Money Management

1
Money Management

• GNST 100B

2
Money Management

• Budget every
• Pay your bills first
• Encumber expenses you know youll have before you
  get paid again
• Car payment
• Credit card payments (get rid of these now)
• Rent and utilities
• Other bills including ongoing doctor and
  prescription expenses
• Set aside savings
• Pay yourself
• Set aside a fixed amount every month in a savings
  account or other interest bearing account
• Live off what remains
• Discretionary income

3
Money Management

• Manage your credit
• Eliminate all but essential debt
• Car loan
• Student loan
• Mortgage
• Cut up your credit cards and live on cash!!!!!!
• Use a debit card not a credit card for ease of
  purchase

4
Money Management

• Manage your credit
• Use a debit card not a credit card for ease of
  purchase
• A debit card acts like an instantaneous check
• Dollars come from your checking account and
  generally clear overnight or within one or two
  days
• NO Interest charges or monthly fees for debit use
• Use your banks ATMs for cash (no foreign ATM
  fees) or use a Credit Union ATM which generally
  is free rather than a bank ATM which has a
  non-client user fee of 2-3 per transaction

5
Money Management

• Manage your credit
• If you must have a credit card for emergencies,
  DONT USE IT FOR ANYTHING ELSE!!!!!!!!!!!
• Credit cards typically charge 18-24 interest
  rates
• On an unpaid 1,000 balance, that means youre
  paying 180 to 240 (compounded annually) in
  interest per year, every year the balance isnt
  paid off. As your unpaid balance grows, interest
  expense increases proportionately.

6
Money Management

• Manage your credit
• Interest increases the balance that you owe
• Your 1,000 is now 1,240 after a year which
  increases the size of the payment needed to
  eliminate the debt.
• Instead of paying 83.33 per month for 12 month
  to retire the 1,000 debt, you have to pay
  approximately 103.33 a month to retire the debt.
  
• Pay less than that, and you can be making
  payments forever, only paying the monthly
  interest payment and never retiring the
  principle.

7
Money Management

• Manage your credit
• EXAMPLE
• The minimum monthly payment is 15 (typical for
  many credit cards) which you pay.
• Interest for the month was 20, you now owe the
  original amount of 1,000 plus the interest
  payment of 20-15 5 or 1,005 after one
  month. Do this every month for a year, and youll
  owe 1,060 after 12 payments.

8
Money Management

• Manage your credit
• EXAMPLE
• You havent made a dent in the principle (1,000)
  which you borrowed, youre actually further in
  debt than when you started, and have in effect
  delayed payment of the full interest and
  principle until some later time period beyond the
  first year.

9
Money Management

• Manage your credit
• EXAMPLE
• Banks love it when you only make the minimum
  payment because it dramatically increases the
  time it takes to payoff the loan and increases
  the amount of interest you pay overtime.
• Interest payments are based on the length of time
  you borrow the money.
• The longer it takes to repay, the more interest
  the bank charges, the more they make, the more it
  costs you for the loan.

10
Money Management

• Manage your credit
• Solution
• Use the 10 plus interest method.
• Pay 10 of the outstanding bill the first month.
• Starting the second month, pay the interest for
  the prior month (written on the statement) and
  the original 10 payment.
• Do this every month, and your debt will be
  retired in less than 10 months.

11
Money Management

• Manage your credit
• Solution
• Use the 10 plus interest method.
• Cant afford to make a 10 payment, youre way
  over your head in debt.
• Pay the largest amount you can afford (pay as
  much as you can until it hurts).
• Add the interest to the second payment and
  continue.
• Work your way up to a 10 monthly interest
  payment.
• Cut up your credit card when youve paid off your
  balance.

12
Money Management

• Manage your credit
• Check your credit report annually
• Federal law requires that the three credit
  reporting companies furnish you with a FREE
  credit report once a year.
• www.annualcreditreport.com
• Register with each company and get the three free
  reports annually
• Compare the three to ensure that theyre the same
  (often theyre not)
• Report and fix any errors (differences among the
  three)

13
Money Management

• Manage your credit
• Check your credit report annually
• Dont bother with the offers for other services
  unless your worried about identity theft and have
  a history of credit-related errors and ID fraud.
• Daily notifications of any changes to your credit
  report may indeed be overkill good credit
  companies check with the card holder when they
  see suspicious transactions out of character with
  your profile.

14
Money Management

• Manage your credit score
• Credit scores explained - By Bankrate.com
  http//www.bankrate.com/brm/news/cc/20010223a.asp
• What is a credit score and what is it designed to
  do?
• "The FICO score is the single best summary score
  of one's credit worthiness," says E-Loan
  President and Chief Operating Officer Joe
  Kennedy.
• A credit score number is often called a FICO
  score, for Fair Isaac Corp., the California
  company that developed the system upon which it
  is based.

15
Money Management

• Credit scores explained By Bankrate.com
  http//www.bankrate.com/brm/news/cc/20010223a.asp
• The score is supposed to distill all the
  information in your credit report, using a
  formula to calculate a single number that
  indicates your credit worthiness.
• It's designed to give lenders a fast, accurate
  prediction of the risk involved in giving you a
  loan.
• Lenders have attested to the score's value in
  streamlining the underwriting process and
  creating more opportunities for consumers to get
  mortgages (or other loans).

16
Money Management

• Credit scores explained By Bankrate.com
  http//www.bankrate.com/brm/news/cc/20010223a.asp
• Scores range from the 300s to about 900, with the
  vast majority of folks falling in the 600s and
  700s. The higher the score, the better.
• The higher the score, the lower the interest rate
  that a bank will charge you for a loan because
  youre viewed as less of a lending risk.

17
Money Management

• Manage your credit
• Borrow from banks and credit unions when you need
  credit
• Never use finance companies or other sub-prime
  lenders
• Know the cost of money especially when buying a
  car
• Car dealers borrow money from a bank, then add
  several interest points to the cost of credit
• They borrow the money at 5 and loan it to you at
  8, thus making money on your loan on top of the
  money they made on your trade-in and the profit
  on the new or used car you just purchased.

18
Money Management

• Manage your credit
• Borrow from banks and credit unions when you need
  credit
• If youre ever turned down for a loan,
  immediately find out why
• The bank or lending institution is required to
  notify you, normally by mail, that you been
  turned down for credit based on a credit report
• At your request, the credit agency is required to
  furnish you with an up-to-date credit report
  within 30 days of your request for one.
• Review the report and report any errors that you
  find either in writing or online at their website.

19
Money Management

• Manage your credit
• Borrow from banks and credit unions when you need
  credit
• If youre ever turned down for a loan, find out
  immediately why
• Credit report errors happened often and adversely
  effect your credit standing
• Effect whether you can borrow money or what
  interest rates youre charged.
• Reviewing your credit report is also the best way
  to identity ID theft because often youll find
  records of loans you dont remember applying for
  or credit card accounts you dont know anything
  about.

20
Money Management

• LIVE WITHIN YOUR MEANS
• Annual income twenty pounds, annual expenditure
  nineteen nineteen and six, result happiness.
• Annual income twenty pounds, annual expenditure
  twenty pounds ought and six, result misery..
• Charles Dickens, David Copperfield
• It was true then, its doubly true today!