Financial Management. for College Students. Getting Started. Getting Organized. Moving Along

Transcription

1 Getting Started Financial Management Budgeting, Banking, and Credit Cards for College Students Getting Organized Paperwork Protecting Your Identity and Your Future Moving Along Living on Your Own Taking Your Car to College The UNC-Chapel Hill Student s Guide to Wise Financial Management Moving On By Linda LaMar Developed for the Office of Scholarships and Student Aid Updated June 2012 Financial Management After College

2 By Linda LaMar By Linda LaMar

3 Financial Management for College Students The UNC-Chapel Hill Student s Guide to Wise Financial Management By Linda LaMar

4 Copyright 2010 by Linda LaMar Updated June 2012 All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the prior written permission of the author. Linda LaMar info@wisefinancialmanagement.com Disclaimer: The author has made every effort to provide factual and useful information. This publication was designed to be used by college students as a general financial management guide. The fact that an organization or website is referred to in this work as a citation and/or a potential source of other information does not mean that the author endorses the information the organization or website may provide or recommendations it may make. Further, readers should be aware that Internet websites listed in this work may have changed or been deleted between the time this work was written and when it is read. The author is not in the business of providing legal, financial, or other professional advice. If legal, financial, or other expert advice is required, the services of a professional should be sought. The author disclaims any and all liability that is incurred, directly or indirectly, from the use or application of the contents of this publication. Acknowledgement The author gratefully acknowledges the support of the Office of Scholarships and Student Aid at The University of North Carolina-Chapel Hill in the development of the original financial literacy materials that led to this publication. The author also acknowledges and thanks the students and others in the Carolina community who provided input for the original materials; and the University, for its desire that the information be modified and made available to students of all economic circumstances at all colleges and universities. It is our mutual hope that the information and tools in this money management guide will enable students to effectively manage their finances while they are in college and as they prepare for life after graduation.

5 Contents Introduction Part 1: Getting Started Budgeting, Banking, and Credit Cards 1 Rich or Broke 1 Money Management The Short Description 1 Getting Personal 2 Getting Started: Clarifying and Setting Goals 3 Next Step: Your Spending Plan 6 Establishing a Budget 10 Saving Money (Seriously)! 13 Money Saving Tips for Students 14 Banking Basics 20 Credit Cards 36 Your Credit History 41 Borrowing Money 41 Balancing Your Money and Your Life 42 Part 2: Getting Organized -- Paperwork and Protecting Your Identity and Your Future 45 Organizing Your Records 47 Financial Aid 63 Filing Income Tax Returns 64 Protecting Your Identity and Electronic Records 66 Protecting Your Future 78 Part 3: Moving Along Living on Your Own, Taking Your Car to College, and Planning Ahead for Graduate Study Where to Live: On-campus or Off? 89 Living on Your Own 90 Taking Your Car to College 110 Buying a Car 114 Using Summer to Make Money, Save Money, and Build Your Resume 127 Planning Ahead for Graduate Study 128 Part 4: Moving On Financial Management After College 131 Redefining Your Goals 133 Updating Your Budget 133 Sizing Up Employer Benefits 140 Payback Time: Student Loan Repayment 143 Managing Consumer Credit 147 Saving and Investing Money 152 Savings Vs. Investments 158 Planning for Retirement 164 Insurance 171 Buying a House 173 A Final Note Copyright 2010 Linda LaMar. All rights reserved.

6 This page is intentionally blank.

7 Introduction Being in college involves more than going to class, studying, writing papers, and taking exams. Living on your own also requires that you assume increased responsibility for managing your money. While you may have had a checking or savings account for several years, as a college student you will be responsible for many more aspects of financial management. Chances are, you will need to establish and live on a budget; open and maintain a bank account; pay bills; manage credit cards and other types of consumer debt; protect yourself from identity theft; know how to organize and maintain records; handle the financial aspects of moving to an apartment and buying a car; and prepare for the financial issues you will face after college. The skill with which you manage your money while you are in college will be a major factor in determining whether you can cover your expenses each academic term and throughout your educational program. It will also have a direct and lasting impact on your life after college. This book provides you with information, tips, and tools for managing your money. It is divided into four sections. Part 1 provides information to help you get off to a good start with budgeting, banking, and managing credit cards. Part 2 focuses on how to organize your records, manage credit, and protect your financial future. Part 3 covers the financial aspects of moving to an apartment, taking a car to college, and financing graduate study. And, finally, Part 4 introduces you to several aspects of financial management that you will need to know about when you graduate and start your career. Financial management is not difficult. It simply requires that you understand some basic information, make good choices, have a plan, and stick with it. Even though you may not have a lot of money or other assets, it is critical that you manage and protect what you have, and that you develop the skills and habits necessary to successfully handle your finances over your lifetime. Now is the time to begin! Copyright 2010 Linda LaMar. All rights reserved.

8 This page is intentionally blank.

9 Part 1 Getting Started Budgeting, Banking, and Credit Cards Copyright 2010 Linda LaMar. All rights reserved.

10 This page is intentionally blank.

11 When you re in college, it seems like there s never enough money except maybe at the start of the school year or academic term, when you might get money from your family, financial aid, or scholarships. Then, at least for a short while, you may feel... With all that money in your pocket, you may rush out and buy things for your dorm room or apartment, get some new clothes, or buy other things you want, forgetting that the money has to cover a lot of expenses and stretch out over the whole academic term. On the other hand, if the amount of money you have barely covers or even falls short of the amount you need for tuition, housing, your meal plan, books and personal expenses, you may feel and fear you ll never make it. So what can you do to cover your expenses and have money for some of the things you want? How can you make it through the academic term and the school year? And how can you start now to plan for your future? There is a LOT you can do. And it s not hard. Like any other skill, becoming a good money manager begins with learning a few basic principles and putting what you learn into practice. Starting right away will make all the difference. Money management boils down to: Setting goals Developing a plan to achieve them, and Putting your plan into action. Copyright 2010 Linda LaMar. All rights reserved. Page 1

12 A money management plan is your personal guide for how you will use your resources to meet current and future needs. Like a map, if you follow it, your plan will help you stay on track and reach your goals. Sound restrictive? Think it s too hard? Like you can t ever have fun again? In fact, good money management reduces stress. It helps you keep track of how much money you have and plan how you will use it to meet current needs, reach future goals, and build solid credit for your future. Good financial management puts you in control of your money, rather than allowing your money to control you. Your money management plan is yours alone. It must reflect the realities of your income, your expenses, and the goals you want to achieve now and later in life. It will help you direct your resources to what matters most to you. If you do not have a financial management plan, your money will disappear without a clue about where it went, leaving you with little or nothing to show for what you had and possibly in financial trouble. A good money management plan is a powerful and essential tool to help you meet your needs and achieve your goals. Page 2 Copyright 2010 Linda LaMar. All rights reserved.

13 Goal Something you aim for. It might be something you want to accomplish or something you want to buy in the future. So how do you begin? The first step in financial management is identifying your goals. Good money managers know what they want in life in the short term, over the next few years, and in the future. Having realistic, clear goals enables you to make financial decisions that help you accomplish the things that are most important to you. Keeping your goals in mind is especially helpful when you have to make trade-offs in how you spend your money. To be meaningful, goals must: Be realistic. (No, you probably won t graduate with $1 million in your savings account.) Your goals should be achievable with a reasonable amount of commitment. Be specific. Otherwise you won t know exactly what you are aiming for or if you have reached your goals. Have a time frame. By what point in time do you want to achieve each goal? (By the end of this term? This academic year? By the time you get your degree or certificate? Ten years after college?) Include an action plan. What steps will you take to reach each goal? Your action plan should be specific and include each step needed to attain the goal. Incorporate accountability. How will you monitor and evaluate your progress toward meeting each goal? Your goals will change over time. Some things that are important to you now may become less critical in the future. You will continue to identify new goals. That s why it is important to think often about what you want to achieve with your finances. Copyright 2010 Linda LaMar. All rights reserved. Page 3

14 Short-Term Intermediate Long-Term Estimated Cost Defining Your Goals To begin the important process of defining your financial goals, list several things you want to achieve: By the end of this academic term (short-term goals); By the end of the school year (intermediate goals); By the time you are ready to graduate from college (long-term goals). If your goal is to purchase or do something that requires money (for example, buy a car or move to an apartment), estimate how much it will cost. Then list the steps you will take to reach your goal and the date by which you plan to complete each step. Here s an example to get you started: Specific Financial Goal Action Plan to Achieve the Goal Target Date Save enough money to move to an apartment with two roommates next year X $1200 1) Get a part-time job. 2) Open a savings account. 3) Save $75/mo. for deposit, first month s rent, utility deposits, insurance, and furnishings. 4) Get a full-time summer job. 5) Save $175 per month from summer job for initial expenses and moving costs. Sept. 1 Sept. 15 Sept.- May June 1 June-Aug. What are your short-term, intermediate, and long-terms goals? Keeping your goals current and keeping them in mind will help you make decisions about how you spend your money and monitor your progress toward reaching your goals. There are many ways to do this. Use the worksheet on the following page, a computer program, or any system that works for you. Here s another simple, low-tech way to keep track of your goals: Buy a pack of 3 x 5 index cards. List your financial goals (one per card). Sort your goal cards in priority order or organize them into three groups: high priority; moderate priority; low priority. Read them frequently. Discard cards with goals that are no longer pertinent. Add cards for new goals as appropriate. Page 4 Copyright 2010 Linda LaMar. All rights reserved.

15 Short-Term Intermediate Long-Term Estimated Cost Financial Goals Worksheet Date Specific Financial Goal Action Plan to Achieve the Goal Target Date Revisit your financial goals periodically. Add new goals, amend existing ones, and delete those that are no longer important to you. As you make choices about expenditures, be aware of how your decisions help or hinder progress toward meeting your goals. Copyright 2010 Linda LaMar. All rights reserved. Page 5

16 If you are like most people, you don t have enough money to buy everything you want and you will find it challenging to achieve your goals. It s certain, though, that you won t attain your financial goals without a plan to guide your spending decisions. A spending plan (or, a budget) helps you track how much money you have coming in, plan how you will spend it, set money aside for emergencies and upcoming expenses, and see where you might be able to save money. Without a budget, money will slip through your fingers and be gone before you know it possibly leaving you with bills you cannot pay and preventing achievement of goals that are important to you. A budget Is your financial roadmap. It tells you whether you are going in the direction you want to go; it helps keep you on track; and it helps you reach your goals. Puts you in control of your money, instead of letting it control you. A budget helps you spend your money for things that are important to you and save for future needs and goals. Tells you where your money goes and if the amount you are spending is in line with your income or if you are headed for trouble. Prepares you for emergencies and periodic or unanticipated expenses that aren t included in your monthly budget, but for which you will have to pay. Keeps you out of debt or helps you get out of debt. Lets you build in allowances for things that matter to you. Helps you sleep better at night because you don t lie awake worrying about how you re going to make ends meet. Page 6 Copyright 2010 Linda LaMar. All rights reserved.

17 Tracking Your Expenditures When you start college, you may not know how much you will spend for many discretionary items or even for some school expenses such as books and supplies. Before you can develop a budget, you need to know exactly where your money goes. Many experts suggest that the first step in developing a budget is to keep track of every expenditure you make for at least one full month (longer is even better). If you buy a candy bar, write it down. If you pay $13.99 to download music, write it down. Buy a book? You got it write it down. And do it as you make each purchase so you don t forget. At the end of the month, categorize your expenditures and add them up. You ll have a record showing exactly where your money went. You can then decide if you need to change some of your spending patterns and how much to budget for various expenses. There are many ways to track expenditures, including the following: Carry an index card or a small spiral notepad with you and record every expenditure. Include cash purchases, credit card charges, debit card purchases, and ATM fees. Note electronic payments and the checks you write. Record everything you spend money for. If you prefer to use a form, use the one on the following page or develop your own. Make a copy for each week, and then record each expenditure. Remember to include checks, electronic payments, ATM fees, as well as debit and credit card purchases. Use a software program (such as Microsoft Money or Quicken, for example) to track expenses and generate records by category and by date. The method itself is not important. What is important is that you choose a system that works for you and that you record absolutely every expenditure at the time you make it. Copyright 2010 Linda LaMar. All rights reserved. Page 7

18 Weekly Spending Log Sunday Monday Item $ Item $ Week Starting: Tuesday Wednesday Thursday Item $ Item $ Item $ Friday Saturday NOTES Item $ Item $ Page 8 Copyright 2010 Linda LaMar. All rights reserved.

19 If you don t budget and track where your money goes, you will spend far more than you realize on things like coffee, snacks, movies, ATM fees, eating out, etc., etc. These little spending leaks can drain your budget, easily adding up to $100, $200, or more each month. Checking for Money Leaks SPENDING LEAKS Item (Examples) Gourmet Coffee 1/day Soft Drinks 2/day Lunch at a Restaurant 2/week Cost $3.00 each $.75 each $7.50 each Average Cost/Month $90 $45 $60 Average Cost/ School Year $810 $405 $540 Coffee/Soda Eating Out/Ordering In Snacks/Convenience Store Purchases Cell Phone Roaming/Text Messaging Magazines/Newspapers/Books(not textbooks) Entertainment CD s/music Downloads Movies Other Other Other Copyright 2010 Linda LaMar. All rights reserved. Page 9

20 If you track your expenditures for a period of time, you will know where your money is going. You might decide that some of the incidental things you spend money for are important to you and factor them into your budget. Or, you might choose to reduce the amount you spend for them and use your money for other things. Either way, you will be more conscious about expenditures and less likely to let money slip through your fingers without thinking about it. By starting to budget early in your college career and continuing to make good financial decisions, you can avoid many financial problems and reduce the stress that results from poor money management. And you will be much better prepared for life after college. Once you know where your money goes, you are ready for the next step: establishing a personal spending plan or, a budget. A budget will help you track your income and plan for the amount you need each month for fixed costs, discretionary items, and larger periodic expenses (such as car or renter s insurance). It will help you prepare for emergencies and see where you might be able to save money. Budgets have two parts: income and expenses. Of course, the goal is to have more income than expenses! Creating Your Personal Spending Plan Use the worksheet on the following page to establish your spending plan for the nine-month academic year. Page 10 Copyright 2010 Linda LaMar. All rights reserved.

21 Spending Plan Worksheet Date Projected Monthly Income and Resources Money from family $ Grants, scholarships, and loans (academic year total divided by 9 months) $ Take-home pay: Work-Study/Other part-time job $ Money from savings $ Other $ Other $ Total Projected Monthly Income and Resources $ Estimated Monthly Expenses Tuition and fees $ Textbooks and school supplies For each expense, divide the academic year total $ On-campus housing, if applicable by 9 months to calculate the monthly budget figure $ Meal plan, if applicable $ Savings account $ Clothes $ Credit card payments $ Donations/charitable contributions $ Food other than meal plan (groceries, snacks, eating out, take-out, delivery, etc.) $ Insurance (monthly pro-ration if billed quarterly/annually) $ Laundry/Dry cleaning $ Medical/Dental/Prescriptions not covered by insurance $ Personal expenses (hair cuts, toiletries, etc.) $ Phone $ Recreation/Entertainment (movies, dates, concerts, sports, video rentals, etc.) $ Rent (if living off-campus) $ Transportation (monthly average for local transportation/trips home/going to work, etc.) $ Utilities (if living off-campus) $ Other $ Other $ Total Estimated Monthly Expenses $ Total Projected Monthly Income and Resources $ Total Estimated Monthly Expenses (-) $ Difference $ Copyright 2010 Linda LaMar. All rights reserved. Page 11

22 When you plan your budget for the first time, many of the entries will be based on your best estimates. Later, when you have a better idea about your actual income and expenses, or when you modify your financial goals, you should revise your spending plan to reflect the realities of your income, expenses, and updated financial goals. Your spending plan will always be a work in progress. Look at the numbers. When you subtract your estimated monthly expenses from your total projected monthly income Is there money left over? Save a little extra to help cover future needs. And keep looking for ways to reduce excess spending to keep your budget in line and increase the amount you can save. Or... Do your expenses exceed your monthly income? If you can t cover your monthly expenses with the money you have, you have three choices: Increase your income If you have been awarded Work-Study, are you on target to earn the full amount? If not, can you increase the number of hours you work? If you have not been awarded Work-Study, is a part-time job a possibility? Remember that you should not work more than half-time to allow sufficient time to study and participate in campus activities. Think about what you re good at and look for jobs in those areas. Good with children? Consider babysitting. A math whiz? Perhaps you could tutor. Love to swim? Maybe you could be a part-time swim instructor. Reduce your expenses Do both Are there spending leaks you can plug? Be clear with yourself about the difference between needs and wants. Needs are the basic things you must have to survive. Wants are things that make life more enjoyable, but are not essential for survival. Be sure your needs are covered then, to the extent you have remaining money, try to budget something for your most important wants. Remember that you won t always be a student, and you should have more flexibility with your budget after you graduate. Increase your income and cut your expenses. + Page 12 Copyright 2010 Linda LaMar. All rights reserved.

23 WHAT? Save money on a student budget?... But WHY?... And HOW? While you are in college you may not have much extra money. Nevertheless, it is important to set money aside for emergencies and unanticipated expenses. No matter how carefully you plan, you will need money for expenses outside your normal budget maybe an unexpected trip home; perhaps a visit to the doctor or dentist. You will also need money to reach your goals. And who knows? You may have an opportunity to do something special that you hadn t planned on. The secret for saving money? Pay yourself first. Decide how much you will set aside for upcoming needs and emergencies. Every pay period, save that amount before you spend the money for anything else. When you pay yourself first, you probably won t miss the money, because it s like you never had it to start with. Consider trying to save five-to-ten percent of the amount you earn from your parttime job. Or save your pocket change and deposit it into your savings account once a month. It may not be a lot of money, but it s a great place to start and when you need the money later, you will be glad it s there! Will it be EASY? Will it be WORTH IT? Saving money even a little is one of the most valuable habits you can develop. It will help you now, and it will help you for the rest of your life. Start small, and save consistently. Even if you save a few dollars each week, you ll be surprised how your savings will add up. If you save this amount each week. You will have saved this amount each year $ 5 $ 260 $ 10 $ 520 $ 15 $ 780 Congratulations! By establishing financial goals and developing a spending plan, you are well on your way to being a first-rate money manager. Remember that your spending plan and budget aren t written in stone and they must be relevant, or you won t use them. Revisit your spending plan and budget periodically and modify them as necessary to reflect changes in your goals, your income, and your expenses. These changes are to be expected they re a normal part of life. The key is to remain committed to your goals and stick with your plan. You will be glad you did! Copyright 2010 Linda LaMar. All rights reserved. Page 13

24 There are ways to economize in nearly every aspect of your budget. Start with the following tips and add more of your own! Books/Supplies and Other School Costs As soon as you know what books you ll need for classes, check the campus bookstore for used books. Sell any books you won t need again. Order books on-line from Amazon.com or other company that sells new and used books and that offers some protection about sellers. (Remember to factor in shipping costs and delivery time, and be sure to order the exact editions you need.) Consider buying books from students who already took the classes for which you are registered. Avoid unnecessary fees. Pay close attention to deadlines and restrictions (such as for dropping classes, etc.). Try not to lose a library book, and always return books on time. Don t lose your ID card. Use the resources available in the library instead of buying newspapers, magazines, and extra books. Entertainment/Food Take advantage of low-cost or free activities on campus lectures, dances, sports, on-campus movies, etc. Rent movies instead of going to the theater. If you rent a movie, be sure to return it (on time). Join a club or organization. These groups often plan fun, low-cost activities. Don t pay twice for food. If you purchase a meal plan, don t pay to eat out. Watch for and use coupons and special offers for dining and entertainment. Save on snack foods by buying them at grocery or discount stores rather than from a vending machine or convenience store. Take advantage of student discounts. Since they may not be listed, ask if there is one. Limit how often you eat in restaurants, and stick to your budget when you order. Page 14 Copyright 2010 Linda LaMar. All rights reserved.

25 Shopping Carry only the amount of cash you need so you don t spend more than you plan. Don t carry a credit card with you unless you intend to use it. That will help you avoid impulse purchases. Try to buy generic or store brands. Brand-names usually cost more. Look for sales and reduced prices for off-season merchandise. Compare prices on- and off-campus. For more expensive items, compare at three places. Know the difference between what you need and what you want. Always put your needs above your wants. Before you buy something, ask yourself: Do I need it today? What will happen if I don t buy it? How have I managed this long without it? Then wait a week. If you still want it, consider buying it. Keep your goals in mind. When you are tempted to spend money for something you don t need or cannot afford, consider whether the purchase supports the goals you have established for yourself. Make a shopping list and stick to it. Avoid paying interest by saving ahead to buy something instead of using a credit card or taking out a loan. Share rides with friends and split the costs for gas and parking when you go shopping. Exchange clothes with friends and relatives. Don t buy on impulse. Don t be tricked by sales. Remember: 50% off a $500 item means you ll spend $250! Never go shopping simply for fun, because the bills you ll end up with won t be. Research major purchases for product reliability and to find the best buy. Save your money before you buy so you can pay cash. At the grocery store, look high and low. More expensive items are often at eye level. Don t go to the grocery store when you re hungry. Transportation Take advantage of free or inexpensive public transportation, if available. If at all possible, don t take your car to college. Costs for gas, parking, maintenance, insurance, and repairs can overwhelm your budget. Copyright 2010 Linda LaMar. All rights reserved. Page 15

26 Banking Find the best deal for your checking account. If possible, use a bank with no-fee accounts. Don t write checks for more money than you have in your account. Try to use ATMs that are owned by your bank or by banks that don t charge fees to non-customers. If you must pay transaction fees, avoid making multiple, small ATM withdrawals. Always record ATM transactions and fees in your checkbook register and deduct them from your balance. Use direct deposit for your paycheck so it is electronically deposited in your account. Direct deposit is fast, safe, and convenient. At some banks it even makes you eligible for a free account. Consider signing up for overdraft protection. The small monthly charge will be much less than the higher fees assessed by the bank and stores if you write a check for more than you have in your account. Saving Begin saving money. Open a savings account so your money is safe and not as easy to get to. Pay yourself first. Decide how much money you can put into a savings account each month for emergencies or future needs, and put that amount in your savings account before you spend it for other things. Consider having a small amount of your paycheck deposited directly into your savings account each pay period. Save any spending money you have left over each week. Save your loose change each day and deposit it at the end of the month. If you get extra money (from babysitting, gifts, etc.) save part of it. Save for things you really want and buy them when you have saved enough. Credit Cards Don t fall for credit card pushers, even if they offer gifts for signing up. Remember they are there to make money not to help you. Page 16 Copyright 2010 Linda LaMar. All rights reserved.

27 Don t apply for credit cards you do not intend to use. Whether or not you use the cards, they will be listed on your credit report and the amount you could charge will be considered when you apply for a loan or other credit. Having extra credit cards can make you look like a poor credit risk. Be smart about credit. Credit card charges are loans you must pay back. Besides having to repay the amount you charged, you may also have to pay for interest and additional fees. Avoid non-academic debt. Leave your credit card home when you go out unless you plan to use it. Not having your card with you will help reduce impulse buying. It will also keep others from asking you to cover their costs until later. Cell Phones When choosing a cell phone provider and plan, check the service area to be sure you can send and receive calls from family and friends without having to pay roaming charges. Sign up for only the services and number of minutes you need. Don t contract for special features or time you will not use. On the other hand, the penalty for exceeding the number of minutes in your plan is steep. Be realistic about the number of minutes you will use each month, and be very careful not to exceed the limit covered by your plan. Keep a copy of your agreement. There is generally a contract period. It is expensive to change cell phone providers before the end of your contract period. Keep track of text messaging to be sure you don t exceed the allowance in your contract plan. Gifts Your friends and family know you are living on a budget. Don t feel you have to prove your friendship or love by buying expensive gifts. Small, but thoughtful, gifts will be appreciated. Consider giving friends and family members gifts of time rather than buying something for them. Doing a task for someone can be a great gift. Make a creative gift card! Make gifts instead of buying them. Purchase gifts slowly. Catch sales, and spread costs out over time but keep track of what you buy so you stay within your overall budget. Copyright 2010 Linda LaMar. All rights reserved. Page 17

28 Earning Extra Money If you already have a Work Study or other part-time job but want to earn a little extra, consider jobs you can do on an occasional, or astime-permits, basis. Think about what you re good at, and look for jobs in those areas that fit into your schedule. Like kids? Enjoy older people? If one is available, sign up on a campus registry for babysitting or elder-care. Interested in an internship or a part-time off-campus job? Check with the offices that administer those programs. Good at math, science, or a foreign language? Be a tutor. Don t mind completing questionnaires? Sign up to complete questionnaires for campus research projects. Be creative! But remember that your highest priority is to complete your college degree. Don t let too much work interfere with the time you need to study and participate in school activities. Study Abroad Start planning well in advance if you want to participate in a study abroad experience. Research available options, program costs, and requirements. If you are a financial aid recipient, check to see how your financial aid award works for study abroad. Some programs may require you to pay for airfare or other fees in advance. If that is the case with your program, you will need to save enough money to cover the cost of your ticket and any other advance charges. Peer Pressure Review your goals often to remind yourself why you are attending college. Keeping your goals in mind will help you stick to your budget when you feel pressure to spend money for things you cannot afford. Don t spend money to keep up with college friends. No matter how much money you have, there will always be those who have more. Don t try to keep up with them. Know what your budget will allow, and be prepared for how you will respond when you cannot afford to do (or buy) something. Many students have limited funds there s no reason to feel uncomfortable about having financial limits and sticking with your plan. Come up with alternatives that don t cost as much ideas you are comfortable recommending on the fly. For example, you might want to suggest renting a video and making popcorn, rather than going to a movie at the theater. Page 18 Copyright 2010 Linda LaMar. All rights reserved.

29 Miscellaneous Try not to lose a library book. It will cost you a lot. Cut back (or cut out) expensive habits like cigarettes, fancy coffee drinks, etc. Carry only the amount of cash you need so you won t be tempted to spend more. Live within your means. Don t buy what you cannot afford. Give yourself a spending limit each week and stick to it. One way to do this is to withdraw only the amount of cash you have budgeted for the week. When it s gone, it s gone. If you have one, use your credit card only for items of lasting value or for genuine emergencies; and always pay the amount due on time and in full. Don t use your credit card for anything that is not essential. Get organized and keep good records, stay on track with your spending plan, and pay your bills on time. Protect your identity. Guard your credit card, personal identification numbers (PINs), and account numbers. Shred receipts, bills, and papers that contain personal information or account numbers. Review your bills and statements carefully each month. Doing so will help you keep track of your spending. It will also identify errors that may have been made or if someone else is using your account. Put money aside for future expenses. If you receive financial aid, use it to finance your education, not your lifestyle. Take advantage of student discounts. Avoid rent-to-own stores, check-cashing stores, and payday loans. They are expensive options. Remember While having enough money to cover your expenses is important, getting a college education and the opportunity for a brighter future are worth a few years of not having a lot of extra money. The skills you use now to manage your resources will help you for the rest of your life. Copyright 2010 Linda LaMar. All rights reserved. Page 19

30 In order to manage your finances and have a safe place to keep your money, you will need to open a bank account. The first step is choosing the bank or credit union where you will establish your account. Then, because banks and credit unions offer several types of accounts, each with unique features, you will need to decide what type(s) of accounts to open. Choosing a Bank or Credit Union Banks and credit unions keep your money safe and provide you with easy ways to access it. Banks are for-profit companies they generate income by charging fees and lending money. Credit unions are non-profit financial institutions owned and controlled by the people who use their services. Credit unions serve groups that share something in common, such as where they work or live. Both banks and credit unions provide checking and savings accounts. Do your homework before you open an account. considering, determine: For each bank or credit union you are Is its location convenient? Does it have an Automated Teller Machine (ATM) in a location that is convenient to you? Does it offer low-cost accounts or special accounts for college students? Are you required to deposit a minimum amount to open an account? Does it assess a monthly fee/service charge? Are there transaction or other fees? ATM/debit card transactions at the bank s or credit union s ATMs? ATM/debit card transactions at another bank s/credit union s ATMs? Per-check fee? Fees for bounced checks? Other fees? Does it offer direct deposit? Can you manage your account and pay bills on-line? What happens if the account falls below the minimum requirement? How much does overdraft protection cost, and what are the policies? Does the bank or credit union offer the services you need? Page 20 Copyright 2010 Linda LaMar. All rights reserved.

31 Checking Account Once you determine which bank or credit union to use, you will need to open a checking account. A checking account (called a share draft account at credit unions) lets you deposit and withdraw money and write checks to pay bills or purchase items. There are many reasons to have a checking account: Using checks is safer than carrying cash. If you lose your cash, it s gone. If you lose your checks, you can tell the bank to cancel your checks and no one else can spend your money. Paying bills by check or on-line is easier and usually costs less than buying money orders. Getting cash from your checking account is almost always less expensive than using a check-cashing store. Fees charged by check-cashing stores could cost you several hundred dollars each year. Your canceled checks provide proof of payment if you need it, as well as a record of the bills you ve paid. In addition to writing checks to make purchases or pay bills, if you have a checking account, you can use an Automated Teller Machine (ATM) to get cash or manage your account. You may also be able to get a debit card to make purchases anywhere credit cards are accepted. If your bank or credit union offers on-line banking, you can manage your account and pay bills online. A bank account helps you begin to establish credit. Think of your checking account as a working account from which you: Write checks/authorize electronic payments to pay bills; Pay for purchases using your debit card; and Get cash from the bank or the ATM. It is also the account into which you deposit money to pay bills, make purchases, or get cash. When you write a check (or make an electronic payment) to a business or person, the amount you specify is taken out of your checking account and paid to the company or individual named on the check. Similarly, when you use your debit card to pay for a purchase or your ATM card to withdraw cash, the amount of your transaction is taken out of your account. Copyright 2010 Linda LaMar. All rights reserved. Page 21

32 Paper... Or... Electronic? In addition to traditional paper-based banking, most banks and credit unions also offer their customers the option to bank on-line. With electronic banking you can access your accounts any time of the day or night from any computer with Internet access. You can pay bills, see what checks have cleared, and what deposits have been credited to your account. You can transfer money between accounts (if you have both a checking and savings account with the same bank) and balance your check register. Deciding on the Right Checking Account Banks and credit unions offer many different types of accounts and account features. In order to choose the bank and type of account that is best for you, you must have a clear picture of how you will use it. For example: What is the minimum amount of money you will be able to keep in your account? About how many checks will you write each month? Do you prefer to use on-line banking to pay bills and keep track of your account? Will you go to the bank to make deposits or get cash, or will you use ATMs? How likely are you to overdraft your account (bounce checks)? After you answer these questions, you ll have a better idea of the type of checking account that best meets your needs. Opening a Bank Account When you have decided on a bank or credit union and the type of account you wish to open, you simply take cash or a check made payable to you to open an account and make your first deposit. You will also need your Social Security number, picture identification, and proof of your address. And you ll need to fill out a few forms with some basic information. Once you have opened your account, the bank will order you a box of checks with your account number, name, and address, along with a check register to record your checks, deposits, withdrawals, and fees. You will also receive monthly bank statements showing all your banking transactions. Page 22 Copyright 2010 Linda LaMar. All rights reserved.

33 Ordering Checks Checks are available in a variety of styles, including duplicates that make a copy of each check as you write it. Duplicate checks are helpful if you forget to enter a payment in your register. You can order blank checks from your bank or credit union or from an independent check printing company. Some banks provide free checks. If there is a charge, be sure to enter the cost in your register and subtract it from your available balance. If you decide to purchase checks from an independent printer, be certain the checks have builtin security features, including a padlock icon, micro printing, and a warning box on the front and back of the check. These features are designed to make checks difficult to copy or modify; most become apparent only when fraud is attempted. Writing Checks Whether you prefer to write checks for all your bills, or use electronic banking for most, you need to know how to write a check. Your checks will look similar to the one below. Following the sample check is information about what each of the items is for, and how to write a check. MONEY SMART STUDENT (1) (2) UNIVERSITY HALL COLLEGE TOWN, ST (3) DATE PAY TO THE ORDER OF (4) $ (5) (6) DOLLARS YOUR FINANCIAL INSTITUTION (7) COLLEGE TOWN, ST yourfinancialinstitution.org FOR (8) (9) : : : (10) Copyright 2010 Linda LaMar. All rights reserved. Page 23

34 NOTE: Always write your checks using indelible ink. If you write a check in pencil or erasable ink, someone could easily change what you ve written. (1) Your name and address. This information will be pre-printed on your checks. NEVER have your social security number printed on your checks. And, to limit the amount of personal information available to others, do not have your driver s license or telephone number printed on your checks. (2) Check number. Each check is numbered sequentially, with the number pre-printed on the checks you receive from the bank. (3) Date on which you write the check. Include month, day, and year. Never write a check for a later date assuming it won t be cashed until then. The bank may cash the check upon demand. If you don t have enough money in your account to cover the amount of the check when it is cashed, it will bounce, leaving you with a deficit account and expensive bank and merchant fees to pay. (4) Name of the person (or company) to whom you are writing the check. (5) Amount of the check, written in numbers. (Example: $12.56). Don t leave any space between the $ and the numbers indicating the amount of the check. Start the first number as close as you can to the dollar sign, and draw a line immediately after the last number to the end of the space. There should be no room for anyone to add extra numbers, either before the first or after the last number. (6) Amount of the check, stated in words. Start writing on the far left side of the line. Spell out the dollar amount, followed by the word and; then write the amount of cents over the number 100. Draw a line immediately after the 100 to the end of the line. (Example: Thirty six and 83/ ). Fill the line from left to right so that no one can change the amount. (7) Name of your bank or credit union, along with contact information. (8) A place to note what the check is for. If you are paying a bill, this is a good place to put your account number or other information requested by the company so they will credit your payment to the correct account. (9) Your signature, which authorizes the bank to pay the person or company named, in the amount you have written on the check. Always sign your name last, exactly the way you signed it on the signature card when you opened your account. NEVER sign a blank check. Don t sign your name until you have entered all the information and are ready to give the check to the person or company it is for. Otherwise, anyone can fill in the payee s name and/or dollar amount and cash the check. (10) These numbers identify the bank, your account number, and the check number. They are printed in a special magnetic ink that machines can read. Page 24 Copyright 2010 Linda LaMar. All rights reserved.

35 MONEY SMART STUDENT UNIVERSITY HALL COLLEGE TOWN, ST December 15, 2011 PAY TO THE DATE ORDER OF ABC DEPARTMENT STORE $ THIRTY SIX AND 83/ DOLLARS YOUR FINANCIAL INSTITUTION COLLEGE TOWN, ST yourfinancialinstitution.org FOR _ACCOUNT Money Smart Student : : : Electronic Bill-paying Many banks and credit unions offer customers the option of paying their bills electronically, rather than by check. If you choose to pay bills on-line, your bank will provide you with instructions for setting up accounts. You will enter the name, address, and account number for each company or individual you want to pay electronically. That information is saved, so you don t have to enter it each time you make a payment. To authorize a payment to an account you have set up, you simply specify the amount you want to pay and the date on which the payment is to be sent. Some companies will send you bills electronically if you select that option. And, if you have some payments that are the same amount every month, you may be able to have them sent automatically by your bank on the pre-determined date you specify. As you do when you write a paper check, you should enter each electronic or automatic payment in your check register. Include the date on which the money will be paid, the name of the business or individual you are paying, and the amount. Debit Cards When you open a checking account, the bank or credit union may ask if you would like to have a debit card. A debit card looks like a credit card, but the two are very different. Copyright 2010 Linda LaMar. All rights reserved. Page 25

36 A debit card (sometimes called a check card or ATM card ) can be used to withdraw cash from the ATM or to pay for items without writing a check. It has the name of your bank or credit union printed on it, along with a MasterCard or Visa logo. Debit cards are typically used as a substitute for cash and checks to pay for everyday purchases at grocery stores, restaurants, gas stations, and other stores that accept Visa or MasterCard. In some cases, you can use your card with a Personal Identification Number (PIN) at places like grocery stores to get cash back above the purchase amount. When you use a debit card, you authorize the bank to pay the merchant directly from your account. The amount of the transaction is immediately deducted from your checking account. Depending on the type of card you have and where you make a purchase, you will be required to sign for the transaction or enter a PIN. Debit cards are convenient. They may be used out of town or at locations where personal checks are not accepted. However, not all merchants accept debit cards, so in some situations you will need to pay with cash or by check. Although they are convenient, if you use a debit card, you must be careful to keep track of all transactions you make. Otherwise, you risk spending more than you have in your bank account and being charged overdraft fees. Even if you have enough money in your account at the time you use your debit card, you may have written checks that have not yet been cleared by the bank. Unless you keep track of each check, debit card purchase, and ATM withdrawal, you can spend more than you have in your account. Save your debit card receipts and reconcile your check register frequently on-line, or at least once a month when you receive your bank statement. There s usually no additional charge to get a debit card, but there may be charges for using it. Some banks charge a fee each time you use your card. Read the terms of the debit card agreement carefully so you know what kinds of fees and how much you will be charged. And remember to include the transaction fee, if there is one, in your check register each time you use your card. Should your debit card be lost or stolen, it can be used by someone else, since a PIN is not always required. In fact, if someone can get your debit card number with or without your PIN they can make a fake card and use it. Notify your bank immediately if your card is lost or stolen or if there are transactions on your account that you did not make. Be sure you know your bank s policies and your rights and responsibilities for using your debit card, resolving any discrepancies, or reporting a lost or stolen card. Your liability for fraudulent use of your debit card varies depending on the type of card you have and the policies of your bank or credit union. Generally, however, if you do not report the loss of a debit card within two business days and someone uses it without your permission, you may be liable for between $50 and $500 taken from your account. Page 26 Copyright 2010 Linda LaMar. All rights reserved.

37 If you do not report an unauthorized transfer or withdrawal within 60 days after your bank statement is sent to you, you could be liable for the entire amount someone spends using your debit card. And in the meantime, you may have written checks that bounced due to insufficient funds in your account, resulting in expensive fees and damaging your good credit. Debit Card Smarts Sign the back of your card to make it more difficult for others to use. Some people recommend writing Check ID on the signature line as a security precaution. Keep your PIN to yourself! Anyone who knows your PIN and has your card can use it to spend all your money! Memorize your PIN. Don t write your PIN on your card or carry it in your wallet or purse. Don t choose a PIN that is easy for someone to figure out (such as your birthday, your address, or your phone number). When you enter your PIN, shield it from view with your other hand. Protect your debit card as if it were cash. Just like cash, your debit card number can be stolen. Don t lend your debit card to anyone not even a friend, relative, or roommate. Be aware of your surroundings when you use your debit card, especially at an ATM at night. Immediately report a lost or stolen debit card to your bank. Immediately report any transactions on your account that you did not make. Be sure you understand your bank s policies for debit card liability, as well as your rights and responsibilities as a debit card holder. Using the ATM You can get cash, deposit money, or transfer funds between accounts by going to the bank; OR you can complete these transactions at an Automated Teller Machine (ATM). You can use an ATM owned by your bank or credit union, or at any other ATM that is affiliated with the financial groups shown on your ATM or debit card. Copyright 2010 Linda LaMar. All rights reserved. Page 27

38 To access your account at an ATM, you will need a debit or ATM card and a personal identification number (PIN). Unlike a debit card, an ATM card doesn t have a Visa or MasterCard logo, but instead has a PLUS or CIRRUS logo and is good only at ATMs that accept those brands. (The accepted brands are listed on the front of the ATM.) ATM cards cannot be used to purchase items at stores, restaurants, or other businesses. Fees for ATM transactions vary. Some banks or credit unions do not charge for ATM transactions at their own machines; others charge for some or all transactions. And there is typically a fee if you use an ATM owned by a bank other than your own. It is important that you know how much you will be charged to use an ATM and that you deduct those fees from your account balance. One thing you should not use the ATM for is to determine your account balance. The ATM balance will include only transactions that have been cleared by the bank. Any checks or debit card purchases not yet processed by the bank will not be reflected in the ATM balance, making it appear that you have more money available to spend than you actually have. Keeping Track of Your Checking Account Once you have an account, record and deduct in your checkbook register: Every check you write; Every electronic payment you make; Every automatic payment you have set up; Every ATM or debit card transaction you make; Any bank fees you are charged; and Every deposit you make. Update your checking account balance each time you make a transaction. (That way you won t forget and run short on money in your account.) In fact, it is a good idea to enter the information in your check register before you write a check, authorize an electronic payment, or use your debit or ATM card. And don t forget to enter any automatic payments you have set up. If you use a personal finance software program (such as Quicken or Microsoft Money ) to track your account, enter both paper checks and electronic payments into the software. Consider the money gone as soon as you write a check, use your debit card, or make an ATM withdrawal. On the other hand, do not assume that money you deposit is immediately available. Some banks do not credit deposits made late in the afternoon until the next day. And sometimes banks wait to be sure large or out-of-state checks have enough money to cover the amount before crediting your account for the deposit. The bank will give you a check register to help you keep track of account activity. Following is an illustration of how you should complete your check register. Page 28 Copyright 2010 Linda LaMar. All rights reserved.

39 1) 2) 3) 4) 5) 6) 7) CHECK NO. DATE DESCRIPTION PAYMENT/ WITHDRAWAL DEPOSIT AMOUNT BALANCE /15 ABC Dept. Store Void November statement /20 Romano s Pizza ATM 12/22 Withdrawal C Street ATM Fee DC 12/23 Grocery Mart /30 Work Study check Dec 1 Dec /31 Bank Service Charge December 1) If you are writing a check, record the check number here. Also indicate in this column each time you withdraw money from your account using an Automated Teller Machine (ATM), and each time you use your debit card (DC) to make a purchase. 2) Note the date on which the transaction was made. Date every transaction that adds to, or reduces, your account balance. 3) On the first description line, indicate who you paid by check or electronically; where you made the ATM withdrawal; or who you paid using your debit card. On this line also record information for other charges, such as a monthly bank service fee. The second description line is a good place to note what the payment was for. 4) The payment/withdrawal column shows the amount of your check or other withdrawal (e.g., bank fee, ATM withdrawal, etc.). 5) This column is used when you are reconciling your account with the bank s records. Put a check mark beside each check, ATM withdrawal, debit card charge, and fee that the bank or credit union reports on your monthly statement or electronic account. Also use this column to note deposits for which the bank has credited your account. 6) Record the amount deposited to your account. 7) The first entry is your starting balance for that page. Subtract each check, debit card payment, ATM withdrawal, bank service charge, fee, or other deduction to your account; add each deposit. If your account earns interest, be sure to add it, too. Keep a running total of your balance. Carry the balance from the end of the page over to the top of the next page. Copyright 2010 Linda LaMar. All rights reserved. Page 29

40 Bouncing Checks Writing a check for more money than you have in your account is sometimes referred to as bouncing a check. If the bank determines you don t have enough money to cover the amount paid, it bounces the check back to the business or person to whom it was written. Bouncing a check is expensive. The bank will charge as much as $20, $30, or more for each bounced check even if it s only for a few cents more than you have in your account. The creditor to whom you wrote the check may also charge a fee (often $20 or more) and might be reluctant to accept checks from you in the future. And, as if that weren t bad enough, bounced checks can also hurt your credit record. MONEY SMART STUDENT UNIVERSITY HALL COLLEGE TOWN, ST November 15, 2011 PAY TO THE DATE ORDER OF ABC DEPARTMENT STORE $ TWENTY SEVEN AND 16/ DOLLARS YOUR FINANCIAL INSTITUTION COLLEGE TOWN, ST FOR ACCOUNT MONEY SMART STUDENT : : : The official term for bouncing a check is overdrafting. Whatever it s called, writing a check without sufficient funds in your account is bad business. To avoid bouncing checks, you should: Record all deposits and withdrawals in your register. Balance your check register frequently on-line or at least once a month when you receive your bank statement. Use your check register not the ATM to track the amount of money in your account. If you have written checks that have not yet cleared, the ATM balance will appear higher than the amount you have available to spend. Track checks you have written to see which have been cashed. Some individuals may not cash your check for several weeks but you must assume the money has been spent, since the check could be processed at any time. Verify that deposits have cleared and are available for your use before adding the amount to your available balance. It may take three to five days or longer for some checks to be credited to your account. Page 30 Copyright 2010 Linda LaMar. All rights reserved.

41 Your bank or credit union may offer overdraft protection, a service in which it covers the amount of checks you write that exceed your account balance. If you are managing your account properly, you shouldn t need this service very often. However, with overdraft protection, if you do write a check for more than you have in your account, the nominal fee charged by the bank will cost much less than a bounced check and you will be spared the embarrassment of clearing up your error with the company or individual to whom you wrote the check. Reading Your Statement Your statement will look similar to the following: Each month you will receive a statement from the bank or credit union showing its record of all transactions on your account during the dates shown. The statement will list all checks and other debits that have been paid from your account, as well as all deposits and other credits to your account during the report period. Your Financial Institution College Town, ST (1) STATEMENT FOR MONEY SMART STUDENT 123 UNIVERSITY HALL COLLEGE TOWN, ST (2) THIS STATEMENT COVERS 12/01/11Through 12/31/11 CHECKING ACCOUNT (3) CHECKS AND OTHER DEBITS Previous Statement Balance on 11/30/11 Total of 1 Deposit For Total of 4 Withdrawals For (4) Total Service Charges New Balance CHECK DATE PAID AMOUNT DATE PAID AMOUNT / *218 12/ (5) Withdrawal #12345 at ATM / ATM Service Fee 12/ Withdrawal #23456 Debit Card 12/ Monthly Maintenance Charge 12/ DEPOSITS AND OTHER CREDITS DATE POSTED AMOUNT (6) Customer Deposit 12/ ATM LOCATIONS USED (7) Main Street, Hometown, ST THANK YOU FOR BANKING WITH YOUR FINANCIAL INSTITUTION Copyright 2010 Linda LaMar. All rights reserved. Page 31

42 (1) Name of your bank or credit union. Guide to Bank Statement (2) Your name, address, and the period covered by the statement. All transactions processed by your bank or credit union within these dates are included on the statement. (3) Your account number. (4) Your balance at the beginning of the statement period, total deposits, total withdrawals, service charges, and your balance as of the ending date of the statement. Checks you have written that have not yet been paid by the bank, as well as deposits or other withdrawals made after the statement cut-off date are not included on the statement. (5) Every transaction that resulted in money coming out of your account during the statement period. Each check that has been cashed is listed by check number, date paid, and amount. A * in front of a check number indicates that a previous check number has been skipped. (The check was not written, it was voided, or it has not been cashed.) ATM withdrawals are also listed in this section, along with transactions made with your debit card, fees for using ATMs, other fees, and the monthly service fee charged by the bank to maintain your account. (6) All transactions in which money was added to your account during this period. (7) A list of all ATM locations used during this statement period. Balancing Your Account It is very important that you review your monthly bank statement carefully and compare it with your check register. Although it doesn t happen often, banks sometimes make mistakes, and you have only 60 days to notify your bank if there is a discrepancy. After that, the bank has no liability for the error. It is important, also, to double-check your own records to be sure you have listed all transactions in your check register and that you haven t made mistakes in adding or subtracting amounts. Otherwise, you could think you have more in your account than is really there, and write checks you cannot cover. Reconciling your check register with the bank statement is easy. Just follow the steps shown on the next page. Page 32 Copyright 2010 Linda LaMar. All rights reserved.

43 Step 1. Make sure all deposits shown on your bank statement are included in your check register. Put a check mark in your register for each deposit reported by the bank. If you have forgotten to write a deposit in your check register, add it now. Also add any interest you earned on your account. Step 2. Make sure all charges (other than checks) shown on your bank statement are in your check register and that the amounts in the statement and your register are the same. Put a check mark in your register for each charge reported on your bank statement. For this step, include ATM withdrawals, any ATM fees, debit card payments, the monthly fee charged by your bank to maintain your account, and any other fees you have been assessed (e.g., for bounced checks, etc.). If you have forgotten to put a charge in your check register, do so now, and subtract it from the balance in your register. Step 3. Make a check mark in your register for each cancelled check reported on your bank statement. As you do so, verify that you and the bank show the same amount for each check. Step 4. Calculate the current balance of your checkbook after you have made these adjustments. Include transactions not yet reported on your bank statement. This is how much money you have in your checking account (assuming you have entered all transactions made after the cut-off for your bank statement). Step 5. As a final check, complete the following steps: Enter the ending balance shown on the bank statement. Add deposits you have made that are not included on the bank statement. Subtract all checks, ATM withdrawals, debit card payments and other fees that are not included on the bank statement. The result should agree with the balance in your checkbook register. Copyright 2010 Linda LaMar. All rights reserved. Page 33

44 If the adjusted balance and your checkbook register do not agree: Recheck the addition, subtraction, and corrections made in your register and in Step 5, above. Look for transposed numbers. Be sure you have entered all service charges and fees assessed by the bank in your register and have subtracted them from your available balance. Check to be sure you didn t enter an amount more than once. Take advantage of technology to keep track of your account during the month. If you have registered for on-line banking, you can check your account every day, if you wish. And many banks provide toll-free numbers you can call to see which checks have cleared, fees you have been charged, and your current balance. Whether you monitor your account on-line or by telephone, be sure to deduct checks you have written but that have not yet been cleared by the bank, as well as any ATM or debit card transactions that are not yet reflected in the bank s current balance. Frequent monitoring will help you catch any errors you have made and may prevent you from overdrawing your account. Opening a Savings Account Where should you keep the money you save in a mattress? Well, that s one idea but probably not the best one! In addition to a checking account, you should also open a savings account. Your money will be safer there. And, usually, it will earn a small amount of interest. Shop around for a savings account that doesn t charge a monthly fee for small balances. Ask about the interest rate; what fees, charges, and penalties apply; and whether a minimum account balance is required. Consider opening a savings account at the same bank or credit union where you have a checking account. That is important if you use direct deposit for your paychecks and want some of the money deposited in your savings account and the rest in your checking account. Your bank may also require that you have a savings account to take advantage of its overdraft protection program for any checks you write that exceed your account balance. Remember, a checking account and a savings account are not the same: Your checking account is for everyday use, such as paying bills or getting cash. It is your working account. Your savings account is a secure place to set money aside for future needs. Besides being safe, money in your savings account may earn interest and it is accessible if you need it. Savings accounts should not be used for frequent withdrawals. Do you put your loose change in a jar at the end of each day? Deposit it once a month into your savings account. Add it to your planned savings, and watch your balance grow! Page 34 Copyright 2010 Linda LaMar. All rights reserved.

45 For the Record You should keep bank statements, cancelled checks (if your bank returns them to you), and check duplicates for five to seven years. They provide critical documentation in the event of a disputed payment. You may need these records to complete your annual income tax return or if the IRS audits a previous return. And they will be helpful if you apply for financial aid for the following year. Resolving Problems with the Bank Even banks can make mistakes incorrect deposits, double debits, missing bill payments, etc. Mistakes like this aren t common, but they do happen. It is very important that you contact the bank as soon as possible if there is a problem with your account. Of course, you will only know there s a problem if you have recorded every check you write, every ATM withdrawal and debit card purchase you make, every fee, and every deposit made to your account. Don t hesitate to ask the bank or credit union staff any questions you have about your account or to contact them if there is a problem. Mistakes or other issues can be resolved more easily if you contact the bank promptly. Of course, always be courteous. Remember that the person helping you didn t make the error and will try to answer your questions and assist in resolving any problems with your account. And you don t want to embarrass yourself if it turns out that (more likely) you were the one who made the mistake! Be prepared with the information the bank will need to look into your concern. You will need to tell the customer service representative your bank account number and provide a clear statement of the problem. If the issue is unresolved by your initial contact or if the bank needs to take further action, make a written note that includes the date of your conversation, the name of the person with whom you spoke, and a summary of your discussion. Follow up with a letter to the bank summarizing the issue and your discussion. Attach copies of records relating to your complaint. (Keep the original records in your own file.) The letter may help prove you took timely action. There s another reason to take action right away if a mistake has been made by federal law, there is a limit on the length of time for which the bank or credit union is liable for errors. Typically, you must notify the bank within 60 days after the statement containing the problem or error was sent. After that, even if the bank made a mistake, it is not responsible. Perhaps it is obvious, but you should also promptly report stolen checks or any fraudulent activity on your account to your bank or credit union. They will help you take the necessary action to protect your account and your credit record. Copyright 2010 Linda LaMar. All rights reserved. Page 35

46 Chances are you ve already been offered several credit cards. And you ll continue to receive offers. Before you rush to sign up for a credit card, however, you should know the facts so you can make an informed decision about whether you want one. If you do get a credit card, you must know how to use it without getting into a financial bind. A credit card is basically a license for a loan, up to a pre-set amount. Every time you use it you are borrowing money. The credit card company pays businesses for the items you charge, and then sends you a bill each month for the total amount. You can pay back the full amount you charged (borrowed) each month, or you can spread payments out over a period of time. The amount you repay is available for you to borrow again. Like all loans, you pay for the privilege of using a credit card. Credit card companies charge interest. Many cards have annual fees. All assess finance charges for balances that are not paid in full each month, penalties for payments received after the due date, and other fees. Charges and fees vary among issuers and among cards offered by the same company. If you decide to get a credit card, be sure you know the terms and what it will cost to use it. So, are credit cards bad? Not necessarily. A credit card can be helpful if you have an emergency, you need to travel, or shop on-line. Smart use of a credit card can help build a good credit record. But it is very easy to spend more than you can repay every month, which will cost a lot of money, add stress to your finances and your life, and even ruin your good credit. Should you have a credit card? Maybe or maybe not. Know the facts about credit cards and your money management style before you decide. Credit Card Facts You Should Know Fact 1: If you don t pay your credit card bill in full and on time every month, you will pay more than the purchase price for the things you charged. While credit cards allow you to pay less than the amount due by making a minimum payment, doing so will cost a lot of money. Here s an example. Suppose you are short on cash one month and decide to use your credit card to buy some things you REALLY want. You spend $250 for some clothes, snack foods, pizza, and things for your dorm room. To get your budget back in line, you decide you won t use your credit card again. Since your budget is tight, you make the minimum payment each month. You make every (minimum) payment when it is due; so, although you must pay interest on the amount you owe, you don t have to pay extra penalties or fees. How long do you think it will take to pay your balance? And how much do you think you will end up paying for these purchases? Actual figures will vary depending on the terms of your credit card, but here s the math using a typical scenario. Amount Interest Number of Months Amount of Total Cost of Charged Rate to Pay in Full Interest Paid Amount Charged $250 18% 20 $39.85 $ Source: Page 36 Copyright 2010 Linda LaMar. All rights reserved.

47 When your bill is paid off nearly two years later will you still have those things you bought? Or will you even remember what they were? And how do you feel about paying for potato chips, pizza, or other things nearly two years later especially when you realize that paying for them took money away from what you had available for current needs for 20 months? Always ask yourself if something is that important before you charge it on your credit card especially if you can t pay your bill in full when it is due. You can check out the cost of not paying your credit card in full every month at Fact 2: Credit cards are not all the same. The terms and conditions of credit cards vary among companies and for cards offered by the same company. Federal law requires credit card issuers to provide consumers with specific information about the terms and conditions of each card. While it may not be fascinating reading, this fine print is what distinguishes one card from another. Before you apply for a credit card, you should know: Is there an annual fee? What is the interest rate (APR), and how is it determined? How is the finance charge calculated? What other fees apply? (Application fee, transaction fees for purchases, transaction fees for cash advances, fees for late payments or for exceeding the credit limit, etc.) How will you be informed of any changes in your contract? Fact 3: If you decide to have a credit card, you should shop for one with the terms that are best for you. If you will pay your balance in full every month, look for a card with no annual fee and a grace period of 25 days or more. (The grace period is the interest-free time between the statement date and the payment due date.) The interest rate isn t as important since you do not have to pay interest if you pay your balance in full each month. If you won t pay your balance in full every month, check out how finance charges are calculated, and choose a card with a low interest rate. (The grace period does not apply if you have a balance due on your account from the last payment period.) Avoid cards with high annual fees, cards with a one-time processing fee, and those with low introductory rates that will jump when the introductory period expires. Check and for more information. Fact 4: Credit card companies want your business. Why? Because they want to help you? No! Credit card companies are in business to make money. They want to recruit you before you sign up with another company. If you are a good customer, they hope to keep your business for several years to come. Copyright 2010 Linda LaMar. All rights reserved. Page 37

48 Fact 5: You should have only one major credit card. Even if you don t plan to use them, don t get extra cards. It is easy to fall into the trap of spending more than you can pay back especially if you use more than one card. Each credit card you have will show on your credit record. Potential creditors will consider the total amount you could borrow (even if you don t use the cards) and may see you as a poor risk. Fact 6: Credit cards and debit cards are not the same. Some debit cards look a lot like credit cards, but they are not the same! Every time you use your credit card, you are borrowing money. When you use your debit card, the amount you spend is deducted directly from your bank account no credit is extended. Fact 7: Federal law limits your liability if your credit card is stolen. If your card is lost or stolen, you should report it to the credit card issuer as soon as possible. If you report the loss before the card is used, you cannot be held responsible for unauthorized charges. If you report your missing card within two business days, even if someone uses it in the meantime, you have no liability for the amount charged. If you do not report your card as missing within two business days and someone uses it, you will be liable for up to $50. Credit Card Do s and Don ts DO DON T Remember, when you use your credit card, you re borrowing money to pay for whatever you are charging. Before using your credit card, ask yourself if you would go to the bank to borrow money to pay for the item you are about to charge. NEVER consider your credit card as extra money. Every time you use it, it is like taking out a loan. Don t use your credit card for a cash advance or cash the convenience checks the credit card company sends from time to time. You ll probably be charged a sizable fee for the money, and you ll be charged interest immediately. DO DON T Be sure you understand the terms of your credit card contract. Read all notices that you receive (including inserts that come with the bill). A credit card company can change your interest rate or other terms by informing you before making the change. Don t be caught off-guard to changes in your credit card contract because you didn t pay attention to the details. Page 38 Copyright 2010 Linda LaMar. All rights reserved.

49 DO DON T Keep your card in a safe place when you re not using it. Don t carry your credit card unless you plan to use it. That way, you won t be tempted to buy things on impulse or to spend more than you should. DO DON T Protect your card from identity theft. Never give your credit card number on the telephone unless you initiated the call or you re absolutely certain of the caller s identity. Never use your credit card online unless you are certain you are on a secure site. DO DON T Pay the full balance every month. If you have a real emergency and need to charge more than you can repay the following month, pay at least the minimum amount due. Pay more than the minimum if at all possible, to reduce interest charges. Don t pay only the minimum amount due. Don t take advantage of offers to waive or reduce a monthly payment. It may seem like a nice gift but it will cost you more interest in the long run. DO DON T Mail your payment at least 7 days before it is due so you won t be charged a late fee. The payment date shown on your credit card statement is the date by which your payment must be received and posted not the date on which you can mail it. NEVER ignore your bill because it is more than you can pay or you re too busy to deal with it. If you pay late you ll be charged a fee (with interest on the late fee) and you risk damaging your credit rating. A poor credit rating can hurt your chances of renting an apartment, getting a car or home loan, or even getting the job you want. Late payments can increase the interest rate on your credit card and the rates you will have to pay for other consumer loans. DO Keep track of everything you charge on your card and be sure you have enough in your checking account to pay the bill in full when it is due. DO Check your receipts against your monthly billing statement. If you find an error, call the credit card company immediately to resolve the issue. DO Keep a record of your credit card account number, the credit card issuer s name, and the telephone number to call if your card is lost or stolen. Keep this information in a safe place where you can find it quickly if you need it. DO Report a lost or stolen credit card promptly. Copyright 2010 Linda LaMar. All rights reserved. Page 39

50 If You Get in Over Your Head Using your credit card is easy and convenient. When used wisely, a credit card can be a good money management tool. Unfortunately, however, it is easy to over-spend and not have enough money to pay the bill in full when it is due. If you make the minimum payment and continue to use your credit card to buy things because you re short on cash, you end up in a vicious cycle of having a growing bill you can t pay in full, and needing to use more and more of your current budget to pay for the items you charged, sometimes many months earlier. You can get in over your head before you know it. Watch for warning signs: You can t pay your balance in full each month; or you have a hard time making even the minimum payment. Although you try to limit your credit card use, the balance keeps climbing. You use your credit card to buy food and other necessities because you run out of money between paychecks. You have frequent emergencies and use your credit card to tide you over. You can t resist impulse purchases and charge more than you can pay when the bill is due. If you cannot pay your credit card balance in full, you should take action immediately before you get in over your head! Cut back on entertainment and recreational expenses so you can pay more of your credit card bill each month until it is paid in full; Review your personal spending plan and budget to see if there are expenses you can reduce until your credit card is paid off; and STOP using your credit card for new purchases. If you can t make the minimum payment on your credit card bill, notify the credit card company immediately. They may be willing to help you work out a payment plan, especially if your past payment record has been good. Don t risk damaging your credit record by ignoring your bill. Get back on track as quickly as possible, and learn from your experience. Page 40 Copyright 2010 Linda LaMar. All rights reserved.

51 As a student, you know that every course you take and each grade you receive is recorded on your academic transcript. In much the same way, your credit history is also recorded. Your credit history reports how much credit you have received and how well you have managed it. It is the basis upon which you are assigned a credit score, used by a wide range of persons and businesses to assess whether you are a responsible money manager. Your credit history will play a critical role in many aspects of your financial life in the future. It will determine your ability to get a home mortgage or a loan to buy a car. If your credit record is not good, you may be unable to get the loan you need, or you may have to pay a much higher interest rate because you haven t proven yourself to be a good credit risk. Landlords sometimes check your credit record to decide whether they will rent to you. Your credit report may be reviewed when you apply for insurance, utilities, or even a cell phone. And, potential employers may check your credit history as an indication of your reliability. Don t underestimate the importance of building and maintaining a good credit record. The best way to do that is to always pay your bills on time. With credit cards, that means paying at least the minimum amount due each month by the due date. Remember: Once you ve got credit, it is important to protect it. Student Loans Many and at some campuses, most students borrow money to attend college. Students who borrow include those who receive other types of financial aid as well as those who do not qualify for need-based assistance. Some students borrow to pay for essential educational costs; others to reduce the number of hours they need to work. Still others borrow primarily to help with cash flow or for convenience. Whatever your reasons for borrowing, remember that student loans like all other loans must be repaid, with interest. Copyright 2010 Linda LaMar. All rights reserved. Page 41

52 There are many sources and types of student loans. Eligibility, interest rates, and repayment terms vary among programs. Some are limited to students who qualify for need-based financial aid; others are available without regard to need. Some are available to students at all educational levels and in any field of study, while others are restricted to students in a particular level or program. Some defer interest and/or repayment while you are enrolled; others accrue interest or are repayable immediately. Before you borrow, talk to a financial aid advisor who can explain your options and help you choose the loan that is best for you. Be very careful about borrowing even for something as important as a college education. Don t borrow more than you need. Keep track of the amount you borrow and your repayment obligations. Remember that the required payments will reduce the amount of money you have left for other expenses for many years in the future. Payday Loans from Check-Cashing Stores Many check-cashing stores also make payday loans to people who need cash. These stores typically charge high fees and interest rates for their services. Payday loans are a very expensive alternative and should be avoided. If you experience a financial problem that you cannot resolve, instead of taking a payday loan from a check-cashing store, you should ask a financial aid counselor about other alternatives. Sometimes it would be nice to have more money. But REMEMBER your net worth does not define your self worth. While having enough money is important, getting a college education and the opportunity for a bright future are worth a few years of not having a lot of extra money. You won t have to live on a student budget forever. There are no guarantees in life. But studies show that, generally, unemployment rates decline and median income increases with one s level of education. In other words, education pays. You are investing in yourself and your future by getting a college education. Be as careful with this investment in yourself as you would be with stocks and bonds or any other major investment. Don t jeopardize academic success by working too many hours or by making financial decisions that could make you unable to complete your educational program. And, finally, learn and apply good money management skills that will help you reach your goals now and in the future. Page 42 Copyright 2010 Linda LaMar. All rights reserved.

53 You are responsible for managing your financial resources. The skills you develop to manage this important responsibility will help you while you are in college and for the rest of your life. Copyright 2010 Linda LaMar. All rights reserved. Page 43

54 This page is intentionally blank. Page 44 Copyright 2010 Linda LaMar. All rights reserved.

55 Part 2 Getting Organized Paperwork and Protecting Your Identity and Your Future Copyright 2010 Linda LaMar. All rights reserved. Page 45

56 This page is intentionally blank. Page 46 Copyright 2010 Linda LaMar. All rights reserved.

57 There are so many papers to keep track of ranging in importance from receipts you need to save until the next credit card bill arrives, to documents that must be stored in a safe place for the rest of your life. Some records are more important than others and must be safeguarded. You will need to access certain documents more often than others. Some papers are informational (such as directories, appointment cards, etc.), while others require action or can be filed away for future reference. To keep all this paper from growing into a mountain and to know where to find what you need when you need it you must have a way to organize and maintain your records. A good record management system will save time, energy, and frustration. It can also save money by helping you avoid late fees and allowing you to locate receipts and warranty information if they are needed. A good recordkeeping system can prevent someone else from gaining access to your bank account or stealing your records or even your identity. Sound complicated? It doesn t need to be. A record management system can be simple, especially as you start your financial life. It just needs to be organized in a logical way so you can locate information quickly and easily when you need it. Your system can be set up in a file drawer or box, a binder, a computer or some combination of different places, depending on your records and preferences. Some day you will probably want a file cabinet especially as you begin to accumulate more papers. But for now, some file folders and a place to keep your records safe and organized will get you off to a good start. There are many ways to keep records. The best system is the one that makes sense to you and one you will use. Keys to a Good Filing System Keep it Simple Be Consistent Use a System That Works for You Copyright 2010 Linda LaMar. All rights reserved. Page 47

58 First Things First: What You Should Keep and Where The first step in getting organized is to set up a basic system for keeping important records. Start by dividing your records and other paperwork into three categories: The first category is for records that cannot be easily replaced, and therefore must be stored in a safe, secure place. It includes documents such as your birth certificate, citizenship papers, passport, social security card, etc. These records should be kept in a safe deposit box at a bank or credit union, or at home in a fire resistant box. The second type of records, while important, can be kept in a file box in your dorm or apartment. These records include papers related to banking, employment, financial aid and other school records, health care, housing, warranties, taxes, receipts, etc. And, finally, the third category is for papers that require action (such as bills to be paid or things you need to take care of). Papers in this category include pending appointments and upcoming events and information you will want to reference from time-to-time (contact information, sports schedules, takeout menus, etc.). These items do not need to be in your file box, but should be organized so you can find them when you want them. Category 1: Records That Must be Safeguarded Documents that would be costly or difficult to replace should be stored in a fire resistant box at home or in a safe deposit box at your bank or credit union. A safe deposit box is a small fireproof, locked box usually located inside a bank vault. The box can be opened only with your key and the bank s key, along with your signature (or, at some banks, a code). Banks charge a small annual fee for a safe deposit box. Because you can only access your safe deposit box during banking hours, you shouldn t use it to store documents you would need immediately in an emergency or for papers you will need to retrieve on a regular basis. And because they are small, safe deposit boxes are best used for documents you cannot easily replace or that should be safeguarded. Passport Social Security card Birth certificate Citizenship papers Keep in a Fire Resistant Box at Home or in a Bank Safe Deposit Box Car title List of credit cards, with account numbers and telephone numbers to report loss or theft Personal property inventory, with photos and documentation Page 48 Copyright 2010 Linda LaMar. All rights reserved.

59 Over time, you will add documents to your safe deposit box. As appropriate, you will want to add a copy of your will, military papers, marriage certificate, community property agreement, divorce papers, contracts, mortgage, deeds and titles, stock certificates, negotiable bonds or securities, and any other legal or valuable documents. You should keep a list at home of everything in your safe deposit box. Category 2: Records That Should be Filed The second category of records includes papers and documents on which you have taken action, but that must be saved. It includes billing statements, sales receipts, bank statements, school records, insurance information, etc. While these papers are important, they can be filed and kept in a safe place in your dorm or apartment. If you have only a few documents, an expandable file may be sufficient to hold them. If you have more papers, you will need a small file box, plastic storage bin or another appropriatelysized box, and file folders or envelopes in which to organize your records. Before you purchase filing supplies, decide specifically how you want to organize your records so that any supplies you buy will meet your needs. Following are some suggested categories for files and the types of records you might include in each. Of course, the subjects in your filing system must reflect your needs and organizational preferences, so adjust this list by adding or eliminating categories as appropriate. For starts, consider setting up files for the following subjects: File Subject Suggested Contents Banking and Finances Monthly statements (checking, savings, investments) Cancelled checks (if you get them) Traveler s check(s) for emergency cash List of documents in your safe deposit box Safe deposit box key Bills and Receipts Agreements/Contracts (credit cards and/or other consumer loans; phone; utilities; cable, etc.) Receipts (if needed for proof of purchase, possible return, or documentation for income tax) Billing statements and date paid (credit cards, loans, utilities, etc.) Correspondence regarding disputed bills Car (if appropriate) Receipt for purchase/lease Loan/lease agreement Copy of automobile registration Warranty Maintenance/service records Insurance coverage/payments Copyright 2010 Linda LaMar. All rights reserved. Page 49

60 Credit Reports Copies of credit reports Employment Resume Letters of reference Copy of W-4 form Papers given to you by your employer (employee handbook, information about benefits, etc.) Health Medical information sheet Copy of prescriptions (medications, eyeglasses, etc.) Medical records Health insurance information Proof of immunizations Receipts for health care Housing Residence hall or apartment contract or lease/rental agreement; check-in list; check-out list Receipts for payment (or cancelled/imaged checks) Renter s insurance policy and receipts for payment School Academic calendar Course registration information Transcripts and grade reports Student account records Copies of financial aid and scholarship applications and supporting documents; copies of follow-up requests and responses; award notices; promissory notes and documentation for student and/or emergency loans and payments Tax Records State and federal income tax returns and backup documents (including cancelled checks for tax deductions) W-2, Form 1099, pay stubs, etc. Warranties Warranties (with receipts) Other Copy of front and back sides of documents in your wallet (driver s license, credit cards, library card, health insurance card, etc.) Copy of personal property inventory and photos or other backup. (Keep original in your safe deposit box) Copy of passport. (Keep original in safe deposit box) Correspondence not included in other categories You will notice that except for Other this list of suggested file headings is alphabetized. Organizing your files in alphabetical order will help you find documents more quickly. Add new subject categories as necessary. If some files contain too many papers, consider creating sub-files for that category. For example, you may wish to add files within the School heading for Academic Records, Student Accounts, and Financial Aid/Scholarships. Ultimately, your record-keeping system should be tailored to meet your needs. personal spending plan, it should be revisited and modified as necessary. Like your Page 50 Copyright 2010 Linda LaMar. All rights reserved.

61 Category 3: Papers That Require Action or Reference The third category includes bills you need to pay, things you need to take care of, and information to which you will want to refer. Following are examples of these types of papers: Type of Record Suggested Contents Bills To Pay Bills not yet paid Monthly Budget Blank worksheets Spending logs Spending plan Appointments and Things To Take Care Of Medical/dental/other appointments Things to take care of Tickets to upcoming concerts/events School Computer backup files Campus contacts: Names, addresses, phone numbers for financial aid advisor, faculty, academic advisor, peer mentor, etc. Travel Tickets/itineraries for upcoming travel Travel information Maps Other Stuff Personal address/telephone directory Birthday dates and greeting cards Coupons Sports and special events schedules Stationery and stamps Takeout menus Bills, in particular, should not be filed until they have been paid (or you might forget to pay them). The same is true for other things you need to take care of, including pending appointments, important deadlines, upcoming events, etc. There are many ways to organize papers in this category: You could make a file folder for each type of information; You could use an envelope for each category and keep the envelopes in a binder; You could post appointment cards, bills, event schedules and tickets, takeout menus, and coupons on a bulletin board near your desk. Or, you may want to use a combination of systems for various types of papers in this action/reference category. The key is to have a specific place where you keep bills and other papers in this category. That way, small papers won t get lost or mixed in with other documents, and you will be able to find important information when you need it. Copyright 2010 Linda LaMar. All rights reserved. Page 51

62 Protecting Access to Your Money, Safeguarding Personal Property, and Keeping Personal Records In addition to the three categories of records and papers noted above, a few other types of records merit special note. They include blank checks and other instruments that provide access to your money or credit; documents you carry in your wallet or purse; papers you should keep if you own a car; information about your personal property; and a personal health inventory. Blank Checks, Debit/Credit Cards, and PINS While it may seem obvious, blank checks, debit and credit cards, as well as personal identification numbers must be kept in a safe place, since they can be used by anyone to gain access to all your money and credit. This is important no matter where you live or how many roommates you have, since anyone who has access to your residence could take these items. Ideally, blank checks, debit and/or credit cards you do not have with you, as well as the PINS you use to access your accounts, should be kept in a locked box or drawer. At a minimum, they should be stored in a safe place, out of view. PINS should not be stored with (or near) the cards or accounts to which they relate. Should you notice that any blank checks, PINS, debit, or credit cards are missing, notify your bank and/or the holders of your credit cards immediately. Cancel the missing debit or credit cards. Your bank can help you figure out if you wrote a missing check and forgot to enter it in your register. If not, they will advise you regarding the steps you should take to protect your account and minimize your liability. The holders of your credit cards will issue you new account numbers. What s in Your Wallet? Let s start with what should NOT be in your wallet. Never carry your social security card, PINS, or passwords in your wallet, backpack, or purse! Don t carry your birth certificate or passport. And don t carry more blank checks than you need. Your wallet should contain as few items with confidential information as possible. To an identity thief, these items are more valuable than cash. With your address, telephone number, bank account number, credit cards, or PINS, a thief can access current accounts, apply for new ones in your name or even clean out your bank account. You are especially vulnerable if a thief gets your social security number. It is very important that you know exactly what is in your wallet and the telephone numbers to call immediately if your wallet or purse is lost or stolen. Here s an easy way to accomplish this very important step and protect yourself at home and away: Page 52 Copyright 2010 Linda LaMar. All rights reserved.

63 When You re Home Make two copies of the front and back sides of your driver s license and each card you carry in your wallet, backpack, or purse (e.g., student identification, insurance card, credit and ATM cards, etc.). Be sure you can read the telephone numbers to call if the cards are lost or stolen. Do not include PINS on the copies. Attach one copy to your personal inventory form (below) and keep it in a secure place in your dorm or apartment. Keep the other copy in your safe deposit box. However, don t keep your only copy in a safe deposit box, since you may need it on a weekend or evening when your bank is closed. When You re Away When you travel, do not carry a list of your account numbers or PINS, since that information is as valuable to a thief as the actual cards themselves. Do not carry the toll-free numbers for your bank or credit card companies in your wallet or purse since you will need them if your wallet and cards are lost or stolen. If your wallet or purse is lost or stolen or you have reason to believe someone may have taken your credit cards, blank checks, ATM and/or debit card, it is essential that you take immediate action to protect yourself from loss. Steps to Take Immediately if Your Wallet is Lost or Stolen Call your bank immediately and cancel your ATM and/or debit card. Open a new account with a password. Call the toll-free number for each credit card as soon as possible to report the loss or theft. Close each account. Open new accounts with passwords. Report the loss or theft to the police. Someone may find your wallet and turn it in. Apply for a duplicate driver s license. If you are from out-of-state, contact the Department of Motor Vehicles in your state for instructions. Do not drive without a duplicate or temporary license. Call one of the three credit bureaus and have them flag your account with a fraud alert. The one you call will notify the others. Their names and toll-free numbers are: Equifax Experian TransUnion After a few months, request a copy of your credit report from each of the three credit bureaus to be sure there has been no fraudulent activity on your account. Copyright 2010 Linda LaMar. All rights reserved. Page 53

64 Automobile Records If you own a car, some records should always be carried in the car; others should be kept in your files at home: Records to Keep in Your Car Records to Keep in Your Files at Home Automobile registration Copy of automobile registration Automobile insurance card Copy of automobile insurance card Copy of car and insurance information form (below) Copy of car and insurance information form (below) Copy of your personal health insurance card Loan/Lease agreement If You Have An Accident checklist (below) Payment records, if loan and/or lease Maintenance records and receipts Complete the following form and keep a copy in your car and one in your files at home. Car and Insurance Information Car Make: Model: Year: Vehicle Identification Number (VIN): License Plate Number: Campus Parking Permit Number: Insurance Name of Insurance Company: Agent/Contact Name: Phone Number: Policy Number: AAA or Other Roadside Service Membership Number: Toll-Free Number for Assistance: Page 54 Copyright 2010 Linda LaMar. All rights reserved.

65 Make a copy of the following checklist and keep it in your car. Remain calm. Wait for help in a safe place. If You Have an Accident Call 911 for emergency assistance if there are injuries. Be courteous, but do not admit fault (even if you believe the accident was your fault), and do not blame anyone else. Don t talk about the details of the accident with anyone at the scene except the police. Be sure your thoughts are clear before you make any statements to the police. If you suspect another driver may be under the influence of alcohol or drugs, do not confront him or her. Tell the police and let them handle the situation. Show your driver s license to the other parties involved in the accident. Ask to see their license(s). Give other parties involved in the accident the following information, and get it from each of them: Name Address Telephone # Driver s License # Vehicle License # Vehicle ID # Name of Registered Owner Insurer Get the names and contact information of all witnesses. Take pictures of the accident scene the cars involved and where each is, in relation to the intersection, etc. Make note of the speed each car was traveling, which direction they came from, as well as road, traffic, weather conditions and other factors that may have contributed to the accident. File a police report. Notify your insurance company immediately. Health and Medical Information As indicated above, your file should contain copies of prescriptions (including eyeglasses), medical records (lab tests, reports), health insurance information, proof of immunizations, and receipts for medical expenses. In addition, it should include a record of your medical history and the information you will be asked to provide when you see a care provider for the first time. Your medical information record should include emergency contact information; details about your health insurance policy; medications you take; any allergies or sensitivities; a record of immunizations; chronic conditions; significant illnesses, injuries, and/or surgical procedures; family medical history; and contact information for your health care providers. Copyright 2010 Linda LaMar. All rights reserved. Page 55

66 Name: Emergency Contact: Relationship: Telephone Number: Address: Medical Information Sheet Insurance Carrier: Policy Number: Phone Number: Medications (Prescriptions, over-the-counter medications, and vitamins you take on a regular basis) Medication Dose Frequency Prescribing Physician Pharmacy/Prescrip. # Allergies and Sensitivities (Medications, food, others [latex, insect bites, environmental]) Immunizations: (Attach copy of immunization record) Immunization Date Immunization Date Chronic Conditions: Significant Illnesses, Injuries, and Surgical Procedures: (Include dates) Family Medical History: (Father, mother, grandparent, sibling) Medical Problem Relationship Medical Problem Relationship Health Care Providers: Primary Physician Dentist Eye Doctor Other Provider Pharmacy Name Address Phone Page 56 Copyright 2010 Linda LaMar. All rights reserved.

67 Personal Property Inventory And finally, your records should include a personal property inventory. Together with sales receipts, warranty information, and photographs, your personal property inventory is a key part of your record management system. Your inventory should include a record of the items you own, such as a computer, television, stereo, furniture, etc. It should also include information about your credit and debit cards, your driver s license, and your cell phone, including the toll-free numbers to call if they are lost or stolen. Your personal property inventory will help you keep track of warranty periods and it will provide important information in case of loss, theft, fire, or other disaster. Your written inventory should be supported by photographs or a video of furniture, electronics, appliances, tools, clothing, and other personal and household possessions. If needed, the photos will provide documentation to substantiate your claim of loss. Keep a copy of your inventory and supporting documentation in your safe deposit box. Also keep a copy in your file at home so you have access to the information should you need it when the bank is not open. If you do not have a safe deposit box, keep a copy of your inventory and supporting documents in a location other than your dorm or apartment so it will be available if your records are destroyed by fire, theft, or other disaster. If you maintain your records electronically, it is important to have paper copies in your safe deposit box and in your file at home to ensure that you have the information should your computer be lost or stolen or your electronic records destroyed. Once you have completed a personal property inventory, it is easy to keep it up. You should update your inventory as you accumulate or eliminate items to ensure that it remains current. Copyright 2010 Linda LaMar. All rights reserved. Page 57

68 Personal Property Inventory Credit Card: Type of Card: Vendor: Account Number: Toll-Free Number: Driver s License: License Number: Toll-Free Number: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: ATM/Debit Card: Bank: Account Number: Toll-Free Number: Cell Phone: Carrier: Account Number: Toll-Free Number: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: Item Purchased: Model Number: Serial Number: Date/Place Purchased: Purchase Price: Warranty Period: Page 58 Copyright 2010 Linda LaMar. All rights reserved.

69 What to Keep and What to Toss It is important to know how long to keep records and to toss out papers you no longer need so your files don t grow out of control, making it hard to find current information when you need it. Some records need to be kept for only a short time; others should be saved for several years; still others must be retained indefinitely. Following are some generally-recommended guidelines for how long to keep various types of personal records. Type of Record Purpose How Long to Keep Banking ATM receipts Documentation of withdrawals and other banking activity One month, or until you have reconciled your bank statement Bank statement marketing inserts No purpose Dispose of immediately Cancelled checks for major purchases and for rent payments Proof of payment Indefinitely Cancelled checks for student loan payments Proof of payment Indefinitely Check registers, cancelled checks, bank statements (if they support income tax return) Documentation for income tax return Six Years Bills and Receipts Credit card statements, general purchases Proof of payment One year Credit card statements and receipts needed to support income tax returns Credit/charge card receipts not needed for proof of purchase or income tax purposes Marketing materials enclosed with bill Documentation for income tax return Double-check bill No purpose Six years Until you have paid your bill Dispose of immediately Receipts for payment of rent Proof of payment Indefinitely Receipts for items under warranty Proof of payment Life of warranty Utility and telephone bills Proof of payment One year Copyright 2010 Linda LaMar. All rights reserved. Page 59

70 Type of Record (cont d) Purpose (cont d) How Long to Keep (cont d) Car All records, including loans, lease agreements, maintenance Proof of payment and maintenance Until car is sold Credit Cards and Consumer Loans Agreements and correspondence For reference (agreement); proof of cancellation; record of correspondence Until you have cancelled the credit card and your credit report shows that it has been cancelled Credit card offers No purpose Shred and dispose of immediately Credit Report Copies of credit reports To monitor status Indefinitely Employment Pay stubs Record of earnings Until reconciled with annual federal W-2 income tax form Job placement documents Indefinitely Health Records Medical history, including immunizations, hospital stays, surgeries Personal health record Indefinitely Insurance Accident reports and claims Six years Current policies/records Proof of coverage Life of policy and until all claims paid in full Expired insurance policies/records 1-3 years after expiration Legal Records Legal records Indefinitely Page 60 Copyright 2010 Linda LaMar. All rights reserved.

71 Type of Record (cont d) Purpose (cont d) How Long to Keep (cont d) School Financial aid applications and award letters Outside scholarship awards Promissory notes, disclosure statements, account statements, etc., for student loans Transcripts and grade reports Terms and proof of payment Until loans are paid in full Indefinitely Until loans are paid in full Indefinitely Tuition/Student accounts records Proof of payment Indefinitely Tax Records Income tax returns and cancelled payment checks Cancelled checks, bank statements, receipts, and other backup documents that support income tax return Indefinitely 5-7 years See IRS Publication 552 for recommendations on what to save and for how long Warranties Guarantees and warranties (and receipts) Proof of payment and warranty information Until warranty expires A good recordkeeping system will help you find information when you need it. And, by keeping only what you need, your files will be more manageable. Once you have your system in place, chances are, it will: Save more time than it will take to keep it up (since you won t spend as much time looking for receipts and other documents); Reduce frustration (because you will be able to quickly find the papers you need); And it could even save you money (if you need to provide proof of payment, find a warranty, or quickly cancel a lost or stolen credit card). Copyright 2010 Linda LaMar. All rights reserved. Page 61

72 Tips for Sorting Mail, Paying Bills, and Staying Organized Sorting Mail Always open mail at a designated place (preferably your desk). Keep a trash basket nearby, along with a container for papers to be shredded. Always shred mail or papers that contain personal information even junk mail to protect yourself from identity theft. Sort the papers you don t throw away or shred into three categories: Bills to pay Things to take care of Papers to file Paying Bills Have a designated place for bills you need to pay, and always put your bills in that place until they are paid. Do not file bills until they have been paid. Compare receipts to billing statements to be sure they are correct. Set aside a specific day each week to pay bills and balance your checkbook. If you do not pay bills as you receive them or on a specific day each week, be sure to check them every few days and pay those that will soon be due. You may want to note on your calendar when you need to mail a particular payment to be sure it is received on or before the due date. As you pay each bill (by check or electronically), enter the payment in your check register. Staying Organized File papers that do not require further action as soon as you receive them. File bills you have paid (with appropriate receipts attached) as you pay them. File bank statements as soon as you have reconciled your account. Be consistent. Even the best system won t work if you don t use it. Page 62 Copyright 2010 Linda LaMar. All rights reserved.

73 Reapplying for Financial Aid If you are a financial aid recipient, remember you must reapply for financial aid every year. The reason for this is simple eligibility for financial aid is updated each year to take into account the amount of income and resources you and your family have to help pay for college costs. Reapplying for financial aid is not difficult. But, like many other aspects of managing your finances, it is important that you understand the requirements and follow through on each step as necessary. Early in the year (January is not too soon), you should get information about the financial aid application process at the college or university you plan to attend the following academic year. You can generally find this information on the financial aid office website. Be sure you know what forms you need to complete and the application deadline to be considered for the maximum amount of assistance. Since the amount of financial aid at most institutions is not sufficient to meet the need of all students, it is extremely important that you file the necessary forms, follow up on requests for clarification or additional information, and complete the application process by the specified deadline. If you have questions that aren t answered on the financial aid website or unusual circumstances that are not addressed by the application, you should contact the financial aid office. You should also talk to financial aid staff if you have questions about your award or if you need financial advice throughout the academic year. They can assess your situation and provide you with information. Financial Aid Application Tips In early January, check financial aid application requirements and deadlines at the college or university you plan to attend the following academic year. You can generally find this information on the financial aid office website. (While you are there, check out other financial aid information on the site, as well!) If you have questions, call for information or assistance. Complete the financial aid application forms required by the college or university. Know what the deadline is to be considered for the maximum amount of assistance, and be sure you meet it. Copyright 2010 Linda LaMar. All rights reserved. Page 63

74 Keep your paperwork. Save everything you use to complete financial aid application forms, such as tax records, etc. Print a copy of the completed forms and keep them with your records. Keep copies of all information you receive from the financial aid office. Reply promptly to all requests for information. Follow the directions carefully. The financial aid office will notify you by mail or electronically when your eligibility has been determined. Your award notification will list the specific types of aid you have been awarded and the corresponding dollar amount for each. Pay particular attention to any messages or instructions relating to your offer of assistance, and follow up as necessary. A different, but very important aspect of taking care of business is the requirement to file federal and state income tax returns. If you earn money during the year from a Work-Study or other job, from tips, or from self-employment, chances are you will need to file an annual federal income tax return (even if your parents claim you as a dependent). And, you will need to file state and/or local returns if you work in a state or other jurisdiction that assesses an income tax. Even if you earn less than the minimum amount required to submit federal, state, or local income tax returns, you will need to file a return to get a refund of any excess taxes withheld from your earnings. Either way whether you earned more than the minimum amount required to file or you are entitled to a refund you need to know the requirements (including deadlines) and follow all the necessary steps to file tax returns. The best source of information about federal income tax requirements is the Internal Revenue Service (IRS). The IRS website ( provides comprehensive information, including how to determine which forms to complete, instructions, blank forms, and other helpful information. In addition to general information that applies to all taxpayers, the IRS website includes a section of particular interest to students ( There you will find information about education tax credits and deductions available to qualifying students. If you earn money in a state that assesses an income tax, be sure you are aware of its filing requirements, as well. Know what forms are required and what deadlines apply. It is possible that you will need to complete an income tax return for more than one state (for example if you work during the academic year in the state in which you attend college and are employed during the summer in another state). Page 64 Copyright 2010 Linda LaMar. All rights reserved.

75 Tax laws are complex. Federal, state, and local laws vary, and all are subject to change. Filing requirements may seem intimidating. But by keeping good records throughout the year and by taking a few logical steps, completing income tax returns need not be overwhelming. Steps for Completing Income Tax Returns Start early. Give yourself plenty of time to gather the appropriate forms, instructions, and records. Watch for mail containing documents relating to last year s income. Keep these documents in a designated envelope until you re ready for them. Gather receipts, canceled checks, and other records you need to complete your return(s). Visit the websites of the Internal Revenue Service ( and the Department of Revenue in the states in which you worked during the last calendar year to review information, forms, and instructions. Give yourself plenty of time to double-check the information you report. It is definitely a good idea to talk with an experienced tax advisor before you file to be sure you have used the appropriate forms, reported correctly, and claimed the deductions and/or tax credits for which you are eligible. Ask if free help is available on-campus for students who have questions or need help with their returns. Schedule an appointment early in the tax season to avoid the last-minute rush. Before you submit your tax return, check your math, be sure you have attached all required schedules, then sign and date it. Make copies of your forms and all supporting documents (e.g., income, expenses, investments, etc.). Be sure to mail your return by the deadline. Keep a copy of your return and all supporting documents in your file for as long as you could be audited. The basic IRS review period is three years. However, if the IRS believes you under-reported your income by 25 percent or more, the period of limitations for audit is six years. There is no limit on the audit period if your return was fraudulent or if you didn t file a return at all. Copyright 2010 Linda LaMar. All rights reserved. Page 65

76 Identity Theft Identity theft is a federal crime. It occurs when someone uses your personal identification without your permission to obtain credit, merchandise, or services, or otherwise commit fraud using your name, leaving you responsible for the consequences. Identity theft steals who you are. It can cost you time and money, destroy your credit, and ruin your good name. Identity theft is serious. It costs some victims hundreds of dollars and many days of time to repair the damage to their credit record. In the meantime, they may be denied loans, be ineligible for an apartment they want to rent, lose out on a job for which they have applied, or even be arrested for crimes they did not commit. Thieves can use your identity for many fraudulent activities. For example, they may: Run up charges on existing accounts, change billing addresses, and leave bills unpaid. Get new credit cards or open bank accounts and write bad checks in your name. Set up utility or telephone service in your name. Take out loans, rent an apartment, get a mortgage to buy a home, get a driver s license or official ID card with your name and their photograph, or file for unemployment insurance. Give your name and identification to police during an arrest, so your name is on the warrant if they don t show up for their court date. How Can This Happen? All someone needs to steal your identity is your name, address, and date of birth. An identity thief who can also get your social security number is really set. Identity theft occurs in several ways. Although most information is obtained by old-fashioned stealing, thieves may also use high-tech schemes to gain unauthorized access to information. The most common methods used by skilled identity thieves to get your information include the following: Page 66 Copyright 2010 Linda LaMar. All rights reserved.

77 Stealing. Thieves steal items that may give them the information they need. They are most likely to target wallets, purses, mail, or information from places where you conduct business. They are looking for your social security number, credit and debit cards, PINS, and checks. They also steal to get bank and credit card statements, pre-approved credit card offers, new checks, or tax information. They may steal records from your home, places you do business, their employers, or from employees who have access to information. Dumpster Diving. Thieves search through trash looking for information on bills or for other papers with personal or account information. Changing Your Address. They file change of address forms for your bills so the statements are sent to another location and you can t see what they are doing with your accounts. Skimming. Thieves steal your credit/debit card number by using a device that reads the card when it is swiped for a transaction. They may skim a credit card when they swipe it for an actual purchase at a place of business; or they may have placed a scanner over an ATM card slot that can record your account information. To get your PIN, they may use hidden cameras, binoculars, or simply look over your shoulder. If the ATM eats your card, contact your bank immediately. Pretexting. Thieves pose as someone with a legitimate or legal reason to access your personal information (e.g., a landlord or employer asking for background information). Using mail, , or the telephone, they try to get information from you, your creditors, or even a credit reporting bureau. If they contact you directly, they typically will ask you to verify some information and then they may ask for more. Phishing. Thieves send an that appears to be from a legitimate bank or other company, government agency, or organization. The typically includes an urgent message instructing the victim to open a link or attachment and provide the specified information. The website or attachment is a convincing fake of the authentic one. The phisher uses the information you provide to steal your identity. Pharming. Pharming is similar to phishing, but more sophisticated. You can be duped by pharming without even opening an attachment or linking to a website. The contains a virus that installs in your computer, redirecting confidential information you think you are sending to a legitimate site. With only a little personal or financial information, a thief can create new credit accounts, use existing credit or bank accounts, commit crimes in your name, and more. The majority of victims have no idea how or when the thief got their information. They often find later that someone they know has committed the crime. Roommates, family members, friends, friends of friends, landlords, and others have access to your home and therefore, your private information. People are especially vulnerable when ending relationships with roommates and spouses. Identity theft may go undetected for months, or even a year or longer. By the time the victim is aware that his or her identity has been stolen, considerable damage may have occurred. Copyright 2010 Linda LaMar. All rights reserved. Page 67

78 Deter, Detect, and Defend By using a few common sense strategies, you can significantly reduce your risk of becoming a victim of identity theft and recover more quickly if you are targeted. The Federal Trade Commission (FTC) 1 recommends a deter, detect, and defend strategy. The FTC and others offer the following suggestions for ways to protect yourself from identity theft: Deter Since many identity thefts are traced to a stolen purse or wallet, carry as few cards with identification and personal information as possible. Don t carry your social security card. Keep personal information, blank checks, and debit/credit cards you don t carry with you in a secure place at home. Don t keep PINs or passwords near your checkbook, ATM or debit card, or any other account for which you have a PIN or password. Make a photocopy of the front and back sides of the credit cards, your driver s license, and other cards you carry in your wallet or purse. Be sure you can clearly read the phone numbers for reporting lost or stolen cards. Store this information in a secure place. Shred all papers containing personal or confidential information before you discard them, since anything with an account number can be used in identity theft. Shred prescreened credit card offers, receipts, cancelled checks, bank statements, expired charge cards, doctor s bills, insurance documents, and even junk mail if it has any identifying information. Protect your social security number. Don t carry your card in your wallet, write your number on a check, or use it for identification. If someone requests it, ask if you can use your driver s license number or other form of identification instead. Provide it only if absolutely necessary. When you sign for a credit card charge, don t put your address, phone number, or driver s license on the slip. Take your receipt with you and shred it before you throw it away. Have new blank checks delivered to your bank not your home. Make it harder for thieves to access your accounts. Put passwords on your credit card, bank, and phone accounts. Get credit cards with your picture on them. Call the companies that issue the accounts and find out what security options they offer. Don t use an obvious password, like your birth date, nickname, mother s maiden name, address, pet s name, or the last four digits of your social security number. Use a combination of numbers, letters, and symbols. 1 The Federal Trade Commission is a federal agency charged with protecting American consumers. For more information on identity theft and other topics, see: Page 68 Copyright 2010 Linda LaMar. All rights reserved.

79 Secure your mail. Remove incoming mail promptly and put outgoing mail in a post office drop box rather than leaving it in your mailbox where someone could take it. Be aware of your surroundings when entering your PIN at an ATM. Be wary of requests for personal information. Requests may be made by mail, telephone, or e- mail. Don t give any confidential information (such as your credit card or bank account number, your social security number, birth date or other information) unless you initiated the contact or you know and trust who you are dealing with. Identity thieves can send documents that look totally authentic or use an official-sounding title or organization name on the telephone. Before you give any personal information, ask the person to send you a request by mail or call the bank, business, or government agency directly to confirm the legitimacy of the request. Never click on a link sent in unsolicited , even if it appears to be from your bank, a legitimate business, or the federal government. Instead, type the official web address in your browser. Do not use the reply function to respond to an request for information (even to say, Forget it! ). Use firewall, anti-spyware, and anti-virus software to protect your computer, and keep them up-to-date. Consider not registering for contests and sweepstakes. If you choose to enter, limit the information you provide. Age and income are usually not necessary. Minimize your risk by removing your name from prescreened credit offers, direct marketing lists, and telephone solicitation lists. To stop prescreened credit offers, call OPTOUT ( ). Learn how to get your name and address removed from direct marketing lists at the Direct Marketing Association s website: To stop telephone solicitations, ask to be added to the federal Do Not Call registry. You can do this online ( or by telephone ( ). To stop banks and other financial institutions from sharing your personal information with other companies, follow the opt-out procedures they send you. Detect Be alert to signs that require immediate attention: Bills or bank statements that do not arrive as expected Bills for items you did not purchase Unexpected credit cards or account statements Denials of credit for no apparent reason Calls or letters about a purchase you did not make Phone calls from creditors Copyright 2010 Linda LaMar. All rights reserved. Page 69

80 Check bank statements and bills soon after you receive them and be sure there is no unexplained activity. Better yet, check bank activity and credit card accounts on-line every week. Keep track of the dates your bank statements and each of your bills usually arrive. If one does not come when expected, call the bank or company. It may have been taken from your mailbox, or an identity thief may have changed the address on the account to make their activity harder to catch. You are entitled to one free copy per year of your credit report from each of the three major credit reporting companies. You should request them from all three agencies every year, since few merchants report to all three. You can order a copy from all three companies at the same time. Better yet, if you order a credit report from one company every four months, you will see activity on your account throughout the year and increase the chances of catching illegal activity in your name more quickly. You can order your free credit report from each/all of the credit reporting bureaus online ( or by phone ( ). Be cautious about ordering credit reports from another website. Many sound like they are free of charge (but aren t). And a phony website is yet one more way an identity thief can get you to divulge your social security number and other personal information. When you receive your report, verify that it is accurate and includes only activities you have authorized. If there is any incorrect information in your credit reports, or if you have any other reason to suspect identity theft, immediate action is critical. You should take the steps outlined below. Defend Immediately contact the police or other local law enforcement office. File an Identity Theft Report with them. This report allows the police to start investigating the crime. It entitles you to certain legal rights when it is provided to the three major credit reporting bureaus or to companies where the thief used your information. It provides proof to creditors that you are a victim of identity theft. If your identification was stolen when you were away from home, contact the police in that jurisdiction, too. Be sure to get a copy of your Identity Theft Report so you can send it to your bank or creditors who need proof of the crime. Page 70 Copyright 2010 Linda LaMar. All rights reserved.

81 Contact the three major credit bureaus and ask them to put a fraud alert in your file. A fraud alert instructs creditors to contact you before they open new accounts in your name or make changes to existing accounts. Call any one of the three major credit bureaus to request a fraud alert on your account. They will automatically notify the other two. Equifax: Experian: TransUnion: Ask how long the fraud alert will remain on your report, and how to extend that time, if necessary. Placing a fraud alert entitles you to a free copy of your credit report from each credit bureau. Have each send you a copy. When you get your credit reports, pay particular attention to the section that lists inquiries from new companies. Contact any companies that you don t recognize and any others with debts you cannot explain. Ask them to close the accounts. Ask the credit bureaus if they will provide you with free reports every few months. Then, in a few months, order new copies of your report to verify your corrections and changes, and to make sure no new fraudulent activity has occurred. Identity thieves often strike the same accounts again, or succeed in opening new accounts sometimes even with a fraud alert in place. Therefore, it is important to continue to monitor your credit reports very closely for a while after the initial crime. Contact your bank or credit union if your checkbook was stolen or lost, or if your ATM card or any checks are missing. To limit your loss if you are a victim, you must notify your bank or credit union within two days of learning of the identity theft. Tell them what accounts are affected and what is missing (ATM/debit card, blank checks, etc.). Close checking and savings accounts and cancel ATM and debit cards. Open new password-protected accounts and get a new ATM and/or debit card and PINs. Stop payments on outstanding checks. Contact the security department of each credit card company and all other companies with which you have credit if a thief has gained access to a credit card or opened or changed an account. Close any accounts that have been tampered with and ask that the accounts be noted as closed at customer request. Request a letter confirming that the account has been closed and the debt discharged. Keep a copy of the letter in your files. Open new accounts and protect them with passwords. Follow up with a letter documenting the date, name of the person who helped you, and actions taken. Include copies of supporting documents. (Use the ID Theft Affidavit at to support your written statement, or submit any other required documentation.) Copyright 2010 Linda LaMar. All rights reserved. Page 71

82 Report the theft to the Federal Trade Commission. You can provide a printed copy of your on-line complaint form as a part of your police report and your written statement to creditors. On-line: By phone: IDTHEFT ( ) By mail: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, Washington, DC If you suspect that your social security number is being used fraudulently, report it to the Social Security Administration. Social Security Fraud Hot Line: If mail service was used in the fraud, contact the US Postal Inspection Service. The Postal Inspection Service is helpful if any fraudulent utility bills or apartment leases show up on your credit report. U.S. Postal Inspection Service: Protecting Information On-Line Although most information used for identity theft is obtained from paper records, you must also be careful to protect your personal and financial information on-line. Your computer contains a rich source of information for anyone who knows how to employ electronic trickery to gain unauthorized access. You can significantly reduce the risk of electronic piracy by using good judgment and taking advantage of several readily available tools. Electronic ID Theft, Phishing, Pharming, and Other Scams The Internet is a multi-billion dollar enterprise. Along with all its legitimate activities, it also attracts scam artists who hope to cash in. Using a variety of schemes, on-line thieves steal the personal information and even the identity of unsuspecting victims. They are most interested in information such as names, social security numbers, birth dates, credit card and bank account numbers, personal identification numbers, and passwords. With this information, they can establish fraudulent accounts in their victims names. Page 72 Copyright 2010 Linda LaMar. All rights reserved.

83 One of the most common tricks used by Internet thieves to steal your information is called phishing. Phishers try to hook you into providing them with personal information. Although some phishers use the telephone, this scam most often occurs through . Appearing to be from a legitimate business, bank, organization, or government agency, phishers typically convey an urgent need to take immediate action and ask you to confirm personal or financial information. Victims are generally instructed to click on a link (presumably to the business, bank, or agency from which the appears to come) and provide their account number, password and/or other specified information. The website to which the victim is directed may appear identical to a legitimate site, but the information provided goes directly to the decoy site and identity thieves. If you get hooked by a phisher and provide account numbers, PINS, or passwords, immediately notify the companies with which you have accounts. Then ask the three major credit bureaus to put a fraud alert on your account. Pharming is another scam that may or may not use . It is similar to phishing. However, when is used to pharm for information, thieves can gain access to your information if you simply open the e- mail message. The message contains a virus that installs a program on your computer. When you visit an official website (for example, your bank) the software program redirects your browser to a fake version of the website, sending the information you believe is going to a legitimate site directly to the thieves. Pharming can also involve use of key loggers viruses that track user keystrokes on legitimate sites and steal passwords, which the thieves can use to access your accounts. Several red flags warn of potential phishing or pharming activity. Do not respond or do as the urges if you spot one of these red flags or have other reason to be suspicious. Red Flags You don t know the person who sent you the message The is sent to a generic group not to you specifically The message conveys urgency You are asked to provide (or confirm ) account numbers or personal information You are offered money if you respond You are asked to provide money for a processing fee Copyright 2010 Linda LaMar. All rights reserved. Page 73

84 Computer Security Savvy In addition to watching for red flags warning of potential danger, you can do a number of other things to protect your online security. Computer Security Tips Passwords. Your passwords are like the keys to your house or your safe deposit box. They should be carefully safeguarded. Make your passwords difficult to decipher. Use at least 8-14 characters, including upper and lower case letters, numbers and symbols. Do not use public information (such as your name, address, mother s maiden name, birth date, social security number, pet s name, etc.). Consider using the first letter for each word in a phrase. Don t use words in the dictionary. Thieves have software that can guess passwords based on standard language, including words spelled backwards and common misspellings. Change your passwords every days. Don t save your passwords on your computer. Don t share your passwords with anyone. Use virus protection software on your computer and install all upgrades as they become available. Viruses can cause your computer to send out your personal information. Install anti-spyware software and be wary of free software, which may come with spyware. Purchased downloads are less likely to have spyware. Use a firewall. This is important if you use a high-speed or always on connection to the Internet. Without a firewall, hackers can take over your computer and access your information. Avoid using an automatic log-in feature that saves your name and password, and always log off when you re finished. If your laptop is stolen, the thief won t have ready access. Close pop-ups by clicking on the x in the upper right corner. If you click the OK button, you may be agreeing to something you don t want to. Always read the end user agreement for software. If you have doubts, don t agree to the terms. Page 74 Copyright 2010 Linda LaMar. All rights reserved.

85 Be suspicious if you don t know the source. Don t download files or open links from senders you don t know. They may contain viruses. Don t open attachments with an , IM, or mobile message unless you know exactly what the attachment is, even if it is from someone you know. Attachments are an easy way for Internet invaders to gain access to your computer. Beware of pop-ups asking for personal information. They may be linked to a legitimate website and look like they are a part of that site. Remember that no legitimate company will ask for personal information on a site that is not secure. Delete the pop-up. Do not provide the information requested in the pop-up or . To confirm that the bank, business, or government agency was not asking you for the information, call or e- mail them directly. Before transmitting personal information or account numbers on-line, be sure the site is secure. When shopping on the Web, be sure you see at the beginning of the URL for any site at which you plan to enter financial information. (The s in https stands for secure. ) Look for a lock or similar icon in the browser indicating that you are on a secure site. Don t post personal information (such as your birth date) on an electronic bulletin board or send account or other confidential information through or on-line chat since both are easily intercepted by thieves. Don t forward any warning about a new virus. It may be a hoax. Delete cookies after submitting any financial information online. Don t use public computers for online banking or purchases. They may transmit keystrokes or other information to thieves. After using a public computer, always clear your browsing information and log off completely. Avoid making financial transactions at a public hot spot or wireless connection whose password you do not directly control. Before you discard a computer, be sure all personal information has been deleted from the hard drive. Fake Checks and Money Wiring Scams Fake check scams are yet one more way in which thieves can get your money. These scams may take several forms. They usually involve someone offering to buy something you have listed for sale, or offering to give you an advance on a sweepstakes you have won. They might also begin with an offer to pay you for work you do at home, or tell you that you ll receive a large sum of money for transferring funds to a foreign bank account. Copyright 2010 Linda LaMar. All rights reserved. Page 75

86 Scammers will typically write you a check or give you a cashier s check for more than the amount you re owed and instruct you to give them the difference. Or they may direct you to send money to claim a sweepstakes prize or get the materials for an in-home business, etc. If you send the money as requested, you will find that the check was a fake or that there wasn t a sweepstakes or a business you could do at home. You have been scammed. You not the bank are responsible. You have lost the money you sent the scammer. Your best defense against fake check scams is to remember that there is no legitimate reason for someone who is giving you money to ask you to give money back or to send a deposit for a sweepstakes or in-home business. That is a clear sign it s a scam. As a further safeguard, if you need to accept a check from a stranger, insist on a cashier s check for the exact amount, from a local bank. Other Scams There is almost no end to the ways a creative thief might try to gain access to your money or your identity. In addition to the ways noted above, a scam artist might pose as a phony investigator; an individual trying to help another person in need; someone giving you a chance to make an extraordinary investment; or a representative offering to help you with debt relief. There are new scams nearly every day. The common characteristic among most scams is that they offer something too good to be true or they give the con artist access to your money or credit. The deal will be presented in a way to make you want to participate or help out. Protect yourself by keeping your checks, debit and credit cards, and other records containing confidential information in a secure place. Don t give your social security number, bank account or credit card number, or other personal identifying information to anyone over the phone or Internet unless you initiated the transaction. Don t fall for schemes that are too good to be true or that you feel are questionable. Most often, your best protection is good common sense. Don t Be Tricked by a Con Artist Don t be caught off-guard. When in doubt, check it out. Page 76 Copyright 2010 Linda LaMar. All rights reserved.

87 Resolving Identity Theft: Reminders and Resources Keep records of all telephone calls regarding identity theft, including the date and time of your call and the name and title of the person(s) who assisted you. Write letters to confirm all telephone conversations. Include the date, name of the person(s) with whom you spoke, and actions taken. Consider sending your letter and any enclosed documents by certified mail, return receipt requested. Keep the postal receipt with your copy of the correspondence. Keep copies of all correspondence and documents. The Federal Trade Commission s website ( contains valuable information about identity theft. It also provides links to sample letters and forms you can use to document your circumstances, communicate with creditors, and keep track of actions taken. The website explains the circumstances for which you would use each letter or form. If you are a victim of identity theft, these letters and forms will help you take the correct steps and save you time in communicating with creditors. To access the information and sample letters and forms on the FTC website, click the Consumers tab on the home page; then Tools for Victims. The website includes the following forms and sample letters: ID Theft Complaint Form ID Theft Affidavit Sample Letter to Request Fraudulent Transaction or Account Information Chart Your Course of Action Sample Letter to Credit Reporting Company Sample Letter to Company Disputing Charge on Existing Account Sample Letter to Company Disputing Charge on Fraudulently Opened Account Sample Law Enforcement Cover Letter Victim s Statement of Rights Copyright 2010 Linda LaMar. All rights reserved. Page 77

88 Tracking Student Loans Should it be necessary to assume student loans to help pay for college costs, it is extremely important that you establish and maintain a system for keeping track of each loan so you will be prepared to repay it when it is due. The consequences of default are serious and expensive. Defaulting on a federal student loan results in loss of eligibility for financial aid and makes the loan due immediately and in full. Defaulted student loans are reported to credit bureaus, and the borrower s credit score and future borrowing ability are negatively impacted. In addition, legal action can be taken to require payment through garnishment of wages and withholding of tax refunds. The best defense is to borrow wisely, and only if you have no other options. Before you borrow, revisit your spending plan and your monthly expenditures. Look for spending leaks, and determine if there are ways you might adjust your budget to avoid borrowing. Check with the financial aid office to see if you may have other options and, if not, which loan is best for you. If you must assume loans to help pay for educational expenses, borrow only the amount you absolutely need. It is your responsibility to keep track of your student loans and all related paperwork and to begin making payments as soon as they are due. Your filing system should include a special folder for student loan documents and related records, including: Loan applications Promissory notes Disclosure statements Copies of all written communications (including ) A log of telephone conversations Loan tracking form Account statements These records will help you keep track of the amount you have borrowed and your monthly repayment obligations after you leave college. They will also provide important contact information for the lenders and servicers of your loans so you can update your address when you move, request deferment if you re-enroll in college in the future, or request forbearance if you qualify. To monitor the amount you have borrowed and estimated payments when you leave school, you may wish to maintain a loan tracking form like the sample on the following page. Page 78 Copyright 2010 Linda LaMar. All rights reserved.

89 Student Loan Tracking Form Year In School Type of Loan Interest Rate Loan Amount Lender Servicer Phone Number Est. Payment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Grad/ Prof l Copyright 2010 Linda LaMar. All rights reserved. Page 79

90 In addition to your personal tracking form, you can monitor federal student loans through the U.S. Department of Education s National Student Loan Data System (NSLDS), at If you provide the required identification (social security number, the first two digits of your last name, your date of birth, and your PIN), the NSLDS Student Access website will display information about your federal student loan amounts, outstanding balances, loan status, and disbursements. Although the NSLDS Student Access website provides helpful information, it does not include nursing or medical loans, private loans, or PLUS loans assumed by your parent(s). Therefore, you should keep your own log sheet to maintain a comprehensive overview of the amount you have borrowed and your future monthly repayment commitment. Annual Credit Report Reviews Your credit reports are a record of your credit history. They show credit cards that have been issued to you and information about money you have borrowed. They also report how well you manage your financial obligations whether you pay bills on time, if you make late payments, or if you have defaulted on payments. Your credit reports are an important tool in making sure you aren t a victim of identity theft. While that alone is reason enough to keep close tabs on them, there is another reason you should regularly review your credit reports mistakes happen. You are responsible for ensuring that the information reported about your credit history is accurate. Lenders, creditors, landlords, and employers will evaluate your credit reports to determine whether you are a good risk and if you have demonstrated financial responsibility. Your credit reports play a major role in whether you will be able to borrow money and the interest rate you will be charged for credit. They may determine whether you will be able to rent the apartment you want, if you will get the job for which you have applied, or if you will qualify for a loan to buy a car or a house. Therefore, it is important that you ensure the accuracy of the information reported. There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. Each operates independently to collect and report your credit history. Creditors voluntarily subscribe to the credit bureau(s) of their choice. Not all creditors report to all three. To have a complete picture of your record, you must check the reports of all three credit bureaus. You are entitled to one free copy of your credit report per year from each of the three credit bureaus. You can order your report from all three at a single on-line address: To get your reports, you will be required to provide your name, address, and social security number and respond to a question about information in your credit report that, presumably, only you can answer. These questions are designed to protect the privacy of your reports. You can order a copy of your report from all three companies at the same time. Better yet, if you order a copy from one of the three credit bureaus every four months, you will see activity on your account throughout the year and have a better chance of catching illegal activity in your name. Page 80 Copyright 2010 Linda LaMar. All rights reserved.

91 Be cautious about ordering credit reports from another website. Many have nearly identical URL s and sound like they are free of charge (but aren t). And a phony website is yet one more way identity thieves try to get your social security number and other personal information. What s On Your Credit Report? Although each credit bureau uses a different format and may collect information from different creditors, the reports from all three contain essentially the same categories of information: Personal identifying information: Your name, social security number, birth date, current and previous addresses, telephone numbers, and employers. Credit history: Names of creditors, when you opened each account, type of credit, total amount of the loan, credit limit or how much you owe, highest balance on credit card, payment history. Public information: Financially-related public records, such as bankruptcies, judgments, and tax liens. Inquiries: A list of everyone who has asked to see your credit report. What s NOT included? Credit reports do not include information about your race, ethnicity, religion, gender, marital status, medical history, or bank accounts. They do not report your credit score. What to Check For When you get your credit reports, review each entry carefully. Credit bureaus generate your report based on information received from creditors. They do not verify the information. Check to be sure your name, social security number, address, and employers are correct. (Even typographical errors are important.) Check for addresses where you have never lived. Check to make sure you are aware of all accounts listed, and that balances are what you expect them to be. Look for anything suspicious in the section that lists who has received a copy of your credit history. Some identity thieves get your information from credit bureaus by posing as a landlord or employer. Make sure no inquiries have been made about loans or leases for which you did not apply. Copyright 2010 Linda LaMar. All rights reserved. Page 81

92 What to Do If You Find an Error If you find a mistake, you should complete the form that comes with your report. Clearly identify the error, and state why it is incorrect. Send this information with a letter to the credit bureau(s) reporting the wrong information. Be sure your letter includes your full name, address, birth date, and social security number. If appropriate, include documentation that supports your correction. The credit bureau must investigate and respond to you within 30 days. It is essential that errors be resolved, since your ability to borrow in the future or to be considered a good risk by a potential employer or landlord may depend on your credit report. Your Credit Score When you apply for a loan or other type of credit, the lender will want to know how likely you are to repay the money on time. In deciding whether to extend a loan or credit and what interest rate to charge, the lender will review your credit report and, in many cases, also want to know your credit score. Your credit score estimates your risk, based on a snapshot of your credit report at a particular point in time. Taking both positive and negative information from your credit report into account, it is generated by a mathematical formula that factors in your payment history, the amount of money you owe, how much credit you have available, and how long and how well you have managed credit. To a lesser extent, it also considers debt you have recently accrued and the types of credit you have. Credit agencies use any one of several different mathematical models to calculate your credit score. Each formula produces a slightly different score. Since each credit bureau may have different information in its files about your credit record, your score may also differ from one credit agency to another, even when the same formula is used. A score that is acceptable to one lender or for one type of credit may not be sufficient for another. For these reasons, there is not a cut-off credit score. However, the higher your score, the more willing a lender will be to extend credit and the more likely you are to qualify for a lower interest rate, since your credit history indicates you are a good risk. Your credit score is based on the information in your credit report at the time the score is calculated. Therefore, it will change as information is updated in your credit reports. Negative information in your credit report (such as late payments, collection accounts, bankruptcies, etc.), will affect your credit score for several years. It can prevent you from qualifying for loans and will increase the interest rate for borrowing. Page 82 Copyright 2010 Linda LaMar. All rights reserved.

93 If you have had credit problems in the past, it is important to take corrective action to begin rebuilding your credit history. Over time, by managing your bills and credit wisely, you can significantly improve your credit score. While you can check your credit score on-line, in most cases there is a charge to do so. (Read the small print very carefully; many free credit scores offered on-line are not really free!) To allow time to correct any mistakes or problems, it s a good idea to check your score at least six weeks before you expect to request a loan for a major purchase such as a car or a home. In the meantime, it is extremely important to treat credit wisely and build a good credit history. Building and Maintaining Good Credit It can take from six months to two years of on-time payments and responsible use of credit cards to build the kind of credit history most lenders consider reliable. There are several ways to build and maintain a good credit record, including the following: Steps to Good Credit Open a checking account and don t bounce checks. Open a savings account and make regular deposits. Pay your bills on time. If you have missed payments, get current and stay current. If you use a credit card, keep balances low and make at least the minimum monthly payment by the deadline. Don t apply for credit accounts you don t need. Pay off debt rather than moving it between credit cards. Cancel unused/unneeded credit cards. Don t borrow more than you can comfortably repay. Avoid frequent job changes. Check your credit reports for accuracy every year. Copyright 2010 Linda LaMar. All rights reserved. Page 83

94 A good credit record is earned by consistently paying your debts on time. If you cannot make a payment when it is due, you should contact the creditor. Most will work with you to find a solution, especially if you have had a good record in the past. If you can t resolve credit problems on your own or with the help of lenders, you should seek the assistance of a state or local agency that offers credit counseling services for little or no charge. There are two things you should not do if you cannot make a payment when it is due: Ignore the bill until you have more money or until it is turned over to a collection agency; Pay a company that claims it can get a bad credit history cleaned up faster, or that offers to give you a debt consolidation loan (often without a credit check). Most charge high fees or interest rates for unnecessary services. Remember that good credit is established over time, and it will take time to get it back if you lose it. One way to re-establish credit is by obtaining a secured credit card from your bank or credit union. With a secured credit card, the maximum amount you can charge is limited to the amount of money you have on deposit. Beware of credit card issuers that charge a high application or annual fee or exorbitant interest rates for a secured credit card. Also be sure the credit card issuer reports your payments to all three credit bureaus so that consistent payments begin to rebuild your credit history. Saving for Emergencies and Future Needs And, finally, don t forget about yourself and planning for your future as you consider all the aspects of taking care of business. Although you may not be able to save or invest large sums of money while you are in college, saving even a small amount each month should be a fundamental part of your money management strategy. Start by opening a savings account and setting aside a specified amount each month for emergencies and future needs. Your money will be accessible should you need it. Later, if you can keep a higher balance, consider putting your savings in a money market account. In exchange for maintaining a minimum balance, money market accounts offer higher interest rates than regular savings accounts, while still providing ready access to your money. When you are able, consider keeping some of your savings in Certificate of Deposit (CD) accounts, which pay higher interest rates for leaving your money deposited, untouched, for a specified period of time. And, when you have enough money set aside for emergencies and short-term goals, invest some of your savings to increase the potential for a higher return. (See Part 4 for more information about saving and investing.) Page 84 Copyright 2010 Linda LaMar. All rights reserved.

95 Remember, even if it s hard to save money while you are in college, being prepared for emergencies and future needs is critical to your financial well-being. You cannot afford to wait until later to save. Be a smart money manager Organize your records Do necessary paperwork Protect your identity Protect your future Copyright 2010 Linda LaMar. All rights reserved. Page 85

96 This page is intentionally blank. Page 86 Copyright 2010 Linda LaMar. All rights reserved.

97 Part 3 Moving Along Living on Your Own, Taking Your Car to College, and Planning Ahead for Graduate Study Copyright 2010 Linda LaMar. All rights reserved. Page 87

98 This page is intentionally blank. Page 88 Copyright 2010 Linda LaMar. All rights reserved.

99 Many colleges and universities offer on-campus housing for students. And many students choose to take advantage of that option, where it is available. There are good reasons for doing so. Campus housing puts you in the heart of activities. It makes it easy and convenient to go to and from classes and events scheduled from early morning to late evening. At many colleges and universities, students can choose from a wide selection of campus housing options, ranging from traditional dormitories to apartments. They can choose whether to purchase a dining plan and, if so, if they want a limited number of meals or the full-meal-deal. If you live on-campus, once you select your housing option and meal plan, costs for room and board are fixed you know how much you need to budget for these expenses. You don t have to worry about unanticipated costs, dealing with tenant/landlord issues, or how to pay the rent if one of your roommates moves out. For many students, knowing how much to budget for fixed costs, together with easy access to classes, friends, and activities, makes living on-campus the best choice. On the other hand, many students choose to live off-campus. There are advantages and disadvantages for both. Here are a few. You may want to add others. On-Campus or Off-Campus Pros Cons On-Campus Convenient access to classes Lots of activities and easily accessible friends Simplified and more predictable budgeting Often less expensive Safety and security Little privacy Limited living, storage, and closet space Less freedom Noise and distractions, with many residents and activities Off-Campus Independence More privacy Sense of responsibility Possibly more quiet Chance to establish rental and credit history More storage and closet space Possibly more amenities Possibly more expensive More difficult to budget Less convenient access to classes Reduced access to campus activities May require daily use of bus or car May require annual lease/summer sublet Safety and security considerations Copyright 2010 Linda LaMar. All rights reserved. Page 89

100 At most colleges and universities, there are many apartments and rooms for rent in areas within walking or commuting distance to campus. But before you start packing boxes and buying furniture, do your homework and know for certain that living off-campus is the best option for you. Nice as living on your own may sound at times, it won t be nice at all unless you make choices that fit your needs and budget realities. So before you make a move, think about what s important to you, know what you can afford, be an informed consumer, and know your rights and responsibilities as a renter. First Things First...What s Most Important to You? Before you head out to look at apartments or houses, think carefully about what is most important to you about living arrangements. Do you need privacy and quietness, or do you prefer lots of activity and having friends around? Does your budget require that you share expenses with other housemates? How many housemates are you willing to live with? What amenities are essential, and what would you like, if possible? How often will you want to go between your residence and campus each day/week? Do you want to live within walking distance to campus or a bus stop? Will you have a car or rely on the bus to get groceries or run other errands? How important is a sense of safety and security? What other factors are important to you? Having a clear picture of your housing priorities is an essential first step in informing your decision about whether to live on- or off-campus. Your assessment may lead you to decide that living on-campus is your best option right now. Page 90 Copyright 2010 Linda LaMar. All rights reserved.

101 Should you decide to pursue off-campus alternatives, your analysis will help you determine the type of housing that works best for you a room in a private home, a one-bedroom apartment, a larger apartment, or a house. Together with a clear understanding of your budget, it will help you set a price range, narrow the areas in which you look, and focus on the features and amenities that matter to you. How Much Can You Afford? Whether you live on-campus or off, you ll need a lot more than a roof over your head. Your budget will also have to cover tuition and fees, books and supplies, food, transportation, and personal expenses. Decisions about your living arrangements will be dictated in large part by what you can realistically afford. Before you can decide where you will live, you ll need to know how much you can spend for housing and other living expenses each month. The following table will help you calculate the amount you have available for the full academic year and each month during that period. Quick Calculator: Amount of Money Available Each Month for Academic Year (AY) Expenses Grants, scholarships, and loans awarded by the college/university this academic year Grants $ Scholarships $ Loans $ $ Amount available from outside scholarships awarded this academic year + $ Expected take-home pay from Work-Study/ part-time job (academic year) + $ Expected amount from family, savings, and other sources (academic year) + $ Total funds available for academic year Subtotal $ Institutional charges Tuition/Fees $ Other charges/fees $ (-) $ Estimated costs for books/supplies Books/Supplies $ (-) $ Amount available for rent, food, utilities, transportation and personal expenses this academic year = Total AY $ Amount available per month during academic year for rent, food, utilities, transportation, and personal expenses (Total AY 9) Total per Month $ Copyright 2010 Linda LaMar. All rights reserved. Page 91

102 A Note to Financial Aid Recipients. When your college or university determined your eligibility for financial aid, chances are it took into account the amount you would have to pay for tuition, fees, books, and living expenses during the academic year. The living allowance used to establish eligibility for financial aid is modest, but sufficient to cover basic expenses. Your financial aid cannot be increased if you choose to spend more for an apartment or other expenses than assumed in the school s standard allowance. Therefore, it is very important that you know exactly how much you have available to spend. What Must You Budget For if You Live Off-Campus? Knowing how much housing, food, and other personal expenses will cost is important for all students but it is especially important for those who are considering living offcampus. If you live on-campus, once you sign a contract for housing and meals, those costs are fixed. However, if you live off-campus, you will need to budget for many additional expenses, such as deposits, furniture and furnishings, groceries, utilities, cleaning and other household supplies, etc. Therefore, the next step, if you are thinking about living off-campus, is to estimate how much you will need to budget for monthly and periodic expenses. Items to Include in Your Budget if You Live Off-Campus Initial Expenses First and last month s rent Security deposit Utility deposits Furniture Furnishings (dishes, silverware, glasses, pots and pans, small appliances, shower curtain, towels, bedding, rugs, paper products, light bulbs, extension cords, etc.) Basic grocery items Cleaning supplies (broom, mop, soap, cleaners, etc.) Monthly/Ongoing Expenses Rent Utilities (heat, electricity, phone/cell phone, cable, Internet connection) Groceries and other food Laundry Personal Supplies Parking (if applicable) Other Page 92 Copyright 2010 Linda LaMar. All rights reserved.

103 Leasing and setting up an apartment can cost anywhere from a few hundred to several thousand dollars, depending on how much you pay for rent, what deposits are required, and how much you spend for furniture, furnishings, basic grocery items, and cleaning supplies. You can save money especially for furniture and sometimes for other furnishings by purchasing second-hand items where possible, and borrowing what you can from family and friends. Although you cannot finalize an off-campus budget until you know how much you will actually have to pay for rent, utilities, and other expenses, knowing how much you can afford will help you clarify if you should even consider living off-campus, whether the rent for a particular house or apartment is in your price range, and how many housemates you need. Based on that information, you can determine whether a move is the right thing for you and, if so, what types of rentals to look for. On- and Off-Campus Rental Rates So how much do rentals within commuting distance of campus cost? And how do off-campus prices compare to the rates for on-campus dormitories and apartments? You can get information from many different places, including the following: Possible Sources of Information About Rental Rates Campus Housing Office This is your best source for information about prices for oncampus options. They may also have information about prices in the area and/or where to get information on your own. Chamber of Commerce Websites often include helpful information about the local area, including links to information about local rentals and prices. On-Line There are many sites providing listings for apartments for rent. Most allow users to narrow their search by specific area, price, number of bedrooms/baths, and desired amenities. Many allow a search by proximity to a specific college/university. Local and Campus Newspapers Other Students Newspapers may include ads for rentals that are not included in on-line apartment listings. These, too, can give you a sense for prices in various areas. Other students are a great resource for information about offcampus prices. Copyright 2010 Linda LaMar. All rights reserved. Page 93

104 When you ve researched rental rates in nearby areas, consolidate your notes and complete a worksheet for each area. Complete a similar form for on-campus options. That will help you clarify whether on- or off-campus is the better choice, based on your budget. If you decide to move off-campus, this information will help you narrow the areas in which you search for housing. Apartments in (Area/Neighborhood) Date Completed: Price Per Month and Price Per 9-month Academic Year Room Type Rent Range Notes Monthly Price Range 9-month Price Range 1 Bedroom $ - $ $ - $ 2 Bedrooms $ - $ $ - $ 3 Bedrooms $ - $ $ - $ Although this exercise calculates rental rates for a 9-month academic year period, many rentals require a 12-month lease. Be sure to take that into account as you plan. When you compare rental rates, remember that some (but not all) apartments include the costs of Internet and cable and/or a water or electricity allowance. Rental houses typically do not include utilities. On-Campus Housing Dormitories Single Occupancy Double Occupancy Price Per Month and Price Per 9-month Academic Year Price Per Month* $ - $ $ - $ Price for Academic Year $ - $ $ - $ Notes Suites Shared Bedroom Private Bedroom Undergraduate Apartments One-Bedroom Shared One-Bedroom Private Two-Bedroom Shared Two-Bedroom Private $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ $ - $ * Residence hall contracts are typically for the full academic year. The price per month is calculated in this exercise to make it easier to compare on- and off-campus costs. Page 94 Copyright 2010 Linda LaMar. All rights reserved.

105 Other Costs of Living Off-Campus In addition to rent for an apartment or house, if you decide to live off-campus, you will need to budget for food, utilities, and other expenses. Food. The majority of your food budget will most likely be for groceries. However, your budget must also factor in the amount you will spend in restaurants, for order-in and take-out food, and meals purchased oncampus. The amount you spend for groceries will depend on your appetite, where you shop, the choices you make, and your budgeting skills. You will probably buy most of your groceries at one or two supermarkets. Be sure to enroll in their frequent customer programs to take advantage of sale prices each week. You can save a lot of money by planning meals around foods that are on sale. Many chains post their weekly ads on-line, and some include coupons for further discounts. Utilities. If you live off-campus, you may have to pay for some or all utilities, such as electricity, natural gas, water, cable, Internet connection, etc. Some utility companies may require a deposit. Other Expenses. If you live off campus, you will need enough money to pay for the first- and last-months rent, a damage deposit, and for moving, furnishing, and maintaining your house or apartment. Location, Location, Location If you decide you want to live off-campus, once you know how much you can afford to pay for housing, you can focus on other factors that are also important to you. These may include proximity to campus and other places you regularly go, easy access to a convenient bus stop, safety and security, parking (if you have a car), and other features. With your budget and priorities clearly identified, you will be ready to narrow your search to rentals that meet your needs. Copyright 2010 Linda LaMar. All rights reserved. Page 95

106 Things to Watch For, Check Out, and Do As You Look at Housing Options Since you will most likely have to sign a lease to rent a house or an apartment, be sure it is what you really want. There are some things to watch for, check out, and do as you look at properties. Use the following check list as a guide, and add other items that are important to you. Make notes immediately after you visit each property to avoid confusing them later. Address/Apartment Name/Number: Date(s) Visited: HOUSING OPTIONS CHECKLIST Y N Rent $ Location Safety/Security Be sure to visit the property during the day and at night and during the week and on a weekend, if possible, to get a sense for the environment. Is the price within your budget? Does the location provide easy access to/from campus? Is it close to a preferred bus line/stop? Is it accessible to grocery stores, shopping, and other services? Does it feel safe during the day? Does it feel safe at night? Do you feel safe/secure going to and from the bus stop? Are outside areas (including the parking lot and building) well lit at night? Will the locks be re-keyed prior to move-in? Do exterior doors have dead-bolt locks? Do the windows lock? Do tenants indicate any issues with burglaries or other crime? Do local police department records report crime in the area near the rental or any particular problems with the apartment complex you re looking at (burglaries, drugs, assaults, noise, etc.)? Information may be available on-line. Noise/Cleanliness Is the noise level (from outside and adjacent units) acceptable? Are the grounds, building exterior, and common areas clean and well-maintained? Is the unit clean? (Carpet, furniture, windows/window coverings, walls, appliances, etc.) Page 96 Copyright 2010 Linda LaMar. All rights reserved.

107 Size and Layout Note: Be sure to see the specific unit you would be renting, not a model. Amenities and Specifics Landlord/Manager Other Tenants Notes and Overall Feeling Is the apartment located on the ground level? (Easier to move in and out, but potential for noise from upper unit; may be less secure from outside.) Is it located upstairs? (Harder to move in and out, but possibly less noise and potentially more secure from outside.) Are there enough bedrooms and bathrooms to comfortably accommodate the number of people who will live in the unit? Are bedrooms and closets large enough? Are common areas (kitchen, living room, etc.) large enough? Does the floor plan separate shared and private spaces? Is there a charge for utilities? If so, which ones, and how is the amount determined? Included in the rent Prorated among tenants by the landlord (How does this work; how much will you pay; and how/when are adjustments made if the estimated amount was too low or more than needed)? Other (specify) If the building has central heating, can you control the thermostat in your apartment? Is there air conditioning? If so, is it in working order and can you control the setting? Is the kitchen equipped with appropriate and functional major appliances (stove, refrigerator, dishwasher, other)? Is there a strong cell phone signal for your carrier? Does the unit or complex have laundry facilities? Is there a swimming pool or exercise room? If you have a car, is parking available? Is there a charge? Are pets allowed? What are the rules? Are you comfortable with the landlord/manager? Do tenants indicate that the landlord makes repairs when needed? Do tenants offer any reasons they would not choose to live there if they were moving again? (Add additional page if needed) Copyright 2010 Linda LaMar. All rights reserved. Page 97

108 Utilities Depending on your rental agreement, you may be responsible for some or all utilities, including water, electricity, gas, garbage, Internet connection, or cable. Before you sign a lease, know what you will need to pay directly, what is included in your rent, and what utilities you will be billed for by the landlord. If any of the utilities will be billed by the landlord, ask how much you will be charged, how the fee structure works, and whether the amount can be adjusted at any time during your lease period. Be sure the specifics are stated clearly in the lease agreement before you sign it. Also before you sign a lease, contact each of the utility companies you will pay directly. Ask: Deposit Is a deposit required? If so, how much is it, and what are the conditions for refund? Setup Fee Is there a setup fee? If so, how much is it? Monthly Cost How much will you be charged each month? If there is a flat rate, what is it? If the fee is variable, how does it work and how much should you anticipate? Ask the electric and gas companies for the average monthly cost and seasonal highs and lows for your rental unit last year. Factor utility costs into your housing budget, along with rent, and be sure you can afford the total amount before you sign a lease. At least two weeks before you plan to move into your house or apartment, contact each utility company that you will pay directly. Complete any necessary paperwork and arrange for service. Keep a list of contact information, account numbers, and other important details for each utility you will pay directly. Page 98 Copyright 2010 Linda LaMar. All rights reserved.

109 Utilities Electricity Company: Phone: Website: Account Number: Natural Gas Company: Phone: Website: Account Number: Cable Company: Phone: Website: Account Number: Water/Sewer Company: Phone: Website: Account Number: Internet Company: Phone: Website: Account Number: Other Company: Phone: Website: Account Number: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Deposit: Amount $ Date Paid Date Service to Begin: Housemate Responsible to Pay Bills: Termination: Date Notified Final Date Date Deposit Returned: Copyright 2010 Linda LaMar. All rights reserved. Page 99

110 Lease Agreement Once you select the apartment or house you want to rent, you will have to sign a lease. A lease is a binding legal agreement between you (the tenant, or lessee) and the landlord (the lessor), agreeing to let you use the property for a specified period of time and rent. It should include all the conditions of the rental unit for both you and the landlord. The lease covers important issues, including: When the lease begins and ends The required deposit and conditions for return The monthly rental rate When the rent is due The number of people who can live in the house/apartment Who pays for utilities The landlord s access to the rental property What happens if either the landlord or tenant breaks the lease It may include rules for living in the house/apartment (such as if pets are allowed, what happens if an additional person moves in, parking limitations, noise control, etc.). It should specify if you can sublet the property and whether there is an option for renewal. Any repairs needed before you move in should be written into the lease. And, finally, be sure the conditions for return of your damage deposit are clearly stated. Although a lease is a legal document, there is not a single, common form. Be sure the lease addresses all the important issues, clearly covers what you must pay for, and that any verbal conditions noted by the landlord are included. Don t be pressured into signing before you are ready. Read the lease carefully and understand everything before you sign it, because once it is signed, a lease is a binding legal commitment. Security Deposit Tenants are generally required to pay a security deposit at the start of the lease. The deposit may be any amount, but is typically equal to one month s rent. It will be used to cover any unpaid rent, fees, or the cost of repairs (other than maintenance for normal wear and tear). Money not needed for unpaid rent, fees, or damages must be refunded within 30 days of the end of the lease period. Be sure the lease agreement is clear about what your deposit covers and the conditions you must meet to get it back at the end of the lease. Some fees may be nonrefundable. However, the landlord cannot use your deposit to pay for normal wear and tear. Just before you move in and again when you move out document the condition of the rental and give a copy of the documentation to the landlord. Page 100 Copyright 2010 Linda LaMar. All rights reserved.

111 Renter s Insurance Renter s insurance is a must-have. You not the landlord are responsible for insuring your belongings against loss from fire, theft, or water damage. Renter s insurance may also cover items stolen from your car and personal liability if a guest is injured in your house or apartment. It is one more expense but you should not be without it. Shop for a good rate for the coverage you need. Should you need to file a claim, you will have to document that you owned each item you are claiming and its value. The best way to be prepared is by completing a personal property inventory of what you own, including purchase dates, amount paid, and serial numbers. (See Part 2 for more information and a blank personal inventory form.) Your written inventory should be supported by photographs or a video of furniture, electronics, appliances, tools, clothing, and other personal and household items you own. Keep one copy in your file at home and a second copy, along with photographs or video, in your safe deposit box or with a relative or friend, in case the copy you have at home is destroyed by fire or other catastrophe. Consider sending an electronic copy of your inventory and photos to yourself via a web-based service (so you can access them even if your computer is lost or stolen or if your records are lost or destroyed). Housemates Living with housemates has pros and cons. Whatever advantages there may be to living alone, however, if you are like most students, the financial reality is that you will need to share the costs of living off-campus with housemates. Since everyone brings his/her own personality, lifestyle differences, budget, and expectations into a living situation, it is essential that housemates agree on how they will handle finances and chores, sharing food and other items, ground rules regarding guests, and other aspects related to shared living space. The best way to establish a comfortable living environment is with all housemates engaging in an open and honest discussion about their needs and expectations and, together, developing a housemate agreement. The discussion and agreement should be specific and comprehensive. To avoid unnecessary misunderstandings or conflict, the agreement should be worked out before, or as soon as, everyone moves in before problems arise. It should be in writing, and everyone should sign it. If someone plans to move in later, he/she should know what the rules are and be asked to sign the agreement before moving in. Copyright 2010 Linda LaMar. All rights reserved. Page 101

112 HOUSEMATE AGREEMENT: THINGS TO CONSIDER Money and Household Bills Chores Sharing Privacy and Quiet Times Guests and Parties Alcohol How will the rent payment be handled? Will each person pay the landlord directly? Will one person be responsible for paying the rent for all? If so, who? And when/how will that person collect from the other housemates? How will utility payments be managed? Who will pay the bills? How will other housemates pay their share? How will you keep track of extra charges made by individuals? How will you pay for groceries and household/cleaning supplies? Will you share food? If so, how will you decide what to buy and how much to spend? How will you divide the costs? What if one housemate doesn t have money for his/her share of rent, utilities, groceries, or other shared costs? Who is responsible for cleaning common areas (kitchen, living room, shared bathroom)? Will you rotate responsibilities? When/how frequently will cleaning be done? How clean is clean enough? Who will buy groceries, household items, and cleaning supplies? What other chores need to be agreed upon? What are the rules about food what s shared and what s not? Will you plan to eat any meals together? If so, how will you manage varying schedules? What household furnishings, clothes, personal items, and supplies are shared and what items are not? How will you decide what television shows to watch or what music to listen to? How will you decide how high to set the thermostat? Are some parts of the house off-limits to other housemates? Do you want to set times when the house should be quiet? How do you handle differing schedules and needs for study time? What is your agreement about overnight guests? How will you deal with houseguest-related problems? Who will be responsible for any damage done by guests? What are the house rules about parties? Will you have any house rules regarding consumption of alcohol? Page 102 Copyright 2010 Linda LaMar. All rights reserved.

113 Handling Conflicts Paying for Damages Financial Obligation if Housemate Moves Out How will you deal with issues that arise between housemates or when one housemate fails to respect house rules? What will you do if one housemate damages the apartment and the landlord refuses to return the damage deposit? What financial responsibility will a housemate have if he/she decides to move prior to the end of the lease period? How will the remaining housemates cover the added costs for rent and utilities if someone moves out during the lease period? Other Moving In Strange as it may seem, you need to think about moving out before you move in. When you move out, the landlord will withhold money from your security deposit to pay for the cost of repairing any damages. Unless you have documented damages that were present before you moved in, you may have to pay for repairs, even though you were not responsible. So, before you move in, walk through the house/apartment, and document all damages and any other problems you see. Use a checklist to be sure you don t forget important details. Be specific about any problems you identify. Take photos or video-tape damages so you have documentation. If you take photos, have two sets printed one for you and the other for the landlord. Date the back of each photo, in ink. If you use video, record the whole unit at one time, without pausing or stopping, and clearly document the date at the beginning and the end of the video. (One way you can do that is by showing the front page of a newspaper with the date clearly visible.) Ideally, you and your landlord should do the walk-through inspection together, but if the landlord can t be there, do it on your own. Keep notes as you go, with specific comments about items that need to be cleaned or repaired. Date and sign the completed checklist. Give your landlord a copy, along with a set of photographs or a video of existing damages, and ask the landlord to sign the checklist so you have documentation that he/she received a copy. Keep the original checklist and a set of photos or videotape in your safe deposit box. Besides protecting your security deposit, this documentation will also help you and the landlord agree on repairs that need to be made before you move in. Following is a checklist you can use to document the condition of the house/apartment before you move in and as you prepare to move out. Copyright 2010 Linda LaMar. All rights reserved. Page 103

114 Move-In/Move-Out Inspection Checklist Name of Tenant(s): Address: Date: Move-In Inspection Date: Move-Out Inspection Room/Area Cond.* Notes Cond.* Notes Outside Lighting Front Door/Lock Back Door/Lock Doorbell Other: Other: Living Room General Condition Fireplace Windows/Screens Window Coverings Outlets Flooring/Carpeting Walls/Ceiling Lighting Fixtures Cable Hookup Other: Other: Kitchen Cleanliness Refrigerator/Freezer Stove Vent Hood Dishwasher Sink/Faucets Garbage Disposal Cabinets Countertops Windows/Screens Window Coverings Outlets Floor Walls/Ceiling Lighting Fixtures Other: Other: *Condition Codes: S Satisfactory NC Needs Cleaning NA Not Applicable NR Needs Repair Page 104 Copyright 2010 Linda LaMar. All rights reserved.

115 Bedroom 1 General Condition Door/Lock Closets Windows/Screens Window Coverings Outlets Flooring/Carpeting Walls/Ceiling Lighting Fixtures Other: Bedroom 2 General Condition Door/Lock Closets Windows/Screens Window Coverings Outlets Flooring/Carpeting Walls/Ceiling Lighting Fixtures Other: Bedroom 3 General Condition Door/Lock Closets Windows/Screens Window Coverings Outlets Flooring/Carpeting Walls/Ceiling Lighting Fixtures Other: Bathroom 1 General Condition Door/Lock Sink/Faucets/Drains Vanity/Mirror Toilet Bowl and Seat Tub/Shower/Hardware Towel/Shower Rods Linen Closet Vent/Fan Windows/Screens Outlets Floor Walls/Ceiling Lighting Fixtures Other: Move-In Move-Out Copyright 2010 Linda LaMar. All rights reserved. Page 105

116 Bathroom 2 General Condition Door/Lock Sink/Faucets/Drains Vanity/Mirror Toilet Bowl and Seat Tub/Shower/Hardware Towel/Shower Rods Linen Closet Vent/Fan Windows/Screens Outlets Floor Walls/Ceiling Lighting Fixtures Other: General Water Pressure Water Temperature Heating System Air Conditioning Thermostat Hot Water Heater Smoke Detectors Sign of Water Leaks Keys Other: Other: Other: Other: Move-In Move-Out Notes: Move In Inspection: Move Out Inspection: Tenant (Signed) Date Tenant (Signed) Date Landlord (Signed) Date Landlord (Signed) Date Page 106 Copyright 2010 Linda LaMar. All rights reserved.

117 Paying the Rent The lease agreement will stipulate when rent payments are due. Always pay the rent on time. On time means the landlord has the rent on the date it is due. If you mail your payment, be sure to send it in time to arrive by the due date. If you don t pay your rent on time, you may be assessed late fees. But even worse, late rent payments will damage your credit far into the future. If something unavoidable happens and you can t pay the rent on time, call the landlord right away and tell him/her when you can pay. Plan to pay any late fees, as specified in your lease agreement. You should pay by check so that, if you get into a dispute with the landlord over payment, you have proof you paid. You may also need proof of payment to clear up your credit record. Keep copies of your cancelled checks and receipts for an indefinite period of time. Each tenant who signs the lease is responsible for the rent (and all the terms of the lease). Therefore, if you signed the lease, you are financially responsible if a housemate moves out or damages the rental. Safety Considerations Even if your apartment or house is located in an area with no history of crime, you should take care to protect yourself and your belongings. At a minimum: Keep doors and windows locked (even when you re home). Don t open the door unless you know who s there. Ask for company ID from anyone claiming to be from a utility or service company, even if they are wearing a uniform. Know where the smoke alarms and fire extinguishers are located. Be sure the smoke detectors in your house/apartment are in working order. Don t leave your keys outside your house/apartment or leave notes on your door or answering machine that you are away. If you lose your keys, tell the landlord and get the locks changed right away. Be aware of your surroundings. Where to Find What You Need When you are new to an area, you may need information regarding the location of grocery and other stores, medical services, where you can get your car serviced or repaired, and where to find other businesses and services. Copyright 2010 Linda LaMar. All rights reserved. Page 107

118 Sometimes, an office or student organization on-campus can provide this information. Other potential sources include the local Chamber of Commerce, your neighbors, and other students. You, the Landlord, and Getting Repairs It s always nice to have a cordial relationship with the people you deal with, but remember that your relationship with your landlord is about business not friendship. When you enter into a rental agreement, both you and your landlord have rights and responsibilities. Landlord/tenant laws vary from state to state. However, the basic responsibilities of both landlords and tenants are similar no matter where you live. As a tenant, besides paying the agreed upon rent each month and meeting the terms of the lease agreement, you are responsible for keeping your home clean and safe and not disturbing neighbors. You are responsible for damages caused by you, your housemates, or your guests. Your landlord is responsible for keeping your house or apartment and common areas in a safe and habitable condition. If something in your house or apartment needs to be repaired, you should call the landlord to request the repair. Always follow up your verbal request in writing. Your written request can be a simple note confirming your call and reminding the landlord about the needed repair. It should be dated and signed, and you should keep a copy. The landlord is responsible for making prompt repairs to any electrical, plumbing, sanitary, heating, ventilating, air conditioning, and other facilities and appliances supplied as a part of your rental agreement. In most areas, if the problem isn t an emergency, the landlord typically has 30 days after receiving your written request to make the repair. The landlord may enter your house or apartment to inspect it, make repairs, or show the rental property at reasonable times and in a reasonable manner. Generally, the landlord should be expected to give you at least 24 hours advance notice (unless it s an emergency) before entering your home, and enter only during reasonable hours, typically defined as normal business hours. Page 108 Copyright 2010 Linda LaMar. All rights reserved.

119 Moving Out As a renter, you need to pay attention to important details even when it comes to moving out. Like everything else, it s not over till it s over. As a part of the moving out process you must take the following steps: Notify the landlord Clean the house or apartment Document the condition of the unit when you move out Return the keys Get your refund Know what your lease says about when you are required to notify the landlord that you plan to move out at the end of your lease. Send the landlord written notice (within the specified timeframe) that you will be moving. Be sure your notice is dated and signed by all parties to the lease, and that each party has a copy for his/her files. Your notice should include the forwarding address to which the security deposit is to be sent. Unless your lease says otherwise, the landlord may deduct money from your security deposit to cover the cost of cleaning. You may be able to save a lot of money by thoroughly cleaning when you move out. Document the condition of your unit when you move out by completing the Move-Out Inspection Checklist and taking photos and/or a video of all parts of the unit. As you did when you moved in, date the photos or, if you make a video, record it without pausing or stopping. Document the date at the start and end of the video. If possible, do the final walk-though with the landlord, and ask the landlord to sign off on your checklist. Return the keys to your house or apartment, including keys for the mailbox, utility room, and any others you have been given. Assuming you didn t move out before the end of the lease period, that you gave timely notice of your intention to move, and that you thoroughly cleaned the unit, the landlord must either fully refund the security deposit or deliver an itemized statement of the cost of repairing any damages to your house or apartment. None of your security deposit may be withheld for conditions due to normal wear and tear. The refund must be sent within 30 days of the end of the lease period.... Copyright 2010 Linda LaMar. All rights reserved. Page 109

120 Should your car go to college? Having a car at college can be a great convenience. For some students, it may even be a necessity. Your own set of wheels can give you greater freedom to go where you want, and on your own time schedule. But having a car at college may not be necessary or worth the cost. At many campuses, it is not much more convenient than other options, and it can be very expensive. Before you decide to take your car to college, put your emotions aside and do your homework. Know what other options are available for getting around; weigh the pros and cons; and know how much you will have to budget for this convenience. Then make an informed decision about whether you should or should not take your car to college. Pros and Cons: Taking Your Car to College Reasons For: Reasons Against: Having your own car makes getting around off-campus more convenient. You can go where you want, when you want. If you live off-campus, you may need a car to go to and from school (or at least to and from a bus stop). If your family lives within driving distance, having a car will make it easier to go home on weekends and holidays. It is an expensive convenience gas, parking, insurance, maintenance, repairs, and maybe even monthly car payments. Others will rely on you to take them places (which costs you money and takes time). They may not offer to help pay for gas or other expenses. Your insurance rates may go up if you let others drive your car. You can expect to be put in the awkward spot of deciding who can borrow your car. You may feel pressure from your family and friends to go home on weekends, giving you less time to study and engage in campus social activities. Page 110 Copyright 2010 Linda LaMar. All rights reserved.

121 Do You Need to Have a Car at College? There are many points to consider. Some colleges and universities are located in areas in which there is little or no public transportation, and having a car is necessary. At many institutions, however, students have access to excellent (and low-cost) transportation alternatives including local bus systems, subways, and/or bicycle-friendly routes. Some campuses participate in the Zipcar (or similar) program, providing students who qualify with convenient, lowcost cars for rent by the hour. If you own a car, you may have just assumed you will need it at college. But before you decide, check other alternatives for getting to and from campus and the other places you will want to go. Why You Might Need a Car Considerations Possible Alternatives Go home on weekends and/or holidays Get to and from campus from your apartment Go shopping Medical and other appointments You ll need to keep your car in good repair if you plan to take any road trips. Besides the cost of maintenance and repairs, you will have to budget for gas, insurance, and parking. Parking on- and aroundcampus is limited and expensive. Lots of short trips are hard on your car. Do you really need your own car? How often do you have to go off-campus for personal appointments? Bus Other public transit Ride with friends Family Bus Other public transit Bicycle Bus or other public transit Zipcar Ride with friends Bus or other public transit Zipcar Taxi Even if you decide you want to have a car at college, institutional policy may not allow it. At some colleges and universities where space is at a premium, parking is extremely limited. For that reason, many colleges don t allow students to have cars on-campus. Others may not permit freshmen to have cars. Some offer parking only in remote sites or limit parking to students who live a specified distance from campus. So even if you can get a permit, the availability and location of parking may override the convenience of having a car. Copyright 2010 Linda LaMar. All rights reserved. Page 111

122 If taking your car to college is optional, do your homework before deciding. Be sure you are eligible for a parking permit and know how much it will cost. Check out where you are likely to be assigned a parking space so you can evaluate whether you will have easy access to your car when you want it. And be sure you know all the rules for parking on-campus. Citations are very expensive and will take money you have budgeted for other needs. Assuming you are allowed to have a car on campus and that convenient parking is available, having a car makes it easy to get where you want to go on the schedule that is most convenient for you. However, the cost of ownership, maintenance, and parking may be more than you can afford on a limited budget and more than it is worth for the amount of convenience it would provide. Ask yourself: Will you live on (or close to) campus? If so, what will you need your car for? If you plan to live off-campus, can you find an apartment with good access to public transportation? Is parking available? How convenient is it, and how much will it cost? What alternatives are available for getting around? Can you get where you need to go by riding your bike, taking a bus or other public transit; sharing expenses with a friend who has a car; renting a Zipcar (if available) or taking a taxi? How much would you need to budget for this convenience? Is it worth it? What Does It Cost to Take Your Car to College? Cost is a major factor in deciding whether to take your car to college. For many students, it is the deal-breaker. If you have a car, you will have to pay for: Purchase price or monthly loan installments Insurance Gas Parking Maintenance (routine and emergency) Repairs Annual registration/license tabs You can save a lot of money by not having a car at college. Page 112 Copyright 2010 Linda LaMar. All rights reserved.

123 Can You Afford to Take Your Car to College... And Is It Worth It? There s no question about it buying, maintaining, and operating a car is expensive. Only you can answer whether you can afford to take your car to college and if it is worth it. Review your spending plan. How much does it allow for transportation? Is the amount sufficient to make car payments if you don t already own a car? Can you cover insurance, parking, gas, maintenance, and repairs without jeopardizing other parts of your budget? Seriously reconsider your desire to have a car at college if it would require you to work more than half-time during the academic year to cover all your expenses including school costs, personal expenses, and the cost of buying and driving a car. Working more than half-time has a detrimental effect on academic success. Required work hours may conflict with your ability to enroll in the classes you need. Working too many hours may also impact your grades and slow your progress toward completion of your program. Similarly, if you need to borrow money to buy a car, think very carefully about the implications before you commit. The monthly payments could put a strain on your budget while you are also paying for school expenses. And, if you have to work extra hours to cover loan payments and other costs of operating a car, your academic success could be at risk. Depending on the terms of the loan, you may have to make payments for an extended period of time possibly long after you complete your degree or certificate. Once you leave school, any student loans you assume will become due, and you could be making payments on them and your car loan at the same time. If your education plans include further study, being in debt may make you ineligible for loans to pay for graduate or professional school. The marginal convenience of having a car at college may not be worth it. What If You Don t Already Own a Car and Determine That You Need One? Although many students don t need a car, some do. You may need a car if you attend a college or university that does not have good access to public transportation; live a distance from campus; have a job that requires a car; or if you have family responsibilities that require having your own transportation. If you need a car and don t already have one, there s a lot to consider: Should you lease or buy? If you decide to buy, should you purchase a new, or used, car? What features do you need in a car? How much can you afford each month to pay off a car loan? How do you shop for a car? How can you tell if a used car is in good shape? How do you negotiate for the best deal? How will you pay for the car? What kind of insurance do you need? What else do you need to know? Copyright 2010 Linda LaMar. All rights reserved. Page 113

124 Should You Lease Or Should You Buy? When you lease a car, you are actually renting it for a specified period of time. In many ways, leasing a car is like leasing an apartment. You sign an agreement with the owner (the leasing company) to pay a specified amount each month for a set period of time, and agree to other specific terms. At the end of the lease period, you do not own the car. You may be required to pay up-front costs such as a damage deposit, first month s payment, taxes, and fees. During the lease period, you will have the same expenses as if you were buying the car: monthly payment, ongoing maintenance costs, car insurance, and repairs not covered by the warranty. You may also be required to purchase a special insurance policy that covers the difference between the amount you owe on the lease and the value of the car if it is stolen or totaled in an accident. At the end of the lease period, you will have to pay for miles you drove in excess of your allowance and for more-than-normal wear. While the monthly payment for a lease may be less than for a car payment, the total cost of leasing is generally higher, and you don t own the car at the end of the lease. For further information comparing leasing and buying, see, Keys to Vehicle Leasing, prepared by the Federal Reserve Board, at Leasing is not the best option for most students. Therefore, if you need a car at college and do not already own one, you will have to buy a car. New or Used? Purchasing a car new or used is a major transaction that must be made with a clear head. Sure, it would be wonderful to drive the car of your dreams. But if you make a decision that is not based on what you need and can afford, your dream car might turn into a financial nightmare. Since buying and owning a car is a significant financial obligation, be sure to buy wisely and get the best possible deal. Chances are if you are living on a typical student s budget, a new car will cost more than you can afford especially when you factor in car insurance and other expenses such as gas, maintenance, repairs, licensing, insurance, etc. So let s assume you are going to buy a used car. There are several things you can do to ensure that you find a car that meets your needs, is mechanically sound, and is available for a fair price. You ll need to do some homework to determine what kind of car you need; what you can afford to pay; how to shop for a car and negotiate for a fair price, and how to check a car s history. You will need to know a little about financing options and basic information about car insurance. Page 114 Copyright 2010 Linda LaMar. All rights reserved.

125 What kind of car do you need? Start by knowing what features you need in a car. It s important to think this through before you look at cars so you can focus on those that meet your needs and to avoid choosing a car for added features that are nice to have, but that may not be necessary and add to the price. Begin by asking yourself the following questions: How will you use your car? Drive to and from campus? Haul things around? Drive to and from work? For sports and recreation? Go home once in a while? For road trips? Carry friends and family? Other? How you most often use your car will determine the size, type, and safety features you look for. What kinds of roads will you drive on? Freeway? Rural? Around town? Mountain roads? In the city? Will you drive at freeway speeds, do lots of stop- and start-driving, drive in congested situations or on snowy mountain roads? The types of roads, traffic patterns, and weather conditions in which you will drive are also important factors in determining the type of vehicle you need. Where will you park your car most of the time? Garage? Driveway? Street? Parking lot? Will your car be exposed to harsh weather conditions? If so, you may not want to get a car with a fancy paint job. Will it be vulnerable to theft or vandalism? You may want to forego custom hubcaps or other features that may be attractive to thieves. What features are essential? Manual or automatic transmission? CD player? Air conditioning? Reliability? Traction control? Safety rating? Airbags? Other? What s on your list of must haves things that, if not available, would cause you to walk away from a car? What features would you like to have, if possible? Copyright 2010 Linda LaMar. All rights reserved. Page 115

126 That s a lot to remember! Make a list of the features that are important to you and have it available as you make telephone calls and look at cars. A list will help you stay focused on the features that are most critical to you. Used Car Must Have and Want if Possible Features Features Details/Notes Must Have Would Like Asking price Type of vehicle (Sedan, SUV, pickup, etc.) Manufacturer (Ford, GM, Toyota, etc.) Style (2- or 4-door, hatchback, etc.) Model year range Manual or automatic transmission Maximum odometer reading Warranty Fuel economy (miles per gallon) Good reliability rating Good safety rating General condition and appearance Other Page 116 Copyright 2010 Linda LaMar. All rights reserved.

127 How Much Can You Afford to Pay? Finally, before you go shopping, know how much you can afford to pay for a car. That is important whether you will use your own money or finance the purchase with a loan. Will you pay cash? If so, how much can you spend without using money you will need for other upcoming expenses or for emergencies? If you plan to finance your car, how much can you afford to pay each month? Remember that the monthly payment on a loan is only a part of the amount you need to budget for a car. You will also have to pay for gas, maintenance, repairs, insurance, registration, and parking. Be sure the cost of buying and driving a car won t drain your budget of money you need for school and personal expenses. If you plan to borrow money to finance your car, it is a good idea to check with your bank or credit union before you look at cars. That will help you determine how much of your own money you will need for a down payment and how much you should borrow. It will give you a good comparison for loans offered by car dealers. And it will help you narrow your search to cars you can afford. Shopping for Cars, Checking Them Out, and Negotiating a Deal Once you have determined your must haves in a car, know how much you can afford to spend, and how you will finance your car, you are ready to start shopping. But where do you begin? You can find used cars advertised in newspaper ads, on message boards, on-line, and through friends, neighbors, and relatives. If you re looking for a good price, consider buying from a private party. Don t rule out buying from a dealership, where you may have several cars from which to choose. Some dealers offer warranties on used cars. In either case buying from a private party or from a dealership remember you are getting a used car, so it s buyer beware. When you have identified some cars that appear to meet your needs, call the sellers for details. That will help you narrow your list to those you are interested in and save a lot of time and running around. By making pre-visit calls you can get enough information to do online research on safety ratings and prices to further narrow your search. These preliminary steps are important, whether you buy from an individual or from a car dealer. Keep careful notes about each of the cars you re looking at, since it s easy to confuse the features of multiple vehicles. Use a worksheet to keep your notes organized. Complete as much of the worksheet as you can from your initial phone calls and research, and add information after you look at and test drive each car. Compare your notes to your must have list. Copyright 2010 Linda LaMar. All rights reserved. Page 117

128 Car Information Worksheet Make, Model, and Year Owner/Dealer Name: Phone Number: Vehicle Identification Number (VIN #) Mileage Asking Price: $ Current Market Value: $ Ownership History (# owners, lease or rental car, traded in, bought at auction) and maintenance records Accidents/Repairs (dates/damage) VIN Check Safety Rating Visual Check (dings, dents, rust, paint, tire tread, etc.) Driving Test (acceleration, braking, engine noises, transmission, suspension, alignment, heater and air conditioner) Interior (seat belts, door locks, horn, windshield wiper, lights, etc.) Independent Mechanical Inspection Notes Page 118 Copyright 2010 Linda LaMar. All rights reserved.

129 Checking Price and Safety Ratings Current Market Value. It is essential that you know the current market value of the car(s) you are looking at so you know how much you should pay. Several websites offer this information. The two most often suggested sites are Edmunds ( and the Kelley Blue Book ( At Edmunds.com, you can calculate the true market value of cars selling in your area by make, model, year, and options. The website reports what people in your area are paying for cars that meet the descriptions of those you are considering. It also offers other helpful information, including reviews of models and the cost to own a vehicle. The Kelley Blue Book website also provides excellent information about the price of cars. It gives the average retail price for a car with the characteristics you specify (rather than the average selling price.) There are other websites, as well, but these two will most likely provide you with the facts you need to know about prices before you shop or make an offer on a car. They will assist you in determining how much you should pay for a specific car. It will help you to have this information before you look at cars. If that is not possible, be sure to check these sites before you begin to negotiate price. Safety Ratings. Safety is also an important factor and one that may not be readily apparent when you look at a car. Both the National Highway Traffic Safety Administration ( and the Insurance Institute for Highway Safety ( provide information on the safety ratings for a wide variety of cars. Taking a Friend Armed with information about pricing and safety ratings, you are ready to go shopping. When you go, take a friend or a family member ideally one who knows about cars to help you objectively evaluate the merits of the vehicles you look at. Even if your friend or relative isn t a mechanic, having a second set of eyes and ears will help you assess the pros and cons of the cars you consider. You may also appreciate the support of a friend during the negotiation process if you decide to make an offer. Copyright 2010 Linda LaMar. All rights reserved. Page 119

130 Asking Questions If you ve done your homework, you ll be prepared to ask questions that let the owner or dealer know you are a serious buyer who will make an informed decision. You can t tell how a car has been treated based on how nice it looks or how many miles it has been driven. You should ask both private owners and car dealers several important questions, including the following: Private Owners Car Dealers What the car was used for? (Around town driving, distance commute, etc.) Was the car new or used when the current owner bought it? If it was used, how many prior owners? Where did the dealer get the car (trade-in, lease return, auction, etc.)? May you have the prior owner s name and contact information? How long has he/she owned the car? What is the car s history? Has the car been involved in any accidents? (If so, get details about damages.) Where was the car taken for service and maintenance? Can you see maintenance and repair records? May you have a copy of the dealer s inspection report? Does the car have a warranty and, if so, may you have a copy to read? Doing a Visual Check and Taking a Test Drive Before you get in the car, walk around it. Look at the body, under the hood, and under the car. If you re interested in the car after your questions and walk-around inspection, take it for a test drive. Don t turn on the stereo. Listen to how the car sounds when it runs. Notice how it accelerates, brakes, and handles. Then, when you return the car, check out the extra features that are on your must have or really want list. Have your friend keep notes on your worksheet throughout each step of your analysis. Doing a VIN Check and Getting a Mechanical Inspection If you find a car that appears to be what you are looking for and is in your price range, check to be sure it has a clear title, has no record of having been in a serious accident, and that it passes your mechanic s inspection. Page 120 Copyright 2010 Linda LaMar. All rights reserved.

131 To check the car s title and accident record, you will need to know the vehicle identification number (VIN). For a small fee, you can get an on-line report showing any title problems, the car s ownership history, and information about major accidents and service records. This is very important, because some potentially serious issues may not be visible on your walkaround or apparent on your test drive. You can get a VIN check on several websites. The Edmunds.com website recommends as one of the most comprehensive. Tell the owner/salesperson that you want to have your mechanic take a look at the car before you decide. Then, if the VIN report checks out okay, arrange to have your mechanic do an inspection. The small charge will be well worth it if it saves you from buying a car with mechanical or other problems. If you don t already have a mechanic, ask friends or relatives for referrals. Ask the mechanic what the inspection will cover, and how much it will cost. Get that information and the mechanic s report (including the estimated cost of any necessary repairs) in writing. Be sure you understand each needed repair, since that information is important in negotiating the final price with the car s owner/car dealer. For further information, see Facts for Consumers, Buying a Used Car, at the Federal Trade Commission s website at: Negotiating the Price and Terms Assuming you are satisfied with the results of your research and mechanical review and want to purchase the car, you are ready to negotiate the price and terms of the sale. Negotiating for a fair deal can be intimidating; however, the following tips can help you in this important step. Buying a Car: Tips for Negotiating Price and Terms Know what you need, what you want, and how much you can pay. Don t let the seller talk you into buying what you don t need or cannot afford. Be pleasant but businesslike. Do your homework before you begin to negotiate. Know how much you should expect to pay for the make, model, and condition of the car. Know its history and condition so you are sure you aren t buying someone else s problem. Don t succumb to pressure. You are the one who has to make the payments and who will own the car if you make a deal. Don t agree to anything until you are ready. Stay calm. Buying a car is a business transaction. Even if you want the car more than anything you ve ever wanted, don t show it, or the seller will know you ll be willing to pay more for it. Take your time. Don t cave in to pressure. Think about it overnight if you want. Copyright 2010 Linda LaMar. All rights reserved. Page 121

132 Don t talk about financing. Similarly, if you plan to trade in a car, keep that transaction separate from the purchase negotiations. When you are negotiating the purchase price of a car, financing and trade-in don t matter. The goal is to arrive at a price for the car that is agreeable to both you and the seller. Adding financing or trade-in to the negotiation will confuse the purchase price of the car you want to buy. You may end up with a less attractive deal. Keep the conversation focused on the price of the car not on how much you can pay each month. If you make a deal on the monthly payment, you won t know the sales price of the car and, therefore, if the price is right. Be sure any written agreement states that the purchase is subject to a clear title and, if you have not already completed this step, a satisfactory inspection by the mechanic of your choice. If you are buying from a dealership, don t sign an agreement or pay any money until the manager has accepted your offer. Look carefully at any charges added by the business office. Make sure everything is in order and that the final price is agreeable. Take as much time as you need even overnight to be sure you can afford the car, including monthly payments and the amount it will cost you each month for gas, maintenance and repairs, insurance, and parking. If the total cost doesn t fit in your budget, don t buy the car. Even at this point in the process you are not obligated to buy; you will be much better off if you find a car that fits your needs and your budget. Title Transfer and Registration If you have a car, you must have a title to prove that you are the owner. The process for getting the title transferred to your name varies from state to state. You can get information and the necessary forms from your state s Department of Motor Vehicles (or its equivalent). Most states require that you report the purchase price and the odometer reading at the time of purchase, and that you have a driver s license, proof of insurance, and proof of ownership. Most assess a fee for transferring title. Once you have the title, you must register your car with the appropriate agency (again, in most states, the Department of Motor Vehicles). Be sure to keep the original registration in a safe place in your car, and keep a copy in your files at home. Page 122 Copyright 2010 Linda LaMar. All rights reserved.

133 Financing a Car Banks, credit unions, and car dealers offer loans to finance the purchase of automobiles. Your eligibility for a loan will be based on your income and credit history. If you plan to borrow money to buy a car, check with your bank and/or credit union before you start shopping to see what financing programs are available, whether you qualify for a loan and, if so, how much you can borrow. This pre-approval process does not commit you to a loan, but it will let you know how much you can borrow from that bank or credit union and, therefore, the maximum price range of cars to consider. Even if you assume a loan to buy a car, you will need to pay for some of the price typically between 10 and 20 percent with cash. Be sure you have enough money set aside to cover the down payment and that spending that much won t put other important needs in jeopardy. Like any other loan, it will cost you to borrow the money. Three factors determine how much a loan will cost each month and over the repayment period: The amount you borrow (the principal) The interest rate, and The length (term) of repayment. The less you borrow, the lower the interest rate, and the shorter the repayment period, the less you will have to repay. So borrow as little as possible, look for the lowest interest rate, and opt for the shortest repayment period you can afford. When you find the car you want to buy and have negotiated the sales price, you may want to compare the financing package offered by the dealer to the terms you can get at your bank or credit union. Be certain you understand all the fine print; then go with the financing package that is best for you. Several websites, including are available to help you calculate monthly payments and total cost for loans of various amounts and terms. This site and others allow you to see the cost of financing with various interest rates and terms of repayment. As you know, if you borrow, be sure to make payments in full and on time. That will help you build a good credit rating so you can borrow money in the future when you need to. Copyright 2010 Linda LaMar. All rights reserved. Page 123

134 Insurance Automobile insurance is a significant, ongoing expense of car ownership. And, unfortunately for many students, it is more expensive for younger drivers. Several factors determine insurance rates, including the following: Some Factors That Determine Insurance Rates Type and amount of coverage Amount you must pay before you can claim insurance (your deductible) Make, model, and age of your car (its safety rating, cost of repairs, etc.) Gender (rates for young men are higher) Age (rates drop after age 25) Driving record (you ll likely pay more if you have tickets or accidents) For some companies, academic record (discounts for good students) Your credit score (an indication of your reliability) Insurance Types and Terminology Getting insurance isn t as simple as choosing an amount for total coverage. You will need to decide how much coverage you need for various types of automobile insurance. Types of Insurance Collision Comprehensive Medical Liability Uninsured/Underinsured Motorist Towing Helps pay for repairs or replacement for damage caused by a crash Helps pay for damage caused by non-crash incidents Helps pay medical bills that result from an accident Helps cover injury or property damage for which you are responsible Helps cover damage and personal injury in the event you re hit by a driver with no (or not enough) insurance Helps pay for towing your car, if necessary Be sure you understand what each type of insurance covers, its limits, and the amount of coverage you have. It is also very important to know the conditions of your policy and what is required in the event of an accident. Page 124 Copyright 2010 Linda LaMar. All rights reserved.

135 Ways You May Be Able to Save On Car Insurance Insurance rates vary, depending on the amount and types of coverage you have. Rates also vary among insurance companies and even within companies, depending on their rating policies. You can t change some of the factors that insurers will use to set your rate (like your age, for example). But several rating factors and choices are in your control. As with many other business transactions, it is essential that you do your homework and make informed decisions. Ways to Save on Car Insurance Good Record Before you own a car, you can establish a good credit record and credit score. People with a good credit score are perceived as better risks, and therefore often qualify for lower insurance rates. Some companies offer discounts for students with good grades, for a history with no tickets or accidents, or for people who don t drink alcohol or use tobacco. Package Plan You may be able to get a better deal if you can insure your car on your parents policy or carry your car and renter s insurance with the same company. Higher Deductible The more you agree to pay yourself if your car is damaged, the lower the insurance rate will be. The amount you pay for damages due to an accident is called your deductible. You pay it first. Your insurance will help pay only for the amount that exceeds your deductible. A higher deductible generally lowers the insurance rate; however, you must be sure you have enough money set aside to pay the deductible, if necessary. Lower Collision and/or Comprehensive If you have an older car or one that doesn t have much value, you can save money by not paying for collision and/or comprehensive insurance. Smart Consumerism Understand insurance terminology. Know what the different types of insurance cover, how much insurance you need, and how much you will have to pay before your insurance kicks in. Ask for advice from a knowledgeable person you trust about the types and amounts of coverage you should have. Shop Around Shop around and compare rates for the same coverage from several different reputable companies. Rates vary significantly. Ask what discounts are available and specifically ask for those for which you qualify. Keep notes. Copyright 2010 Linda LaMar. All rights reserved. Page 125

136 At some insurance companies clients work with a specific agent; at others, directly with the company (often by phone or on-line). Some companies provide quotes via the Internet. While this can be an efficient way to begin, always be sure the site is secure and use it for initial homework. Then follow up directly with agents or companies you want to consider. Ask family and friends who they use and what their experience has been. satisfaction is very important in selecting an insurance company and agent. Wise Choices Customer While price is important, don t base your selection of an insurer on price alone. Be sure you know you are getting the coverage you need and that the company is well-established and financially secure. You want to be sure they will still be in business if you need to file a claim. Automobile Records and Information If you own a car, keep your registration, documentation of automobile insurance, and a copy of your personal health insurance card in the car. It is also smart to carry a checklist of what to do if you are involved in an accident. (See Part 2 for details and blank forms.) Maintenance Keeping your car properly maintained will help avoid unnecessary and expensive repairs and may help prevent accidents. Periodically and always before you hit the road on a longer trip check the car s oil level, wiper fluid, filters, and tire pressure. Be sure you are outfitted for emergencies. If possible, keep a set of jumper cables in the car. Have a good spare tire and jack and know how to change a tire. Keep a flashlight and some flares or reflectors in the car in case you must make an emergency stop. So, should you take your car to college? As with many other things, the answer is, It depends. Is it worth the cost? Can you afford to buy and pay for the ongoing expenses of a car without having to give up other, more important, things? Is having your own car essential to get where you need to go? If your response is No, then you shouldn t take a car to college. If you already own a car, leave it home or sell it and use the profits to pay for college expenses. If it is Yes, do your homework, shop carefully, buy wisely, and take good care of your car. Page 126 Copyright 2010 Linda LaMar. All rights reserved.

137 Unless you need to enroll in classes, the summer months provide the opportunity to earn money, save for future expenses, and/or build your resume through work experience. While some students prefer to stay in the area in which they attend college, others return to their home towns, where they may be able to save money by living with their families and have access to local employment opportunities. Still others choose to find a job or internship in a completely different area. Start Your Summer Job Search Early Since many college students look for summer jobs, it pays to apply for jobs and interview before the end of spring term so you can start to work right away and before employers have hired other students. Save As Much As You Can You should save as much as possible from your summer job to help pay for upcoming academic year expenses. You will also need savings if you plan to participate in study abroad or other special programs, or if your future plans include graduate school. Put as much money as you can in your savings account for future needs. Take a Class Another way some students save money during the summer is by enrolling in on-line courses or programs at local community colleges. The cost for the credits may be less than for similar courses offered during the academic year. Be sure to check with your advisor or the registrar s office before you enroll to be sure the credits are approved and will apply to your degree or certificate. Complete an Internship Summer also provides an excellent opportunity to participate in an internship. Internships are an excellent way to get on-the-job experience and are an increasingly important part of building your resume. Check with the office on your campus that manages the internship program for opportunities and more information. Copyright 2010 Linda LaMar. All rights reserved. Page 127

138 If your chosen career requires further education, graduate or professional school may seem like a distant dream; however planning for it must begin long before you complete your undergraduate program. Even if your family is helping you pay for undergraduate studies, they may expect you to cover the cost of graduate or professional education on your own. Apart from the obvious academic preparation and application for admission to the schools and programs of your choice, you must also lay the groundwork for financing your continuing education. That includes researching the types of financial assistance that may be available, saving as much as you can, and applying for financial aid and scholarships. Financial Assistance for Graduate Study While financial assistance is available for graduate and professional study, the sources and types are somewhat different than aid for undergraduate programs. Most federal and state grants and many scholarship programs are limited to undergraduate students. However, students in graduate or professional programs may have access to other types of financial assistance including fellowships, teaching and research assistantships, specialized scholarships, and/or work-study and student loans. Some employers help cover the cost for their employees. Several programs are available to help repay qualified student loans in exchange for work or service. And graduate/professional students may qualify for a federal tax credit or income tax deductions. Since many students find it necessary to borrow a significant amount to finance graduate or professional school, it is important to borrow as little as possible as an undergraduate. It is also important to avoid credit card and other consumer debt, and to establish and maintain a good credit record. By managing your budget as an undergraduate and planning for your longer-range financial needs, you can reduce the amount you will need to borrow to attend graduate or professional school and ultimately, the amount you will be required to repay after you leave school. The types and amount of financial aid available to graduate and professional students vary substantially by discipline and by institution. Contact the financial aid office and the graduate or professional schools at the universities you are considering to inquire about available assistance, application requirements, and deadlines. Institutional websites are generally also a good source of information about financial aid availability and application procedures. Page 128 Copyright 2010 Linda LaMar. All rights reserved.

139 Offers of Financial Aid You cannot compare offers of financial assistance by looking only at the bottom line. Since tuition varies among institutions and programs, and living costs range significantly from one area to another, be sure to base comparisons on your best estimate of how much it will cost to pay for school and live in the area in which the university is located. Determine how much of your financial need is met by the offer of assistance. Also consider how much of the financial aid award is made up of loans and/or work, and how much is provided through grants or other free money. If the offer of assistance doesn t meet your full financial need, determine whether you could work and/or borrow more, if necessary. Outside Scholarships and Other Sources of Funding The financial aid office should be your first source of information and assistance. However, you should also research and apply for outside scholarships and investigate possible funding through professional and trade organizations affiliated with your program of study. If you are employed, ask your employer if tuition assistance is available. And, Finally, a Reminder Even though graduate or professional school may seem far in the future, you can (and should) prepare financially throughout your years as an undergraduate student. Stick with your spending plan Save as much as possible to help pay for graduate school Assume as little student and consumer debt as possible Research potential sources of support for graduate study By planning ahead and staying focused on your long-term goals, you may be able to reduce the amount you will need to borrow for graduate study. That, in turn, will give you greater flexibility in making career decisions and make your transition to life after college easier, since less of your income will be required for loan repayment. Copyright 2010 Linda LaMar. All rights reserved. Page 129

140 Remember, Being a good money manager includes... Deciding where to live while you are in college and managing all the aspects associated with living on your own; Deciding whether you should take a car to college; Using summer months to your best advantage; and Planning ahead for graduate or professional study. Page 130 Copyright 2010 Linda LaMar. All rights reserved.

141 Part 4 Moving On Financial Management After College Copyright 2010 Linda LaMar. All rights reserved. Page 131

142 This page is intentionally blank. Page 132 Copyright 2010 Linda LaMar. All rights reserved.

143 Chances are your goals will change as you begin life after college. This is a natural time to reconsider what you want in life in the short term, over the next few years, and in the future. Many of your goals will require money. Knowing what you want to achieve (such as saving money for a newer car, or setting aside a specific amount of money for retirement), and incorporating a plan for reaching your financial goals will help you stay on track. Clear goals and an action plan to achieve them will help you establish a budget and make financial decisions that support accomplishment of the things that matter most to you. If you do not have clear goals and a specific plan for achieving them, you will be much more likely to spend every penny you earn, live from payday to payday, incur debt you cannot repay, and never get ahead. What are your goals? What will you do to achieve them? Revisit these questions periodically to be sure your financial management strategy supports achievement of your goals. For more information on clarifying and setting goals, see Part 1. Your spending plan is another key part of your financial management strategy. If you are like most people, you won t have enough money to meet your needs and buy everything you want and you may find it challenging to achieve your goals. One thing is certain. You won t achieve your financial goals without a spending plan for meeting current needs and saving for what you want in the future. Copyright 2010 Linda LaMar. All rights reserved. Page 133

144 A spending plan (or, a budget) helps you: Keep track of how much money you have coming in; See where you spend it; Have a contingency plan for upcoming bills and expenses; Figure out where you can cut costs; and Save the money you need to achieve your financial goals. Your income, expenses, and goals will likely change after college. Therefore, you will need to update your budget. However, before you can put together your after college budget, you will need to know: How much disposable income you will have; How much it will cost to live in the area to which you relocate; and How much you will need to set aside for emergencies, savings, and retirement. Living Costs After College What to Expect At first glance, it may seem like you can live like a king (or a queen) after you graduate from college. After all, you will no longer have to pay for tuition or textbooks. And you ll have a full-time job that, hopefully, provides benefits and offers opportunity for advancement. You ll probably earn more money than ever before. But many of your expenses will be greater than you experienced as a student. You may want to rent an apartment by yourself. You will need furniture, other household items, a new wardrobe for work, and maybe even a newer car. If you assumed loans to help pay for college, you will have to make payments when you leave school. If you plan to buy a new car or a house some day, you ll need to save money for the required down payments. And, although it seems far in the future, you will need to begin saving for retirement. Salary and the Cost of Living A dollar is worth a dollar, right? So if your first job after college pays $45,000 you can enjoy the same standard of living just about anywhere, right? Wrong! The cost of living differs significantly in various parts of the country. As shown in the following table, a salary of $45,000 in one city buys much more (or less) than the same income elsewhere. Therefore, as you think about where you would like to work and live after you graduate, and as you establish your budget once you decide, you ll need to consider not only your income, but also the cost of living in that area. Page 134 Copyright 2010 Linda LaMar. All rights reserved.

145 Equivalent Income to Maintain Standard of Living Percent Increase/Decrease Compared to Raleigh, NC Raleigh, North Carolina $45,000 Austin, Texas $44,988 (-) 0.02 Denver, Colorado $50, Gainesville, Florida $48, Honolulu, Hawaii $80, Minneapolis, Minnesota $53, New York City (Manhattan) $107, St. Louis, Missouri $43,956 (-) 2.32 San Francisco, California $77, Seattle, Washington $55, Washington, DC $71, Data generated June 2012 using cost of living comparison calculator at: You can use the cost of living comparison calculator at the website noted above to compare living costs in cities throughout the United States. Back to the Basics Just because you may earn more money doesn t mean you no longer need to budget. Your income, expenses, and goals will be different once you leave school and begin a new career. You will have additional expenses and may find that your money doesn t go as far as you thought it would. A budget is perhaps even more important after college. This is the perfect time to update your spending plan to reflect your new circumstances and goals. As you know, a budget is essential to ensure that you: Can cover your living expenses and pay your bills when they are due; Are prepared for periodic bills, major expenses, inevitable emergencies and unanticipated costs; and Are preparing for your long-term financial goals and well-being. Income. Chances are when you think about your income, the figure that comes to mind is your gross salary the amount you earn before withdrawals are made for taxes, insurance, your company s retirement plan, or other payroll deductions. But when you plan your budget, be sure to base it on net pay the amount of income you will actually have available. If you are paid weekly or bi-weekly, convert your earnings to a monthly amount. If you are paid based on the number of hours you work or by commission, estimate your average monthly take-home pay. Copyright 2010 Linda LaMar. All rights reserved. Page 135

146 Expenses. It may be difficult to estimate your expenses when you first leave college. Until you have a clear picture of your expenses, estimate them as closely as possible and then track actual expenditures for a month or longer. Balancing Acts To work, your budget must include realistic and accurate allowances for basic living expenses; debt repayment; and the amount you need to save for larger periodic bills, emergencies, future goals, and retirement. Even if you don t have much discretionary money, your budget should also include a reasonable amount for entertainment and the things you enjoy. Obviously, if your budgeted expenses and planned savings exceed your income, you will need to adjust your spending plan. You can balance your budget by reducing your expenses, increasing your income, or some combination of both. Balancing Act I: Reduce your expenses Reexamine each budget category. Be sure the amount budgeted reflects your priorities, is reasonable based on your income, and will help you reach your goals. Think carefully about whether budgeted amounts are for needs or for wants. Reduce or eliminate expenses for things you can live without until you have more money. If your budget looks appropriate, but you run out of money before the end of the month, keep track of your actual expenditures for at least 30 days. Use a spending log (see Part 1) to record everything you spend money for. At the end of the month you will be able to see exactly where your money went and determine if spending leaks are draining your budget. Commit to reducing (or eliminating) spending leaks and cutting back on lower priority expenditures. Balancing Act II: Increase your income If you are already working full time, this may be difficult. However, you may be able to add hours to your regular work schedule, pick up an extra part-time job, or do tailor-made work that takes advantage of your special skills and expertise. Balancing Act III: Reduce your expenses and increase your income You may find it necessary to cut expenses and increase your income to get your budget and expenditures in line. For more information and forms related to goal setting, tracking expenses, and establishing a budget, see Part 1. Use the worksheet on the following page (or develop your own) to establish your after college spending plan. Page 136 Copyright 2010 Linda LaMar. All rights reserved.

147 Spending Plan Date Projected Monthly Income Your monthly take-home pay $ Spouse/Partner s monthly take-home pay $ Other income $ Total Projected Monthly Income $ Estimated Monthly Expenses Debt Repayment Student loan payments (yours and spouse/partner s) $ Credit card payments $ Other debt $ Housing Mortgage payment/rent $ Other (homeowners association fee, interior and exterior maintenance) $ Furniture and furnishings $ Medical (doctor, dentist, drugs/prescriptions, glasses/contacts) $ Personal Food (groceries, order in/dining out) $ Clothes (new clothes, laundry, dry cleaning) $ Hair styling, toiletries, etc. $ Recreation, entertainment, hobbies, vacations, pet care, gifts, etc. $ Computer (hardware, software, supplies) $ Newspapers, magazines, books $ Donations/charitable contributions $ Savings/Investments Periodic bills (personal, auto, household insurance, car repair and licensing, taxes, etc.) $ Emergency fund $ Specific goals $ Retirement $ Transportation Car (monthly payment, gas, parking, maintenance) $ Other transportation (taxi/bus/subway) $ Utilities (electricity, gas, water, sewer, garbage, phone/cell phone, cable, Internet) $ Other $ Other $ Other $ Total Estimated Monthly Expenses $ Total Projected Monthly Income $ Total Estimated Monthly Expenses (-) $ Difference $ Copyright 2010 Linda LaMar. All rights reserved. Page 137

148 Remember, being a good money manager doesn t mean not spending money or not having fun. It means being able to distinguish between needs and wants and being smart about what you spend money for. It requires that you have clear goals and that they be built into your spending plan. Ways to Keep Costs Down More Tips When you were in college, you discovered ways to save on everything from books and transportation, to shopping, entertainment, and many other items. Many of the same or similar strategies will help you spend less (and therefore keep more) of your money after you leave college. For tips on ways to save money, revisit Money Saving Tips for Students, in Part 1, and use any that apply to living on your own. Consider the following additional suggestions for ways to keep more of your hard-earned money for the things you need and want. Groceries If you shop at grocery stores that have preferred customer programs, register for them so you will get sale prices. Plan your menu around weekly specials. Use vendor and store coupons. You can find coupons in newspapers and on-line at several sites. Buy generic or store brands. Make a list and stick to it. Don t shop when you re hungry. Look high and low: higher priced items are usually at eye level. Around the House Get a couple good cookbooks and learn to prepare meals from scratch. You will find many good-tasting, easy-to-prepare recipes that don t require you to be a gourmet cook. Packaged and prepared foods are much more expensive and, generally, not as healthy. Set your thermostat low in the winter (68 degrees when you re home and lower at night or when you are away from home). Set it high in the summer so the air conditioner doesn t run more than necessary. Turn lights off when you aren t using them or when you leave a room. Eating Out Take your lunch to work. It will free up time for a walk or errands, and save a lot of money. Use coupons. Consider purchasing coupon books that contain halfoff offers or other discounts for local restaurants and businesses. Check on-line for restaurant discounts and coupons. Consider meeting friends for lunch, rather than dinner. Often, lunch prices are significantly lower. Page 138 Copyright 2010 Linda LaMar. All rights reserved.

149 Check on-line to see if menus are posted for the restaurant(s) you are considering. That way, you can be sure prices are within your budget before you finalize your plans. Agree ahead of time with friends to pay separately, rather than dividing the bill equally. That gives you much more control over the amount you spend. Know how much you have budgeted for eating out, and stick to your budget. Entertainment Take advantage of special deals offered by local theaters. Check out places you can rent videos at discounted rates, or borrow videos from your public library. Rather than going to the theater, rent a video and invite friends for a movie night. Use the local public library to check out books, rather than buying them. If the library is convenient, you may also want to read newspapers and magazines there, as well. You ll have more variety and save money at the same time. Quick Fixes Even if you re short on money, avoid quick fixes. Payday loans and rentto-own stores are two alternatives that may seem like good options; however they are very expensive. Payday loans are small, short-term, high-interest loans used to get a cash advance between paydays. They are available at many check cashing stores. To get a loan, the customer writes a post-dated personal check for the amount of cash he or she needs, plus a fee. The store gives the customer the money (less the fee) and holds the check until the agreed upon date. If the customer doesn t have the money to repay the loan by the deadline, he or she can give the payday lender another post-dated check covering the original loan plus another fee. Payday loans may sound like easy money, especially if you get in a jam, but the fees are very high and you can get into a cycle that you cannot easily get out of. If you have no other options and decide to get a payday loan, be sure to deal with a reputable lender and know exactly how much you will be charged for interest (the annual percentage rate, or APR) and any other fees. Comparison shop for the best terms. Borrow as little as possible, and pay the loan in full when it is due. Also, take a serious look at your budget to see how you can avoid using this very expensive alternative in the future. Rent-to-own stores allow customers to rent furniture and appliances, rather than buying them up front. A portion of each month s payment is applied to the purchase price of the item(s) rented. This may sound like a great way to furnish a house all at once, but it is an expensive option. By the end of the rental agreement, you will have paid much more than it would have cost to purchase the items outright. Before you decide to rent-to-own, go shopping and do the math. Consider buying second hand, if possible, or simply wait and buy items when you have enough money. Copyright 2010 Linda LaMar. All rights reserved. Page 139

150 Everyone takes salary into account when considering a new job. But there s another aspect of the compensation package that you should also consider the employee benefits package. It can be worth one-third or more of an employee s total compensation and, therefore, have a major impact on your budget. Although the value of benefits offered by an employer doesn t show up on your monthly budget as income, benefits are an important resource. They can help you save for retirement, provide tax breaks, save out-of-pocket costs for insurance or education, offer access to professional services, and more. Some benefits are paid in full by the employer; others are offered to employees at discounted rates. Yet other benefits reduce the amount of taxes the employee must pay. To the extent you need benefits covered by your employer, they will save you money. In other words, employer-sponsored benefits contribute to your bottom line. They reduce costs that you would otherwise have to cover in your monthly budget. With the exception of certain benefits required by law (for example, the employer s match for Social Security and Medicare, unemployment insurance, and workers compensation insurance), employers are free to decide what, if any, benefits they will offer. Therefore, the types and value of benefits provided by employers vary significantly. Employers offer benefits to employees for various reasons. Typically, they use benefit packages to attract and retain good employees. They may offer benefits to keep employees healthy, improve morale, as an incentive to increase productivity, or to help the company meet its income goals. The most common types of employee benefits include the following: Health Insurance. Health care coverage is the most commonly-offered and most-sought-after employee benefit, due to the high costs of health care and private insurance. Many employers participate in group plans that help reduce the cost of coverage. Some employers provide access to a single plan; others offer a range of plans from which employees may choose. In addition to medical care, some plans cover prescription, vision, and/or dental coverage. Plans have different features and cost structures. Some require participants to use certain medical facilities and doctors, while others offer a choice of providers. Most require the employee to pay a portion of the premium each month, a specified amount each year before the insurance will begin to pay (called a deductible ), and a pre-set dollar amount or percentage of the charge for each service (called a co-pay ). If your employer offers a choice of plans, make your selection not only on cost, but also on the features you need. Choose your plan carefully, since employees usually may change to a different plan only once each year, during an open enrollment period. Page 140 Copyright 2010 Linda LaMar. All rights reserved.

151 Paid and Unpaid Leave. An employer may offer paid or unpaid days off for certain holidays, vacation days, sick leave, and/or personal days. An employee may also be eligible for leave (typically without pay) when needed to care for a newborn child, to provide care for a seriously ill family member, or other reasons specified by the employer. Retirement Plans. Many employers sponsor a retirement savings plan for their employees. Most popular are defined contribution plans in which the employee contributes a fixed amount to his or her individual retirement account, up to the limits set by federal law and the employer. Many employers match a fixed percentage of the employee s contribution. Most plans allow employees to choose how they will allocate their funds among types of investments (stock and/or bond mutual funds; money market funds, etc.). When the employee retires, he or she draws on the balance in the account, plus or minus investment gains or losses. The most common defined contribution plans include: 401(k) plans: For employees of public or private for-profit companies; 403(b) plans: For employees of tax-exempt or non-profit organizations; 457 plans: For employees of state and local governments, and some local school and state university systems); and Thrift Savings plans: For federal civilian and uniformed services employees. While the federal government establishes general rules for these programs, details vary considerably among employers. Be sure you understand the plan offered by your employer and how it works. Other retirement savings options offered by employers may include IRA or Roth IRA plans, Savings Incentive Match Plans for Employees (most often referred to as SIMPLE plans) and profit sharing or bonus plans. Less common are defined benefit plans, which were once popular. Defined benefit plans assure the employee of a pre-set amount of money for retirement, for the life of the employee. The amount is typically determined by the individual s salary and length of service. Life, Long-term, and Disability Insurance. Some employers offer programs in which employees can opt for a fixed amount of life, long term care, or disability insurance. Flexible Spending Accounts. Flexible Spending Accounts allow employees to have a prescribed amount of money withheld from their income to help pay for eligible medical and/or dependent care expenses. Copyright 2010 Linda LaMar. All rights reserved. Page 141

152 The amount set aside for flexible spending accounts is deducted from the employee s pay before federal and state income taxes and Social Security are withheld, thereby reducing the amount of income on which taxes are paid. This benefit allows an employee to cover costs he or she would have paid for anyway and save on taxes at the same time. However, funds set aside in Flexible Spending Accounts may be claimed only on a reimbursement basis, and only if the expense is not otherwise covered. They must be used during the calendar year in which they were contributed. Be sure you understand what is and what is not covered and possible implications of this benefit before you sign up. Stock Options. Some employers allow employees to purchase stocks at a pre-set price. The employee may sell the stock after a specified waiting period for a higher price. Other Benefits. Employers may offer a wide range of other benefits to employees including, but not limited to, the following: Education benefits Costs for relocation to the employer s place of business Homeowner/renter s insurance programs Automobile insurance Child care benefits Legal assistance programs Adoption assistance Flexible work arrangements Public transit passes and/or paid parking Wellness programs Normally, employee benefits are not considered part of the employee s gross compensation and, therefore, are tax-free. Many benefits provide tax advantages for employers, as well, encouraging their participation. When you start a new job, do the homework required to understand each part of the benefits package offered by the employer and complete the required paperwork to sign up for benefits that are appropriate to you. You need to understand the rules for making changes and actively manage your benefits package, making adjustments as necessary to reflect changes in your circumstances. Page 142 Copyright 2010 Linda LaMar. All rights reserved.

153 Remember those student loans? The ones you didn t have to make payments on while you were enrolled in college? A short time after you graduate, leave school, or enroll less than half-time in an eligible program, you will have to begin to repay them. Repayment may not always be easy. But understanding your options will help you make the best decisions possible as you manage this important responsibility. Repayment provisions for loan programs vary. It is possible that you will need to repay multiple loans with differing repayment requirements simultaneously. Hopefully, you kept good records for each loan you assumed in college, including: The date you borrowed The type of loan The interest rate The loan amount The name of the lender The name and contact information for the loan s servicer The grace period The U.S. Department of Education provides comprehensive information about federal student loan repayment. Most of the information in the following summary is from the Department s website and its publication, Funding Your Education: The Guide to Federal Student Aid, , also available on-line. For more information, see and You can double check your federal Title IV loan records with those maintained by the U.S. Department of Education s National Student Loan Data System (NSLDS), at If you provide the required personal identification, the NSLDS Student Access website will display information about your federal Title IV student loan amounts, outstanding balances, loan status, and disbursements. The NSLDS Student Access website does not include nursing or medical loans, private loans, or PLUS loans assumed by your parent(s). Therefore, it is best used in conjunction with your own records. Since most students who borrow assume federal Title IV loans, the following information focuses on those programs. For more detailed information, refer to the websites noted above. If you have loans from other sources, be sure you understand and fulfill your repayment obligations for them, as well. Copyright 2010 Linda LaMar. All rights reserved. Page 143

154 Federal Student Loan Repayment: A Summary Grace Period The grace period is the length of time before you must begin repayment of your federal student loan(s) after you graduate, leave school, or drop below half-time enrollment. The grace period is different for Federal Perkins Loans and Federal Stafford Loans. While you are not required to make payments during the grace period, doing so will save you money in the long run, since the full amount you pay during the grace period will be applied to your balance, reducing the amount of interest due. For more information, visit Repayment Period The repayment period is the length of time you have to repay your loans. It varies, depending on the types of loan(s) you assumed and the repayment plan you select. Payments The amount of your payments will depend on the size of your debt, the length of your repayment period, and the repayment plan you choose. Depending on the type(s) of loans you assumed, you may make payments to the school you attended and/or a loan servicer. Repayment Options You will receive information about repayment options for federal student loans before you leave school. Information is also available online, at OfRepay.jsp. In addition to a standard repayment plan that features fixed payments over a specified period of time, repayment options may include plans in which: Payments start smaller and increase approximately every two years; Payments are made over an extended period of time; or Monthly payments are based on annual income. The website noted above describes payment options in detail and provides calculators so you can estimate your payments under each available option. You may choose the repayment plan that best fits your circumstances, as long as you meet eligibility criteria. If you do not select another option, you will automatically be placed on a standard repayment plan. You may change plans later, if you choose. Consolidating Your Loans Consolidation allows you to combine (consolidate) multiple federal student loans into one loan and, as a result, make a single payment each month, rather than separate payments for multiple loans. Page 144 Copyright 2010 Linda LaMar. All rights reserved.

155 With a consolidation loan: Your monthly payment may be lower than for multiple loans; Your repayment period may be extended; and You can lock in a fixed interest rate. Although consolidation has benefits, there may be disadvantages, as well. For example, it may substantially increase the total cost of repaying your loans (because you may have a longer time to repay and will therefore pay more interest). Talk to your loan servicer before you consolidate to be sure it is in your best interest to do so. For more information, see: Tax Incentives for Loan Repayment A tax deduction is available for student loan interest for certain borrowers. The Internal Revenue Service s Publication 970, Tax Benefits for Education, explains what loans are eligible, who can claim the deduction, and how much can be claimed. You can get more information at or by calling the IRS at Postponing Repayment Under specific circumstances, you may postpone repayment of your federal student loans. Deferment is a period of time during which no payments are required. To qualify, you must meet specific requirements. You must apply and be approved for a deferment. Until your application is accepted, you must continue to make payments. You are not eligible for a deferment if your loan is in default. Forbearance permits you to temporarily stop making payments on your loan, temporarily make smaller payments, or extend the time for making payments due to financial hardship. You must apply for forbearance. If granted, it is for a limited period of time. For more information about postponing repayment, see: Loan Discharge or Forgiveness Under rare and specific circumstances, it is possible to have your federal student loan discharged (canceled) or forgiven. A discharge or cancellation releases you from the obligation to repay all or part your loan. Discharge refers to the cancellation of your loan even if it is in default due to a school closure, false certification, your death, or total and permanent disability. Forgiveness is based on performance of certain types of public service. When a loan is forgiven, portions of the debt are erased. For more information about loan cancellation and forgiveness, visit and Copyright 2010 Linda LaMar. All rights reserved. Page 145

156 Defaulting on Your Loan The consequences of not repaying your student loans as agreed are very serious. If, for any reason, you re having trouble making your payment(s) in full and on time, you should immediately contact the lender and/or loan servicer to see if you may change payment plans or if you qualify for deferment or forbearance. If you default before contacting the lender, you may become ineligible for deferment or forbearance. Your loan is delinquent if your monthly payment is not received by the due date. Late fees may be added, and your delinquency will be reported to one or more of the national consumer reporting agencies (credit bureaus). If your loan is delinquent, contact the lender and/or loan servicing agency immediately to learn how to regain current status. If you fail to make payments on a loan according to the terms agreed to when you signed the promissory note, the loan is in default. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe. The consequences of defaulting on student loans are severe: National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house; You will be ineligible for additional federal student aid if you decide to return to school; Loan payments can be deducted from your paycheck; State and federal income tax refunds can be withheld and applied toward the amount you owe; You will have to pay late fees and collection costs on top of what you already owe; You can be sued. If you are in danger of default, don t ignore the problem. Talk to your loan servicers(s). In many cases, default can be avoided by submitting a request for a deferment, forbearance, discharge, or cancellation and by providing the required documentation. If you borrowed to help finance your college education: Include monthly payments in your budget as a fixed expense; Mail payments early to ensure they are received by the due date; Stay in touch with your lenders. Notify them immediately of a change in address or telephone number; and If you re having trouble repaying your loans, talk to your loan servicers(s) before you stop making payments. They can explain your options and, in many cases, help you find a solution. Page 146 Copyright 2010 Linda LaMar. All rights reserved.

157 People borrow money for many reasons: to buy a car, a house, or furniture; to pay for college; to go on vacation; to buy clothes; to pay the dentist and just about everything else. Some debt is for major purchases, such as a house or a car. But often, debt is accumulated through the use of credit cards or revolving charge cards for day-to-day needs and for items that will have no value by the time the last payment is made. When you get out of college, it will probably be tempting to want many of the things you couldn t afford on a student budget. You may wish to live in a larger apartment; you might need a car, furniture, household furnishings, and clothes for your new job. You may want many of the things that others, who have been working for a longer period of time, have. But remember the old saying, Rome wasn t built in a day. It s always better to live within your financial means than to use credit cards and other loans to finance a lifestyle you cannot afford. You ll probably be surprised how much it costs to cover your basic expenses. Even with a full-time job, you won t have enough money to buy the things you want all at once. Don t be lured into using credit to buy things you cannot afford. You can borrow for all kinds of things. The first step in deciding whether it might make sense to borrow for something is to determine whether it is an asset or a liability. Asset or Liability? Asset Liability Something that will appreciate in value or increase your income. Examples: A house you can sell for more than it cost, a student loan for education that will increase your employability and/or income. Something that does not improve your net worth or add income; or something that will depreciate in value, having little or no worth by the time it is paid for. Examples: A new car that depreciates quickly, clothes, incidental expenses charged to your credit card. In some circumstances, it may make sense to borrow for something that is an asset. But rarely does it make sense to borrow for something that is a liability. Copyright 2010 Linda LaMar. All rights reserved. Page 147

158 Even if something might normally be considered an asset, it is a liability if you can t afford to make the payments, as agreed, from your regular monthly budget. Failure to repay a loan on time will damage your credit for years to come. Likewise, if making payments on a loan prevents you from meeting current needs or achieving your goals, the purchase is a liability. The Credit Card Trap Remember, a credit card is basically a license for a loan, up to a pre-set amount. Every time you use a credit card, you are borrowing money. As with other loans, you pay for the privilege of using it. Using credit/charge cards to pay for expenses in excess of your monthly budget throws you into a money trap. You will have to pay for items charged in a previous month with money you had planned to use for current needs. If you then use credit or charge cards for current needs because you re short on cash, you ll be in the same position the following month, when you have another credit card bill to pay for past purchases. It s a vicious circle and one from which it is very hard to escape. It s even worse if you can t pay your bill in full by the due date, because interest and penalty charges will be added to the amount you owe. While credit cards allow you to pay less than the full amount by making a minimum payment, doing so will cost a lot of money. Before you use a credit/charge card, determine whether you can afford to pay the bill in full and on time, without digging into your budget for current needs. For more information about credit cards, see Part 1. How Much Is Too Much? Not all debt is bad if you borrow for appropriate things; if the added interest is worth the cost; and if you don t borrow more than you can comfortably repay. Plan your budget carefully and borrow only if you know you can afford the payments after you cover living expenses, savings for emergencies, future goals, retirement, and other monthly obligations. As a general rule, monthly payments for student loans, credit and revolving charge cards, and other personal debt should total no more than 5 10 percent of your monthly budget. The amount you spend to repay personal debt, together with a mortgage payment and/or a car loan or other major purchase should not interfere with your ability to meet other needs. Borrowing more than you can repay is stressful and it is expensive. If you can t pay the amount you owe, you ll have to repay not only the amount you borrowed plus interest, but also late charges and additional fees. If your debt is sent to a collection agency, you will have to pay expensive collection costs. Some items you purchase on credit can be repossessed if you don t pay as agreed. Page 148 Copyright 2010 Linda LaMar. All rights reserved.

159 As if that weren t bad enough, your credit record will be damaged if you don t pay on time or if you miss a payment. A poor credit record lasts for many years. It will directly affect your ability to borrow again in the future, and the amount you will be charged for credit. A poor credit record may prevent you from renting the house or apartment you want; it can make you ineligible for a mortgage to buy a house; it will increase the amount you will be charged for insurance; and it may even keep you from getting a job. The best way to avoid problems with debt is to live within your budget, saving for what you want to buy, borrowing as little as possible, and only for things that will appreciate in value. If You Get In Over Your Head As with many other difficult circumstances, prevention is the best medicine. You can get in over your head before you know it. Watch for warning signs: You run out of money before your next paycheck and use your credit card or a line of credit to buy food and other necessities. You seem to have emergencies every month and use credit to tide you over. You can t pay the full amount due on your credit card each month, and may even have a hard time making the minimum payment. You can t resist impulse purchases and charge more than you can pay when the bill is due. Although you try to limit credit card use, the balance keeps climbing. You can get into debt that exceeds your capacity to repay much more quickly than you can get out of it. Before you get in over your head, you should tackle the problem immediately because if you don t, it will continue to get worse and you will suffer the consequences for many years in the future. If you get over your head in debt, you can gradually pay off your loans and become debt-free by taking the following steps. It won t be easy, and it will take time. As you work your way out, do not assume more debt. Copyright 2010 Linda LaMar. All rights reserved. Page 149

160 Steps to Get Out of Debt 1. Review your budget critically. If paying off debt is a priority, what discretionary items can you survive without? Cut out everything you don t need right now. Be realistic about what is essential and what you can live without to reach your debt-free goal. 2. Be sure you have an emergency fund. Many experts recommend that you have from three to six months income in a savings account so that when (not if) emergencies arise or if your income is reduced, you won t have to use credit to cover expenses. Remember, you are going through this exercise to get out of debt and you can t do that if you have to borrow more to cover unanticipated expenses. 3. If possible, work extra hours or find a way to earn more money for debt repayment. 4. Identify the amount you can spend for debt reduction each month. 5. List each of your debts: Who you owe; what each debt is for; how much you owe; the interest rate; and the minimum monthly payment. Creditor Item(s) Credit Card 1 Credit Card 2 Credit Card 3 Auto Loan Other Loan Balance Due $ $ $ $ $ Interest Rate % % % % % Minimum Payment $ $ $ $ $ 6. Decide the order in which you will pay off your debts. Two ways are often recommended: Lowest Balance First. The advantage of this approach is that it helps you see the fastest progress in paying off debt, which will encourage you to stick with your plan. Highest Interest First. This approach results in the lowest total interest paid by the time your debt is eliminated. However, it may take longer before you can pay off the first loan and see the results of your effort. Do the math on both approaches and then decide which is better for you. 7. Continue to make the minimum payment on each debt every month. 8. Determine how much more than the minimum you can pay on the debt you want to pay off first. Pay that additional amount each month until the debt is paid. 9. When the first debt is paid, add the amount you were paying toward it to the minimum amount you were already paying on the second debt. When the second debt is paid in full, apply the amount you were paying for it plus the minimum you were already paying to the third debt, until it is paid in full. Continue until the final debt is paid. By following these steps, you will eliminate your debt. Page 150 Copyright 2010 Linda LaMar. All rights reserved.

161 Remember... The reason you got into debt in the first place was because you spent more than you had. Revisit your budget often and stay on track with your money management plan. Borrow only the amount you know you can afford to repay, and only for big-ticket items (like a house). Borrow only for things that will appreciate in value or increase your income. And then, know your budget and borrow accordingly. Except for specific uses (such as on-line purchases or travel reservations) seriously consider spending on a cash only basis. Doing so will help you stay out of credit trouble in the future. If you decide to use a credit card, never charge more than you can pay in full when the bill is due, without jeopardizing other budget needs. Protecting Your Credit When you apply for a loan or other type of credit, the lender will want to know how likely you are to repay the money on time. In deciding whether to extend a loan (or credit) and what interest rate to charge, the lender will review your credit record and, in some cases, will also want to know your credit score. (For more information about your credit report and credit score, see Part 2.) There are several ways to build and maintain a good credit record, including the following: Steps to Good Credit Pay your bills on time If you have missed payments, get current and stay current Open a checking account and don t bounce checks Open a savings account and make regular deposits If you use a credit card, keep balances low and make at least the minimum monthly payment by the deadline Don t apply for more credit than you need Cancel unused/unneeded credit cards Don t borrow more than you can comfortably repay Avoid frequent job changes Check your credit reports every year Copyright 2010 Linda LaMar. All rights reserved. Page 151

162 A good credit record is earned by consistently paying your debts on time. It can take from six months to two years of on-time payments and responsible financial management to build the kind of credit history most lenders consider reliable. Unfortunately, however, you can lose a good credit record almost immediately if you don t pay your bills on time. Once your credit record is damaged, it takes a long time to reestablish it. If you cannot make a payment when it is due, you should contact the creditor immediately. Most will work with you to find a solution, especially if you have had a good record in the past. There are two things you should not do if you cannot make a payment when it is due: Ignore the bill until you have more money or until it is sent to a collection agency; Pay a company that claims it can get a bad credit history cleaned up faster, or that offers to give you a debt consolidation loan (often without a credit check). Most charge high fees or interest rates for unnecessary services. Take care to develop and maintain an excellent credit record since it reflects on your ability to manage money and will influence how creditors, landlords, prospective employers, and others view your ability to assume responsibility. When you graduate and get a full-time job, you will likely have much more money than when you were in college. You will probably also be surprised at how much it costs to pay your bills and buy food and other necessities. It may seem impossible to save. But saving money even if it s only a small amount each month is essential. Saving is an important part of your budget and money management strategy. Page 152 Copyright 2010 Linda LaMar. All rights reserved.

163 Why, How, When, and How Much Should You Save? Why Save? You need to save money for many different reasons: To pay for periodic bills and major purchases; To cover emergencies and unanticipated expenses; So you can pay your bills and meet your needs should you lose your job; and For your future retirement and long-term financial well-being. Without savings, you ll live from paycheck to paycheck, unable to respond to emergencies without going into debt, unable to make larger purchases without borrowing, and unprepared for retirement. How? Setting money aside each month will require an ongoing commitment to saving. The best way to save? By paying yourself first. Treat the amount you plan to save as if it were a bill, and pay yourself the amount you have budgeted for savings. Pay yourself at the first of the month (or each pay period), before you spend the money for other things. Don t wait to save if you have money left at the end of the month, or it will never happen. Tips for Saving Money Set savings goals and make a plan for reaching them; Include savings as a regular budget category; Stick to your budget so you don t have to use money you had planned to save for other expenses; Pay yourself first by having the designated amount automatically deposited into your savings account each pay period or by making a payment to your interest-bearing savings account each pay day; Use cash, rather than credit cards, for purchases; Don t spend money in your savings account for regular expenses; Keep your savings in a separate account that earns interest; Save your change and deposit it at the end of the month; and Save extra money, such as bonuses, pay raises, or financial gifts. When? Start to save even if it s only a small amount immediately. If you wait until you can afford to save, it will never happen. Thanks to the power of compound interest, if you can save even a small amount each month you will be surprised how your money will grow. And the longer compound interest has to work for you, the more your savings will increase. Copyright 2010 Linda LaMar. All rights reserved. Page 153

164 How Much? Save as much as you can each month. After all, the reason you are saving is to be sure you have money for future bills and purchases, to cover emergency expenses, and for your future retirement. Although the money you save isn t available for current expenditures, it isn t lost money. It s just the opposite. Money that is saved or invested will actually make more money. So save the maximum amount you can, after paying your bills and covering monthly expenses. Periodic Bills and Savings for Future Purchases. Calculate the amount you need to save for periodic bills (such as annual insurance premiums) and for future planned purchases and expenditures (such as a newer car, a house, a vacation, etc.). Save a specific amount each month for these expenses. Emergency Fund. Before you invest money for longer-term needs, you should establish an emergency fund that you can access if needed. No matter how carefully you budget and plan, an occasional emergency will arise your house or car will need major repairs; you or a family member will have unexpected medical bills; a major appliance will break down. You need to be prepared to handle these unanticipated (and sometimes costly) expenses without going into debt. Your emergency fund should contain the equivalent of three to six months of your income, in case you are injured or disabled and cannot work for a while or lose your job. If the job market is tentative or you are employed in an area more likely to be targeted in an economic downturn, your emergency fund should be even larger. Retirement. Many financial experts recommend that your retirement income be at least 70 to 90 percent of your pre-retirement income. You will need even more if your retirement plans add expenses to your monthly budget (for example, relocation to a higher-cost area, traveling, going back to school, or pursuing expensive hobbies). To generate 70 to 90 percent of their pre-retirement income, most people need to save $1 million (or more). How Can You Do It? It may seem impossible to save any money let alone enough to tide you over for several months in case of emergency, or to cover retirement especially as you get started in a new career. But with commitment, a plan, and persistence, it is possible. The key is to start now. Page 154 Copyright 2010 Linda LaMar. All rights reserved.

165 Time Value of Money Time is on your side. Saving even a little, as you begin will pay off in the long run. Saving a small amount sooner will generate a greater return than saving a larger amount later. And putting your money where it will earn the best return will further increase its value. This is due to a principle called the time value of money. Time Value of Money: The relationship among money, the rate of interest, and time In its simplest form, the time value of money boils down to this: the more money you save/invest the more interest it earns and the longer it has to accrue interest the more it will grow. That s why starting to save as soon as possible and earning the most favorable interest rate (or return), pay off. Earning Interest: Making Money on Your Money. Interest is money that banks, credit unions, and/or other investors pay for use of your money. The interest rate is expressed as a percentage. It is calculated in one of two ways: simple or compound. Simple interest is paid on the amount you deposit. Interest is not added to the principal to calculate future interest. Compound interest is paid on the amount you deposit plus interest earned to date. The more frequently interest is compounded, the faster the balance will grow. Compound interest pays a higher return than simple interest, since earnings are added to the principal and increase the amount on which future interest will be paid. Interest Rate. The amount of interest you earn directly affects how much your money will grow. The following table shows how much an investment of $1000 would earn in 25 years at various rates of return, assuming that interest is compounded annually. Value of $1000 in 25 Years at Various Rates of Return Interest Rate/ Rate of Return Value in 25 Years 0% $ 1,000 2% $ 1,641 4% $ 2,666 6% $ 4,292 8% $ % $10,835 Copyright 2010 Linda LaMar. All rights reserved. Page 155

166 As you can see, it pays to invest at the highest return possible, taking into account your need to access your money and your tolerance for risk. The Rule of 72. You can approximate the length of time it will take to double your money by applying a simple formula called the Rule of 72. The formula assumes your savings will earn the same interest rate each year and that interest is compounded annually. To estimate the number of years it will take to double your investment, divide 72 by the interest rate you are earning. For example: Interest Rate Formula Approximate Number of Years to Double Your Investment 2% % % % % You can also use the Rule of 72 to estimate the interest rate necessary to double your money in a certain number of years. It works essentially the same way: Divide 72 by the number of years you have to invest. The result is the interest rate required to double your investment in that amount of time. For example: Number of Years You Have to Invest Formula Interest Rate Necessary to Double Your Investment 5 Years % 10 Years % 15 Years % Saving Earlier vs. Later. The final principle of the time value of money is that the sooner you begin to save, the more your money will grow. Not only will you have longer to add to your savings for retirement and other future needs, but if your investments earn compound interest, earnings will be added to the principal and increase the amount on which future earnings will be based. The following table shows the amount of money you would have available by age 65, if you saved approximately $10 per day ($300/month), starting at age 22, age 32, or age 42, assuming your savings earned five percent interest, compounded annually. Page 156 Copyright 2010 Linda LaMar. All rights reserved.

167 Age You Start Saving Value at Age 65 Money Saved from Age 22, Age 32, and Age 42 Amount Saved Per Month Total Amount You Would Have Saved by Age 65 Interest Earned on Savings (at 5%) by Age 65 Value of Savings at Age $300 $154,800 $ 373,814 $ 528, $300 $118,800 $ 177,178 $ 295, $300 $ 82,800 $ 70,359 $ 153,159 Figures generated using calculator on Bankrate.com: The illustration above shows the power of compound interest and the value of starting to save as soon as possible. The longer savings has to accrue compound interest, the greater the return will be. You will be ahead if you start saving earlier, even if you stop saving after a few years and leave your money in your account. The money in your savings account will continue to compound, adding significantly to your balance at age 65. Money saved earlier is worth substantially more by age 65 than the same amount saved later: Value at Age 65 $3600 Saved Per Year for 10 Years Age Range When Money Was Saved Total Amount Saved Value at Age 65* 25 to 35 $36,000 $205, to 45 $36,000 $126, to 55 $36,000 $ 77, to 65 $36,000 $ 47,544 *Assumes 5% interest compounded annually As you can see from these illustrations, it pays to start saving as soon as you possibly can. It s hard to start saving at any age or any stage in life. That is particularly true if you become accustomed to spending all you earn. But starting to save earlier, even if you can save only a small amount at first, will pay major rewards. Copyright 2010 Linda LaMar. All rights reserved. Page 157

168 What should you do with the money you save? The answer depends on: What you need the money for; When you will need it; and How much risk you are comfortable taking to increase the potential of a higher return. Savings and investments are important parts of your financial strategy. You need to have savings readily available to cover periodic bills, provide cash for short-term goals, and in case of emergency. On the other hand, since savings accounts don t pay much interest, you also need to invest a significant portion of the money you save so it will earn a higher return, protect your savings from inflation, enable you to meet longer-term goals, and provide for your retirement. Each has advantages and disadvantages. Savings Investments Short Definition Money you set aside in a safe account that pays interest until you need it to meet short-term goals or for emergencies Money you set aside with the hope of earning a higher return over a longer period of time Where Kept Savings are usually kept in a bank or credit union savings account or a short-term certificate of deposit Typically, investments are made in stocks, bonds, mutual funds, or other uninsured assets Page 158 Copyright 2010 Linda LaMar. All rights reserved.

169 Savings, cont d Investments, cont d Best Use Short-term financial goals and emergency fund Longer-term financial goals, including retirement Advantages No risk of loss if deposited in a federally-insured account Potential of significantly higher return on money Disadvantages Little return on money Most investments are not insured. They involve the risk that you may not earn as much as you anticipated, or that you could lose some or all of the money you invested. Because values rise and fall, investments need to be kept for the long term. If you have to sell them in a hurry, you could lose money. Places and Ways to Save and Invest: A Summary There are many places and ways to save and invest money. They include bank or credit union savings accounts, certificates of deposit, stocks, bonds, and other instruments. Where and how you choose to save and invest your money depends on how accessible it needs to be, and the degree of risk you are comfortable taking to increase the possibility of earning a greater return on your investment. Your emergency savings should be kept in a bank or credit union account that is designed to keep your money safe and help it grow. Emergency savings should not be kept in your regular checking account or invested in an account that does not provide access to the money on short notice without penalty. The money you save for retirement and long-term goals should be invested in stocks, mutual funds, or bonds that will, over time, generate a greater return on your savings. Copyright 2010 Linda LaMar. All rights reserved. Page 159

170 Places and Ways to SAVE Bank/Credit Union Savings Account An account at a bank or credit union designed to keep your money safe, accessible, and provide at least some growth. Although it is not meant to be used as a checking account, you can make deposits into your savings account and withdraw money when you need it. Savings accounts at banks insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Association (NCUA) are protected against loss (up to a specified maximum) by the federal government. The interest rate is usually low. However, because the money is easily accessible if needed, a savings account is a good place to keep money set aside for short-term goals and emergencies. Money Market Deposit Account A type of account offered by banks and credit unions that pays a higher interest rate than a savings account. A money market deposit account typically requires a larger initial deposit and a minimum balance, and limits the number of withdrawals each month. A money market account at a federally-insured bank or credit union is a good place to keep savings for emergencies and short-term goals. Certificates of Deposit (CDs) A type of account in which you deposit your money for a specific length of time (typically ranging from six months to five years). In exchange for not withdrawing the money until the agreed upon time has elapsed, you earn a higher interest rate. Generally, although not always, longer-term Certificates of Deposit pay a higher interest rate than short-term CDs. There s a penalty for withdrawing money from a CD before it matures, so they should be used only for savings that will not be needed before they mature. CDs offered by federally-insured banks or credit unions are guaranteed against loss up to a specified maximum amount. U.S. Savings Bonds U.S. Savings Bonds are another way of saving with no risk. When you buy a U.S. Savings Bond, you are lending the government that amount of money for a certain period of time in exchange for a specific amount of interest. When you cash the bond at the end of the agreed-upon period, you get your money, plus interest, back. The bonds are insured by the federal government. You can purchase U.S. Savings Bonds directly from the government or from most banks and credit unions. For more information see ( Page 160 Copyright 2010 Linda LaMar. All rights reserved.

171 Places and Ways to INVEST When you buy shares of stock, you become part owner of the company. If you purchase stock in a company that does well, your investment will earn much more than in a CD, a money market deposit account, or a savings account. Stocks However, investing in stocks is risky. Stocks are not insured by the federal government. If the stock doesn t perform well and/or the economy weakens, you may not earn as much as you expect, or you may lose some or all the money you invest. Over the long term, stocks typically outperform other investments, but over the shorter term, the value of individual stocks can rise or fall dramatically. For that reason: You should buy stocks only with money you do not need in the foreseeable future; You should not invest all your money in stocks; and You should spread your investment in stocks among many companies and sectors (such as energy, technology, etc.). Since you are not likely to have enough money to invest in stocks to have an adequately diversified portfolio, you should consider investing in stocks through a no-load mutual fund. (See Mutual Funds, and Investing Your Money, below, for more information.) Bonds When you buy bonds, you are lending your money for a specific period of time to a company or governmental entity that pledges to pay you back, with interest, at a later date. Interest rates vary, depending on the financial strength of the entity issuing the bond. The more likely a company or governmental unit is to repay the bond when it is due, the lower interest it will pay. Bonds issued by organizations judged less likely to repay when the bond is due pay higher interest rates because the investment is riskier. Bonds issued by private companies typically offer higher interest rates than government bonds. However, bonds issued by the U.S. government are guaranteed, and are, therefore, considered a safer investment. Mutual Funds Mutual funds are a way of investing in which your money is pooled with that of many other individuals and invested in stocks, bonds, and/or money market funds. Investments are widely diversified among a large number of companies within the family of funds you select. You select from a range of mutual funds that reflect the level of risk you are most comfortable with, but you do not choose individual stocks or bonds. Instead, a professional fund manager researches, selects, and monitors mutual fund investments. Copyright 2010 Linda LaMar. All rights reserved. Page 161

172 You can also invest in a stock mutual fund that is tied to a market index, such as Standard & Poor s 500. Because the fund mimics the stocks in that index, it provides immediate diversification and fees are lower, since it does not require an active manager. Over time, index funds have provided excellent returns. Mutual funds including those purchased through a bank are not insured by the federal government. For more information, see the federal Securities and Exchange Commission website: Money Market Mutual Funds Money market mutual funds are similar to money market accounts at banks or credit unions, but generally pay a higher interest rate. Although they are considered a fairly safe investment, they are not guaranteed by the federal government, so there is some risk of loss. For more information about investing, see below. Also visit the federal Securities and Exchange Commission s website at Risk and Reward Investments are different from savings. Investing involves various degrees of risk but also a greater chance of reward. All types of investments involve some degree of risk. Generally, the greater the risk, the greater the potential for a higher return; the lower the risk, the lower the probable return. For example, stocks historically have earned a significantly higher return than money invested in a money market mutual fund. Both are likely to earn more than money saved in an insured bank account or certificate of deposit. However, stocks are not insured and have the potential to lose value; money market mutual funds are less risky than stocks but also are not insured. Money deposited in an insured account is protected against loss, but is much less likely to gain in value as much as investments in either stocks or money market funds. When you invest your money, you accept the risk that it may not yield as high a return as you expected or that you could lose some or all of the money you invested. However, investments also offer a greater chance of reward. Less Risk = Greater safety but lower potential return Greater Risk = Greater potential return but less safety Page 162 Copyright 2010 Linda LaMar. All rights reserved.

173 Investing Your Money Start early and do your homework. As soon as you have saved the amount you need for emergencies and short-term goals, you should begin to invest for future needs. There are many investment alternatives from which to choose, including stocks, bonds, mutual funds, and others. Each offers multiple options that permit you to further refine your choices to those that best meet your needs and reflect your tolerance for risk. Decisions about how to invest your money are very personal. An investment strategy that works for someone else is not necessarily the best plan for you. Do your homework before you invest. Read about the companies whose stocks you are thinking of buying; understand how various mutual funds invest. Know how much you will be charged for trading costs and management fees. Don t invest based on hot tips. And, although past performance does not guarantee future returns, look at market trends and know how the investments you are considering have done in the past. After doing your research, make investments that are appropriate for you. Diversify. The greatest safeguard for maximizing return and minimizing risk is to diversify your investments. By putting your money in a variety of investment options, you reduce the impact a loss in one will have on your overall portfolio. You should diversify among types of investments, such as stocks and bonds, and within each type of investment. For example, your investments should not all be in the stock market, and the stocks you buy should be from multiple companies in different industries. Studies show that investors need to own at least 30 different stocks across various economic sectors in order to have a somewhat diversified portfolio. Consider investing in a mutual fund. As you begin to invest, it is unlikely that you will have enough money to purchase the variety of stocks necessary to adequately diversify your portfolio. It may be difficult to find time to research your holdings to know if you want to keep individual stocks and to know the best time to buy and sell. Many people who want to invest, but who cannot afford a diversified portfolio or do not want to actively manage their holdings, choose to invest in a no-load mutual fund. Mutual funds pool money from multiple investors in order to purchase many stocks or bonds. Each investor owns a percentage of the mutual fund based on the amount they have invested. Since the assets are professionally managed, investors do not need to research, select, or monitor investments or know when to buy and sell individual stocks. A wide range of mutual funds allows investors to choose one that reflects the level of risk with which they are comfortable. Copyright 2010 Linda LaMar. All rights reserved. Page 163

174 If you want to include stocks in your portfolio you may wish to consider investing in a mutual fund that mimics a stock market index, such as the Standard & Poor s 500 (a basket of 500 large company stocks). Because the fund replicates the market index, it does not require an active manager, so fees are lower. And it offers immediate diversification. You may want to invest in bond mutual funds to reduce the volatility of your portfolio. As you have more money to invest, you can also purchase international index funds, small company index funds, and other types of funds. You can buy mutual funds through discount brokers or other mutual fund companies. Because fees for management and trading costs vary, do your research before you select a broker or mutual fund company. The lower the fees, the more of your money will be invested and work for you. Review your investment portfolio periodically and make adjustments as appropriate. A few years before you plan to liquidate investments, restructure your portfolio to choices that are less risky. Know your needs and your tolerance for risk Study before you invest Diversify your investments Make well-informed investment decisions When you graduate from college and start a new career, retirement is probably the last thing on your mind. Although it may seem far in the future, saving for retirement starting now is an important part of your financial strategy. Even if it s difficult to save money when you begin your career, that is when you need to start putting money aside for retirement. If you save and invest while you are young, the power of compound interest will boost your savings, and you can afford to be more aggressive with investments. Both are necessary to leverage your savings so you will have enough money for retirement when you need it. It s up to you to prepare financially for your retirement. While Social Security will help, it will provide far less than you will need and few employers offer full pension plans for employees. That means you are largely responsible for your financial well-being when you retire. Page 164 Copyright 2010 Linda LaMar. All rights reserved.

175 How Much Will You Need? You should assume that your retirement savings will need to last 20 years or longer. As noted previously, some financial experts recommend a retirement income that is 70 to 90 percent of your preretirement income. You will need more than that if you plan to move to a higher-cost area, travel, go back to school, or pursue expensive hobbies. According to some calculators, to generate 70 to 90 percent of your income, most people need to save $1 million (or more). Others suggest you not be too worried about saving a specific (huge!) amount of money, focusing instead on saving a predetermined percentage of your income each month and investing it wisely. Although specific recommendations vary, they commonly suggest that you save at least 10 percent of your pre-tax salary for retirement. Tips for Saving for Retirement Decide at the outset that saving for retirement is a fundamental part of your monthly budget not an extra expense if and when you can afford it. Review your budget critically. Determine if there are expenses you can cut out or reduce in order to retire when the time comes. Pay yourself first. And pay yourself automatically, so you don t have to decide each month whether you can/will save. If your employer offers a 401(k) or similar plan, have your contribution automatically withheld each time you are paid. Have the amount you budget for your personal savings and retirement accounts automatically deposited into those accounts each time you are paid. If the money isn t in your paycheck, you won t consider it expendable. When your salary is increased add the amount of the increase to your retirement savings and continue to live on the same amount of money as before the raise. If you are carrying credit card debt, pay it off as quickly as you possibly can. Then put the amount you would have paid the credit card company into your own retirement account. Manage your accounts. Know how your investment portfolio is allocated among stocks, bonds, and other investments. Do your homework, review your account distribution annually, and make adjustments as appropriate. Consider retirement savings unavailable for anything else. Don t take money from your retirement accounts for other needs. Copyright 2010 Linda LaMar. All rights reserved. Page 165

176 The Three-Legged Stool The financial support for a comfortable retirement is sometimes described as a three-legged stool. Just as the stool cannot stand without all three legs, neither will you have a secure retirement income without all three parts of a retirement strategy. Comfortable Retirement Social Security Employment-Based Retirement Funds Personal Savings Social Security Social Security is a federal program that covers most Americans. Although best known as a retirement program, Social Security also includes benefits for the family members of fully insured workers who die and for people who become disabled in a way that prevents them from working. Information about each aspect of Social Security is available online at Your employer is required to withhold a percentage of your earnings (and pay an additional amount) for Social Security each time you are paid. If you are self-employed, you must pay both your share and the employer s share. The amount of Social Security you and your employer pay is combined with the contributions of all other workers and is placed in the Social Security trust fund to pay benefits to current recipients. While the money you contribute to the Social Security fund is not placed in trust for your individual use in the future, the government keeps track of the amount you pay. When you retire, your Social Security benefit will take into account the amount you paid into the fund. If you are age 18 or older, you can review your Social Security records online. Your statement will show your lifetime earnings according to Social Security s records, estimate your eligibility for benefits, and provide other information. To access your statement online, you must create an account at Check your statement each year to be sure you have been credited for all your earnings. Social Security Retirement Benefits. To qualify for Social Security retirement benefits from employment, you must have worked for at least 10 years and earned a minimum amount of money each quarter. While workers can receive a reduced amount of Social Security retirement benefits at age 62, full benefits for anyone born after 1959 are not available until age 67. Individuals who collect Social Security before they reach full retirement age (e.g., between the ages of 62 and 67) receive the reduced amount per month for the rest of their lives. Page 166 Copyright 2010 Linda LaMar. All rights reserved.

177 Monthly benefits are based on the amount you have paid into the system over your working years, subject to a maximum amount. Benefits are adjusted each year to reflect annual cost-of-living increases. The Social Security Administration estimates that Social Security replaces about 40 percent of the average worker s pre-retirement earnings. While Social Security represents an important foundation for retirement income, it is not sufficient to cover basic living costs for most individuals. The Future of Social Security. The future viability of Social Security is in question. The amount of Social Security taxes paid by employees and employers is less than the amount paid to recipients. The shortfall is due to economic and population factors that have reduced the amount of revenue at the same time as increasing numbers of individuals become eligible for benefits. The difference between revenues and expenditures is paid from the Social Security trust fund. The government has estimated that, unless changes are made, by 2033 the Social Security trust fund will be exhausted. After that, incoming tax revenue from employees and employers is projected to cover only three-quarters of scheduled benefits. Changes in the Social Security program will likely be necessary to protect its viability. Since the impact of those changes is unknown, it is more important than ever for younger workers to prepare financially for their own retirement income. Employment-Based Retirement Plans Most employers offer some type of plan to help employees prepare for their future retirement. There are many types of plans and employerspecific variations within them. An employment-based retirement plan, if available, is a significant part of your retirement portfolio. If your employer offers a plan, it is important to understand its terms and to take maximum advantage of it. Defined benefit plans provide a guaranteed retirement income of a specific amount per month for the lifetime of the retiree. The benefit amount is typically based on a formula that considers salary and length of service (for example, two percent of monthly salary times the number of years of service with the employer). These plans, which were once very popular, are now offered by few employers. Defined contribution plans establish the amount the employee and, in many cases the employer, may contribute to a retirement account specific to the employee. Unlike a defined benefit plan, the amount of income available at retirement is not pre-set or guaranteed. It is based on the amount paid into the employee s account plus/minus investment income or losses. When the money is gone, it s gone. There are many types of defined contribution plans including profit sharing, employee stock ownership, money purchase, and other plans. Most defined contribution plans qualify for advantageous tax benefits for employers and employees. Copyright 2010 Linda LaMar. All rights reserved. Page 167

178 While employment-based defined contribution plans have some aspects in common, features vary among types of plans and among employers. Be sure you understand the plan offered by your employer and specifically how it works. The most common defined benefit program for employees of public or private forprofit companies is the 401(k) plan. Similar programs (such as the 403(b), 457, and Thrift Savings plans) are available for employees of tax-exempt or non-profit organizations, some school and university systems, and federal, state, and local governments. When you participate in a 401(k)-type program, a retirement account is opened in your name. Your employer deposits the amount of wages/salary you specify into your account each pay period. The amount you contribute is considered deferred compensation. You do not pay income tax on it until you withdraw the money from your account after you retire. Many employers match a portion of the employee s contribution, significantly increasing the amount in the account. Employer match is generally based on a fixed percentage of wages or salary, but usually does not exceed the amount contributed by the employee. Plans are typically set up by the employer with an investment company, an insurance company, or a bank trust department. Most plans establish a range of investment options from which the employee may choose. Investment options might include stocks, mutual funds, and/or money market accounts. Advantages of 401(k)-Type Plans Tax Advantages Employer Match Your taxable income is reduced by the amount you contribute to your 401(k) account. That reduces the amount of taxes you owe and allows you to use money you would have otherwise paid for taxes to increase your retirement account. The net result is that it doesn t cost you a dollar to save a dollar. You don t pay income tax on the money you put in a 401(k) plan or on the interest or dividends it earns until you withdraw it after you retire. Chances are your tax rate will be lower when you are no longer working full-time, so you will owe less tax on the amount you withdraw from your 401(k) than if you had paid it initially. Although they are not required to do so, many employers match some or all the amount you save. A typical employer match is 50 percent of your contribution, up to six percent of your salary. That can quickly add to the amount of money in your retirement fund. Most employers will not contribute to your 401(k) unless you also contribute. By not investing at least the amount of the employer s match, you are giving up free money from your employer. Savings is Automatic The amount you authorize is automatically deducted from your paycheck. You don t have to decide each month how much you will deposit in your retirement account. Chances are you will save more than if you had to choose between saving or spending the money. Page 168 Copyright 2010 Linda LaMar. All rights reserved.

179 Other Things You Should Know About a 401(k): Federal law requires that the money in your 401(k) be held in a custodial account, so it is safe in the event your employer goes out of business. It also requires your employer to provide you with information about your options for investing the money in your account and send you statements of your account. Some employers may not match your contribution until you have been employed by the company for a certain period of time; or they may specify that you will not have access to the employer s contribution if you leave the company before a specified length of employment. Many plans allow participants to borrow from their 401(k) account for things such as buying a home, paying for education or medical expenses, or in case of severe economic hardship. However, the amount you borrow must be repaid within a specified period of time, with interest. Earnings on your account will be based on the reduced balance until the loan is fully repaid. Any amount you borrow from your 401(k) account will be due in full within 30 days if you leave the company or are terminated. If you can t repay, you ll owe taxes and a 10 percent early withdrawal penalty on the amount you borrowed from your account. More fine print: The amount you may contribute to your 401(k) plan each year is limited by federal law. The plan offered by your employer may limit you to a lesser amount than the federal maximum. If you withdraw the money in your 401(k) before age 59½ (other than for a loan, as described above), you will have to pay income tax on the amount you withdraw, plus a 10 percent penalty. Once you put money into your 401(k), it should stay there until you begin to withdraw it after retirement. If you change employers, you will need to decide what to do with your 401(k). You can: Transfer your account balance to your new employer s plan; Transfer ( roll over ) your account balance into an Individual Retirement Account (IRA); In some circumstances, leave your balance with the former employer; or Withdraw your account balance. It is generally not a good idea to withdraw your account balance if you change employers. The rules about how you make the transfer are very specific and must be followed explicitly. If you do not put the money into another 401(k) or IRA within 60 days, you will lose the opportunity to do so, reducing the amount you have available for retirement savings. And you will have to pay income tax and a 10 percent penalty on the amount you withdraw. Even if you do put the money you cash out into another eligible plan within the required 60-day timeframe, your former employer is required to withhold 20 percent for taxes. You will have to come up with the amount withheld when you open your new account, or pay taxes and the penalty on the shortfall. Unless you plan to leave your 401(k) account balance with your former employer, it is to your advantage to have it transferred directly to your new account through a trustee-to-trustee transfer, rather than withdrawing it to deposit in a new retirement account. Copyright 2010 Linda LaMar. All rights reserved. Page 169

180 If you have a secure job and can possibly afford to do so, it makes sense to save as much in a 401(k) plan as allowed by your employer. Personal Savings and Investments for Retirement The third leg of the retirement stool is money you save and invest personally for your retirement. These savings and investments may be made in a variety of ways, but the most common way is with an Individual Retirement Account (IRA). As indicated by its name, an Individual Retirement Account (IRA) is a type of retirement account that you open and maintain yourself (unlike a 401(k) plan that you may have through your employer). An IRA is particularly important if you do not have access to a good retirement plan at work, or if your employer-based plan limits the amount you can contribute. You can open an IRA at several types of financial institutions: banks or credit unions, investment firms, mutual fund companies, or brokerage or investment firms. Each offers different types of investments and differing amounts of insurance. Before you open an IRA be sure you know what types of investments you will be able to make and the type and amount of insurance you will have on your account. There are two types of IRAs. Each has distinctive features and unique advantages. Traditional IRA Roth IRA The amount you contribute to a traditional IRA is tax deductible if you do not participate in a tax-qualified retirement plan at work. If you do contribute to a tax-qualified retirement plan at work, you can deduct your IRA contribution only if your adjusted gross income is less than the threshold amount set by the federal government. Whether or not your contribution is tax deductible, you do not pay taxes on the interest or dividends earned by your IRA investments until you withdraw them for retirement. Generally, if you withdraw money you contributed to your IRA before age 59½, you will have to pay both taxes and penalties. You do not get an income tax deduction for contributions you make to a Roth IRA. You can withdraw money you contributed to a Roth IRA at least five years previously without paying a penalty or taxes. However, you cannot withdraw any interest or dividends until age 59½ without paying a penalty. Your contributions and earnings from your investments are tax free when you withdraw them for retirement. As with a 401(k) plan, you are responsible for deciding how the funds in your IRA are invested. Page 170 Copyright 2010 Linda LaMar. All rights reserved.

181 Although you may not have a lot of assets or money, it is very important that you protect yourself against loss in the event of an accident, illness, or other catastrophe. No matter how careful you are unexpected things happen. You can suddenly lose everything you own, have to pay someone else a large sum of money for damages, or face a hospital bill for unanticipated surgery or emergency care. Insurance helps minimize the risk of loss. You can get insurance for just about anything. The most common, and more important, types of insurance include: Health Insurance Health insurance plans range from low-cost coverage limited to catastrophic illness to comprehensive coverage for hospitalization, doctor visits, prescriptions, vision, and dental care. Employers often include health care insurance as a part of their employee benefits package. Group plans provided by employers are almost always less expensive than individual policies you purchase on your own. However, if health insurance is not available through your place of employment, you should consider purchasing your own plan. Renter s Insurance If you rent a house or an apartment, you not the landlord are responsible for insuring your belongings against loss from fire, theft, water damage, or other catastrophe. Renter s insurance does not cover the house or apartment structure, but it provides coverage for the items you own. Should you need to file a claim, you will need documentation that you owned the item(s) you are claiming and provide receipts to verify their value. The best way to document possessions is by completing a personal property inventory including purchase dates, values, serial numbers, and photographs. Homeowner s Insurance Homeowner s insurance is required by your lender if you assume a mortgage to buy a house. Although homeowner s insurance covers loss of the house and most possessions, you may need supplemental coverage for special collections, fine art, jewelry, or other items. Should it be necessary to file a claim, you will have to provide documentation that you owned the item(s) you are claiming and provide receipts verifying their value. The best way to document possessions is by completing a personal property inventory, including purchase dates, values, serial numbers, and photographs. Copyright 2010 Linda LaMar. All rights reserved. Page 171

182 Automobile Insurance Automobile insurance helps pay for repair or replacement of your car if it is damaged by a crash; damage caused by non-crash incidents; medical bills that result from an accident; injury or property damage for which you are responsible; and damage and personal injury in the event you re hit by a driver with no (or not enough) insurance. It may also help pay for towing your car if necessary. You will need to decide how much coverage you should have for each category of automobile insurance. Disability Insurance Disability insurance provides you with income if you are unable to work for a period of time due to illness or injury. Employers sometimes include optional disability insurance for employees as a part of their benefits package. Life Insurance Life insurance provides benefits to the people you specify (called beneficiaries) if you die. Its primary purpose is to provide continued income to those who depend on your financial support in the event of your death. You may not need life insurance if you are single and no one is dependent on you. However, if you are married and/or have dependents, you may want to consider having life insurance. There are two major types of life insurance term and permanent (sometimes called whole life). Each has advantages. Be sure you understand the differences and make an informed decision about which is better for you. Unless you have insurance, you risk having to pay the full cost of accidents, medical care, loss of possessions due to theft, fire, or other disasters, etc. If you cannot pay the resulting bills, your credit record will be adversely affected for many years in the future. Even though it may feel like you aren t getting as much back as you pay for insurance, you never know when you will need it. Coverage for one catastrophic event can more than repay many years of premiums. However, you should not buy insurance you don t need, or buy more than you need. The rate you pay for insurance (the premium) is determined, in large part, by the type and amount of coverage you have and the amount you agree to cover before your insurance pays (called your deductible). However, insurers also take into account your age and marital status, whether you live in a rural or urban area, and your credit record. Page 172 Copyright 2010 Linda LaMar. All rights reserved.