Finances and the College Student

1
Finances and the College Student

• Presented by the
• James Madison University
• Office of Financial Aid Scholarships
• (updated 7/27/06)

2
What We Are Here To Learn
Managing Debt Retirement
Saving for Big Expenses Budgeting
Credit Cards Establishing Credit
Balancing Accounts Insurance
3
Earnings vs. Spending

• How much you spend is much more important than
  how much you earn. This is often referred to as
  living within your means.

4
(No Transcript)
5
What Can I Spend?

• Managing your debt requires careful planning.
  The level of debt which is manageable for you
  depends upon a variety of factors including your
  level of income and living expenses.

6
The Importance of Budgeting
A budget does a few things for you
1. It tells you where your money comes from and
where it goes.
2. It tells you where you are financially and
helps you figure out which road to take to gain
financial stability.
7
How To Prepare A Budget

• A budget involves two key components
• List of income and expenses
• A plan for meeting responsibilities and goals

8
Expenses

• Divide expenses into two categories

Essentials
Non-essentials
9
Essential Expenses
Essential expenses are necessities of life,
including housing, utilities, transportation, and
groceries.
10
Non-essential Expenses

• Non-essential expenses may include cable T.V.,
  credit cards, furniture bills and other bills
  that make life more comfortable.
• You can reduce non-essential expenses.

11
Remember
The more you know about where your money comes
from, how much you have to spend, and where you
spend it, the easier it is to make wise spending
decisions. In this way, your money works for you
instead of against you.
12
Loan Repayment Schedule
13
(No Transcript)
14
Helpful Budgeting Tools

• Quicken
• http//www.quicken.com/banking_and_credit/
• Microsoft Money
• http//www.microsoft.com/PRODUCTS/info/
• list.aspx?typesrchview22quMoney
• Online Banking

15
Tips for Managing Your Money

• Create a budget and stick to it!
• Save and project for future expenses
• Learn to say no to friends
• Do free things
• Keep records of expenses
• Dont overuse ATM cards
• Keep money safe and growing while you arent
  using it
• Cut out coupons
• Pay credit cards off monthly

16
Checkbook Balancing

• Balancing a checkbook is as simple as
• Adding
• Subtracting

17
The Importance of A Balanced Checkbook

• Having a balanced checkbook does several things
• It gives an accurate account of how much money
  you have.
• It controls the amount of money you spend.
• It can be a source of proof that you have paid
  your bills.

18
The Steps To Balancing

• Record all transactions immediately.
• Check your math to make sure you are adding when
  making a deposit and subtracting when making a
  withdrawal.
• Use a ledger or other method for tracking
  deposits and withdrawals.
• Remember to deduct any additional bank fees such
  as ATM surcharges, returned check fees and
  monthly checking account fees (if applicable).

19
Credit Cards

• Establish a good credit history
• Easy to keep track of spending with monthly
  statements
• Earn reward points (watch for fees)
• Convenience (good and bad)
• Quickly accumulate large amounts debt
• Introductory vs. fixed interest rates

20
Credit Cards and College Students

• According to research conducted by Nellie Mae..
• 76 of undergraduates began the school year with
  a credit card in 2004
• 91 of final year students had a credit card
  compared with 42 of freshmen in 2004
• 56 of final year students have at least 4 cards,
  while only 15 of freshmen have that many in 2004

21
Credit Card Debt

• Survey conducted by Nellie Mae showed the
  average student credit card debt rose from 1,879
  in 1998 to 2,169 in 2004
• Final year students had an average balance of
  2,864
• Freshmen had an average balance of 1,585

22
Credit Card Interest

• Scenario
• 3,000 charged on a credit card
• Interest rate of 19.8
• You pay 50 per month
• It will take 24 years to pay off the card
• At the end of at time you would have paid back
  14,070 (11,070 in interest)

(source www.visa.com)
23
Ways to Save

• Money Market Accounts
• Stocks
• US Savings Bonds
• http//www.savingsbonds.com/
• Mutual Funds
• Certificate of Deposit (CD)

24
3,000 Earning a Rate of 10 Annually
(Source www.americancentury.com)
25
Methods of Saving/Investing

• Savings Account After 30 year(s) at 3 interest
  a 3,000.00 annual investment will grow to
  154,290.00
• Money Market After 30 year(s) at 5 interest a
  3,000.00 annual investment will grow to
  222,248.00
• Mutual Fund After 30 year(s) at 10 interest a
  3,000.00 annual investment will grow to
  595,178.00

(Source www.americancentury.com)
26
Retirement Savings

• PAY YOURSELF!
• Traditional IRA
• Roth IRA
• 401k
• 403b
• Employer Match
• Tax advantages today or in the future

27
Roth IRA Example

• Average earnings of a ROTH IRA if you invest
  2,000 annually from age 22 to age 72 with an
  average rate of return at 10.
• AGE Number of Years Accounts Value
• 22 0 2,000
• 32 10 45,787
• 42 20 153,270
• 52 30 432,052
• 62 40 1,155,142
• 72 50 3,030,652

(Source Richmond Times-Dispatch, Sunday,
02/07/99 Planning for Retirement insert)
28
Ways to Establish Credit

• Credit Card payments
• Student Loan payments
• On-time payments with all bills, including
• Housing
• Utilities
• Medical
• Financed purchases

29
Establishing Credit cont...

• Communication is the key to maintaining a
  positive credit file and may help to avoid
  student loan default.
• Paying bills in a timely manner is important to
  your future credit needs.

30
Cost of Living Comparison

• 50,000 per year in Harrisonburg, Virginia is the
  equivalent of 89,791 in New York, New York. Its
  a 79.6 more expensive to live in New York, New
  York than in Harrisonburg
• (Source http//homeadvisor.msn.com/PickAPlace/Co
  mpareCities.asp)
• The median home value in Harrisonburg, Virginia
  is 130,800. The median home value in New York,
  New York is 314,800.
• Note House median value The value of the years
  most recent home sales data (March, 2000 to
  April, 1999). Its important to note that this is
  not the average (or arithmetic mean). The median
  home price is the middle value when you arrange
  all the sales prices of homes from lowest to
  highest. This is a better indicator than the
  average, because the median is not changed as
  much by a few unusually high or low values.
• (Source http//homeadvisor.msn.com/PickAPlace/Co
  mpareCities.asp)

31
Cost of Living

• Taxes federal, state, local, etc.
• Charitable contributions (e.g. tithing)
• Food
• Housing/Utilities
• Insurance health, vehicle, homeowners, etc.
• Transportation
• Medical expenses
• Commute costs

32
InsuranceDo You Need It?

• Health
• Often provided through employers.
• How much of the premium will you have to pay?
• What type of insurance is best for your
  situation?
• Vehicle
• Higher deductibles often mean lower premiums.
• What happens to your premium if you have a claim?
• Are there reduced rates for multiple policies?

33
InsuranceDo You Need It? cont...

• Life
• Employer provided?
• What type is best for you? (e.g. term, whole,
  etc.)
• Typically less expensive the younger you are.
• Homeowners
• Higher deductibles often mean lower premiums.
• What happens to your premium if you have a claim?
• Are there reduced rates for multiple policies?
• Flood insurance is generally not in a basic
  policy.

34
BIG EXPENSES!

• Through budgeting, establishing good credit,
  minimizing non-essential purchases, and saving,
  you can afford
• Home
• Car
• Retirement
• College for your children
• Vacations
• If you dont then you could be this guy when
  your children go to college.

35
(No Transcript)
36
Useful Web Sites

• www.bankrate.com
• www.wetfeet.com
• www.salary.com
• www.salaryexpert.com
• www.themint.org
• www.asec.org/ballpark/ballpark.htm
• www.homestore.com
• www.vec.state.va.us (or other state employment
  commissions)
• http//verticals.yahoo.com/cities/
• http//www.bestplaces.net/html/cost_of_living.html
  
• http//www.ourfamilyplace.com/homeowner/budgettips
  .html
• http//www.ourfamilyplace.com/budget.html