Financial Literacy

1. St. Paul, Minn. | www.wmitchell.edu
Practical Wisdom
Financial Literacy 101

2. Back to the Basics
• Budgeting
– Tracking Income and Expenses
– Reducing Expenses
• Credit as a Consumer
– Credit Reports
– Credit Scores
– Improving Credit
• Power Pay Debt

3. Budgeting 101
Benefits: maximize assets, minimize debt
Step 1: Calculating Income
Step 2: Calculating Expenses
- Tracking
Step 3: Develop a Spending Plan
Step 4: Minimize Expenses
- Distinguish: necessities and luxuries

4. Calculating Income, Basics
– Always underestimate income
– Include subsidies (insurance, housing, food)
– Income fluctuates by # hours or days worked
– Include financial aid, but deposit into draw account
• Deposit lump sum into account and withdraw monthly “pay”
– Miscellaneous income: VA payments, child support,
disability payments
Income Week 1 Week 2 Week 3 Week 4 Week 5 Total
FA Draw
Pay 1
Pay 2
Misc.

5. Tracking Expenses, Basics
- Determine where the money goes
- Goal: get your money to last longer
- Methods:
- Keep receipts
- Balancing a checkbook
- Notebook or ledger
- Calendar
- Software or websites
- Envelops with Money

6. Tracking Necessity Expenses
Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total
rent/mortgage
gas/electric
water/sewer
phone
car costs
gasoline
groceries
household
items
internet
debt
payments
insurance

7. Tracking Luxury Expenses
Expenses Week 1 Week 2 Week 3 Week 4 Week 5 Total
cable TV
meals out
clothing
cigarettes
entertainment
vacation
hobbies
pets

8. Ways to Reduce Spending
• Standard of living expectations
– Live large now with debt, live smaller later
and longer
– Eliminate or reducing eating out
– Studio apt v. 1-bedroom apt
– Living with roommates
– Smart phone v. cellphone
• Shop with Lists

9. Increasing Income for Students
• Full-time students: work 20 hours or less
– FT: 12 credits or more
– On-campus or off-campus
• Part-time students: work 40 hours or less
– PT: 11 credits or less
– Downside: May add time to graduation
– Benefits:
• Time for more work experience for resume
• Earning income to reduce need for financial aid debt
• Lower cost per credit at 11 credits

10. Credit Reports
Purpose: to determine whether you will pay your
debts in the future by looking at your past and
current debt and payment history
*** Created by Creditors for Creditors***

11. Credit Report v. Credit Score
Credit Reports: list of debt obligations with new
obligations fist
- Free from www.annualcreditreport.com
- Transunion (Midwest), Experian (west coast),
Equifax (east coast)
- Used to calculate credit score
Credit Score: numerical value of your credit risk
- the higher the number, the less risk you are
- Utilizes 45 data points from credit report

12. Making the Most of Your Credit Report
Information includes:
- Employment & Address History
- Number & Types of Inquiries
- Payment History on All Debt
- Amount, Age, and Types of Debts
- Public Records: evictions, bankruptcies,
court judgments
- Negative information lasts 7 or 10 years

13. Improving Credit
# 1 Correct Errors
- Send updates on addresses to credit
bureaus
- Contact credit for errors in payment history
# 2 Pay Off Debts or Collections
- Get payment plans or settlements in writing
- Payments on collections will refresh for an
additional 7 years

14. Paying Down Debt
• Standard: paying minimum payments
• Accelerated: paying more than the
minimum payments
– Tip: Once 1 debt is paid off, use that payment
towards the next debt
– Tip: Pay extra to only 1 debt
• Saves most money: highest interest debt
• Most rewarding visually: lowest balance

15. Power Pay with Student Loans
• Benefit of payoff of student loans: few bankruptcy
options and few limits on collectability
• Advantageous to pay down private student loans before
federal loans
• Generally less flexible repayment terms, variable interest rates,
and few discharges in the event of death or permanent disability
• Thinking about ICR or IBR?
– Have to balance interest rates with possible loan
forgiveness eligibility
– Federal student loans have flexible payment
amounts, impacted by income: most debt has fixed
payment

16. Payment Example:
Debt Type Debt Amount Debt Payment Interest Rate Repayment
Term
Stafford Loans $61,500 $426 6.8% 25 years
Plus Loan $90,000 $689 7.9% 25 years
Mortgage $237,000 $1309 5.25% 30 years
Credit Card #1 $5,000 $65 14.97% Variable
Credit Card #2 $2,000 $50 21.97% Variable
Car Payment $21,000 $384 3.9% 5 years
Total Debt: $416,500
Total Monthly Payment: $2923
Total Payments without Power Pay: $848,475 and takes 30 years
Total Paid with Power Pay, highest interest: $734,558 and takes 21 years
Total Paid with Power pay, lowest balance: $739,405 and takes 21 years,
- $109, 070 in savings or 13%
If an extra $100 is paid per month: $701,821 and takes 19 years
- $146,654 in savings or 17%

17. Questions?
Email: finaid@wmitchell.edu
Call: 651-290-6403
Want a free spreadsheet to track your debt?
Coming Attraction: October 23 and October 27
Financial PLP on Federal Loans and Public Service
Loan Forgiveness