2 Personal Financial Management

SECURITY INDEPENDENCE CHOICES

After studying these topics, you will benefit by: Recognizing the significance of money management and budgeting on personal and professional success Distinguishing the wise use of credit and identifying debt management resources Evaluating alternatives for financing your education through student loans, financial aid, and other resources Discovering the impact your credit report has on your financial future Identifying methods to protect yourself from identify theft Assessing money wasters, emotional spending, and the impact money has on relationships

FINANCIAL MANAGEMENT Personal Financial Management: the process of controlling your income and your expenses

FINANCIAL MANAGEMENT Income: incoming money Parents Grants Student loans Job After college and starting your new career, your income most likely will increase

FINANCIAL MANAGEMENT Expense: outgoing money Tuition, textbooks, supplies Housing Transportation Food, shelter, clothing Hobbies and entertainment Health care Loans

PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE Personal finances impact all areas of your life Create a personal financial plan now Finances assist you in reaching life goals Monitor your money Keep debt under control Protect yourself from identity theft Don’t allow it to negatively affect your work or add stress

PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE Maintain a positive credit report Employer may require a credit check Use credit wisely Pay your bills

TOPIC SITUATION Oscar TOPIC RESPONSE: Where are you unnecessarily spending money?

MONEY MANAGEMENT Budgeting Create financial goals Budget: a detailed financial plan used to allocate money for a specific time period Reflects your goals Identifies, controls, and prioritizes spending Be honest and precise when creating a budget

MONEY MANAGEMENT Steps to Creating a Budget Identify goals Attach financial goals to personal goals Determine monthly income (money in) Determine monthly expenses (money out) Budget on a monthly basis Keep track of all spending Reduce money wasters

BUDGETING Determine Income Gross income: the amount of money in a paycheck before paying taxes or other deductions Net income: the amount of money you have after all taxes and deductions are taken out of your gross pay

BUDGETING Determine Expenses Fixed expenses: expenses that do not change from month to month Flexible expenses: expenses that change from month to month

BUDGETING Money wasters: small expenditures that you do not realize are actually using up a portion of your income Cash management is the key to good budgeting Carry a small amount of cash Minimize using your ATM card Reduce trips to the ATM Record all transactions

THINK ABOUT IT How will a personal budget assist you with your finances?

DEBT MANAGEMENT Debt management involves: Debt Loan Interest Net worth Assets Liabilities

DEBT MANAGEMENT Debt: money you owe for borrowed funds Debt vs. expenses Debt includes a loan with interest Expenses include bills that come regularly Loan: a large debt that is paid in smaller amounts over a period of time and has interest added to the payment Interest: the cost of borrowing money This is extra money paid to the lender

DEBT MANAGEMENT Total Net Worth Total Assets – Total Liabilities = Total Net Worth Net worth: the amount of money that is yours after paying off debt Assets: what you own Car, home, furniture Liabilities: an obligation to pay what you owe Car loan, home loan

DEBT MANAGEMENT Steps to Get Out of Debt Seek advice Parents Counselors Nonprofit credit-counseling services Credit-repair organizations Do not create additional debt Canceling or destroying a credit card does not eliminate the debt

DEBT MANAGEMENT Steps to Get Out of Debt Take action now Prioritize your debt Pay off the smallest amount or the amount with the largest interest first Take the extra cash from a paid-off debt and apply it to the next debt on your priority list

TALK IT OUT What are warning signs that you may be getting into excessive debt?

STUDENT LOANS Student loans are like all other loans Borrower must pay back the loan with interest Use only for school expenses Refer to your goals Exhaust all other funding sources Grants Scholarships Work-study

STUDENT LOANS Two types of student loans Federal Private Funded by the government Paid back after graduation Fixed rates No credit checks Private Private lenders such as a bank Paid back while in school Fixed or variable rates Need a credit check or co-signer

WISE USE OF CREDIT Manage Your Credit Managing credit and establishing savings is the best way to stay out of debt Do not abuse the privilege of loans and credit cards Consider interest rates Hidden costs Purpose of the loan Amount of payments How long to pay off loan

WISE USE OF CREDIT Manage Your Credit Do not accept all credit card offers Use credit only for items you can afford Spend wisely and pay off the balance each month Avoid cash advances

TOPIC SITUATION Simone TOPIC RESPONSE: What are the risks if Simone does not pay the credit card balance in full each month?

TALK IT OUT Identify potential terms and conditions that you should consider before getting credit from a lender.

CREDIT REPORTS Credit report: a detailed credit history on an individual Fair Isaac Corporation (FICO) score is the most common credit score rating system Scores 300-850 The higher the score, the better the rating Higher ratings allow you to secure loans at a lower rate

CREDIT REPORTS Credit report information: Includes all personal identification information Previous names, addresses, and employers Details credit cards and loans Shows balances and payments Shows liens, foreclosures, or bankruptcies

CREDIT REPORTS Three credit reporting agencies are Equifax, Experian, and TransUnion Under federal law, you are entitled to a free copy of your credit report from these agencies once every 12 months Use the annual credit report authorized by Federal law Take advantage of this free review Report any errors immediately

SAVINGS AND INVESTMENTS Begins saving now Put away funds for short-term goals or emergencies Rule of thumb: Have at least five-eight months’ income saved for emergencies Have savings in a financial institution If available, use an automatic deduction plan Funds are automatically deducted from your paycheck into your savings

SAVINGS AND INVESTMENTS Begin saving and investing now Saving: determine if you should use a regular savings account or a Certificate of Deposit Decide if you may need money readily available Investing: typically long term Stocks, mutual funds, real estate Involves risk Establish investments after you have a savings account

IDENTITY THEFT Identity theft: when another individual uses your personal information to obtain credit in your name Prevent by: Do not share Social Security number to anyone Disposing of any communication that contains your personal information by shredding Keep copies of important information in a safe place

IDENTITY THEFT Tips to Remember Do not give out your SSN over the telephone or Internet without verifying the authenticity of the company or individual requesting the information If using the Internet, check for a secure website Document all important numbers and keep them in a safe place Practice good personal financial management

IDENTITY THEFT Tips to Remember Remove your name from credit card and marketing lists Monitor your credit and bank accounts regularly If you receive a call from a collection agency and do not have poor credit, do not ignore the call

IDENTITY THEFT If You Become a Victim of Identity Theft File a police report Contact your bank, credit card companies, and cell phone provider Do not change your social security number; contact the Social Security Administration Fraud Department Contact the credit reporting agency fraud lines Document everything you do

ADDITIONAL FINANCIAL MATTERS Consider the long-term impact of your financial choices Be cautious when lending money to others or co-signing a loan Keep your financial information secure

CREDIT AND FRAUD RESOURCES Counseling services: The National Foundation for Credit Counseling Myvesta Foundation Credible credit reporting agencies and resources: Equifax Experian TransUnion