Finances and the College Student

1. Finances and the College Student Presented by the James Madison University Office of Financial Aid & Scholarships (updated 7/27/06)

2. What We Are Here To Learn Managing Debt Retirement Saving for Big Expenses Budgeting Credit Cards Establishing Credit Balancing Accounts Insurance

3. Earnings vs. Spending How much you spend is much more important than how much you earn. This is often referred to as “living within your means.”

5. What Can I Spend? Managing your debt requires careful planning. The level of debt which is manageable for you depends upon a variety of factors including your level of income and living expenses.

6. The Importance of Budgeting A budget does a few things for you: 1. It tells you where your money comes from and where it goes. 2. It tells you where you are financially and helps you figure out which road to take to gain financial stability.

7. How To Prepare A Budget : A budget involves two key components: • List of income and expenses • A plan for meeting responsibilities and goals

8. Expenses Divide expenses into two categories: Essentials Non-essentials

9. Essential Expenses Essential expenses are necessities of life, including housing, utilities, transportation, and groceries.

10. Non-essential Expenses • Non-essential expenses may include cable T.V., credit cards, furniture bills and other bills that make life more “comfortable.” • You can reduce non-essential expenses.

11. Remember… The more you know about where your money comes from, how much you have to spend, and where you spend it, the easier it is to make wise spending decisions. In this way, your money works for you instead of against you.

12. Loan Repayment Schedule

14. Helpful Budgeting Tools • Quicken • http://www.quicken.com/banking_and_credit/ • Microsoft Money • http://www.microsoft.com/PRODUCTS/info/ • list.aspx?type=srch&view=22&qu=Money • Online Banking

15. Tips for Managing Your Money • Create a budget and stick to it! • Save and project for future expenses • Learn to say “no” to friends • Do “free” things • Keep records of expenses • Don’t overuse ATM cards • Keep money safe and growing while you aren’t using it • Cut out coupons • Pay credit cards off monthly

16. Checkbook Balancing • Balancing a checkbook is as simple as: • Adding • Subtracting

17. The Importance of A Balanced Checkbook • Having a balanced checkbook does several things: • It gives an accurate account of how much money you have. • It controls the amount of money you spend. • It can be a source of “proof” that you have paid your bills.

18. The Steps To Balancing • Record all transactions immediately. • Check your math to make sure you are adding when making a deposit and subtracting when making a withdrawal. • Use a ledger or other method for tracking deposits and withdrawals. • Remember to deduct any additional bank fees such as ATM surcharges, returned check fees and monthly checking account fees (if applicable).

19. Credit Cards • Establish a good credit history • Easy to keep track of spending with monthly statements • Earn reward points (watch for fees) • Convenience (good and bad) • Quickly accumulate large amounts debt • Introductory vs. fixed interest rates

20. Credit Cards and College Students According to research conducted by Nellie Mae….. • 76% of undergraduates began the school year with a credit card in 2004 • 91% of final year students had a credit card compared with 42% of freshmen in 2004 • 56% of final year students have at least 4 cards, while only 15% of freshmen have that many in 2004

21. Credit Card Debt Survey conducted by Nellie Mae showed the average student credit card debt rose from $1,879 in 1998 to $2,169 in 2004 • Final year students had an average balance of $2,864 • Freshmen had an average balance of $1,585

22. Credit Card Interest Scenario: • $3,000 charged on a credit card • Interest rate of 19.8% • You pay $50 per month • It will take 24 years to pay off the card • At the end of at time you would have paid back $14,070 ($11,070 in interest) (source: www.visa.com)

23. Ways to Save • Money Market Accounts • Stocks • US Savings Bonds • http://www.savingsbonds.com/ • Mutual Funds • Certificate of Deposit (CD)

24. $3,000 Earning a Rate of 10% Annually (Source: www.americancentury.com)

25. Methods of Saving/Investing • Savings Account: After 30 year(s) at 3% interest a $3,000.00 annual investment will grow to $154,290.00 • Money Market: After 30 year(s) at 5% interest a $3,000.00 annual investment will grow to $222,248.00 • Mutual Fund: After 30 year(s) at 10% interest a $3,000.00 annual investment will grow to $595,178.00 (Source: www.americancentury.com)

26. Retirement Savings PAY YOURSELF! • Traditional IRA • Roth IRA • 401k • 403b • Employer Match • Tax advantages today or in the future

27. Roth IRA Example Average earnings of a ROTH IRA if you invest $2,000 annually from age 22 to age 72 with an average rate of return at 10%. AGENumber of YearsAccount’s Value 22 0 $2,000 32 10 $45,787 42 20 $153,270 52 30 $432,052 62 40 $1,155,142 72 50 $3,030,652 (Source: Richmond Times-Dispatch, Sunday, 02/07/99 Planning for Retirement insert)

28. Ways to Establish Credit • Credit Card payments • Student Loan payments • On-time payments with all bills, including: • Housing • Utilities • Medical • Financed purchases

29. Establishing Credit cont... • Communication is the key to maintaining a positive credit file and may help to avoid student loan default. • Paying bills in a timely manner is important to your future credit needs.

30. Cost of Living Comparison • $50,000 per year in Harrisonburg, Virginia is the equivalent of $89,791 in New York, New York. It’s a 79.6% more expensive to live in New York, New York than in Harrisonburg (Source: http://homeadvisor.msn.com/PickAPlace/CompareCities.asp) • The median home value in Harrisonburg, Virginia is $130,800. The median home value in New York, New York is $314,800. Note: House median value The value of the year’s most recent home sales data (March, 2000 to April, 1999). It’s important to note that this is not the average (or arithmetic mean). The median home price is the middle value when you arrange all the sales prices of homes from lowest to highest. This is a better indicator than the average, because the median is not changed as much by a few unusually high or low values. (Source: http://homeadvisor.msn.com/PickAPlace/CompareCities.asp)

31. Cost of Living • Taxes: federal, state, local, etc. • Charitable contributions (e.g. tithing) • Food • Housing/Utilities • Insurance: health, vehicle, homeowner’s, etc. • Transportation • Medical expenses • Commute costs

32. Insurance…Do You Need It? • Health • Often provided through employers. • How much of the premium will you have to pay? • What type of insurance is best for your situation? • Vehicle • Higher deductibles often mean lower premiums. • What happens to your premium if you have a claim? • Are there reduced rates for multiple policies?

33. Insurance…Do You Need It? cont... • Life • Employer provided? • What type is best for you? (e.g. term, whole, etc.) • Typically less expensive the younger you are. • Homeowners • Higher deductibles often mean lower premiums. • What happens to your premium if you have a claim? • Are there reduced rates for multiple policies? • Flood insurance is generally not in a basic policy.

34. BIG EXPENSES! Through budgeting, establishing good credit, minimizing non-essential purchases, and saving, you can afford: • Home • Car • Retirement • College for your children • Vacations If you don’t then you could be this guy when your children go to college….

36. Useful Web Sites • www.bankrate.com • www.wetfeet.com • www.salary.com • www.salaryexpert.com • www.themint.org • www.asec.org/ballpark/ballpark.htm • www.homestore.com • www.vec.state.va.us (or other state employment commissions) • http://verticals.yahoo.com/cities/ • http://www.bestplaces.net/html/cost_of_living.html • http://www.ourfamilyplace.com/homeowner/budgettips.html • http://www.ourfamilyplace.com/budget.html