Personal Finance in 50 minutes (In-class activity)  

                                                                                                                              

Take a few minutes to write down your answers to the following: 

  1. My parents taught me about money, how it works, and the importance of financial planning. (Yes/No)

 

  1. The most important thing to me about money is:

 

  1. My family always had enough money (Yes/No)

 

  1. The yearly income I need to support my lifestyle is:

 

  1. The amount of money I want to have in my savings account to feel comfortable is:

 

  1. The amount I want to have for retirement is:

 

  1. The amount I'd like to donate to charity each year is:

 

*The above is adapted from Raines, Sherry & William Austin. “Dollars and Sense: A Guide to Financial Security”.

 

Step 1: Calculate Your Net Worth 

Assets (what you have) – liabilities (what you owe) = net worth 

Example: Joe Rich has a car worth $12,000, a savings account with $2,000 and an investment fund started by his parents when he was born with a cash value of $10,000. He owes $11,000 in student loans, $8000 in car loan, and $2000 in credit cards.  

Joe's assets total $__________.

Joe's liabilities total $__________.

Joe's net worth is $__________.

 

Primary goals:

1.     Net worth should be growing over time

2.     The ratio of liabilities to net worth should be decreasing with assets to net worth increasing.

 

Step 2: Budget Your Money 

a. How do you attain your 5-year goals?

 

b. Wants vs. needs:           

I _________ to make my student loan payment

I _________ to buy a new car

I _________ to pay my rent

I _________ to buy a new pair of jeans

 

c. Spend Wisely

 

The “latte factor” – David Bach: 1 latte = $5 a day

 

At 5% compounded monthly = $__________ in 10 years

 

At 5% compounded monthly = $__________ in 25 years.

 

At 10% compounded monthly = $__________ in 25 years.

 

With 45 years left to retirement those lattes cost $___________________.

The power of compound interest!!

 

d.  Manage credit card debt

 

The power of compound interest can also work against you.  

Suppose you have a $1000 balance on your credit card. Let's assume for simplicity you make minimum payments of 2% of the balance per month and the interest is 18%. How long will it take you to pay off this debt?  _________________ 

What is the total amount this debt will cost you over that time? $_____________

 

www.bankrate.com à calculators à credit card minimum payment calculator.

Check out the credit card payment calculator as well.

 

e. Pay yourself first.

 

Age

Starting salary

% Saved

$ Saved monthly

Amount in account at

end of year

22

40,000

2%

67

824

23

41,600

4%

139

2,573

24

43,265

6%

216

5357

25

44,995

8%

300

9315

26

46,795

10%

468

15538

27

48,666

12%

487

22312

28

50,612

12%

506

29664

 

50

84272.70

12%

843

446,980

65

 

 

1833

1,345,703

 

f. Take full advantage of employer matching contributions.

 

Calculators (located within each of the links across the top of the page): http://www.bankrate.com/
Student loan repayment plans: http://biz.yahoo.com/special/youngearn06_article2.html
“How to Invest with $500 or less”: http://www.kiplinger.com/columns/starting/archive/2005/st0310.htm

 

Questions? Feel free to contact:

Lisa Frank, Ph.D.

Finance Department

Vance Academic, Room 462

860-832-3261

franklic@ccsu.edu

Central Connecticut State University | PO Box 4010 | 1615 Stanley Street | New Britain, Connecticut 06050-4010


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