Bennie D Waller, Longwood University Personal Finance June 24, 2013 Bennie Waller Longwood University 201 High Street Farmville, VA 23901

Bennie D Waller, Longwood University Personal Finance  The development of this course was partially funded by an education grant from Dominion

Bennie D Waller, Longwood University DISCIPLINE: The ability to forego today what many can have to have tomorrow what so few can.

Bennie D Waller, Longwood University Course deadlines TopicAssignment Due Economics7/9/2013 Financial planning, choice of career and earning potential6/23/2013 The impact of taxes on income/tax planning6/23/2013 Financial statements and budgeting6/23/2013 Understanding the role of financial institutions and cash management6/23/2013 Exam 16/23/2013 Time Value of Money6/30/2013 Consumer Loans6/30/2013 Understanding credit - credit card, problems, reports and scores6/30/2013 Buying a home or automobile6/30/2013 Insurance6/30/2013 Exam 26/30/2013 Saving/Investing7/9/2013 Stocks7/9/2013 Bonds7/9/2013 Comparison shopping /consumer protection/contracts7/9/2013 Retirement and estate planning7/9/2013 Final Exam7/10/2013 Projects due7/11/2013

Bennie D Waller, Longwood University Personal Finance  Student evaluation - Students will be evaluated on his/her performance on quizzes, examinations and projects. Numerical GradeLetter Grade 90 and aboveA 80-90B 70-80C 60-70D Below 60F Project10% Quizzes10% Exam 120% Exam 220% Final Exam40%

Bennie D Waller, Longwood University Personal Finance  Ms. Cherry Hedges, VACU  Financial planning exercise

Bennie D Waller, Longwood University Personal Finance BREAK

Bennie D Waller, Longwood University Personal Finance  Remaining material  TVM  Loans, Credit Cards, Mortgages, Auto  Insurance  Investments, Stocks, Bonds, Mutual Funds  Consumer Decision making, Consumer protection  Retirement

Bennie D Waller, Longwood University Personal Finance Time Value of Money TVM Spreadsheet TMV Magic

Bennie D Waller, Longwood University Personal Finance

Bennie D Waller, Longwood University Personal Finance  Overview of Calculator

Bennie D Waller, Longwood University Calculator Source: wikipedia.com Payment key Present Value key I/Y = interest rate N =number of periods CE/C Clear key ENTER key Compute (CPT) Key Future Value key

Bennie D Waller, Longwood University Time Value of Money FV = PV = N = I = PMT= HINT on organizing results

Bennie D Waller, Longwood University Time Value of Money Calculator Solution Financial Formula Solution

Bennie D Waller, Longwood University Time Value of Money Present Value of an Annuity –

Bennie D Waller, Longwood University Time Value of Money Example: If you were to win the lottery worth $1 million to be paid out over the next 20 years at $50,000 per year. Assuming that your opportunity costs is 15%, how much is the $1 million worth today? PV = 312,967 FV = 0 N = 20 I = 15 PMT= 50,000

Bennie D Waller, Longwood University Personal Finance Financial Trivia Etiquette Trivia Paycheck Trivia Spending Trivia Financial Football Financial Soccer

Bennie D Waller, Longwood University Time Value of Money Time Value of Money - The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. Money received sooner rather than later allows one to use the funds for investment or consumption purposes. $100 today $100 in 1 year? Which would you rather have -- $100 today or $100 in 1 year? NOT having the opportunity to earn interest on money is called OPPORTUNITY COST.

Bennie D Waller, Longwood University Time Value of Money

Bennie D Waller, Longwood University Time Value of Money

Bennie D Waller, Longwood University Time Value of Money

Bennie D Waller, Longwood University The 5 “Cs” of creditworthiness The “five Cs” of credit to determine creditworthiness include:  Character: reflects stability in your lifestyle.  Capacity: reflects the relationship between earnings and debt.  Capital: reflects the level of savings and investments held.   Collateral: reflects the availability of assets for security, should you default on the loan.  Conditions: reflect the possible impact the current economic situation.

Bennie D Waller, Longwood University Big Ticket Purchases

Bennie D Waller, Longwood University Factors to consider Before making your purchase;  Maintenance costs – more for used cars  Operating costs -  Insurance - much higher for a sports car  Warranties  Rebates and interest rate promotions  Test drive the car  Reconsider extended warranties and other add-ons  Sources for information include  Nada.com  Kbb.com  Consumerreports.org

Bennie D Waller, Longwood University How much can you afford? PMT= PV = FV = 0 N = 4x12=48 I = 3/12 =.25 Alternatively, assume that you can obtain a $23,000, 4 year loan from an auto company running a promotion at 3% for customers with excellent credit. What would your monthly payment? Monthly Payment = Total Payments = $24, Interest Payments = 1,436.30

Bennie D Waller, Longwood University Housing costs  If purchasing a home, you are likely to incur significant one- time costs such as  Down payment  Loan points  Application/credit/origination fee  Application fee  Appraisal, title, attorney, home inspection fee  Title insurance  Recurring costs  PITI  Maintenance  Repairs

Bennie D Waller, Longwood University Borrowing ratio example Maximum loan amount 6% FRM with monthly amortization, 30 years 28% ratio36% ratio 36,000Annual Income36,000Annual Income 3,000Monthly Income3,000Monthly Income 840PITI (28%)1,080PITI and other debts (36%) 100Monthly taxes250Monthly car payment 100Monthly insurance100Monthly credit card payment 640Income for PI100Monthly student loan payment 630Income for PITI 100Monthly taxes 100Monthly insurance 430Gross income for PI $106,746.63Maximum amount of loan$71,720.39Maximum amount of loan

Bennie D Waller, Longwood University Down payment is a prohibitive factor Maximum home value Based on 80% LTV mortgage lending guidelines 28% ratio36% ratio $106,746.63$71, % LTV$133,433.29$89, % PMT$26,686.66$17,  With 20% you will have to pay private mortgage insurance

Bennie D Waller, Longwood University Terms of mortgage  Factors to consider  Interest rate  Size of monthly payment  Term of mortgage Loan Amount100,000 Interest6.00% Years3015 Monthly Payments Total Payments215, , Interest115, ,788.46

Bennie D Waller, Longwood University Thank You