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MITCHELL D. WEISS

Happens

Life

Personal Finance from

College to Career

a Practical Course on

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M.D. Weiss LLC, Publisher

Lie HappensA Practical Course on Personal Finance from College to Career, Second Edition

Mitchell D. Weiss

Cover Design: Ian Pamplona

Illustrations: Sarah Stern

Layout Design: Ronald Sequeira

Copyright 2012 M.D. Weiss LLC. All rights reserved. No part of this publication may be reproduced, stored

in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying,

recording, scanning or otherwise without the prior written permission of the Publisher. Requests for permission

or to purchase product should be emailed to info@mitchelldweiss.com.

ISBN 13 978-0-9848587-7-4

Published in the United States of America

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ioduo

p O: s U sho

BUDgets

Establishing Goals

Prioritized Needs and Wants

There Are Only So Many Dollars

Starting rom Scratch

Planning Ahead

Two Types o Savings

Tracking the Cash

Refning the NumbersBudgeting or Cars, Houses and Insurance

The Economics o Committed Relationships

Managing Change

One Last Suggestion

casH ManageMent

Gross Versus Net Pay

How Checking Accounts Work

Four Strategies or Success

Record Retention

taxes

The U.S. Tax System

Federal Tax Return Forms

State Income Taxes

Calculating Your Federal Taxes

Withholding the Right Amount o Money

Avoiding Versus Evading Your Tax Obligation

acqUiring, Managing anD prOtecting creDitThe Five Cs o Credit

Credit Bureaus

Credit Scores

Five Ways to Properly Manage Your Credit

Bonus Strategy or the Astute Shopper

Identity Thet

I Lightning Strikes

taBLe Of cOntents

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qUestiOns

prOBLeM sOLving

reaDing arcHive

p two: Wh i com tm o Boow

BOrrOWing fOr tHe rigHt reasOns

Four Decisions All Lenders Make

Bank LOans

How Banks Make Money

Loan Amortization

The Dark Side o Lending

Consumer Loan Agreements (Contracts)

Refnancings

Underwater Loans

Loan Recasting

stUDent LOans

Government-Sponsored Student Loans

Government-Sponsored Parent Loans

Private Student Loans

Peer-to-Peer Education Loans

Loan Consolidation

Six Strategies or Controlling Student Loan Debt

Leases

How Leasing Companies Make Money

Key Components o a Typical Auto Lease

creDit carDs

How Credit Card Companies Make Money

Prepaid Cards

Credit Cards and Cell Phones

Five Ways to Stay on Track

Three Ideas to Consider

strategies fOr sUccess

Four Steps to Making the Right Decision

Consider the Consequences

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qUestiOns

prOBLeM sOLving

reaDing arcHive

p th: good th com o tho Who L

eDUcatiOn, LifetiMe earnings anD qUaLity Of Life

School and Program Choices

Borrowing the Right Amount

career cHance Or career cHOice?

Establishing Preerences

A Couple o Case Studies

Two Steps to a Successul Phone Screen

Nine Steps to a Successul In-Person Interview

Three Steps to Evaluating a Career Opportunity

Choosing between Equally Appealing Opportunities

Think It Through

tHe entrepreneUriaL OptiOn

Four Considerations or Entrepreneurial Wannabes

qUestiOns

prOBLeM sOLving

reaDing arcHive

p fou: fud you fuu

savings anD investMent strategies

Why, How, When and What: Four Steps to Financial Planning

The Time Value o Money

How Big a Payday Would You Like?

Four Strategies or Success

Five Steps to Making the Right ChoicesThe Danger o Playing Catch-Up

Longer Range Planning

A Three-Pronged Approach

Do You Have Enough?

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qUestiOns

prOBLeM sOLving

reaDing arcHive

p f: B-Mo puh

neW WHeeLs

Add Up the Costs

Trade-Ins

Sales Tax

Costly Add-Ons

Used Cars

Warranties

neW Digs

Renting

Buying

Add Up the Costs

Real Estate Purchase Agreement

Home Equity

Houses as Investments?

qUestiOns

prOBLeM sOLving

reaDing arcHive

p s: iu you Wold

insUrance 101

Risk-Management Plans

How Insurance Companies Make Money

Exclusions

RidersDeductibles

HOMeOWners insUrance

Property and Casualty Insurance

Renters Insurance

Insurance and Mortgages

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aUtOMOBiLe insUrance

A Peek Behind the Auto-Insurance-Premium Curtain

Liability Tracks the AssetAccidents

Trafc Tickets

Rental Cars

HeaLtH care insUrance

Group Health Care Insurance

HDHPs and HSAs

Health Care Reorm

Insurance Claim Denials

Life insUrance

Term Lie Insurance Policies

Whole Lie Insurance Policies

A Few More Products to Consider

qUestiOns

prOBLeM sOLving

reaDing arcHive

p s: Wh th Hd sdwfinanciaL Distress

Payment Deault: A Worse-Case Scenario

Workouts and Restructures

Restructuring Loans That Have Been Assigned

When Help is Given

What to Do When Theres Nothing Let You Can Do

The Morality and Cost o Strategic Deault

qUestiOns

prOBLeM sOLving

reaDing arcHive

elou

aowldm

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s U

shoBUDgetingYoure probably thinkingDollars in rom my job, dollars out or rent, cable and ood, and whateverlet over is up or grabsand you wouldnt be wrong, except that theres a bit more to it than just thmath. Simply put, you cant set up shopwhich in this case means to construct a budgetuntil yohave a plan.

eblh golWhat are your ambitions? Career? Grad school? Marriage? Family? House? Retirement? You get thpoint. Which o these are close by? Which will be coming later on in lie? Which are necessary or youday-to-day living? Which would be nice to have? And how would you rack and stack all o them in theorder o priority?

Consider this: i youre currently in college, buying textbooks or your courses is a short-term neePaying or them is a priority, and going to college in the rst place was probably a long-term goal that youparents had or you when you were born.

prorzd nd d WBudgets help organize your aspirations into a workable game plan, but this is what has to happen rst:

For example, you need a place to live, and you want a 55-inch HDTV hanging on the wall across rothe couch. Well, an apartments going to require a job that pays enough to cover the rent, the job is goin

to require a strategy to attain it, and youre going to need the right educational background to justiy youreach or that particular job in the rst place.

As or the TV, a short-term strategy might be to orego some discretionary expenseslike going to thmovies every weekendin avor o accumulating the cash youll need to buy what you want.

thr ar Oly so My DollrThink o your budget as a zero-sum equation. In other words, there are only so many dollars to go arounand once youve used them all up, its game over.

Distinguish between the things you need and the things you want.

Set long- and short-term goals for each and your plan for attaining them.

Prioritize your lists.

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Setting Up Shop

Routinely drawing down your savings or borrowing money to cover your day-to-day expenses is strategy without a uture because at some point your savings account is going to be history and youbank will stop lending to you.

sr from srhSound budgets are built rom the ground up, where attention to detail is very important. Start by identiyin

every expense that happens month ater month (rent, utilities, cable, ood, loan payments, entertainmenand so on). I you need some help guring all this out, heres an idea that came rom one o my students:

pl ahdSpeaking o keeping track o the money youre spending, have you ever ound yoursel buying morthings at the grocery store or somehow spending more or those items than you originally planned?

Food shopping can be a major-league budget buster unless you:

two ty of svAs you go about constructing your budget, be sure to set aside money or emergencies as well as oyour longer-term goals. Ideally, an emergency stash should equal between six and 12 months worth expenses. This stash will help to cover you i you lose your job or are hit with an unpleasantly expensivsurprise. It can also make the diference between a vacation on the beach or poolside at the Y. Just r

member, the bigger your budget, the bigger your stash is going to have to be to protect you.You should also keep your emergency money separate rom your longer-term savings. In act, a gooidea would be to have all your deposits made automatically via payroll deductionjust to be sure theactually happen. Most employers should be able to help you set that up.

trk h chHow many times do you hit the ATM each week? I youre like most o my students, the answer is I donknow, which probably means more than two or three. Thats ne, but have you set a limit or yoursel? there a maximum amount o cash thats OK or you to withdraw each week beore you bust your budget

Frequent ATM use is a problem or three reasons.

Sd m f vy y sd, wv fm s: cash,checks, credit card chargesthe works. Dont overlook anythingnot the $3 latte you bought

with the letover quarters rom your laundry run or the $50 you gave some kid or his old Nano. Notonly will you be surprised (and perhaps a little reaked out, as my student was) by what you learn,youll also be able to use this inormation to make the necessary adjustments.

Make a Shopping liSt. Budgeting is all about making plans and having the ortitude to stickto them.

Bring a calculator. Tempted to buy an economy-size box or bottle? OK, as long as the up-charge wont do bad things to your budget. Do the math beore you drop that fve-pound box ocereal into your cart by dividing the items price by its weight (or volume). On a per-ounce basis, aproduct that costs $5.99 or 36 ounces is less expensive than the same one that sells or $4.99 or

24 ounces (17 versus 21 per ounce). Just be sure theres enough shel lie to it.eat a Snack. Pick up an energy bar beore you head into the ood store because groceryshopping on an empty stomach can lead to a bigger bill at the checkout counter.

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Setting Up Shop

6. What are the guidelines or retaining copies o your periodic bills (e.g., utilities, cell phone, insur-ance), bank and credit card statements and tax returns? How would you go about managing that?

7. How would you approach the task o organizing and calculating your taxes?

8. How would you go about ensuring that your tax withholdings are being done correctly?

9. Whats the diference between avoiding and evading your tax obligation?

10. Name the Five Cs o Credit and explain their meanings. How would you address each with a pro-spective lender?

11. List and describe the Five Ways to Properly Manage Your Credit. Explain how not ollowing themwould afect your credit bureau reports and scores.

12. Why is it important to routinely veriy your credit bureau reports and how do you accomplish thaHave you ever had to do this beore? I so, why?

13. How would you saeguard the condential inormation youve chosen to store on your computerand cell phone, as well as the paper records and checks you have on hand? Why is this important

14. What steps should you take i your nancial identity has been compromised?

problm solv

1. Suppose youre single and living in New York City, earning $40,000 per year and your salary is bing deposited into your checking account every other week. Using this calculator and entering the dabelow, determine both the amount and percentage o your take-home pay. Would this be any diferentyou were earning the same amount o money and living in Columbus, Ohio?

D:Select the state.Set the Federal Withholding Status to Single.Set the Federal Allowances to 1.

Set the Federal Additional Withholding Amount to 0.Set the State Withholding Status to Single.Set the State Withholding Allowances and Exemptions to 1.Set the State Additional Withholding Amount to 0.Set the Pay Periods per Year to 26.Solve or the Gross Per Pay Period by dividing the Gross Salary by 26, and enter it.

a assm:Recalculate the scenario or a $37,500 salary in Saint Louis, Missouri.

2. Suppose youre single, living in Portland, Oregon, renting an apartment and earning $35,000 per yeaater your 401(k) contributions and employer-sponsored health care benets costs (both o which arnot taxed). Also suppose that you have $500 in taxable interest income, and pay $2,000 per year i

student loan interest. Because your income is less than $50,000 and since you have ew i any itemizedeductions to declare, youre eligible to le the 1040A Federal Tax Return, which you should set up oyour browser here. By working with the orm and without entering your personal, condential inormtion, determine the ollowing:

A. Total Income on Line 15.B. Total Adjustments on Line 20.C. Total Adjusted Gross Income on Line 21 and Line 22.D. Standard Deduction on Line 24.E. Do the subtraction or Line 25.F. Enter the Exemption amount on Line 26.

http://www.yourmoneypage.com/withhold/fedwh1.phphttp://www.yourmoneypage.com/withhold/fedwh1.phphttp://www.yourmoneypage.com/withhold/fedwh1.phphttp://www.irs.gov/pub/irs-pdf/f1040a.pdfhttp://www.irs.gov/pub/irs-pdf/f1040a.pdfhttp://www.irs.gov/pub/irs-pdf/f1040a.pdfhttp://www.irs.gov/pub/irs-pdf/f1040a.pdfhttp://www.yourmoneypage.com/withhold/fedwh1.php

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W It Cm

Tim t BwBorroWIng for The rIghT reasonsFrom a personal nancial management point o view, there are really only two kinds o debt: good and bad

Good debt is borrowing or big-ticket needs such as houses, cars and higher educationthat is, along as you have or can reasonably expect to have enough cash ow to repay your loans. By contras

bad debt is borrowing just because you can

like using your credit card to buy a couple o movie tickeand a latte, or or some other want and then carrying the balance.

fu Dcii all Ld MkThe ip side o borrowing is lendinga process that has its own special order to it. Whether yourtalking about a loan, lease or credit card line, all lenders make our basic decisions:

So, lets start with bank loans and youll see how all this comes into play. Later on, Ill talk about thpros and cons o all your nancing options.

BanK LoansBorrowing money isnt a single-player game. You need someone on the other side o the table with a stuo cash whos willing to lend it to you. This is where the banks come into the picture.

hw Bk Mk MyA ew pages back, I said that banks earn money by lending to others the cash you place on deposit witthem. The diference between the interest they pay to their depositors and the rate they charge their borowers or the loans they make to them is called spread, and it constitutes the bulk o their prot.

The rest o it comes rom the ees banks charge, which, as you now realize, can represent sompretty serious dollars. Auto nance companies and other lending institutions operate similarly, in ththey borrow money at a lower rate rom one place in order to loan it out at a higher rate to someplacelse. To be air, lenders dont get to keep all the interest rate spread and ees that they earn. They alshave to cover the costs they incur to market their products, service the loans that end up on the

Whether to approve a loan, lease or credit card application (the credit decision).

How much that loan, lease or credit card line should be (the loan amount).

What terms and conditions to require (the structure).

The price to charge for it (interest rate and fees).

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books, as well as provide or the losses that inevi-tably occur over time.

Whatever the source o the moneybanks, carcompanies or urniture retailersthe mechanicso a consumer loan are pretty much the same: youborrow a certain amount at a certain rate o inter-

est and agree to pay it back over a certain periodo time. Sounds pretty simple, right? As you mightexpect though, the devil is in the details, whichwell tackle in a moment. But rst, Id like to talkabout how loans get paid of over time. Its a pro-cess called amortization, and it works like this:

L amtiztiLoans decline in value, as long as you make thepayments (which are also known as installments).Fundamentally speaking, every installment pay-ment you make has two parts to it: principal andinterest. Because banks earn prots by charginginterest on the money they lend to you, so the moreyou have outstanding, or unpaid, the more the in-terest bill is going to be. For example:

As your loan balance gets smaller and smaller, its logical that the amount o interest youre going tbe charged is also going to get smaller and smaller, too, even though the actual rate o interest remainthe same. Consequently, more and more o the monthly payments you make in the uture will ofset thloan balance you owe.

T Dk sid LdiNow that you have a eel or the undamentals, heres a little insight into how some creative orms oloan structuring can be used against you. Cars and other big-ticket purchases are typically sold with monthly payment plan, or two reasons:

First,because most people dont have enough cash on hand to pay or these things in ull.

Second,because monthly payments make large-dollar purchases appear to be more afordable.

Sometimes, big-ticket purchases are pitched with below-market nancing. Zero percent interest rateor, in the case o urniture sales, no payments or 12, 24 or 36 months are pretty popular sales promotionThey can also be used to entice you into purchasing a bigger house or, a more expensive car.

When It Comes Time to Borrow

Say you get approved for a $10,000 loan that has a term (duration) o fve years. Alsosuppose the annual rate o interest is 5 percent. Thatll translate into a monthly payment o

$188.71. At the start o the loan, all $10,000which is called principalis outstanding. Thereore, iyour frst payment doesnt become due until 30 days ater the cash is disbursed, the bank will haveearned $41.67 in interest or that period ($10,000 x 5% Interest = $500 12 months = $41.67 per

month). So, i the monthly payment is $188.71 and i 30 days o interest is worth $41.67, then $188.71- $41.67 = $147.04. This $147.04 represents the amount o principal amortization thats taking placeduring the frst month o your $10,000 loan.

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When It Comes Time to Borrow

13. How do credit card companies make money? List and describe the diferent ees they may chargWhich o these ees are within your ability to control?

14. Explain how prepaid cards work. Under what circumstances can they be a good deal?

15. What are the payment options or the charges you make with an enabled smartphone? What are thdiferences between each o these options? Which should you choose and why?

16. What are the best ways to stay on track with your credit card use? Which o these are you ollowintoday? How has that worked out or you?

17. Rack, stack, and explain the diference between the various payment and borrowing options yohave, and summarize all o the steps that are required or making the right decisions.

Pblm slvi1. Suppose the bank agrees to lend you $10,000 at 7% interest or ve years. Using this online calculato(ignore that it says Mortgage Calculator), solve or the ollowing:

A. The monthly payments, which you can determine by entering the above inormation and clickingthe Calculate button.

B. The total amount o interest that youd end up paying over the fve years. You can determine that bclicking the Show/Recalculate Amortization Table button and scrolling to the bottom o the page

C. The date o the last payment. (Let the Mortgage Start Date remain on todays date at the start.D. The consequences o adding $10 to each o your monthly payments, which you can determine

by scrolling back to the top o the page, entering 10 in the frst box under the Extra Paymentsheading and pressing the Show/Recalculate Amortization Table button again. Does the lastpayment date change? I so, by how many months? What would the total amount o interest paidunder the loan become?

E. What conclusions can you draw rom this example?

Alternate Assignment: Recalculate assuming the loan is or $15,000, the interest rate is 6% and theextra payment is $20 per month.

2. Suppose you needed to borrow $20,000 or ve years (60 months). You checked online and reaized there are all kinds o alternatives competing banks are ofering. Some have lower interest rates bcharge upront ees. Others have higher interest rates but charge smaller up-ront ees or no ees at aUsing thisAPR calculator, determine the APRs or each o the ollowing loan ofers. Then decide whicyou would choose. Be sure to take into consideration your ability to und the amount o up-ront moneversus the value o what could be a lower monthly payment or the term o the loan.

A. 4% interest rate plus $400 documentation ee, $200 credit ee and $100 fling ee.B. 5% interest rate plus $350 documentation ee, $150 credit ee and $50 fling ee.C. 6% interest rate plus $400 combined ee.

Alternate Assignment:Assume an $18,000 loan, 5% rate plus $600 in ees or A; a 5.5% rate plus $50in ees or B; a 6% rate plus $400 in ees or C. Which would you choose and why?

3. Suppose you have $10,000 in credit card debt and are paying 20% to carry that balance, or $2,00per year ($10,000 x 20%). That means, youd have to pay one-twelth o that $2,000 each month ($166.6just to keep the $10,000 balance rom becoming even larger. Using thiscredit card calculatorand thinstructions that youll see on your screen, determine the ollowing:

A. How long will it take or you to pay o your $10,000 balance i you can aord to pay only $180per month?

http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?ec_id=m1024924http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?ec_id=m1024924http://www.efunda.com/formulae/finance/apr_calculator.cfmhttp://www.efunda.com/formulae/finance/apr_calculator.cfmhttp://www.efunda.com/formulae/finance/apr_calculator.cfmhttp://www.efunda.com/formulae/finance/apr_calculator.cfmhttp://www.calculatorweb.com/calculators/creditcardpaycalc.shtmlhttp://www.calculatorweb.com/calculators/creditcardpaycalc.shtmlhttp://www.calculatorweb.com/calculators/creditcardpaycalc.shtmlhttp://www.calculatorweb.com/calculators/creditcardpaycalc.shtmlhttp://www.efunda.com/formulae/finance/apr_calculator.cfmhttp://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?ec_id=m1024924

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Good Things Come

to Those Who LearnEDUCATION, LIFETIME EARNINGSAND QUALITY OF LIFEEducation is an investment in you. Studies have shown that those who continue their academic pursuigo on to live healthier and more personally and proessionally satisying lives.

They also make more money.According to a report issued by the College Board Advocacy & Policy Center entitled Educatio

Pays 2010, which is based on data rom the U.S. Census Bureau, lietime earnings or college grads aveaged $1.66 million versus $1 million or high school graduates. Thats not all. Add another $300,000 moror a masters degree or $1.1 million more or a proessional degree. Education plays a dierentiating rolater on in lie as well. According to a 2009 Bankrate.com/Princeton Research Associates Internationasurvey, 37 percent o those with a high school education or less had no other income than rom SociaSecurity at the time o their retirement, while only 6 percent o those with a college degree or more whersimilarly limited.

But higher education is also a need that can carry a pretty hety price tag.In its November 23, 2010, Social & Demographic Trends report, the Pew Research Center d

termined that Graduates who received a bachelors degree in 2008 borrowed 50 percent more (iination-adjusted dollars) than their counterparts who graduated in 1996, while graduates who earnean associates degree or undergraduate certifcate in 2008 borrowed more than twice what their couterparts in 1996 had borrowed

And in a May 2011 ollow-up, Is College Worth It?,Pew notes that the 48 percent o the studenpopulation that leave college with unpaid student loan debt report more limited exibility when it cometo paying other bills, purchasing cars and houses, and even making career choices.

While I believe in educations ability to advance, transorm and ulfll, I also believe that you shouldnhave to put yoursel or your amily at risk in order to achieve this worthy undertaking.

School and Program ChoicesStart by taking into consideration the many dierent cost-saving strategies that are available to studentoday. These include:

Alternative school settings. More and more students are choosing to begin their higher eduction careers at community colleges and vocational training schools. Theyre aordably priceand the credits you earn may be transerable to corresponding our-year schools.

Accredited online courses. Online education is growing exponentially with accreditecourses being oered by some o the most prestigious colleges and universities. Sites such aOpen Courseware Consortiumand Education Portal are worth exploring.

Cost per credit. Many schools price on the basis o ull- versus part-time status. I the schoo

http://trends.collegeboard.org/education-payshttp://trends.collegeboard.org/education-payshttp://trends.collegeboard.org/education-payshttp://trends.collegeboard.org/education-payshttp://www.pewsocialtrends.org/2010/11/23/the-rise-of-college-student-borrowing/http://www.pewsocialtrends.org/2010/11/23/the-rise-of-college-student-borrowing/http://www.pewsocialtrends.org/2011/05/15/is-college-worth-it/http://www.pewsocialtrends.org/2011/05/15/is-college-worth-it/http://www.ocwconsortium.org/http://education-portal.com/http://www.ocwconsortium.org/http://www.ocwconsortium.org/http://education-portal.com/http://education-portal.com/http://education-portal.com/http://www.ocwconsortium.org/http://trends.collegeboard.org/education-payshttp://www.pewsocialtrends.org/2011/05/15/is-college-worth-it/http://www.pewsocialtrends.org/2010/11/23/the-rise-of-college-student-borrowing/

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you have in mind or are attending does so as well, consider taking a cost-per-credit approach tscheduling your classes. For example, schools that charge a at rate or 12 to 18 credits are, in eect, charging 50 percent more to students taking the minimum number o credits.

Intersession courses. Some schools will accept the credits you earn or the courses you complete in between semesters at other accredited institutions. Thats why it makes sense to explorlower-costing alternatives close to home.

Testing out. Just about everyones heard othe Advance Placement (AP) tests, but whataboutCLEP andSAT Subject exams? Whentime is money, these will help you to saveon both.

Borrowing the Right AmountRegardless o where you go and the program orcombination o programs you choose, its criticallyimportant to be mindul o the amount o moneyyou plan to borrow because whatever that num-

ber turns out to be, it will have to be paid back.You also need to know that personal bankruptcyfling will not wipe away student loan debt exceptin extraordinary circumstances. Ill talk moreabout this later on.

So give some serious thought to what your re-payment plan is going to look like when youredone. While a good rule o thumb is limiting theamount you borrow to no more than the salary you can reasonably expect to be paid in the frst year your frst job, a more precise way o fguring this out would be to do the ollowing:

I the loan payment fts into your budget, great. I not, rethink the amount you were planning on borrowing. Either way, you might want to take another look at the six strategies I outlined or you at the end o

the Student Loan section in Part II.

CAREER CHANCE OR CAREER CHOICE?Education sets the stage or your lie ater school. The courses you select, the academic major you choosthe internships you get, the clubs you join, and the volunteer activities and service-learning opportunitieyou experience will all help you to discover your passion. That passion is what comes into play as yobegin to plan your uture.

Good Things Come to Those Who Learn

Estimate the total amount of money you expect to have to borrow for your education.Calculate the monthly payment youll have to make after you complete your degree. Online studentloan calculators can be a good resource for you in this regard.Create a budget for your postcollege life by estimating salary, rent, utilities, food, emergency stash,etc., but not including your student loan repayments.Determine how much money will be left over, and compare that value with the student loanpayment you calculated above.

http://clep.collegeboard.org/http://www.collegeboard.com/student/testing/ap/about.htmlhttp://www.collegeboard.com/student/testing/ap/about.htmlhttp://www.collegeboard.com/student/testing/ap/about.htmlhttp://clep.collegeboard.org/http://clep.collegeboard.org/http://clep.collegeboard.org/http://sat.collegeboard.org/about-tests/sat-subject-tests/why-take-the-testhttp://sat.collegeboard.org/about-tests/sat-subject-tests/why-take-the-testhttp://sat.collegeboard.org/about-tests/sat-subject-tests/why-take-the-testhttp://www.finaid.org/calculators/http://www.finaid.org/calculators/http://www.finaid.org/calculators/http://www.finaid.org/calculators/http://www.finaid.org/calculators/http://www.collegeboard.com/student/testing/ap/about.htmlhttp://sat.collegeboard.org/about-tests/sat-subject-tests/why-take-the-testhttp://clep.collegeboard.org/

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Good Things Come to Those Who Learn

RECOGNIzE YOUR RESPONSIBILITIES. Business owners are ultimately accountable to those whmake being in business possible or them in the frst place: customers, lenders, vendors (suppliers), invetors (including amily members) and employees. These people are your constituents, and its their condence and trust that you must work hard to earn and keep.

BECOME FINANCIALLY LITERATE. The money that starts your business and helps to keep it goinduring the tough times that most new ventures encounter at one point or other is oten your own an

quite possibly, rom olks who may be pretty close to you. This is where budgeting, cash managemenacquiring, managing and protecting credit all come into play. You cant expect to run a business succesully unless youve got a handle on these basics.

Questions1. How would you go about establishing a plan to ensure that you borrow no more than you need or

your college education? Which elements o this plan are you ollowing right now?

2. Have you arranged any internships or yoursel so ar? How would you go about fnding and landinthe ones you want?

3. What are your career options and preerences, given your academic major and interests? Whats

your backup plan i youre unable to attain your number-one choice?

4. How would you go about getting a prospective employer to be interested in you? Have you ever donany o this beore? I so, how did it work out or you? I it didnt work out, why do you think that wasthe case, and what would you do to improve upon your approach?

5. Have you ever had a screening over the phone or an in-person interview? How did it turn out? Howwould you go about ensuring successul phone screens and in-person interviews going orward?

6. How would you go about evaluating a job oer? Is it only the money? What else would have to bethere or you to eel enthusiastic about the opportunity?

7. How would you choose between equally appealing opportunities? Have you ever ound yoursel in

this kind o situation beore? What did you do?

8. What are the three orms o personal capital? How does your own measure up? What are your planto enhance your position in each?

9. Have you ever started or considered starting your own venture? I you have, how did it turn out?Generally speaking, what does it take to become your own boss?

Problem Solving1. Suppose youve let school with $30,000 in student loan debt, which you borrowed under the StaorDirect Loan program at 6.8%. Also suppose you paid a 1% ee to borrow the money and are able to repathe loan over the standard 10-year term. Using this calculator and the instructions that ollow:

A. Determine the level of salary youd have to earn so that your annual loan payments wouldntexceed 10% of your annual gross (before-tax and before other deductions) salary.

B. Press the arrow-back button and re-solve this problem for $50,000 in student loan debt at anaverage rate of 10% plus a 1% fee.

Instructions:Enter each loan amount in the Loan Balance box.Enter 1 in the Loan Fees box.Put a zero in the Minimum Payment box because youre able to make the full payments as soonas they start.

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Fnding Yr

FtreSAVINGS ANDINVESTMENTSTRATEGIESAbout 15 years ago, my wie and I needed to drive toManhattan or a ancy nighttime party. The weatherwas terribleheavy rains, high winds. So, we decid-ed not to wear our good clothes during what prom-ised to be a long and uncomortable car ride. Wealso called ahead to good riends, who lived northo the city at the time, and asked i we could stop bytheir place to do a costume change.

We arrived ater dark, in the middle o an unbe-lievable downpour and ran into their house carry-ing our garment bags under the umbrella my wie

and I shared. Our riends ushered us upstairs andinto their sons bedroom to change.When we turned on the light, we were surprised

to see stack ater stack ater stack o compact disccases piled high up against the walls. It was as i we had walked into a warehouse.

Anyway, ater getting all zipped up and buttoned down, we headed downstairs to thank our riends ansay our good-byes. But beore doing another crazy run through the rain, I just had to ask about what theson had going on upstairs.

Whats the deal with the music library up there?Oh, that, she said, laughing. Its a misunderstanding.What do you mean? What kind o misunderstanding?Well, when our son was away at college, he called to ask what he should do with all o the money h

was earning rom his part-time jobs. I told him to put the cash into CDs. He misunderstood me.Whether youre setting aside money or an education, a car, a vacation or a house, or simply to have

cushion in the event o an emergency, saving should be an integral component o your personal nanciaplan. And saving, as a disciplined activity, should be a priority in your weekly, monthly and yearly budge

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Why, Hw, When and What: Fr Steps t Financial PlanningSaving as a personal nancial planning goal is a matter o determining:

The Time Vale f MneyOnce youve got a sense or the amount o cash that has to be in place or the timeline you have in min

youre going to need one more piece o inormation in order to gure out what youll have to do to makit all happen: the interest rate.Every savings and investment option has a rate o return, which is expressed in the orm o an intere

rate. These rates vary with the level o risk youre willing to accept or each type o investment: the highethe risk, the higher the rate and vice versa. Theyre also used to calculate how much youre going to havto save each week, month or year in order to reach your goals.

This concept is known as the time value o money. Simply put, the money you have in your handtoday is worth more than the same amount o money a year rom now.

Take a look at the ollowing two scenarios and youll see what I mean:

But how can that be? I you were to multiply $84.22 by 12 months, the total would be $1,010.64 n$1,020.00. The answer is compound interestthe key element o the time value o money. Its the notioo interest being calculated not only on the principalthe amount o money you initially place on depos

or invest

but also on the interest it earns along the way. Albert Einstein called compound interest theighth wonder o the world. I preer to think o it as the git that keeps on giving.

Hw Big a Payday Wld Y Lie?Compounding causes money thats let on deposit or invested to grow more quickly. This is a really impotant consideration or later on in lie. Take a look at the ollowing three examples and youll see why:

Funding Your Future

Your objectives for the moneyhouse, car, retirement.How much youll need to have on hand for each of these objectives$20,000 down payment

or a house, $5,000 down payment or a car, and no matter what youre thinking it wont be enoughor retirement!When youll need to have the money on handa house in ve years, a car in one year, retirementin 40-plus years.The types of savings and investment options that make sensea short-term savings accountor the car down payment, longer-term savings and investment options or the house down pay-ment and retirement.

Scenario 1: When the annual rate o infation is 2 percent, something that costs $1,000 today isgoing to cost $1,020 (an additional 2 percent) a year rom now. Said dierently, i you need $1,020

a year rom now and have $1,000 in your hands today, a savings account that earns 2 percent will getyou where you need to go.

Scenario 2: Now lets say you dont have the $1,000 to put on deposit today, but you still need $1,020 ayear rom now. I you can nd a savings account that pays 2 percent interest, depositing $84.22 everymonth will get you to the same place.

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Funding Your Future

ADD uP THE CASH THATS HEADED ouT THE BACk DooR. Take a hard look at all your monthand annual expensesmortgage, property, taxes, insurance, utilities, ood, etc.and to the best o youability, project what you believe would be a sustainable rate o spending when you retire.

For example, in 25 years, do you expect to still have a mortgage? What about the costs associated wityour home? Do you expect to be living in the same size house, in the same town, paying the same taxeDo you expect to still be maintaining the same levels o insurance coverage?

EVALuATE THE RESuLTS. Once youve tallied up all your projected infow o cash, how does that compare with your projected outfow? Positive number? Congratulations! Negative number? Then considesome ne-tuning.

MAkE THE NECESSARY ADjuSTMENTS. On the income side, solve backward to determine homuch more youll need to contribute each month between now and the retirement age youve targeted iorder to bridge the gap.

Also, re-review the expense side o your projected budget, plugging the leaks and eliminating thexcesses. Are there assets you can sell today so you can put that money to work or the next 25 yearsWhat about property you can sell once you turn 65?

I the gap is signicant, will you consider part-time work today so that you can bank the extra incomor the longer term? Last but not least, are you committed to retiring at 65?

As with all budgets, when the numbers dont add up, take the time to go through them line by line unyou gure out what needs to be done so that they do.

qestins1. Have you ever put together a nancial plan or your long-range goals? What are the our steps that

are involved with designing something like this, and how would you make your goals a reality?

2. How does the time value o money work?

3. What are the ve steps to making the right choices or your savings and investment plans? Which othem are you ollowing right now?

4. What are the three prongs o retirement planning, and how would you go about ensuring that youhave what you need or each o them?

5. Suppose you just inherited $10,000 and decided to invest that money or the uture. Also supposeyou have several investment alternatives available to you, including certicates o deposit, stocksand bonds, real estate investments and collectible art. Which o these alternatives would appeal toyou in terms o degree o risk and rate o return?

6. What would you do i you determined that between your 401(k) at work, the Social Security benetyou anticipate receiving when you retire and the savings you expect to have in the bank, youre nogoing to have enough to continue living the way you would want? Would you work longer, take asecond job in order to increase or to add to your savings, modiy your spending right now or adjust

your expectations or the uture? Why?

Prblem Slving1. Suppose your goal is to save $40,000 or a down payment on a house that you plan to purchase in vyears (60 months). Also suppose youll be able to earn 5% on your investments during that period o timUsing this time value o moneycalculatorand the instructions that ollow:

A. How much would you have to set aside each month in order to reach your goal? (Solve or PMT.)B. How much would you end up saving i you were able to set aside only $300 per month?

(Solve or FV.)

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B-Money

PuchasesNEW WHEELSThe day my son got his rst cara very cool, jet-

black 1992 Volvo 240Dhe couldnt wait to slide be-

hind the wheel. My wie had dropped us of at the

dealership earlier that morning, so I got to be withhim or that exciting, inaugural ride home.

It was a sparkling, crisp New England day, and

the route we took was a un mix o hills and curves

under a canopy o tall and densely leaved trees that

take on a gorgeous palette o ery colors every all.

As we crested the last o the hills and came

around a sharp bend, we spotted a mattress

lying in the middle o the road about a hundred eet

or so ahead o usprobably allen of the back o

a pickup.

Feeling a little insecure with a relatively new

driver in command and with no one else in ront or

behind, I told my son to steer around it.

We dont have to do that, Dad. The Volvo has

enough wheelbase and ground clearance or us to ride over it.

Good to know. Go around the mattress.

Dad, we dont have to! Trust meI know what Im doing!

So when the car didnt have enough clearance, and the mattress, which turned out to have a plast

cover, melted and stuck to the Volvos rear-wheel diferential, my son and I traded seats.

Add Up he CossGetting a new car is excitingbig shine, new-car smell, clean windowsthat is, until you have to buy on

on your own. New, used, make, model, year, color, options, loans, leases, rates, terms, insurance deducibles Ater everything is done, youre going to hope the car you just bought will last orever, just so yo

wont have to go through all o it again!

So, lets start with the basicsbeore you head to a dealership or crank up the computer or a Craig

slist search. There are ownership, operating and acquisition costs to take into account.

OWNErSHiP COStS. No sooner do you drive a new car of the dealers lot than it begins to lose value

in act, a lot o value, especially during the rst year (or when you run over a mattress). And as the mile

tick up and wear and tear happens, your cars value will continue to diminish. Its called depreciatio

and its a cost o ownership.

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Other ownership costs include registration ees (which are determined by your state), personal prop

erty taxes (i your town or locale levies them) and inspection ees (i your state or locale requires them

I consider insurance to be an ownership cost as well because youre protecting against loss or damag

to your property.

Except or the depreciation, all the other ownership costs are recurring cash expenses, which mean

theyre billed periodically and need to be incorporated into your monthly budget.

OPErAtiNg COStS. Fuel is the most obvious o these, which is why miles per gallon should enter inthe decision-making process or the car you have in mind. Scheduled maintenance is another operatin

cost. The vehicles owners manual will tell you the recommended intervals or oil changes and lube

brake replacements, tire changes and so on.

When it comes to maintenance, think about where youd like to have the work done, whether at

dealership or independent repair shop. And whatever you decide, consider getting a ew competing co

estimates ahead o time. Aterward, you may want to project the number o miles you expect to put o

the car each month so youll have an idea o how to budget or the cash youre going to need at each

those service intervals.

ACqUiSitiON COStS. Obviously, the price o the car (including sales tax) is the largest o these. Beg

by doing your homework:Check or advertised rebates and other incentives, which are supported by the auto manuacturers. Also remember to zero in on the special nancing and leasing promotions I talked abobeore, as theyre likely to incorporate blind discounts you should make every efort to reveal.

I youre going to be fnancing your purchase, think through the pros and cons o loans anleases. In particular, ocus on APRs (annual percentage rates), down payment requirements oloans as well as the up-ront ee requirements or leases, not to mention the contract terms and co

ditions or both. When youre ready to crunch the numbers, Bankrate.com has online calculators o

loans andleases that can help.

Research cost and reliability data. Sites such as EdmundsandConsumer Reportscan not on

help you steer clear o problems, they can also provide some valuable tips on how to negotiashrewdly or the new car you have in your line o sight.

tade-insI youre trading in a car, do your homework or that, too, beore you approach the dealership. Researc

the market value or your vehicle in terms o trade-in, wholesale and retail valuations. Sites likeEdmund

andKelley Blue Bookare useul resources or this purpose.

Pay special attention to the diferent values youll see online. For example, a trade-in value to a deale

ship will be lower than the price you may get rom a private sale. Also know that all these values will b

afected by the mileage and overall condition o your car, and whether it was ever in an accident.

That said, i the diference between the private sale and trade-in value is large enough, you may wa

to consider selling your car on your own. Either way, a good strategy would be to separate the negotiateprice or the new purchase (which should be at a discount to the sticker price) rom that o the trade an

to reserve your right to sell the car privately, i you have enough time to pull it of. Unless the dealer

shiting prot margins between the two sides o your transaction, there shouldnt be an issue with this.

there is, you may need to nd another dealer unless the one youre working with comes clean.

Sales taxAnother important matter to take into account when you consider selling your car privatelyaside ro

getting paid, o courseis sales tax. Dealers have an advantage here because the trade-in value o you

car will be subtracted rom the purchase price o the new one when it comes time to calculate the ta

Big-Money Purchases

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Big-Money Purchases

our houses or 10 years, and i the average rate o infation or those same 10 years is 2 percent, we hop

the uture value o our houses will refect that same level o price increasea little more than 20 percen

when you take compound interest into eect.

Yet this most recent period o speculation has once again caused so many to lose sight o the ver

basic need or shelter that drives us all to nd a place to live. As house prices were leaping ahead by 1

percent or more each year, lots o olks were diving head rst into what turned out to be the shallow en

o the pool when they disregarded their budgets in avor o the promise o a quick buck. So beore yojump in with them:

questions1. Whats your timeline or buying a car and/or house, and what would you want to have in place by th

time youre ready to pull the trigger?

2. What are the three categories o costs that you need to take into account when youre trying to de-

cide about a major purchase (a house or car, or example), and how would you go about comparing

them or the dierent options you may be considering at the time?

3. How do trade-ins and sales taxes come into play when youre buying a car? Have you ever had to

deal with this beore? I so, what happened?

4. What are the our most common types o warranties that youll have to consider, at one time or an-other? Have you ever experienced a warranty issue beore? How was it resolved?

5. List and discuss at least six ways to guard against making the wrong decision when buying a car.

6. Under what circumstances would you consider buying or renting a house?

7. What are our important home-buying tips, and how would you put them into practice or yoursel,

whether you are renting or buying a property?

Problem Solving1. Youre trying to decide between two houses in two dierent towns.

House A is selling for $200,000. It has 1,500 square feet and costs $1,200 a year in real estateproperty taxes, $165 a month for all the utilities (including heat and electricity), $75 a month forcable and Internet, $1,500 a year for homeowners insurance, $1,200 a year for maintenance andservices and $860 per month for the mortgage payments after you cover the closing costs andmake a $40,000 down payment.House B is selling for $220,000. It has 1,750 square feet and costs $1,500 in property taxes, $185a month for all the utilities, the same $75 a month for cable and Internet, $1,600 for homeownerinsurance, $1,500 a year for maintenance and services and $945 a month for the mortgage pay-ments after you cover the closing costs and make a $44,000 down payment.

FOuR HOmE-Buying TiPs

Copare the vrte ad cot of owerhp ver ret.

Create a copreheve bdet that take all of the owerhp ad operat cotto accot, ad ta tre to t.

Do or hoework before o ake a offer or a cotract.

Dot borrow ore tha o ca hadle eve f the bak a o ca.

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Insuring Your

WorldINSURANCE 101I have to be honest with you about something, eveni its at the risk o oending those who make theircareer in the industry: sorting through insurance

policies is about as exciting or me as ling a taxreturn. Fortunately, my wie once worked or an in-surance carrier. Guess who reviews our coverageseach year.

Risk-Management PlansAuto insurance, homeowners insurance, medi-cal insurance, lie insurance: i you can identiyall the risks that concern you, handicap the oddsthat any or all o these may occur, and estimatethe losses that would result, youll then be on theright track to developing a comprehensive risk-

management plan.And once youve organized your thinking

around that plan, youll also be in a good position toimplement it by arranging or insurance coverages that make sense or what youre trying to accomplis

How Insurance Companies Make MoneyLike any other commercial enterprise, insurance companiesalso called insurance carriersare

business to make money. Fundamentally speaking, they collect payments (known as premiums) or thpolicies they sell and pay out or the losses (known as claims) their policyholders incur, expecting therto be more money coming in than going out.

But in order to gure out how much to charge or their products, they have to calculate the potentia

cost o the risks youre asking them to accept on your behal. To do that, they use statistical data romlarge groups o people with similar characteristics to your own as a way o predicting the odds thoslosses will occur and how much they will cost i they do.

Credit scores, driving records and other personally relevant inormation are also taken into accouby insurance mathematiciansknown as actuarieswho sort through and study all this detail to comup with two numbers: what the insurance company projects to be the cost o having you as its customeand the price its going to charge you or the privilege o purchasing one o its policies.

As you would expect, one o these numbers is higher than other. Im sure you can gure out which.

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ExclusionsSome risks may be dicult (costly) i not impossible to insure against and would thereore be excluderom standard coverage. Examples are:

Eve ei lre mber ele i he me le he me ime, like errri k.

Eve h re ihi he ire rl, h iie r her ieil .

Rik h be reie, h f erhqke.

Whatever type o policy you purchase, you should expect there to be exclusions to it. Thats why itimportant to take the time to read through all the paperwork, because doing so may inspire you to continue shopping or coverage that better meets your needs.

RidersAt the other end o the spectrum, you can also add coverage to existing policiesor a ee, o course. Foexample, jewelry would be handled with a personal-articles foater, either as a separate insurance policor as a supplemental rider to your homeowners insurance or renters insurance policy. But youll have

establish values or the items you want covered. I theyre new, a proo o purchase in the orm o a credcard receipt or invoice copy will do the trick. I theyre older, however, you may need to arrange or aappraisal, particularly in the case o jewelry.

Either way, know that whatever value you establish or insurance purposes, youll be reimburseonly or the value at the time o loss. This is known as the principle o indemnity.

DeductiblesAnd nally, pay attention to the deductible element o your policy. As you may recall, deductibles reprsent the rst dollars that are paid by you against the loss you incuranother way o saying co-insurancBut while deductibles are not applied when the insurance company is paying someone else or the lothey suered because o you, dont be surprised when your premium is hiked, or worsewhen the insu

ance carrier drops you altogether, which it will do i it is paying out excessively or oten on your behalPolicies with high deductible limits cost less, although a higher deductible value wont translate intodollar-or-dollar reduction in premium. Thats because the savings are taken into eect over time.

Nevertheless, heres what you need to determine: Is the lower premium worth the higher out-o-pockecosts youll incur in the event o a loss? I you believe the likelihood o a loss to be low, you may want to rothe dice. Just be sure to set aside some cash or the value o the deductible so youll be able to cover it.

Insuring Your World

FouR InsuRancE-BuyIng consIdERatIons + two actIon stEps

Summing up the basics, these are the four things you should take into consideration whenarranging for any type of coverage:

The type of coverage you need.The current value of the property or possession youre insuring.

Coverage exclusions that you can tolerate.

The levels of deductibility you can afford.

Then when youre ready:

Shop for the best deal.

Do the research.

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Insuring Your World

be able to put into place or yoursela term policy or the death benet and a long-term savings plan oinvestment purposes.

A few More Products to ConsiderSome employer-sponsored benets plans include the ability to acquire accidental death and dismembement (ADD), long-term disability (LTD) and long-term care (LTC) insurance as part o their benets pack

ages. These products are worth considering seriously.

Questions1. How do insurance companies make money? What pricing actors are within your ability to control?

2. What are our insurance-buying considerations? How would you go about nding the best deal?

3. Homeowners insurance has two main components: property and casualty insurance. Talk about thdierences between two. Also talk about how liability is determined.

4. What is renters insurance and why is it worthwhile?

5. What are the our components o automobile insurance coverage and the dierences between them

Have you ever had to le a claim under any or all?6. What does liability tracks the asset mean?

7. What are good practices to ollow in the event that youre in an accident?

8. What are our health care insurance considerations that you should keep in mind when it comes togroup or individual health care insurance plans?

9. How does a health savings account work, and when does it make sense or you to have one in place?

10. What is the dierence between term and whole lie insurance? How would you create your ownwhole lie insurance product?

11. Suppose youre shopping or auto insurance and youve decided on the levels o coverage that areright or you. Also suppose youve narrowed your selection process down to one insurance carrierthats oering two premium pricing options or the same coverage:

Option A has a $2,000 a year premium with a $500 deductible.Option B has a $1,750 yearly premium with a $1,000 deductible.

Which option would you choose and why? How would you budget or the deductible you end upselecting?

Problem Solving1. Suppose your insurance company is oering a monthly payment plan that divides the annual premium into 10 equal payments. Also suppose that the company charges a $5 service ee or each paymentUsing this time value o money calculator and the instructions that ollow:

A. What would the rate of interest be for a $2,000 premium? (Solve for rate).B. What would it be for a $1,500 premium? (Solve for rate.)C. What would it be for a $2,500 premium? (Solve for rate.)D. What conclusions can you draw from this?

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When Thins

Head Sidewas

FINANCIAL DISTRESSYouve earned bonuses every year or the past 10 years, and your budgets become dependent upon themBut this years been tough and you just got word that all bonuses and pay raises have been eliminated. Th

loan payments are past due, your cards are maxed out, and theres nothing let in the bank.Or one o the kids gets sick, really sick, and your health insurance plan isnt enough to cover all thcosts. Your savings are gone, and youve borrowed all you can rom your 401(k).

Lie happens. We do our best to cope, but sometimes the hole is just too deep. Unortunately, theres neasy way out because:

Its not possible to delete derogatory inormation rom your credit bureau history i thedata is accurate.

Its not possible to get a new Social Security number or even to borrow someone elsesso you can have access to more credit.

Its not realistic to believe youll be able to resolve serious problems without devising acredible plan you can present to your creditors.

Paent Defalt: A Wrst-Case ScenariMissing a payment due date once or twice isnt the end o the world. Itll aect your credit rating but not a long-lasting way, so long as you get back on track in a hurry. On the other hand, heres what can happewhen things spin out o control:

DEFAuLT AND ACCELERATIoN. As Ive said beore, every loan, lease and credit card agreement prvides or what are known as events o deault. When you stop paying your bills and in particular, wheyou start stonewalling your creditors, whatever you owe will become immediately due. No more grac

periods, no more accommodations.Whats more, that accelerated balance, as the sum total o your loan obligation is called at that time, w

probably begin to compound at a high rate o interest (known as the deault interest rate)much highethan the rate youve been enjoying to this point. That means as long as your problem remains unresolvedthe balance you owe will increase in size at a airly rapid rate, pushing you urther into the abyss.

FoRECLoSuRE. I that isnt enough to get your attention, the next thing your lender is likely to do is movto oreclose on your loan. That means the bank will ormally declare you to be in deault in order to reposess the car or house its nanced or you. Once it has your possessions under its control, your lender wsell themperhaps at auctionin order to pay itsel back.

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And i what your lender gets rom that sale isless than the amount you owe on your loan (whichcan easily happen when property is auctioned o)plus any legal ees and other expenses it incurs inoreclosing, itll look to recover that money rom youpersonally, to the extent permitted by law.

DEFICIENCy JuDgmENT. This is where things geteven uglier. Your lender will probably go to court towin a deciency judgment against you. Once this is inhand, the lender may then move to have your wagesgarnished. This means the lender will notiy your em-ployer that you have an unpaid debt and to demandthat a portion o your salary be withheld every payperiod and remitted to it until the balance is paid o.

You can read more about this dicult topic here.OK, Take a deep breath. Ive just described what

happens when a borrower fips o his or her lender.

There is a better way to deal with personal -nancial adversity. In act, lets break it down intotwo parts: what you should do beore the bill collectors make your lie unbearable with their telephoncalls and what youll have to do when there are no more things you can do.

go oN A FINANCIAL DIET. When lie gets tough and beore you start missing payment due dates anbouncing checks, youre going to need to put together a bare-bones budget: a sober, realistic and paintakingly accurate accounting o the money thats coming in the ront door and headed out the back. Itvery important to come ace-to-ace with the extent o the shortall youre going to have to overcome. This also when moving back home or a while in order to regroup may make sense, provided that option available to you.

SHoP FoR LoWER INTEREST RATES oR ALTERNATIvE FINANCINg ARRANgEmENTS. Oncyou know the shortall youre acing and i you still have access to credit, you should reevaluate everone o the obligations you have with an eye toward improving their terms. Perhaps interest rates havmoved in your avor or perhaps you can renance your three-year car loan because you now plan tkeep your Chevy or ve.

Either way, pay close attention to the ees, not only because they aect the true interest rate youll enup paying (in terms o the APR), but also because theyll be coming out o your pocket or added to thbalance when you close on the renancing. Also beware o companies that charge hety up-ront ees do this work or you. You cant aord them. Or the rms that instruct you to route your payments througthem in order to pressure the lender to modiy your loanthat tactic wont wash either. I youre unab

When Things Head Sideways

Six ThingS To Do Before The Bill ColleCTorS Make Your life DiffiCulT

Go on a fnancial diet.

Shop or lower rates or alternative fnancing arrangements.

Sell the things you dont need.

Get a second job.

Resist the temptation to reach or a quick fx.

Pick up the phone.

http://www.openforum.com/articles/what-every-employer-needs-to-know-about-garnishmenthttp://www.openforum.com/articles/what-every-employer-needs-to-know-about-garnishmenthttp://www.openforum.com/articles/what-every-employer-needs-to-know-about-garnishmenthttp://www.openforum.com/articles/what-every-employer-needs-to-know-about-garnishment

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When Things Head Sideways

another because he or she trusts that the person who borrowed the money will honor his or her commment by paying it back.

I believe that strategic deault, in its most selsh orm, destroys this trust and in the process will creaunnecessary hardship or many others.

qestins

1. Describe how a missed payment can become a payment deault and what would happen when thesituation is let uncured.

2. What six things should you be doing beore the payment collectors start making your lie miserable

3. Describe payday loans, tax reund advances and structured settlement advancesthe dierencesbetween them and the concerns associated with these products.

4. Describe the dierent types o workouts and restructures that could be made available to you whenyoure experiencing nancial distress.

5. How should you go about dealing with a nancial crisis?

6. Describe the dierent personal bankruptcy options. Under what circumstances should you conside

each? Would all your obligations be covered?

Prble Slin1. Suppose you have $5,000 in credit card debt, and the interest rate is 24% a year. Now suppose youhave an opportunity to transer this balance to another card that charges 16.4% or the rst year, butyoull incur a 4% transer ee (extra cost) to do it ($5,000 x 4% = $200). Also suppose that you expect tbe able to pay o this debt within that rst year (12 months). Using this APRcalculator:

A. Determine if this deal makes sense to take.B. Explain why it does or does not make sense.C. If it doesnt, describe under what circumstances it might.

att ssmt: You have $10,000 in credit card debt, which is costing you 20% per year. Youcan transer your balance to another card thats oering a 13.9% rate or the rst year, but youll stillhave to pay the 4% balance transer ee ($10,000 x 4% = $400). Answer A, B and C.

2. Suppose youre having trouble making the $400 a month payments (PMT) on a loan that has abalance o $10,000 (PV) with 28 months to go (periods). Using this time value o money calculator,determine:

A. The loans interest rate. (Solve for rate.)B. The number of months that would be added to the loan if the monthly payments are reduced to

$200 each. (Enter $200 into PMT and solve for periods.) Remember to put a minus sign in front o

the PMT amount.Now, suppose your lender has countered with a proposal to reduce the monthly payments to $300a month, but it wants an extra year o payments (or a total o 40 periods). Using the samecalculator:

C. Solve for the interest rate and compare that number with A above.D. Should you accept this arrangement? Why or why not?

att ssmt: You owe $12,000 (PV). Youre paying $450 per month (PMT) and have 30more months to go (periods) on your loan You need $100 worth o relie each month ($350 PMT) and

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