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The Single Life: Start Out Right Chapter 2 Money Smart Women Janet Bodnar

The Single Life: Start Out Right Chapter 2 Money Smart Women Janet Bodnar Chapter 2 Money Smart Women Janet Bodnar

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Good Habits Last a Lifetime It’s critical to lay a strong foundation while you are just striking out on your own in your 20’s. The basic principles of smart money management are just as applicable if your 30 -something, 40 – something, or 50 – something. It’s critical to lay a strong foundation while you are just striking out on your own in your 20’s. The basic principles of smart money management are just as applicable if your 30 -something, 40 – something, or 50 – something.

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Page 1: The Single Life: Start Out Right Chapter 2 Money Smart Women Janet Bodnar Chapter 2 Money Smart Women Janet Bodnar

The Single Life:Start Out Right

Chapter 2 Money Smart Women

Janet Bodnar

Page 2: The Single Life: Start Out Right Chapter 2 Money Smart Women Janet Bodnar Chapter 2 Money Smart Women Janet Bodnar

Topics in this unit

Generational distinctions for MillenialsGender distinctions in single life – women/menThemes for the course – ERA & Recovery is Key!Five important steps to take while singleMoney Smart Single Women – Teri vs. Toni

Page 3: The Single Life: Start Out Right Chapter 2 Money Smart Women Janet Bodnar Chapter 2 Money Smart Women Janet Bodnar

Good Habits Last a LifetimeIt’s critical to lay a strong foundation while

you are just striking out on your own in your 20’s.

The basic principles of smart money management are just as applicable if your 30 -something, 40 – something, or 50 – something.

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Millennials – the KEY Generation

Millennial women and men in the US have more at stake than ever when it comes to taking control of their finances, managing money with confidence, and in practicing philanthropy.

Younger generations are our future. The time is NOW to begin your road to independence and to being confident.

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Managing Money on Your OwnAccording to Oppenheimer Funds, at some

point in their lives, 90% women in the United States will be managing money on their own because they’ve been divorced or widowed or have never married. (Source: Oppenheimer Funds).

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Supporting FactsNever Married: Of American women who

are ages 25 to 29, about 42% have never married.

Divorce: About 40% of first marriages end in divorce, according to the U.S. Census.

Widowhood: The median age of widowhood for women in a first marriage is just over 58 years.

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Thinking SingleEven if you’re married or in a relationship,

you need to “think single” to maintain your financial independence, so that if anything happens to a spouse or partner you won’t face financial disaster as well as personal tragedy.

The sooner you start, the better off you’ll be – Early, Regularly and Aggressively

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Themes for the class

ERA – Early, Regularly and Aggressively

Recovery is KEY!

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Five Steps to Financial Independence

Following are some key steps to becoming financially independent and confident.

1. Pay off debt2. Clean credit3. Cash cushion – “cash is key”4. Savings – retirement, etc.5. Insurance

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1. Pay Off Your Debt The statistics:

In 2004 about 76% of college students in the United States had credit cards, according to a study by Nellie Mae, a top originator of student loans, and the average credit card balance was more then $2,100.

In addition, a survey by Oppenheimer Funds found that 47 percent of single Gen X women, age 21 to 34, had credit card debt, compared with 35 percent of single men. The typical Gen X woman with credit card debt had an outstanding balance of $2,300 – which is the equivalent of four weeks of take-home pay.

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1. Pay Off Your Debt – (cont.) The statistics – (continued)

Significantly more single young women said that they live from paycheck to paycheck than do single men. And 30% of all bankruptcy petitions are filed by single women, compared with 26 % by single men.

How do you pay off your debt: Stop using your credit card Pay off your bills Tackle your most expensive debt first Don’t carry a balance from month to month

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2. Write Your Credit History on a Clean Slate It’s particularly important for young women and men to

build a credit record in their own name that will last a lifetime and be unaffected by their marital status.

Ironically, the best way to get credit is to incur debt, so that card issuers can gauge how reliable you are when it comes to repaying. But that doesn’t mean you’re out of luck it you’re starting fresh.

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Credit Cards and Your Credit A few tips to keep in mind:

Some major banks have programs to help you establish good credit by making you a loan that you repay before getting the money.

Don’t shop for several cards at the same time. Credit issuers checking your credit report will see the other inquiries and assume the worst - that you’ll get all the cards and use the entire credit limit.

If issuers think you have to many cards, they’ll be less confident that you’ll be able to pay your debts.

Being rejected for a credit card can hurt your chances of being accepted for one in the future.

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Getting Credit One of the fastest ways to get credit is to apply for

a secured card that requires you to make a savings deposit equal to your credit line

This is a good option for college students. Putting up some of your own money in order to get the card makes the point that credit has a cost, and it protects them if they get into trouble

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FICO Scores and Utilization Ratios FICO is the acronym for Fair Isaac Corporation, a

publicly-traded corporation (under the symbol "FIC") that created the best-known and most widely used credit score model in the United States.

The FICO score is calculated statistically, with information from a consumer's credit files. The FICO score is primarily used in credit decisions made by banks and other providers of secured and unsecured credit. Banks and other institutions using such scores as a factor in their lending decisions may deny credit, charge higher interest rates, demand more collateral, or require extensive income and asset verification if the applicant's FICO credit score is low.

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Utilization RatiosUtilization ratios is a ratio of your available

credit. When lenders decide to extend credit they

look at your utilization ratio – ie, how much you have been extended verses how much you have used.

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Digging Out of DebtStop using your credit cards- even if, to

avoid temptation, you have to cut them up (plastic surgery) or do something drastic like putting them on ice in the freezer. Henceforth, pay cash.

Pay off your bills- using whatever strategy makes you feel that you’re making progress.

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Digging Out of DebtTackle your most expensive debt first-

Financially, that makes the most sense.

Don’t carry a balance from month to month- Only use your cards again when you make up your mind to pay the bill off each month

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Getting Help with DebtBodnar recommends several agencies that

assists people with credit and debt issues. Please refer to page 24 of text book for details on supporting agencies.

The Consumer Credit Counseling Service http://www.cccsatl.org/

National Foundation for Credit Counselinghttp://www.nfcc.org/

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3. Plump Your Cash Cushion You should have enough cash tucked away to

cover 3 to 6 months’ worth of living expenses Only 38% of Americans actually keep that much

savings on hand, according to a survey by Lutheran Brotherhood.

Young adults are especially short of cash, with just 30% of them reporting they have a cushion that would last at least 3 months.

In fact, it has been determined that in our country now, we have a negative savings rate.

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3. Plump Your Cash Cushion Even if you can not stockpile 3 to 6 months worth

of cash start small with 1 month. As your income rises, increase your cash reserve – a little adds up to a lot over time (remember ERA).

A cash reserve should be your first priority. Note: As you build up your cash cushion a

reasonable question would be where do you put it? You have two good options for parking your cash reserve: a savings account at a bank or credit union, or money-market mutual fund.

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4. Open a Retirement Account Saving for retirement and other life’s transistions is

especially important for women because they tend to move in and out of the work force even as they have to plan for a longer life span. Because of these transitions, they are have less income from entitlement programs.

Ironically, it was determined by an Oppenheimer Funds survey, fully half of the single Gen X women said that at this point in their lives, money is for spending and not for saving. Three of four said it was important to “look successful” and 54 percent said they were more likely to accumulate 30 pairs of shoes than to accumulate $30,000 in retirement savings.

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4. Open a Retirement AccountVery few people, no matter what their

income or age, have the self-discipline to sock away money on their own. Perhaps an easy way to do it successfully is to have someone do it for you, off the top of your paycheck, so that your money doesn’t burn a hole in your pocketbook.

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4. Open a Retirement AccountPut as much money as you can in your

retirement account such as your IRA – individual retirement account.

Take advantage of any employer sponsored retirement accounts as usually your contributions are matched (up to a certain amount) by the employer.

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5. Buy Peace-of-Mind InsuranceHealth Insurance

Nearly 1 in 3 young adults between the ages of 18 and 24 has no health insurance- the highest proportion of any age group, according to the U.S. census Bureau.

If you are a recent college graduate, you might be able to take advantage of a COBRA plan. See page 36 for additional details and check with your current insurance to determine if this will help you bridge the gap when you graduate.

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5. Buy Peace-of-Mind InsuranceHealth Savings Accounts:

Something to consider – put $ into an account or have it withdrawn up to a certain amount in pre-tax dollars to pay for medical expenses such as co-pays, drug co-pays, etc. Sometimes will take it right out of your checking account before taxes are taken out.

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5. Buy Peace of Mind InsuranceDisability Insurance

You would be wise to supplement an employer-paid policy with disability insurance you’ve purchased on your own, bringing total coverage to 80% or 90% of take-home pay.

Generally, the young you are the more you need disability insurance.

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5. Buy Peace-of-Mind InsuranceRenters Insurance

You own more than you think, and you can protect it from fire or theft with inexpensive renters insurance.

Coverage generally costs only a couple of hundred dollars per year

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Ten Tricks to Add to Your Savings Routine

1. Start an automatic savings or investment plan2. Have your paycheck deposited directly to your

savings account rather than your checking account.

3. Limit yourself to just one ATM withdrawal a week

4. When you make a credit card purchase subtract the amount immediately from your checking account

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Ten Tricks to Add to Your Savings Routine

5. When you subtract a check from your account, round up the amount to the next dollar

6. Can’t decide between two items in the store? Give yourself a 24-hour “cooling-off” period before you buy either

7. If you tend to misplace credit card receipts or forget to record debits, buy yourself a couple of eye-catching storage bins or baskets into which you can toss the receipts.

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Ten Tricks to Add to Your Savings Account

8. Get a fun savings bank into which you can toss spare change, and watch your money grow

9. Each time you pass up the temptation to buy a latte or a new pair of shoes, take the money you would have spent and put it in a cash jar

10. Once you finish paying off a loan or credit card balance, keep writing the check but send it directly to a savings or investment account

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Teri vs. ToniThe Little Things Add Up

Teri – At age 25 - $2,000 per year into IRA and does so for 10 years. She saves a total of $20,000.

Toni – at age 35 -- $2,000 per year into IRA and doesn’t stop for 30 years for a total of $60,000 in contributions.

Who has more money at age 65?

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Teri vs ToniTeri will have more money at age 65.

Teri --- $556,000 vsToni -- $329,000

Why? The time value of money

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Laying the Foundation for Philanthropy

Just as you begin to lay the foundation for smart money skills in your 20’s, it is at this point in your life when you begin to develop your philanthropy skills.

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WHY NOW IN THE 21st CenturyAs we begin the 21st century, women in the

US are in unprecedented wealth and economic power. Today, women control more wealth – whether individual, family, shared, or inherited wealth. As their wealth increases, women are becoming more knowledgeable about their own financial resources and responsibilities

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WHY NOW IN THE 21st CenturyWomen make up 53% of the workforce and

are increasingly moving into higher-paying professional careers.

Women make up 1.6 million of the top wealth holders in the US with a combined net worth of almost $2.2. trillion

Women generated $2.1 trillion in earnings in 1999

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WHY NOW IN THE 21st Century Perhaps the most striking of all, because women

live longer than men, women will end up in charge of much of the $41 trillion to $136 trillion expected transfer of wealth from generation to generation over the next fifty years.

For those women in their 20’s – this is you! And for men in their 20’s – this is good

information to know for yourself, your mothers, sisters, daughters, etc.

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Don’t Stop Now! Figure out how much debt you are carrying month

to month and look at ways to pay it off Get a free copy of your credit report and take steps

to improve your credit status Start or beef up your savings for emergencies and

retirement Purchase health and disability insurance coverage

or reconsider the adequacy of what you have

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Don’t Stop Now!Look into buying a home of your own if

you haven’t already done so and you’re reasonably settled

Make a will or revisit a previously written one. Does it reflect your current situation?

Begin to lay the foundation for philanthropy in your life

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THE BOTTOM LINEThemes for the course -

Start EARLY!Do it REGURLARY!Do it AGGRESSIVELY!

Recovery is KEY!