Transcript No Slide Title
United States Military Academy Department of Social Sciences
You and Your Money Briefing to Class of 2008 “No Mission Too Great!” 7 January 2007
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Why We Are Here
•
Talk about your pay and your money
•
Give some standard advice about savings
•
Help you think about your Cow Loan plan
•
Motivate you to start planning and saving today
Duty, Honor, Country
United States Military Academy Department of Social Sciences
ENTITLEMENTS: Cadet Pay Pay Advance TOTAL ENTITLEMENTS DEDUCTIONS: FITW SITW FICA SGLI Repayment of Advance TOTAL DEDUCTIONS ENTITLEMENTS LESS DEDUCTIONS CHECKING ACCOUNT ALLOWANCE
Your Pay
Remainder AY07 AY08 4317.30 10361.00
4317.30 10361.00 DEPOSIT TO CADET ACCOUNT 183.75 62.50 330.25 441.00 150.00 792.60
135.00
324.00 550.00 1320.00
1261.50 3027.60
3055.80 7333.92 2000 6000 1055.80 1333.92
Duty, Honor, Country State Tax is variable This is your discretionary pay
United States Military Academy Department of Social Sciences
ENTITLEMENTS: Cadet Pay Pay Advance TOTAL ENTITLEMENTS DEDUCTIONS: FITW SITW FICA SGLI Repayment of Advance TOTAL DEDUCTIONS ENTITLEMENTS LESS DEDUCTIONS CHECKING ACCOUNT ALLOWANCE
Your Pay
Remainder AY07 AY08 4317.30 10361.00
4317.30 10361.00 DEPOSIT TO CADET ACCOUNT 183.75 62.50 330.25 441.00 150.00 792.60
135.00
324.00 550.00 1320.00
1261.50 3027.60
3055.80 7333.92 2000 6000 1055.80 1333.92
Duty, Honor, Country You still Owe $1870
These are “set-asides” by the Treasurer
United States Military Academy Department of Social Sciences Cadet Account
Balance Forward DEPOSITS: Initial Deposit Deposit From Cadet Entitlements Interest Earned Rations Earned TOTAL DEPOSITS
Your “Budget”
AY 07 Jun 07-graduation xxxx.xx 1055.80
23.08 178.75
1290.63
xxxx.xx
1333.92 55.39
429.00
1818.31
EXPENSES: Laundry/Dry Cleaning Personal Services DCA Fee/Eisenhower Hall Tickets Class Activities Cadet Publications Athletic Fees Uniforms & Equipment Books & Supplies Computer & Supplies Class Fund Information Tech Fee Newspapers – NY Times Miscellaneous Inflation Factor TOTAL EXPENSES 159.75
121.70
95.83 55.42
39.17 30.00 59.17 834.00
157.08
383.40
292.08
230.00
333.00
99.00 72.00
142.00
1310.00
177.00 82.06 20.83
196.94
50.00
1655.01 3285.42
Duty, Honor, Country Have you “topped-off”?
Notice what’s not here…..
RING 2LT Uniforms Car Insurance Credit Card Pmts etc.
etc.
United States Military Academy Department of Social Sciences Cadet Account
Balance Forward DEPOSITS: Initial Deposit Deposit From Cadet Entitlements Interest Earned Rations Earned TOTAL DEPOSITS
Your “Budget”
AY 07 Jun 07-graduation xxxx.xx 1055.80
23.08 178.75
1290.63
1333.92 55.39
429.00
1818.31
EXPENSES: Laundry/Dry Cleaning Personal Services DCA Fee/Eisenhower Hall Tickets Class Activities Cadet Publications Athletic Fees Uniforms & Equipment Books & Supplies Computer & Supplies Class Fund Information Tech Fee Newspapers – NY Times Miscellaneous Inflation Factor TOTAL EXPENSES 159.75
121.70
95.83 55.42
39.17 30.00 59.17 834.00
157.08
383.40
292.08
230.00
333.00
99.00 72.00
142.00
1310.00
177.00 82.06 20.83
196.94
50.00
1655.01 3285.42
Duty, Honor, Country Minimum Account Balance is required Just for you to meet Expenses Total Expenses Exceed Total Deposits
United States Military Academy Department of Social Sciences
Should you “Top-Off”?
Reasons to Top-Off Get out of Credit Card Debt Avoid Credit Card Debt Reasons not to Top-Off Save for your Class Ring $1200 Save for your Uniforms $2000 Money is in an interest bearing account
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Review Budget Basics
Short Term Goals Ring Uniforms Spring Break Car Medium Term Goals Wedding House Down Payment Spouse’s Tuition Long Term Goals Retirement Kid’s College
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Should you “Top-Off”?
Between now and graduation you will collect $8000 in discretionary pay Class Ring LT Uniforms $1200 $2000 Travel Home x 5 $1500 Spring Break x 2 $1600 Total $6300 $8000 - $6300 = $1700 There are 17 months until graduation You have about $100 per month for incidentals
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Should you “Top-Off”?
Between now and graduation you will collect $8000 in discretionary pay Class Ring $1200 LT Uniforms $2000 $8000 - $3200 = $4800 Mom and Dad pay for travel and vacations There are 17 months until graduation You have about $282 per month for incidentals Total $3200
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Avoiding Credit Card Debt
Do not use your credit card for routine expenses if you are not currently paying it off every month Establish and maintain an Emergency Fund Emergencies are unscheduled trips home and car repairs Plan ahead for your known major expenses Avoid impulse purchases on credit Don’t try to keep up with the Joneses
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Myth: I’ll start saving after graduation
Your financial planning will never be simpler than it is now If you haven’t learned to live within your budget now what makes you think you’ll do it when you’re paying for groceries and rent?
If you’re not eating in the mess hall now, what makes you think you’ll stop eating fast food later The green zone in Baghdad has Subways AAFES is in Iraq, too If you have access to the internet you can spend money
Duty, Honor, Country
United States Military Academy Department of Social Sciences
The Cow Loan
Should I take the loan?
What should I do with it?
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Background
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Cadets sign for $30k loan with very favorable interest terms second semester Cow year
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Repayment represents 25% of base 2LT pay (30% after tax)
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We have seen an increase in financial vendors and interest from financial vendors in the last several years
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We have many reports of vendors pressing cadets to purchase products that are not always in their best interest
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Concerns
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Many cadets have no plan for the loan
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Cadets are bombarded by vendors who are selling products they don’t need
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Cadets are not planning ahead for major purchases and are taking on credit card debt in addition to the loan
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Cadets believe USMA sanctions the vendors that are selling them inappropriate products
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Basics
It’s a good deal -- take it!!
BUT!!!!
It’s a COW LOAN not a CASH COW!
Know thyself!!
Duty, Honor, Country
Short Term Goals Ring Uniforms Spring Break Car
United States Military Academy Department of Social Sciences
Review Budget Basics
MediumTerm Goals Wedding House Down Payment Spouse’s Tuition Long Term Goals Retirement Kid’s College These are the only items that a financial planner will recommend financing with debt
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Basics
#1 Priority is to pay off credit card debt #2 Priority is to plan for known expenses without going into credit card debt Class ring and uniforms Any known travel
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Basics
#3 Priority is to pay for your car Do not take on additional debt to buy a car You are already maxed out!
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Basics
The ideal plan is to save and invest Max out your Roth IRA Invest the rest according to your medium and long term financial needs
Duty, Honor, Country
Short Term Goals Ring Uniforms Spring Break Car
United States Military Academy Department of Social Sciences
Financial Goals
Medium Term Goals Wedding House Down Payment Spouse’s Tuition Long Term Goals Retirement Kid’s College The Cow Loan presents you with the opportunity to get a head start on your Medium and Long Term Goals
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Max Out Your Roth IRA
Invest $4000 toward 2006 before filing your taxes Invest an additional $4000 against 2007
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Max Out Your IRA
Where?
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Invest the Rest
Okay, but where?
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Investing Do Your Homework!
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Resources
Yahoo! Finance MSN Money About.com
Investopedia.com
Investment Company Websites
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Investing You can do it!
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Financial Planners
Are guaranteed to make their commission on load funds and annuities You are not guaranteed a return Must disclose how they are compensated
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Financial Planners
If you do not feel like you are in charge of YOUR MONEY you have the wrong financial planner
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Don'ts
Do not invest in an instrument that you do not understand Do not transfer responsibility for your finances to your room mate Do not trust someone just because they have permission to sell products on post
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Cow Loan Don'ts
Do not take on a car loan in addition to your cow loan Do not take on credit card debt in addition to your cow loan Do not invest in a financial instrument that you do not understand
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Recommendations
Plan ahead starting today Get out of Credit Card debt ASAP Avoid Credit Card debt by planning ahead Max out your Roth IRA
Duty, Honor, Country
United States Military Academy Department of Social Sciences
The Way Ahead
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Company meeting with an Econ Instructor –M hour
– – –
More specifics on the Cow Loan More specifics on products and plans Opportunity to answer questions/dispel rumors
Duty, Honor, Country
United States Military Academy Department of Social Sciences
Additional Resources
• •
Economics Faculty Investment Club holds a special seminar for the cow loan
Duty, Honor, Country
United States Military Academy Department of Social Sciences
No Mission Too Great!
Duty, Honor, Country