Diane L. Burnett, M.S. Family Financial Planning Family & Consumer Science Agent, Miami County &

1. Diane L. Burnett, M.S. Family Financial Planning Family & Consumer Science Agent, Miami County & Susie Latta, M.S. Family Financial Planning Family & Consumer Science Agent, Marshall County

2. How Are You Doing? A Financial Check-Up Program prepared by: Susie Latta, M.S., Family Financial Planning Marshall County Extension Agent, FCS & Diane Burnett, M.S., Family Financial Planning Miami County Extension Agent, FCS

3. Class Objectives • Provide assessment tools to determine financial strengths and weaknesses • Provide worksheets to set goals and make calculations • Provide suggestions to improve financial management • Improve “financial fitness” and “screen” for potential problems (like physicals)

4. Financial goals Net worth Financial ratios Income & expense statements Spending plans (budgets) Credit cards Marginal tax brackets Insurance analyses Retirement analyses Investment performance Asset allocation Retirement & estate planning Class Topics:

5. 1. Financial Quiz • Financial Fitness Quiz (20 questions) • Scores: Always(5) to never (1) • Scores range from 20 to 100

6. 2. Financial Goals • Make your goals SMART • Specific (date, cost) • Measurable (progress) • Attainable • Relevant • Time-related (deadline) • Short-, intermediate-, long-term (match investments to goal time frame)

7. Develop an Action Plan For Each Goal • Approximate amount needed • Number of months to save • Divide number of months into goal amount • Try to automate savings (e.g., credit union) Example: $15,000 goal divided by 48 months = $312.50 per month to save

8. 3. Net Worth • Assets: everything that you own • Liquid (cash assets) • Tangible (property) • Investment • Debts: everything that you owe • Short-term • Long-term • Assets minus debts equals net worth

9. Benefits of Net Worth Statement • Can determine adequacy of emergency savings • Can determine home equity • Can analyze portfolio diversification • Can see gaps in planning (e.g., no IRA) • Can see the total amount of debt owed • Can use to track progress annually • Often required for loan approval

10. 5. Income and Expense Statement • Do monthly; then annually • Track Expenses • Fixed • Variable • Periodic/irregular • Track Income (all sources) • Income Minus Expenses = Cash Flow

11. 6. Irregular Expenses • List all expenses that come irregularly throughout the year • Examples: car registration, school tuition, birthdays, holidays, vacations, quarterly property tax payment • Total each expense and divide by 12 • Save that amount monthly in revolving savings account to cover irregular expenses

12. 7. Financial Ratios • Liquidity Ratio: Liquid assets divided by monthly expenses • Should be 3 (months expenses) or more • Debt-to-Asset Ratio: Total liabilities divided by total assets • Should be less than 1.0 (insolvency) • Debt Payment to Income Ratio: Annual debt payments divided by gross income • Should be .36 or lower

13. 8. Spending Plan/Budget • List anticipated sources of income • List expenses • Fixed (including revolving savings) • Variable • Compare budgeted amount with actual amount • Adjust as necessary

14. 9. Tax Check-Up • What is your marginal tax bracket? • Would you do better in taxable or tax-exempt investments? • Are you contributing to tax-deferred plans such as IRAs and 401(k)s? • Could you contribute more? • Is a Roth IRA conversion advisable (check www.rothira.com)?

15. 10. Credit Card Check-Up • Are there credit cards you don’t use that can be canceled? • Can you get a better interest rate? • Have you checked your credit report? • Do you have a list of credit card contact information (e.g., 800 numbers)? • Would refinancing/consolidation help?

16. Credit Score • Special three digit number • Affects how much you pay for credit, insurance and other life necessities

17. 11. Insurance Check-Up • Is your home insured for at least 80% of its replacement cost? • Do you have replacement cost riders? • Do you have at least $300k of auto liability? • Do you have LT disability insurance? • Do you have a umbrella liability policy? • Have you considered LTC insurance? • Does your health insurance have high coverage limits andfew exclusions?

18. 12. Life Insurance Check-Up • Most financial planner figure you need 75% of your current household income in the event of a death • Follow these steps: • Calculate # of years income is needed • Add expenses (e.g., funeral, debt, other) • Subtract income, such as government benefits and survivor’s income, and existing assets • Review periodically as needs change

19. 13. Social Security and Pension Check-Up • Review annual SS benefit report • Retirement benefits at 62, Full Retirement depending on date of birth or age 70 • Disability benefits • Annual earning amounts (check accuracy) • Request a pension benefit estimate (defined benefit) or check balance (defined contribution) • Be alert to pension plan changes

20. 14. Retirement Check-Up • Estimate required annual income (% of pre-retirement income) • Subtract SS, pension, earnings, etc. • Estimate life expectancy & retirement age • Determine total required savings • Add up value of existing retirement savings • Subtract future value of savings • Calculate total savings needed & annual (or per-paycheck) savings amount

21. Retirement Check-Up Resources • Ballpark Estimate worksheet (available online at www.asec.org) • www.ces.purdue.edu/retirementWeb site (10 modules with online calculators)

22. 15. Risk Tolerance Check-Up • Understanding Your Risk Tolerance Quiz (www.rce.rutgers.edu/money/riskquiz) • Check online quizzes (investment firms) • Most people more sensitive to potential losses than potential gain • Consider possible losses in dollar figures (e.g., $3,000)- NOT percentages

23. 16. Asset Allocation • Determine your desired asset allocation (% of portfolio in stocks, bonds, or cash) • “Stay the course” in bull and bear markets and follow the model • Rebalance back to the original weightings if percentages shift by a certain amount (e.g., 2%)

24. 17. Investment Performance • Can do for each investment individually or for total portfolio • Write down beginning balance and ending balance • Add half of annual contributions to beginning balance and subtract half of annual contributions from ending balance • Divide adjusted ending balance by adjusted beginning balance • Convert into a percentage

25. 18. Estate Planning Check-Up • Do you have a current will? • Have you recently reviewed beneficiary designations on insurance and retirement accounts? • Are there any conflicts between your will and the titling of assets? • Do you have a living will, power of attorney, trusts (if needed)?

26. Final Thoughts • A financial check-up is as important as a medical check-up • Can help assess problems (e.g., high debt ratio) and risks (e.g., lack of disability insurance) • Can evaluate progress toward goals • Can help identify “action steps” • Can provide motivation to change

27. Any Questions? Please complete your evaluation form. Thank you.