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Stand Sure Information Services, Inc.

Personal Financial Management Instructional Course Workbook

A Workbook to Accompany www.pfmcourse.com

Personal Financial Management Instructional Course: A course for debtors to comply with Bankruptcy Abuse Prevention Consumer Protection Act of 2005

Curriculum Writers: Glynda P. Dancy-Edwards CSW, MSW, CAS

Miriam Ehtesham, MS Ed. Carlos X. Leal, MS Ed. Curriculum, SAS

Contributing Editors: Cathy J. Bardenstein, Esq.

Tara Cating Charles Hall

James Parrillo


16 Arnold Park Rochester, New York 14607

© 2006 Stand Sure Information Services, Inc. All Rights Reserved ii

Acknowledgments Stand Sure Information Services, Inc. would like to extend our thanks and gratitude to the curriculum and website development teams for their commitment to high quality instruction. Statement of Service Stand Sure Information Services, Inc. is committed to providing a quality educational opportunity for debtors seeking to satisfy their legal responsibility to comply with the Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA). Trademarks, Copyrights and Patents Product names, graphics, and references mentioned in this document may be trademarks or registered trademarks of their respective companies and are hereby acknowledged. This workbook, as well as the website pfmcourse.com are trademarks of Stand Sure Information Services, Inc. and are also protected by copyright and patent laws of the United States of America.

© 2006 Stand Sure Information Services, Inc. All Rights Reserved iii

Welcome! We thank you for choosing the Stand Sure Information Services, Inc. Personal Financial Management Instructional Course. We want to extend to you our best wishes for a healthy financial future. This course satisfies the mandate by the United States Bankruptcy Trustees for debtors to take a Personal Financial Management Course. When you have completed the course, you and your bankruptcy attorney will receive a Certificate of Course Completion to provide to your bankruptcy court. We specifically designed this web-based course to provide you with a user-friendly experience. You can work at your own pace, and in the privacy of your home, office or local library. The course material will be presented in different ways that will allow you to watch video segments, as you read the course text either online or in your workbook. We believe that this approach will help you to better comprehend the course material. Our course also allows students to enlarge text for easier viewing. Students who require a TDD/TTY service may contact us via the following toll free relay service number: 1-800-662-1220. Please know that we are here to answer your questions about the course material. We have provided you with several user-friendly self-help sections to assist you with any technical issues, account problems, or billing issues as well as a forum to ask questions about the course instructional material. These are accessible through the help forum section: www.helpcenter.pfmcourse.com Each lesson provides additional Internet links, resources, bonus exercises and reflective questions to assist you in mastering each course topic. The course fee includes a downloadable and printable workbook and additional worksheets. A professionally bound copy of the workbook is also available for an additional fee. Please visit http://www.pfmcourse.com for further ordering information. Our team is constantly looking to improve our web-based services. Please take a moment at the end of this course to provide us with your feedback and suggestions for improvement by filling out our course survey. We believe that you will find this course to be an informative and helpful educational resource as you continue your journey on the road to financial health. Sincerely, Glynda Dancy-Edwards James Parrillo President – Educational Services President – Website Services

© 2006 Stand Sure Information Services, Inc. All Rights Reserved iv

Contents

Welcome and Workbook Instructions Part I Making Healthy Financial Decisions…1

Introduction Bankruptcy – Why Me??…2

Causes of Bankruptcy…2 Exercise: Reflective Questions…3 Implications of Bankruptcy …4

Chapter 1 Decision Making Skills…5 Knowledge is Power…5 Assessment…5 Analysis…5 Practical Application of Skills…5

Chapter 2 The Value of Money…6

What Exactly is Money?…6 Exercise: Reflective Questions…7 Case Study Analysis: Sarah…7

Chapter 3 Understanding Your Income and Paycheck…9

What is Income?…9 Paycheck Terminology Defined…9 Calculating Your Weekly and Monthly Income…10 Paycheck Taxes and Withholdings…11 Self-Employment Taxes and Withholdings…12 General Questions About Withholdings and Taxes…13 Sample Paycheck…16 Calculating Your “Real” Monthly Income: The Costs of Working…17 Case Study Analysis: Yolette…18 Exercise: Reflective Questions…19 Worksheet: Calculate Your Real Monthly Income…20

Chapter 4 Understanding Your Needs and Wants…21

Need and Wants Defined…21 Assessing Your Own Needs and Wants…21 Prioritizing Your Needs and Wants…22 Case Study Analysis: Realistic Needs…23 Case Study Analysis: Realistic Wants…24 Worksheet: Assessing Your Realistic Needs and Wants…25

© 2006 Stand Sure Information Services, Inc. All Rights Reserved v

Chapter 5 Decision Making: The Informed Consumer…26 Making Effective Decisions…26 Educate Yourself About The Product…26 Educate Yourself About The Service…27 Know Your Rights As A Consumer…27 Ways to Comparison-Shop…28 Case Study Analysis: Chris and Jim…28

Part II Financial Obligations: Where Does All Your Money Go?…31 Chapter 6 Financial Obligations: Expenses…32

Understanding Out-Go…32 Types of Expenses …33

Fixed…33 Variable…33 Periodic…33 Emergency…33

Worksheet: Identifying Types of Expenses…34 Saving for Planned Expenses…35

Emergency Expenses…35 Planned Expenses…35 Periodic Expenses…35

Chapter 7 Insurance: Protecting Your Financial Health…36 Insurance: An Investment in Your Future…36 Case Study Analysis: Amani and Kim…36 Tips for Selecting Insurance…37 Basic Categories of Insurance Coverage …37

Health Insurance: Types of Coverage…38 Factors That Can Affect The Cost of Health Insurance…40 Automobile Insurance: Types of Coverage…40 Factors That Can Affect The Cost of Automobile Insurance …41 Home and Renter’s Insurance: Types of Coverage…42 Factors That Can Affect The Cost of Home and Renter’s Insurance…44 Life Insurance: Types of Coverage…44 Factors That Can Affect The Cost of Life Insurance…45 Disability Insurance: Types of Coverage…45 Factors That Can Affect The Cost of Disability Insurance…46

Chapter 8 Financial Obligations: Debt…47 What is Debt?…47

© 2006 Stand Sure Information Services, Inc. All Rights Reserved vi

The Fair Debt Collection Practices Act (FDCPA)…47 Ordinary Debt vs. Potentially Dangerous Debt…47 Worksheet: Identifying The Warning Signs of Debt…48

Part III Setting and Achieving Goals…49 Chapter 9 Your Financial Future…50

Methods For Achieving Your Financial Future…5 Worksheet: Define Your Financial Vision…51

Chapter 10 Envisioning Your Financial Future = Goal Setting…53

What are Goals?…53 Types of Goals: Short Term, Mid-Range and Long Term…53

Why Set Goals?…54 Things to Keep in Mind When Setting Goals:…55

Be Realistic…55 Have A Positive Attitude…55

Tracking Your Goals…56 Case Study Analysis: Terel and Emily …57 Exercise: Developing Your Goals…59

Part IV Developing and Implementing Your Budget…63 Chapter 11 Developing Your Budget…64

Budget Development Skills…64 Keeping Adequate Financial Records…64 Methods of Record Keeping…64

Budgeting – You Have Been Doing It Since You Were Young!…65 Developing Your Budget or “Spending Plan”…66 Case Study Analysis: Rebecca and George…66 Worksheet: Develop Your Budget…69

Part V Money Management…74 Chapter 12 Savings, Checking and Investing …75

What is a Savings Account?…75 What is a Checking Account? …76 What Are Interest Bearing and Investment Accounts?…76 What Are Retirement Accounts and Plans?…77

© 2006 Stand Sure Information Services, Inc. All Rights Reserved vii

Part VI Wise Use of Credit…78 Chapter 13 Benefits of Credit…79

Loans …79 The Truth-In-Lending Act …80 The Equal Credit Opportunity Act (ECOA)…80 Mortgages…80 Conventional Loans and Government-Backed Loans…81

Credit Cards: What Every Consumer Needs To Know…82 Benefits of Credit Cards…82 Secured Credit Cards and Unsecured Credit Cards…83 The Truth About Minimum Payments…84 Understanding Credit Card Offers…84

Choosing A Credit Card: Factors To Consider…85 Interest Rate…85 Grace Period…86 Late Payment And Other Fees…86 Balance Calculation Methods…86

How To Read The Fine Print…87 Sample Credit Card Offer…88 Questions to Ask When Considering A Credit Card or Loan Offer…89

Alternatives to Credit Use…90 Use Cash…90 Debit Cards…90 Personal or Bank Certified Checks…90

Chapter 14 Credit Reports and Credit Scores…92 Checking Your Credit Rating…92 Why It’s Important to Check Your Credit Rating…92 All About Credit Reports: What Every Consumer Needs To Know…92

How To Get A Free Copy of Your Credit Report…93 What’s Included in Your Credit Report…93 Sample Credit Report…94

All About Credit Scores: What Every Consumer Needs To Know…98 Fixing Inaccuracies In Your Credit Report…99 The Fair Credit Reporting Act (FCRA)…100 Stopping Those Credit Card Offers…100 “Quick Credit Repair” Scams…100

Conclusion Closing Statement: Your Journey Towards Financial Health…101 The Road to Rebuilding Your Credit…101 Evaluation: Student Survey Form…103

© 2006 Stand Sure Information Services, Inc. All Rights Reserved viii

Part VII Appendix

Answer Key to Worksheets, Exercises and Case Studies Supplemental Worksheets Additional Web Links and Resources Reference List

© 2006 Stand Sure Information Services, Inc. All Rights Reserved ix

Workbook Instructions This workbook was developed as a companion to the Stand Sure Information Services, Inc. Personal Financial Management Instructional Course (PFM Course). The workbook will allow you to take notes throughout the course. You can choose to use either the online printable worksheets, or the blank worksheets provided in this workbook. The PFM Course Workbook is also available for use as a future reference to the course material. The United States Bankruptcy Trustees have outlined four major areas of personal financial management that must be covered by all Trustee approved educational institutions. The four major areas are as follows:

Budget Development Money Management Wise Use of Credit Consumer Information

This course covers these four areas extensively, and provides additional Internet links for students who seek more in-depth information as needed. This course is divided into eight parts:

Part I Making Healthy Financial Decisions Part II Financial Obligations: Where Does All Your Money Go? Part III Setting and Achieving Goals Part IV Developing and Implementing Your Budget Part V Money Management Part VI Wise Use of Credit Part VII Appendix

If you are reading this document you should have already:

1. Registered for the Course by providing personal information, including your Social Security and Bankruptcy Case Number.

2. Read and agreed to the Statement of Service, Terms of Service and Intent 3. Printed this Workbook from the homepage http://www.pfmcourse.com

Let’s Begin!

© 2005 Stand Sure Information Services, Inc. 1

Part I Making Healthy Financial Decisions

© 2006 Stand Sure Information Services, Inc. All Rights Reserved 2

Introduction: Bankruptcy – Why Me?? Bankruptcy is a legal process in which an individual seeks legal assistance to restructure his or her debt. Bankruptcy can be an experience that can cause a range of emotions; individuals may feel inadequate, out of control or hopeless. Some people may experience “wishful thinking” and believe that if they had only a little more time, they would have gotten themselves out of debt. Others are certain that they will win the lottery or get a substantial inheritance. You may even feel like you are all alone. Although you may feel this way, please know that you are not alone. Throughout history, all types of people have found temporary relief from creditors by filing bankruptcy. Some famous personalities who have filed bankruptcy include:

President Abraham Lincoln

Author Miguel de Cervantes

Inventor Henry Ford

Actor Redd Foxx

Singer Marvin Gaye

Singer Tammy Wynette

Rapper Lisa “Left Eye” Lopez

Causes of Bankruptcy

There is a common stereotype that debtors file bankruptcy due to financial mismanagement. This is not entirely true. While bankruptcy does allow debtors to eliminate some debt and restructure other debt, there are other significant causes of bankruptcy. Most bankruptcies are caused by single events that have serious financial implications. Some single events may include:

Unemployment Medical illness of yourself, a spouse/partner, or other family member Sudden disability Mental illness Liability lawsuits Death of a spouse/partner Divorce Catastrophic financial event


Bankruptcies can also be caused by events over time. Some events over time may include:

Prolonged unemployment Not living within your means Buying items that are too expensive (cars, homes, boats, etc.) Over-extending yourself in financial investments/borrowing Excessive spending, credit card debt, penalties for taxes, bank fees, fines Inability to pay taxes, mortgages, loans, etc. Alimony / child support Lack of proper insurance Addictive behaviors (i.e. - drugs, alcohol, gambling) Furthermore, some debtors may find themselves faced with multiple causes (both a single event or events over time). It is not uncommon to find people who are just barely making ends meet suddenly find themselves devastated due to a single event such as a divorce or catastrophic illness. Often times, the emotions of these devastating single events can cause debtors to ignore potential financial implications related to the event.

Exercise: Reflective Questions List some of the causes and reasons for your bankruptcy. Note if these were single events or if they were events that happened over time. Also note if you were aware of any financial consequences while the events were taking place. Some examples are provided. Event Single / Over Time? Aware of Financial Consequences? 1. Divorce Single Event No 2. Credit Card Debt Over Time Somewhat – I thought I could manage it. Provide some strategies for avoiding these situations in the future. Below are some examples. 1. I will cancel five of my credit cards, and keep one for emergency purposes only. 2. I will spend only $100 for holiday gifts this year, and the next three years.


Implications of Bankruptcy Your financial counselors or attorney have probably already discussed the implications and effects bankruptcy will have upon your life. We will briefly review some of these implications:

1. If you file for bankruptcy you may no longer be in control of your assets – the bankruptcy court may make financial decisions on your behalf.

2. A bankruptcy will be a part of your credit history for seven (7) to ten (10) years,

and will be known to any potential creditor when you apply for a loan or any other type of credit during that same timeframe.

3. After filing bankruptcy, it can take up to ten (10) years for your credit score to be

repaired.

4. Filing bankruptcy can cause lenders to consider you a high risk. As a result, it may be difficult for you to get credit. If you do get approved for credit cards, loans, mortgages etc, lenders may charge you a significantly increased interest rate because lenders may consider you a high risk for repayment.

5. Bankruptcy can be a strain on your emotional well-being.

6. Individuals can perceive bankruptcy as an “escape” from their financial

obligations and may later repeat the cycle. If you have any further questions about the implications bankruptcy may have upon your personal situation, you are advised to ask your bankruptcy attorney.


Chapter 1 Decision Making Skills Developing effective decision making skills is critical to your financial health. While you may already possess some of these skills, this course will help to strengthen your existing skills and teach you new and more effective ways to make appropriate financial decisions. We encounter financial decisions every day in our lives. Decisions such as buying goods and services, choosing insurance policies, and choosing banking products are made on a daily basis. These decisions can have significant financial impacts to your life. You may have already experienced the impact of your previous financial decisions that have led you to bankruptcy. There are several steps that should be reviewed prior to any significant financial decision you make:

Knowledge is Power – Educate yourself. An informed decision can lead to an effective decision. Seek competent help when necessary.

Assessment – Understand and look critically at the financial issues, and

the potential impacts the decision will have upon income and expenses. Analysis – Take time to compare the costs, benefits, quality and impacts

of the decision you are making. This skill may help you to save time, increase the quality of the goods and services purchased, and potentially save you money.

Practical Application of Skills – Use your knowledge, assessment and

analysis skills to make an effective financial decision.

Look for these symbols to assist you in chapter lessons where decision making skills are applicable. Throughout this course, you will be asked to apply some or all of these decision making skills in each chapter lesson.


Chapter 2 The Value of Money

What Exactly is Money? For so many people, money is merely dollars and cents. For some, it is an item that comes and goes quickly through their lives. It enters their pockets and then rushes out to pay for housing, utilities, gas, groceries, and entertainment. Most people hope to have a little money left over for savings. It is no wonder that people everywhere are asking, “Where did all that money go?!?” So let’s take a closer look at something so common and simple, yet so complex. For those who say that money is dollars and cents, that statement is only partly true. The dollars and cents are merely “representations” of money’s value. Don’t believe me? Try this experiment. Blindfold a friend and give them a $1 bill in one hand and a $100 bill in the other. Ask them which one is more valuable. Chances are, he or she will not be able to tell the difference because physically the dollars are nearly identical (except of course that one says $1 and the other says $100). By themselves, dollar bills are just highly decorated paper. Apart from differences in appearance, there is very little physical difference between a $1 bill and a $100 bill. We hope this example clarifies that it is the value of money that is important - not the physical paper. It is the value of money that allows us to purchase things, pay our bills and provide us with a suitable living. Other questions that might occur to you are: “Where does this value come from?” “Does the government set the value of money?” “Does your employer set the value of money through the wages you are paid?” The answer that so many people do not understand is that you set the value of money in your own life! Some experts regard money as a physical representation of time and energy. Think about that for a moment! You work a set number of hours a week for pay – you don’t work for free. The money you receive is payment for the time and energy spent working.

Money = YOUR Time and Energy


Exercise: Reflective Question How much time and energy do you have to spend working to pay for the following items: Food Mortgage or Rent Car Payments Cable TV Late Payment Fees / Late Finance Charges Entertainment To find this out, a basic calculation is: Price of the item or bill = Amount of YOUR time and energy needed to pay for that item Your hourly wage

Case Study Analysis: Sarah Sarah works as a cashier at a local grocery store. After taking into account the State and Federal taxes and Social Security withholdings that are taken out of her paycheck automatically, she earns $5.00 per hour. She wants to buy a pair of very expensive shoes that cost $150.00. How many hours does she have to work at the cash register in order to pay for those expensive new shoes? $150 = the number of hours Sarah will need to work to pay for the shoes $5.00 / hour Answer: Sarah will work 30 hours (almost a full week’s pay) to afford those shoes! That’s almost one full week of work at the cash register every day for eight hours a day to pay for those shoes! Sarah may want to refer to the Needs vs. Wants section of this course. Sarah may want to ask herself: “Does my spending plan allow me to buy such an expensive item?”


“Are there more important things that I need to pay for first (housing, debts, etc)?” “Can I live another day without these shoes?” “Can I wait until they go on sale or perhaps find another more affordable pair?” By applying this basic calculation to many purchases you are considering, you will be AMAZED at how much you may rethink your spending habits.


Chapter 3 Understanding Your Income and Paycheck

What Is Income? Before we go any further, it is important that you understand your income.

Income is money you earn for the work that you do. For some, it is the money received in a weekly, bi-weekly, bi-monthly, or monthly paycheck. Some other examples of income can be: money received for renting a property, money received for odd jobs like babysitting or home maintenance, money received for a personal business. While types of income can take different forms, most income arrives in the form of cash, or more commonly as a paycheck. You may find that the best way to understand your income is to review your paycheck or remaining cashed paycheck stubs. Paycheck Terminology Defined

Earnings are the money you have earned during the pay period of your paycheck. This can be listed as hourly wages, salary, commission, overtime, holiday pay, sick time, vacation time, comp time, etc. Your earnings for the pay period are calculated to give you your gross pay. For an hourly worker, this calculation can be as simple as multiplying your hourly wage by the number of hours worked during your pay period. In the example in Figure 2-1 we can see that Mary Doe received $565.62 in gross pay for the pay period. We can also see that so far this year, she has earned $3880.54. Deductions are amounts that are withdrawn from your paycheck automatically. They are used to pay for your income taxes, other taxes, and union dues, as well as any employer sponsored benefits. Your gross pay does not account for State or Federal deductions, such as: Income Taxes, Social Security/Medicare Tax/FICA and Unemployment Withholdings. It also does not include the costs of any employer provided benefits like 401(k) / 403(b) Savings (Retirement Plan), Medical Insurance, Dental Insurance, Disability Insurance, etc. When all deductions have been automatically taken out of your paycheck, you are left with your Net Pay.


Your Net Pay is the final amount of money that you receive or take home.

Calculating Your Weekly And Monthly Income When you receive income (a paycheck), it is typically on a regular schedule. While some people may receive their income every week (weekly income), others may receive income on a bi-weekly, bi-monthly or monthly basis. Bi-weekly income is income that is received every two weeks. Note: this is not the same as “twice monthly.” In a longer months, such as June, you may be paid three times. For example, on June 2, June 16, and on June 30th Bi-monthly income is income that is received twice monthly. This type of income is usually paid on the first and fifteenth (or the fifteenth and thirtieth) of every month. Monthly income occurs in one paycheck per month. It is easy for some to miscalculate monthly income. This is because many people who receive weekly or bi-weekly paychecks calculate monthly income assuming there are four weeks in every month. This would be an incorrect calculation!! Here’s why: 4 weeks per month x 12 months = 48 weeks There are 52 weeks in a year. Therefore, you would underestimate your income by four full weeks. The proper method to calculate your monthly income is: (Weekly Net Pay x 52 weeks) ÷ 12 months = Monthly Income (Bi-weekly Net Pay x 26 weeks) ÷ 12 months = Monthly Income (Bi-Monthly Net Pay x 24 weeks) ÷ 12 months = Monthly Income Monthly Net Pay = Monthly Income


Paycheck Taxes and Withholdings

For many, the Federal tax system is a pay-as-you-go system where payments are made as income is received. For most people this is handled by an employer who regularly withholds income to make payments on your behalf for Income Taxes, Social Security, Medicare and State Tax (if applicable to your state of residence).

As you begin to review your paycheck, it is important to understand the different taxes and withholdings that are taken out of everyone’s paycheck.

A withholding is money that your employer “withholds” from your paycheck. The money is paid to Federal, State or Local governments as payment for your tax liability. This amount is reconciled each year when you file Federal, and if applicable, State and Local income tax returns. Withholdings are sometimes referred to as “pay-as-you-earn” taxation. An exemption (or “allowance”) is defined as the number of dependants that a taxpayer can claim. Dependants may include youself, spouse/partner, and any eligible dependents for any given tax year. The Federal Insurance Contributions Act (FICA) is the authority under which Social Security and Medicare payroll taxes are collected. FICA collects 6.2% of your total gross pay for Social Security withholdings. FICA also withholds a standard 1.45% of your total gross pay for Medicare. It is not wise to judge your monthly income on salary or how much you make an hour, because State and Federal income tax, FICA, retirement, and other deductions affect your net pay. When you first started your job, you may remember filling out the Internal Revenue Service, form W-9. Your W-9 form tells your employer a few important things that affect how much money you pay in taxes:

Marital status Your withholdings The number of dependents (those that are dependent on your income for survival)

that you would like to claim (allowance or exemptions) Head of household status Any additional withholdings


If you elect to have additional withholdings from each paycheck, the amounts should be clearly listed. You may elect to change your withholdings at any time by notifying your employer. It is a good idea to notify your employer of significant changes in your life such as the birth or adoption of a new child or caring for an elderly parent (adding dependents), marriage or divorce (change in marital status). Be aware that when you fill out a W-9 form for your withholding taxes, taking too many or too few exemptions can have a great affect on your taxes and the money you receive in your paycheck. An important note to remember is that even though you are in control of how many exemptions/allowances you claim throughout the year, you must accurately report your exemptions/allowances to the IRS at tax time. Therefore, too many exemptions claimed may result in taxes owed and too few exemptions may result in a large tax refund. A good rule of thumb is report exemptions or allowances accurately. Self-Employment Taxes and Withholdings

Being self-employed means that you are in business for yourself, with or without a business partner or partners. This means you do not have an employer to take withholdings and taxes out of your gross income or the gross income of any of your employees. Therefore you are responsible to take out withholdings and taxes for yourself and for your employees (if applicable). These withholdings are often referred to as Estimated Tax or Self Employment Tax. Estimated tax or SE tax is the method used by the Internal Revenue Service to pay tax on income that is not subject to withholdings, such as self-employment income, rents, dividends, etc.

Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. How does the Federal Government track people who are self employed?

The Federal Government uses your Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) as a tracking method for individuals who are self employed. These two numbers are also used as identification numbers for payment of withholdings and taxes.

How much money do you have to make before you have to file self-employment taxes?

You are responsible to pay the self-employment taxes on any part or full time business that yields $400.00 or more Net Income per year. Many people wrongly assume that their full time employers will cover their part time SE taxes.


What is the self-employment (SE) tax rate?

The current 2005 self- employment tax rate is a total of 15.3%, that is 12.4% for Social Security withholding and 2.9% for Medicare.

Do you pay the withholdings at tax time or quarterly?

If you estimate that you will have less than $1000.00 in self-employment taxes you may pay the full amount at tax time on April 15th. If you estimate that you will have to pay more than $1000.00 in SE Taxes, it is recommended that you pay quarterly. Quarterly payments are typically made to the Internal Revenue Service on the following dates: April 15, June 15, September 15 and January 15.

If you are self-employed and receive regular commissions, consulting fees, and other fees for services, you must make periodic payments for self employment taxes.

Failure to pay enough withholdings or estimated SE tax payments can result in a penalty fee. Failure to pay enough by the due date of each payment period may also result in a penalty. This penalty may occur even if you are due a refund when you file your tax return.

Please be advised: If your self-employment income fluctuates frequently, you may have difficulty making accurate estimates for SE tax. Therefore, you may want to pay your SE tax quarterly to avoid penalties for inaccurate estimates.

For more information on estimated taxes, consult your tax professional, or you may seek assistance from the Internal Revenue Service Website: http://www.irs.gov.

General Questions About Withholdings and Taxes How does the government know how much money to withhold? The amount of withholdings from your regular paycheck is directly related to the W-9 form that you filled out for your employer. The number of dependents that you claim as your allowance or exemptions directly determines how much money the federal government withholds from your check. The amount of dependents you claim directly affects the amount of withholdings the federal government and, if applicable, your state will take out of your check. For more in depth information about calculating withholdings, visit the IRS website: http://www.irs.gov/individuals/page/0,,id=14806,00.html


Why shouldn’t I claim that I have more dependents than I really have? While it is true that the more you increase your exemptions the more money you get paid in your paycheck there is a check and balance factor that you must know. When you file your taxes each year it is mandatory that you claim the ACTUAL number of dependents. Therefore, if you have claimed more dependents than you really have, and have had very little withheld from your check, you will be expected to repay the appropriate amount of taxes you owe when you file your taxes. So how do I know the right number of exemptions or allowances to claim? You should typically claim the number of exemptions that is near the accurate number of actual dependents that you have. What if I receive a large Federal and/or State income tax check each year or if the opposite is true and I have to pay a large amount of Federal and/or State income tax each year? You may want to consult with one or more of the following sources for advisement:

Your employer (Payroll or Human Resources) Tax Adviser Financial Planner Accountant Tax Attorney

How much does my employer withhold from my paycheck for FICA? FICA collects 6.2% of your total gross pay for Social Security withholdings. FICA also withholds a standard 1.45% of your total gross pay for Medicare. There is no way to change either of these withholding taxes. For more information about FICA please visit: http://www.socialsecurity.gov If I am self-employed, do I have to pay FICA? Self-employed people pay self-employment tax at a rate of 15.3% (12.4% is for Social Security and 2.9 is for Medicare) of your Gross Income. Unemployment Taxes Employers are also required to pay taxes to both the Federal and State governments as payments into the unemployment compensation system. These can sometimes be referred to as: “Unemployment Tax,” “Unemployment Compensation,” “Unemployment Insurance,” etc. As an employee, your paycheck may reflect these taxes. Self- employed individuals may also be required to pay an unemployment tax.


A Final Important Note on Taxes Everyone’s financial and tax situation is different and unique. The best advice is to seek counsel from your tax consultant, attorney, financial planner or other competent advisors to make a responsible and smart financial choice for your personal situation. You can also find more information and help in calculating your withholdings at the IRS website: http://www.irs.gov/individuals/index.html Now that you understand your paycheck terminology, let’s take a moment to review a sample paycheck. The online version of this sample paycheck is interactive with mouse- over features and commentary. Every paycheck is different, so yours may look very similar to or very different from the one in Figure 2-1. However, the basic information should be the same.


SAMPLE PAYCHECK

Period Ending: 05/05/2007 Pay Date: 05/08/2007

ABC Employer 1234 Commercial Blvd. Anytown, NY 12345 Taxable Marital Status: Single Mary Doe Exemptions / Allowances: 123 Main Street Federal: 10 Anytown, NY 12345 State: 5 Social Security Number XXX-XX-1234 Earnings Rate Hours This period Year to date Wages $12.50/hr. 32 hours $400.00 $3475.00 Overtime $18.75/hr 3.5 hours $65.62 $205.54 Holiday $12.50/hr 8 hours $100.00 $200.00 Gross Pay $565.62 $3880.54

Deductions Statutory

Federal Income Tax $108.28 $1267.78 Social Security Tax $ 27.00 $ 725.26

Medicare Tax $ 7.25 $ 127.43 NY State Income Tax $54.14 $ 427.56

Other 401(k) Savings $50.00 $250.00 Medical Insurance $120.00 $600.00 Net Pay $198.95

ABC Company Date: 05/08/2007 1234 Commercial Blvd.

Anytown, NY 12345 Pay to the Order of: Mary Doe One Hundred Ninety Eight and 95/100 ------------------------------------------- Dollars


Calculating Your “Real” Monthly Income: The Costs of Working The previous pages talked about your income, and all the money that is withheld to pay for taxes and other employer sponsored benefits.

Now let’s take a look at some of the “hidden” costs and expenses you may encounter from your job. These hidden costs can take many forms. Some are easy to spot, and others are more difficult. The easiest way to spot them is to ask yourself, “If I didn’t have this job, would I have this expense?” Some common work-related expenses include: Transportation costs (to, from and during work)

• Gasoline • Tolls / Parking

Tools / Supplies (not supplied by your employer)

• Labor tools (i.e. - mechanic’s or carpentry tools), supplies • Computers / Printers / Software, etc. • Paper, pens/pencils, paper clips, staplers, etc. • Planner / Calendar / Personal Data Assistant (PDA)

Clothing

• Uniforms • Special “Work Clothes”: suits, shirts, jackets, ties, purses, shoes, etc.

Work -Related Expenses

• Work Meals (i.e. – lunch with “the boss”) • Conferences and Educational Courses • Work -Related Licenses

Communication Devices

• Telephone / Cell Phone / Pager, E-mail / Internet It is very important to understand the hidden “costs of working.” This is the amount of money you have to spend every month just to get to work so that you can earn an income. By understanding these costs, and subtracting them from your Net Pay, you can calculate your “REAL” monthly income.

FACT: It is not uncommon to learn that working at your current job may cost you more money than you realize!


Case Study Analysis: Yolette Yolette has a great job that she loves. She works as a nurse at a large hospital and cares for organ transplant patients. She earns a $55,000 per year salary. Her net weekly income is $675. The hospital is 20 miles from her home. Public transportation is available and weekly family passes cost $20.00. Yolette prefers to drive because she sometimes goes out for lunch with her co-workers. She pays $50 per week in gasoline costs to get to work and pays a monthly pass of $50.00 to park in the employee parking lot. As part of her job, she has to buy her uniforms, which tend to wear out quickly. Every year, Yolette has to pay around $900 to buy new shirts, pants and shoes for work. She is also required to attend two conferences each year for professional development. Last year she spent $450 to attend the conferences. She also has to pay $30.00 each month for her union dues that are automatically deducted from each paycheck. As a single mother of three small children, Yolette has to put her children in daycare. She brings them with her to work so they can stay at the employee daycare facility at the hospital. The daycare costs $300 per week. What is the monthly “cost of working” for Yolette? What is Yolette’s REAL Monthly Income? First, let’s calculate Yolette’s monthly income: (Net Weekly Income x 52 weeks) ÷ 12 months ($675/week x 52 weeks) ÷ 12 months = $2,925 / month Now let’s calculate the monthly “costs of working” (Weekly Expense x 52 weeks) ÷ 12 months or Annual Expenses ÷ 12 months Transportation Costs: ($50/week x 52 weeks) ÷ 12 months = $216.67/month Parking Costs: $50.00/month Uniform Costs: $900/year ÷ 12 months = $75.00/month Conferences: $450/year ÷ 12 months = $37.50/month Childcare: ($300/week x 52 weeks) ÷ 12 months = $1300.00/month Yolette’s Total Costs of Working: $1679.17/month


Exercise: Reflective Questions

1. What is Yolette’s REAL monthly income? 2. Can you give three suggestions for Yolette to reduce her monthly expenses?

3. How much money would Yolette save per month if she and her family took public

transportation? Now that we have practiced with Yolette’s REAL monthly income, the following worksheet will assist you in calculating your own REAL monthly income.


Worksheet: Calculate Your Real Monthly Income

Directions: Use this worksheet as a guide to calculate your real costs of working and to determine your “REAL” monthly income. Calculate your monthly income and subtract your costs of working.

Calculating Monthly Income

Weekly Net Income x 52 weeks ÷ 12 months =

Bi-Weekly Net Income x 26 weeks ÷ 12 months =

Bi-Monthly Net Income x

24 weeks ÷ 12 months =

Your Net Income x # weeks ÷ 12 months =

Calculating Your Costs of Working

Monthly Costs:

Transportation Costs x 52 weeks ÷ 12 months =

Tools/Supplies x 52 weeks ÷ 12 months =

Clothing x 52 weeks ÷ 12 months =

Education x 52 weeks ÷ 12 months = Licensing x 52 weeks ÷ 12 months =

Cell Phone x 52 weeks ÷ 12 months =

x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months =

x 52 weeks ÷ 12 months =







Total =

Calculate Your REAL Monthly Income: (Monthly Income) - (Monthly Cost of Working) =


Chapter 4 Understanding Your Needs and Wants Needs and Wants Defined

Needs are food, shelter, clothing, transportation, medical care, education, communication

devices, basic utilities (gas, electric, etc.), and any other items that are necessary for you to live. Some other considerations may also include: childcare, prescriptions, union dues and insurance. Wants are those things that are not absolutely necessary for survival. For instance, cable television is nice to have for entertainment, but it is not vital to survive. Please keep in mind that every person has to define his or her own needs and wants. While some needs (like housing) may be universal, others (like a computer) may be situational. Some may consider a computer a necessity, while others may not. Once you have assessed your needs and wants, you may be able to find alternative solutions that are more cost effective. For instance, did you know that almost every library in America has FREE (or almost free) Internet service available to the public? Did you know that most libraries allow you to borrow (at no cost): CDs, DVDs, books on tape, and videos? Libraries may also have subscriptions to your favorite magazine and/or newspaper. These types of free (or low cost) services allow you to satisfy some wants in a way that does not significantly impact your monthly income.

Assessing Your Own Needs and Wants Effective money management does not mean cutting out all wants, but it does mean making a spending plan that prioritizes needs before wants. This will result in a balanced budget and help you to live within your spending plan.

Making informed decisions about purchases makes a difference. It is always a good practice to comparison shop for goods and services. Your time spent will make sure you are getting the best value for your money. Also, remember to be realistic about your needs and wants. As consumers we all have many choices about available goods and services. Your income should be your guide to help make realistic choices regarding your needs and wants. For example, you may need to consider public transportation or carpooling to get to work every day rather than buying an expensive automobile that is outside of your budget.


Prioritizing Your Needs And Wants Now that you have assessed your needs and wants, there is one more critical step to consider: prioritizing or ranking your needs and wants. Begin by listing your needs in order of their importance to your personal situation. Basic Needs and Debt Obligations Come First!

1. Food 2. Housing 3. Transportation For Work 4. Work Expenses 5. Child Care Expenses 6. Alimony / Child Support 7. Basic Needs Clothing 8. Repayment of Outstanding Debts (credit cards, higher interest loans)

If funds are available, you can then prioritize your wants in order of their importance to you. Basic Wants may include:

1. Entertainment (movies, theater, music, cable etc.) 2. Eating out 3. Non essential clothing 4. Personal items (i.e. perfume, cologne, make-up, etc.) 5. Electronics

Some suggestions you may want to consider:

Make wise choices of wants Some wants can be free or low cost Not Incurring New Debt! Cancel all credit cards except one for emergencies Place yourself on a “Financial Diet” Use cash Pay down existing debt Live within your means

This next exercise was developed to help you begin to think about how to categorize and prioritize expenses into needs and wants. We have provided you with some common needs and wants. Be sure to add your own.


Case Study Analysis: Realistic Needs Directions: One of the most basic needs is food. Take a moment to critically analyze and review the costs of eating out at a fancy restaurant, eating out at a moderately priced restaurant, or buying a week’s worth of groceries and eating at home. Answer the reflective questions listed below. Dinner (including tax and tip): $75.00 Gasoline (to get to the restaurant) $3.00 Total Cost For One Meal: $78.00 Eating Out (One Meal) At A Moderately Priced Restaurant: Dinner: $15.00 Gasoline (to get to the restaurant) $3.00 Total Cost For One Meal: $18.00 One Week’s Worth of Grocery Shopping For Two People (21 Meals Per Week - Breakfast, Lunch and Dinner): Meats: $10.00 Cereals: $4.00 Milk / Eggs / Cheese $7.00 Fresh Vegetables / Fruits $10.00 Rice / Potatoes / Pasta / Breads $6.00 Snacks / Soda / Tea / Coffee $10.00 Gasoline (to get to the store) $3.00 Grocery Costs: $50.00 Reflective Questions:

1. How much money would you spending per meal?

2. Which option is the most economical?


Case Study Analysis: Realistic Wants Directions: Most of us have a desire for entertainment as a realistic want.

Below is a comparison involving entertainment choices. Please take a moment to review the costs of a family of four going out to a movie theater vs. video rental.

Going to One Movie With Family: 2 Adult tickets: 2 x $10.00 = $20.00 2 Child Tickets: 2 x $6.50 = $13.00 Popcorn and Drinks - $20.00 Gasoline to get to the movies: $5.00 Total: $58.00 Borrow Four Movies From Library: Movies: FREE Popcorn and Drinks: $12.00 Gasoline to get to library: $2.00 Total: $14.00 The comparisons outlined above illustrate that there can be alternatives that are more cost effective and provide more options for family entertainment. In this example, a family of four can enjoy more family entertainment by borrowing movies from the Library. Remember, there are many ways to satisfy your various wants by being creative. Another point to consider in this example is non-financial: How badly do you want to see the movie? Have your kids been bugging you for months to see it? Is it something you have planned for in your spending plan?


Worksheet: Assessing Your Realistic Needs and Wants

Directions: Now that you have had a chance to explore the difference between a need and a want, make a list of the top needs and wants in your own life. Rank them in order of importance to you and your family. Also note if your needs and wants are realistic to your current income and budget. We have provided a few examples to help you get started. Assessing Realistic Needs Worksheet

Needs Rank Realistic (Yes/No)

Food Housing Transportation Assessing Realistic Wants Worksheet

Needs Rank Realistic (Yes/No)

Eating Out Going Out With Friends New Car


Chapter 5 Decision Making: The Informed Consumer Making Effective Decisions Effective decision making can allow consumers the ability to acquire goods and services for the best possible price, while maintaining a desired level of quality.

There are three basic methods used to acquire information regarding goods and services:

Educate yourself about the goods and services Know your rights as a consumer Comparison-shopping.

Here are some ideas that you may use to acquire more information about goods and services. Once you have the information you need about the goods and services you desire, you can begin to decide which product or service best meets your needs. Educate Yourself About The Product Educating yourself about a good (or product) is slightly different from educating yourself about a service.

When educating yourself about a good or product you desire, you should ask some or all of the following questions:

o Are published product reviews available on the internet or in magazines?

o What products are available in your market?

o Who are the manufacturers and suppliers of the desired product?

o Do they have a good history of manufacturing the product?

o Are there any warranties for the product?

o Are there different available levels of quality for the product?

o Are there competing brands of the product type that offer a better quality?

o Are there competing brands of the product type that the same quality at a

lower price?

o Does the product suit your needs?

o Is the product within your desired price range?


Educate Yourself About The Service

When educating yourself about a service you desire, you should consider all the questions mentioned above as you would a product. However, you should also consider the following:

o Did you get three quotes from competing service providers?

o Do you have to sign a contract?

o What are the terms of the contract?

o How long is the contract in effect for?

o How long will the service be provided?

o If the service is for a project, how long will it take for the project to be

completed?

o What is my recourse if the service provider fails to provide the service?

o Does the service provider offer a warranty for the workmanship, parts or

labor?

o Is the service provider insured?

o If the service provider does not have insurance, will your insurance cover

liability for errors, defects, injuries, etc.?

o Is the service provider well known in the community for quality service

and fair pricing?

o Does the service provider have references or a portfolio of completed

services?

o Is the service provider a member of the Better Business Bureau?

o Does the Better Business Bureau have any records of complaints against

the service provider?

Know Your Rights as a Consumer The Federal government has implemented numerous laws to help protect consumers. This course outlines many important laws that you as a consumer should be aware of. These laws convey special protections for consumers, and require that certain disclosures and information be made available to you. Take the time to familiarize yourself with these laws, and know your rights as a consumer throughout the rest of the course. Being an informed consumer can greatly improve your ability to make effective financial decisions.


Ways To Comparison Shop Once you have made an informed decision regarding the exact good or service you desire, you should then comparison-shop for the best price. The following are some suggested ways to comparison-shop:

Telephone Book – Call and ask for prices. Internet – Use search engines to locate various locations and prices. Be sure to

take into account shipping and handling charges if you cannot locate the good or service locally.

Advertisements – Watch your local papers, TV, mail, and billboards for special sale prices.

Word of Mouth – Ask friends about their experiences with the products or services you desire.

Buy In Bulk – Check prices at bulk stores for certain non-perishable items that can be stored. This may help you to lower the per-item cost.

Ask for Generic Brands – Some of your favorite name brand items actually produce “generic” branded products at a reduced cost.

Shop at Thrift Stores, Consignment Shops, Estate/Garage/Yard Sales – Many of the products you need or desire can be purchased at drastically reduced costs.

Case Study Analysis: Chris and Jim Chris and Jim are planning to adopt a newborn baby. Before the baby is born, Jim decided to comparison shop for diapers at a national discount chain store, and a national warehouse club store. Both stores are conveniently located in the same shopping center near their home. The diapers they would like to purchase on an ongoing basis have been narrowed down to three brands of diapers: Brand X, Brand Y, and Brand Z. Jim surveyed friends with children, and determined that each of the brands received equal recommendations. Certain brands have some exclusive features, but for comparison purposes, they were largely equivalent products. All three brands of diapers will serve their newborn baby’s diaper needs equally. While at the store doing research, Jim was amazed at how many different packaging combinations there were for diapers. Each brand had a different name for the package size (Mega, Ultra, Giant, Ultra-Giant) and a different number of diapers in a pack (50, 84, 192, etc.). Jim even noticed that some package sizes and brands were only available in certain stores. With such variations in price and package size, how should Jim determine which product brand and package size is the lowest price?


Jim determined that the best way to determine the most cost effective price for diapers was to calculate the individual price on a per-diaper basis. This is also called the price per-unit. Jim could then multiply the price per-unit cost by the estimated number of diapers they would need in a given week. Over time, he would understand his baby’s changing schedule, and his numbers would become more accurate. Chris’ friends have always said that buying in bulk will save money, but Jim wanted to be sure of that. Luckily, Chris and Jim have a nice storage area in the basement of their apartment building if they decide that buying in bulk is the most cost effective method. Listed below are the different diaper packages, number of diapers and prices of the packages: Step 1: To Calculate the Per-Unit Price for each package: (Package Price ÷ # Diapers) Wholesale Warehouse Club

Diaper Name Pack Name Number of Diapers Per Pack

Package Price

Per-Unit Price

Brand X Giant 228 31.49 0.14 Brand Y Ultra-Giant 284 29.99 0.11 Brand Z Ultra-Giant 192 28.29 0.15 National Discount Chain

Diaper Name Pack Name Number of Diapers Per Pack

Package Price

Per-Unit Price

Brand X Ultra 50 10.49 0.21 Brand Y Mega 50 10.99 0.22 Brand Z Mega 84 12.49 0.15 Reflective Questions:

1. Name the product, store and cost with the lowest package price? 2. What is the per unit price for that brand of diaper? Does it have the lowest per

unit price? 3. What product, store and cost has the highest package price?


4. What product has the lowest per-unit price for diapers?

Step 2: Calculate weekly and monthly costs of diapers: Jim has a high estimate that the baby will need to be changed about 12 times per day. 5. How many diaper changes will he need for a week? Jim and Chris want to add the estimated costs of diapers to their monthly budget plan. 6. Calculate the weekly cost of diapers using the lowest per-unit priced brand by using

the following calculation: Weekly Diapers Needed x Lowest Per Unit Price = Weekly Diaper Costs 7. Calculate the monthly cost of diapers using the lowest per-unit priced brand by using

the following calculation: Weekly Diapers Needed x 52 Weeks Per Year ÷ 12 Months = Monthly Diaper Costs


Part II Financial Obligations:

Where Does All The Money Go?


Chapter 6 Financial Obligations: Expenses

Understanding Out-Go

Out-Go includes all the reasons money goes out of your possession or leaves your account. Your financial obligations include both expenses and debts. Expenses are costs that are incurred for daily activities of living, such as housing, utilities, transportation, food, and entertainment. Also, expenses can cross over to debt when you are not living within your means. “Living within your means” refers to controlling your expenses so that they do not exceed your income to become debts. Debt is money that is owed as payment for goods and services. Debt occurs when you have insufficient funds to pay for goods and services at the time they are rendered. Some examples of debt are: credit cards, mortgages, car loans, student loans, etc. Remember, people and financial institutions expect repayment over time. Figure 1-A shows the relationship between your income and your out-go. Income is the amount that comes into the home and out-go is the amount that goes out. The critical part is making sure you have enough income to cover your entire predictable out-go, as well as any other expenses that may arise.

Income Debt

Income and Out-Go Pipeline

Figure 1-A

Income Expense

Cash

Debt

Out

-Go


Types of Expenses

To manage your money effectively, it is important to go even further than understanding an expense as a need or a want. It is critical that a consumer understand that all expenses fall into four basic categories:

Fixed expenses are payment amounts that do not change over time. These are payment amounts that stay the same month to month. Some types of debts, such as car loans or student loans, take the form of fixed expenses until they are paid off. You know how much is due and when it is due.

Variable expenses are payment amounts that may change month to month. These payment amounts may vary based on use. Common examples are groceries, telephone, gas, and non-budgeted utilities.

Periodic expenses are payments that do not occur on a regular basis. These payments arise once or twice a year. Common examples are water or insurance bills, car repairs, home maintenance, and holiday shopping.

Emergency Expenses: These are unexpected expenses that arise as a result of crisis. Common examples are immediate home or car repairs due to severe weather, hospitalization, death, or unemployment.

Expenses

Fixed Variable Periodic Emergency

Figure 2-1


Worksheet: Identifying Types of Expenses Directions: On the lines below indicate how each expense should be classified: Fixed (F), Variable (V), Periodic (P), or Emergency (E). Student Loan Payment ______ Mortgage ______ Car Repairs ______ Health Insurance ______ Birthday Gift ______ Auto Loan ______ Vacation ______ Credit Card Payments ______ Air Plane Ticket for family funeral ______ Groceries ______ ANSWERS: Student Loan Payment – F, Mortgage – F, Car Repairs – P/E*, Health Insurance – F/P*, Birthday Gift – P, Auto Loan – F, Vacation – P, Credit Card Payment – F, Air Plane Ticket – E, Groceries – F * Note: Categorization of some expenses will depend upon the particular situation. For example, some car repairs can be planned, such as needing new tires. Other car repairs due to an accident may be considered emergency expenses.

Knowing how to classify your payments into Fixed (F), Variable (V), Periodic (P), or Emergency (E) will help determine how much money you need to save when you develop a spending plan.


Saving for Planned Expenses

Although these three types of expenses and payments may sound very similar, they are quite different.

Emergency Expenses are unexpected events that have financial implications (i.e. illness, accidents, deaths etc.) Planned Expenses are planned financial obligations (i.e. planned car repairs, planned house repairs or home improvements, college tuition etc.) Periodic Expenses are expenses that typically require payment one or two times a year such as, insurance premiums, taxes, tuition, etc) Saving for expected and periodic expenses can be done in your budget or spending plan by taking the amount needed and developing a timeline for the full amount to be saved. This requires some careful planning/saving to avoid these types of expenses occurring without warning. Emergency savings should also be worked into any budget or spending plan. Some refer to this as savings for the unexpected. Typically, this amount is accrued by putting 5% of your take home pay into savings. Therefore a family with a steady income of two people at $2000.00 per month should try to have $6,000 to $12,000 in savings or accessible investments. Without savings for these types of expenses, people often depend on credit or loans to meet their financial needs and can ultimately end up deeper in debt.


Chapter 7 Insurance: Protecting Your Financial Health Insurance: An Investment In Your Future Now that we have talked about fixed, variable and periodic expenses, you may be thinking that it would be appropriate to cut some expenses that you never seem to use. Many of the expenses people look to cut first are periodic payments like insurance. Before you make any hasty decisions, let’s discuss: the concept of insurance, its importance, the different types of insurance and their costs. Insurance is protection against a catastrophic event such as an illness, automobile accident, or fire that destroys your home. While some may refer to it as a gamble, insurance provides you with financial protection. There are numerous types of insurance coverage and it is important to protect yourself, your family and your assets like your car, your home and your savings with appropriate insurance protection. Again, knowledge is power and comparison-shopping skills will also assist you in making good insurance decisions. The following case study may help to illustrate the importance of insurance.

Case Study Analysis: Amani and Kim Amani and Kim rented a basement apartment within a four-unit house. Both were listed as co-renters on the rental agreement. The house was heated mostly by electric baseboard heating, but also had a fireplace in their living room. Both Amani and Kim enjoyed relaxing by the fire at night as well as the added heat it would provide for the apartment. While they were at work one day, an ember from the previous night’s fire sparked some newspapers. The fire quickly spread and destroyed the entire house (and all four units). Amani and Kim were devastated at their loss. Their clothes, furniture and all their belongings were gone in a matter of hours. Luckily, all the other tenants were at work and nobody was hurt or injured in the fire. Amani and Kim stayed with family while the house was being repaired. Amani and Kim contacted their landlord to ask about filing a claim with the landlord’s insurance carrier for the contents of their apartment. The landlord informed them that it would take a few weeks to settle the insurance claim before the house could be reconstructed. The landlord further explained that his insurance policy only covered reconstruction of the house, not the contents of the apartments. About a week later, Amani and Kim were served with court papers stating that they were responsible for the fire, and liable for the reconstruction of the house. Two weeks later, they also were served with papers from the other renters from the building, who sued them for recovery of damages to their belongings.


Amani and Kim found themselves with no belongings, living with family, and in court for liability damages exceeding $500,000. Reflective questions: Was renter’s insurance worth the $25.00 per month for Amani and Kim? Please explain your answer Did you know that if you are renting an apartment, townhouse or home that the contents of your home (furniture, electronics, clothing etc.) may not be protected from events such as fire, flood, earthquakes, hurricanes, tornadoes, severe weather etc?

Tips for Selecting Insurance

Educate yourself about types of insurance, costs, and benefits to yourself

and/or your family. Check sources independent from the insurance industry if you can.

Once you know what type of insurance you need, comparison shop for the

best price and lowest rates.

Don’t buy more insurance than you need, but don’t buy less

Basic Categories of Insurance Coverage

Health Care Insurance Automobile Insurance

Home and Renter’s Insurance Life Insurance

Disability Insurance


Health Insurance: Types of Coverage One of the most frequent causes of financial difficulty resulting in bankruptcy is the financial implication of unforeseen medical costs. Health insurance is the best way of avoiding such costs. Most employers offer comprehensive healthcare that may include dental plans and/or disability insurance for their full-time employees. Typically, you will be responsible for part of the premium (usually through payroll deduction) but that is substantially less than what you would have to pay for a private policy. It is important to check with your employer to see which types of insurance are offered at your workplace. Most often, health insurance providers have information packets stating the types, levels of coverage they offer, and any associated costs. It is important to educate yourself about your insurance policy. The exact procedures of reimbursement, covered services, fees, co-pays, prescription coverage, and availability of services in your geographical area can vary widely. Furthermore, it is important to balance the costs of the policies, quality and availability of services, and your personal/family medical needs. Being able to accurately estimate your medical needs will help you to determine which policy is best for your situation. For example, a family of five who has several small children will have different needs than an elderly couple who both have long term illnesses. Some Questions to Ask About Your Healthcare Plan Options:

Is there a co-pay? If yes, how much? Do I need a referral to get a second opinion? Can I see a specialist without a referral? Are laboratory tests/X-rays/MRI/CAT Scans/Ultra-sounds, etc covered? Is there an annual minimum amount I have to pay for medical costs? Does the policy cover alternative medicine? Does the policy cover pregnancy for a flat fee? What is the catastrophic coverage amount? Does my healthcare coverage protect me when I travel? Do I have to change my primary care physician? What hospital(s) can I use? Are Emergency/Ambulance services covered? If yes, how much? Are prescriptions covered? If yes, how much? Are generic prescriptions less expensive? Can I buy my prescriptions/medical supplies in bulk quantities for a discount? Does my plan cover wheelchairs or ambulatory aides?


Remember to check with your employer for available healthcare plan options. There are three basic types of healthcare insurance policies available today: Fee for Service This type of insurance costs more than others, but is the most flexible. You usually need to meet a deductible before the insurance benefit is applied. For example, some policies may state that you need to meet a deductible before the insurance company would cover a portion of the remaining medical costs. This type of insurance benefits individuals and/or families who want the freedom to choose health care providers, specialists and change providers if they are not satisfied. Health Maintenance Organizations (HMOs) This is often the most cost-effective type of healthcare coverage, with low co-payments and no deductibles. However, all of your health care services are managed through your primary physician. Further, there are usually a limited number of primary physician choices who accept payment through HMOs. Referrals are needed for some specialists. HMO plans may include some pharmacy benefits. HMOs are usually a local product – that is, each HMO consists of a network of healthcare providers in a particular region. Preferred Provider Organization (PPOs) This type of plan typically assembles a “network” of doctors and offers a greater choice for health care. In a PPO you may or may not need referrals to specialists, and some pharmacy benefits may be included. A PPO is a typical indemnity (insurance policy), which means you must meet a deductible before your insurance is applied. For many people a PPO represents a good compromise between fee-for-service and HMO plans. If you are self-employed, and need healthcare, you may want to check with your local chamber of commerce for the availability of discounted healthcare plans. If you belong to a union, or other business or trade association, you may also be eligible for a discounted group health insurance plan. For more information on health insurance programs, go to the US Department of Health and Human Services website: http://www.hhs.gov/resource/index.shtml#insurance Government Sponsored Healthcare Programs If you are unemployed, or feel that you cannot afford to pay for private health insurance coverage, you should contact your local social / human services agency for information on affordable or free Federal, State or local health insurance coverage programs. Many of these programs offer “sliding scale” healthcare costs. “Sliding scale” refers to healthcare costs based upon your income. Note: If you have children who are not currently covered by a healthcare insurance plan, please contact your local social / human services office. They can refer you for appropriate healthcare options. You may also contact your child’s school principal,


social worker, counselor or school nurse for information about low cost programs. Some programs can include medical and dental care options. For more information on programs in your state for children, contact the US Department of Health and Human Services website: http://www.insurekidsnow.gov/states.htm Or you may call Toll Free: 1-877-KIDS-NOW (1-877-543-7669) Factors that can affect the cost of Health Insurance Availability of health care choices in your geographic area / state can vary your health

costs. Higher insurance deductibles and paying for other out-of-pocket expenses can reduce

insurance premiums. Your employer’s contributions to your healthcare plan can reduce your overall costs. The number of people covered on your healthcare policy can affect your costs. Pre-existing health conditions (in some states). Your credit history (in some states). Automobile Insurance: Types of Coverage Most states require automobile insurance. Even if your state does not require auto insurance, it is usually recommended. Once you are aware of the auto insurance coverages available, you then have to apply good decision making skills to determine what types of coverage would best support you and your family. When comparison-shopping for costs or rates for automobile insurance, you can use the internet or toll-free numbers to assist you with this process. Many of today’s insurance companies will offer a comparative rate against other comparable insurance plans. Be sure to ask for ways to reduce your cost for insurance, such as car theft systems, driver’s education classes, multiple vehicle insurance, low mileage usage discounts, good grades for student discounts and the like. You can also research the automobile insurance requirements mandated by the state you live through the National Association of Insurance Commissioners (NAIC). The NAIC is an organization of state insurance regulators. The organization provides support and education to consumers on a state-by-state basis. You can search for your state’s auto insurance guidelines and more in-depth information at their website: http://www.naic.org/state_contacts/sid_websites.jsp Personal injury protection or “No Fault” insurance This coverage protects you regardless of who is at fault in an automobile accident. It typically covers lost wages and any necessary rehabilitation.


Uninsured and underinsured motorist coverage This is an excess medical coverage plan if the personal injury coverage for yourself and/or passenger(s) is exceeded. It also applies to hit and run situations. Bodily injury and property damage liability This type of coverage typically protects against bodily injury to passengers and other people involved in an auto accident. It also protects against any damage to another vehicle. This type of insurance may be written in a split limit liability format, such as 100/200/50. The first number, “100”, refers to the bodily injury maximum amount per person or specific to this case $100,000. The second number, “200”, refers to the limit of money amount per occurrence or the maximum money allotment for a group of passengers. In this case if you, the driver and two passengers were injured in an accident the maximum amount of money for the group of passengers could not exceed $200,000. Finally, the last number, “50”, refers to the property damage liability. For example, if your car slides on the ice and runs into someone’s house the maximum amount of damage your insurance carrier would cover is $50,000 dollars. Comprehensive coverage This is a “catch all” category, which covers all natural damage or acts of God not covered in the property damage liability plan. Hitting a deer and having a tree fall on your car are two examples. Collision insurance or upset This protects you against hitting an object, for example another car, a tree etc. Towing insurance This covers the cost of towing your vehicle for repairs, from an accident, out of a ditch, to the nearest repair facility, etc. (Note you may not need this coverage if you have automobile assistance coverage) Rental car insurance Covers most of the cost of car rental when your vehicle is being repaired

Factors That Can Affect The Cost of Automobile Insurance Once you decide what type of automobile insurance is most appropriate to your situation you may want to comparison shop for the best insurance rate. Below are some factors that may affect your rates. Insurance companies may take some or all of these factors into account when calculating your premium or rate. Your best bet is to know which of these factors are likely to be applied in your situation:


Gender, Age and Marital Status Driving record –accidents, traffic violations, convictions, driving restrictions or

revocation of insurance may result in higher premiums

The number of miles you drive each day to work

Demographics - such as your state or neighborhood

Some insurance companies provide discounts for “good student” drivers

Some insurance companies provide discounts for “defensive driving,” driver’s education, and other automobile safety courses.

Multiple driver / multiple automobile discounts.

Multiple policy discounts may be available from your insurance agent if you

combine policies. (i.e. – renter’s policies, homeowner policies, etc.) Home and Renter’s Insurance: Types of Coverage There are numerous types of home insurance. Some of the most common types protect homeowners from named perils (dangers) such as; fire, lightning, vandalism, and in some cases water damage from a broken water heater, a toilet overflowing or a main break in the water line. As with automobile insurance, there are some state and lender requirements for certain homeowner’s insurance coverage. Types of home insurance include the following: Renter’s insurance and condominium insurance These types of insurance are purchased when you rent an apartment or condo. This coverage typically protects you and/or your family for liability, contents and property damages. Many people assume that their landlord’s insurance policy automatically covers the contents of the renter’s home. This is rarely the case! Dwelling coverage or protection for the structure of your home This means if you have to rebuild your home it would cover the rebuilding, but not the contents. Other structure coverage This insurance provides protection for detached structures apart from your home, such as detached garages, barns, sheds, gazebos and the like.


Personal property coverage/contents This type covers all of your personal property and contents inside your home. Some examples are couches, chairs, dishes, computer, beds, clothes, jewelry, window treatments and the like. Liability coverage This protects your assets if someone should get hurt or injured on your property Typically, liability coverage for a homeowner is between $100,000 to one millions dollars based on the amount of coverage you would like to carry. Liability umbrella coverage This is an additional insurance policy which protects you from a judgment against you exceeding your liability coverage. This protection may include home and vehicle damage or injury, depending on how your policy is written.

Other Insurance Products Related to Homeownership: Private Mortgage Insurance (PMI) Is sometimes required for individuals or couples filing for a mortgage so that the mortgage lender covers their interest. This cost is typically waived once the homeowner(s) have accrued 20% of home equity against the mortgage (In simpler terms, when you have paid 20% of the value of your home to the mortgage lender). You can avoid or reduce PMI costs by increasing your down payment up to 20% of your home’s value. Title Insurance is sometimes purchased to protect the title of a property (your home). The policies generally protect the buyer (you) and the lender or mortgage holder (usually a bank) against undiscovered defects in the title, such as forged documents or other inaccuracies in the chain of the title. This protection is warranted in cases where someone may challenge your ownership of land. It is recommended that you consult with your attorney when purchasing any property to determine the types of policies and coverage levels that are available in your state. Flood insurance Is typically a separate coverage and in high-risk areas may be required through your loan agreement. Earthquake insurance This insurance can also be additionally purchased as a form of property insurance. It provides coverage in the event of an earthquake and will cover the property if it is completely destroyed or partially damaged. This type of insurance often has a high deductible, which is good in the event that your home is completely destroyed, but may not be beneficial if your home is merely damaged. Factors in the rate typically include proximity to a fault line and states that have a high occurrence of active earthquakes.


There are some agencies like the American Red Cross and the Federal Emergencies Management Agency (FEMA) may provide some assistance if the area in which you live or own a business is declared a “Major Disaster Area”. The range of major disasters are large in scope and may include severe storms, heavy rains, flooding, land/mudslides, earthquakes, hurricanes, tornadoes, terrorist attacks and the like. However, a person should not count only on this type of assistance as a means to protect property, the contents of property and against personal injury. Factors that can affect the cost of Home and Renter’s Insurance Before deciding to purchase or rent a home, you may want to review some factors that can significantly affect the costs of insurance coverage:

Multiple policy discounts may be available from your insurance agent if you combine policies.

Location such as high crime areas or areas that are subject to natural disasters

(hurricanes, earthquakes, floods, tornadoes, mudslides, etc.) may increase your premiums.

Your history of filing previous claims can affect the amount you pay in premiums.

Having fewer previous claims can lower your premiums.

Your credit history can affect home insurance rates. Having a good credit history can lower your premiums.

Regular maintenance and repairs to your home can help lower your premiums.

Fire suppression, smoke alarm, carbon monoxide and/or security systems in the

building or home can help to reduce your insurance rates. Life Insurance: Types of Coverage There are many reasons why people acquire life insurance policies. The most common reasons include providing future income to your family, paying burial costs, covering debts against your estate, and affording college. There are three types of life insurance: Term life insurance is a definite death benefit for a certain time frame at a certain cost. It typically renews itself annually and it is prorated based on the age of the insured at the date of issue. (Note you can convert this policy to a whole life policy – see below). When it comes to life insurance rates, the younger you are when you begin this coverage, the cheaper the rates! Some other factors that determine rates include, but are not limited to the following: gender, height, weight, tobacco use or non use, health, occupation and hobbies.


Whole life insurance is a fixed cost over your lifetime. Again, the younger you are when the policy is issued, the better the rate. This type of insurance provides a death benefit and that benefit may be surrendered for a cash value if a situation occurs where a policyholder needs cash quickly. Typically with this policy, policy holders receive dividends which can be used to purchase additional coverage or those dividends can accumulate and be received annually. Universal life Insurance is a combination of whole life and term life insurance which offers the policy holder levels of flexibility. In this type of policy death benefits can be changed or surrendered for a cash value to the policyholder. Furthermore, the policyholder may also be eligible to skip premium payments, but note that if you elect to skip a payment, your account value amount or death benefit will be decreased by the amount of that payment. Factors that can affect the cost of Life Insurance Buy life insurance policies when you are young. This can result in significantly

lower costs. Medical issues such as weight, high blood pressure, high cholesterol, diseases and

disorders can raise insurance costs. Having a healthy lifestyle can help to reduce costs.

Alcohol consumption and smoking can increase your insurance costs. Selecting a policy length of coverage that is appropriate to your situation. Your occupation and on the job safety risks can affect your rates. Your hobbies and activities can affect your insurance rates. For example, a tobacco-

using bungee-jumping enthusiast whose occupation is flying stunt planes would have a significantly higher life insurance rate than a healthy conscious knitter who works as a hotel concierge.

Disability Insurance: Types of Coverage If you were sick or injured for a prolonged period of time, and could not work, how would you meet your financial obligations? Many people assume that their work automatically provides disability coverage – this is not always true. Check with your employer about the coverage you have while at work. People who are self-employed should carefully consider disability insurance, especially if you are the sole income provider for yourself and/or your family.


Workman’s compensation insurance is not the same as disability insurance. Workman’s compensation only covers injuries that occur as a result of work. Furthermore, loss of income due to non-work related injuries might not be covered by your auto or home or health care policies. There are two basic types of disability coverages: Short-Term Disability pays some or all of your lost income for illnesses and injuries that may last from two weeks up to two years. Policies will vary, and certain conditions may apply on a case-by-case or state-by-state basis. Check with your employer as some offer Short-Term disability policies as part of their benefit package. Long-Term Disability pays some or all of your lost income for illnesses and injuries that may last for an extended period of time. Policies will vary, and certain conditions may apply on a case-by-case or state-by-state basis. Check with your employer as some offer Long-Term disability policies as part of their benefit package.

Factors that can affect the cost of Disability Insurance Your occupation. Some occupations carry higher risk of potential disability than

other professions. Your policy type: There may be differences in the costs of short-term and long-term

policies. The length of time you will receive your disability benefits. The weekly or monthly benefit amount purchased. Typically, higher income benefits

result in higher policy premiums. The length of waiting period time before you can collect your benefit. Coordination of your disability benefits with any available social insurance benefits. How “disability” is defined in your policy.


Chapter 8 Financial Obligations: Debt What is Debt?

As we stated previously, debt is money that is owed for goods and services. Certainly, there are times when debt is warranted for large purchases such as a home, automobile or to afford college. It would be nearly impossible for everyone to always have cash on hand to pay for a new home, new car or college degree. Fortunately, there are banks, credit unions and other lending institutions that allow consumers to make these types of large purchases. Most individual couples and families have some form of debt. Debt only becomes problematic when your ability to repay is compromised by lack of means or income. The Fair Debt Collection Practices Act (FDCPA) is a Federal law designed to provide guidelines for debt collectors in the manner that they can treat consumers when trying to collect on a legitimate debt. The FDCPA sets parameters on when and where collection calls can be made, as well as what type of methods can be used. The FDCPA also provides consumers a process to dispute debts that they feel are not legitimate. Enforcement is done by state Attorney General offices and the Federal Trade Commission (FTC). For more information on your consumer rights under the FDCPA, visit the FTC’s website: http://www.ftc.gov/os/statutes/fdcpajump.htm Ordinary Debt vs. Potentially Dangerous Debt

Each of us experiences some form of debt in our lives. Debt can allow us to make large purchases for items that exceed our available cash flow. This type of debt is often referred to as ordinary debt. Some examples of this type of debt are homes, cars, education expenses, etc. Debt can also be potentially dangerous if your means to pay your debt exceeds your income. One good example of this is mortgage qualification. Many times, consumers qualify for mortgages that far exceed their expectation. In their excitement, the consumer can often purchase a home above their ability to pay for the loan, interest, taxes, insurance, utilities, and their day-to-day living expenses. Below is an exercise to help you identify some of the warning signs of debt.


Worksheet: Identifying The Warning Signs of Debt

Directions: On the list below, place marks next to the description that most closely matches your situation. It may be necessary for you to mark more than one descriptor. _____ You spend more than you earn. _____ You spend 25-50% of your take home pay on credit card payments _____ You owe $2000.00 or more to credit card companies and only make

minimum payments. _____ It would be difficult or impossible for you to make “ends meet” without the

use of your credit cards. _____ Creditors are calling you, or you are receiving frequent collection notices. _____ You are consistently making late payments. _____ You are using credit cards to pay off other credit cards. _____ You are taking frequent cash advances on your credit cards for daily living

expenses or to make payments on other credit cards. _____ You are living paycheck to paycheck with no money left over. _____ Most or all of your credit cards are at their maximum limit(s). _____ You need credit cards to pay for basic living expenses such as groceries

and utilities. _____ You have no emergency or savings fund. _____ You feel you must buy everything you see. _____ You frequently bounce checks. _____ You receive service termination notices or your utilities are turned off. _____ You find yourself having frequent arguments with your spouse, partner or

family over money. _____ You feel that money is “burning a hole in your pocket.” _____ You often are afraid to answer the telephone or door out of fear that it is a bill collector. _____ Your family members and relatives receive phone calls about your debts. _____ You are often “convinced” that you will soon win the lottery or receive a

large inheritance. Tally the number of ’s you selected. If you selected: 0-2 marks = No major need for concern, but you should be proactive to

address current debt and avoid future debt. 2-7 marks = There is moderate to significant concern about your debts, and

your ability to live within your means. 7+ marks = You need to seek financial help, consider a debt management

plan, and avoid incurring more debt.


Part III Setting and Achieving Goals


Chapter 9 Your Financial Future Improving your financial health will be a process that will require time, planning and dedication. Remember: there are NO quick fixes! If you were building a new house, you would want a solid foundation that would provide support to the rest of the building. You wouldn’t want to cut corners. You would want to make sure that everything was constructed properly to provide you and your family with a stable foundation to build a stable home. Building a healthy financial future is no different!

Methods For Achieving Your Financial Future

Your success in financial health directly relates to how determined and willing you are to: Make changes in your life. Educate yourself.

Develop and implement an action plan.

Regularly track, evaluate and update your financial plan. And, above all, Remember to stick to your plan!

This course is designed to assist you with the basic tools you can use to build the financial future you want. The actual work is up to you, but this course will provide you with factual information to get you started on your way to future financial health.


Worksheet: Define Your Financial Vision

Directions: Take some time to think about your current financial situation, and what you would like it to be. Write down your answers below. Be as detailed as you can, and think positively about your future. We have provided some samples to help you get started.

What is your current financial situation? 1. I have $10,000 in credit card debt. 2. I spend more money each month than I make. What would you like your financial situation to be in one year? 1. I would like to reduce my current debt by: $1,000. What would you like your financial situation to be in three years ? 1. I would like to reduce my current debt by: $5,000 What would you like your financial situation to be in five years? 1. I would like to be free from my credit card debt.


Congratulations! You have just started to set some financial goals for yourself. We will now provide you with some strategies for effective goal setting.

Envisioning Your Future = Goal Setting!


Chapter 10 Envisioning Your Financial Future = Goal Setting What are goals?

Goals are measurable outcomes that you would like to achieve. Goals are either Short Term, Mid-Range or Long Term depending on the objectives you set. For the purposes of making financial improvements to your life, Short Term Financial Goals should be attainable within 1 year. Mid-Range Financial Goals should take a little longer – about 1-3 years to achieve. Long Term Financial Goals typically take more than 3 years to achieve depending on what your goal is. Figure 10-1 provides a graphical understanding of the time and effort that will be required in order to attain Short Term, Mid-Range and Long-Term Goals

Short Term Goals i.e. – Develop a spending plan.

Mid-Range Goals i.e. – Pay down credit card bills.

Long Term Goals i.e. – Pay off all debts

Time

You

r Effo

rt

Figure 10-1: Types of Goals


Remember: Your financial goals will be different from those of anyone else, and they should be realistic, attainable and personalized to fit your life. You should also plan ahead for meeting your needs, as they change. This future planning should be a part of setting goals.

Future Planning: Questions to ask yourself 1. Do you plan on having children in the future? 2. How will this change your budget? 3. Do you anticipate needing childcare, additional insurance, a plan for college savings? 4. Do you plan to continue your education (part time or full time)? 5. Do you want to relocate to another area? 6. At what age can you afford to retire? These are all examples of life decisions that have a direct impact upon your finances. For example: The addition of a child can add pressure to any family, especially if you or your partner leaves the work force or only works part-time. A loss of income can change your budget, and the sooner you adjust or plan ahead for the change, the smoother the transition can be. Why Set Goals? If you had to drive to an unfamiliar place and didn’t know where it was, you would look it up on a map. By looking at the map, you would know exactly the location you wanted to go. You can also determine the shortest route, and alternate routes in case of problems. The map would assist you in determining the exact turn-by-turn routing to get to your destination. Setting financial goals works the same way. Goals provide us with an end point in mind. When you know your final destination (your financial goals), it is much easier to determine the proper routing (your spending plan or budget). What Are Some Additional Benefits Of Setting Goals? Goals can help to create good financial habits. Goals help you to prioritize what is truly important in your life. Setting and achieving goals can also help you to build self-confidence toward future financial decisions.


Things to Keep in Mind When Setting Goals: Be Realistic! It is important to have an appropriate and realistic attitude about your financial future. If you watch TV and movies today, you probably would like to live like your favorite celebrity: a big house, exotic cars, fashionable clothes, trips to far away places, etc. Of course – we all would like that! Unfortunately, images such as these may cause you to develop a distorted view of reality about your own financial abilities. When envisioning your financial future, it is important to understand the difference between a romantic fantasy and what is possible in reality. For example: a romantic fantasy might be to own a multi-million dollar mansion on the Pacific Coast. However, a more realistic approach might be to plan a trip to the Pacific Coast and stay in a fancy hotel. Have A Positive Attitude! Determination, being proactive and a willingness to accept change will get you started in the right direction and moving toward a better financial situation. Once you have started in the right direction, new habits and better skills to manage money will become part of your routine. In time, you will probably achieve small successes like finding ways to save extra money. Eventually, you can achieve larger successes like saving enough money for a down payment on your own home. A positive personal outlook begins with envisioning the end result and setting realistic goals.

Remember: Be realistic – set goals that are attainable! In the previous exercise, you worked on envisioning a realistic financial future. In order to accurately measure your success in achieving goals, it important to develop effective skills for tracking your goals.


Tracking Your Goals It is important to regularly review your goals, track your progress and make adjustments accordingly. You may find that some goals are easier to achieve than you anticipated. You may find that other goals may be more difficult to achieve and may take more time than you had estimated. In order to track goals effectively it requires six easy steps:

1. Put your goal on paper Visualizing your financial goals in writing helps to establish them more firmly in your mind.

2. Make sure your goal is specific and measurable

Written financial goals should have a number associated with it. This makes it measurable and specific.

3. Set goals which are realistic and attainable To build financial confidence, set yourself up for realistic and attainable successes! Remember, realizing a small goal is better than failing at a large goal.

4. Develop a strategy or plan to achieve your goal

A strategy refers to how you go about attaining your goal. Remember, be creative; there are many effective ways to reduce costs.

5. Choose a deadline for goal completion

Goals should also be measurable on a timeline. It is okay to set specific dates for projected goal completion.

6. Evaluate your goals regularly

By having measurable goals that are timeline specific makes it easier to track and evaluate your progress. Regular evaluation of your goals can prevent setbacks.


Case Study Analysis: Terel and Emily

Terel and Emily just had their car inspected and they will need a new set of tires before

their next car inspection. Therefore, they have 12 months to achieve their goal of buying

new tires. Terel and Emily comparison-shopped for quality tires that were appropriate

for their car. The tires they chose will cost a total of $180 which includes installation,

alignment and taxes.

Terel and Emily spend $80.00 per week on groceries and believe that their grocery

expenses could be reduced to allow extra savings to afford the goal of having new tires.

Please help them track their goal using steps 1-5 above:

Step 1: Put the goal on paper 1. What is their goal? Step 2: Make sure the goal is specific and measurable 2. How much money do Terel and Emily need to save every month to reach their goal? Step 3: Set goals that are realistic and attainable 3. Can Terel and Emily reduce their grocery expenses by $15.00 per month? Is this a realistic goal? Why?


Case Study Analysis: Terel and Emily - Continued Step 4: Develop a strategy or plan to achieve the goal 4. What are four strategies Terel and Emily can use to reach their goal? Step 5: Evaluate your goals regularly 5. What are some evaluative measures that Terel and Emily could do to see if they are

on track for their goal of $180.00 in 12 months?

Now that you have developed some skills to effectively define, establish and track goals, let’s work on developing your own financial goals. We will provide you with some examples to help you get started. You may find that once you get started you will quickly fill up all the lines.


Exercise: Developing Your Goals

Directions: Write down three short term goals, three mid-range goals and three long term goals. These may be the same or similar to the ones you put down in the previous envisioning exercise. After each goal, set a deadline for when you want to achieve the goal, and list three different things you can do to achieve that goal. We have listed three samples of short, mid-range and long term goals to help you. Short Term Goals (Up to 1 year) Goal: I will reduce my expenses by $500 per month Timeframe: I plan to achieve this goal three months from now Action Plan: Three things that I can do to help me achieve this goal are: 1. I will cancel my subscription to cable TV ($120 savings) 2. I will only eat out in restaurants one night every two weeks ($180 savings) 3. I will sell my expensive car and buy a more affordable one ($200 savings)

Mid-Range Goals (1-3 years) Goal: I will reduce my credit card debt by at least $1,000 per year. Timeframe: I plan to achieve this goal one year from now Action Plan: Three things that I can do to help me achieve this goal are: 1. I will pay $100 in addition to the minimum payment every month. 2. I will eliminate an additional $100 from my monthly spending. 3. I will refuse any new credit card offers. Long Range Goals (Beyond 3 years) Goal: I will eliminate all my credit card debt Timeframe: I plan to achieve this goal five years from now Action Plan: Three things that I can do to help me achieve this goal are: 1. I will cancel all my credit cards except one. I will only use it for emergencies. 2. I will develop a sensible spending plan and stick with it! 3. When I am shopping, if I want to buy something outside of my budget, I will put it

down and wait a few days to assess if the item is really necessary.


My Short Term Goals (Up to 1 year) Date: Goal #1: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1.

2.

3.

Goal #2: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1.

2.

3. Goal #3: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1.

2.

3.


My Mid-Term Goals (1 to 3 years) Date: Goal #1: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1.

2.

3.


2.

3. Goal #3: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1. 2. 3.


My Long-Term Goals (Beyond 3 years) Date: Goal #1: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1. 2. 3.


2.

3. Goal #3: Timeframe: I plan to achieve this goal in Action Plan: Three things that I can do to help me achieve this goal are: 1. 2. 3.


Part IV Developing and Implementing Your Budget


Chapter 11 Developing Your Budget Budget Development Skills In the previous section, we used an analogy of goals being your roadmap to get you where you want to go. When you know your final destination (your financial goals), it is much easier to determine the proper routing (your spending plan or budget). Our next section will work on determining the proper routing to drive you to your goals. This is called developing a budget. First, it is important to learn effective ways to keep records for easy recall when you need to develop your budget.

Keeping Adequate Financial Records A good budget development plan must include a way to organize and keep track of your expenses. One simple way to stay on top of your financial situation is to keep adequate financial records. Effective financial record-keeping involves using a system which will help you manage paperwork, pay bills on time, keep receipts for guarantees and tax purposes, monitor your savings and expenses, and set financial goals. It is important to develop a system that is easy for you to understand and use. Your particular record keeping system can be as easy and cost effective or as expensive and complex as you would like. There are many different ways to keep adequate financial records. Below are three illustrations of different record-keeping methods. Some may choose to use a method that requires minimal technology while others may want to take advantage of financial software to assist with managing financial records. Methods of Record Keeping

Method I: Simple Keeping records can be as simple and cost effective as collecting items such as: receipts, bank statements, credit card statements, paid bills, cancelled checks, pay check stubs, etc. and placing them in an old shoe box. These can be stacked in a storage area to provide a quick and effective way to keep records. You may also want to keep separate boxes for income and out-go (expenses).


Method II: Moderate A more expensive method could be purchasing a filing cabinet, file folders and labels and organizing your records according to the different categories (i.e. – utility bills, credit card statements, bank statements, pay check stubs, etc.). There are several options for these types of office supplies. Check with your local office supply store for ideas.

Method III: Advanced Some people may even find that they can use financial software on a computer to keep track of income and out-go. Some computer software can be effective in automatically assisting with calculating your income and expenses, and provide detailed reports of where your money is going. Some even offer assistance with budget development based upon your past spending history. In addition, some programs can automatically download banking and credit card statements. It should be noted, however, that some financial software packages will require the user to become familiar with the software and its abilities in order to effectively use the system.

Budgeting – You Have Been Doing It Since You Were Young! Many people think that budgeting is difficult. What most people don’t realize is that they probably have been budgeting for many years without knowing it. Many of us are familiar with the term “allowance.” Some of us may remember receiving a weekly or monthly allowance as children for doing chores. Whether you received an allowance or if you received money for special events, you typically thought carefully before spending some or all of it. Sometimes you may have had to combine allowances and monetary gifts to be able to purchase a specific item. Here’s a good example: Dimitri is seven and receives $2.00 per week allowance for chores he does around the house. He would like to buy a new toy which costs $20.00. While he is saving for his goal, his parent informs him that he will need to buy his own book bag for school. The book bag that he would like costs $10.00. How many weeks will it take for him to buy both the book bag and the new toy? Answer: The cost of the book bag + the cost of the toy ÷ $2.00 ($20.00 + $10.00) ÷ $2.00 = 15 weeks This example has just illustrated that even at a young age we all possess the basic skills to budget.


Developing Your Budget or “Spending Plan”

A Budget is a plan for how you will spend, save, and invest your money.

A budget or “spending plan” is a detailed plan put on paper that shows how you spend, save, and invest your money. Ultimately, the goal is to manage finances so that you have a balanced budget. A balanced budget can be viewed in two ways:

1. Income = Out-Go (expenses [needs and wants] and debt.) 2. Income = Out-Go (expenses [needs and wants] and debt.) + Savings

You may have already developed a budget in the means testing portion of your bankruptcy process. However, developing a budget using the factual information of this course bears repeating. Let’s do a practice budget development exercise with the following case study.

Case Study Analysis: Rebecca and George Rebecca is a stay at home mom with a three year old daughter, and is pregnant with a second child. Her husband George works as a laborer and also works another job to support the family. Neither Rebecca nor her husband finished High School. Rebecca started working toward her GED but had to drop out to raise their daughter. Rebecca hopes that when both of their children go to school, she will be able to get her GED and eventually go to college. George works for the local highway department and receives a bi-monthly paycheck of $800.00. He also works a second job, part time, at a grocery store that pays him $200.00 per month. They rent a one-bedroom apartment for $675.00 per month. Their monthly utilities are $125 per month, which includes their gas and electric. They receive their water bill every three months and totals $96.00 per year. Rebecca found a phone and pager plan that has a flat fee of $69.00 per month. The cable company charges $74.00 per month for expanded cable service and movie channels. Rebecca and George decided to combine their renter’s and car insurance policies with the same company to receive a discount. They pay a quarterly bill of $63.00 for their combined insurance. Rebecca and George in an effort to save money rarely go out to eat. Their monthly grocery bill is $245.00. George had some outstanding credit card debt when they got married and only made a minimum payment of $15.00 per month. Rebecca convinced George to make larger


payments each month in order to reduce the principal amount. They now pay $55.00 per month on the credit card debt. A few years ago, George and Rebecca decided to take out a personal loan for $15,000. The loan was intended to cover their wedding and honeymoon expenses, and give George enough money to build his own stock car. They make monthly payments of $100.00 on the $15,000 loan. Both George and Rebecca would like to repay their personal loan as soon as possible. George and Rebecca’s entertainment money is spent each month supporting George at local stock car races. Rebecca and their daughter attend each weekly event to support George. The family pays an average of $50.00 per month for George’s entry fees, Rebecca’s admission charges and food while they are at the races. George and Rebecca bought a dog two years ago for protection. The dog unexpectedly had puppies last spring. They sold most of the litter, and decided to keep one. They pay an average of $600.00 per year for food, grooming, pet toys and veterinary bills. When Rebecca and George found out that they were pregnant with a second child they decided to set up an emergency fund. Their goal is to save enough money to support the family for at least three months worth of income. George and Rebecca decided to deposit $50.00 each month into a savings account towards their emergency fund goal. Listed below are sections from Rebecca and George’s completed budget sheet: Step 1: Calculate Net Monthly Income

If you live in a multiple income home, you will need to use the following calculations to determine each income and add them together. For calculating Net Monthly Income, remember the formulas: Weekly pay x 52 ÷ 12 Bi-weekly pay x 26 ÷ 12 Bi-monthly pay x 24 ÷ 12 Monthly pay = Monthly Income A. How much money is your weekly pay check? B. How much money is your bi-weekly pay check? C. How much money is your bi-monthly pay check?

($800.00 x 24 ÷ 12)

$1600.00

D. How much money is your monthly paycheck? E. Additional Income ( Tips, Second Job, Government

Assistance, Financial Gifts, Lottery Winnings, interest dividends (etc.) George receives an additional $200.00 per month mowing lawns.

$200.00

Add lines A. through D. for Total Net Income

$1800.00

Step 2 List monthly expenses Rent 675.00 Mortgage Payment - Home Association Fee (Condo) 0


Gas and/or Electric Bill 125.00 Water Bill (Divide one payment by 3) ($96/3) 31.00 per

month Phone 69.00 Cable 74.00 Car/Truck Payment 0 Home/Car Insurance (If quarterly divide one payment by 4) ($63/4) 15.75 per

month Groceries (Estimate) $245.00 Student Loans 0 Credit Card Payment $55.00 Personal Loans $100.00 Entertainment $75.00 Gifts 0 Miscellaneous: Prescriptions, Pet Care, etc. 50.00 Money Set Aside for Emergency Fund 50.00

Total: Step 3

Set Limits and Reasonable Expectations Insert total from Step 1 (A) $1800.00 Insert total from Step 2 (B)$1564.73 Subtract B from A (A-B=C) (C)$ 235.27

Total: If there is a surplus on line C, than it is reasonable to set limits and reasonable expectations for other spending If there is a negative amount on line C, decrease your expenses.

Reflective Questions: 1. What is Rebecca and George’s monthly income? 2. What are their monthly expenses? 3. Do they have a balanced budget? 4. Any suggestions for a prioritizing their needs and wants? 5. Do you have any suggestions for possible goals for them?


Worksheet: Develop Your Budget

Directions: Take a few minutes now to work through the worksheet on this page. This exercise will give you an opportunity to use what you have learned.

The worksheets provide additional spaces to personalize your household income as well as any fixed, periodic and variable expenses. This worksheet also includes a column for you to include the actual amounts for expenses to help you track your budgeting accuracy. This will also help you to more accurately budget in the future.

Net Household Income Amount Monthly Budget Amount Your Weekly Income x 52 weeks ÷ 12 months = Your Weekly Tips x 52 weeks ÷ 12 months = Your Bi-Weekly Income x 26 weeks ÷ 12 months = Your Bi-Monthly Income x 24 weeks ÷ 12 month = Your Monthly Regular Wages = Your Monthly Commissions* = Your Monthly Tips =

Your Other Income (Rents, Interest, Dividends, Alimony, Gains from the sale of assets, prizes, awards, etc.)* =

Your Self-Employment Income* = A. Your Net Monthly Income Total = Spouse’s Weekly Income x 52 weeks ÷ 12 months = Spouse’s Bi-Weekly Income x 26 weeks ÷ 12 months = Spouse’s Bi-Monthly Income x 24 weeks ÷ 12 months = Spouse’s Monthly Income = Spouse’s Regular Wages = Spouse’s Commissions* = Spouse’s Monthly Tips =

Spouse’s Other Income (Rents, Interest, Dividends, Alimony, Gains from the sale of assets, prizes, awards, etc.)* =

Spouse’s Self-Employment Income* = B. Your Spouse’s Monthly Income Total =

* Important Note: If you receive self-employment income (commissions, consulting fees, etc.) where no Income Taxes, Social Security or Medicare Taxes are withheld from your check, you must pay estimated taxes for the income each quarter. Quarterly payments are due to the Internal Revenue Service on April 15, June 15, September 15, and the following January 15. Be sure to include this in your Periodic Expenses!! Some states may also require periodic payments for State income taxes.


Expenses

Weekly Living Expenses x 52 weeks ÷ 12 months =

Monthly Budget Amount Actual Expenses

Needs Groceries x 52 weeks ÷ 12 months = Gasoline x 52 weeks ÷ 12 months = Public Transportation x 52 weeks ÷ 12 months = Parking / Tolls x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = Wants Entertainment x 52 weeks ÷ 12 months = Eating Out x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = C. Subtotal =

Monthly Expenses


Needs Rent = Mortgage = Car Loan = Child Care = Healthcare (Co-pays, Prescriptions, etc.) = Toiletries = Home Maintenance = Electricity = Gas (Heating) = Water = Telephone = Credit Card #1 = Credit Card #2 = Credit Card #3 = Student Loan = Education Expenses =


Monthly Expenses


Alimony = Child Support = Clothing / Shoes = Miscellaneous = Postage = Basic Haircare = Cell Phone = Pet Care (Food, Veterinary Bills, Medicines) = = = = = = = = = = = = = = = = = Wants Entertainment = Cable = Internet = Non-Vital Haircare = Make-Up = Clothing / Shoes = Miscellaneous = = = = = = = = = = = = D. Subtotal =


Periodic Expenses

Quarterly Expenses (four times per year)

Quarterly Amt. x 4 Qtrs. ÷ 12 months =


Renter's Insurance x 4 Qtrs. ÷ 12 months = Home Insurance x 4 Qtrs. ÷ 12 months = Car Insurance x 4 Qtrs. ÷ 12 months = Life Insurance x 4 Qtrs. ÷ 12 months = Disability Insurance x 4 Qtrs. ÷ 12 months = Propane / Oil x 4 Qtrs. ÷ 12 months = Water x 4 Qtrs. ÷ 12 months = Garbage x 4 Qtrs. ÷ 12 months = Self Employment Taxes x 4 Qtrs. ÷ 12 months = Estimated Taxes x 4 Qtrs. ÷ 12 months = Real Estate Taxes x 4 Qtrs. ÷ 12 months = Other Taxes x 4 Qtrs. ÷ 12 months =

Entertainment (i.e. - season tickets) x 4 Qtrs. ÷ 12 months =

Miscellaneous x 4 Qtrs. ÷ 12 months = Clothing / Shoes x 4 Qtrs. ÷ 12 months = Tools x 4 Qtrs. ÷ 12 months = Gifts x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = E. Subtotal =

Bi-Annual Expenses (two times per year) Amount x 2 ÷ 12 months =


Renter's Insurance x 2 ÷ 12 months = Home Insurance x 2 ÷ 12 months = Car Insurance x 2 ÷ 12 months = Life Insurance x 2 ÷ 12 months = Disability Insurance x 2 ÷ 12 months = Car Repairs (minor) x 2 ÷ 12 months = Car Repairs (major) x 2 ÷ 12 months = Miscellaneous x 2 ÷ 12 months = x 2 ÷ 12 months = x 2 ÷ 12 months = x 2 ÷ 12 months = F. Subtotal


Annual Expense (once per year) Amount x 1 ÷ 12 months =


Car Repairs (major) x 1 ÷ 12 months = Appliances x 1 ÷ 12 months = Lawn Service x 1 ÷ 12 months = Snow Removal Service x 1 ÷ 12 months = Holiday Spending x 1 ÷ 12 months = Taxes x 1 ÷ 12 months =

Auto License Plates / Registration x 1 ÷ 12 months =

Auto Inspection x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = G. Subtotal =

Emergency Expenses Amount x 1 ÷ 12 months =


Car Repairs x 1 ÷ 12 months = Travel x 1 ÷ 12 months = Medical x 1 ÷ 12 months = Family Illness x 1 ÷ 12 months = Major Appliance x 1 ÷ 12 months = Home Repair x 1 ÷ 12 months = Catastrophic Event x 1 ÷ 12 months = Miscellaneous x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = H. Subtotal

I. Total Household Income (Add lines A + B)

J. Total Household Expenses (Add Lines C+D+E+F+G+H)

Subtract Line I from Line J


Part V Money Management


Chapter 12 Savings, Checking and Investing There are many different reasons to save money. Saving money allows you to “cushion” your budget to allow for planned events such as: education expenses, emergency funds, periodic payments, taxes, home improvements, large purchases, short and long term financial goals, and retirement. With the skills you have gained from developing your own personal budget, you now have a better understanding of the money that is available to you each month for savings. With this in mind, there are many different ways to save money as there are reasons to save. Among them are: savings accounts, checking accounts, interest bearing accounts, and retirement plans

What is a Savings Account?

A savings account is an account that is available at banks, credit unions and other financial institutions that allows the account holder to receive interest on deposits made. These accounts are typically low risk to the depositor but only receive a small return on the deposits. The Federal Reserve Board regulates Interest rates for savings accounts. These rates change on a regular basis. Savings account holders receive monthly or quarterly account statements of account activity, including deposits, withdrawals, and interest earned. Some savings accounts offer depositors the opportunity to use automatic teller machine (ATM) cards and debit cards to make withdrawals and deposits, and allow point of sale purchases. Some savings accounts do have minimum balance requirements and may also have fees associated with the account. The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insure each savings account up to $100,000. The FDIC and NCUA are regulatory bodies of the Federal Government that insure that banks and credit unions are operating fairly and equitably for all individuals. Before deciding to open a savings account, depositors may want to comparison shop for the best interest rates, lowest fees (i.e. minimum balance fees, account transfer fees, ATM/Debit Card fees, etc.), lowest balance requirements, and whether the account you are opening is “FDIC Insured” or “NCUA Insured.”


What is a Checking Account? A checking account is a deposit account that allows the account holder to draw checks

against the account balance. These accounts are also protected by the FDIC and NCUA and typically are not interest bearing. Some checking accounts may offer depositors the opportunity to use automatic teller machine (ATM) cards and debit cards to make withdrawals and deposits, and allow point of sale purchases. Some checking accounts do have minimum balance requirements and may also have fees associated with the account. Some sample fees may be: a monthly fee, minimum balance fees, ATM fees, and per-check usage fees, etc. Before deciding to open a checking account, depositors may want to comparison shop for the best interest rates, lowest fees, lowest balance requirement, and inquire about the bank or credit union’s policy on overdraft (bouncing) checks. Most banks and credit unions offer customers or members overdraft protection to avoid fees and penalties. The overdraft protection is typically a short term loan that allows the depositor to pay back the overdraft amount and incur a small fee or finance charge. Since this is a type of credit, not all banks extend overdraft protection to all customers. What are Interest Bearing and Investment Accounts? Most interest bearing accounts, unlike a savings account, are not FDIC/NCUA insured. Therefore, investors are not protected from losses in value. These losses in account value can fluctuate based upon market conditions, and the types of investment products purchased. This is commonly referred to as “risk-return.” As you invest money in more risky products such as stocks, bonds, mutual funds, and other investment products (i.e. junk bonds, derivatives, Real Estate Investment Trusts [REITs]) the interest return can be higher than with a traditional savings account. Again, remember that the Federal Government does NOT insure these accounts. The account holder bears the risk of losing some or all of his or her money in these types of investments. In fact, some investment products can even incur losses greater that the amount invested.


What are Retirement Accounts and Plans? Previously, we have discussed developing budgets for day to day spending and saving. Part of your financial goals should also be to plan for your retirement, or when you can no longer work due to age or health reasons. It is best to start as early as possible in order to get the most out of your planning and investments. The federal government has established Social Security as a fund for retirees to help supplement their monthly income. Unfortunately, most retirees find that Social Security is not enough to pay for their monthly expenses. To help supplement this, the Federal Government has established several ways that consumers can invest deferred taxes and invest their money into plans for their retirement years. Many of these plans, such as 401K and 403b, are offered through employers. Other plans, such as IRA, Roth IRA, SEP IRA and KEOGH Plans are options that are available through individual investment firms. As each investor has different goals and objectives for his or her long range retirement plans, it is important to seek competent advice regarding the types of investments you make. Individuals should be aware of risk levels and diversity of investments made. Retirement plans can be your single largest asset over time, so it is important that you understand the investment choices available. The availability and types of retirement investment plans are too numerous to discuss in the necessary detail in this course. For more information please contact your employer, your investment advisor, an attorney or a certified financial planner. As with any financial service you are purchasing (such as choosing a bank or choosing a loan product) it is important to know your options. Make sure that you have a support system that will assist you in decision making and in the management of your personal finances. For those seeking additional information about retirement program options, please visit the Internal Revenue Service website: http://www.irs.gov/retirement/article/0,,id=109169,00.html


Part VI Wise Use of Credit


Chapter 13 Benefits of Credit

Credit is a two way street. Credit can only be beneficial when properly used and managed. Credit allows consumers to make large and significant purchases like homes, automobiles, and major appliances. Credit also makes certain purchases easier, such as buying airline tickets, making hotel reservations, and making purchases in a foreign country where the consumer can receive an accurate and fair exchange rate. Credit can also offer perks such as gifts and other promotions for the use of credit. Having a good credit rating is extremely beneficial, and costs the consumer less money for the use of credit. This is because the rate of interest for credit is directly tied to the consumer’s credit rating. Loans Loans are available for a variety of consumer needs such as auto loans, education loans, personal loans, and loans for real estate property (referred to as “mortgages”). Loans are most typically issued by: banks, credit unions, mortgage bankers, and other lending institutions. Loans can also be obtained through family, friends, some employers, and through other means. It is important to remember that no matter where you get your loan from, the lender expects to receive full payment for the loan, in a timely manner. When investigating loans, it is most important to consider the following:

Interest Rate Points Fees Length of Loan Down Payments Options Payment Due Date

These factors can all affect the amount of money you will pay for the privilege to borrow money. When you have decided on the loan that you need, it is best to comparison-shop at least three (3) different lending institutions to secure the best rate with the lowest fees. As a consumer, you are protected by Federal legislation known commonly as the “Truth-In-Lending” Act and Equal Credit Opportunity Act (ECOA)


The Truth-In-Lending Act and Equal Credit Opportunity Act (ECOA) The Truth-in-Lending Act is a Federal regulation which requires that the consumer be fully informed of all finance charges, as well as the actual annual interest rate for loans, and mortgages. The Truth-in-Lending Act requires credit institutions to provide to a borrower the exact costs of borrowing the money so that consumers can comparison shop for loan products. The Federal Equal Credit Opportunity Act (ECOA) prohibits credit grantors and lenders from discriminating against credit applicants based upon race; color; religion; national origin; gender; marital status; age; or dependence on public assistance. For more information on the ECOA, including information on how to report suspected or known discriminatory practices visit the FTC website: http://www.ftc.gov/bcp/conline/pubs/credit/ecoa.htm

Mortgages: Are a common type of loan typically used in the purchase of real estate such as a home, townhouse, condominium, or other types of properties. Mortgages allow you to make a large purchase on real estate with little money as deposit and pay for that purchase over various lengths of time. A mortgage is technically a pledge of property as security for payment. This means that failure to make payments on the loan can result in the lending institution (bank) seizing/taking the property. This is called foreclosure. In a foreclosure, the debtor loses all equity in the property and the ownership will revert to the lending institution. This may vary, depending on the property laws of your state. The mortgage loan industry has a multitude of loan products available for consumers. However, NOT ALL LOAN PRODUCTS ARE SUITABLE FOR ALL CONSUMERS. There following are just some of the mortgage loan products available to consumers today. Each one have very different qualities, requirements, stipulations, benefits and costs.

Fixed Rate Mortgages

Variable Rate Mortgages

Temporary (sometimes called bridge or construction) Loans

Shared-Equity Mortgages

Open-End Mortgages


Blanket Mortgages

Adjustable Rate Mortgages (ARM)

Reverse Mortgages

Home Equity Loans (often called a Home Equity Line of Credit)

Jumbo Loans

New loan products are introduced every year, such as the recently introduced “interest only mortgage.” It is not the objective of this course to educate you about every possible loan product available, but just to give you an overview of how loans work. Therefore, it is imperative that you seek competent advice from an attorney and/or accountant when looking into mortgage products. Remember: a mortgage broker’s or banker’s has a primary interest is in selling you a banking product – NOT ENSURING YOUR FINANCIAL WELL-BEING OR DIRECTING YOU TO THE PRODUCT THAT IS BEST FOR YOUR FINANCIAL SITUATION! For more information on mortgage products, including a worksheet to assist you in comparison-shopping, visit the Federal Trade Commission’s website: http://www.ftc.gov/bcp/conline/pubs/homes/bestmorg.htm Conventional Loans and Government-Backed Loans

Conventional Loans are among the most common loans available to consumers. These are loans that you can get directly from a lending institution such as a bank or credit union. Government-backed loans are similar to Conventional Loans, except that the mortgage (not the property) is insured by government agencies, such as the Veterans Administration (VA Loans) and the Federal Housing Authority (FHA Loans). Government-backed loans can often have additional requirements and limitations that Conventional Loans do not. Some examples are: minimum length of time in the home before you are allowed to sell the property, maximum house price, an agreement that the house will not be rented to anyone, etc. However, they are often useful tools for first time buyers or buyers that have less than perfect credit. These loan products operate on the same principle as credit cards. They are available to consumers at a fixed or variable rate, and the lender must disclose the Annual Percentage Rate (APR). Like credit cards, loans can have additional and hidden fees such as application (loan origination) fees and late fees. Lenders are required to state the grace


period allotted for late payments before additional fees and interest are applied. Again, before selecting any loan product or credit card, be sure to review with the lender all the terms and conditions of the loan and all fees that may be associated with it. Another important point to consider is that any person who cosigns for a credit card (or any loan, mortgage or other agreement) is equally liable for repayment of any and all debts. By cosigning on a credit card or loan you are agreeing to be responsible for repaying the debt of another person if they fail to make payments. This can negatively affect your credit rating as if the bad debt were your own. For more information about the implications of cosigning for a loan, please visit the Federal Trade Commission’s website: http://www.ftc.gov/bcp/conline/pubs/credit/cosign.htm Credit Cards: What Every Consumer Needs To Know

Let’s begin by looking at the basic myth of credit cards. Credit cards are not free! It’s a statement that bears repeating: Credit cards are NOT free!

Credit cards are merely short-term loans made by banks to consumers for typically very high rates. You should keep in mind that unless the entire balance of the credit account is paid IN FULL EACH MONTH, you will incur interest charges and possible penalties. Therefore, it is very important to manage your use of credit cards wisely. Benefits of Credit Cards

Credit cards allow consumers to make large purchases such as major appliances.

Credit cards can offer consumers some added protections like theft, fraud and insurance protection that cash does not provide.

Credit cards allow consumers to purchase goods and services via the Internet,

where prices can be more competitive.

Credit cards also make travel purchases easier, such as buying airline tickets, and making hotel reservations.

Credit cards can also make purchases in a foreign country easier by offering an

accurate and fair exchange rate.


Credit cards can also offer perks such as gifts and other promotions for the use of

credit.

Credit cards can also be a useful tool for tracking expenses.

Credit cards can also be helpful in building a credit record for young people just starting out.

Having a good credit rating is extremely beneficial, and costs the consumer less money for the use of credit. This is because interest rates for credit cards are directly tied to the consumer’s credit rating. As a consumer you are protected under the Fair Credit Billing Act (FCBA) against credit card billing mistakes and any unauthorized charges on your credit card.. This is very important today with the rapid increase in ID theft and ID fraud. This laws lets you request the credit card provider to investigate and remove charges that you are disputing. For more information about the FCBA and protecting yourself from ID theft or fraud, please visit the following Federal Trade Commission (FTC) websites: FTC Bureau of Consumer Protection http://www.ftc.gov/ftc/consumer/home.html FTC Website on Identity Theft http://www.consumer.gov/idtheft/ Secured Credit Cards and Unsecured Credit Cards There are two types of credit cards available to consumers: secured credit cards and unsecured credit cards. Secured (or collateralized) Credit Cards were instituted solely for the purpose of helping consumers with poor or damaged credit records such as debtors who file for bankruptcy. These types of cards can offer a way for consumers to build their credit rating and later transition to Unsecured Credit Cards. Secured credit cards require that the consumer place money in a secured savings account or certificate of deposit (CD) to protect the lender against default (late payments or non-payment) on the credit card. Consequently, if payments are made on time, the account balance will remain the same. Secured credit cards often require the user to post hundreds or even thousands of dollars into a secured account in order to issue the card. Secured Credit Cards will have a maximum spending limit tied to the amount of money deposited in the security account. Secured credit cards, like unsecured credit cards, often have fees and interest rates associated with their use.


Unsecured Credit Cards are commonly referred to as traditional credit cards. These are the most common credit cards issued by a bank or other lending institution, and do not require payments as collateral for the use of the card. These cards may or may not have established spending limits to ensure that consumers do not exceed their means to pay the balance. There are five basic types of credit cards: retail cards, charge cards, gold cards, national bank cards (non-secured) and national bank cards (secured). However, all credit cards look the same.

The Truth About “Minimum Payments” Credit Card companies require consumers to make monthly payments on their credit cards (remember, these are short term loans). Typically the minimum payment is at or around 2-3% of the balance. This means that a balance of $5,000.00 should have a minimum payment of around $150.00 per month. This may seem fairly straightforward, however, there are some important financial implications to having unpaid balances from month to month. Just paying the minimum amount each month will mostly cover the interest on the credit card, and very little will go towards reducing the balance or principal. Therefore by using the above example if you just pay the minimum payment, it will take you 4.2 years to repay the $5,000 debt. (assuming that you do not charge any more items on that credit card). By only making minimum payments, you would pay an additional $2,359.00 in finance charges.

Understanding Credit Card Offers If you have a mailbox, you’ve probably received offers for “pre-approved” credit. Although it is exciting to be pre-approved, you need to be aware of the financial implications of a credit card. Remember: Every person has different requirements when shopping for a credit card. Some people are attracted by the perks like free gifts, travel bonuses (hotel and airline “points”), donations to your favorite charity or the notoriety of certain “status” cards like your favorite sport or activity. Others are looking at the important financial implications like: billing cycle, low interest rates and grace periods. No matter what you’re looking for, it is important to remember that credit cards should be considered the same as short term loans. Creditors charge you interest and other fees in exchange for allowing you to purchase items without cash immediately on hand.


Choosing a Credit Card: Factors To Consider Before you choose a credit card, there are four basic items that need thorough review.

Interest Rate

Grace Period

Late Payments and Other Fees

Balance Calculation Methods

Interest Rate Interest is a surcharge paid to a lending institution or credit card company for borrowed money. Essentially, it is money you pay for the privilege of borrowing the lender’s money. Your past credit history has a direct impact upon the interest rates you pay for credit cards, loans, and other financial products. Typically, if you have a poor credit history, you will typically pay higher interest rates. There are typically two types of interest rates offered by credit card companies. Fixed rate cards are lines of credit where the interest rate does not change. Variable interest rates will fluctuate over time based upon market conditions. Sometimes, credit card companies will offer a teaser or promotional rate where the line of credit initially has a lower fixed interest rate for a period of time, and then changes to become a variable interest rate. These credit card offers will often carry the promotional interest rate for a limited amount of time. Consumers should be aware and read the fine print of all credit card offers. Teaser or promotional rate cards can often have significant finance charges if the balance is not paid in full by the time the promotional rate is discontinued. Rate options for all of these credit cards come in two forms: either fixed or variable. A fixed rate credit card is usually higher, but the interest rate will never change. A variable interest rate credit card may fluctuate over time at the credit issuer’s discretion, or at your request. Do not be afraid to call a credit card company to request a lower rate. Remember: credit card companies want to be competitive in order to get new customers and keep old customers. Therefore, it is wise to research competing credit cards for the lowest interest rate, and use this information to negotiate a lower rate.


The interest for credit cards is typically expressed as APR or the “Annual Percentage Rate.” This is the percentage rate that a person pays over the course of a year for the use of the credit card. For example: Jane has a credit card with an 18% APR. If Jane carries a balance of $1000 for a year, she will pay: $1000 x 0.18 = $180 If Jane carried a balance of $15,000 on that same card: $15,000 x 0.18 = $2,700 Remember, this is money that will be paid in addition to the original charges. Another important factor is that some types of transactions such as balance transfers and cash advances have a different (higher or lower) APR. Grace Period Most cards offer a “free period” or “grace period” to avoid finance charges if the entire balance of the account is paid in full each month. Many cards do not offer grace periods. Do not assume that all cards have grace periods. Additionally, some types of transactions such as balance transfers and cash advances from an ATM may not necessarily have a grace period. Late Payments and Other Fees In addition to the interest you will pay for the use of a credit card, you may also be subject to additional fees such as: annual fees, transaction fees, over limit fees, convenience charges, and late payment fees. Read your credit offer carefully and pay close attention to any additional fees. Balance Calculation Methods There are a few different ways that credit card companies calculate the interest on your balance. Some methods are more advantageous than others, so it is very important to understand the differences. Average Daily Balance


This is the most common calculation method used today. The card issuer totals the balance of the account each day. Payments to the account are applied daily. The issuer then keeps track of the balance for each day. At the end of the cycle, the daily balances are added together (some will be higher, some will be lower) and then divided by the number of days in the cycle. Depending on your plan, new purchases and cash advances may or may not be added to the balance. Adjusted Balance In this calculation method, any payments made are subtracted from the previous month’s balance. Purchases made during the billing cycle are typically not applied to the balance until the following billing cycle. This method is the most advantageous as you will pay less in finance charges. Sometimes unpaid finance charges are not included in calculating the balance. Previous Balance Your finance charges are calculated based upon the previous month’s balance. New charges are not included until the following month. Two Cycle Balance Credit card issuers can sometimes use this method to calculate your finance charges based upon the activity from the two previous billing cycles. Be sure to read your agreement carefully and call the credit card issuer to explain the specifics. Typically, your monthly finance charges are based on the monthly interest rate and your monthly balance: APR x monthly balance calculation = monthly finance charge 12 months Check with your credit card issuer for specific information on which balance calculation method is used for your credit card account. Note that each credit card may have a different balance calculation method.

How to Reading the Fine Print Every credit card offer your receive is required by law to include a clear statement of the interest rates, finance charges, other transaction fees, and the method of balance calculation. Typically these can be an additional folded insert or on the back page of the offer letter. The information is put in a chart that is easy to read if you know what to look for, so here are some tips for reading the chart:


Sample Credit Card Offer Annual Fee $50 Annual Fee Annual Percentage Rate (APR) on Purchases

Standard APR: 14.5% See explanation below for Default APR1

Other APRs Cash Advances: 0% Introductory APR for Balance Transfers and Cash Advance Checks until the last day of your billing cycle that ends in June 2009; after that, the Standard APR is 14.5%. The Introductory APR may end sooner if your payment is late. See 1 and 2 below for explanation The Standard APR for Bank and ATM Cash Advances is 19.99% Default APR: Up to 19.99% for all Purchase and Cash Advance balances if late or overlimit. See 1 below for explanation

Grace Period for repayment of balance for Purchases

At least 25 days from the statement Closing Date (provided you fully pay your New Balance Total from the previous statement by its Payment Due Date).

Transaction fees for cash advances, fees for late payments, or exceeding the credit limit

Transaction fee for Bank and ATM Cash Advances: 2.5% of each such cash advance (minimum $10, no maximum). Late-payment fee: Based on your balance on the business day after the Payment Due Date - $20 if $0 – 100; $29 if between $100.01 and $250; $35 if $250.01 or over. Over-the-credit-limit fee: Based on your balance as of the day the fee is assessed - $20 if $0 – 500; $29 if between $500.01 and $1,000; $35 if $1000.01 or over.

Transaction fees for Special Purchases

Transaction fee for the purchase of wire transfers, money orders, foreign currency, bets, casino gaming chips, lottery tickets, and travelers checks from a non-financial institution: 2.5% of each such purchase (minimum $10, no maximum)

1 When your minimum payment is late (i.e., not received by 4 PM Eastern Standard Time, on its Payment Due Date), or if the account balance is over-the-credit-limit, the Default APR may, at the discretion of ABC Bank, replace your Standard APR with the Default APR which will be applied to all new and outstanding balances. If your account has balances with different APRs, payments are applied to the balance with the lowest APR before any payments are applied to balances with higher APRs. This means that balances with higher APRs will not be reduced until balances with lower APRs are paid off. For more information on choosing the credit card that is right for you check the Federal Trade Commission’s website: http://www.ftc.gov/bcp/conline/pubs/credit/choose.htm


Questions to ask when considering a credit card or loan offer Before agreeing to any loan or credit card, you should ask the lender or the credit card company at least some of the following questions: 1. Is the credit card/loan offered at a fixed or variable rate? 2. When and how can a variable rate be changed? 3. Is there an introductory rate? What is it, and how long does it last? 4. After that, what will my rate be? 5. Is there a different rate for cash advances? If so, how much? 6. Does the interest for the cash advance begin immediately? 7. Are there application fees? 8. What are the annual fees? 9. Are there processing fees? 10. Is there a late fee? 11. Are there fees for transferring balances? 12. Are there special rates for transferring balances? How long do they last? 13. Is the card on a 24 or 30 day billing cycle? (a 30 day cycle is better) 14. Can I have the monthly statement cycle set to a specific day, when I know I will have

cash available to pay my bill? 15. Are there any other fees, like account termination fees? 16. When and how can a fixed rate be changed? 17. What is the grace period before interest is applied? 18. How will you inform me of any changes in my contract? 19. Will the company tell me if I am about to go over my limit? 20. If I exceed my credit limit, what happens? 21. Is there an over-the-limit fee?


22. What is the company policy if I have trouble making payments? 23. May I pay my bill online? 24. Are there fees for paying online? By telephone? With a check routing number? 25. What type of fraud protection does your card offer?

Alternatives to Credit Use Use Cash The best way to avoid problems with using credit is to simply pay for all items in cash. A good rule of thumb is that if you cannot pay cash for the item, do not buy it. For higher priced items such as major appliances, or the purchase of an automobile, you may want to consider planning ahead and budgeting an appropriate amount every month to pay for the item in cash. Some other alternatives to credit cards include: Debit Cards A debit card can be used like a credit card, except that the funds are drawn directly from your personal checking and/or savings account. Therefore, it is important to keep accurate records and track the balances in your account(s) to ensure that you do not bounce checks (overdraft) and incur additional fees. One important reminder is that some financial institutions place limits and fees on the use of debit cards. Check with your financial institution about the terms and conditions of the use of debit cards. Personal or Bank Certified Checks Personal or bank certified checks draw money from deposits made into your checking account. Checks are a good way to keep financial records, and almost all financial

Warning: Be careful of appliance centers that offer very low payments for appliances, furniture, entertainment centers, stereos, TVs, DVD/VCR players, etc. READ THE FINE PRINT. Often times these stores have flashy advertising and promise deals that are “too good to be true.” Essentially you are “renting” the product, and can end up paying double or more for that item.


institutions offer monthly statements itemizing each check, the amount, and the date the check was processed. Reminder: It is important to remember to keep accurate records and regularly balance your checkbook. Writing a check against an account with insufficient funds (sometimes called a bounced check or overdraft) will result in rejection of payment of the check. This can result in additional fees from your bank, and can be treated as a criminal offense in some jurisdictions, resulting in a jail sentence.


Chapter 14 Credit Reports and Credit Scores

Checking Your Credit Rating

Keeping records is an important way to manage a budget and get back on track, but did you know that every payment that you have ever missed has gone into a record? Credit agencies manage your personal file and provide information to companies or banks when you request credit. They review your credit file to see if you are a risk. Each time an inquiry is made to your credit rating, your overall score can be affected. Understanding the basic function of credit reporting can help you to improve your credit, thereby reducing your interest rates.

Why It’s Important to Check Your Credit Rating Sometimes, there can be inaccuracies in the credit reporting process. This may negatively affect your credit rating. Some examples of these inaccuracies can include (but are not limited to): closed accounts showing balances due, misstatements of your name, address, or social security number, birth date and marital status. Sometimes, you can even find accounts in your file that belong to a person who has a similar name, or worse, you can detect if your identity has been stolen and a criminal has opened accounts in your name. All about Credit Reports: What Every Consumer Needs To Know A Credit Report is a report that provides a current and previous history of all your credit activity. Included in the credit report is: your creditors, amount of credit that you have outstanding, delinquent accounts, bankruptcies, liens, judgments, and inquiries that have been made to your file when you have requested credit in the past. What is in your credit report and how long does it stay there? Credit reports are made up of several components:

Your identification information

Your credit data and credit history

Collection accounts past due

Public data

Inquiries made on your credit report


How do I get a FREE copy of my credit report?

As of September 1, 2005 the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT Act) states that every consumer is entitled to receive one FREE credit report each year. This is a new federal law that requires all three national credit repositories (Equifax, Experian and Trans-Union) to provide every consumer a free copy of his or her credit report upon request once every 12 months. You are also entitled to a free credit report if you have been denied credit. Consumers must make the request within 60 days of the denial date. There are three credit reporting bureaus: Equifax, Experian and Trans-Union. There are three different ways you can requests a FREE copy of your credit report: 1) Call Toll Free: 1-877-322-8228 2) Submit a request in writing to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281 If you order it in writing, be sure to include in your request: your full name, address, phone number and Social Security Number 3) Order via the Internet: https://www.annualcreditreport.com Remember: Only choose one method to request your credit report. What is included in a credit report? Not all creditors supply information to all three of the credit bureaus, so don’t be surprised if you see certain accounts only showing up on some reports, but not others. Every credit-reporting agency has a different format for reporting your credit history. Each format contains the same basic information that potential creditors want to know about you. Here are some of the basic sections included in every credit report: Personal Information Your personal information like name, address, social security and employer.


Account Information This section contains your existing and previous credit accounts including: mortgages, auto loans, personal loans, bank credit cards, and retail credit cards. This can contain basic information like: length of time you have had accounts, credit limits, current balances, previous high balances, and regular payment amounts. It can also contain negative information such as whether you were late in making payments, whether you have exceeded your credit limit in the past, and if previous creditors have written off your previous debts for failure to repay.

Inquiries These are requests you have made for additional credit, such as when you open a new charge account with a retailer, or when you activate a new cell phone. Having an excessive amount of inquiries for new lines of credit can negatively impact your credit report.

Collections These are any past due bills that have not been paid. These can be very bad for your credit report, as potential credit grantors will see you as a risk if you have lots of unpaid debts. Public Records These are records that are available to any member of the public and can include liens, judgments and bankruptcies. Consumer Statement As a consumer, you are allowed to make a statement that is available to potential creditors. This can be extremely helpful in cases of identity theft or credit card theft where your credit may have suffered through no fault of your own. Dispute File If there are inaccuracies with your credit report, you are allowed by law to report the error to the credit bureau(s). You may list any disputes you may have with a creditor regarding payment of bills. However, if the information supplied by the credit grantor is timely and accurate, the information will remain on your credit report. Sample Credit Report

A sample credit report is included on the following pages.


Date of Report: 10/15/2008 Personal Identification Information: Name: John A. Smith Social Security Number: 000-00-0000 Date of Birth: January 23, 1966 Current Address: 123 Main Street, Anytown, NY 12345 Reported: 11/2000 Previous Address(es): 456 Springfield St., Seaside, CA 98765 Reported: 03/1999 789 Dirt Road, Hometown, IL 45678 Reported 02/1991 Last Reported Employment: ABC Sales Corp. Previous Employment(s): Phone Company, LLC Fast Food Restaurant Account Information: Home Mortgage Group, Inc. PO Box 1234, Chicago, IL 60604 Phone (312) 555-5555 Account # Date Opened High Credit Credit Limit Terms Duration 123456 05/2005 $87,500 30 Years Terms Frequency Months Received Activity Descr. Last Reported Date Balance Amount Monthly 41 10/2008 $68,221 Amount Past Due Scheduled Pmt. Amt. Date of Last Activity Date Closed $540 $540 08/2008 Current Status – Account 30 Days Delinquent Account History 10/2008 04/2007 02/2007 01/2007 With status codes 30 days 30 days 60days 30 days

Friendly Bank Auto Loans 1212 State Street, Rochester, NY 14607 Phone (585) 555-1212 Account # Date Opened High Credit Credit Limit Terms Duration 23487 03/2007 $12,450 5 Years Terms Frequency Months Received Activity Descr. Last Reported Date Balance Amount Monthly 19 10/2008 $10,567 Amount Past Due Scheduled Pmt. Amt. Date of Last Activity Date Closed $230 $230 09/2008 Current Status – Pays as agreed


Credit Card Co. PO Box 12345 New York, NY 10101 Phone (212) 555-1000 Account # Date Opened High Credit Credit Limit Terms Duration XX45654 04/2002 $1,700 $1,800 Terms Frequency Months Received Activity Descr. Last Reported Date Balance Amount 78 Account Closed 10/2008 $0 Amount Past Due Scheduled Pmt. Amt. Date of Last Activity Date Closed $0 04/2005 Account Closed Current Status – Account Closed Account History 11/2003 04/2007 With status codes 30 days 30 days

Retail Credit Card PO Box 101 Lincoln, NE (800) 555-7800 Account # Date Opened High Credit Credit Limit Terms Duration -858510 12/2006 $500 $500 Terms Frequency Months Received Activity Descr. Last Reported Date Balance Amount 22 10/2008 $450 Amount Past Due Scheduled Pmt. Amt. Date of Last Activity Date Closed $0 09/2008 Current Status – Pays as agreed Credit Inquiries:

Inquiries that display to companies (may impact your credit score) This section lists companies that requested your credit report. Potential credit grantors may view these requests when evaluating your credit worthiness Company Information Inquiry Date Friendly Bank 03/2007 1212 State Street, Rochester, NY 14607 Retail Credit Card 12/2006 PO Box 101, Lincoln, NE American Bank Credit Card 03/2006 PO Box 233, New York, NY 10125 Major Bank Credit 04/2006, 02/2004 PO 555, St. Paul, MN Home Mortgage Group, Inc. 05/2005 PO Box 1234, Chicago, IL 60604 Cell Phone Company 05/2003 PO Box 5858, New York, NY 10120


Inquiries that do not display to companies (do not impact your credit score) This section includes inquiries which display only to you and are not considered by creditors when evaluating your credit history. Examples of this type of inquiry are pre-approved credit offers, insurance, and regular account reviews by an existing creditor. Company Information Inquiry Date Credit Card Co. 05/2008 12/2007 09/2006 PO Box 12345 New York, NY 10101 Retail Credit Card 04/2008 06/2007 12/2006 PO Box 101 Lincoln, NE

Public Records (may impact your credit score) These are publicly available records such as Bankruptcies, Judgments and Tax Liens

Bankruptcy or Wage Earner Plan Date Filed: 04/2003 Case Number: 1A645875524 Court Number/Name: Bankruptcy Court Name Court Address: 123 Court Street, Anytown, NY 14607 Phone Number: 555-555-5555 Liabilities: $35,000 Individual/Joint: Individual Individual/Business: Individual Bankruptcy Disposition: CH-7, Discharged Current Disposition Date: 12/15/2004 Asset Amount: $12,000 Exempt Amount: $12,000 Date Verified: 11/18/2004 Date Reported: 11/25/2004 Prior Disposition: Discharged CH12 Comments:

Suits or Judgments

Type: Judgment Date Filed: 10/13/2003 Case Number: 123456789 Court Number/Name: State Court Name Court Address: 123 Court Street, Anytown, NY 14607 Phone Number: 555-555-5555 Plaintiff: Ms. Plaintiff Defendant: Mr. Defendant Amount: $3,500.00 Status: Verified Date Reported: 10/15/2003 Satisfied Date: 05/05/2004 Verified Date: 11/25/2004 Comments: Consumer Disputes


All About Credit Scores: What Every Consumer Needs to Know Credit Scores (FICO® Scores) Credit Scoring is a system that creditors use to assist them in making lending decisions. These scores are sometimes referred to as a FICO® score. Credit scoring looks at objective data based upon your credit history, including:

Payment History

Amounts Owed

Length of Credit History

New Credit Accounts (recently opened)

Types of Credit Used The three credit bureaus (Experian, Trans-Union, and Equifax) all compute your credit scores differently. All credit scores are based upon the above listed factors and objective data in your credit file. Potential lenders use credit scoring to predict the likelihood that you will repay the debt you owe. This type of analysis by lenders can be referred to as a “risk assessment.” Different types of credit will allow for different levels of risk associated with your FICO® score. FICO® scores do not discriminate on the basis of any of the following factors:

Age, Race, Color, Religion, National Origin, Gender, or Marital Status

Your Salary, Occupation, Job Title, Date Employed or Employer

Employment History

Location of your home

Home Ownership or Rental

Child/Family Support Agreements

Consumer-Initiated Credit Report Requests

Any information not found in your credit history.

History of Receiving Credit Counseling


How can I improve my credit scores over time? There are many things you can do to improve your credit scores. Credit scores can improve, but it does take time to reflect the changes you have made to your use of credit. Your changes will need to be consistent in order to be effective. Most importantly, credit scores allow consumers to redeem themselves, even when they have filed for bankruptcy. Although credit scores contain seven years of history (10 years if you filed Chapter 7), credit scores really focus on two things to predict your behavior and credit risk:

Your last two years of credit history

Your current credit Therefore, even if you have had a major credit crisis in your past, you can still redeem your credit score with time and taking active steps to improve your credit. Credit Score Improvement Tips Here are some simple steps you can take to improve your credit score:

Pay your bills on time.

Keep your outstanding debt well below your credit limits.

If you have multiple credit cards, keep your outstanding account balances below 50% of your maximum credit card limit.

Only apply for credit that you truly need or want.

Too many credit inquiries can negatively affect your score.

Pay down existing balances.

Do not acquire new debt.

Manage your credit cards responsibly.

Fixing Inaccuracies In Your Credit Report It is the responsibility of the consumer to be vigilant about his or her credit report accuracy. However, the credit bureaus and credit providers must respond to any inquiries to credit report inaccuracies. For more information see the following Federal Trade Commission Websites: http://www.ftc.gov/bcp/conline/pubs/credit/repair.htm http://www.ftc.gov/bcp/conline/pubs/credit/crdtdis.htm


Fair Credit Reporting Act (FCRA) The Fair Credit Reporting Act (FCRA) provides protections for consumers by setting guidelines that promote accuracy in credit reports and privacy with the information that goes into the reports. The Federal Trade Commission (FTC) enforces this federal law. It encompasses the gathering of data as well as ensuring the rights of consumers to dispute data within their credit report. WARNING: If negative information in the credit report is accurate and timely, there is no legal way to remove that information.

Stopping Those Credit Card Offers You may request that consumer credit reporting companies exclude your name from lists for pre-approved, unsolicited credit and insurance offers. This will stop the flow of credit card solicitations into your mailbox, and reduce the potential for your credit information falling into the wrong hands. This is a FREE service. To find out more, please call 1–888–5-OPTOUT (1–888–567–8688). “Quick Credit Repair” Scams Many people fall victim to “quick credit repair” scams every year. As a consumer, you should be aware that many of these offers are illegal as they make promises that cannot be granted. One variation of this scam is for consumers to call a 900 number with the promise of repairing your credit

WARNING: Repairing your credit can take many years. These types of offers often have a 900 number service and promise immediate repair or improvement of your credit score and/or credit history.

When you think something is too good to true, it usually is. Credit repair operations require payment of your hard-earned funds to do something that you can do yourself for free. The safe way for you to repair your credit is though your time and efforts. You have rights under the Fair Credit Reporting Act (FCRA) to dispute accounts and debts that are inaccurate or not yours. Be advised that legitimate debts that belong to you, will remain on your credit history. You may find that money spent on a “quick credit repair” offer would be better spent to pay down your existing debt(s).


Conclusion: Your Journey Towards Financial Health The Road to Rebuilding Your Credit Once you have emerged from bankruptcy, you will be given a chance to change your behavior, and improve your financial decision making abilities. These newly acquired skills should put you on the road to rebuilding your credit. It is our hope that the information provided to you in this course will assist you in your decision making process as you:

Develop Your Budget

Manage Your Money

Use Your Credit Wisely

Comparison Shop For Goods and Services

Understand Your Consumer Rights Please remember, using effective decision making skills requires you to:

Educate yourself about the choices of goods and services available to you.

Look critically at the financial implications, and the potential impacts

your decisions will have upon your income and expenses. Take time to compare the costs and benefits, and comparison-shop for

the best priced goods and services available.

By applying these basic skills to your every day life, it will be easier for you to make the right decision. Making effective decisions can help lead you to a healthier financial future. We wish you all the best, Stand Sure Information Services, Inc.


Congratulations!

You have successfully completed the Personal Financial Management Course.

Please take a moment to fill out this online student satisfaction survey form. Once you

have completed all of the questions on the survey, you and your bankruptcy attorney will

receive an e-mail of your certification of course completion.

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Trustees, the United States Trustee, bankruptcy administrator or chief bankruptcy judge

for the district in which this course of instruction was offered.)



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continue to provide a quality Personal Financial Management Instructional Course.

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Part VII Appendix


Answer Key

Chapter 3 Case Study Analysis: Yolette 1. We calculate Yolette’s REAL monthly income by subtracting the expenses of

working from her net monthly income: $2,925.00 - $1679.17 = $1245.83

This means that Yolette only has $1245.83 per month to pay for her non work-related needs (housing, food, other transportation, etc.) and her wants (entertainment, books for her children, etc.)

2. Some answers may include:

Buy used or comparison shop for less expensive uniforms. Seek less expensive day care. Take public transportation. Look for a nursing job closer to home with fewer expenses.

3. Answer: $180

($50 x 52 weeks / 12 months) = monthly gas expenses $50 /month = monthly parking pass expenses ($20 x 52 weeks / 12 month) = public transportation costs

Monthly Gas Costs + Monthly Parking Pass Expense – Public Transportation Costs = $180 Chapter 4 Case Study Analysis: Realistic Needs 1. The cost of weekly groceries ÷ 21 Meals = Per Meal Cost

$50.00 ÷ 21 Meals = $2.50 Per Meal

2. Buying a week’s worth of groceries and eating at home is the most economical choice!

The Reason: Look at the number of meals that you get for the amount of money you are spending! If a week’s worth of groceries costs $50.00 and provides 21 meals, what is the cost per meal? Paying an average of $2.50 per meal is the least expensive option.


Chapter 5 Case Study Analysis: Chris and Jim 1. Brand X at the National Discount Chain Store is $10.49 2. Answer: 0.21 cents per diaper. No, it does not have the lowest per-unit price. 3. Brand X at the Wholesale Warehouse Club is $31.49 4. Brand Y at the Wholesale Warehouse Club is 0.11 cents per unit (diaper) 5. 12 changes per day x 7 days per week = 84 changes per week 6. If Jim buys Brand Y (Ultra-Giant Size) from the Warehouse Club Store ($29.99

per pack), he will pay: 84 diapers per week x 0.11 cents per diaper = $9.24 per week

7. His monthly diaper costs would be: $9.24 per week x 52 weeks ÷ 12 months = $40.04 per month Chapter 9 Case Study Analysis: Terel and Emily 1. Terel and Emily need to save $180 dollars in 12 months to buy new tires. 2. Terel and Emily need to save $15.00 per month in order to reach their goal. $180.00 ÷ 12 months = $15.00 3. Yes – Terel and Emily have set a realistic goal. There are many ways they can

reduce their grocery expenses by $15.00 each month.

4. Terel and Emily could do the following: add a budget line to plan for the planned

expense of new tires, put $15.00 into savings each month, save money on groceries by clipping coupons, comparison-shopping for best price, reducing spending on wants, buying generic products, buying some products in bulk, eating with family or friends, buying from farmer’s markets, asking for assistance from food cupboards or other organizations.

5. Terel and Emily could track their progress towards their goal by: checking their

monthly savings in groceries, Evaluating their progress after 3 or 6 months, Looking at their goal frequently


Chapter 11 Case Study Analysis: Rebecca and George 1. Rebecca and George’s Monthly Income is $1,800.00 Add lines A though E to get this total. 2. Rebecca and George have monthly expenses of $1,564.73 Total all items from Step 2 3. Yes, Rebecca and George have a balanced budget. A balanced budget occurs

when income is equal or greater than expenses.

4. They may want to consider reducing entertainment, cable TV, and grocery expenses to have money available to pay down their personal loan and credit card debt. They may want to consider giving their dog to a friend to reduce pet care costs.

5. Rebecca and George may consider going back to school, buying a home for their

growing family, paying off credit card debt, or paying off George’s personal loan.


Supplemental Worksheet: Develop Your Budget

Directions: Take a few minutes now to work through the worksheet on this page. This exercise will give you an opportunity to use what you have learned.

The worksheets provide additional spaces to personalize your household income as well as any fixed, periodic and variable expenses. This worksheet also includes a column for you to include the actual amounts for expenses to help you track your budgeting accuracy. This will also help you to more accurately budget in the future.

Net Household Income Amount Monthly Budget Amount Your Weekly Income x 52 weeks ÷ 12 months = Your Weekly Tips x 52 weeks ÷ 12 months = Your Bi-Weekly Income x 26 weeks ÷ 12 months = Your Bi-Monthly Income x 24 weeks ÷ 12 month = Your Monthly Regular Wages = Your Monthly Commissions* = Your Monthly Tips =

Your Other Income (Rents, Interest, Dividends, Alimony, Gains from the sale of assets, prizes, awards, etc.)* =

Your Self-Employment Income* = A. Your Net Monthly Income Total = Spouse’s Weekly Income x 52 weeks ÷ 12 months = Spouse’s Bi-Weekly Income x 26 weeks ÷ 12 months = Spouse’s Bi-Monthly Income x 24 weeks ÷ 12 months = Spouse’s Monthly Income = Spouse’s Regular Wages = Spouse’s Commissions* = Spouse’s Monthly Tips =

Spouse’s Other Income (Rents, Interest, Dividends, Alimony, Gains from the sale of assets, prizes, awards, etc.)* =

Spouse’s Self-Employment Income* = B. Your Spouse’s Monthly Income Total =

* Important Note: If you receive self-employment income (commissions, consulting fees, etc.) where no Income Taxes, Social Security or Medicare Taxes are withheld from your check, you must pay estimated taxes for the income each quarter. Quarterly payments are due to the Internal Revenue Service on April 15, June 15, September 15, and the following January 15. Be sure to include this in your Periodic Expenses!! Some states may also require periodic payments for State income taxes.


Expenses

Weekly Living Expenses x 52 weeks ÷ 12 months =


Needs Groceries x 52 weeks ÷ 12 months = Gasoline x 52 weeks ÷ 12 months = Public Transportation x 52 weeks ÷ 12 months = Parking / Tolls x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = Wants Entertainment x 52 weeks ÷ 12 months = Eating Out x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = x 52 weeks ÷ 12 months = C. Subtotal =

Monthly Expenses


Needs Rent = Mortgage = Car Loan = Child Care = Healthcare (Co-pays, Prescriptions, etc.) = Toiletries = Home Maintenance = Electricity = Gas (Heating) = Water = Telephone = Credit Card #1 = Credit Card #2 = Credit Card #3 = Student Loan = Education Expenses =


Monthly Expenses


Alimony = Child Support = Clothing / Shoes = Miscellaneous = Postage = Basic Haircare = Cell Phone = Pet Care (Food, Veterinary Bills, Medicines) = = = = = = = = = = = = = = = = = Wants Entertainment = Cable = Internet = Non-Vital Haircare = Make-Up = Clothing / Shoes = Miscellaneous = = = = = = = = = = = = D. Subtotal =


Periodic Expenses

Quarterly Expenses (four times per year)

Quarterly Amt. x 4 Qtrs. ÷ 12 months =


Renter's Insurance x 4 Qtrs. ÷ 12 months = Home Insurance x 4 Qtrs. ÷ 12 months = Car Insurance x 4 Qtrs. ÷ 12 months = Life Insurance x 4 Qtrs. ÷ 12 months = Disability Insurance x 4 Qtrs. ÷ 12 months = Propane / Oil x 4 Qtrs. ÷ 12 months = Water x 4 Qtrs. ÷ 12 months = Garbage x 4 Qtrs. ÷ 12 months = Self Employment Taxes x 4 Qtrs. ÷ 12 months = Estimated Taxes x 4 Qtrs. ÷ 12 months = Real Estate Taxes x 4 Qtrs. ÷ 12 months = Other Taxes x 4 Qtrs. ÷ 12 months =

Entertainment (i.e. - season tickets) x 4 Qtrs. ÷ 12 months =

Miscellaneous x 4 Qtrs. ÷ 12 months = Clothing / Shoes x 4 Qtrs. ÷ 12 months = Tools x 4 Qtrs. ÷ 12 months = Gifts x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = x 4 Qtrs. ÷ 12 months = E. Subtotal =

Bi-Annual Expenses (two times per year) Amount x 2 ÷ 12 months =


Renter's Insurance x 2 ÷ 12 months = Home Insurance x 2 ÷ 12 months = Car Insurance x 2 ÷ 12 months = Life Insurance x 2 ÷ 12 months = Disability Insurance x 2 ÷ 12 months = Car Repairs (minor) x 2 ÷ 12 months = Car Repairs (major) x 2 ÷ 12 months = Miscellaneous x 2 ÷ 12 months = x 2 ÷ 12 months = x 2 ÷ 12 months = x 2 ÷ 12 months = F. Subtotal


Annual Expense (once per year) Amount x 1 ÷ 12 months =


Car Repairs (major) x 1 ÷ 12 months = Appliances x 1 ÷ 12 months = Lawn Service x 1 ÷ 12 months = Snow Removal Service x 1 ÷ 12 months = Holiday Spending x 1 ÷ 12 months = Taxes x 1 ÷ 12 months =

Auto License Plates / Registration x 1 ÷ 12 months =

Auto Inspection x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = G. Subtotal =

Emergency Expenses Amount x 1 ÷ 12 months =


Car Repairs x 1 ÷ 12 months = Travel x 1 ÷ 12 months = Medical x 1 ÷ 12 months = Family Illness x 1 ÷ 12 months = Major Appliance x 1 ÷ 12 months = Home Repair x 1 ÷ 12 months = Catastrophic Event x 1 ÷ 12 months = Miscellaneous x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = x 1 ÷ 12 months = H. Subtotal

I. Total Household Income (Add lines A + B)

J. Total Household Expenses (Add Lines C+D+E+F+G+H)

Subtract Line I from Line J


Additional Web Links and Resources The Federal Trade Commission (FTC) is a branch of the US Government that (among other things) works to protect consumer rights, and inform the public about consumer protections. The FTC website allows consumers to search for information and to file complaints regarding scams and rip-offs. Within the FTC, the Bureau of Consumer Protection has several divisions including: The Division of Advertising Practices http://www.ftc.gov/bcp/bcpap.htm

The Division of Enforcement http://www.ftc.gov/bcp/bcpenf.htm

The Division of Financial Practices http://www.ftc.gov/bcp/bcpfp.htm

The Division of Marketing Practices http://www.ftc.gov/bcp/bcpmp.htm

The Division of Planning and Information http://www.ftc.gov/bcp/bcpp&i.htm

The International Division of Consumer Protection http://www.ftc.gov/bcp/bcpidcp.htm

The Office of Consumer and Business Education http://www.ftc.gov/bcp/bcpocbe.htm

For additional information you may wish to visit the following sites: FTC Bureau of Consumer Protection http://www.ftc.gov/ftc/consumer/home.html FTC Consumer Information Website http://www.ftc.gov/ftc/consumer.htm FTCs Website on Consumer Credit http://www.ftc.gov/bcp/conline/edcams/credit/index.html FTC Website to File a Complaint https://rn.ftc.gov/pls/dod/wsolcq$.startup?Z_ORG_CODE=PU01 FTC Website on Identity Theft http://www.consumer.gov/idtheft/ http://www.ftc.gov/bcp/conline/pubs/credit/idtsummary.pdf


Additional Web Links and Resources – continued Receive Consumer Alerts from the FTC http://www.ftc.gov/ftc/consumer/media_consumeralerts.html National Do Not Call Registry (End Telephone Solicitations) http://www.ftc.gov/bcp/conline/edcams/donotcall/index.html National Flood Insurance Program Website http://www.floodsmart.gov/floodsmart/pages/index.jsp Disaster Assistance – Federal Emergency Management Agency http://www.fema.gov/


Reference List

American Public Human Services Association State Human Service Agency Information and Links http://www.aphsa.org/home/StateContacts.asp

American Red Cross http://www.americanredcross.com

Annual Credit Report: Get Your Free Annual Credit Report Online https://www.annualcreditreport.com/cra/index.jsp

Anthony, J. and Cluck, K. 2001, Debt-Free by 30. Penguin, New York.

Caher, J.P. and Caher, J.M. 2003, Personal Bankruptcy For Dummies. Wiley Publishing Incorporated, New York.

Chatzky, J. 2003, You Don't Have To Be Rich. Penguin (USA) Inc., New York.

Cooke, R.A. 1998, Personal Finance For Busy People. Mc Graw-Hill, New York.

Department of Motor Vehicle (DMV) Quick Guide http://www.4dmv.com

Dominguez, J. and Robin, V. 1992, Your Money Or Your Life. Penguin, United States.

Equifax http://www.equifax.com

Experian http://www.experian.com

Federal Emergencies Management Agency (FEMA) http://www.fema.com

Federal Reserve Bank of Atlanta http://www.frbatlanta.org/consumer.cfm

Federal Reserve Education http://www.federalreserveeducation.org/PFED/

Federal Trade Commission (FTC) http://www.ftc.gov

Federal Trade Commission (FTC) http://www.ftc.gov/ogc/stat3.htm

Federal Trade Commission (FTC) Credit http://www.ftc.gov/bcp/conline/edcams/credit/coninfo_loans.htm

Federal Trade Commission For The Consumers: Consumer Information http://www.ftc.gov/bcp/conline/pubs/credit/crdright.htm

Federal Trade Commission For The Consumers Legal Resource http://www.ftc.gov/ftc/consumer.htm

FirstGov For Consumers http://www.consumer.gov/

Glink, I.R. 2002, Simple Steps You Can Take To Disaster-Proof Your Finances. Three Rivers Press, New York.


Internal Revenue Service (IRS), Department of Treasury http://www.irs.gov/individuals/index.html

Internal Revenue Service (IRS) Department of Treasury: Choosing A Retirement Plan: Retirement Plan Options http://www.irs.gov/retirement/article/0,,id=109169,00.html

Internal Revenue Service (IRS), Department of Treasury: Withholding Calculator http://www.irs.gov/individuals/article/0,,id=96196,00.html

Internal Revenue Service (IRS) Tax Scams: How to Recognize and Avoid Them http://www.irs.gov/businesses/small/article/0,,id=106788,00.html

Internal Revenue Service (IRS) Understanding Your IRS Notice http://www.irs.gov/individuals/article/0,,id=96199,00.html

Internal Revenue Service (IRS) Where’s My Refund? https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

Kimball, C. and Doria, F.K. 2002, The Everything Get Out Of Debt Book. Adams Media Corporation, Massachusetts.

Lank, E., Deickler, J. and Lippman, W.J. 2001, Modern Real Estate Practice In New York. Revised 7th edn. Dearborn Financial Publishing Inc, Illinois

Michael, J. and Fox, T. 2004, Repair Your Credit And Knock Out Your Debt. McGraw-Hill, New York.

MyFico A Division Of FairIsaac Credit Education http://www.myfico.com/crediteducation/?fire=1

The National Foundation for Credit Counseling http://www.debtadvice.org/takethefirststep/locator.html

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Transunion http://www.transunion.com

Ventura, J. 1997, Beating The Paycheck To Paycheck Blues. Dearborn Financial Publishing Incorporated, Illinois.

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Documents

Personal Financial Management Instructional Course Workbookstandsuretoday.com/workbook.pdf · Personal Financial Management Instructional Course Workbook ... Personal Financial Management