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The 2007 Cow Loan. “Risk comes from not knowing what you are doing.” —Warren Buffet. MAJ Spencer Clouatre 102 Lincoln Hall x3559 [email protected] MAJ Jon Byrom 205 Lincoln Hall x2342 [email protected] The Basics. Three options from which to choose

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the 2007 cow loan

The 2007 Cow Loan

“Risk comes from not knowing what you are doing.”

—Warren Buffet

MAJ Spencer Clouatre

102 Lincoln Hall

x3559

[email protected]

MAJ Jon Byrom

205 Lincoln Hall

x2342

[email protected]

the basics
The Basics
  • Three options from which to choose
    • BLACK: $20,000 @ 0.0% for 36 months
    • GREY: $25,000 @ 0.75% for 48 months
    • GOLD: $30,000 @ 1.0% for 60 months
  • Monthly payments
    • BLACK: $555.56 for 3 years
    • GREY: $534.74 for 4 years
    • GOLD: $520.43 for 5 years
  • USAA requirements to accept the loan
    • Maintain a checking account with direct deposit for duration of the loan
    • Maintain a savings account or credit card for same duration for overdraft protection
  • Contact Brian Kossler (Class Treasurer) for loan specifics
  • No outside vendors allowed on post—report
keys to financial success
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
create a budget
Create a Budget

Goal:

Use your cadet pay

Credit Card Debt………………….$1,500

Class Ring…………………………$1,200

Commissioning Uniforms………...$2,000

Car………………………………….$20,000

TT&L on Car……………………….$1,800

1st Year Car Insurance……………$1,000

1st Apartment Furniture…………...$2,500

Total Expenses……………………$30,000

Remaining Value of Cow Loan….....$0

keys to financial success5
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
real interest rates simple calculation

What does

this mean?

Real Interest Rates(Simple Calculation)

Nominal Interest Rate – Inflation Rate = Real Interest Rate

(–1.0%)

– 2.0% (2006*) =

1.0%

Real Return on Gold Option Investment:

Real Rate of Return for Generic Mutual Fund = 5.0%

Real Cost of Borrowing = (–1.0%)

Real Rate of Return = 5.0% – (–1.0%) = 6.0%

1st Year Return = $30,000 x 6.0% = $1,800

Black & Grey Options

$20,000 x 7.0% = $1,400

$25,000 x 6.25% = $1,563

vs.

*Bureau of Labor Statistics; Nov 2005 - Nov 2006

keys to financial success7
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
  • Pay off credit card / consumer debt immediately
why are credit cards so bad
Why are Credit Cards so Bad?

Initial Amount Charged: $5,000 @ 18%

Total Pay Off @ 2% Minimum Payment.

How long would it take?

472 months — (almost 40 Years)

Total Interest Paid: $13,397

Total Pay Off @ $100 Every Month.

How long?

94 months — (almost 8 Years)

Total Interest Paid : $4,311

keys to financial success9
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
  • Pay off credit card / consumer debt immediately
  • Don’t be a sucker!
steer clear of sharks
Steer Clear of “Sharks”
  • There are people looking to take advantage of you and your new-found wealth—including some “Old Grads”
  • These individuals are not allowed on-post (excluding Hotel Thayer)—there is a reason for that!
  • They are not stealing your money, but they don’t have your best interests in mind—what is their incentive?
  • What should you do?
    • Don’t be intimidated by their former rank—you are in charge
    • Ask for their credentials
    • Ask them how they get paid
    • Remove emotion from the equation—this is an financial decision
    • Don’t invest in things you don’t understand
    • Don’t purchase additional life insurance beyond SGLI (extreme exceptions)
    • Call me
keys to financial success11
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
  • Pay off credit card / consumer debt immediately
  • Don’t be a sucker!
  • Establish an Emergency Savings Account
    • $2,000 - $3,000 (Recommended minimum)
    • Money market fund or savings account NOT linked to ATM card
  • Set aside $ for short-term expenses
    • Average ring costs $1,200
    • Average uniform expense at graduation = $2,000
    • Costs associated with living on your own upon commissioning
  • If necessary, use the Cow Loan to finance your automobile
slide12

www.nadaguides.com

Other quality auto sites:

www.kbb.com

www.cars.com

www.autotrader.com

Don’t forget TT&L!

keys to financial success13
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
  • Pay off credit card / consumer debt immediately
  • Don’t be a sucker!
  • Establish an Emergency Savings Account
    • $2,000 - $3,000 (Recommended minimum)
    • Money market fund or savings account NOT linked to ATM card
  • Set aside $ for short-term expenses
    • Average ring costs $1,100
    • Average uniform expense at graduation = $2,000
    • Costs associated with living on your own upon commissioning
  • If necessary, use the Cow Loan to finance your automobile
  • Start saving for the long-term NOW—time is money
the value of compounding
The Value of Compounding

Amount Invested: $96,000

Value at Retirement: $700,000

Value of Gold Option @ 8% Annual Rate of Return:

10 Years = $65,000

20 Years = $140,000

40 Years = $650,000

what is an ira
What is an IRA?
  • Individual Retirement Arrangement (Account)
  • Arrangement w/ federal government
  • In return for bearing the financial responsibility for your family in retirement, the government provides you with certain tax advantages
  • Offered by virtually every financial institution
  • Think of it as a ‘bubble’ protecting your assets from taxes
  • Any investment instrument / multiple instruments fit in the ‘bubble’ (and these can change)
  • Contributions of up to $4,000 in 2006 & 2007; $5,000 starting in 2008
  • Initial contribution can straddle two years ($8,000 now)
which retirement vehicle
Which Retirement Vehicle?
  • Traditional IRA
    • Deduct contributions up to $4,000 ($5,000 in 2008) from your taxable income
    • Earnings taxed upon withdrawal (NET age 59.5; NLT age 70.5)
  • Roth IRA
    • Contribution limits = Traditional IRA; no tax deduction at time of contribution
    • Tax free withdrawals NET age 59.5; no capital gains or dividend taxes
    • May be withdrawn early to fund education/home purchase
  • Thrift Savings Plan
    • Available to you upon commissioning
    • Similar to 401(k) plans for civilians
    • Contribute up to $15,000
    • Give a choice of five funds or a lifetime fund
    • Money that is invested comes from pre-taxed dollars (lowering your taxable income) and earnings are not taxed until they are withdrawn
    • Begin withdrawing NET age 59.5 and NLT age 70.5

Roth IRA is recommended for young investors—YOU!

keys to financial success17
Keys to Financial Success
  • Have a plan BEFORE you sign for the loan
  • Once you have a plan, most cadets should take advantage of the Gold Option ($30,000 @ 1.0% for 60 months)
  • Pay off credit card / consumer debt immediately
  • Don’t be a sucker!
  • Establish an Emergency Savings Account
    • $2,000 - $3,000 (Recommended minimum)
    • Money market fund or savings account NOT linked to ATM card
  • Set aside $ for short-term expenses
    • Average ring costs $1,100
    • Average uniform expense at graduation = $2,000
    • Costs associated with living on your own upon commissioning
  • If necessary, use the Cow Loan to finance your automobile
  • Start saving for the long-term NOW—time is money
  • Diversification is the only free lunch you will get in life
  • Seek advice and adjust your investments based on changes in your financial goals, life events, and market events
slide18
WHAT WOULD I DO?

TWO SCENARIOS…

my 30 000 cow loan

More on

this later

My $30,000 Cow Loan

Practical Car Max: $18,000 (Including TT&L)

Emergency Savings $2,000 (Money Market)

Pay Off

Your Debt

Roth IRA $4,000 (Mutual Fund / ETF Mix)

First Year Insurance $1,000

Class Ring $1,000 (Money Market)

2LT Expenses $4,000 (Money Market or CD)

  • ADVANTAGES
  • Establish emergency account
  • Begin lifelong habit of savings
  • Firstie pay is spending money
  • DISADVANTAGES
  • Don’t have the coolest car depreciating in the lot
  • Have to wait until age 59.5 to get that $4K but it’ll be worth $69,000 @ 8%
my 30 000 cow loan20

More on

this later

My $30,000 Cow Loan

Car Mom & Dad

Emergency Savings $2,000 (Money Market)

Pay Off

Your Debt

Roth IRA (2 Year) $8,000 (Mutual Fund / ETF Mix)

2008-2010 Roth IRA $15,000 (CD or Mutual Fund / ETF)

First Year Insurance $1,000

Class Ring $1,000 (Money Market)

2LT Expenses $3,000 (Money Market or CD)

  • ADVANTAGES
  • Establish emergency account
  • Guarantee 5 years of IRA savings
  • Earn interest on $15,000
  • Begin lifelong habit of savings
  • Firstie pay is spending money
  • DISADVANTAGES
  • No Manhattan spending sprees
  • Have to wait until age 59.5 to get that $23K but it’ll be worth over $300,000 @ 8%
mutual funds etfs
Mutual Funds & ETFs
  • Built-In Diversification
  • Mutual Funds vs. Exchange Traded Funds
  • Active vs. Index Funds
  • Fee Structure (Load vs. No Load)
  • What would I do?
    • Basic investor
      • Target/Lifecycle 2050 Index Mutual Fund
      • Target Fund Link
    • Advanced investor
      • Mixture of no load, index mutual funds and ETFs based on deposit amount
      • 40% S&P 500 Index (moderate risk)
      • 25% Small Cap Index (moderate-high risk)
      • 20% Emerging Market Index (high risk)
      • 10% Sector, Region, or Strategy Specific (all risk levels)
      • 5% Corporate or Government Bond Mutual Fund (low risk)

BUT HOW, YOU ASK?

how to get an ira started
How to Get an IRA Started?
  • Don’t be intimidated—this isn’t rocket science
  • Online resources are plentiful, fast and easy
  • A typical Roth IRA with multiple mutual funds and ETFs can be established in under 30 minutes
  • Great examples include (but not limited to):
    • www.usaa.com
    • www.vanguard.com
    • www.fidelity.com
    • www.troweprice.com
  • Be sure to have:
    • SSN & Driver’s License
    • Last year’s tax return (maybe)
    • USAA Checking account # and routing / ABA #

Every day you waste is tax-free cash (interest earnings) left on the table.

slide23
IF ALL ELSE FAILS?

CALL US…

MAJ Spencer Clouatre

102 Lincoln Hall

x3559

[email protected]

MAJ Jon Byrom

205 Lincoln Hall

x2342

[email protected]

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