Money ManagementFor College Students:

Making Money Smart Decisions

Presented By:

Sherry AubleChartered Retirement Planning Counselor

Founder, Divorce Financial Strategy & Savvy Women & Wealth

• Most Common Mistakes College Students Make With Money

• Why Money Management Is So Important

• How To Make Thoughtful Decisions

• What You Need To Know To Make Good Money Decisions While In College

1. Develop A Monthly Budget & Track Expenses2. Build An Emergency Fund3. Manage Your Debt Effectively4. Understand Your Loans5. What You Need To Know About Your Credit Report & Credit Score

Agenda

Most Common Money Mistakes Students Make

•Spending Every Penny Instead of Saving

•Living Beyond Your Means – Racking Up Debt

•Letting Your Bills Slide – Not Paying On Time

•Spending “Extra” Student Loan Money

•Not Researching To Find The Best Deals

•Not Keeping Track of Account Transactions & Balances

Why Good Money Management Is Important?

1) Your credit management habits affect your credit score & therefore, your

financial future

People with low credit scores pay more for:•Rent •Car loans•Car insurance•Mortgages•Health/dental/vision insurance

If your credit score is low, it can prevent you from:•Getting an apartment•Getting a job

Why Good Money Management Is Important?

2) When you graduate and start your first job, you’ll have new expenses:

• Moving Expenses• Transportation Expense: (parking fees, train

fee, car purchase, car insurance, etc.)• Higher Living Expenses: (food, dry cleaning,

laundry)• New Clothes For Work• Student Loan Expense Kicks In

The more debt you accumulate today, either through student loans, personal loans, or credit card debt, will impact the financial decisions you are able to make after you graduate.

Make Thoughtful Decisions

Decision Making Process

Identify The Problem

List The Problem You

Need To Solve

Gather Information

Learn About Different Options

Identify Alternatives

Decide What Your Options

Are

Predict Immediate & LT Consequences

List Pros & Cons of Your

Options

Make The Best Choice

Decide Which of

Your Alternatives Are Best For

You

Act

Implement Your

Decision

Evaluate

Reflect on Your

Decision & Determine What You Would Do Differently

What You Need To Know To Make Good Money Decisions While In College

1. Develop A Monthly Budget & Track Expenses2. Build An Emergency Fund3. Manage Your Debt Effectively4. Understand Your Loans5. What You Need To Know About Your Credit

Report & Credit Score

1) Develop Your Monthly Budget Plan1) Make A List of All Monthly Expenses:

RentHousing Expenditures (Utilities, Phone, Cable)FoodTransportation (Car Pmt, Parking, Gas)Payments (Credit Cards)SavingsClothingEntertainmentCar InsuranceOther Miscellaneous Expenses (hair cut, laundry, etc.)

2) Make A List of All Monthly Income:

3) Develop A Spreadsheet & Start TrackingFixed/Non-Discretionary Variable/Discretionary

Rent FoodTime Warner EntertainmentUtilities ClothingCell PhoneSavings

Develop Your Monthly Budget Plan

3) Subtract Income Total From Expense Total To Determine Surplus or Shortage For The Month

4) Tracking Your Spending• The key to minimize expenses & creating extra cash is to

understand exactly how you spend your money• Ask for a receipt for everything you purchase and put it in an

envelope, tally at end of month• Set up alerts & receive email/text message if going over

Why Budgets Are Necessary• Allows you to understand where your money is going and where

it needs to go• Controlling your spending leaves more money for entertainment

& savings• Review expenses & determine what can be reduced

How Could You Cut Expenses Out of Your Budget?

- Don’t buy unnecessary items - Go thrifting- Comparison Shop - Keep your car maintained- Don’t shop often - Do free or cheap things for- Stop buying on impulse entertainment (on campus- Wait to buy something all the better)- Break expensive habits - Don’t try to keep up with- Go out to eat less someone who has more - Use coupons than you have- Go to discount movies - Cut out fancy coffee drinks

2) Build An Emergency Fund

1) Set Up A Savings Account

• Shop around for a bank offering the least fees (Bank of America Versus Cornell Federal Credit Union)

• Enroll in on-line banking, bill pay, & link up accounts

2) Save 5-10% of Monthly Income

Can’t afford to? Soda at $2/bottle everyday = $730/yrDaily coffee at $3.50/cup = $910/yr.

3) Keep It Safe, Separate From Daily Living Expenses, But Easily Accessible

Rule of Thumb:• If you can’t pay cash, then you can’t buy it

Advantages & Disadvantages Advantages:•Able to buy needed items now•Don’t have to carry cash•Creates a record of purchases•More convenient than writing checks•Consolidates bills into one payment

Disadvantages:•Interest (higher cost of items)•May require additional fees•Financial difficulties arise if you lose track of how much you’re spending•Increased impulse buying may occur

3) Managing Your Debt

Credit Card Debt

• Shop around for lowest IR credit card to transfer balances

• Pay more than the minimum balance due

• Pay the most toward higher IR credit cards

• Pay as much as possible, even if it means less in savings

• Always pay on time – Use on-line bill pay

• Spend one day a month to program your bill payments for a future execution date so you never miss paying one

• Once you pay off a credit card, don’t close them It hurts your “utilization ratio” – Amount you owe versus your available credit balance. Leave them open to maintain your credit score.

Managing Your DebtBalance Transfers• Move higher interest credit cards to lower ones

• Offers a low or no interest guarantee during a promotional period to transfer existing credit card debt and/or a qualifying loan balance

• Typically a 3% fee is assessed on the amount transferred (If it’s higher, negotiate or decline, if the 3% fee is higher than the savings gained by moving the balance, don’t do it)

• Read all terms & conditions in the agreement (even the small print)

• Your credit score determines your credit limit & IR

• Transfer under the credit limit they offer

• Inquire about what happens at the end of promotional period. New interest rate, fees, etc.

Managing Your DebtKeep In Mind:

• Getting a lower IR may not save money if your refinancing/consolidation/repayment stretches

out the terms of the loan for a longer period of time

• You may need to lengthen the terms to decrease your pmts to an affordable level

• Always make sure you work out the numbers to see if it makes financial sense by figuring the break-even point

• To save the most money and get rid of debt quickly, refinance your existing debt for a lower IR and stick with the existing pay off schedule or a shorter one

On-Line Calculators:Bankrate.comDinkytown.netRategenius.com

How Much Is It Really Costing You?

You charge $2,500You pay $50 a monthYearly interest rate is 20%

How long will it take to pay the balance?

Answer:9 Years, 1 Month

Paid $2,920 In Interest ChargesTotal Interest Rate Paid = 116%

Charging On Your Credit Card – The True Cost

•Low introductory rates that increase dramatically over time

•Charging an annual fee

•Late payment fees as high as $35 a month plus, finance charges

•Charging a transaction fee for cash advances and the interest starts immediately (no float)

•Charging $35 a month for going over your credit limit, plus finance charges

•You must notify the company ASAP if your card is lost or stolen in order to limit your liability

•There is a difference between the stated versus effective interest rates.

Credit Cards: What To Watch Out For!

4) Understand Your Loans

Understanding Your Student Loans1) Read the terms, conditions & repayment options2) Find out when your grace period ends & mark your

calendar. Ex. Stafford Loans: 6 months after graduation3) If you haven’t found a job, call to discuss your options.

How To Repay4) Extended Repayment – up to 25 yrs to repay w/a

substantially reduced monthly pmts5) Graduated Repayment – make lower pmts for several years

followed by increased pmts for the remainder time6) Income Sensitive Repayment – make lower pmts that

gradually increase, based on your monthly income7) Income Based Repayment – allows you to cap your loan pmt

at 15% of your discretionary income due to financial hardship.

Loan Deferment – allows you to temporarily stop making pmts for a set time (6 mos). Interest still accrues.

Understand Your Loans

Private Loans1) Due to credit market crunch, fewer programs available to

consolidate and the underlying IRs remain variable.2) Most private education loan programs have multiple

repayment options that could decrease your pmts3) Programs offer the ability to temporarily decrease pmts4) Other alternatives: Outside line of credit or home equity

loan.

Government Consolidation Loan5) Review loans to determine if it makes financial sense6) Shop around – local banks, Sallie Mae (largest student loan

provider), American Education Services (full svc financial aid org)

7) Read terms, conditions & fees8) Pay on time – It’s the beginning of your credit history9) If you don’t pay – IRS garnishes tax refunds & Dept of

Education garnishes your wages.

Understand Your Loans

Loan Consolidation- If you have multiple debts (loans, credit cards, etc.), combine together into one monthly pmt. - Saves money with a lower overall IR- Easier to manage your debt with one pmt date- Private & federal loans cannot be combined, must be consolidated separately- Any special repayment options of original loan agreement will be lost

Refinancing- When done properly, holds the key to getting out of debt faster with the least expense- Goal: Reduce your IR- Let’s you replace a debt with another debt w/a new loan

Interest Rates = Your Cost For Borrowing Money- Current Market IRs, Loan Length, Amt Borrowed, & Type

5) What You Need To Know About Your Credit Report & Score

Keys To SuccessMaintaining High Credit Limits Is Good•Credit scores are largely based on the amount you owe•The lower your utilization rate, the better (incl. all debts including business & employer accts in your name)

Build A Strong Credit History •The longer, the better. Make every pmt count

Review All 3 Credit Reports Once A Year For Accuracy•www.AnnualCreditReport.com (free once a year)•Reporting agencies: TransUnion, Experian, Equifax

Check Your Credit Score Before Financing• Typically will cost you (www.creditkarma.com)

A Mix of Different Credit Types Is Good• Installment loans, credit cards, mortgages•Different cards (Visa, MasterCard, Discover, AMEX)

Fixing Mistakes on Your Credit Report

• Contact the creditor

Many of the mistakes can be fixed over the phone

• If you cannot get the problem solved, contact the credit reporting agency’s customer service representative

Explain inaccuracies in writing with necessary support documents using the “Investigation Form” from the website

If you cannot get the problem solve, fill out a dispute form

You can put up to 100 words on your credit report explaining a situation and what you have done to try to resolve it.

What You Need To Know About Your Credit Report & Score

A Bad Credit Score Impacts Everything In Your Life

•Higher IRs on credit cards and loans•Credit and loan applications may not be approved•Difficulty in getting approved for an apartment•Can’t get a cell phone•Denied for employment (especially financial industry)•Higher insurance premiums (auto, life, health, renters)•Difficult to get start up money for a new business •Difficult to purchase a car (higher IR)

Negative information (paying late, going to collections) stays on your credit report for 7 years (with bankruptcy it’s 10 years). It indicates your creditworthiness

When a closed acct falls off your credit history, the average age of your open accts drops, so never be too quick to close accts with a positive credit history that you’ve had for a long time. Active accts stay on indefinitely

Credit scoring is a number generated by mathematical formulas which helps lenders determine if you are a good risk for credit.

The most frequently used version of the credit score is the FICO score created by Fair Isaac & Company.

A FICO score is a snapshot of your credit risk picture at a particular point in time. The scores can range between 300 and 850. The higher your score, the lower the risk to lenders.

What You Need To Know About Your Credit Report & Score

How To Raise Your Score Fast1. Review yours credit reports and clear up errors

2. Always pay bills on time

3. Pay down credit card balances

4. Consider borrowing money from a friend/family members to pay down debt

5. Don’t close unused credit card accounts

6. Never max out credit cards

7. Shop around for a good loan – quickly & effectively

8. Get a gas card

FICO Scoring System Chart

The percentages in the chart below reflect how important each of the categories is in determining your FICO score.

Your Credit Score

Each creditor has their own guidelines & breakpoints

300 – 580 You’ll be denied or charged the highest IR

581 – 650 You’ll qualify and be charged the highest IR

651 – 710 You’ll qualify for credit at modest IRs

711 – 750 You’ll qualify for competitive IRs

751+ The most competitive offers and lowest IRs

FICO – Fair Isaac Corp – The most well known credit score co

Vantage Score – Major competitor, uses a scale from 501-990 and a letter grade.

Others – Beacon, Pinnacle, Precision, Empirica

What You Need To Know About Your Credit Report & Score

Does Your Credit Score Determine If You’ll Get Credit?

Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history.Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Who Can See Your Report?

Your credit report can legally be reviewed by:

Any creditor or lender to whom you have applied for credit

A prospective employerA mortgage lender, when you have applied for a home loan

A property management firm, when you have applied to rentAny current employer on a need-to-know basis

Any person, firm, or agency to whom you have given permission

Any person, firm, or agency with a legitimate need to knowAn insurance company, when you have applied for insurance

You, as a consumer

College Life: Freedom & Independence But Also Responsibility For The Decisions You Make!

• Paying your bills on time

• Making sure you have enough money each month for living expenses

• Living within your means, paying credit cards in full each month and not letting debt accumulate – paying unnecessary interest charges

• Doing your investigative research before making big purchasing decisions

• If you get into trouble, ask for help

Top Student Financial Literacy Resources

1) CashCourse.org2) TheMoneyClubHouse.org3) HigherOne.com/OneForTheMoney4) Mint.com5) Bankrate.com6) EducationCents.org7) Spendster.org8) JumpStart.org9) MyGreatLakes.org10) MyMoney.gov

Thank You!

Questions?

Sherry AubleChartered Retirement Planning Counselor

Founder, Divorce Financial Strategy & Savvy Women & Wealth

divorcefinancialstrategy@gmail.com