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Money management for pl (jan 2012)

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Money management for pl (jan 2012)

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