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Finances and the College Student

Presented by theJames Madison UniversityOffice of Financial Aid &

Scholarships

(updated 7/27/06)

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What We Are Here To Learn

Saving for Big Expenses Budgeting

Balancing Accounts Insurance

Managing Debt Retirement

Credit Cards Establishing Credit

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Earnings vs. Spending

How much you spend is much more important than how much you earn. This is

often referred to as “living within your means.”

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What Can I Spend?

Managing your debt requires careful planning. The level of debt which is manageable for you depends upon a variety of factors including your level of income and living expenses.

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The Importance of Budgeting

A budget does a few things for you:

1. It tells you where your money comes from and where it goes.

2. It tells you where you are financially and helps you figure out which road to take to gain financial stability.

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How To Prepare A Budget

:A budget involves two key components: List of income and expenses A plan for meeting responsibilities and

goals

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Expenses

Divide expenses into two categories:

Essentials

Non-essentials

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Essential Expenses

Essential expenses are necessities of life, including housing, utilities, transportation, and groceries.

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Non-essential Expenses

Non-essential expenses may include cable T.V., credit cards, furniture bills and other bills that make life more “comfortable.”

You can reduce non-essential expenses.

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Remember…

The more you know about where your money comes from, how much you have to spend, and where you spend it, the easier it is to make wise spending decisions. In this way, your money works for you instead of against you.

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Total Balance 5% 6% 7% 8% 9% 10% 11% 12%

$5,000 53.03 55.51 58.06 60.67 63.34 66.08 68.88 71.74$6,000 63.64 66.61 69.67 72.80 76.01 79.30 82.66 86.09$7,000 74.25 77.71 81.28 84.93 88.68 92.51 96.43 100.43$8,000 84.85 88.82 92.89 97.07 101.35 105.73 110.21 114.78$9,000 95.46 99.92 104.50 109.20 114.01 118.94 123.98 129.13

$10,000 106.07 111.02 116.11 121.33 126.68 132.16 137.76 143.48$15,000 159.10 166.53 174.17 182.00 190.02 198.23 206.63 215.21$20,000 212.13 222.04 232.22 242.66 253.36 264.31 275.51 286.95$25,000 265.16 277.55 290.28 303.32 316.69 330.38 344.38 358.68$30,000 318.20 333.06 348.33 363.99 380.03 396.46 413.26 430.42$35,000 371.23 388.57 406.38 424.65 443.37 462.53 482.13 502.15$40,000 424.26 444.08 464.44 485.32 506.71 528.61 551.01 573.89$45,000 477.29 499.59 522.49 545.98 570.05 594.68 619.88 645.62$50,000 530.33 555.1 580.55 606.64 633.38 660.76 688.76 717.36

Monthly Payment Table - 10 Year Repayment

Loan Repayment Schedule

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Helpful Budgeting Tools

•Quickenhttp://www.quicken.com/banking_and_credit/

•Microsoft Money http://www.microsoft.com/PRODUCTS/info/ list.aspx?type=srch&view=22&qu=Money

Online Banking

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Tips for Managing Your Money

Create a budget and stick to it! Save and project for future expenses Learn to say “no” to friends Do “free” things Keep records of expenses Don’t overuse ATM cards Keep money safe and growing while you aren’t

using it Cut out coupons Pay credit cards off monthly

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Checkbook Balancing

Balancing a checkbook is as simple as:

1. Adding

2. Subtracting

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The Importance of A Balanced Checkbook

Having a balanced checkbook does several things:

1. It gives an accurate account of how much money you have.

2. It controls the amount of money you spend.

3. It can be a source of “proof” that you have paid your bills.

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The Steps To Balancing

1. Record all transactions immediately.

2. Check your math to make sure you are adding when making a deposit and subtracting when making a withdrawal.

3. Use a ledger or other method for tracking deposits and withdrawals.

4. Remember to deduct any additional bank fees such as ATM surcharges, returned check fees and monthly checking account fees (if applicable).

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Credit Cards

Establish a good credit historyEasy to keep track of spending with

monthly statementsEarn reward points (watch for fees)Convenience (good and bad)Quickly accumulate large amounts debtIntroductory vs. fixed interest rates

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Credit Cards and College Students

According to research conducted by Nellie Mae…..

76% of undergraduates began the school year with a credit card in 2004

91% of final year students had a credit card compared with 42% of freshmen in 2004

56% of final year students have at least 4 cards, while only 15% of freshmen have that many in 2004

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Credit Card Debt

Survey conducted by Nellie Mae showed the average student credit card debt rose from $1,879 in 1998 to $2,169 in 2004 Final year students had an average balance of

$2,864 Freshmen had an average balance of $1,585

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Credit Card Interest

Scenario:$3,000 charged on a credit cardInterest rate of 19.8%You pay $50 per monthIt will take 24 years to pay off the cardAt the end of at time you would have paid

back $14,070 ($11,070 in interest)

(source: www.visa.com)

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Ways to Save

•Money Market Accounts

•Stocks

•US Savings Bonds

http://www.savingsbonds.com/

•Mutual Funds

•Certificate of Deposit (CD)

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YearFuture Value

Without Additional Contributions (One-time $3,000 investment)

Future Value With Additional Contributions

(Annually investing $3,000)

1 $3,300 $6,600

2 $3,630 $10,560

3 $3,993 $14,916

4 $4,392 $19,708

5 $4,832 $24,978

10 $7,781 $60,375

15 $12,532 $117,381

20 $20,182 $209,190

30 $52,348 $595,178

40 $135,778 $1,596,333

50 $352,173 $4,193,071

$3,000 Earning a Rate of 10% Annually

(Source: www.americancentury.com)

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Methods of Saving/Investing

Savings Account: After 30 year(s) at 3% interest a $3,000.00 annual investment will grow to $154,290.00

Money Market: After 30 year(s) at 5% interest a $3,000.00 annual investment will grow to $222,248.00

Mutual Fund: After 30 year(s) at 10% interest a $3,000.00 annual investment will grow to $595,178.00

(Source: www.americancentury.com)

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Retirement Savings

PAY YOURSELF! Traditional IRA Roth IRA 401k 403b Employer Match Tax advantages today or in the future

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Roth IRA Example

Average earnings of a ROTH IRA if you invest $2,000 annually from age 22 to age 72 with an average rate of return at 10%.

AGE Number of Years Account’s Value22 0 $2,00032 10 $45,78742 20 $153,27052 30 $432,05262 40 $1,155,14272 50 $3,030,652

(Source: Richmond Times-Dispatch, Sunday, 02/07/99 Planning for Retirement insert)

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Ways to Establish CreditCredit Card paymentsStudent Loan

paymentsOn-time payments

with all bills, including:

Housing Utilities Medical Financed purchases

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Establishing Credit cont...

Communication is the key to maintaining a positive credit file and may help to avoid student loan default.

Paying bills in a timely manner is important to your future credit needs.

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Cost of Living Comparison$50,000 per year in Harrisonburg, Virginia is the

equivalent of $89,791 in New York, New York. It’s a 79.6% more expensive to live in New York, New York than in Harrisonburg(Source: http://homeadvisor.msn.com/PickAPlace/CompareCities.asp)

The median home value in Harrisonburg, Virginia is $130,800. The median home value in New York, New York is $314,800. Note: House median value The value of the year’s most recent home sales data (March, 2000 to April, 1999). It’s important to note that this is not the average (or arithmetic mean). The median home price is the middle value when you arrange all the sales prices of homes from lowest to highest. This is a better indicator than the average, because the median is not changed as much by a few unusually high or low values. (Source: http://homeadvisor.msn.com/PickAPlace/CompareCities.asp)

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Cost of Living

Taxes: federal, state, local, etc.Charitable contributions (e.g. tithing)FoodHousing/UtilitiesInsurance: health, vehicle, homeowner’s, etc.TransportationMedical expensesCommute costs

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Insurance…Do You Need It?

Health Often provided through employers. How much of the premium will you have to pay? What type of insurance is best for your situation?

Vehicle Higher deductibles often mean lower premiums. What happens to your premium if you have a claim? Are there reduced rates for multiple policies?

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Insurance…Do You Need It? cont...

Life Employer provided? What type is best for you? (e.g. term, whole, etc.) Typically less expensive the younger you are.

Homeowners Higher deductibles often mean lower premiums. What happens to your premium if you have a claim? Are there reduced rates for multiple policies? Flood insurance is generally not in a basic policy.

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BIG EXPENSES!

Through budgeting, establishing good credit, minimizing non-essential purchases, and saving, you can afford:

• Home

• Car

• Retirement

• College for your children

• Vacations

If you don’t then you could be this guy when your children go to college….

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Useful Web Sites

www.bankrate.com www.wetfeet.com www.salary.com www.salaryexpert.com www.themint.org www.asec.org/ballpark/ballpark.htm www.homestore.com www.vec.state.va.us (or other state employment commissions) http://verticals.yahoo.com/cities/ http://www.bestplaces.net/html/cost_of_living.html http://www.ourfamilyplace.com/homeowner/budgettips.html http://www.ourfamilyplace.com/budget.html