Dr. Alex White. Management Virginia Tech

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1 Dr. Alex White Dairy Science A. White Enterprises Management Virginia Tech Verity Asset

2 Dr. Alex White Dairy Science A. White Enterprises Management Virginia Tech Verity Asset

3 } Slow down and think BEFORE you: Spend, borrow, invest } Set goals for yourself Personal, family, career, financial } Build a budget to help you reach your goals Take-home pay = Gross x (1-30%) } Track your expenses for a few months Revise your budget - or your lifestyle

4 } Typical college student living expenses $12-$15,000 } Get a job with $40,000 salary Cost of living magically increases to $45,000! } Quickest, easiest way to improve your financial condition Control your living expenses } Keep good records

5 } Too much month at the end of the money } Save 10% of your gross salary every period! BEFORE you do anything else! } Financial safety net Build 3-6 months of savings 1-2 months for students, recent graduates } Once you build your savings, keep saving! Use that 10% per period to: Prepay debts or invest for other goals

6 1. Checking account Start the month 1-2 months of living expenses 2. Savings account (emergency funds) Shoot for 3-6 months of living expenses 3a. Pay down high-interest debt (credit cards!) 3b. Invest for future goals 3b. Donate to church/charity 3b. Reward yourself

7 } Rent for a year or so } Gives you time to: See if you like your job Find best area to live Build savings for down payment (20%) & closing costs (5-7%) } May be hard to sell your house quickly Carrying 2 mortgages stinks! } $100 vs $100,000 decision syndrome Don t be in a hurry

8 } Property taxes } Homeowner s insurance } Maintenance expenses } Lawn care, tools, etc. } Homeowners Assn. fees? } Keep your housing payments (PITI) or rent under 1 week s gross income Or 30% of your gross income

9 } Check your credit history at least annually Check all 3 bureaus they re different! Fix the incorrect information NOW!! 72% have errors, 25% have critical errors Check BEFORE any major life event Checking your credit history has NO impact on your credit score Letting others check it will probably lower your score

10 } Impacts of your credit score: Qualifying for loans & new credit Interest rates on loans Premiums on auto & homeowner s insurance Getting a job } Check your credit score occasionally Costs $18-35 usually Credit score simulators

11 Types of Credit, 10% Credit Inquiries, 10% Payment History, 35% Length of Relationship, 15% Outstanding Credit/Limit, 30%

12 } Payment history Make your payments on time! } Amount borrowed/credit available 10-15% of credit limit } Number of types of credit Credit card, auto loan, mortgage, HELOC, etc. } Length of relationship with creditors Think before closing old accounts } Number of inquiries on your credit history Only inquiries related to new credit Your inquiries do NOT affect your credit score

13 } Consumer debt Auto loans, student loans, credit cards Build savings first Consumer debt payments < 10% of gross income } Don t let your house own you! Down payment = 20% of purchase price Closing costs = 5-7% of purchase price House Payments < 30% of gross income Roughly 1 week s gross salary

14 Savings & Investment 10% Consumer Spending 10% Taxes 40% Consumer Debt 10% Housing Debt 30%

15 } 10-year standard payback } Income-based repayment plans Up to 25 years Based on income, compared to poverty level } Pay-As-You-Go Payments = 10% of discretionary income Up to 20 years Remaining balance is forgiven (taxable) } Loan consolidation Good idea usually

16 } So you have extra cash } Possible uses Prepay student loans Build savings Pay off credit card debt Invest for other goals (down payment, etc.) Invest for retirement Spend it on yourself Increase your insurance coverage Give it to church/charity

17 } 529 Plans Savings Trust vs Prepaid Tuition } Fellowships, Assistantships, etc. } Straight-away, or work for a while

18 } Friend Can be a great tool } Foe Michael Jordan & Richard Petty Rules } Big Al s rules for wise use of credit cards Don t use if you don t have the cash TODAY Never make just the minimum monthly payment Pay your bill in full every month** Don t have more than 2-3 credit cards

19 } Invest for retirement as soon as you can Compound growth rocks! $4 million, whuuut? Are you crazy? } Take advantage of employer plans 401(k), 403(b), 457 Employer matching? Lower your income taxes } Ya want tax-free growth? Roth IRAs, Roth 401(k)

20 } Tax advantages Tax-deductible contributions Tax-deferred growth Tax-free earnings (Roth) } Judgment-proof in law cases } Spread your investment risk diversification } Profitability Financial markets vs farm income } Reduce dependence on Social Security Get your 40 quarters of credit!!

21 } Take full advantage of employer matching Start as soon as possible } Open an IRA Go Roth!! } Asset allocation Rough Rule: 100 Age = % in equities } Rebalance & reallocate regularly } Retirement funds are for retirement Not for college education, vacation, etc.

22 } Get proper insurance coverage HEALTH insurance Disability insurance Homeowners/renters Liability at least $2 million Life? Long Term Care insurance } Did I mention HEALTH INSURANCE!!! Farm Bureau, industry associations Off-farm job, COBRA

23 } Do you really need it now? Probably not, but. Renewable clause Convertible clause } For: Funeral expenses ($20-25,000) Pay off your debts Not federal student loans, though Provide living income for survivors

24 } Durable Power of Attorney (POA) Parents? } Advance Medical Directive (AMD) aka living will } Will Not as important until: Dependents Significant assets

25 } Check your credit history 1x/year at least! Look for fraudulent or incorrect listings } Buy a good shredder Shred anything with an account number } Don t talk to strangers! SSN, credit card, bank account } Actually look at your monthly statements!

26 } Know what you re doing BEFORE you do it! } Read, listen, research, ask, etc. } Babe Ruth Rule (#3) Use at least 3 valid sources of info Examine at least 3 agents, companies } When in doubt, ask $-for-$ questions } Take a personal finance course Community college, university, Extension

27 } Get even with people The people who helped you get where you are today! } Give back Community, schools, organizations Time, effort, experience, $ } I-64 Principle If I can t repay you, I ll do a favor for someone else.

28 } Money can make life easier It can also cause a LOT of headaches } Think about the most important things in your life Faith, family, friends, health, security, freedom, independence, growth, leisure, etc. } Focus your efforts on THOSE things And less on the almighty dollar! Wise money decisions can help you attain these things

29 } If I had 1 hour to chop down a tree, I would spend the first 45 minutes sharpening my axe A. Lincoln } Failure is the opportunity to start over more intelligently Henry Ford } Whatever you are, be a good one A. Lincoln