money management for college students making money smart decisions

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For the Freshman Decision Making Class - The importance of making good financial decisions and how the decisions you make today will impact the rest of your life.

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  • 1.Money ManagementFor College Students:Making Money Smart DecisionsPresented By:Sherry AubleChartered Retirement Planning CounselorFounder, Divorce Financial Strategy &Savvy Women & Wealth

2. Agenda Most Common Mistakes College Students MakeWith Money Why Money Management Is So Important How To Make Thoughtful Decisions What You Need To Know To Make Good Money Decisions While In College 1. Develop A Monthly Budget & Track Expenses 2. Build An Emergency Fund 3. Manage Your Debt Effectively 4. Understand Your Loans 5. What You Need To Know About Your Credit Report & Credit Score 3. Most Common Money Mistakes Students MakeSpending Every Penny Instead of SavingLiving Beyond Your Means Racking Up DebtLetting Your Bills Slide Not Paying On TimeSpending Extra Student Loan MoneyNot Researching To Find The Best DealsNot Keeping Track of Account Transactions & Balances 4. Why Good Money Management Is Important?1) Your credit management habits affect your credit score & therefore, your financial futurePeople with low credit scores pay morefor:RentCar loansCar insuranceMortgagesHealth/dental/vision insuranceIf your credit score is low, it can preventyou from:Getting an apartmentGetting a job 5. Why Good Money Management Is Important?2) When you graduate and start your first job, youll have new expenses: Moving Expenses Transportation Expense: (parking fees,train fee, car purchase, car insurance, etc.) Higher Living Expenses: (food, drycleaning, laundry) New Clothes For Work Student Loan Expense Kicks InThe more debt you accumulate today, eitherthrough student loans, personal loans,or credit card debt, will impact thefinancial decisions you are able to makeafter you graduate. 6. Make Thoughtful DecisionsDecision MakingProcess PredictIdentify TheGather Identify Make The Immediate & LT Act EvaluateProblemInformation AlternativesBest ChoiceConsequencesReflect onDecide Your List The Which of Learn AboutDecide WhatList Pros &Implement Decision & Problem You Your DifferentYour OptionsCons of YourYourDetermine Need To Alternatives OptionsAre OptionsDecision What YouSolveAre Best ForWould Do YouDifferently 7. What You Need To Know To Make Good MoneyDecisions While In College1. Develop A Monthly Budget & Track Expenses2. Build An Emergency Fund3. Manage Your Debt Effectively4. Understand Your Loans5. What You Need To Know About Your Credit Report & Credit Score 8. 1) Develop Your Monthly Budget Plan1) Make A List of All Monthly Expenses:RentHousing Expenditures (Utilities, Phone, Cable)FoodTransportation (Car Pmt, Parking, Gas)Payments (Credit Cards)SavingsClothingEntertainmentCar InsuranceOther Miscellaneous Expenses (hair cut, laundry, etc.)2) Make A List of All Monthly Income:3) Develop A Spreadsheet & Start TrackingFixed/Non-Discretionary Variable/DiscretionaryRentFoodTime Warner EntertainmentUtilities ClothingCell PhoneSavings 9. Develop Your Monthly Budget Plan3) Subtract Income Total From Expense Total To Determine Surplusor Shortage For The Month4) Tracking Your Spending The key to minimize expenses & creating extra cash is to understand exactly how you spend your money Ask for a receipt for everything you purchase and put it in an envelope, tally at end of month Set up alerts & receive email/text message if going over Why Budgets Are Necessary Allows you to understand where your money is going and whereit needs to go Controlling your spending leaves more money for entertainment& savings Review expenses & determine what can be reduced 10. How Could You Cut Expenses Out of Your Budget?- Dont buy unnecessary items - Go thrifting- Comparison Shop - Keep your car maintained- Dont shop often- Do free or cheap things for- Stop buying on impulse entertainment (on campus- Wait to buy something all the better)- Break expensive habits- Dont try to keep up with- Go out to eat less someone who has more- Use couponsthan you have- Go to discount movies - Cut out fancy coffee drinks 11. 2) Build An Emergency Fund1) Set Up A Savings Account Shop around for a bank offering the least fees(Bank of America Versus Cornell Federal Credit Union) Enroll in on-line banking, bill pay, & link up accounts2) Save 5-10% of Monthly IncomeCant afford to? Soda at $2/bottle everyday = $730/yr Daily coffee at $3.50/cup = $910/yr.3) Keep It Safe, Separate From Daily Living Expenses, But Easily AccessibleRule of Thumb: If you cant pay cash, then you cant buy it 12. Advantages & DisadvantagesAdvantages:Able to buy needed items nowDont have to carry cashCreates a record of purchasesMore convenient than writing checksConsolidates bills into one paymentDisadvantages:Interest (higher cost of items)May require additional feesFinancial difficulties arise if you lose track of how much youre spendingIncreased impulse buying may occur 13. 3) Managing Your DebtCredit Card Debt Shop around for lowest IR credit card to transfer balances Pay more than the minimum balance due Pay the most toward higher IR credit cards Pay as much as possible, even if it means less in savings Always pay on time Use on-line bill pay Spend one day a month to program your bill payments for a futureexecution date so you never miss paying one Once you pay off a credit card, dont close them It hurts your utilization ratio Amount you owe versus youravailable credit balance. Leave them open to maintain your creditscore. 14. Managing Your DebtBalance Transfers Move higher interest credit cards to lower ones Offers a low or no interest guarantee during a promotional periodto transfer existing credit card debt and/or a qualifying loanbalance Typically a 3% fee is assessed on the amount transferred (If itshigher, negotiate or decline, if the 3% fee is higher than thesavings gained by moving the balance, dont do it) Read all terms & conditions in the agreement (even the smallprint) Your credit score determines your credit limit & IR Transfer under the credit limit they offer Inquire about what happens at the end of promotional period.New interest rate, fees, etc. 15. Managing Your DebtKeep In Mind: Getting a lower IR may not save money if yourrefinancing/consolidation/repayment stretchesout the terms of the loan for a longer period of time You may need to lengthen the terms to decrease your pmtsto an affordable level Always make sure you work out the numbers to see if itmakes financial sense by figuring the break-even point To save the most money and get rid of debt quickly,refinance your existing debt for a lower IR and stick withthe existing pay off schedule or a shorter oneOn-Line Calculators: Bankrate.com Dinkytown.net Rategenius.com 16. Charging On Your Credit Card The True CostHow Much Is It Really Costing You?You charge $2,500You pay $50 a monthYearly interest rate is 20%How long will it take to pay the balance? Answer:9 Years, 1 MonthPaid $2,920 In Interest ChargesTotal Interest Rate Paid = 116% 17. Credit Cards: What To Watch Out For!Low introductory rates that increase dramatically over timeCharging an annual feeLate payment fees as high as $35 a month plus, finance chargesCharging a transaction fee for cash advances and the interest startsimmediately (no float)Charging $35 a month for going over your credit limit, plus financechargesYou must notify the company ASAP if your card is lost or stolen inorder to limit your liabilityThere is a difference between the stated versus effective interestrates. 18. 4) Understand Your LoansUnderstanding Your Student Loans1) Read the terms, conditions & repayment options2) Find out when your grace period ends & mark your calendar. Ex. Stafford Loans: 6 months after graduation3) If you havent found a job, call to discuss your options.How To Repay1) Extended Repayment up to 25 yrs to repay w/a substantially reduced monthly pmts2) Graduated Repayment make lower pmts for several years followed by increased pmts for the remainder time3) Income Sensitive Repayment make lower pmts that gradually increase, based on your monthly income4) Income Based Repayment allows you to cap your loan pmt at 15% of your discretionary income due to financial hardship.Loan Deferment allows you to temporarily stop making pmts for a set time (6 mos). Interest still accrues. 19. Understand Your LoansPrivate Loans1) Due to credit market crunch, fewer programs available to consolidate and the underlying IRs remain variable.2) Most private education loan programs have multiple repayment options that could decrease your pmts3) Programs offer the ability to temporarily decrease pmts4) Other alternatives: Outside line of credit or home equity loan.Government Consolidation Loan1) Review loans to determine if it makes financial sense2) Shop around local banks, Sallie Mae (largest student loan provider), American Education Services (full svc financial aid org)3) Read terms, conditions & fees4) Pay on time Its the beginning of your credit history5) If you dont pay IRS garnishes tax refunds & Dept of Education garnishes your wages. 20. Understand Your LoansLoan Consolidation- If you have multiple debts (loans, credit cards, etc.),combine together into one monthly pmt.- Saves money with a lower overall IR- Easier to manage your debt with one pmt date- Private & federal loans cannot be combined, must beconsolidated separately- Any special repayment options of original loan agreementwill be lostRefinancing - When done properly, holds the key to getting out of debt faster with the least expense - Goal: Reduce your IR - Lets you replace a debt with another debt w/a new loanInterest Rates = Your Cost For Borrowing Money - Current Market IRs, Loan Length, Amt Borrowed, & Type 21. 5) What You Need To Know About Your Credit Report & ScoreKeys To SuccessMaintaining High Credit Limits Is Good Credit scores are largely based on the amount you owe The lower your utilization rate, the better (incl. all debtsincluding business & employer accts in your name)Build A Str