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Money management for pl (jan 2012)
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
Hinweis der Redaktion
Title Slide
Use title case.
Font: Arial, 44 for topic
Font Color: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
Date of event (spell out date), Font: Arial, 36
Briefer’s name and organization, Font: Arial, 24
Font Color: Black
Example:
SSgt Cunningham
HQ USAFA/CCX
Font Color: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
Line spacing should be set to 1, 0.2, 0
Start bullets in same place on every slide.
Bullets: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
Page numbers:
Click on Master Slide (Click View, Master, Slide Master) and insert the total number of slides. Slides will update by themselves. If you add or delete a slide, once again, just go into the Master Slide and change the total number of slides and powerpoint will update automatically.
Example: 1/5, 2/5, 3/5, 4/5, 5/5
DO NOT NUMBER TITLE SLIDE
Title of slide:
Title Case: Font: Arial, 36
Subtitle: Font Arial, 28
Font Color: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
Line spacing should be set to 1, 0.2, 0
Use more single bullets and less sub bullets.
All font: Arial, 24 (if needed, not less than 20)
NOTE: Powerpoint will automatically resize to the size of the box. Make sure it’s all one size.
Start bullets in same place on every slide.
Bullets: Custom; Color Model-RGB, Red-12, Green-45, Blue-131
Pair of Fraternal Twins – Jill and Bill
Age 22 -- $300 per month at 10% return
1. Jill will start now at 22 and stop at age 30
- $28,800 invested
- Leaves $43,854 invested growing
2. Bill waits to age 30 but invests for 30 years
- $108,000 invested (more than 3 times)
At age 60 who will have the most? (Jill)
- Bill would need to increase monthly investment to $385 to catch up
How much would Jill have at age 60 if she had kept putting away $300 all those years?
- $1.5 M
Attacking USAFA patch will determine end of brief.