Transcript Real World Money Education

Real World Money Education
Tarek Dabbagh
Steven Carlson
http://economicsfordummies.org/
Pop Quiz
• If you bought a TV for $3500 on credit and just
made the minimum payments, how long
would it take you to pay it off?
• Less than a year?
• 1-5 years?
• 5-10 years?
Objectives
•
•
•
•
•
•
•
•
•
To attain financial independence
Setting and achieving goals
Basic Financial Institutions and accounts
Determine your financial health
Figure out where your money is going
Control your spending habits
What is credit?
Managing and understanding your debt
Planning and achieving your retirement
How to Attain Financial Independence
• Open a Checking AND Savings account
– Do not touch your savings account
– Don’t let your bills exceed your checking balance
•
•
•
•
•
Spend LESS than you make
Budget your daily and monthly expenses
Make plans for big expenses (Car, House, etc.)
Be prepared for emergencies
Plan your work and work your plan!
Setting & Achieving Goals
• Write down your goals for the future
– Are you setting aside money each month for these goals?
• How will you afford a car? House? Medical bills?
– Financing and loans are beneficial if used correctly
– Shop around for the best rates
• How long does it take to pay off debt?
– Remember the opening example? Do not carry a balance on
your credit card
– Pay off your debts before you start investing
• How much do you need at retirement?
– The average American looking to retire at 60 and live until 90
will need more than $1,000,000 in order to live comfortably
Basic Financial Institutions and accounts
• Options: Banks & Credit Unions
• Bank- for profit company owned by “shareholders” who have voting rights to
elect board of directors to manage overall operations of the bank. Open to all.
• Credit Union- those who have accounts in the credit union are its
members and owners. Mission to be "community-oriented" and "serve people,
not profit. Only a member of a credit union may deposit or borrow money.
• Savings accounts – deposit money you don’t intend to
spend but can withdraw without penalties. Aligns well
with short to medium term goals.
• Checking accounts- easy access to your cash via checks or
ATM cards, allows one to manage their daily finances with
bank statements and apps.
Budgeting
• An approach to manage a spending plan for a
specific period of time
• Basic Formula : Income – Expenses = Surplus of Cash
• Income: money that comes to you. It could be other than
wages such as from investments or the sale of ones
belongings to even simple interest earned from a savings
account
• Expenses: where your money goes, 3 types of expenses
• 1. Fixed = consistently fixed such as rent and insurance
• 2. Variable = vary in amount such as utilities in seasons
• 3. Periodic = not paid constantly such as charity
Spending Habits
• Before you buy, is it a WANT or a NEED?
• Can you REALLY afford it?
– Is it following your budget guidelines
– If Credit is used, you should be able to pay off your credit
card bill in FULL each month
• Are you being smart about your money?
– Track your spending
– Set limits (Fast food, entertainment, dining out, etc.)
• Where can you save?
– Walking, public transportation, discounts, coupons, etc
*If a budget is followed with discipline many financial issues
never arise
Stretching Your Dollar
• Where are you spending too much?
– Buy only the essential groceries
– Are you driving too much?
– Does your bank charge fees?
• What new changes can you make to save?
• Are you conscious of your purchases?
• Do you have friends that pressure you to
overspend?
• Can you do anything to earn a second (or primary)
income?
Building and earning credit
• Why do we need credit?
– Good credit will allow you to get car loans, mortgages, and even jobs
• How to build credit
– Pay off your bill in full each month and on time
– Use less than 20% of your available limit
– No late payments
• When should we use credit?
– Use credit on expenses that you have the cash in your account to pay
for
– Do not purchase anything on credit that you cannot afford
• Common mistakes
– Purchasing more than you can afford
– Only paying the minimum each month
– Using one card to pay off another
Managing Debt
• Pay off your highest interest debts first
– Credit cards have the highest rates, pay off these
bills first
– Short term and student loans can be paid off next,
don’t take loans with early payment penalties
– Mortgages
• Don’t add unnecessarily to your debts
Compound Interest
• Joey invested $20,000 at age 40 and $100 a
month after
• Sarah invested $10,000 at age 25 and $50 a
month after
• When they both retire at 60, who will have
more assuming they both earn 5% a year
• Joey will have $92,745.10
• Sarah will have $109,352.34
Conclusion
• Take the self initiative and plan for you own
destiny
• With short, medium and long term goals you
will be available to monitor your progress
properly with accountability.
• Lastly, try to make more and spend less!