5 THING$ EVERY STUDENT NEEDS TO KNOW. Provided by the FPA of New York

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1 5 THING$ EVERY STUDENT NEEDS TO KNOW Provided by the FPA of New York

2 Disclaimer 2 ALL INFORMATION CONTAINED IN THESE PAGES IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD NOT BE CONSIDERED LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY BEFORE TAKING ANY STEPS BASED ON THIS INFORMATION.

3 The Top 5 Secrets to Financial Success 3 5. Stay in school until you re 65 to avoid paying back any loans back until you start collecting Social Security. 4. Rent a one-bedroom apt in Williamsburg with 12 of your closest friends. 3. Begin fracking in the alley behind your apartment building. 2. Offer yourself up for medical experiments and clinical trials. 1. Take out every credit card known to man (and woman) and keep those balances moving!

4 Bonus Tip! 4 Sign up for Mom s meal plan and live rent-free at home. Added Plus: Maid service with clean, folded clothes!

5 Why this strategy doesn t work? 5 PHD = Papa Has Dough

6 Tip #1: Identify Your Goals 6 You need a path / direction. What are you saving for?

7 Tip #1: Identify Your Goals (cont d.) 7 SMART Goals: S Specific Have $50,000 in 5 years to start masters program M Measurable It is measurable because the goal has a dollar amount and time frame A Achievable You decide if a goal is achievable by doing the math $50,000/60 mos. = $833 per month R Realistic It is realistic if it fits within your budget T Time-bound 60 months

8 Tip #1: Identify Your Goals (cont d.) 8 Think about what you want to accomplish in the next 5 years Prioritize your list Separate into Short Term Goals (1 - year) Intermediate Goals (2-5 years) Long Term Goals (> 5 years)

9 Tip #2: Define a Budget 9 Why? To fund your goals! Sources of funds: Salary / Income Scholarship Savings & Investments Loan (Mortgage, Line of Credit, Student Loan) Gift, inheritance Tax Refund / Credits Credit Cards???

10 Tip #2: Define a Budget (cont d.) 10 Survival (Needs) Livable Comfortable (Wants) Food Shelter Clothing Health / Medical Internet? Organic vegetables, filet mignon? Car? Gym membership? Endless possibilities of comforts & indulgences iphone 12s 60-inch, surround sound, 3- D TV $1,500 pair of Jimmy Choo s You determine the boundaries

11 Tip #2: Define a budget (cont d.) 11 Identify your income sources Prioritize your list of expenses from survival comforts If expenses exceed total income start eliminating comforts. Make sure your budget includes: Taxes Paying off student debt Savings for an emergency fund Savings to fund goals A) Your Income List income after taxes and withholdings Salary, wages, tips, commissions, etc. Unemployment compensation Other pensions, social security, disability, food stamps, etc. Total Income This Month (A) B) Monthly Expenses List all expenses. Check if they are needed for survival, to make life livable, or to be comfortable. Then adjust how much you plan to spend on each expense in the future. Housing mortgage or rent payment, maintenance fees, etc. Basic utilities electric, gas, water Other utilities phone, internet, cable Food groceries Food restaurants, delivery and takeout Transportation gas, car repairs, mass transit Medical care doctor, dentist, hospital, insurance premiums Credit payments credit cards, other loans Insurance health, car, home, rental, life, disability, liability, etc. Household cleaning, laundry, maintenance, etc. Personal care toiletries, hair care, etc. Clothes Education Recreation and entertainment Business expenses (used for trade or business) Miscellaneous child care, gifts, allowances, etc. Income Taxes Occasional/Seasonal expense (from below) Short term savings (emergency fund of 3 6 months of expenses) Long term savings (for goals) Total Expenses This Month (B) Step 1 Current Amount Step 2 Categorize Expenses Step 3 Adjusted Amount $ $ survival Livable Comfortable Current Adjusted Amount Amount $ $

12 Tip #2: Define a budget (cont d.) 12 Track and monitor your spending Use a method that works for you Compare results to your budget Adjust as necessary Grande Starbucks $3.25/day Coffee Eating lunch out $7.50/day x 5 days/week $1,186/year $1,950/year A Latte Spurned is a Fortune Earned People Weekly

13 Tip #3: Prioritize Your Spending 13 Prioritize the use of your monthly income: 1. Needs your basic living expenses 2. Taxes if you will owe more than is deducted from paycheck 3. Debt Reduction student loans & credit cards 4. Emergency Fund Savings 5. Short-term goals Set these up as line items in your budget Build savings into your budget. Savings = liquid assets with minimal risk of losing principal

14 Tip #4: Eliminate Debt 14 Cause Factors 1 Job Pressure Co-Worker Tension, Bosses, Work Overload 2 Money Loss of Job, Reduced Retirement, Debt 3 Health Health Crisis, Terminal or Chronic Illness 4 Relationships Divorce, Death of Spouse, Arguments, Loneliness 5 Poor Nutrition Inadequate Nutrition, Caffeine, Processed Foods, Refined Sugars Source: WebMD Per nerdwallet finance and U.S. Census figures: Average student loan debt: $33,424 Average credit card debt: $15,480 Average mortgage debt: $156,474

15 Tip #4: Eliminate Debt (cont d.) 15 Student Debt Federal loans Subsidized Loans Interest doesn t start while in school Unsubsidized Loans Interest accumulates during school Visit to keep track of your federal student loans If you need a PIN, go to Federal Student Loan Repayment begins 6 months after you graduate Standard Repayment is usually 10 years Graduated Repayment payment amount increases every two years Extended Repayment (if balance exceeds $30,000) fixed or graduated payments not to exceed 25 years Income Based Repayment (IBR) and Pay As You Earn (PAYE) options

16 Tip #4: Eliminate Debt (cont d.) 16 Student Debt Federal loans Income Based Repayment (IBR) See for more information Pay As You Earn (PAYE) options Borrower must have had no federal loans as of October 1, 2007 and taken out a new federal loan after October 1, 2011 Loan Consolidation: Visit Lower interest rate but extended repayment term No credit check required Postponing Payments: DEFERMENT if unemployed or in school (Best for subsidized & Perkins Loans since interest doesn t accumulate) FORBEARANCE interest always accumulates. Can be backdated up to 12 months to get loans out of default status. Commit to paying toward principal during this time

17 Tip #4: Eliminate Debt (cont d.) 17 Student Debt Federal loans Additional Resources: web tools for figuring out your best repayment strategy tips for dealing with loan servicers, repayment calculators, forms, blog, etc. tips on how to manage your loans Private loans Little flexibility Repayment period begins immediately Delinquent accounts get reported to credit agencies

18 Tip #4: Eliminate Debt (cont d.) 18 Credit Card & Credit Management Tips If you cannot pay the balance in full each month, don t buy it! Incorporate credit card repayments into your budget Use only 30% of your available credit limit and never more than 50%--even if you pay the balance in full each month! Request your credit report at Get an approximation of your Credit Score at Remember FICO scores used for employment, to rent an apartment, to get a smart phone, etc The higher your credit score, the lower your cost to borrow money---whether from credit card companies, car lease companies, home mortgage companies, etc.

19 Tip #4: Eliminate Debt (cont d.) 19 If You Find Yourself in Credit Card Debt: elimination 3 approaches Do it yourself Debt consolidation / settlement companies Debt management plans Do it yourself Address the cause stop spending! Focus on one card at a time - smallest balance or highest APR? Set up a hardship plan Ask creditors to lower your interest rate and waive fees Hardship plan may be temporary Account may be frozen or closed Working with collections agencies Collection agencies pay pennies on the dollar for your debt Negotiate! Have them validate that they own your debt

20 Tip #4: Eliminate Debt (cont d.) 20 Debt Consolidation Companies Debt Management Plan Make monthly payments to an agency After up-front fees covered, funds are deposited into a trust account Creditors more willing to negotiate with a debtor Once enough funds available, they will negotiate a settlement One account settled at a time You have no protection from law- suits in the interim Fee is charged based on the amount of debt forgiven, typically 25% Payments consolidated Companies negotiate with creditors to become debt free within a set time period Pros Reduced interest rates and fees result Creditor collection calls usually stop Monthly payments usually lower than original amount Cons All accounts must be closed Reported to credit agencies Does not stop pending legal action Not a quick fix! Monthly fee usually $50/month

21 Tip #5: Invest in Your Future 21 Take advantage of the time-value of money & compounding. Save early and often! Annual Savings Total Savings Amt. at Age 5% Avg. Return 20 $3,000 $138,000 $506, $1,000 $46,000 $168, $3,000 $78,000 $153, $1,000 $26,000 $51,113

22 Tip #5: Invest in Your Future 22 Balance risk vs. reward. General rule of thumb: The higher the return, the higher the risk. Buyer beware: The loss can be greater too! Year Annual Amount Cum. Invested 6% 8% 10% 12% 5 3,000 15,000 17,926 19,008 20,147 21, ,000 30,000 41,915 46,936 52,594 58, ,000 45,000 74,018 87, , , ,000 60, , , , , ,000 75, , , , , ,000 90, , , , , , , , , ,380 1,450, , , , ,343 1,460,555 2,577,427

23 Tip #5: Invest in Your Future 23 Invest to fund your intermediate and long-term goals. Traditional Savings Accounts earn.1% (if lucky) What is investing Acquiring a property or possession with the expectation of a future financial return or benefit. Caution! Liquidity can vary Riskier than savings (possible loss of principal) Not FDIC insured; SIPC (Securities Investor Protection Corp.) only protects you against brokerage firm failure not value of your investments.

24 Tip #5: Invest in Your Future 24 Types Equities (Stocks) Bonds (Fixed Income) Mutual Funds (Index Funds) Real Estate Other If riskier, why invest? At current interest rates, savings will not keep up with inflation Stocks returns have averaged 8% to 10% annually over the past 100 years, including dividends, but there are No GUARANTEES!

25 Tip #5: Invest in Your Future 25 How to invest Where to buy? In a retirement (e.g., 401k fund administrator) or brokerage account Directly from a fund manager (e.g., Vanguard, Fidelity) Broker: full service (e.g., Merrill Lynch) or discount (e.g., etrade) Know your liquidity (how quickly you can sell the asset without value impairment) CDs may have early withdrawal penalties Publically traded securities usually more liquid than real estate Decide on a portfolio that meets your risk tolerance / remain diversified Do your homework if you don t seek profession advice! Don t invest / sell an investment based on emotion

26 26 Questions & Answers Mark Sallinger, CFP, ADPA For more information about the Financial Planning Association of New York visit