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Financial $uccess

Presented by:

NameFamily Financial Education SpecialistUniversity of Missouri ExtensionWebsite: http://extension.missouri.edu/hes/Phone:E-mail:

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1. Goals and Decisions2. Managing Financial Resources3. Managing Credit4. Managing Risk5. Consumer Information

Financial $uccess

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What Matters Most?

Family Well-being(Primary Objective)

Use ofLimited Resources

Trade Offs

VALUES

Needs Vs.Wants

GOALS

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Decision Making Process

• Why must I decide?

• Making WISE decisions What is the decision?

Inform yourself

Select the “best” alternative

Evaluate the outcome

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Activity

• How Do I Decide?

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Short-Term GoalsShort-Term Goals == Within next 6 monthsWithin next 6 monthsMid-Term GoalsMid-Term Goals == Within next 2 yearsWithin next 2 yearsLong-Term GoalsLong-Term Goals == More than 2 years from nowMore than 2 years from now

Time Limited

Relevant

Specific

Measurable Attainable

Setting SMART Financial Goals

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Activity

• What My Family Wants to Accomplish

• Setting Financial Goals– Short-term– Mid-term– Long-term

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1. Goals and Decisions

2. Managing Financial Resources

3. Managing Credit

4. Managing Risk

5. Consumer Information

Financial $uccess

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Identifying Financial Resources

Income - money from earnings or other sources

Savings - money from past income

Credit - money from future anticipated income• borrowed from future income

at a price (interest rate)

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Net Worth:Your Financial Snapshot

Net Worth = Assets – Liabilities

1. Add up value of what you own (assets)

2. Add up value of what you owe (liabilities)

3. Subtract liabilities from assets

Aim – positive net worth

Review net worth regularly

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How to Make a Spending Plan

1. Determine Income 2. Estimate Expenses

• Fixed, flexible, occasional• Saving, include saving for your

goals and emergencies!

3. Balance the plan• Income-Expenses=0

4. Follow plan and keep track of progress

5. Make adjustments as necessary

• Reduce expenses• Increase income

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Determine Income

Money for use today comes from several sources Paycheck Public assistance Social security Relatives Sale of goods Alimony or child support Investments or savings Credit

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Estimate Expenses

Fixed expensesare the same each month.

Flexible expenseschange each month.

Occasional expensesoccur 1-3 times a year.

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Activity

• Developing a Spending Plan

• Financial $uccess depends on:– knowing where you are now,– knowing where you

want to be, and– having a specific plan

for getting there.

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Record Keeping

• What records to keep

• Where to keep records

• How long to keep records

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1. Goals and Decisions

2. Managing Financial Resources

3. Managing Credit

4. Managing Risk

5. Consumer Information

Financial $uccess

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What is Credit?

Using your future income in the present.

Types of Credit– Installment Credit– Service Credit– Revolving Credit

• Credit cards

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Sources of Credit

• Banks, S&L, credit unions• Credit cards, department

stores• Mortgage companies• Utilities• Rent-to-own stores• Refund anticipation loan

(RAL)• Title loans, payday loan

companies• Pawn shops

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Costs of Credit

• Annual percentage rate (APR)

• Annual fees

• Late fees

• Over-the-limit fees

• Transaction fees

• Penalty APRs

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Costs of Credit

Balance APR Total $$ Payoff Time

$2,500 18% $3,157 31+ months $2,500 22% $3,375 33+ months $5,000 12% $5,782 28+ months $5,000 18% $6,314 31+ months $5,000 22% $6,750 33+ months $10,000 18% $12,627 31+ months $20,000 18% $25,254 31+ months

Based on minimum payment of 4% of the original balance, with no new debt added

Example: Credit Card

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Activity

• Shop for Credit

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Danger Signs

• Paying bills late

• Fees and penalties on bills

• Creditors calling

• Checks bouncing

• Juggling payments

• High debt-to-income ratio

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Appropriate Use of Credit

It may be appropriate to use credit:• when you pay balances in full

and make payments on time• when you have a financial emergency• for convenience or safety

of a credit card• for additional security for

a purchase• when cash is not appropriate

(such as with on-line purchases)

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Alternatives to Credit

• Rethink your goals

• Pay cash

• Save for emergencies and goals

• Use a debit card

• Postpone or do without

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Activity

• When to Use Credit

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What is a Credit Report?

Your financial management report card:

• Financial information

• Personal information

• Bankruptcy filings

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Who Uses my Credit Report?

• Potential employers

• Rental landlords

• Lenders

• Insurance agencies

• Credit card companies

• Retailers

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Who Provides Credit Reports?

• 3 major credit reporting bureaus are:– Equifax– Trans Union– Experian

Can I see a copy of my credit report?• One free annual report per person from each credit

reporting bureau

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What if There is a Mistakeon my Credit Report?

• Contact the credit bureau

• Contact the creditor directly

• Write a 100 wordstatement

• Beware of “creditrepair” scams

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Your Credit Score (FICO)

Payment History

35%Debt Load

30%

Length of Credit

15%

Other Factors10% New Credit

10%

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Why FICO Scores Matter

• Myfico.com scores 300 - 850

• How your credit score affects your interest rate / cost ofyour mortgage loan: 30 year, $85,000 mortgage loan

FICO® Score Int. Rate Payment Interest Paid 720 - 850 6.221% $522 $102,833 700 - 719 6.346% $529 $105,324 675 - 699 6.882% $559 $116,163 620*- 674 8.029% $625 $140,151 560 - 619 8.752% $669 $155,774 500 - 559 9.332% $704 $168,559

Source: www.myfico.com

* Indicates the cut off point between prime/sub-prime loans

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Rebuilding Your Credit

• Check your credit report regularly

• Pay bills on time• Set up a financial plan• Apply for a secured credit card• Have someone co-sign a loan• If one lender turns you down,

try another

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Credit and Bankruptcy

• Following bankruptcy, pay more for a loan• Automobile loans may be available

– You could face an APR = 20% or 22%, compared to 7%, prior to bankruptcy.

• Monthly payments for a $25,000 car, for 4 years would be – $760.76, at 20% (Total = $36,516.48)– $598.66, at 7% (Total = $28,735.68)

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How Can I Protect my Credit?

• Keep personal information safe

• Shred or destroy receipts, applications and documents

• Report stolen cards immediately

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• Truth in Lending

• Fair Credit Reporting

• Fair and Accurate Credit Transactions Act

• Equal Credit Opportunity

• Fair Debt Collection Practices

• Fair Credit Billing

Consumer Credit Laws

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1. Goals and Decisions

2. Managing Financial Resources

3. Managing Credit

4. Managing Risk

5. Consumer Information

Financial $uccess

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What is at Risk?

• What is at risk?– The possibility of

financial loss from events we do not anticipate

– Risk is everywhere

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How to Manage Risk

• Methods of handling risk– Avoid (e.g., do not

participate)– Reduce (e.g., use

precautions)

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How to Manage Risk

– Transfer(e.g., buy insurance)

– Retain(e.g., establish emergency fund)

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Common Insurance Policy Terms

• Policy = contract

• Coverage = what insurancepays for

• Term = length of contract

• Premium = cost of contract

• Deductible = what you pay before insurance company pays

• Claim = request for payment

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How Insurance Works:Term Life Insurance

• Application– Private history– Demographics

• Underwriting– Company tries to match the probability of

paying out with the premium

• Policy delivery

• Pay the premiums to continue coverage

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Term Life Insurance…continued

• 2 possibilities– The term of the policy

ends; no dependents to take care of.

– Death, life insurance pays out the face value to take care of the dependents.

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Activity

• Life’s Big Gamble

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Types of Risk & Insurance• Loss of Property

– Auto Insurance– Homeowners/Renters Insurance

• Loss of Health– Health Insurance

• Loss of Income– Life Insurance– Disability Income Insurance

• Liability– Auto Insurance– Homeowners/Renters Insurance

• Living too Long– Retirement Savings– Annuities

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Types of Insurance

• Other– Flood– Travel/AD&D– Long term

care/disability– Burial

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Generally Unnecessary Insurance

• Credit insurance (e.g., life, disability, unemployment)

• Life insurance on the lives of children

• Dread disease (e.g., cancer insurance)

• “Double Indemnity” insurance riders

• Hospital indemnity policies

• Flight insurance

• Car rental collision-damage waivers

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Shopping For Insurance

• Decide coverage you need

• Decide risk you want to retain

• Get three quotes for each type of insurance

• Try several different marketing channels

– Agents

– Mail order

– Online

– Insurance Broker

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1. Goals and Decisions

2. Managing Financial Resources

3. Managing Credit

4. Managing Risk

5. Consumer Information

Financial $uccess

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Consumer Information

• Opt out numbers:– Pre-approved credit card offers

• 1-888-5OPTOUT (1-888-567-8688)

– No call list• 1-866-662-2551 • http://www.ago.state.mo.us/nocalllaw/nocalllaw.htm

• ID Theft Clearinghouse • 1-877-438-4338• www.consumer.gov/idtheft

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Consumer Information

• MU Extension– http://extension.missouri.edu/

• Federal Citizen Information Center (FCIC)– http://www.pueblo.gsa.gov/– 888-8 PUEBLO (888-878-3256)

• Missouri Attorney General’s Office– http://www.ago.state.mo.us/consumers.htm– Consumer Protection Hotline 800-392-8222

• National Fraud Information Center– http://www.fraud.org/– 800-876-7060

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Creating Financial $uccess

• Make SMART goals and WISE decisions

• Every small step makes a difference

• Pay yourself first for goals and emergencies

• Consider future income before seeking credit

• Follow “The Rule of Three”

• Recognize your own personal needs and wants

• Buy insurance for large financial risks

• Develop a workable spending plan

• Start now on the road to financial success!