Why is financial literacy important?
Who cares about being financially literate? I mean really, how hard is it to keep a budget and stick to it?
Financial Literacy isn't just about having a budget and sticking to it, though this is important, it's about having skills like long-term vision and planning for the future, and the discipline to use those skills every day. It is widely believed that lack of financial literacy in our society was a major factor in the recent financial crisis. Financial literacy in today's world is almost as important as learning to read and write and one could argue that a student's credit history is far more important to his or her future than grade point average.
The Basics (and not so basics) of Budgeting
Budgeting is basically a way of seeing if what you have to spend is (hopefully) greater than or equal to what you spend. Once you create your budget, using one of the free technology options listed or one of your own choice, you will be able to see more clearly how your financial resources and expenses, compare. But there is another element to be considered before you start this process. Time. Or more precisely for what period of time are you measuring wealth versus expenses.
The most useful periods of time to budget are; the length of time between paychecks if you work, an academic term or year if you are in school or a fixed period of time such as one month or one calendar year.
If you're more of a paper and pencil person, the worksheets below are a good place to start. They are based on a period of one month, but can be easily adapted for any of the other periods of time. However, the items of financial resources (income) and expenses to consider will change and the budgeting process will become more complicated, the longer the period of time being measured. In fact, once you have for example, constructed your monthly budget you might want to think about how you would budget for a longer period such as a part of your life; duration of time in school, time of your career up to retirement and/or after retirement, or you entire lifetime or if you want to leave an inheritance to your children or a foundation, even longer.
* An example Monthly Spending Worksheet from betterbudgeting.com
* Personal Monthly Worksheet (Excel spreadsheet)
How to Budget
1. Calculate Income
Calculate your projected income by estimating the amount of money you will have to cover your expenses for the semester. This includes savings, job earnings, financial aid, and any funds from parents.
TIP - Protect your future: Don't borrow more than you need. There is no need to be paying interest on those loans you borrowed years after graduation for material things you could do without now. What is the interest on your loans?
TIP - If you're not working, consider working 15 hours a week which could earn you $100/week or more. In addition to providing that income, your job could help you budget your time and build your skills and resume for your future career. Are you eligible for Federal Work-Study?
2. List Your Fixed Expenses
These expenses do not vary, such as tuition and fees. The University develops standard budgets for categories of students represented within the school's population.
3. List Variable Expenses
Variable expenses are subject to a certain amount of control from you. These include housing and meals, books and supplies, transportation, personal expenses, insurance, and clothing.
4. Total Expenses
Add your fixed expenses to your variable expenses to obtain your total expenses
TIP - Be careful with credit cards! If you don’t have the cash for the purchase, you probably can’t afford it (and do you really need it?).
TIP - Don't use an ATM card for an individual purchase if a fee is involved. Do you really want to pay $2.25 for a $1.50 taco? These little fees add up fast.
Free Budgeting Technology
Credit: THE most important things to know
Almost every day, you're involved in some type of financial transaction requiring an educated decision. Credit cards are often more convenient to use than paying cash. But use of credit cards may get out of control. Credit is a loan, a debt that must be repaid. So why use a credit card? They are great for emergencies and can help you establish a good credit history. Your credit card statement can help you keep track of your expenses and might even categorize the type of expense.
Should you have a credit card? Probably.
Should you have multiple credit cards? Probably, but not too many. Every credit card application is recorded on your credit report whether or not you actually use the card.
When shopping for a credit card, and yes, you should shop around, consider the following
What is the annual percentage rate (APR)? Hint -lower is better
Is the APR fixed or variable?
What are the fees?
Is it a "secured" or "unsecured" card? Secured cards are useful when you are trying to establish a credit history, but they require a deposit. Unsecured cards are usually obtained when you already have a good credit history.
Read the fine print! Every credit card comes with a disclosure summary that will discuss the grace period for repayments, annual fees, transaction fees, and other very important details.
Paying off your credit card?
Just as compound interest increases your savings accounts, interest rates on your credit card also mount up. Suppose you purchased a new laptop for $1000 on your credit card which charges 18% interest each month. If you choose to pay only the minimum each month it would take over 12 years(!) to pay it off.
Financial transactions such as credit card applications and payments, installment loans, mortgage payments, tax liens, bankruptcies are reported to credit reporting agencies. The Federal Trade Commission oversees the nation's credit reporting agencies: Equifax and TransUnion. Lenders consult these agencies when you buy a car, or apply for a mortgage loan. Your credit report may affect whether you get that loan and what interest rate you will be charged.
Get a copy of your credit report. "The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies - Equifax, Experian, and TransUnion - to provide you with a free copy of your credit report, at your request, once every 12 months".
Review your credit report.
* Is it accurate?
* Does list credit cards not in your possession?
* Are your balances accurate?
* Have there been inquiries into your account that you don’t recognize?
Discrepancies should be reported back to the credit agency.
In addition to requesting your credit report from each of the three agencies, you may elect to "freeze" the report. This security freeze prevents other people and companies from accessing your file unless they have a prior relationship with you. There is a $5 fee for each agency. Check with each of the major credit bureaus for instructions to freeze your credit report.
Creditors use credit scoring systems to determine if you'd be a good risk for credit cards, auto loans, mortgages and insurance. A higher credit score means you are likely to be a good risk, which, in turn, means you will be more likely to get credit or insurance-or pay less for it.
What Is Credit Scoring?
Credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they're due, collection actions, outstanding debt and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles.
Your free credit report does not usually include your credit score. A fee is usually charged to obtain your credit score. Each credit reporting agency has their own formula for calculating your credit score. Your score may determine whether you get a loan, what interest rate you will pay. A low score may result in a higher interest rate, costing you thousands of dollars in interest.
Credit cards can be a convenient way of managing your money when handled properly. However, if not managed carefully, your spending habits can actually cause big problems. Here is a great article highlighting the warning signs of too much debt.
Once you realize that your credit card debt may be out of control, don't panic! The most important thing is to do something about it. There are several steps you can take to gain control of your financial future again. However, you will more than likely have to alter your spending habits. Here are a few tips you can do to regain control of your debt:
* Set a Budget and stick to the plan. Revise your spending and look for ways to reduce your expenses.
* Call your credit card company and see if they can work with you on an acceptable payment plan that fits into your budget.
* Use your savings and other assets to pay down your debt.
* Talk to a credit counselor
If you are experiencing financial difficulties, don't lose hope. There are options out there if you are willing to act. Click here for more ideas from CNN Money on how to manage your debt.
Tips on Saving Money
The key to saving money is spending less than you earn. This may seem like a basic concept, but many fall short of actually doing so. Below are some ideas on how to save more of your hard earned money.
Try using this savings calculator from SALT: https://www.saltmoney.org/content/media/Tool/savings-calculator/_/R-101-4367
Paying for College
Not everyone has the desire or opportunity to pursue a college education, but a college education will provide you with better opportunities in the future. Lack of money should not prevent you from pursuing a higher education. Have you considered?
* Scholarships and Grants
* Student and Parent Loans
"The Federal Government provides aid to more than 10 million students each year with grants, low interest loans and work-study programs... The Department's Federal student aid programs are the largest source of student aid in America. ... These programs provide more than $80 billion a year in grants, loans, and work-study assistance." [http://studentaid.ed.gov/]
Scholarships may be also available from the Federal and State government, your college, and even local companies or your parent's workplace
For additional information, see the Office of Student Financial Services Website: http://www.uvm.edu/~stdfinsv/
Last modified April 02 2014 11:53 AM