you and your money

United States Military AcademyUnited States Military AcademyDepartment of Social SciencesDepartment of Social Sciences

Duty, Honor, CountryDuty, Honor, Country

You and Your Money

Briefing to Class of 2008“No Mission Too Great!”

7 January 2007



Why We Are Here

• Talk about your pay and your money

• Give some standard advice about savings

• Help you think about your Cow Loan plan

• Motivate you to start planning and saving today



Your PayRemainder AY07 AY08

ENTITLEMENTS: Cadet Pay 4317.30 10361.00Pay Advance - - TOTAL ENTITLEMENTS 4317.30 10361.00

DEDUCTIONS:FITW 183.75 441.00 SITW 62.50 150.00 FICA 330.25 792.60SGLI 135.00 324.00 Repayment of Advance 550.00 1320.00 TOTAL DEDUCTIONS 1261.50 3027.60

ENTITLEMENTS LESS DEDUCTIONS 3055.80 7333.92

CHECKING ACCOUNT ALLOWANCE 2000 6000

DEPOSIT TO CADET ACCOUNT 1055.80 1333.92

State Tax is variable

This is your

discretionary pay



Your PayRemainder AY07 AY08

ENTITLEMENTS: Cadet Pay 4317.30 10361.00Pay Advance - - TOTAL ENTITLEMENTS 4317.30 10361.00

DEDUCTIONS:FITW 183.75 441.00 SITW 62.50 150.00 FICA 330.25 792.60SGLI 135.00 324.00 Repayment of Advance 550.00 1320.00 TOTAL DEDUCTIONS 1261.50 3027.60

ENTITLEMENTS LESS DEDUCTIONS 3055.80 7333.92

CHECKING ACCOUNT ALLOWANCE 2000 6000

DEPOSIT TO CADET ACCOUNT 1055.80 1333.92

You still Owe $1870



Your “Budget”Cadet Account AY 07 Jun 07-graduation

Balance Forward xxxx.xx xxxx.xxDEPOSITS:Initial Deposit - - Deposit From Cadet Entitlements 1055.80 1333.92 Interest Earned 23.08 55.39Rations Earned 178.75 429.00TOTAL DEPOSITS 1290.63 1818.31

EXPENSES:Laundry/Dry Cleaning 159.75 383.40Personal Services 121.70 292.08DCA Fee/Eisenhower Hall Tickets 95.83 230.00Class Activities 55.42 333.00Cadet Publications 39.17 99.00 Athletic Fees 30.00 72.00Uniforms & Equipment 59.17 142.00Books & Supplies 834.00 1310.00Computer & Supplies 157.08 177.00 Class Fund - - Information Tech Fee 82.06 196.94Newspapers – NY Times 20.83 50.00Miscellaneous - - Inflation Factor - - TOTAL EXPENSES 1655.01 3285.42

Notice what’s nothere…..RING

2LT UniformsCar Insurance

Credit Card Pmtsetc.etc.

These are“set-asides”

by theTreasurer

Have you “topped-off”?



Your “Budget”Cadet Account AY 07 Jun 07-graduation

Balance Forward xxxx.xx xxxx.xxDEPOSITS:Initial Deposit - - Deposit From Cadet Entitlements 1055.80 1333.92 Interest Earned 23.08 55.39Rations Earned 178.75 429.00TOTAL DEPOSITS 1290.63 1818.31

EXPENSES:Laundry/Dry Cleaning 159.75 383.40Personal Services 121.70 292.08DCA Fee/Eisenhower Hall Tickets 95.83 230.00 Class Activities 55.42 333.00Cadet Publications 39.17 99.00 Athletic Fees 30.00 72.00Uniforms & Equipment 59.17 142.00Books & Supplies 834.00 1310.00Computer & Supplies 157.08 177.00 Class Fund - - Information Tech Fee 82.06 196.94Newspapers – NY Times 20.83 50.00Miscellaneous - - Inflation Factor - - TOTAL EXPENSES 1655.01 3285.42

Total Expenses Exceed

Total Deposits

Minimum AccountBalance is required

Just for youto meet

Expenses

1467.11



Should you “Top-Off”?

Reasons not to Top-OffSave for your Class Ring $1200

Save for your Uniforms $2000

Money is in an interest bearing account

Reasons to Top-Off

Get out of Credit Card Debt

Avoid Credit Card Debt



Review Budget Basics

Short Term Goals

Ring

Uniforms

Spring Break

Car

Medium Term Goals

Wedding

House Down Payment

Spouse’s Tuition

Long Term Goals

Retirement

Kid’s College



Should you “Top-Off”?Between now and graduation you will collect $8000 in discretionary pay

Class Ring $1200

LT Uniforms $2000

Travel Home x 5 $1500

Spring Break x 2$1600

Total $6300

$8000 - $6300 = $1700

There are 17 months until graduation

You have about $100 per month for incidentals



Should you “Top-Off”?Between now and graduation you will collect $8000 in discretionary pay

Class Ring $1200

LT Uniforms $2000

Mom and Dad pay for

travel and vacations

Total $3200

$8000 - $3200 = $4800

There are 17 months until graduation

You have about $282 per month for incidentals



Avoiding Credit Card Debt

Do not use your credit card for routine expenses if you are not currently paying it off every month

Establish and maintain an Emergency Fund

Emergencies are unscheduled trips home and car repairs

Plan ahead for your known major expenses

Avoid impulse purchases on credit

Don’t try to keep up with the Joneses



Myth: I’ll start saving after graduationYour financial planning will never be simpler than it is now

If you haven’t learned to live within your budget now what makes you think you’ll do it when you’re paying for groceries and rent?

If you’re not eating in the mess hall now, what makes you think you’ll stop eating fast food later

The green zone in Baghdad has Subways

AAFES is in Iraq, too

If you have access to the internet you can spend money



The Cow Loan

Should I take the loan?

What should I do with it?



Background• Cadets sign for $30k loan with very favorable interest terms

second semester Cow year

• Repayment represents 25% of base 2LT pay (30% after tax)

• We have seen an increase in financial vendors and interest from financial vendors in the last several years

• We have many reports of vendors pressing cadets to purchase products that are not always in their best interest



Concerns

• Many cadets have no plan for the loan

• Cadets are bombarded by vendors who are selling products they don’t need

• Cadets are not planning ahead for major purchases and are taking on credit card debt in addition to the loan

• Cadets believe USMA sanctions the vendors that are selling them inappropriate products



Cow Loan Basics

It’s a good deal -- take it!!

BUT!!!!

It’s a COW LOAN not a CASH COW!

Know thyself!!



Review Budget Basics

Short Term Goals

Ring

Uniforms

Spring Break

Car

MediumTerm Goals

Wedding

House Down Payment

Spouse’s Tuition

Long Term Goals

Retirement

Kid’s College

These are the only items that a financial planner will recommend financing with debt



Cow Loan Basics

#1 Priority is to pay off credit card debt

#2 Priority is to plan for known expenses without going into credit card debt

Class ring and uniforms

Any known travel



Cow Loan Basics

#3 Priority is to pay for your car

Do not take on additional debt to buy a car

You are already maxed out!



Cow Loan Basics

The ideal plan is to save and invest

Max out your Roth IRA

Invest the rest according to your medium and long term financial

needs



Financial Goals

Short Term Goals

Ring

Uniforms

Spring Break

Car

Medium Term Goals

Wedding

House Down Payment

Spouse’s Tuition

Long Term Goals

Retirement

Kid’s College

The Cow Loan presents you with the opportunity to get a head start on your Medium and Long Term Goals



Max Out Your Roth IRA

Invest $4000 toward 2006 before filing your taxes

Invest an additional $4000 against 2007



Max Out Your IRA

Where?



Invest the Rest

Okay, but where?



Investing

Do Your Homework!



ResourcesYahoo! Finance

MSN Money

About.com

Investopedia.com

Investment Company Websites



Investing

You can do it!



Financial Planners

Are guaranteed to make their commission on load funds and annuities

You are not guaranteed a return

Must disclose how they are compensated



Financial Planners

If you do not feel

like you are in charge of

YOUR MONEY

you have the wrong financial planner



Cow Loan Don'tsDo not invest in an instrument that you do not understand

Do not transfer responsibility for your finances to your room mate

Do not trust someone just because they have permission to sell products on post



Cow Loan Don'ts

Do not take on a car loan in addition to your cow loan

Do not take on credit card debt in addition to your cow loan

Do not invest in a financial instrument that you do not understand



Recommendations

Plan ahead starting today

Get out of Credit Card debt ASAP

Avoid Credit Card debt by planning ahead

Max out your Roth IRA



The Way Ahead

• Company meeting with an Econ Instructor –M hour– More specifics on the Cow Loan– More specifics on products and plans– Opportunity to answer questions/dispel rumors



Additional Resources

• Economics Faculty• Investment Club holds a special seminar for the

cow loan



No Mission Too Great!

you and your money

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