Transcript Revenue - National Association of Black Accountants

National Association of Black
Accountants, Inc.
M ney $ense
NABA - Money $ense
Money Mindsets
“The only way to not think about money is to have a great
deal of it.”
Edith Wharton
Money Mindsets (cont’d)
“The safest way to double your money is to fold it over and
put it in your pocket.”
Kin Hubbard
Money Mindsets (concluded)
“We have become ninety-nine percent money mad. The
method of living at home modestly and within our
income, laying a little by systematically for the proverbial
rainy day which is due to come, can almost be listed
among the lost arts."
George Washington Carver
How does money play into your
life?
 Have
you thought about your relationship
with money?
 Money
 Your
should not influence your selfesteem
value as a person does not come
from money
NABA - Money $ense
Financial Education
Workshop Learning Objectives:
 Four Pillars of Personal Finance
 Keys to saving
 Understand credit
 Recognize good debt vs. bad debt
 Learn to win the money game using a budget
NABA - Money $ense
Four Pillars of Personal Finance
1.
Savings
• You are worth every penny of your money
• Pay Yourself First and Pay Yourself Often
2.
Handling Credit and Debt
• Knowledge is Power
• Know your credit score and how to raise it
• Know the power and pitfalls of credit/debt
NABA - Money $ense
Four Pillars of Personal Finance
3. Budgeting
• Know where your money is going or it’s
going to go places without you
• Know your budget, update your budget, be
flexible with your budget
4.
Investing
• Know what you want and use patience to
get there
• Invest based on your goals, risk tolerance,
and time
Pillar One: Savings
Pay Yourself – Savings is Key
 Make

a habit of paying yourself first
Rule of thumb is 10% but the more the better
 Save

for 3 – 6 months living expenses
Set-up high interest savings account
 Nest

egg savings
Save for vacation, new car, expected
expenditure
NABA - Money $ense
Pillar Two: Managing Debt
and Credit
Credit in a Nutshell
Are You Trustworthy?
Are You Trustworthy?
 If
I lend you money, will you pay me back?
 Will you pay me on schedule according to
our agreement?
 What happens when you don’t pay on
time?
 At what point do you violate my trust?
 What will it cost you to regain my trust?
 What should I tell others when they ask
about your trustworthiness?
Types of Credit
Accounts and Relationships
 Mortgage
loan (Countrywide, Quicken Loans, Bank of
America)
 Car
loan (GMAC, Chrysler Financial, Ford Motor Credit)
 Major credit card (Bank of America, Capital One, US
Bank)
 Dept.
store credit (Macy’s, The Limited, Nordstrom)
 Cell phone (AT&T, Sprint, Verizon)
 Bank checking*
Type of Credit
Lender
Advantages
Disadvantages
HOME MORTGAGE
• Commercial bank
• Savings and loan
• Credit union
• Homes often increase in
value.
• Interest rates for mortgages
are relatively low
• The interest paid is taxdeductible.
• Mortgages are long-term
commitments.
• Obtaining a home loan
involves extensive credit
checks.
CAR LOANS
• Commercial bank
• Savings and loan
• Credit union
• Consumer finance company
• Cars can make it easier to
work and earn an income.
• Cars lose their value
relatively quickly. The car you
purchase may have little value
when the last payment is
made.
COLLEGE LOANS
• Commercial bank
• Savings and loan
• Credit union
 Federal government
• A college education is a good
borrow investment. necessary.
• Interest rates can be
relatively low.
• Students sometimes borrow
more than necessary.
• New graduates can face
difficulty in repaying large
loans.
PERSONAL LOANS
• Commercial bank
• Savings and loan
• Credit union
• Consumer finance company
• Personal loans allow
individuals to purchase today
that boat or vacation they want.
• Personal loans have relatively
high interest rates.
• Some young people may
borrow more than their income
allows.
CREDIT CARDS
• Commercial bank
• Savings and loan
• Department store
• Oil companies
• Other financial institutions,
e.g., American Express
• Credit cards are convenient
to use and useful in an
emergency.
• Credit cards provide a record
of charges.
• Credit cards have relatively
high interest rates.
• Some young people may
borrow more than their income
allows.
NABA - Money $ense
Credit Cards, Credit Bureaus
and Credit Reports
+
+
=
How They Work Together
Your
Credit
Score
Credit Cards
 Terminology




you must know:
APR – Annual Percentage Rate
Finance Charge
Grace Period
Fees (annual, transaction, cash advance, late)
Credit Bureaus
 Three
credit bureaus (Equifax, Experian, TransUnion)
 Role they play:


Receive and report credit information from
and to various entities who have established
or look to establish a credit relationship with
you.
Maintain credit report
Credit Reports

What is reported?








Name of creditor
Length of credit history
Amount of credit outstanding and borrowing capacity
Status of payment on account: current or late
Inquiries on account
Other information
Credit score*
How do you obtain a copy of report?

FREE at www.annualcreditreport.com
Credit Score

Why is it important?

Measurement of creditworthiness
Basis for creditor’s lending decision
Determines cost of borrowing (i.e. interest rate)

Employers may pull it when evaluating potential candidates for hire



How is it calculated?





Payment history – (35%)
Debt to credit limit – (30%)
Length of credit history – (15%)
New accounts and recent applications for credit – (10%)
Mix of credit cards and loans – (10%)
Credit Cards – Terms to Know
APR: the amount it costs annually when you decide to carry a balance (not pay off your credit
card in full) each month.

Can range from 0 to as high as 25% annually
Finance Charge: Actual dollar cost of using credit
Grace Period: the number of days you have to pay your bill in full before incurring finance charges
(typically 25 days).

Beware of cards with no grace period! Interest accrues from the moment you charge an item.

You don’t get a grace period when you carry a balance.
Annual Fee: the amount you pay annually as a credit cardholder for the privilege of using credit

If you pay your balance each month, you should avoid cards with an annual fee.

Some annual fee cards have lower interest rates, so if you carry a balance each month you may
actually save money with an annual fee card.
Transaction Fees: You may be charged additional fees for ATM cash advances, balance transfers,
late charges and exceeding your credit limit.

Some cards also charge a monthly fee for not using the card!
Late Fee: If your payment is not processed by the due date, you may be assessed a late fee of up to
$35.

Avoid this expense by mailing timely payments.

Remember, creditors must receive a payment at least every 30 days.
NABA - Money $ense
Debt: Friend or Foe?

Good Debt vs. Bad Debt


Buying a home vs. buying an expensive vacation
How much debt can you handle

A conservative rule of thumb: the “20-10 Rule”
• Total household debt including your housing payments
shouldn’t exceed 20% of your net household income

How to handle debt

Have a plan
• Know how much you owe, know the interest and
repayment terms, set a plan, and stick to it
NABA - Money $ense
Pillar Three: Budgeting
Get in the Money Game!
The Money Game
How Do You Play?
Three Ways to Play
1.
Getting Ahead – You make more money than you
spend. Therefore, you have money at end of month that can be
saved or invested.
2.
Breaking Even – You spent everything you had –no
more, no less
3.
Falling Behind – You spent more than you had using
borrowed funds.
BUDGET SCORECARD
Category
Monthly INCOME:
Wages/Income
Interest Income
INCOME
SUBTOTAL
Monthly
EXPENSES:
Taxes
Rent/Mortgage
Utilities
Groceries/Food
Clothing
Shopping
Entertainment
Miscellaneous/Other
EXPENSES
SUBTOTAL
NET INCOME
(Income Expenses)
Getting
Ahead
Breaking
Even
$1600
$10
$1600
$10
$1600
$10
$1,610
$1,610
$1610
$250
$500
$100
$250
$100
$75
$100
$250
$600
$100
$300
$100
$75
$160
$250
$750
$100
$350
$200
$100
$200
$25
$25
$50
$1,400
$1610
$2000
$210
$0
NABA - Money $ense
Falling
Behind
$(390)
Benefits of Budgeting

Evaluate source (s) of
income – explore ways to
increase this amount

Evaluate
expenditures and
where money goes –
identify opportunities to reduce
this amount

Save, invest, pay
down debt faster

Cash Flow Equation:
(+) Revenue or Source
of Income
(-) Less: Expense or
Use of Income
_______________
(=) Net Cash Flow
Budgeting Basics
Save at least 10% of income through automatic
payroll deduction (when available)
2. Create a contingency fund for unexpected
expenditures (minimum 6 months of salary)
3. Track your spending
1.




4.
Itemize necessities first and foremost
Update your budget monthly
Add new information timely
Print it out and post it as a daily visual reminder
Pay down expensive / excessive debt.
NABA - Money $ense
Pillar Four: Investing
Make Your Money Grow
What if you saved $1 per day for 30 years?
NO INTEREST
5% DAILY
COMPOUNDING
Year 1
$ 365
$ 374
Year 5
$ 1,825
$ 2,073
Year 10
$ 3,650
$ 4,735
Year 30
$10,950
$25,415
TIME
Money that is invested will grow!
NABA - Money $ense
What Did You Learn?
New Mindset, New Habits

Take the First Step:

Step 1
• I have taken control of my financial future
• I am committed to achieving financial freedom

Step 2
•
•
•
•
•

I have a budget and I review my budget regularly
I save 10% or more of my income
I have 6-9 months of living expenses saved as an emergency fund
I know how much debt I have and the related interest rates
I know my credit score
Step 3
• I have a 401(k) or similar retirement account that I contribute to
regularly
• I have an investment plan that considers my goals and risk
tolerance
NABA - Money $ense
Thank You!
National Association of Black Accountants,
Inc.
M ney $ense
For more information visit www.nabainc.org
NABA - Money $ense