Documents

Financial Education

How to Create a Budgeting/Spending Plan

1.  Determine the following:

  • How much money do you have coming in?   Identify all sources of income, including parents, personal earnings, dividends, interest, etc. 
  • Where is your money going?   Keep a spending journal for a week, or even a month, to help you pinpoint just how much money your spending.  Be sure to indicate HOW you are paying for your purchases (i.e., credit card, cash, debit). 
  • What are your Needs vs. Wants?   A Need is a necessity.  Think of this as a fixed expense.  An example might be your rent each month.  A Want is something you would like to have, but isn't required.  For example, the latest video game or coffee on your way to class.
  • What types and how much debt are you accumulating?   Be aware of how much student loan money you are borrowing and how much debt you are accumulating your credit card(s).

2.  Set goals and prioirties

Everyone is unique and a personal budget should reflect these differences.  Think about what is important to YOU and create a plan to obtain those goals.  Use the following tips:

  • Write down each goal.   You will be more likely to hold your self to it!
  • Assign a cost to each goal.   Whether it is $1 or $100...write it down.  This is a good place to "overestimate." 
  • Set dates.   Give yourself a specific point to work towards.
  • Set all types of goals.   Goals come in many shapes and sizes.  There are short-term (less than one year away), recurring (perhaps you want to be able to go out to a fancy diner once every month), or long-term (greater than one year away).

3.  Develop a plan.

You have all the input you need at this point, it is time to create a budget.  This is a good place to ask for help if you haven't done so already.  The Student Wellness Center can provide you with everything from an electronic template of a budget, to a one-on-one counseling session to help you create a budget from scratch.

Don't forget to look ahead while you're working on your budget.  Give yourself an "emergency cushion" for unforseen or one-time expenses (i.e., car maintenance, plane tickets, Christmas gifts, etc.).  A rule of thumb is to make this equal to 6-9 months worth of expenses in order that you do not need to borrow money for such expenses.

4.  Implement your plan.

Try it out for a month and see how it goes.  When working with a budget, it is important to:

  • Be flexible.
  • Be aware of your actions.
  • Stay positive.
  • Avoid detours.

Don't give up on your budget the first time you slip up!

5.  Revise your plan.

What is working and what is NOT working?  This may be another time where it might be helpful to meet with a financial counselor in the Student Wellness Center. 

Don't be afraid to make changes and try it again.  Budgets are NEVER perfect and you will learn more every day.

Are you out of money before the end of the 30 days? Do you need help setting a budget? Call Kate Trombitas at 292-4527 for help!

Credit Cards

Getting Started...

With a reported $13 billion in discretionary income, college students represent a huge market for credit card companies (Kara, Kaynak & Kucukemiroglu, 1994). There are many good reasons to have a credit card as a young adult, including emergencies, the ability to rent a car or buy items online, building a credit history, etc. There are also many reasons that are NOT good for obtaining credit, including making impulse purchases more convenient to make, buying items you can't afford, online gambling, etc.

The first step in using credit wisely is selecting the right card. Here are a few questions to ask when selecting a credit card:

  • Is there an introductory rate? When, and by how much, will it increase?
  • Is there an annual fee? How much is it?
  • What other fees are attached to the card and how are they assessed? (ex: transaction fees)?
  • What is the grace period?
  • Is online banking available?
  • What is the credit limit?
  • Are there any offers or rebates associated with the card (ex: frequent flyer miles)?

Try using this credit card selection worksheet to help your organize the information you find about different cards.

Once you receive your card, there are a few more things to keep in mind. First, be sure to set limits for yourself when using your credit card. Your limits will be unique to you and your goals and priorities. You may want to decide only to use your card for emergencies, or you may just want to use it for necessary items such as textbooks each quarter. Whatever limits you decide on, be sure to hold yourself accountable and stay within them.

Second, always remember that your every move is being tracked by credit reporting agencies. In other words, your credit score, which may become very important a few years down the road when you go to buy a home or a car, will be lowered every time you pay a bill late, or rack up too much debt. You do not want to use more than half of the amount of your credit line as this will make you look desperate on a credit report. Every credit card application you have ever filled out will also appear on your credit report. Make good decisions now so you can reap the benefits of a high credit score in the future.

Already in trouble?

FREE credit counseling and debt repayment planning is available to students in the Student Wellness Center in RPAC. General credit card education is also available. Call Kate Trombitas at 292-4527 to make an appointment today.

Financial Education: Definitions

ATM Fee: some banks allow for only a limited amount of ATM transactions per month, and charge a fee if this number is exceeded. Fees can come both from your home bank AND the bank that hosts the ATM you are using.

Annual Fee: Some credit cards have this fee, which can be thought of as a "membership" fee. Annual fees typically range between $0 (no annual fee) to $50.

Annual Percentage Rate (APR): The yearly cost of your credit card balance. In other words, the APR is the interest rate, expressed per year, applied to your purchases.

Certificate of Deposit (CD):an interest-earning savings instrument offered by an institution that accepts deposits for a fixed amount of time.

Check Re-order Fee: banks typically deduct this fee automatically from your checking account when you order new checks.

Compound Interest: the process of earning interest on the reinvested interest as well as on the original amount invested.

Credit History: Your credit history determines your credit score and is comprised of:

  • Payment history (i.e. timely payments)
  • Amount of debt outstanding with all creditors
  • Length of time as a credit user
  • Very recent history
  • Mix of credit held

Credit Limit: Your credit limit is the dollar amount you may charge up to on your credit card. There may be a fee associated with charging more than this limit.

Credit Score: A numerical representation of your financial strength. This score is typically used by lenders to assess your creditworthiness and is comprised of your payment history, debt owed, length of credit history, recent credit, and types of credit used.

FAFSA: FAFSA stands for: Free Application for Federal Student Aid. To qualify for federal aid, students must complete and submit a FAFSA every year. The FAFSA determines your eligibility for federal financial aid as well as scholarships, grants, and other aid opportunities.

FICO: FICO stands for: Fair Isaac Corporation. Your FICO score is your credit score, and ranges from 300 - 850. A key point to meet, or surpass, is 620. You have three FICO scores, one for each of the three credit bureaus - Experian, TransUnion, and Equifax.

Finance Charges: This is the total cost of credit, which includes interest and other fees associated with your credit card.

Grace Period: This is a time period, which is typically between 25-30 days, before interest begins accruing on your purchases. If you pay the balance before the grace period, you won't be charged any interest on it. In other words, you only benefit from a grace period if you are not carrying a balance forward from a previous monthly statement. A grace period can begin when you make a purchase, or when the purchase is actually posted to your account.

Grants: A grant is gift assistance that is awarded by the federal or state government or Ohio State to undergraduate students who have high financial need. Grant money does not need to be repaid by the student.

Late Fee: This is a fee which may be charged if you make a payment late. There is no limit to what credit card companies can charge for late payment penalties, but they typically run around $30.

Liquidity: the speed and ease with which an asset (i.e a car, your savings account, etc.) can be converted to cash

Loans: Loans are a form of financial aid that many students use to help bridge the gap between their personal resources and the cost of pursuing a college degree. There are a variety of loan programs for which a student can be considered. When thinking about loans, keep in mind that, unlike grants and scholarships, loans accrue interest and must be repaid either while a student is attending school, after a student graduates, or after a student withdraws from Ohio State. It is important to understand the loan programs that are available so that a student can make informed decisions about how much money he or she should borrow, if any, and which loan programs are best for his or her needs.

Loan consolidation: Consolidation allows a student to combine all federal student loans into one new loan with a fixed interest rate. It can also allow a reduction in monthly payments by extending the repayment period beyond 10 years. Extending the repayment period increases the total interest payments because you'll be making smaller payments over a longer period. There are no prepayment penalties for accelerating the payback of the consolidation loan. When interest rates are low, consolidation can be an important debt management strategy allowing some borrowers to save money.

Minimum Payment: The lowest amount that can be paid each month on the account's outstanding balance. It is typically not a good idea to only make the minimum payment, as interest will continue to accrue on the remaining balance.

Money Market Account (MMA): Any of a variety of interest-earning accounts that pay relatively high interest rates (compared to regular savings accounts) and offer some limited check writing

Monthly Service Fee or Maintenance Fee: an amount charged each month for just having a checking account open. This is typically waived if a minimum balance, set by the bank, is maintained.

Needs: A need is a necessary fixed expense. An example of a need is your rent or utility expenses.

Overdraft Fee or No Sufficient Funds (NSF): this fee may be charged if an account does not have overdraft protection and a customer bounces a check. The customer will be notified that his or her check has been returned to the person/company it was issued to and a processing fee will be charged. Most merchants will also charge a separate fee for bounced checks.

Per Check Fee: some banks charge a fee for each check written. In some cases, a bank will allow for so many checks to be written each month (ex: three) before the fee is assessed.

Scholarships: Scholarships can come from different sources and have various awarding criteria. Ohio State offers numerous institutional scholarships for incoming freshmen and enrolled students. Ohio State students also receive a wide array of scholarships from external donors and outside resources. Scholarship money does not need to be repaid by the student.

Stop-Payment Fee: If you, or someone you have written a check to, loses a check, you have the option of issuing a "stop-payment" on the check. There is a fee, but it may be your best option in some cases.

Transaction Fees: Any charge other than a purchase typically carries an extra fee, such as a cash advance, late payment, or going over your credit limit.

Vantage Score: This is a new credit scoring system that attempts to create a more standardized credit score. Vantage Scores range from 501 - 990. Unlike FICO, a score of 620 on this measure is not good. The follwing breaks down the Vantage Score in terms of letter grades: 901-990 A; 801-900 B; 701-800 C; 601-700 D; and 501-600 F.

Wants: A want is something you would like to have, but could do without. For example, the latest video game, or fast food on your way to class.

Financial Calculators

Investments

Liquid Savings

With many expenses on the horizon, such as buying a car, funding a trip abroad, or purchasing books and supplies for school, it is often smart to keep your savings very liquid (accessible) during your time in college. The following describe three commonly used accounts for maintaining easy access to money.

Savings Accounts

  • Little to no risk
  • Earn interest (although often very low)
  • Typically have a minimum balance requirement of around $200
  • Can be maintained online or face-to-face at your bank
  • FDIC insured up to $100,000

Money Market Accounts (MMAs)

  • Little to no risk
  • Earn more than savings accounts (typically double the interest)
  • Typically have a minimum balance requirement, sometimes as high as $3,000
  • Some are FDIC insured up to $100,000
  • Offer high-yield accounts online

Money Market Funds (MMFs)

  • Very low risk
  • Not FDIC insured
  • Earn higher interest than MMAs
  • Often have fees associated with withdrawals
  • Fees are also included to cover the cost of fund management
  • These types of accounts are commonly used by people with brokerage accounts, but can be used to meet short-term goals/build emergency funds

Certificates of Deposit (CDs)

CDs typically earn higher rates than liquid savings, but you must be willing to put your money away for a longer period of time (i.e. 6 months to 3 years) in order to earn this income. For this reason, CDs may not be an optimal investment during your college years.

CDs are "hands-off" investments until the CD matures and are FDIC insured up to $100,000. Although you may withdraw funds before the maturity date, you will typically pay a high penalty for doing so. Always comparison shop for interest rates to be sure you're earning the highest rate possible before stashing your money away in a CD.

Bonds

A bond is an interest-bearing certificate issued by a government or business promising to pay the holder a specified sum on a specified date.

For more information investing in bonds, check out Bankrate.com.

Thinking about Retirement

I know retirement seems like a long way off, but thinking about it early-on in your professional career will pay off big time down the road. There are two things you must keep in mind about saving for your retirement:

  1. Put away money EARLYConsider this example:Joe and Bob start working at the same company at age 25. Joe begins saving for retirement immediately and puts away $1,000 per year for 10 years. At age 35, he stops putting money away.Bob, on the other hand, decides that he has too many other things to spend his money on early in his career and waits until he's 35 to begin saving for retirement. At age 35, he begins to set aside $1,000 per year and does this until he retires at age 65.When Joe and Bob are 65, who will have more in retirement savings (assumed: 8% return)???The answer is: JOE (Joe's savings = $170K, Bob's = $133K) Although Joe has only invested $10,000 of his own money compared to the $30,000 invested by Bob, Joe started earlier and the power of compound interest was on his side.Time is on your side!
  2. Put away money OFTEN.As illustrated in the early example, the more you can help your money build on itself, the better. Get in the habit of setting aside money on a monthly basis. As the saying goes, pay yourself first! If your employer does not offer a retirement investment program, seek out opportunities on your own such as IRAs.

Recommended Web Resources for Learning about Investing

Recommended Reading on Investing

Rich Dad, Poor DadBy Robert T. Kiyosaki

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful InvestingBy Burton G. Malkiel

Money Magazine

Kiplinger Personal Finance Magazine

The Wall Street Journal