Personal finance
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Personal Finance. Major Justin Knutzen. Personal History. 2007: I was leading a “Successful” life…. Personal History. 2008: I started thinking about getting married We openly discussed our finances and found Student Loans still unpaid 8 years after college Three vehicle payments

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Personal finance

Personal Finance

Major Justin Knutzen


Personal history

Personal History

  • 2007: I was leading a “Successful” life…


Personal history1

Personal History

  • 2008: I started thinking about getting married

    • We openly discussed our finances and found

      • Student Loans still unpaid 8 years after college

      • Three vehicle payments

      • Line of Credit on the house

      • Major credit card debt

      • A Signature loan with a high interest rate

Over $100,000 in Non-Mortgage Debt!


Personal history2

Personal History

  • We had no liquid savings

  • We had very little retirement savings

  • Our debt would not permit us to have the wedding that we wanted


Time for a change

Time for a Change

  • I started to research personal finance

    • I read books by the following authors:

      • Dave Ramsey

      • Suze Orman

      • Robert Kiyosaki

      • James Cramer

      • Thomas Stanley

  • We started a budget with a plan to pay off our debts

  • Changed our lifestyle


Key lessons learned

Key Lessons Learned

  • Learned difference between “Need” and “Want”

  • Learned an important word… NO!

  • A Budget is critical

    • Plan for where your money will go Before you get paid

  • A debt reduction plan is important

  • “Emergencies” happen, a credit card is not a plan

  • Open communication about our finances is critical


Developing a budget

Developing a Budget


Budget

Budget

  • Income

    Total Pay (Gross Income)

    Minus Gov’t Deductions (Taxes, Soc Sec, Medicare)

    Minus Other Deductions (uncontrolled, ex: Alimony)

    Equals your Personal Disposable Income

    Added to spouses income = Total Disposable Income (TDI)

  • Charity (10% of TDI)

    Place of Worship

    AFAF

    Combined Federal Campaign

    Other


Budget1

Budget

  • Housing (30% of TDI)

    Rent/Mortgage

    Utilities (gas, electric, water, trash, phone, cable, internet)

    Insurance (homeowner/renter)

    Maintenance (for homeowners)

  • Transportation (17.5% of TDI)

    Car Payment / Replacement savings

    Gas

    Maintenance (oil, tires, repairs, etc)

    Taxes and Licensing

    Insurance


Budget2

Budget

  • Food (10% of TDI)

    Groceries

    Dining Out

  • Savings (10% of TDI)

    Emergency Fund

    Retirement

    College Fund


Budget3

Budget

  • Personal (10% of TDI)

    Clothing

    Personal Care

    Entertainment

    Vacation

    Pocket Money

  • Debt (7.5% of TDI)

    Credit Cards

    Student Loans

    Line of Credit


Budget4

Budget

  • Insurance (5% of TDI)

    Medical

    Dental

    Disability

    ID Theft

    Term Life Insurance

    Long-Term Care (Over the age of 60)


Debt elimination methods

Debt Elimination Methods

  • High Interest

    • Organize debts by interest rate

    • Pay off highest interest first

    • Roll payments into next highest, etc, until debt free

  • Debt Snowball

    • Organize debts by amount owed

    • Pay off smallest debt first

    • Roll payments into next largest debt, etc, until debt free

Northwestern University, Kellogg School of Management Study: Closing debt accounts led to higher success rate of paying off debt than paying high interest first


Retirement savings

Retirement Savings

  • Traditional Thrift Savings Plan (TSP)

    • Every $100 contributed reduces take home pay by $75

    • Money withdrawn in retirement is taxable

    • Better option for those planning to be in a lower income tax bracket in retirement

  • Roth TSP

    • Every $100 contributed reduces take home pay by $100

    • Money withdrawn in retirement is tax free

    • Better option for those expecting to be in a higher tax bracket in retirement

Calculations assume 25% tax bracket


Tsp funds

TSP Funds

  • Varying range of risks

  • Follow measureable index (Except G and L funds)

  • Low administrative expenses (0.027% in 2012)


Tsp funds1

TSP Funds

  • Common Stock Index Fund “C Fund”

    • Follows Standard and Poor’s 500 Index (S&P 500)

      • 500 large to medium-sized companies

    • Price affected by gains/losses in the prices of the stocks and dividend income

  • Fixed Income Index Fund “F Fund”

    • Follows Barclays Capital U.S. Aggregate Bond Index

      • Broad index representing the U.S. bond market

    • Price affected by interest income on securities and gains/losses in the value of securities


Tsp funds2

TSP Funds

  • Government Securities Fund “G Fund”

    • Special U.S. Treasury securities specifically issued to TSP

      • Interest rate based on weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity

    • Earnings are based entirely on interest from the securities and affected by increases/decreases in U.S. Treasury security rates

  • International Stock Index Fund “I Fund”

    • Follows Morgan Stanley Capital International EAFE (Europe, Australia, Far East) Index

      • Stocks of companies in developing countries

    • Price affected by stock gains/losses, dividend income, and foreign currency changes in relation to the U.S. dollar


Tsp funds3

TSP Funds

  • Small Capitalization Stock Index Fund “S Fund”

    • Follows Dow Jones U.S. Completion Total Stock Market Index

      • Small and medium size companies not in the S&P 500

    • Price affected by gains/losses in the prices of the stocks and dividend income

  • Lifecycle Funds “L Funds”

    • Diversify investments into G, F, C, S, and I Funds

    • Automatically modify investment mixes according to targeted retirement dates


Conclusion

Conclusion

  • Today, my wife and I are debt free

  • We will have a full six month emergency fund when we PCS in July

  • My wife has asked to stay home with our children after we PCS…

    • With no debt and a full emergency fund, she can


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