Real World, Real Debt

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Real World, Real Debt

• Do you have a plan?

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Real World, Real Debt
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Where we are

• The average American family spends 1.22 for
  every 1.00 it earns.
  
• The national savings rate for Americans is at its
  lowest point since the Great Depression.
  

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OSCPA Financial Literacy Program

• 2 out of 3 Americans will probably not realize
  one or more major life goals--such as home
  ownership or retirement--unless they receive more
  financial training.

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What does that mean?

• 2 out of 3 of the people in this room will
  probably not realize one or more major life
  goals--such as home ownership or
  retirement--unless they receive more financial
  training.
• You are not immune because you have a college
  degree.
  

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Start-up costs

• Furniture 2,000
• Professional Clothing 1,500
• Deposit move-in fees 1,200
• Down payment on car 1,000
• Food (when job searching) 529
• 6,229

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Credit cards-1st scenario

• Charge those start up costs - 6229
• 41 of graduating seniors credit card balance
  average 3,0711
  
• Add those start up costs to existing debt -
  9300
  
• Minimum payment approx. 186 per month
• 13 Annual Percentage Rate2

1Source Credit Cards on Campus Academic
Inquiry, Objective Empiricism, or Advocacy
Research? Robert D. Manning Ray Kirshak
2 Average interest rate is 13.4, ABC News 2
January 2006
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After 1 year paying minimum balance
Approximate, based on paying 13, 2 minimum or
10/month, whichever is higher
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After 3 years
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After 32 and a half years??

• At this rate it would take 32.5 years to pay off
  your credit card balance (assuming you didnt buy
  anything else)
  
• If you are 22 now, you would be over 54 years
  old
  
• Total payment on that 9,30019,923!

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Credit cards how about this

• Pay extra each month, not just the minimum
  balance
  
• Add 50 to that payment and keep it consistent
• Total payment on that 9,300
• 12,194
• Savings of 7,729 paid off in 4 years 4 months
  instead of over 32
  

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Start up costs how do we cut back?

• Furniture 500
• Professional
• Clothing 1,500
• Deposit
• move-in fees -
• Down payment
• on car -
• Food (when job
• searching) -
• 2,000

• Buy furniture at thrift store
• Ask for used furniture from relatives
• Buy clothing from resale stores
• Consider - TriMet, MAX, FlexCar, biking, walking
• Live at home for a while (GASP!)
• Savings of 4,229!

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Salary

• 32,520.00 - gross annual salary
• 2,710.00 - gross monthly salary

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But what about taxes?
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Taxes
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But what about taxes with a 401k?
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Fixed expenses

• Rent (600)
• Telephone/cell (55)
• Health insurance (assuming employer pays)
  (65)
  
• Car payment (300)
• Car insurance (90)
• Credit Card payment (236)
• School loan payment change each year (64)
• (1410)

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Monthly income after fixed expenses
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Student loans

• Assume you have loans of 19,000
• 4 interest rate
• Minimum payment - interest only 64

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Starting balance
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After 1 year paying minimum balance
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Student loans

• What if you
• Pay extra each month
• Increase payments as income increases
• 100 in year 2
• 200 in year 3
• Etc

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Paying extra each month
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Student loans

• Loan would be paid off in 7 years
• Total amount paid on 19,000
• 22,650!
• Pay it faster if possible

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Fixed expenses another option
Rent (200) Telephone/cell (55)
Health insurance (assuming employer pays)
(65) Car payment - Car insurance
- Credit Card payment (236) Schoo
l loan payment change each year (64)
(620)

• Live with your parents pay them something
• Dont buy a car use public transportation
• You just saved 790 or over half of the original
  total

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Flexible expenses
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Monthly income after flexible expenses
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Flexible expenses more options

• Living with parents will likely cut back on
  groceries
  
• No utilities
• Transportation down due to using TriMet no car
• Savings 186

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Discretionary expenses
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Monthly income after discretionary expenses
(14)
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Make sure to Feed the Pig!

• AICPA Ad Council teamed up to encourage young
  people to save
  
• Pay yourself first!
• Making small changes can add up

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How do you want to live
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401k136 per month
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401K with 100 matching
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Remember this?
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The power of compounding
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Remember this?
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Thank you!

• For more information
• Oregon Society of CPAs
• www.orcpa.org
• 1-800-255-1470 /
• 503-641-7200