your financial future review. credit & debt costs of using credit interest can be costly when...
TRANSCRIPT
YOUR FINANCIAL FUTURE
REVIEW
CREDIT & DEBTCOSTS OF USING CREDITInterest can be costly when the balance is revolvedAdditional penalty or feesTempting to overspendRisk of identity theftApplying for multiple accounts in a short period of time can lower your credit score
GOOD USES OF CREDIT
Student loansBuying a homeBuying a car
ADVANTAGES TO USING CREDITConvenient payment toolUseful for emergenciesOften required to hold a reservationAble to purchase “big ticket” items and spread out payments
Protection against fraudOpportunity to establish a positive credit ratingOnline shopping is safer than using a debit cardPossibility of receiving bonuses
FACTORS THAT INFLUENCE ESTABLISHING AND MAINTAINING A GOOD CREDIT RATING Acquire a small loan for an item that you already have the money available to pay for, then make the paymentsObtain a secured credit cardPay bills consistently and on timeMaintain reasonable amounts of unused creditApply for credit sparingly, thus keeping credit inquiries to a minimumCheck credit reports annually and search for errors
NEGATIVE CREDIT USAGE
Routinely paying late on credit cards, utility and cell phone billsMaxing our limits on credit cardsNumerous credit applications in a short period of time
2009 CARD ACCOUNTABILITY AND DISCLOSURE ACT (CARD)Changed how young adults can receive certain types of creditConsumers must be generally 21 years of age or older Under 21 needs to have a co-signer or show documentation of sufficient income to make payments
1971 FAIR CREDIT REPORTING ACTEnacted to protect the consumerStates consumers have the right to know what information is in their credit report and to correct any errorsUnder the act, if you are denied credit, they must give you the name and address of the credit bureau that your information came fromIf an error is found on a credit report, it is important to IMMEDIATELY contact the credit bureau by phone AND in writing
INSURANCE RISKS
Car accidentsHouse firesAccidental death
TYPES OF INSURANCE
Auto InsuranceHomeowner’s InsuranceRenter’s InsuranceFlood InsuranceLife Insurance
COSTS OF INSURANCE
Premium – The amount paid to the insurance company every month in order to maintain insurance coverageCo-Pay – Mainly for health insurance, it’s the amount owed each time you visit the doctorDeductible – Refers to the amount you must pay before your insurance provider begins to cover costs; the higher the deductible, the lower your monthly payments
FINANCIAL RISK
SAVINGS
Amount of income not spent on consumptionEmergency savings should equal 3-6 months of expensesIf your expenses are $2,000 per month, you should save (for emergencies only) $12,000
PYF – pay yourself first, make your savings just like an expense and pay that money into your account just like you would a bill, then don’t touch it.
INTEREST RATES ON SAVINGSWhen you are looking at interest rates for your savings, the HIGHER the BETTERThis is money you are EARNING on your savingsCompounding interest is earning interest on your interest
TYPES OF SAVINGS
Checking AccountStandard Savings AccountsMoney Market AccountsCD’s (Certificates of Deposit)Savings Bonds
CHECKING ACCOUNT
Account that provides an easy method for withdrawing or depositing moneyMost liquid of all accounts
STANDARD SAVINGS ACCOUNTAccount at a depository institution that is designed to hold money not spent on current consumptionSome interest, but lower rates compared to other savings toolsMore liquid than other savings tools
MONEY MARKET DEPOSIT ACCOUNTAccount at a depository institution Usually has minimum balance requirementLess liquid than standard savings accountsYou may pay a penalty for early withdrawal
Tiered interest rates The more you put in the higher rate you will get
CERTIFICATE OF DEPOSIT (CD)Account that is used for a fixed period of timeAllows restricted access to the fundsInterest rates vary depending on the length of timeThe longer the time frame of the deposit, the higher the interest rate
PAYROLL DEDUCTIONS
AUTOMATIC SAVINGS OPTIONS
REFLECTIVE SPENDING PRACTICES ON FINANCIAL WELLBEING
INVESTING You shouldn’t use investments for savings or short‐term goals/expenses because of two primary reasons:1. Unlike insured savings tools, investments are not secure. There is a chance that some or all of your money invested could be lost. 2. Investments are less liquid than savings tools. That is, investments may not be easily converted to cash or you may have to pay a penalty to access the money. In fact, with some investments you may have to wait a long time, even years, to access the funds.
INVESTING
Long term goals
Less liquid
Higher Risk
Higher Returns (8-12%)
Contributes to Net Worth
RATE OF RETURN
Total Return
Amount of
Money Invested
Rate of
Return
STOCKS
Stock is a share of ownership in a company
Owner of the stock is called the Stock Holder
If a company makes a profit, they may share that with the stockholders – this is called a dividend
If you sell a stock for more than you bought it for you earn a capital gain
REAL ESTATE
Can also be considered an investment
Ways to earn money:RentSelling for more than your purchase price
Real Estate is more time consuming than other investments
MUTUAL FUNDS
A mutual fund is created when a company combines the funds of many different investors and then invests that money into a diversified portfolio
Mutual funds may include stocks, bonds, real estate and/or capital gains
RISK VS. RETURN
The higher risk you are willing to take, the higher return you could potentially earn
HOW DO YOU PURCHASE INVESTMENTS? Stock Exchange – provides an organized, central service to buy and sell stocks, bonds, and other investments that are traded
Brokerage Firm – facilitates the buying and selling of investments from a stock exchange; they offer investment advice; they act as a intermediary between stock exchange and investor; you must pay them a fee
Discount Brokerage Firms – provides limited services; only completes orders you give them to buy and sell investments; they do not provide you with advice; they usually charge lower fees and/or commissions than full-service brokerage firms
401K – EMPLOYER SPONSORED RETIREMENT PLAN