Mastering Financial Termonologies for Future Success

1. FINANCING YOUR FUTURETERMINOLOGY • Budget: A plan to manage income, spending and saving • Gross Income: Total amount of income earned including federal income taxes, social security, etc. • Net Income: Gross income minus payroll deductions • Fixed Expenses: Expenses that must be paid on a regular basis such as rent, car payments, phone bill, insurance, etc

2. FINANCING YOUR FUTURETERMINOLOGY • Variable Expenses: Expenses that change due to price and willingness and desire to purchase items such as food, clothing, entertainment • Liabilities: Financial obligations that must be paid • Assets: Possessions that have economic value • Net Worth: Assets minus liabilities

3. FINANCING YOUR FUTURETERMINOLOGY • Dividend: A payment of a portion of a company’s net profits, which is periodically made to stockholders • Liquidity : The ease with which a financial asset can be turned into cash • Compound Interest: Interest paid on the principle and on the interest earned in an account

4. FINANCING YOUR FUTURETERMINOLOGY FICO Score: A number applied to a person’s credit history to assess the person’s reliability to repay borrowed funds.

5. Table of FICO Credit Scores % of Population Credit Score • 2% 300 – 499 • 5% 500 – 549 • 8% 550 – 599 • 12% 600 – 649 • 15% 650 – 699 • 18% 700 – 749 • 27% 750 – 799 • 13% 800 – 850 The Higher your FICO Score, The lower your interest rate on a loan

6. How to get a Credit Report • To obtain a free credit report • Online: www.annualcreditreport.com • Toll free call: (877) 322-8228 • Request by mail: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281

7. FINANCING YOUR FUTURETERMINOLOGY • Minimum Payment: The smallest payment a person is required to make in a given month on a credit account (Credit card companies love it when you do this)

8. FINANCING YOUR FUTURETERMINOLOGY • Human Capital: Knowledge and skills that a person obtains to better their future – Example is College, Trade School, or Military • Annual Percentage Rate (APR): The interest rate charged, expressed as a percent per year, for the use of credit • Credit Bureau: An organization that tracks the bill-paying habits of consumers

9. FINANCING YOUR FUTURETERMINOLOGY • Credit Report: A written record collected by a credit agency that tracks a borrower’s bill-paying habits • Revolving Credit: An open-ended account with a limit to how much one can borrow but no time limit for repayment: EXAMPLE is credit cards • Installment plan: A closed-end loan for a specific product such as furniture or appliances

10. FINANCING YOUR FUTURETERMINOLOGY • Capital Gains: A profit realized from the sale of property, stocks or other investments • Rule of 72: Divide the annual interest rate you expect to earn into 72 to know approx. how many years to double your money • Principal: The original amount borrowed • Federal Income Tax – Taxes subtracted from your paycheck to help fund the federal government

11. Understanding Credit Cards Avoiding and Eliminating Credit Card Debt

12. Credit Card Facts The Fed • American credit card debt averaged over $9,000 per card holder in 2008. • Total American consumer debt reached $2.45 trillion in March, 2010. • American households charged $855 billion to credit cards in 2010 - $69 billion past due

13. Credit Card Facts • Approx. 181 million Americans have at least one credit card – 1.5 billion cards were issued • U.S. Pop. In 2008 = Approx. 300 million • Of those 181 million consumers with credit cards, 2.3 million U.S. households filed for bankruptcy in 2009 • On average, the typical credit card purchase is 50-112% higher than if using cash

14. College Students and Credit Cards • In 2009, 78% of undergraduate college students had at least one credit card • 32% of students had 4 or more credit cards • As of 2008, the average college student graduated with 4 credit cards and one in seven owes more than $15,000

15. College Students and Credit Cards • The typical college student has $2,700 in credit card debt • ½ of students who drop out of school do so because of debt • Federal Reserve Report Shows Credit Card Companies Paid Colleges $83 Million to market credit cards to students

16. How much does credit cost? • If you bought a TV for $700.00 at 14.74% (average credit card interest rate) interest on a 36 month note, you would pay $872.33 for that television.

17. Credit Card Costs • If you took a credit card payment of $218 a month, and instead you invested in a growth mutual fund that averaged 12% APR, you could retire in 25 years with $1,354,930 saved. • Your credit card payment is not only costing you thousands in interest, but is prohibiting you from saving for your retirement.

18. Credit Does Matter and It Is Relevant to YOU • Credit cards give us freedom to buy what we want now and pay for it later • When it is used properly, it can be a powerful tool; when it’s abused, it can be destructive

19. Why learn about credit? • To help you prepare for the future • So you understand interest rates, credit cards, and how to control credit spending • To help you understand how to build credit without abusing it • You Will receive credit card applications in the mail—you need to know what the fine print means before you sign on

20. Advantages of Credit Cards • Convenience • Protection under Consumer Credit Act • Incentive Benefits • Credit limit

21. Disadvantages of Credit Cards • Excess consumer debt—use of a credit card is a loan • Too many—temptation to use increases • Credit limit

22. More Disadvantages of Credit Cards • Card companies charge huge interest rates • Average consumer credit card rate, overall market: 14.94% • Fees – Annual, Late fees, foreign fees for use outside the U.S. • Hidden rules in small print – Fixed rates can go up after one year

23. Even More Disadvantages of Credit Cards • Low minimum payment requirements • Encourages impulse buying • Increases your spending – Remember up to 112% more than with cash • Incentives cause you to spend more

24. Tucker’s Solution • PAY Cash

25. Another Tucker’s Solution • Quit doing what everyone else is doing – let them go broke while you make money

26. Establish Credit Without Cards • Rent • Cable bill • Phone bill • Insurance • Utility bills • Payment Reporting Builds Credit

27. What’s the Average Millionaire Look Like – The Millionaire Next Door • Most are college graduates • Most drive Fords, Chryslers or Chevrolets • Few millionaires lease cars • Only 17% attended a private school • Only 19% receive money from a trust fund • Most wear inexpensive clothes • Most are homeowners

28. How to Become a Millionaire • Start saving Immediately • Pay Cash • Go to College • Spend less than you earn • Create a budget with savings and investments • Start an emergency fund and use it ONLY for emergencies • Do not use Credit Cards (Tucker’s Rule) • Shop for nice looking but inexpensive clothes

29. How to Become a Millionaire • Save to pay cash for a used car and work your way up to pay cash for a new one • Beware of leasing a car • Don’t worry what others think of your financial actions – they will be in debt when you are a debt-free millionaire • Start saving NOW! • Start saving NOW! • Start saving NOW!

30. How to Become a Millionaire • MOST IMPORTANT • “If you will live like no one else, later you can live like no one else” Dave Ramsey