Please Note. In today s session, your CalSTRS benefits specialist will guide you through the basics of financial literacy and retirement planning.

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2 Please Note In today s session, your CalSTRS benefits specialist will guide you through the basics of financial literacy and retirement planning. All specialists have CalSTRS benefits knowledge and are your resource. We re committed to CalSTRS mission: Securing the financial future and sustaining the trust of California's educators. CalSTRS benefit specialists are not financial advisers, so they cannot advise, recommend or influence your financial decisions. In addition, the information we provide is not intended to be financial advice and should not be considered financial advice.

3 Financial Awareness Series Save for Your Future Budgeting Basics, Savings and Investing, Credit and Debt Plan for Your Future Retirement Lifestyle, Expenses, Income and Obstacles Protect Your Future Retirement Distributions, Maximizing and Protecting Income

4 What to Expect Budgeting Basics Savings and Investments Credit and Debt

5 Why Create a Budget? Acts as a roadmap Reveals waste Accelerates financial goals Builds new habits

6 Evaluating Evelyn s Budget See workbook page 7 Take 5 minutes to work on the exercise and then we ll discuss as a group

7 What Are Must-Haves and Wants? Must-Haves Items required for your survival Items required to make a living Examples: food, clothing, shelter, transportation, insurance, utilities, mortgage/rent, child care, education Wants Items that make life enjoyable but aren t necessary for your survival Examples: TV, multiple or luxury cars, large house, designer clothes, vacation

8 Must-Have or Want? Cell Phone

9 Must-Have or Want? Home Phone

10 Must-Have or Want? Groceries

11 Ways to Create a Budget Your bank s website Software such as Excel or Quicken Apps Pen and notepad What do you use?

12 Build Your Own Budget See sample Monthly Budget Worksheets on pages 8-10 See the Your Monthly Budget Worksheets on pages to create yours

13 Budgeting for Success Keep a positive attitude Keep a support system Keep realistic expectations

14 Savings and Investments Saving Short-term: Less than 5 yrs Preserve your money Easy access to cash Minimal risk Earn minimal interest Investing Long-term: More than 5 yrs Grow your money Harder to access cash Can involve high levels of risk Potential for higher rate of return

15 The State of $aving in the U.S. True or False: 36% of U.S. workers have less than $1,000 in savings and investments, not including their primary residence or pension. Source: Employee Benefit Research Institute, 2014 Retirement Confidence Survey TRUE!

16 The State of $aving in the U.S. Less than $1,000 36% $1,000 to $9,999 16% $10,000 to $24,999 8% $25,000 to $49,999 9% $50,000 to $99,999 9% $100,000 to $249,000 11% Source: Employee Benefit Research Institute, 2014 Retirement Confidence Survey

17 Savings and Investing Accounts Short-Term Savings Savings account High-yield savings (online bank) Certificate of deposit (CD) Money market account Treasury bills Remember: Short-term savings need to be safe and easily accessible. Long-Term Investing Employer sponsored plan (403b, 457b, Roth 403b, 401k) IRA, Roth IRA 529 college savings plan Brokerage account Remember: Long-term allows flexibility with risk and doesn t need to be easily accessible. Invest in taxadvantaged accounts when possible.

18 Savings and Investments 5 Questions to Ask 1. What is my risk tolerance? 2. What is my timeline/horizon? 3. Do I understand it? 4. What are the fees, expenses, and commissions? 5. How easily can I get out of it?

19 To Save or Invest? What am I motivated to save for? How much time do I need to make it happen? What resources do I need to make it happen? How does it fit into my overall budget?

20 How Much Should I Be Saving or Investing? A practical strategy can help provide benchmarks for saving and investing See the 50/30/20 guide on pages 24-31

21 Savings and Investments Stick to your savings goals Make it automatic payroll deferrals, automatic withdrawals Monitor progress monthly, quarterly, annually Leverage the services of an adviser if needed

22 Credit and Debt Credit is a tool that can be extremely helpful when used wisely. Debt is necessary for most of us, and requires supervision. You re the CFO!

23 The Truth About Credit and Debt Quiz! See the Quiz on page 35 Take a few minutes to answer the questions and we will go through the answers together

24 The Truth about Credit and Debt True or False: A credit report is the same as your credit score. FALSE!

25 The Truth about Credit and Debt The biggest factor in your credit score is: a) Whether you pay your bills on time b) How much debt you have c) How long you ve had credit

26 The Truth about Credit and Debt True or False: You re shopping for a mortgage and several lenders make inquiries for your credit report within a month of each other. This puts your credit score at risk. FALSE!

27 The Truth about Credit and Debt Quiz! To keep your credit score high, you should keep old credit accounts active because: a) You may need the money someday. b) The higher your total credit limit, the higher your score. c) The length of your credit history affects your score.

28 The Truth about Credit and Debt True or False: No credit is the same as bad credit. TRUE and FALSE!

29 Truly Free Credit Reports The three consumer credit reporting companies are required to provide you with a free credit report every 12 months.

30 Truly Free Credit Reports Request your report: Online at AnnualCreditReport.com By phone:

31 Four Main Components of a Credit Report 1. Public Records (#3 of the sample report) 2. Credit History (#4-6 of the sample report) 3. Inquiries (#7 of the sample report) 4. Personal Information (#8-9 of the sample report)

32 Credit Scores A credit score uses the info in your credit report and helps lenders predict how likely you are to pay your bills in the future. The FICO credit-scoring model is most widely used. Credit Score Ranges: Level Range Excellent 750+ Good Fair Poor Bad Below 599 Source: Credit.com

33 Credit Scores What effects your credit score the most? Ways to improve or maintain your credit score

34 Good Debt vs. Bad Debt Sometimes it makes sense to borrow a lot of times it doesn t Good Debt Creates value/generates income Carries a lower interest rate May be tax-deductible Examples: mortgage, student loan, business loan Bad Debt Used to purchase something that loses value over time Carries a higher interest rate Does not generate income Examples: credit card, store credit, auto loan

35 6 Steps to Managing Your Debt 1. Know how much and to whom you owe 2. Pay bills on time each month 3. Make more than the minimum payment 4. Build an emergency fund to fall back on 5. Stick to your monthly budget 6. Decide which debts to pay off first

36 Prioritize Your Debt Payments Debt Categories: Housing costs Secured debts Taxes Federal student loans Medical bills Unsecured debt

37 Debt Summary Worksheet See the Debt Summary Worksheets on pages Use your credit report and statements to make a list of all your debts Assign a priority to each account based on what you want to pay off first

38 Debt Pay-Down Strategy Pay more than the minimum Snowball your debt payments Renegotiate terms with your creditors Research other alternatives

39 What Are Your Next Steps? Review your action plan Sign up and attend next workshops: Plan Your Future Protect Your Future

Monthly Budget Worksheet Current

Monthly Budget Worksheet Current Current Review current pay stubs, checkbooks, credit card and bank statements, and write down how much is made and how much is spent currently each week, month and/or year.