Senior Transition Series: “Future Finance Help

Center”

Presented by: Rick Proctor

March 5th 2012, 7 PM

Key Auditorium

Budgeting

Planning and Monitoring your income and expenses.

• Set up in an Excel Spreadsheet:

Establishing and

Maintaining Your Credit

Advantages of having good credit:

• Able to borrow when you want/need

• Get the best interest rates on loans

• Get the best offers – car loans, credit cards

• **Potential employers may check your credit report

• Once established, you can keep it for life – just pay your bills on time.

How do you establish your initial credit?

• Open a checking and savings account in your name

• Get a credit card in your name – Use, pay off every month

• Pay all your bills on time: cell phone, utilities

Maintaining Good Credit

• Pay ALL bills on time

• Don’t max out your credit cards

• Monitor your credit history

• Get free credit report from www.annualcreditreport.com

• Get your FICO credit score (350-850, higher the better.)

• Most important factor – credit payment history (35%)

• Credit Utilization (% of total credit being used) (30%)

• **Open an account at a Credit Union (non-profit)

Choosing a credit card

• Rate (Annual Percentage Rate, APR)

• Annual Fee, if any

• Additional benefits – mileage points for airline tickets, 5% credit towards GM car (read fine print)

• Use creditcards.com to find cards w/ low rates, for students, for your credit situation.

Buying and Financing a

Car

Buying and Financing a Car

• To find a good price: www.TrueCar.com, www.chug.com

 

• To compare cars: www.Edmunds.com, www.kbb.com

• To find out the value of your trade-in: www.kbb.com

Buying and Financing a Car :

Before going to the dealer

• Determine monthly payment you can afford (Budget)

• Determine total amount willing to pay.

• Check on Financing Terms:

• Check w/ Credit Union, your bank before going to dealer (APRs, amount, terms).

• Dealer may not give you best rate

• Dealers make money on financing, options, extended warranties, your trade-in.

Leasing vs. Buying: Advantages

• Lower Down Payment, lower monthly payments

• Don’t have to find buyer at end of lease

• Drive a more expensive, newer car for same money

Leasing vs. Buying : Disadvantages

• No equity (ownership value) in car (you have after 2-3 years when buying)

• You are responsible for maintenance, excess mileage

• Must come up w/ a down payment every 3 years for new lease.

Leasing Terminology

• Capitalized Cost = Price of Car

• ***Negotiate price before even discussing leasing

• Consumer pays average of 92% of list price when buying, but 96% when leasing

• Money Factor = interest rate

• Residual Value = expected value at end of lease

• Higher the residual value, lower your lease payment

• Don’t Forget cost of car insurance!

Student Loans

Student Loans (Perkins, Stafford, etc.)

• Repayment begins 9 months after graduation

• Standard repayment term is 10 years

• Ex: $10,000 @ 6.8% - Monthly payment = $115

$40,000 @ 6.8% - Monthly payment $460

• Income –based Repayment- IBR

• Payment is 15% of “Adjusted Gross Income

$40,000 @ 6.8% - Monthly payment $297

• Loan Payments: www.finaid.org/calculators/ibr.phtml

Student Loans (continued)

• To apply for IBR: contact your loan servicer.

• If unable to make payments:• Apply for Economic Hardship Deferment (3

year max) or Forbearance (5 year max)

**Interest compounds (“accrues”) during time.

**Interest is tax-deductible, up to $2500/year

Leasing an Apartment

Leasing an Apartment

• National Websites:

www.moversguide.com

www.Apartments.com

www.move.com

Leasing an Apartment:Moving In

• Landlord will check your credit report

• Read the lease before you sign it!

• Put in writing what will be fixed, painted before you move in.

• Your Security Deposit should earn interest – Ask!

Leasing an Apartment:Moving Out

• Take pictures of cleaned, empty apartment• to document condition

• Go on walkthrough with manager • to verify condition.

Insurance Needs

Insurance

• Insurance – to cover potentially expensive risks that you can’t afford to pay yourself

• You pay a certain, small amount (premium) instead of an uncertain, potentially large amount (the loss due to the risk)

• Insurance You Need:• Renter’s Insurance

Renter’s Insurance covers:

• Personal Property

• Additional Living Expenses

• Personal Liability

• ***Landlord’s insurance doesn’t cover your property unless you can prove it was the landlord’s fault.

• Inexpensive: $150-250 per year

Auto Insurance

• Medical Coverage• Bodily Injury Liability – Covers people in the

other car

• Medical Payments – Covers people in your car, including you.

• Uninsured Motorist Coverage

Property Damage

• Property Damage – damage to other car, property (street sign, etc.)

• Coverage is expressed as “100/300/50”

• “100” Limit paid to any one person per accident

• “300” Limit paid to all persons per accident

• “50” Limit paid to all others’ property damage

• Good, Standard Coverage is 100/300/100

Coverage for your Car and Property

• “Collision” – Covers damage to your car due to an accident, regardless of fault

• “Comprehensive”– Covers damage due to other events – fire, vandalism, theft…

Buying Auto Insurance

Get quotes from several reputable companies

• Rates vary widely

• Consider: Do you want the convenience of a local agent, vs. online companies?

• Higher Deductibles – reduce premiums

• Older Car – may want to eliminate collision/comprehensive

Auto Insurance Rates depend on:

• Type of Vehicle

• Driving Record/accidents

• Place of Residence

• Annual Mileage

• Credit Report

• Age, sex, marital status

Health Insurance

Health Insurance

• ***Key: Make sure that you maintain coverage as you transition from college to the work world 

• Parents’ policy will cover you until age 23 or no longer in college • If need temporary health insurance, buy policy

w/ high deductible, covers major medical/hospital expenses

• “Catastrophic health coverage”

Insurance You Don’t Need!

• Life Insurance – unless someone else depends on your income.

• Insurance when you take out a loan• Credit Life Insurance, Credit Health Insurance

• Extended Warranties

Retirement Planning

Retirement Planning

• www.smartmoney.com/retirement

• Responsibility of planning for your retirement falls on you!

• Social Security replaces less than 40% of average income

• Average SS benefit is $960/mo; $2400/mo max.

Employer-sponsored Plans

• Defined Benefit – “Pension”• Employer pays you a fixed monthly retirement

benefit based on average salary, time at job… 

• Defined Contribution• Firm will contribute a defined amount to plan.• You are expected to contribute to the plan.• Retirement benefit depends on how your

investments in plan performed.• Risk lies with you!

401-K

• You contribute, employer may contribute

• Employers will match all/part of your contribution

• $ is invested in various investments:

• Stock, bond mutual funds

• Key Feature- contributions are tax-deferred

• $ grows tax-free, only taxed when withdrawn at retirement.

Choosing Investments:

• Must be willing to take risks • Stocks for the long term; corporate bonds

• Be wary of investing in your company’s stock 

• 403-B – Same type of plan for non-profits

• SEP – Simplified Employee Plan (1-10 employees)

• Keogh Plan- Self Employed

Individual Plans

IRA – Individual Retirement Account

• Contributions not taxed

• $ grows tax deferred

• Taxed when withdraw at retirement

• Set up through investment firms

• Vanguard – 60 mutual funds

Roth IRA

• Contributions are taxed

• Withdrawals are tax-free

• Benefit to younger workers, taxed at lower rate

Keys to successful Retirement Planning:

• Start saving, investing early• Ex: If start saving at 35, need $1M by age 70.• If earn 8%/year, need to save $5800/year.• If began at 25, need to save $2500/year 

• Take suitable level of risk• Should be rewarded w/ higher returns over

long term • Can’t be too conservative• Won’t accumulate enough to retire comfortably

Questions?Comments?Concerns?

*Information presented will be available on the senior class website, to be posted after the presentation*

Sponsored by the Class of 2012 Council “Senior Transition Series”www.siena.edu/seniorclass