Money Management for PL (Jan 2012)

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  • Title Slide Use title case. Font: Arial, 44 for topic Font Color: Custom; Color Model-RGB, Red-12, Green-45, Blue-131 Date of event (spell out date), Font: Arial, 36 Briefer’s name and organization, Font: Arial, 24 Font Color: Black Example: SSgt Cunningham HQ USAFA/CCX
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  • Title of slide: Title Case: Font: Arial, 36 Subtitle: Font Arial, 28 Font Color: Custom; Color Model-RGB, Red-12, Green-45, Blue-131 Line spacing should be set to 1, 0.2, 0 Use more single bullets and less sub bullets. All font: Arial, 24 (if needed, not less than 20) NOTE: Powerpoint will automatically resize to the size of the box. Make sure it’s all one size. Start bullets in same place on every slide. Bullets: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
  • Pair of Fraternal Twins – Jill and Bill Age 22 -- $300 per month at 10% return 1. Jill will start now at 22 and stop at age 30 - $28,800 invested - Leaves $43,854 invested growing 2. Bill waits to age 30 but invests for 30 years - $108,000 invested (more than 3 times) At age 60 who will have the most? (Jill) - Bill would need to increase monthly investment to $385 to catch up How much would Jill have at age 60 if she had kept putting away $300 all those years? - $1.5 M  
  • Attacking USAFA patch will determine end of brief.
  • Money Management for PL (Jan 2012)

    1. 1. Personal Financial Readiness Peggy Kramer Accredited Financial Counselor  333-3444
    2. 2. Money: What Good is It?
    3. 3. Overview <ul><ul><li>Basics </li></ul></ul><ul><ul><ul><li>Budgets </li></ul></ul></ul><ul><ul><ul><li>Credit & Debt </li></ul></ul></ul><ul><ul><ul><li>Identity Theft </li></ul></ul></ul><ul><ul><li>Saving & Investing </li></ul></ul><ul><ul><ul><li>IRAs & TSP </li></ul></ul></ul><ul><ul><ul><li>Regular Investments </li></ul></ul></ul><ul><ul><li>Suggestions for Success </li></ul></ul><ul><ul><li>Summary Thoughts </li></ul></ul>
    4. 4. Budget <ul><li>A deliberate plan to spend each dollar as you intend </li></ul><ul><li>Realistic and continually updated </li></ul><ul><li>Distribution: </li></ul><ul><ul><li>Savings 10-20% </li></ul></ul><ul><ul><li>Needs 50% of take-home pay </li></ul></ul><ul><ul><li>Wants 30% of take-home pay </li></ul></ul><ul><li>Budget in some FUN! </li></ul><ul><li>Track expenses by category </li></ul><ul><li>Be patient for things you can’t afford – they’ll come with time </li></ul>
    5. 5. How to Develop a Budget <ul><li>Determine monthly “net income” </li></ul><ul><ul><li>Income less deductions = take-home pay </li></ul></ul><ul><li>Select categories to track and amounts to spend </li></ul><ul><ul><li>Use records or imagine amounts you typically spend </li></ul></ul><ul><li>Keep priorities in mind: </li></ul><ul><ul><li>1. Savings – set up allotment! </li></ul></ul><ul><ul><li>2. Needs (approx 50%) </li></ul></ul><ul><ul><li>3. Wants – prioritized </li></ul></ul><ul><li>Keep track of where the money actually goes </li></ul><ul><ul><li>Be careful of letting bank do it for you! </li></ul></ul><ul><ul><li>Idea: use commercial software </li></ul></ul>
    6. 6. Credit and Debt Management <ul><li>Establish and maintain good credit </li></ul><ul><ul><li>Used properly - can be a great help to you </li></ul></ul><ul><ul><li>Can be a convenience </li></ul></ul><ul><li>Pay attention to terms and conditions </li></ul><ul><li>Always pay off balance each month </li></ul><ul><li>Avoid Payday Loans (sharks) </li></ul><ul><li>Understand what your FICO score is </li></ul><ul><li>Don’t be a victim of Identity Theft – America’s fastest-growing crime </li></ul><ul><ul><li>Keep vigilant </li></ul></ul><ul><ul><li>Know your consumer rights </li></ul></ul>
    7. 7. Managing Credit <ul><li>Review your credit reports </li></ul><ul><li>Free report from each company annually </li></ul><ul><ul><li>www.AnnualCreditReport.com </li></ul></ul><ul><ul><ul><li>Equifax 800-685-1111 </li></ul></ul></ul><ul><ul><ul><li>Experian 888-397-3742 </li></ul></ul></ul><ul><ul><ul><li>Transunion 800-888-4213 </li></ul></ul></ul><ul><li>Hint: develop rotation of 1 report every 4 months </li></ul><ul><li>Best way to ruin credit score: pay late </li></ul><ul><ul><li>35% of score is payment history </li></ul></ul><ul><li>Next best way: increase amount of indebtedness </li></ul><ul><ul><li>Being “maxed out” lowers your score </li></ul></ul>
    8. 8. Debt <ul><li>Eliminate consumer debt </li></ul><ul><ul><li>Debt is stressful </li></ul></ul><ul><ul><li>Expensive </li></ul></ul><ul><ul><li>Not tax-efficient </li></ul></ul><ul><ul><li>Limits flexibility to spend the way we want today </li></ul></ul><ul><ul><li>Limits our ability to save for the future </li></ul></ul><ul><ul><li>Looks bad to employers (including USAF) </li></ul></ul><ul><ul><ul><li>They may pull a credit report when you apply for security clearance or a job outside USAF </li></ul></ul></ul>Have we become too comfortable with debt ??
    9. 9. Debt (cont) <ul><li>Avoid getting into debt </li></ul><ul><ul><li>Use cash v. credit cards (or pay off balance each month) </li></ul></ul><ul><ul><li>Stick to a budget </li></ul></ul><ul><ul><li>Save for future (emergency cash cushion) </li></ul></ul><ul><ul><ul><li>Live on LESS than you earn </li></ul></ul></ul><ul><li>Getting out of debt </li></ul><ul><ul><li>Face the problem and decide to take back control </li></ul></ul><ul><ul><li>Charge no more! </li></ul></ul><ul><ul><li>Pay more than minimum (highest rate first) </li></ul></ul><ul><ul><li>Keep saving so you don’t have to use credit </li></ul></ul>
    10. 10. Identity Theft <ul><li>Protect your credit / identity </li></ul><ul><ul><li>Don’t give out SSN </li></ul></ul><ul><ul><li>Shred everything personal or financial </li></ul></ul><ul><ul><li>Keep eye on credit / debit cards and checks </li></ul></ul><ul><li>Use electronic bill pay / delivery of statements </li></ul><ul><ul><li>Mail theft accounts for ~2% of identity theft </li></ul></ul><ul><li>Think you’re a victim – report immediately </li></ul><ul><ul><li>www.FTC.gov/IDtheft </li></ul></ul>
    11. 11. Saving and Investing <ul><li>Why do I need to save? </li></ul><ul><ul><li>So you can use cash v. credit </li></ul></ul><ul><ul><li>Avoid debt. Debt = stress! </li></ul></ul><ul><li>Savings: short-term needs / emergency cash </li></ul><ul><ul><li>3-6 months of normal expenses </li></ul></ul><ul><ul><li>Pay yourself first (use allotment) </li></ul></ul><ul><ul><li>Save before you invest! </li></ul></ul><ul><li>Investing: mid- to long-term goals </li></ul><ul><ul><li>IRAs and TSP </li></ul></ul><ul><ul><li>Regular investment accounts </li></ul></ul><ul><ul><li>Important: money is tied up for a while </li></ul></ul>
    12. 12. Jill and Bill $869,950 $678,146 $300 per month at 10% return 22 30 60 Jill: $300 per month x 8 yrs at 10% Bill: waits until age 30 $300 per month x 30 yrs at 10%
    13. 13. TSP <ul><li>You are eligible to contribute to TSP </li></ul><ul><ul><li>Government “401(k)” </li></ul></ul><ul><ul><li>Voluntary contributions </li></ul></ul><ul><ul><li>No government matching </li></ul></ul><ul><ul><li>Tax-deferred growth </li></ul></ul><ul><li>USAFA cadets may not participate </li></ul><ul><ul><li>Leave funds in TSP and resume upon active duty </li></ul></ul><ul><li>All withdrawals will be 100% taxable </li></ul><ul><li>Recommendation: 10% (unless you contribute to Roth IRA) </li></ul><ul><ul><li>Max for 2012: $17,000 </li></ul></ul>
    14. 14. IRAs <ul><li>Individual Retirement Accounts (IRAs) </li></ul><ul><ul><li>Traditional (tax deferred) </li></ul></ul><ul><ul><li>Roth (tax free ) if account open 5 years and age 59½ </li></ul></ul><ul><ul><li>IRS penalty of 10% for early withdrawals </li></ul></ul><ul><li>Recommend Roth IRA </li></ul><ul><ul><li>Max contribution for 2012: $5,000 </li></ul></ul><ul><ul><li>Automatic monthly contributions may be possible </li></ul></ul><ul><ul><li>Investments: usually mutual funds </li></ul></ul><ul><li>Roth IRA contributions already taxed - not taxed again </li></ul><ul><ul><li>Like paying tax on seed v. tax on crop </li></ul></ul><ul><ul><li>You get the growth for free! </li></ul></ul>
    15. 15. Regular Investments <ul><li>Mutual Funds </li></ul><ul><ul><li>Individual or Joint account </li></ul></ul><ul><ul><li>Easy to manage </li></ul></ul><ul><ul><li>Interest is taxable every year </li></ul></ul><ul><ul><li>Liquid </li></ul></ul><ul><li>Hire an advisor or do-it-yourself? </li></ul><ul><ul><li>Vanguard, Fidelity, T. Rowe Price, USAA, and others offer direct on-line access </li></ul></ul><ul><ul><li>Automatic monthly investments possible </li></ul></ul>
    16. 16. Suggestions for Success <ul><li>Create your wealth – save at least 10% annually </li></ul><ul><ul><li>1. Emergency Fund – $5,000 - $10,000 liquid savings </li></ul></ul><ul><ul><li>2. Roth IRA – up to $5,000 for 2012 </li></ul></ul><ul><ul><li>3. Regular investment – equal to Roth contribution </li></ul></ul><ul><li>Diversify among funds and cash </li></ul><ul><li>Dollar-Cost Average Investing </li></ul><ul><ul><li>Consistent amount every month </li></ul></ul><ul><li>When you get a raise, bank it! </li></ul><ul><li>Be frugal – once money’s spent.... </li></ul>
    17. 17. Summary Thoughts <ul><li>Live on LESS than you earn </li></ul><ul><ul><li>If you have credit card debt you’ve probably been using credit cards as a paycheck extender! </li></ul></ul><ul><li>Don’t perpetuate (non-deductible) debt </li></ul><ul><li>Understand taxes </li></ul><ul><li>Invest as young as possible and keep on saving </li></ul><ul><ul><li>10% at least (20% if you can) </li></ul></ul><ul><li>Set goals and plan </li></ul><ul><li>Biggest risk to creating wealth </li></ul><ul><ul><li>Debt </li></ul></ul>
    18. 18. I n t e g r i t y - S e r v i c e - E x c e l l e n c e

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