost of using
credit?
9. What will I have to give up to pay for it?
(opportunity costs) Source: NEFE
84. The worth of being frugal
As a high school student, you know that the modern world does
not favor frugality. You are bombarded with ads about the
latest technology ($1000 for the latest iPhone) and fashion Must
haves on a daily basis.
While it may be tempting to succumb to those ads and
purchase the latest and greatest, you must learn how to live
within your means and understand the difference between
wants and needs if you want to be financially stable.
Learning how to make the most of what you have and how to
get a good value on items that you do purchase will only yield
financial benefits for your future.
The earlier you learn about personal finance management, the
better prepared you will be in your future endeavors.
85. Let your money work for you
We were all taught that it is important to gain a good education
and to learn valuable skills to enter the job force and start a
good career.
But here’s what few of us have learned: more important than
having a good job is learning how to make your money work for
you
Sure it’s important to have a good job. But it’s even more
important to be investing your money, no matter how
much you’re making. If the goal is financial security and
freedom, it doesn’t take rocket science; just a little
discipline and sacrifice early on. And what you’ll gain is
so much more than what you could buy today.
86. One last note:
$1 at age 18 can’t get you more than a coke at
McDonalds, or maybe a dollar menu burger.
But $1 at age 18 is worth about $54 at age 60 (assuming
10% return on investment).
Keep that in mind the next time you stop at
Starbucks. That $3 cup of coffee is actually taking more
than $150 out of your retirement fund!
Spend wisely
SAVE WISELY
