Financial Fundamentals Student Guide

Financial Fundamentals
for Students
STUDENT GUIDE
PE TER BIELAGUS
A DIVISION OF MAGNA PUBLICATIONS
Unit 1 Lesson 1: Introduction
2015 National Center for Student Life

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopying, recording, or by any information
storage and retrieval system without written permission of the publisher, except for the inclusion
of brief quotations in a review.
Printed in the United States of America.
Warning Disclaimer
The purpose of this course is to educate and entertain. The author and publisher do not guarantee
that anyone following the techniques, suggestions, tips, ideas or strategies will become
successful. The author and publisher shall have neither liability nor responsibility to anyone with
respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the
information contained in this book. It is recommended that readers seek competent legal and
financial advice before taking any actions mentioned in this course.
2015 National Center for Student Life. All rights reserved.
Unit 1
Personal Finance
Basics
Lesson 1: Introduction

Lesson Objectives: By the end of this lesson, you should be able to:
Know the definition of personal finance.
Understand the simple confusion people make about personal finance.

Lesson Summary:

Personal means relating to you. Finance means to pay for. When you put the two
words together, personal finance is about paying for your personal life. Sadly
many people get this backwards. They personalize their finances. They get upset
when the stock market goes down; they scramble to buy a house simply because
everyone else seems to be buying. When we personalize our finances, we often
get ourselves into financial trouble.

Its important to learn about personal finance now because you will not
physically be able to work for the rest of your life. Whats more, you probably
dont want to work the rest of your life, even if you could. As you get older,
youll want to work less or even not at all. For this to happen, youll need your
investments to cover 100% of your expenses. The point where your investments
pay for everything, is called retirement.

We call this retirement. Most experts agree that you need at least 70% of your
current income when you retire. The way you will get this income is through
your investments, which are devices that pay you an income.

Review Questions:

(Answers are located at the end of this lesson under Review Question Answers.)

Personal finance pays for ______________________?

What are the two ways you can (legally) make money?
Answer:
1. ________________________
2. ________________________

When it comes to investing, what is meant by the term return?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
_____________________________________________________
Action Assignment:
Call at least one person you know who is close to retiring or is already retired.
(Perhaps this person is a grandparent.) Ask them what they did right and what
they did wrong. Ask them what they would do if they were in your shoes.

Suggested Activity:
Determine your current knowledge level of personal finance by taking the pre-
assessment quiz located below in this Student Guide.

How did you do?

Fun Facts:

According to Sixwise.com, money (or the lack thereof) is the biggest stress
inducer for Americans.

Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
Pre-Assessment Quiz
(Answer yes or no to each question. For every
yes answer give yourself one point.)

Yes/No
1. As of right now, do you have written goals?
_______
2. Do you know your credit score?
_______
3. Do you feel you are raising financially savvy children? _______

(If you have no children, do you feel if and when that
day comes, that you will be able to with the financial knowledge you
currently have?)
4. Do you have a bank account?
_______
5. Do you have a retirement plan?
_______
6. Do you have a current, typed resume and cover letter? _______

7. Do you have disability insurance?
_______
8. Do you have health insurance?
_______
9. Do you currently have a tax advisor?
_______
10. Do you know how the stock market works?
_______
Total ______
How did you score?

0-3 Yes You really need to start thinking about your financial future.
4-6 Yes Youre getting there. Keep going!
7-9 Yes Youre on the right track. Dont stop what you are doing and you will
have a happy retirement.
10 Yes Rockstar! Why are you enrolled in this course? (Just kidding.)

Review Question Answers:

Personal finance pays for ______________________?

Answer: Your personal life.

What are the two ways you can (legally) make money?

Answer:
Trade your time for money (a.k.a. working).
Trade your money for money (a.k.a. investing).

When it comes to investing, what is meant by the term,
return?

Answer: A return is a percentage that an investor hopes to get
back on the money she invested. So an investor seeking a 10%
annual return on her $1,000 investment would hope to get
$1,100 back in one year.

Unit 1 Lesson 2: Goals
Lesson 2: Goals

Understand the importance of goals.
Name three clarifications that every goal should have.
Explain the term opportunity cost.

Lesson Summary:

Personal finance is about financing your personal life, so lets first determine
what that personal life is. You do this by writing your goals. Goals ARE the
financial planning process! Your goals tell you whats important in your personal
life. You then arrange your finances to meet these goals. Once you have written
goals, the daily ups and downs of the economy become less of a concern. You
only care about how it relates to your goals.

Goals help you achieve one of the most important mindsets in the world of
personal finance. They help you focus. A person with written goals doesnt waste
a lot of money on impulse purchases or stuff they do not need. Goals help you
recognize opportunity cost; an economic term that forces us to look at the price
of our decisions. A dollar spent here cannot also be spent there. If you spend
a dollar on a cup of coffee you cannot spend that same dollar on a bottle of
water. Goals help you determine the best use of your money.

Remember, you can spend your money on only one of two things: needs and
wants. A need is something you, well, need. You cannot live without it. A want is
something you can live without. Often, wants are more fun than needs, so
we spend money on those first. People fool themselves into thinking a want is
really a need. (I need an IPAD for school.) Dont be one of those people!

Review Questions:

What are the three characteristics that all written goals must have and
why?
Answer:
1. ____________________________________________
2. ____________________________________________
3. ____________________________________________

What are the five steps to writing goals?

Answer:
1. ____________________________________________
2. ____________________________________________
3. ____________________________________________
4. ____________________________________________
5. ____________________________________________

The true key to personal finance is not more money, but more
____________.

Action Assignment:

Create five goals using the Goal Sheet at the end of this section. (Use one goal
per sheet.)

Suggested Activity:
Think about some people who could support you as you go through this exercise.

This should be done after the Action Assignment. Remember, taking control of
your financial life takes time and effort.

Once you have your goals, share them with these people. Ask them to hold you
accountable. Ask them for suggestions on how to achieve your goals?
Next, grab a calendar. Mark a date three months away to revisit your goals. Are
you on track? If not, what do you need to get back on track?

Additional Information:

www.goalforit.com - This website has some great FREE programs to help you set
and achieve goals!

Fun Facts:
How does billionaire investor Warren Buffet define the risk? He says, Risk is not
having a plan. (www.quoteswise.com)

Heres a quote from James Cash Penny (the founder of JCPenny): Give me a
stock clerk with a goal and I will give you a man who will make history. Give me a
man without a goal and I will give you a stock clerk. (www.quoteland.com)
Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
Goal Sheet
Remember goals should be:
Specific
Measurable
On a Timeline

My goal is:
________________________________________________________________________
________________________________________________________________________

I would like to achieve this goal by:
________________________________________________________________________
________________________________________________________________________

The cost (if any) of this goal is likely to be:
________________________________________________________________________
________________________________________________________________________

People that may be able to help me achieve this goal are:
________________________________________________________________________
________________________________________________________________________

My plan for achieving this goal is to:
________________________________________________________________________
________________________________________________________________________

Some things I am willing to give up to achieve this goal are:
________________________________________________________________________
________________________________________________________________________

10

What are the three characteristics that all written goals must
have and why?

Answer:
1. Specific. Being specific helps you focus on exactly what you
are going after.
2. Measureable. A measurable goal helps you track your
progress. Writing down that you want to be richer isnt
measureable. Writing down that you want $5000 in the
bank, is.
3. Timeline. Putting a time limit on your goals forces you to
get off your butt and get started!

What are the five steps to writing goals?

Answer:
1. Write your goals.
2. Put a price tag on those goals.
3. Put a timeline on those goals.
4. Prioritize those goals.
5. Write a plan to pay for/achieve those goals.

11
The true key to personal finance is not more money, but more
____________.

Answer: Focus. All the money in the world wont solve your
problems if you forget that EVERYTHING has an opportunity
cost.
12
Unit 1 Lesson 3: Compound Interest
Lesson 3: Compound Interest

Define simple interest and compound interest.
Understand how compound interest works and why it is so
important to start financial planning now.
Define the Rule of 72.

Lesson Summary:
Interest is the rental fee on money. When we rent something - a kayak, a DVD -
we pay a rental fee. When we rent money, the rental fee is called interest, and it
is charged as a percentage of the money borrowed. The original amount of
money borrowed is called the principal.

We can borrow money and pay interest to someone else, but we can also invest
or lend our money to other people and have them pay interest to us. As we
learned in Lesson 1, the amount of money you get back for investing or lending
money to others is called a return.

There are two types of interest, simple interest and compound interest. Simple
interest is interest paid on your initial investment. Thats it. If you have a $1,000
investment paying a 5% simple interest rate, then every year you would get $50
in interest on your $1000 of principal. ($1,000 X 5% = $50) Year after year, you
would only get $50.

Compound interest is interest paid on your initial investment AND on the
interest already accumulated. If the above investment paid compounded
interest; you would still receive $50 after year one ($1,000 X 5% =$50). But in
year two, it gets interesting. You would receive a payment of $52.50. You earned
5% on your initial investment of $1,000 PLUS the $50 you have already earned.
($1050 X 5%) In year three, you would earn $55. ($1102.50 X 5%)

The Rule of 72 can be used to calculate how long it will take your investment to
double in value. Simply divide the compounded interest rate into the number 72.
The answer is how many years it will take for your investment to double in value.
If your investment is earning a 5% compounded interest rate, divide 5 into 72:

72/5 = 14.4 years for your money to double in value.
13
Review Questions:


Why should you start investing in compounded investments today?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

How long will it take to double the value of an investment that pays a
compounded, 8% annual return?

Answer:
____________________________________________________________
_____________________________________________________

Action Assignment:

(Answers are located at the end of this lesson under Action Assignment Answers.)
Visit www.peterbielagus.com and find the financial calculator for
compound interest. Answer the following questions:
$1,000 invested every year at 8% for 45 years equals $________.

You can see how damaging it is to wait!

Think of one item you can cut out of your daily life and instead invest that
money.
14
How much does that item cost you every year?

__________________
(For instance if you buy a $2 cup of coffee every day, it costs
you $730 a year to drink that coffee. $2 a day X 365 days a year
= $730.)
Using the financial calculator, calculate how much you would
earn if you instead invested that amount at an 8%
compounded return for 30 years.
Write that number here: ________________.
Still want that coffee? ;-)
Suggested Activity:

Visit www.peterbielagus.com and find the financial calculator for compound interest.
Answer the following questions:

1. First guess how much money you would have if you invested just $1 a day
for the next 45 years at 8%. Then use the financial calculator to find the
answer.

Guess: $_____________

Answer: $_____________

2. Now guess how much you would have if you invested $1 for the next 35
years at 8%. Then use the financial calculator to find the answer.

Guess: $_____________

Answer: $______________


Below is a story about a student named Old Gil. (Although I am not sure why we
call him Old Gil, since he was only 23 years old at the beginning of the story.) The
story uses some financial terms, like inflation, which we will talk about later in
this course.

Basically Old Gil is a guy who didnt have much financial luck in life. However,
because he started investing young, he still did all right, despite nearly
everything going wrong. Enjoy!

15
Old Gil was a 23-year-old student who had only two pieces of luck in his financial
life. The first was the job he got right out of college. He made $40,000 a year.
The second was that he took this incredible course, which inspired him, at age
23, to take control of his financial life. Other than that, just about everything
went wrong for Old Gil.

Throughout his career, the only raise Old Gil got was one that kept pace with
inflation (the rising cost of goods and services). While it was a steady increase
year after year, he never got a big bonus, never saw a double-digit increase in his
annual salary.

Old Gils company had a retirement plan that matched 10% of what Old Gil put
in. Old Gil remembered from this course that he should save 10% of his income
so he contributed $4,000 a year into the retirement account. His company
matched 10% of that 10%, so the account swelled to $4,400.

For 45 years, Old Gils return, after factoring in inflation, was zero. Thats right,
he pulled out only what he and his company put in. While his money kept pace
with inflation, it did not grow at all. Not one cent.

When he turned 30, Old Gil bought a house for $200,000. Two years after he
bought it, the value fell to $170,000. For 35 years, Old Gil lived in that house.
Like his retirement plan, the house never rose in value beyond inflation. After 35
years, it was worth $450,000, or $200,000 in todays dollars.

At age 35, Old Gil bought a rental property for $200,000. Again, the moment he
bought it, it dropped in value by $15,000. For 30 years, Gil rented out the
property but averaged a loss of $100 a month. Thats right, Old Gil thought the
property would be helping his cash flow, but the opposite was true: He lost $100
a month, every month for 30 years.

If this werent enough, two years before Old Gil was going to retire, Congress cut
his Social Security benefits in half! Poor old Gil, right?

Well, maybe not.

Lets take a look at old Gils situation. Currently he is 65 years old. His retirement
account is worth $450,000. While he had a zero percent return, he did keep pace
with inflation, so his $450,000 can buy, what $200,000 can buy today. He also
owns his home free and clear for $450,000, or $200,000 in todays dollars. The
fair market rental of his primary residence is about $3,000 a month, or $1,500 a
month in todays dollars.

16
Old Gil also scored himself a rental property. Even though the property lost
$36,000 over 30 years, ($100 a month or $1200 a year for 30 years) he now owns
it free and clear as well. Like his home, the rental property never went up in
value. It merely kept pace with inflation. It is now worth about $450,000. Based
on current rents, Gil could rent the property for $3,000 monthly.

Assuming Old Gil is going to live another 20 years, here would be his situation:
His retirement account is worth $450,000. Even if he continues to get
zero growth after inflation, he would be able to spend $22,500 a year.
He lives in his house and pays no rent, so one of his biggest expenses is
gone.
He rents his other property out and gets, after paying insurance, taxes
and management fees, another $2,000 a month.
Social Security, while cut severely, still yields him $1,000 a month.

In total, Old Gils income is $58,500. He earns about 70% of what he made while
working full time (adjusting for inflation). But remember, as a full time
employee, he had to pay for his house. Now he owns it free and clear; so he does
not have the large expense of a home loan payment. If, after 10 years of
retirement, Old Gil needs more money, he can sell his house or his rental
property. Perhaps he can work part time at a fun job.

The point is, despite all that happened to him, he still did okay. If you are steady
and consistent, even when it doesnt work well, it still works.
Fun Facts:

In the early 1600s, the American Indians sold an island, now called Manhattan,
for various beads and trinkets worth about $16. Since Manhattan real estate is
now some of the most expensive in the world, it would seem that the American
Indians made a terrible deal.

However, had the American Indians sold their beads and trinkets, and instead
invested their $16, at an 8% compounded annual return, not only would they
have enough money to buy back all of Manhattan, they would still have several
hundred million dollars left over. That is the power of compound interest over
time (www.pfadvice.com).
Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
17
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
18
Compound Interest Chart

What happens when you invest just one dollar? The right hand
column of this chart shows that when one dollar is invested at 8%
annual interest compounded, it will be worth $32 in 45 years. That
means EVERY dollar in your pocket has the ability to be worth 32
times more than it is today. Even at 5% or 1%, your money still
grows! Remember this the next time you spend your money!

Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Starting
Cash
$1.00
$1.01
$1.02
$1.03
$1.04
$1.05
$1.06
$1.07
$1.08
$1.09
$1.10
$1.12
$1.13
$1.14
$1.15
$1.16
$1.17
$1.18
$1.20
$1.21
$1.22
$1.23
$1.24
$1.26
1%
$1.01
$1.02
$1.03
$1.04
$1.05
$1.06
$1.07
$1.08
$1.09
$1.10
$1.12
$1.13
$1.14
$1.15
$1.16
$1.17
$1.18
$1.20
$1.21
$1.22
$1.23
$1.24
$1.26
$1.27
Starting
Cash
$1.00
$1.05
$1.10
$1.16
$1.22
$1.28
$1.34
$1.41
$1.48
$1.55
$1.63
$1.71
$1.80
$1.89
$1.98
$2.08
$2.18
$2.29
$2.41
$2.53
$2.65
$2.79
$2.93
$3.07
5%
$1.05
$1.10
$1.16
$1.22
$1.28
$1.34
$1.41
$1.48
$1.55
$1.63
$1.71
$1.80
$1.89
$1.98
$2.08
$2.18
$2.29
$2.41
$2.53
$2.65
$2.79
$2.93
$3.07
$3.23

Starting
Cash
$1.00
$1.08
$1.17
$1.26
$1.36
$1.47
$1.59
$1.71
$1.85
$2.00
$2.16
$2.33
$2.52
$2.72
$2.94
$3.17
$3.43
$3.70
$4.00
$4.32
$4.66
$5.03
$5.44
$5.87
8%
$1.08
$1.17
$1.26
$1.36
$1.47
$1.59
$1.71
$1.85
$2.00
$2.16
$2.33
$2.52
$2.72
$2.94
$3.17
$3.43
$3.70
$4.00
$4.32
$4.66
$5.03
$5.44
$5.87
$6.34
19
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
$1.27
$1.28
$1.30
$1.31
$1.32
$1.33
$1.35
$1.36
$1.37
$1.39
$1.40
$1.42
$1.43
$1.45
$1.46
$1.47
$1.49
$1.50
$3.04
$3.07
$3.10
$1.28
$1.30
$1.31
$1.32
$1.33
$1.35
$1.36
$1.37
$1.39
$1.40
$1.42
$1.43
$1.45
$1.46
$1.47
$1.49
$1.50
$3.04
$3.07
$3.10
$3.13
$3.23
$3.39
$3.56
$3.73
$3.92
$4.12
$4.32
$4.54
$4.76
$5.00
$5.25
$5.52
$5.79
$6.08
$6.39
$6.70
$7.04
$14.43
$15.15
$15.91
$16.71
$3.39
$3.56
$3.73
$3.92
$4.12
$4.32
$4.54
$4.76
$5.00
$5.25
$5.52
$5.79
$6.08
$6.39
$6.70
$7.04
$14.43
$15.15
$15.91
$16.71
$17.54
$6.34
$6.85
$7.40
$7.99
$8.63
$9.32
$10.06
$10.87
$11.74
$12.68
$13.69
$14.79
$15.97
$17.25
$18.63
$20.12
$21.72
$23.46
$25.34
$27.37
$29.56
$6.85
$7.40
$7.99
$8.63
$9.32
$10.06
$10.87
$11.74
$12.68
$13.69
$14.79
$15.97
$17.25
$18.63
$20.12
$21.72
$23.46
$25.34
$27.37
$29.56
$31.92

20


Why should you start investing in compounded investments
today?

Answer: Investing is all about getting your money to double in
value over time. The more opportunities you have for your
money to double, the more of it you will have. Imagine
someone wanted to stop working when they were 65 years
old. Next imagine they started investing at a 10% return when
they were 20 years old. The Rule of 72 tells us that their money
will double in value about every seven years. In this case, the
persons money will double about six times over those 45
years of investing.

If, however, that same person waits until they are 35 years old,
their money doubles in value only four times. They would end
up with significantly less money.

How long will it take to double the value of an investment that
pays an annual, compounded, 8% return?

21
Answer: Use the Rule of 72. Divide your annual, compounded

return (in this case 8%) into 72. 72/8 = 9 years for your money
to double in value.

Action Assignment Answers:
Visit www.peterbielagus.com and find the financial calculator for
compound interest. Answer the following questions:

1. $1,000 invested every year at 8% for 45 years equals $
$449,347.
2. $1,000 invested every year at 8% for 35 years equals

$200,887.
3. $1,000 invested every year at 8% for 25 years equals
$85,803.
Can you see how damaging it is to wait!

22
Unit 1 Lesson 4: Organizing Your Financial Life (Definitions)
Lesson 4: Organizing Your

Financial Life (Definitions)
Talk about the four parts of a financial plan.
Define the term depreciable asset.
Calculate your net worth.
Lesson Summary:
The study of personal finance consists of four parts: Income, Expenses, Assets
and Liabilities.
Income is the money coming into your pocket. This could be money from
your job, investments, royalties from your American Idol record deal, or
somewhere else.
Expenses are the monies that are leaving your pocket. Everything from
rent to cell phone bills to movie tickets falls under expenses.
Assets are anything that over the long term will make you wealthier.
Examples of assets are the house you own or stock in Apple Computers.
Liabilities are anything that over the long term, will make you poorer.
The most common example of a liability is debt. Debt, over time, makes
you poorer.
Those are the parts of a financial plan, now its time to put those four parts into
the financial planning process. Luckily, the process can be summarized in one
sentence: Increase your income, reduce your expenses, while funneling as much
money as possible into assets and as little money as possible into liabilities.
A helpful skill in the financial planning process is the ability to identify the
difference between an asset and a liability and to understand that an asset can
become a liability and a liability can be turned into an asset. Its also important to
remember that your income means nothing until you compare it to your
expenses.
One final definition discussed in this lesson was net worth. Your net worth is
the number you get when you subtract your liabilities from your assets. The
higher your net worth is, the better.
23

Review Questions:
Cheryl works at a firm in a big city and makes $65,000 a year. Her rent is
$30,000 a year. Kim works at a firm in a small town and makes $45,000 a
year. Her rent, however, is only $500 a month. If all their other expenses
are equal, who earns more?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
_____________________________________________________

What is a depreciable asset?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
_____________________________________________________

What are the two reasons people mess up the four parts of a financial
plan?
Answer:
1. ______________________________________________________
______________________________________________________
2. ______________________________________________________
______________________________________________________

24

Action Assignment:

Calculate your net worth using the Net Worth worksheet in this lesson. You may
need to ask your parents for financial documents. (I.e. savings bonds from a
birthday or Bar Mitzvah). Its ok if your net worth zero or negative. After
completing this course youll know how to improve this number.

Then on the Depreciable Asset List below, write down the depreciable assets you
own, like clothes, guitars, and CDs. Then estimate their value.

Suggested Activity:

(Answers are located at the end of this lesson under Suggested Activity Answers.)

Next to each item below, determine if it is an asset or a liability.

STOCKS:

__________________

GOLD COINS:
__________________
HOME:
__________________
HOME LOAN:
__________________
CREDIT CARD DEBT:
__________________
COLLEGE EDUCATION:
__________________
STUDENT LOANS:
__________________

If someone borrows money to buy a house, they own the house, but they owe money
on it as well. Is the house an asset or a liability? Why?

Answer:
________________________________________________________________________
________________________________________________________________________
_________________________________________________________________

Imagine someone buys a home for $300,000. Five years later, its worth $375,000. But
ten years later, the owners sell the home for $290,000. Was that home an asset or a
liability?

25

Answer:
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________

Why is it important to know the difference between an asset, a liability, and a
depreciable asset?

Answer:
________________________________________________________________________
________________________________________________________________________
_________________________________________________________________


The best piece of additional information you can gather from this lesson is to
know what your net worth is. The worksheet in this lesson will help you calculate
that number.
Fun Facts:

Daniel Radcliffe, otherwise known as Harry Potter, isnt even 30 yet and his net
worth is over $80 million (Source: www.celebritynetworth.com). You can use this
website to find out the net worth of your favorite celebrities. How much is your
favorite worth?

Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
26

Net Worth Worksheet

(Dont worry if a particular line doesnt apply to you, just write zero. Most people filling
this out will have a bunch of zeroes. Its not a big deal. Thats why you are here!)

Assets:
Current value of retirement brokerage accounts:
__________________
Current value of non- retirement brokerage accounts:
__________________
Current value of home:
__________________
Current value of all precious metals:
__________________
Cash value of life insurance policy:
__________________
Current value of rental property(s):
__________________
Current balance in checking account(s):
__________________
Current balance in savings account(s):
__________________
Current value of bonds not in brokerage account:
__________________
Value of business:
__________________
Other assets:
__________________
__________________
Home Loan(s):
__________________
Student loans:
__________________
Credit card balances:
__________________
Car loan:
__________________
Rental property loan:
__________________
Business loan:
__________________
Payday loan: (I hope not!)
__________________
Other liabilities:
__________________
__________________
Net Worth (Assets minus Liabilities):
______________
Total Assets:

Liabilities:
Total Liabilities:

27

Depreciable Asset List

Below are some common depreciable assets. Create your own list of items
you could sell if you need cash.

Item:
Car:
___________________
Musical Instruments:
___________________
Clothes:
___________________
TV:
___________________
Video Games:
___________________
Computer:
___________________
Jewelry:
___________________
Tools:
___________________
Toys:
___________________
Firearms:
___________________
Write others below:
___________________
_________________
___________________
_________________
___________________
_________________
___________________
_________________
___________________
TOTAL
___________________
Value:

28

Cheryl works at a firm in the big city and makes $65,000 a year.
Her rent is $30,000 a year. Kim works at a firm in a small town
and makes $45,000 a year. Her rent, however, is only $500 a
month. If all their other expenses are equal, who earns more?

Answer: Kim. Kims rent is only $6,000 per year. After paying
rent she earns $39,000 a year. Cheryl earns $35,000 after her
rent payments. Remember, income is only part of the financial
planning process! Expenses matter too!

What is a depreciable asset?

Answer: A depreciable asset is an asset that loses value, but
can, at any time, be sold for something. Your $10,000 student
loan is taking money out of your pocket, but it cannot be sold
to someone. Your $10,000 car is also slowly getting less and
less valuable, but it could be sold for something. Some financial
planners let you count the fire sale price of your depreciable
assets when you calculate your net worth.

What are the two reasons people mess up the four parts of a
financial plan?
29

Answer:
1. They confuse the definition of asset and liability. Remember
ANYTHING can become an asset or liability. Your education is
an asset, but if you never finish, its a liability. If you start your
own business, its a liability until it starts making you money.
Then its an asset.
2. Assets are boring. Liabilities are fun. Because of this people
often buy liabilities first and buy assets only if there is money
leftover.

Suggested Activity Answers:

Next to each item below, determine if it is an asset and liability.

STOCKS:
Asset
GOLD COINS:
Asset
HOME:
Asset
HOME LOAN:
Liability
CREDIT CARD DEBT:
Liability
COLLEGE EDUCATION:
Asset
STUDENT LOANS:
Liability
30

If someone borrows money to buy a house, they own the

house, but they owe money on it as well. Is the house an asset
or a liability? Why?

Answer: There is some debate in the financial industry about
this. Some experts define an asset as anything that puts money
in your pocket and a liability as anything that takes money
away. Others claim that in the long run, an asset makes you
richer and in the long run, a liability makes you poorer. Both
lines of thinking are designed to discourage you from liabilities
and depreciable assets and instead direct you toward assets
that will increase your net worth.

In the strictest definition, the home is the asset, and the loan is
the liability. There is no right or wrong answer here. What do
you think?

Imagine someone buys a home for $300,000. Five years later,
its worth $375,000. Ten years later, the owners sell the home
for $290,000. Was that home an asset or a liability?

Answer: Unfortunately, the home is a liability. Over the long
term, it made them poorer. (And this doesnt include all the
money they put in for repairs, taxes and landscaping.)
31

Remember any asset can become a liability and any liability

can become an asset.

Why is it important to know the difference between an asset, a
liability, and a depreciable asset?

Answer: The more assets you have, and the fewer liabilities
and depreciable assets, the wealthier you will be. As basic as
the concept may seem, very few people actually follow it. They
buy liabilities and depreciable assets first, and then they buy
assets with any money left over, which usually isnt much.
Wealthy people do the opposite; they buy assets first, and buy
liabilities with their leftover money.

Often people confuse the definitions. They think a house or a
college education is always an asset. Its not. Its possible, if
managed poorly, that both of those items will take money out
of your pocket.
32
Unit 1 Lesson 5: Organizing Your Financial Life (Resources)
Lesson 5: Organizing Your

Financial Life (Resources)

Name the three things you can learn from Kyle MacDonalds
story.
Answer this question: Who the heck is Kyle MacDonald?

Lesson Summary:

If you completed the net worth worksheet in the previous lesson, you probably
noticed it only dealt with physical, financially-related objects. You possess other
things that are worth money or could be converted into money with a little
effort. You also have skills, connections and experiences that could also be
converted into money. Anything that could easily be converted into money we
call resources. Perhaps you dont have as much money as you would like, but you
do have more than you think, because your resources can be converted into
money.

You may, for instance, be very good at editing term papers, baking cupcakes, or
simply meeting people. Those skills can be converted into money. Perhaps you
have physical stuff that you normally would not count in a net worth
worksheet, like old clothes. Those too can be sold for money.

If you think you have nothing, think again. Remember, what is worthless to you
is of great value to others.

Review Questions:

What are some of the lessons of the One Red Paper Clip story?
Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
33
____________________________________________________________
____________________________________________________________
_____________________________________________________
What is a resource?

Answer:
____________________________________________________________
____________________________________________________________
_____________________________________________________

List five resources.

Answer:
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________

Action Assignment:

Complete the Resources Form at the end of this Lesson.

Suggested Activity:

Think about how you can use your resources to pay down debt, reduce liabilities,
or achieve your goals.

What might your One Red Paperclip be?

Finally, whom could you trade resources with? If you completed the Action
Assignment for this Lesson, then you have a list of your resources. Now think for
a moment about your friends resources. Is there anyone who has something
you need and you have something you know they need?
34


www.oneredpaperclip.com - This is the website of Kyle MacDonald.

Fun Facts:

Want to read some other One Red Paperclip Stories? Gary Dahl was the man
who invented the Pet Rock and made a fortune from selling rocks. Paul
Hartunian made a fortune by selling the worthless scrap wood from the Brooklyn
Bridge (thereby literally selling the Brooklyn Bridge) (www.hartunian.com). Alex
Tew designed the million dollar website by selling ads of 1 pixel per ad at a
cost of $1. (www.milliondollarhomepage.com)

Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
______________________________________________________________________

35
Resources Form

People I know (movers, shakers, popsicle makers):

________________________________________________________________________
________________________________________________________________________

The last three brilliant ideas I had (but never did anything with) were:
________________________________________________________________________
________________________________________________________________________

Three things I am wicked super awesome disco good at:
________________________________________________________________________
________________________________________________________________________

Three physical objects I own that are of immeasurable value to me:
________________________________________________________________________
________________________________________________________________________

Three physical objects I own that I dont really need but someone else would love:
________________________________________________________________________
________________________________________________________________________

Three things I would like to trade (either physical objects or talents):

________________________________________________________________________
________________________________________________________________________
36

What are some of the lessons of the One Red Paper Clip
story?

Answer: The story has many lessons. One is that you have
more than you think. Most of us would consider a red paper
clip worthless; yet Kyle turned it into a house. Another lesson
is that what is worthless to you is of great value to others. Kyle
was able to trade a snow globe for a part in a movie. Yet
another lesson is that a liability to someone is an asset to
someone else. The town that gave Kyle his house had to pay
for the upkeep of an empty house. To the town, the house was
a liability. To Kyle, it was an asset. Finally, all of these lessons
teach us that resources are the same as money.

What is a resource?

Answer: You can write your own definition, but a good one to
start with is this: A resource is anything that can be used to
increase your net worth.

List five resources.

Answer:
37
(There are no right or wrong answers, but here are some

examples.)
1. Ideas.
2. Friendships.
3. Education.
4. Experiences.
5. Your stuff.
38
Unit 2
Spending and Saving
39
Unit 2 Lesson 1: Introduction to Budgeting
Lesson 1: Introduction to
Budgeting

Identify the three reasons why most budgets do not work.

Lesson Summary:

Budgets are documents that track your income and your expenses. Budgets
ensure you dont spend more than you earn. Sadly, most people cannot make
them work. Typically, budgets fail because of three reasons:

We write our budgets in La La Land. We write down how
much we want to spend, not how much we actually spend.
We dont plan for emergencies. We assume, for instance, that
our cars NEVER will break down.

We forget the little stuff. For most people, a budget is a list of
expenses they already know. We forget to count all the little
things, the bag of chips, the morning coffee, etc.

We fall victim to Chain Reaction Shopping. Chain Reaction
Shopping occurs when one purchase grows into more
purchases. Buy the purse, you soon buy the shoes. Buy the
car, you have to gas it up. Get cable, and suddenly you must
have the premium channels.

Review Questions:


The video stated that Chain Reaction Shopping works both ways. What
does this mean?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
40
____________________________________________________________
_____________________________________________________

Action Assignment:

Write down (without looking) what you estimate to be the monthly cost of your
electric bill, your cell phone bill and your grocery bill (Do this even if someone
else pays these bills. Then look at your actual bank and credit card statements
(or ask the person who pays these bills for the amounts). How close did you get?
Write the difference.

Cell Phone:

Estimated: ______________ Actual: ____________

Difference: ______________

Electric Bill:


Difference: ______________

Grocery Bill:


Difference: ______________
Suggested Activity:
41
Write down some examples of Chain Reaction Shopping. If you get stuck, think
about your car, cell phone bill, or wardrobe. What are the purchases behind the
purchase? Then trace the cost of the initial purchase, plus all the additional
purchases. One example discussed in the video was an apartment. If your budget
is $1,000 a month for an apartment, what else should you budget for before you
rent that apartment?


www.mint.com - This is a FREE website that helps track your monthly expenses.
It can even pull information from the existing bills you pay.

Your Bank - The bank you use may have free budgeting software and free bill
paying services. Ask them. If you dont use a bank, visit with three banks in your
neighborhood and see what they offer. (More about banks in Unit 2 Lesson 3.)
Fun Facts:

According to Sports Illustrated, 60% of the players in the NBA are bankrupt
within five years of retiring from the NBA. That number in the NFL is 80%. (Okay
fine, this fact is not fun. Its truly sad. But it confirms the point that more
income alone wont solve everything. You need a budget that works!)

Notes:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
42
Unit 2 Lesson 2: Your Emergency Fund

Chain Reaction Shopping works both ways. What does this
mean?

Answer: While Chain Reaction Shopping can lead to an
explosion of additional purchases, it can also lead to a
reduction in additional expenses. The reason is that Chain
Reaction Shopping starts a trend line. If your initial purchase is
expensive - expensive car, apartment or outfit - then
everything behind it also will be expensive. The additional
purchases will follow the trend. But if the initial purchase is
more modest, then the trend will head in that direction. For
example, a smaller apartment is not only cheaper to rent, its
also cheaper to heat, cheaper to cool, and uses less electricity.

43
Lesson 2: The Emergency Fund

and the Income Myth

Lesson Objectives: By the end of this Lesson, you should be able to:
Explain why an emergency fund is so important.
Explain the income myth and why it prevents people from starting an
emergency fund.

Lesson Summary:

Budgets never can account for everything. Emergencies happen. Thats why
everyone needs to save six to eight months worth of living expenses in an
emergency fund. Your emergency fund will prevent you from dipping into your
other investments, selling your property early, or making some other hasty and
unwise financial decision to pay for the unexpected.

Your emergency fund needs to be liquid. Liquid simply means available. If you
own a home, that home is not very liquid. It would probably take you several
months to sell the home and get the cash. But the cash in your bank account is
liquid because you can get it at any time.

The drawback to liquid investments is that they do not pay much in interest. For
an emergency account, however, thats okay. The most important thing is that
you just get started building the account. A good place for your emergency fund
is at your local bank.

Many people believe that a budget wont solve their problems, but more
income will. This untrue belief is referred to as the Income Myth. Many
celebrities and lottery winners have still filed for bankruptcy despite having large
incomes.

Review Questions:


How the HECK are you supposed to save 6-8 months of living expenses?

44
Answer:_____________________________________________________
____________________________________________________________

What is the Income Myth?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
_____________________________________________________

Action Assignment:
Research celebrities who may have fallen victim to the Income Myth. What did
that celebrity spend all their money on? What could they have done differently?

Suggested Activity:
Regardless of your income, you can fall victim to the Income Myth. Think about
some of the items you have already bought because you thought you had plenty
of money, only to find out later you couldnt afford them. By writing these items
down, you can prevent this from happening again.

www.bankrate.com - Publishes the best interest rates all banks are offering.
This site can help you find a good spot for your emergency fund.

www.cuna.org - The website of the Credit Union National Association, which can
help you find credit unions in your area. A credit union is a non-profit bank.

www.ncua.org - The website of the National Credit Union Association, which
also can help you find credit unions in your area.

Fun Facts:

45
According to the website Wall Street 24/7 (www.247wallst.com), of the 10

countries where people save the most money, the United States isnt even on
the list! What country is number one? Ireland. The average Irish citizen saves
close to 20% of their income.
Notes:
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________
46
Unit 2 Lesson 3: Bank Account Basics

How the HECK are you supposed to save 6-8 months of living
expenses?

Answer: Slow and steady. It may take you years to save up this
money. Thats okay. Whats important is that you get started
with something.

What is the income myth?

Answer: The income myth is a belief that people dont need to
budget, they just need more money. But as your income rises,
your expenses rise with it. The reason is because you havent
changed any of your habits. A person who spends more than
they make will always spend more than they make, regardless
of how much that is. Think about all the movie stars and
athletes who are bankrupt. The problem was they never
tracked their expenses and they never changed their habits.
Completing those actions, as opposed to earning more income,
are the key to financial security.

47
Lesson 3: Bank Account Basics

Explain how a bank works.
Determine how to prevent yourself from dipping into your
emergency fund.

Lesson Summary:
Remember, your emergency fund needs to be in an account that is liquid. Liquid

is a financial term for accessible. Since you never know when an emergency is
going to happen, you need to have access to that money at all times. For most
people, this means putting that money in a bank.

Banks are financial institutions that are in the business of keeping money safe
and lending money out. When you deposit into a bank, the bank often will pay
you interest on your money. Essentially, the bank is renting your money.

But only about 10% of your money is actually in cash, in the bank vault, at any
one time. The other 90% is loaned out by the bank. They lend it at a higher
interest rate than they are paying you. This is one of the ways a bank makes
money.

Since banks need your money, they are always trying to attract you to deposit
more cash with them. Two ways they attract deposits are by offering checking
accounts and offering savings accounts. Savings accounts are for saving money
(they pay a higher interest rate) and checking accounts allow you to transfer
money easily, either with a check or a debit card.

A check is a legal contract to transfer money. Like any other contract, two people
sign the check. The check writer (thats you) signs the front and the payee (who
its intended for) signs the back. You are authorizing that an amount of money be
moved from your account to the payees account, and the payee has agreed to
accept it.
48
A debit card does the same thing, only electronically. When you swipe and enter
your PIN, you are authorizing the transfer of money from your account to
another.

While debit cards are great for checking accounts, do not get one for your
savings account. Savings accounts are for savings. In other words, the money
should be difficult to get. That also means do not link your checking accounts
and savings accounts online. Ideally, have your accounts at separate banks so the
money is hard to access!

Once you get your emergency account set up and are contributing to it, you
might want to consider some of the other accounts that banks offer. Here are
two other popular forms of bank accounts:
Money Market Account. The money market is a market where
corporations, governments and individuals can borrow large amounts of
money for a very short term. Sometimes companies need to borrow
money for only one night, and when they do that, they go to the money
market. But whose money do they borrow? Yours! If you open a money
market account at your bank, you agree to let your bank loan that money
to the money market. Its a bit riskier than a bank account, but it pays
more interest.
Certificate of Deposit Account (CD): A CD is like a savings account with a
lock on it. If you agree not to touch the money for a certain amount of
time (anywhere from one month to several years) the bank agrees to pay
you an interest rate that is higher than what a regular savings account
would earn. While a CD can be a great way to save money, it is not the
best place for your emergency fund, because there are penalties for
taking the money out early.

Review Questions:


If you already have a bank checking account, why not just use that for
your emergency fund?

Answer:
____________________________________________________________
____________________________________________________________
49
____________________________________________________________
_____________________________________________________

Whats a credit union?

Answer:
____________________________________________________________
____________________________________________________________
____________________________________________________________
_____________________________________________________

Action Assignment:

Find out the fees on your bank accounts. What services are they charging for? (If
you dont have a bank account, get information from three local banks or credit
unions about opening an account.)

Get the interest rate, the price of checks, monthly fees, and account minimums
of a few banks. Look online, go in person, or use information from a bank
account you already have.

Is there a better deal at another bank?

Suggested Activity
Call your bank and ask to meet with the branch manager. Even better, if its a
small bank, ask to meet with the president. Introduce yourself and get their
business card. Spend five minutes explaining some of your goals and ask how the
bank can help. While much banking is done online or through a machine, it STILL
pays to have a personal connection at your bank.)


www.bankrate.com - Publishes the best interest rates all banks are offering.

www.cuna.org - The website of the Credit Union National Association, which can
help you find credit unions in your area.

50
www.ncua.org - The website of the National Credit Union Association, which can
also help you find credit unions in your area.
Fun Facts:

The first bank that notorious bank robber Jesse James robbed was the Clay
County Savings Association in the town of Liberty, Missouri. It was the first
armed robbery of a U.S. bank after the Civil War.

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
51
Parts of a Check
1. Checks include the check writers name and address so people know who wrote
the check.
2. Checks are numbered so that you can keep track of them.
3. Checks are dated on the date the check writer fills them out.
4. The name of the party (the payee) to whom you are making a payment is written
here.
5. The amount you are writing a check for is written here in numerals.
6. To limit errors, banks also ask you to write out, in words, the amount of the
check.
7. The bank where the checking account is held is always placed on the check. This
tells the person cashing the check where the money will come from.
8. Checks have a memo line to reference what the check is for. For example:
rent, dry cleaning etc.
9. Remember you must sign the check, confirming you agree to have the amount
on the check withdrawn from your checking account.
10. The first set of numbers at the bottom of the check is called the routing number.
Every bank has a unique routing number to help them sort the checks they
receive.
11. The second set of numbers at the bottom of the check is your account number.
This informs the bank which account to withdraw the money from.
12. The back of the check must be endorsed or signed by the payee, the person the
check is made out to. By signing, the payee legally agrees to accept the money.
52
Unit 2 Lesson 4: Tracking Your Expenses

If you already have a bank checking account, why not just use
that for your emergency fund?

Answer: The emergency fund is for emergencies, not for every
day bills. The money cannot be too easy to access. It's best to
have it as a separate account with no ATM card attached to it.

Whats a credit union?

Answer: A credit union is a non-profit bank. The customers of
the credit union are actually referred to as members. The
members actually own the credit union and share in the profits
by getting lower fees and better interest rates.

53
Lesson 4: Tracking Your Expenses

Lesson Outcomes: By the end of this lesson, you should be able to:
Identify where your money is going.
Identify what is most important to you.
Identify what is least important to you.

Lesson Summary:

If budgets havent worked for you then its time to try something else. To
overcome the typical budget problems of La La Land, forgetting the small stuff,
and Chain Reaction Shopping, try writing three lists.
List #1: A list of what you want. This is everything in your life
that is important to you. From having kids to being debt free,
to traveling the world, put all your goals on this list. You
should even include tiny, everyday purchases and the brands
you prefer.
List #2: A list of what you dont want. Knowing what you
dont want will save you just as much money as knowing what
you do. Advertisers spend billions to get you to buy their stuff.
You can fight back with a written list of what is not important.
List #3: A list of where your money is going. Take a week of
your life and write down everything you spend money on.
From a bag of chips to money in a parking meter to buying a
new sweater, write down everything.

Now that you have these three lists, the key is to see how they work
together. In other words, Lists 1 and 3 should match up. You should be
spending money on the stuff you want. Lists 2 and 3 should not match up;
you should not be spending money on the stuff you dont want. If you are
trying to save money (and who isnt) List 2 gives you a whole, welllist of
items to cut back on.

If you take these three lists seriously, then doing a budget is easy.

Review Questions:

54

What is the goal of the three lists?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

If you buy a $1 coffee every day, that adds up. But it adds up to only
$365 a year. Why is remembering the little items in your spending
important?
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Write down the three lists discussed in this Lesson. Remember, to complete List
#3 you will need to track your expenses for at least a week.

Suggested Activity:

A few months after creating your three lists, visit them again. What changed?
Are you improving? Or are things getting worse? What changes do you need to
make?


www.mint.com - Mint is a great website to help your track your spending.

Fun Facts:

The average U.S. household spends an estimated $850 annually on soft drinks,
for a total of $65 billion on soft drinks alone. A total of $101 billion was spent on
beer in 2010. (Source: www.drinkwaterfirst.com)

55
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
56
Unit 2 Lesson 5: The Zero Based Budget

What is the goal of the three lists?

Answer: The goal is FOCUS! You cannot snap your fingers and
get more money. But you can get instant focus. Once you gain
focus, you will find yourself with more money.

If you buy a $1 coffee every day, that adds up. But it adds up to
only $365 a year. Why is remembering the little items in your
spending important?

Answer: $365 is a lot of money year after year. Suppose you
spend $1 a day on coffee, and $3 a day on chips and soda. Now
youre spending $4 a day. If you were to invest that $4 a day
instead, you would have close to $1 million by the time you
retired.

57
Lesson 5: The Zero-Based Budget

List ALL of your expenses.
List all of your sources of income.
Plug them into a zero-based budget.

Lesson Summary:

A great budget is the zero-based budget. It has just seven steps:
1. Gather up all the expenses you ALREADY know (bills, rent, taxes etc.).
Start plugging them into the Zero-Based Budget Worksheet in this
Lesson. Be sure to convert any yearly expenses to monthly expenses.
2. Next fill in the costs for everything you wrote down for List #3 from
Unit 2 Lesson 4.
3. Now fill in all your total income. Write down everything! If you
grandmother gives you a $20 bill for your birthday; that is part of your
income!
4. Add up the total expenses, first by sub-category, then the grand total.
5. Add up your total income.
6. Subtract total expenses from total income. If the answer is zero or
higher, congrats! Use the leftover for savings or to pay down debt.
7. If its negative, keep working on those expenses until it works. Future
lessons in this program will help you get a budget that works.

Review Questions:


If you compile a zero-based budget and the last amount is negative, what
are some things you can do?

Answer:_____________________________________________________
____________________________________________________________
58
____________________________________________________________

If you compile a zero-based budget and you have a LOT of money left
over, what does that typically mean?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Compile a zero-based budget using the worksheet in this Lesson.

Suggested Activity:

At the end of the first month, create another zero-based budget factoring in the
changes you (hopefully) made. Are you on track? Remember, it takes the
average person three months to get a budget that works.


www.mint.com - This is a great (FREE) website to help students track their
spending. (Remember, your budget might not work right away, so keep working
it!)

Fun Facts:

The origin of our word budget is from the Latin word bulga, meaning a little
pouch or knapsack. In other words, a wallet or purse. Whatever money was in
there, that was your budget!

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
59
Zero-based Budget
(Note: All expenses should be MONTHLY. You may have to divide by 12 to figure out
the monthly number for some expenses. Be sure to write 0 in a blank line if it does
not apply to you. The reason we listed so many budget categories is because people
often forget what they spend their money on, so the categories help to spark your
imagination. Its completely okay to have a lot of zeroes in your budget.)
Income:
Pay Checks
____________________
Bonus
___________________
Dividends
___________________
Interest
___________________
Rental Income
___________________
Capital Gains
___________________
Gifts
___________________
Social Security
___________________
Tips
___________________
Pension
___________________
Other
___________________

Total Income: _______________

Expenses:
Food
Grocery Bill
___________________
Bar Bill
___________________
Takeout Bill
___________________
Morning Coffee
___________________
Restaurant Bill
___________________
Mid-day Snacks
___________________
Other
___________________
60
Total Food:
_______________

Insurance
Homeowners Insurance
___________________
Renters Insurance
___________________
Car Insurance
___________________
Health Insurance
___________________
Dental Insurance
___________________
Life Insurance
___________________
Disability Insurance
___________________
Other
___________________
Total Insurance:
_______________

Shelter
Rent Payment
___________________
Cable
___________________
Internet
___________________
Water Bill
___________________
Trash Removal Bill ___________________

Heat
___________________
Hot water
___________________
Telephone
___________________
Electricity
___________________
Cleaning
___________________
Other
___________________
Total Shelter: _______________

61
Family
Childcare
___________________
Gifts (averaged monthly)
___________________
Allowance Payments
___________________
School Expenses
___________________
Other
___________________
Total Family:
_______________
Clothing
Clothes
___________________
Cleaning/Maintenance
___________________
Other
___________________
Total Clothing:
_______________
Entertainment
Movies Out
___________________
Rental Videos
___________________
Sporting Events
___________________
Amusement Parks
___________________
Ski Resorts
___________________
Golf
___________________
___________________
Club Memberships
___________________
Bowling
___________________
Arcade
___________________
Pool Hall
___________________
Music-CDs
___________________
DVDs, Videos
___________________
Pet Expenses
Health Club Membership ___________________

Other
___________________
Total Entertainment: _______________

62
Transportation
Gasoline
___________________
Cleaning
___________________
Maintenance
___________________
Car Repairs
___________________
Bus/Subway/Train
___________________
Tolls
___________________
Taxi
___________________
Parking
___________________
Other
___________________
Total Transportation: _______________

Loans
Student loans
___________________
Car Loans
___________________
Credit Card Payments
___________________
Mortgage Payment
___________________
Other
___________________
Total Loans:
_______________

Personal Expenses
Eye Care
___________________
Skin Care
___________________
Dental Care
___________________
Hair Care
___________________
Remedies (aspirin etc.)
___________________
Barber/Beauty
___________________
Other
___________________
Total Personal:
_______________

63
Once a Year Expenses:

Total Federal Tax Bill
_________________
Total State Tax Bill
_________________
Social Security/Medicare _________________

Property Taxes
_________________
Union/Membership Dues _________________

Vacation Expenses
_________________
Donations
_________________
Other
_________________
Total Once a Year
_____________
(Divide By Twelve)
_____________

Total Monthly Income:
___________________
Total Monthly Expenses:
___________________
Net Result:
___________________

Note: If your net result is positive, congratulations! Use this money for
savings or to pay down debt. If it is negative, go back through your
expenses and see what you can cut back. Remember it takes the average
person three months to make this work, so stick with it!
64

If you compile a zero-based budget and the last amount is
negative, what are some things you can do?

Answer:
! Sell some of your depreciable assets (like furniture or a
guitar).
! Increase your income temporarily (get a weekend job for
a few weeks).
! Ask your vendors (cell phone company, etc.) if you can
be a month late without being charged a late fee.

If you compile a zero-based budget and you have a LOT of
money left over, what does that typically mean? (Note: This is
not in the video. Its just a great question to think about.)

Answer: This typically means one of two things. Either: A) you
are GREAT at budgeting (In which case, congrats!); or more
likely B) you forgot something. For most people, leftover
money means they forgot something. If thats you, be sure to
comb through your expenses again. What did you forget?
65
Unit 3
Credit
66
Unit 3 Lesson 1: Introduction to Credit
Lesson 1: Introduction to Credit

Define the term credit.
Explain how a credit report and a credit score are created.
Identify the three major credit reporting agencies.

Lesson Summary:

The word credit has multiple meanings, but for the purposes of this lesson, credit
is a measure of someones financial faith in you. When someone says they have
good credit that means that there is a written track record that they have paid
their debts and bills on time.

People with good credit will have an easier time getting a loan, and they may
enjoy cheaper insurance premiums. They wont have to pay a deposit to get a
cell phone, or to hookup cable TV. Good credit can help you rent an apartment
and even help you get a job.

Credit is typically measured using two tools: a credit report and a credit score.
The credit report is a written history of how well you have paid your bills, how
well you have handled the money lent to you, and how aggressively you have
tried to borrow money. The credit score is simply the numeric summary of a
credit report.

Equifax, Transunion and Experian are the three major credit reporting agencies
that together, handle about 80% of all the credit reports in the United States.
Sometimes they are referred to as The Big Three. The Big Three compile your
credit report by gathering information from the companies you are already doing
business with, such as cell phone companies and car loan companies.

Review Questions:


Can someone pull your credit report without your permission?

67
Answer_____________________________________________________
____________________________________________________________
__________________________________________________________

Who uses credit scores?

Answer:_____________________________________________________
____________________________________________________________
__________________________________________________________

Action Assignment:

Nothing! Take the night off, because there is a lot of work with credit in the
upcoming lessons.

Suggested Activity:

Make a list of rumors that you have heard about credit reports and credit scores.
As you go through the lessons on credit, see which rumors were true and which
were false.


www.equifax.com - This is the website of Equifax.

www.experian.com - This is the website of Experian.

www.transunion.com - This is the website of Transunion.

Fun Facts:

Credit reports have actually be around since the late 1800s. They started as
simple, handwritten reports that store owners kept about their customers who
bought items on credit. Slowly these reports got more and more standardized,
so they could be shared between different stores. The department store Sears,
was one of the first major companies to make use of standardized credit reports.

68
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
69
Unit 3 Lesson 2: Credit Reports

Can someone pull your credit report without your permission?

Answer: No. However you usually must give a company that
permission before they will do business with you. So if you
want a new cell phone, before they will give you plan, you
must give them that permission. (Note: While this is not
discussed in the lesson, companies that you are currently
doing business with often have a permissible purpose to pull
your credit. This means they can check a limited version of
your credit report at any time. This does not hurt your credit
score at all.)

Who uses credit scores?

Answer: These days, it seems like everyone! Anytime you
apply for a loan, a credit card, a new apartment, or a cell
phone, your credit will be checked. Some employers and
insurance companies also check credit scores before they will
hire or do business with you.
70
Lesson 2: Credit Reports

List two websites to check your credit report.
Name the ONE question you should ask yourself when looking at your
credit report.
Explain why look at your credit report at least once per year is important.

Lesson Summary:

A credit report is nothing more than a written history of how well you have paid
your bills, how well you have handled the money lent to you, and how
aggressively you have tried to borrow money. A credit score is simply the
numeric summary of your credit report.

There are more than 100 different credit scores today, but still the most popular
is the FICO score. FICO scores range between 300, which is terrible, and 850,
which is perfect.

Currently, most lenders would consider a FICO score of 720 or better to be an
A credit score. People with scores below this can still get credit, but A credit
means you get the best deal available for the product or service at hand.

So as an example, an A credit borrower might get a car loan at 5%, a B credit
borrower (somewhere between 719-650) might get that same loan at 6%. C
credit (649-550) is probably looking at 7-10% for that car loan, D credit (549-
450) will get pummeled with a car loan around 18%, and someone with F
credit (below 450) should probably just take the bus.

Two websites to check your credit report are www.annualcreditreport.com and
www.creditkarma.com. Both websites are free, although creditkarma.com is a
for profit website, so they are hoping you will buy something.
Annualcreditreport.com is sponsored by government legislation so there are no
advertisements on the site.

When you check your credit report, be sure to ask yourself one question: Do I
agree with this? If there is something on the report that is inaccurate, you can
71
follow the steps right on the websites to get that credit report and score fixed.
Remember, about 70% of Americans have a mistake on their credit report that is
not their fault.

72
Review Questions:


Why is it extra important for people with more common last names (Smith,
Jones etc.) to check their credit reports?

Answer:________________________________________________________
_______________________________________________________________
_____________________________________________________________

When you check your credit report, why is it important to have your financial
information nearby?
Answer:________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________

Action Assignment:

Check your credit at either www.annualcreditreport.com or
www.creditkarma.com. If you can, print out the report and keep it for a year.
When a year lapses, recycle the old report and start again.

Suggested Activity:

Look at your list of credit myths you created for the suggested activity in Lesson
1: Introduction To Credit. Did any of your misconceptions get cleared up?


www.myfico.com - This is the official website of the Fair Isaac Company, the
company that created the FICO Score. They do charge you to get your score, but
it will be the official FICO score.

73
www.annualcreditreport.com - This is the ideal website to check your credit

report because it is totally free. You can get your credit report from all three
credit reporting agencies on this site.

www.creditkarma.com - This is a free website where you can get your credit
report and credit score. While the score is free, it is not the official FICO score. It
is a different score called the Vantage Score. But it is close enough to the FICO to
get a reasonable measurement of where you stand.

Fun Facts:

In the 1950s, two guys, Bill Fair and Earl Isaac, designed a mathematical formula
that could read credit reports. They went on to form the Fair Isaac Company or
FICO.
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
74
Sample Letter to Remove Mistakes from Your

Credit Report
(If you have any written proof of the mistake, send that with this letter. Ideally send it
certified mail, return receipt. Its important to have a written record.)

YOUR ADDRESS HERE
Credit Bureau
Credit Bureaus Address
Ooops, OH 00000
Todays Date

Dear Sir or Madam,

This letter is a formal complaint that you have reported inaccurate credit information on
my credit report.

The following information, which also appears on my credit report, is incorrect. Please
conduct an investigation into this item and respond to me in writing at the above
address. If you cannot provide me with any documentation proving this information is
indeed accurate; this information must be deleted from my report as soon as possible.

Describe the item here (name of agency, account #, address, any information you have).
Also, if you have proof why the item is incorrect, mention what your proof is, and enclose
it with this letter.

Sincerely,

Your signature

Your Name
SSN# 000-00-0000 (Yes, you do need to put your social security
number or they wont be able to access your account.)

Note: If the credit bureau fails to respond within 30 days, send this letter again with
another letter that states they failed to respond. Keep doing that until they take care
of the mistake. If, after 3 rounds of letters nothing happens, send a final letter
containing all the original letters. Only in this final letter state that you will soon
contact the Federal Trade Commission. If this doesnt do it, then send a letter to the
Federal Trade Commission, the government agency that enforces the Fair Credit
Reporting Act).

Their address is:
Federal Trade Commission
CRC-240
Washington, D.C. 20580
1-877-FTC-HELP
75
Unit 3 Lesson 3: Credit Cards

Why is it extra important for people with more common last
names (Smith, Jones etc.) to check their credit reports?

Answer: People with more common last names have a much
greater chance of having a mistake on their report (almost a 90%
chance).

When you check your credit report, why is it important to have
your financial information nearby?

Answer: The credit report websites will ask you to go through an
identity verification screen. This is a security measure to prevent
an identity criminal from logging on as you. So the computer will
ask you questions about your financial life, such as the last four
digits of your bank account number. Its important to have that
information handy so you dont flunk your own identity
verification test!

76
Lesson 3: Credit Cards

Explain how credit cards work.
Define the term grace period.

Lesson Summary:

One of the most dangerous, yet most common, ways to build credit is with a
credit card. A credit card is a piece of plastic that allows you to borrow money.
When you swipe a credit card to buy something, you do not pay the store with
your money. The bank that issued the credit card pays with their money and now
you owe the issuing bank.

Most credit cards offer a grace period. This is a window of time where you can
pay back the bank without paying interest. But go one day over the end of the
grace period (about 30-45 days), and you will owe them interest. Another way to
look at grace periods is to realize that during the grace period, credit cards are a
good deal for you. After the grace period, its a good deal for the credit card
company. Thats why credit card companies love it when you pay only the
minimum amount every month, because they get to charge you a lot of interest.

The high interest rates that kick in after the grace period are the reason most
people should not get a credit card. The majority of folks cannot pay the full
amount before the grace period is up.

Review Questions:


Is there such thing as a fixed interest rate on a credit card?

Answer:_____________________________________________________
____________________________________________________________
___________________________________________________________
77
If you pay just the minimum on a credit card, you will owe the credit card
company interest. But why is this a problem? Whats a little bit of
interest?

Answer:_____________________________________________________
____________________________________________________________
___________________________________________________________

Action Assignment:

Go online and research additional credit card fees, aside from the interest
charged. Some of them are:
Cash advance fee: A VERY expensive way to get cash from your credit
card.
Late fee: If you pay your bill late, this fee can be as high as $29.
Overdraft fee: If you charge more than you are allowed.
Annual fee: This is a fee charged just for having the card.
However, not all credit cards charge this fee.
Suggested Activity:

If you have a credit card or debit card, photocopy both the front and back. Keep
this photocopy in a safe place, separate from your card. You might need it if you
ever lose your cards.


www.myfico.com - This is the website run by the people who offer the most
popular credit score in the world, the FICO score.

www.annualcreditreport.com - This is a site where you can get a free copy of
your credit report once per year.

www.bankrate.com - This site has lots of great financial calculators,
including ones that determine minimum payments on credit cards.

Fun Facts:

Only 2 percent of higher education students have no credit history at all.
(Source: www.college.com)
78

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
79
Unit 3 Lesson 4: Improving Your Credit Part 1

Is there such thing as a fixed interest rate on a credit card?

Answer: No! Even if a card has a fixed rate, it simply means
the card issuer must notify you before they raise the rate.
Technically, as long as notice is given, it can go up at any time.

If you pay just the minimum on a credit card, you will owe the
credit card company interest. Why is this a problem? Whats a
little bit of interest?

Answer: The big deal is that it is not a little interest. Interest
rates on credit cards are VERY high, so it is crucial to pay them
off in full, every month. If you cant do this, you shouldnt use
credit cards.
80
Lesson 4: Improving Your Credit

Part 1

List 4 ways to get your credit score up.

Lesson Summary:

There are 4 ways to get your score up:
1. Fix mistakes that are not your fault. Remember, 70% of Americans have a
mistake on their credit report that is not their fault. If you DO have a mistake
that IS your fault, you could ask for a Good Will Adjustment. This is a
forgiveness of a late payment. They are tough to get, but you can ask the
creditor for one (You may have to ask for a supervisor to get this approved.).
2. Pay down debt. Debt, especially consumer debt such as credit card debt,
payday loan debt, and title loan debt, hurts your credit score. Try to pay as
much as you can, as fast as you can.
3. Pay on time. Payment history accounts for 35% of your score. Remember,
even small bills, like parking tickets and overdue library books can show up
on your credit report.
4. Stop applying. When a store offers you a store card in exchange for a
discount, decline the offer. When someone checks your credit it can drop
your score 5-15 points, even if you are denied.

Review Questions:


What is meant by the term inquiry?

Answer:_____________________________________________________
___________________________________________________________

What is the difference between a hard inquiry and a soft inquiry?
81

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Imagine you go car shopping at five different places, and they all tell you
they MUST check your credit to determine how much they can loan you.
What should you do?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Write out a short plan to improve your credit. What can you do to make sure you
pay on time? Can you set up automatic payments from your bank account? Set
up email alerts? Prepay an entire month in advance?

Remember, many students have NO CREDIT at all. That is okay. YOU SHOULD
NOT GO INTO DEBT FOR THE SOLE PURPOSE OF BUILDING CREDIT. THERE ARE
WAYS TO BUILD CREDIT WITHOUT EVER BORROWING MONEY, WHICH WE WILL
DISCUSS IN ANOTHER LESSON.

Suggested Activity:

(Answers are located at the end of this lesson under Suggested Activity Answers.)

Decide if the following actions will raise or lower the credit score and why:

Jim owes $1,000 on his credit card but the minimum payment is only $15.
So he pays $15 on time, but he still has a large amount in debt. Did his
score go up or down?
82

Answer:_____________________________________________________
____________________________________________________________
________________________________________________________

Bill gets a card at a department store just to get 10% off his purchase.
He gets approved, but when the card comes in the mail, he never
activates it. He calls the company and tells them he doesnt want it.
Did his score go up or down?

Answer:__________________________________________________
_________________________________________________________
______________________________________________________

Sarah applies for a card at a bank but gets denied. Did her score go up
or down?
Answer:__________________________________________________
_______________________________________________________


www.myfico.com - This is the official website of the Fair Isaac Company, the
company that created the FICO Score. They do charge you to get your score, but
it will be the official FICO score.

www.annualcreditreport.com - This is the ideal website to check your credit
report because it is totally free.

www.creditkarma.com - This is a free website where you can get your credit
report and credit score. While the score is free, it is not the official FICO score. It
is a different score called the Vantage Score. But it is close enough to the FICO to
get a reasonable measurement of where you stand.

www.equifax.com - This is the website of Equifax.

www.experian.com - This is the website of Experian.
83

www.transunion.com - This is the website of Transunion.
Fun Facts:

According to the student loan company Sallie Mae, students are carrying record-
high credit card balances. In 2009, the average balance grew to $3,173, the
highest amount since the study has been conducted. Twenty-one percent of
students had balances of between $3,000 and $7,000, also up from the last
study, which was done in 2004.
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
84

What is meant by the term inquiry?

Answer: An inquiry refers to anytime your credit is checked.

What is the difference between a hard inquiry and a soft
inquiry?

Answer: A hard inquiry is when your credit is checked because
you are trying to borrow more money, such as applying for a
new credit card. Hard inquiries hurt your credit score. A soft
inquiry is when you check your credit for information purposes
only, such as visiting www.annualcreditreport.com. Soft
inquiries do not hurt your credit score.

Imagine you go car shopping to five different places, and they
all tell you they MUST check your credit to determine how
much they can loan you. What should you do?

Answer: Simply print out your credit report from
creditkarma.com and let them use that as a guide. Only the
company you FINALLY buy a car from should pull your credit.

85

Decide if the following actions raise or lower the credit score:

1. Jim owes $1,000 on his credit card, but the minimum
payment is only $15. So he pays $15 on time, but he still
has a large amount in debt. Did his score go up or down?

Answer: Both! However, it went up more than it went
down. The debt Jim has is hurting his score. But
remember paying on time helps your score more than
anything else. So as long as he pays at least the
minimum, his score will go up, even if he keeps most of
the debt. Of course, we want him to get rid of that debt
because it is costing a lot in interest.

2. Bill gets a card at a department store just to get 10% off
his purchase. He gets approved, but when the card
comes in the mail he never activates it. He calls the
company and tells them he doesnt want it. Did his score
go up or down?

Answer: Down! The moment he applied, his score went
down. When he closed the account (even thought it was
never opened) that may have hurt him as well. Dont
apply for a card just to get the in-store discount.
86

3. Sarah applies for a card at a bank but gets denied. Did
her score go up or down?

Answer: Down! Even though she never got approved,
her score dropped the moment she applied for the card.

87
Lesson 5:
Improving Your Credit
Part 2

List five more ways to build your credit score.

Lesson Summary:

1. Cancel with care. Canceling a credit card can hurt your credit score. So be sure
to first pay off all the debt on that card and then stop using it for a while. After a
few months of inactivity, then you can cancel it.
2. Become an authorized user. This is a way to inherit someone elses good credit.
If someone with good credit adds you as an authorized user to his or her credit
card, then you will inherit his or her good payment history for that card. But be
careful, as you can also inherit their bad credit, too! How do you know if you are
an authorized user? Check your credit report at annualcreditreport.com.
3. Get a micro loan. The best way to prove you can pay on time is to pay on time!
You can prove this with a micro loan, which is a tiny loan set up for the sole
purpose of building credit. You put a small amount of money on deposit with
the bank. The bank then issues you a small loan. The bank pays off the loan with
the money you already deposited.
4. Ask for a pay for deletion contract. There is one included in this course. A Pay
For Deletion Contract is an agreement where you agree to pay off a debt in
exchange for the creditor deleting it from your credit report. Its often used to
settle misunderstandings or late payments that are not your fault (i.e. the
insurance company took three months to pay out).
5. Build your own credit report. This is a way to build credit without borrowing any
money. Start collecting copies of all the bills you paid on time. Attach the
canceled checks to these bills. Try to get reference letters from companies you
do business with. Keep all this information in a file. Some small banks and credit
unions will accept these homemade credit reports when giving you a loan. It
cannot hurt to try.

Review Questions:


88
Why might a small bank or credit union accept a homemade credit

report?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Who is most likely to give you a pay for deletion contract?

Answer:_____________________________________________________
____________________________________________________________
__________________________________________________________

Action Assignment:

Start building your own credit file. Do TWO of the following:
Collect your on-time statements in a folder (gym memberships, cell
phone etc.).
Write and mail a letter to the companies you do business with requesting
a letter of good standing. Have them confirm you have always paid your
bills on time. You can use the sample letter in this Lesson as a guide.
Visit or call banks until you find one that will offer a micro loan. You dont
need to sign up, just find a bank that offers one and what the terms are
(Tip: Start with small banks and credit unions.).
Write a letter to your landlord requesting that he begin reporting to the
credit bureaus.
Call your credit card company (if you have one) and ask how good will
adjustments work. You may have to speak to a supervisor to get the
answers you need.

Suggested Activity:

Take a break!

89

www.ftc.gov - This is the website of the Federal Trade Commission. It is a great
source of information regarding credit, identity theft, consumer protection and
more.

www.annualcreditreport.com - Get your free credit report here.

www.creditkarma.com - Get your free credit score here.

www.myfico.com - Get your FICO score and score monitoring (charges may
apply).

Fun Facts:

About 20 million people live with no credit at all. (Source: Bankrate.com)

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
90
Credit Reference Letter to Send To Companies You Are

Currently Doing Business With
(Send this letter to companies with whom you have a good payment
history, such as your gym, your landlord, your electric company, etc.)
Company Name
Street Address
City, State, Zip

Date
Dear Sir or Madam,

I am writing to request a letter from you, stating that I have had
an account since _________ and that I have always paid my bills on time. I
am in the process of applying for a loan, and the lender is asking for
additional documentation from some of the companies I currently do
business with.
I would appreciate it if you could print the following statement on
your letterhead, sign it, and mail it to me at __________________. The
statement is as follows:
____(your name)_________ has had an account with us since
____________. During this time, __(your name)____ has always paid
his/her bills as requested in a timely fashion. As of the date of this
letter, his/her account is in good standing.
Sincerely,
Manager of Company you are requesting information from.
My phone number is XXX-XXX-XXXX if you need to reach me. Thank you
in advance for your assistance in this matter.
Sincerely,
You
91
Sample Pay for Deletion Contract

(If you settle debt for less than what you owe, here is a form to use as a guide.)

On this day of _____________________________ (insert date here) Gimmie Da
Money Collections, (hereinafter referred to as CREDITOR), and
_____________(insert your name here), (hereinafter referred to as DEBTOR) agree
to compromise the indebtedness between them. CREDITOR, hereby agrees to settle
the indebtedness due the CREDITOR on the following terms and conditions:

The CREDITOR and the DEBTOR agree that the present debt due is $__________.
(insert actual amount owed here) Both parties agree that the CREDITOR shall accept
the sum of $_____________ (insert settlement amount here) (Hereinafter referred
to as SETTLEMENT AMOUNT) as full payment on the debt. The acceptance of the
SETTLEMENT AMOUNT will serve as a complete discharge of all monies due.
SETTLEMENT AMOUNT shall be made in cash. (Or you may lay out a payment
schedule of say $100 a month for 12 months or whatever.)

CREDITOR agrees that upon accepting the full SETTLEMENT AMOUNT the CREDITOR
will contact all Credit Reporting Agencies and request all references to this debt and
subsequent payments be removed from the DEBTORs credit report permanently.

This settlement is expressly conditioned upon the payments being received
according to the above referenced payment schedule with the entire SETTLEMENT
AMOUNT being paid on or before the __________________________ (put date
here). If the DEBTOR fails to pay the SETTLEMENT AMOUNT in full by
_________________, the original amount owed by the DEBTOR will be reinstated in
full, and immediately due.

This AGREEMENT shall be binding to both of the parties, their successors and
assigns. Both parties warrant they have the ability to sign this AGREEMENT.

Dated: _______________

Signature: ____________
Gimmie Da Money Collections as CREDITOR

Signature: ____________
Your Name HERE as DEBTOR
92
Unit 4 Lesson 1: Student Loans: What Are They?

Why might a small bank or credit union accept a homemade
credit report?

Answer: Because they want your business. Larger banks can
afford to spend millions of dollars on advertising. But smaller
banks and credit unions need your business, so they are open
to creative, nontraditional, approaches to helping people build
their credit.

Who is most likely to give you a pay for deletion contract?

Answer: Usually a collection agent will agree to this but an
original creditor, like Visa will not. The reason is because it is
easier for Visa to just sell the debt to a collection agent than
work out a pay for deletion deal with you.

93
Unit 4
Student Loans
94
Lesson 1:
Student Loans: What Are They?

Explain what a student loan is and what it can be used for.
Explain why the term educational expenses is really not important.
Explain the difference between subsidized and unsubsidized loans.
Identify the most important number that you need to know about your
student loans.

Lesson Summary:

What, exactly, is a student loan? Lets break this down. Student means someone
enrolled in some form of school. A loan is rented money. So a student loan is
rented money to pay for school. It sounds simple, but millions of students, from
career schools to four year private colleges, mess this up.

Many students who borrow money dont realize they are actually borrowing it!
Many people confuse their loans with some sort of scholarship or grant. While
you may have some scholarships or grants that do not need to be paid back, all
student loans do (And they must be paid back with interest.). If you forget
everything else about student loans, just remember this: They must be paid back
with interest.

The second confusion that arises with student loans is that many students
stretch the definition of educational expenses to infinity. Ive met students
who say things like, Well I have to watch some DVDs as homework, and Ill need
a TV to watch those on, so a 52-inch plasma TV is an educational expense. You
laugh, but it happens all the time.

During my speeches, students ask me, Is a car an educational expense? Can I
use my loans to take an educational vacation? The short answer to both of
those is no. But, the BIGGER answer is that it doesnt matter. What matters is
this: Can you afford to pay back what you borrow?

Take this example to illustrate the point. If Student A spends $5,000 of their
loans on a trip to Vegas and Student B spends all their money on tuition, Student
A is the one who broke the law. However, if Student A pays on time and Student
B pays late, Student B is the one who is going to have problems.

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I dont have time to go through all the legal definitions of educational

expenses. Use your reasonable judgment (I will help you by stating that your car
and your TV are not educational expenses. Sorry.). But really, the more
important concept is avoid borrowing more than you can afford to pay back. If
you use your reasonable judgment, chances are that wont happen.

Student loans come in two forms: unsubsidized and subsidized. A subsidized loan
is a loan where the government pays the interest while you are in school. With
an unsubsidized loan, the interest builds throughout the school year. In short,
unsubsidized loans get bigger, subsidized loans dont. Its important to know
which types of loans you have. If they are unsubsidized, you will owe more than
you originally borrowed.

However, even more important than knowing whether your loan is unsubsidized
or subsidized, is knowing what the monthly payments will be. Student loans, like
many loans, are paid monthly. No one pays off their loans all at once, unless you
win the lottery or do well in Vegas (But, wait a minute - if you have student
loans, you should not be buying lottery tickets or going to Vegas!).

Review Questions:


A student goes to a one-year graduate school program and borrows
$10,000 to pay for the tuition at 6% interest. This is an unsubsidized loan.
At the end of the year, how much does the student owe on their loan?

Answer:___________________________________

How much would the student owe if the above loan was a subsidized
loan?
Answer:____________________________________

Action Assignment:

Research your student loan paper work. Find these numbers for each student
loan you have: (Try www.nslds.ed.gov for help.)
Total amount borrowed:

________________
Interest rate:
________________
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Monthly payment upon graduation:
________________
Subsidized (yes or no):
________________
Suggested Activity:

Putting the legal definitions aside (and they are very hard to find), what do you
think is a fair use of student aid money? Gas? A bus pass? An iPad? Why do you
feel your suggested item should count as an educational expense?


www.nslds.ed.gov - The National Student Loan Data System (NSLDS) is the U.S.
Department of Education's central database for student aid. By plugging in your
information, you can access data on your loans and federal grants, including the
name of the company that services your loan, your loan status, and loan
disbursements. You will need a PIN to get this information - go to the FAQs page
to learn how to get one.

www.studentaid.ed.gov - The Department of Education's Federal Student Aid
office provides information about student loans, loan repayment plans
repayment calculators, loan forgiveness for public service, postponing
repayment of your loans, and more.

www.finaid.org - This is a very comprehensive website on financial aid. It has
everything from Frequently Asked Questions, to calculators, to the ability to ask
questions and get personalized answers!

Fun Facts:

Total student loan debt in the United States is now increasing at a rate of
approximately $2,853.88 per second! It pays to pay attention! (Source:
www.finaid.org)

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
97
Unit 4 Lesson 2: Student Loans: How Do They Work?

A student goes to a one-year graduate school program and
borrows $10,000 to pay for the tuition at 6% interest. This is an
unsubsidized loan. At the end of the year, how much does the
student owe on their loan?

Answer: $10,600. $10,000 (their principal) plus $600 worth of
interest ($10,000 X 6%)

How much would the student owe if the above loan was a
subsidized loan?

Answer: The student would owe only the original $10,000. The
government pays the $600 of interest.
98
Lesson 2:
Student Loans: How Do They
Work?
Explain the financial aid process.
Explain what the term amortize means.
Explain why the EFC is the Oh _______ number.

Lesson Summary:

We know that student loans fall into two types: subsidized and unsubsidized.
With subsidized loans, the government is paying the interest on the loans while
you are in school. With unsubsidized loans, the interest gets added to the
principal while you are in school.

Unsubsidized loans can be broken down even further into private and public
loans. A private loan has no involvement from the government while a public
loan does. While a private company usually services a public loan (which means
they collect the monthly payments from you), the big difference between public
and private loans is in the collection of an unpaid debt.

Public loans enjoy the protection of the government, which means if you fail to
pay, the government will be the one chasing you. Remember, the government
has additional collection powers, and it will, use those powers if you fail to pay
your student loans. Chances are at least some of your loans are public. The
government is not going to forget about you if you do not pay!

The financial aid process starts with a form called the Free Application for
Federal Student Aid or FAFSA. This document allows you to explain your financial
situation. The FAFSA is sent to the government and they generate a report called
the Student Aid Report or SAR. The most important number in the SAR is the
Expected Family Contribution or EFC.

I like to call the EFC the oh ______ number, because it states how much the
government expects YOU to pay for your education. The higher the EFC is, the
more youll have to pay. The Student Aid Report is sent to the schools you listed
when you filled out the FAFSA. Hopefully those schools will then issue an award
99
letter, which lists all the loans, grants and scholarships they can offer you. If, for
any reason, the award is not enough, you can choose to:
Not go to that school
Pay with more money out of your own pocket
Try to get additional scholarships
Seek additional private loans

Even though you are probably enrolled in school as you read this, many students
go on to get additional education. Some people have to navigate the process for
their children. So, its important to know how the process works.

Here are some other concepts to understand about financial aid:
Is the money a loan or some sort of grant/scholarship? In other words,
do you have to pay it back?
How much will I owe when I GRADUATE school? (Not when you begin
school.) Remember, unsubsidized loans grow while youre in school.
Is this a public loan? If the government is involved, they have additional
collection powers.
Loans are amortized. With every payment, some of the money goes to
principal and some goes to interest.

Review Questions:


Doug has $20,000 in student loans at 6% interest. He pays $100 a month.
So far, he has paid $1,200. All of a sudden Doug wins the lottery and he
wants to pay off all his loans. He calls the lender and asks how much he
owes. They tell him he still owes $19,880. But Ive given you $1,200! He
yells. What happened?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

100
Why does it matter whether a loan is public or private?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Go to www.peterbielagus.com and play around on the loan payoff calculators.
Put in your loan amounts and interest rates. (If you dont have any loans right
now, estimate what you think youll borrow for school.) What is the expected
monthly payment? What happens if you pay an additional $10 or $20? Or more?

Suggested Activity:

Visit the financial aid office and ask one question about student loans. It can be
about your loans or just a general question. Even students without loans should
do this. This makes you comfortable with visiting the financial aid office and
talking about student loans. Remember, even if you dont have student loans
right now, you may get them later to complete your degree or to get an
advanced degree.


www.nslds.ed.gov - The National Student Loan Data System (NSLDS) is the U.S.
Department of Education's central database for student aid. When you put in
your information, you can access information on your loans and federal grants,
including the name of the company that services your loan, your loan status, and
loan disbursements. You will need a PIN to get this information - go to the FAQs
page to learn how to get one.

www.studentaid.ed.gov - The Department of Education's Federal Student Aid
office provides information about student loans, loan repayment plans (and
accompanying repayment calculators), loan forgiveness for public service,
postponing repayment of your loans, and more.

101


www.projectonstudentdebt.org - This website has a ton of fun facts on student
loans. It also provides tips on student loan debt, describes fees and rates,
compares private loans to government loans, and more. It also has recent news
about student loans and student loan legislation, state-by-state statistics on
student loan debt, and a handy chart summarizing federal student loan interest
rates and terms.

Fun Facts:

Find a fun fact about your own school: ask the financial aid office if they will tell
you how many undergraduate seniors will graduate with more than $100,000 in
student loan debt. (They know this number, even if they wont tell you.)

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Loan Payoff: Am I Just Spinning My Wheels?

Remember, loans are amortized, which means some portion of every
payment goes to principal, and some goes to interest. If it feels like
you are not making any progress in the first few months, youre not!

The sample chart below outlines the breakdown of $100 a month
payments on a $10,000 student loan, with a 6% interest rate. Notice
that during the first 12 months, almost half of every payment goes to
interest. Even though you made $1,200 worth of payments, youve
only paid down about $616.78 worth of principal.

Month
1
2
3
4
5
6
7
8
9
10
11
12
Beginning
Payment Interest
Balance
10,000.00
100.00
50.00
9,950.00
100.00
49.75
9,899.75
100.00
49.50
9,849.25
100.00
49.25
9,798.49
100.00
48.99
9,747.49
100.00
48.74
9,696.22
100.00
48.48
9,644.71
100.00
48.22
9,592.93
100.00
47.96
9,540.89
100.00
47.70
9,488.60
100.00
47.44
9,436.04
100.00
47.18
Ending
Balance
9,950.00
9,899.75
9,849.25
9,798.49
9,747.49
9,696.22
9,644.71
9,592.93
9,540.89
9,488.60
9,436.04
9,383.22
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Unit 4 Lesson 3: Student Loans: What Am I Responsible For?


Doug has $20,000 in student loans at 6% interest. He pays
$100 a month. So far, he has paid $1,200. All of a sudden,
Doug wins the lottery and he wants to pay off all his loans. He
calls the lender and asks how much he owes. They tell him he
still owes $19,880. But Ive given you $1,200! he yells. What
happened?

Answer: Loans are amortized. Most of Dougs payments in the
early years go toward interest. So, in the early years he is not
making a big dent in his payments.

Why does it matter whether a loan is public or private?

Answer: When people fall behind on their loan payments, they
often believe they have some time to work things out. This
belief comes from the fact that private lenders have to arrange
court dates to garnish your wages or tax refund. In the case of
public loans, this isnt true. In addition, as youll see in
upcoming lessons, public loans also have built in repayment
plans for people who fall behind. So, its important to know
what you are dealing with in advance.
104

Lesson 3:
Student Loans:
What Am I Responsible For?

Name 3 things a person with student loans is responsible for.
Explain the median income trap.

Lesson Summary:

During the last lesson, I talked about how your student loans are borrowed
money that you MUST pay back with interest. It is not a scholarship or a grant,
which are awards that you do not have to pay back. I discussed that
misunderstanding this simple concept has become a national disaster.

If you have student loans, you are responsible for 3 things:
1. Finishing what you started as quickly and affordably as possible.
2. Understanding how much you have borrowed and what the monthly
payments are.
3. Setting yourself up to be sure you can make those monthly payments.

Median income is the average salary in your career field. It is the number that
you often read about in career guides and job postings. If you are in school and
about to enter a new field, you are not going to enter that field with the average
income. Most people start out their careers with BELOW average income. Failure
to recognize this fact is called the median income trap.

If you are a hair stylist, dont ask the question What does the average hair stylist
make in this industry? because you probably wont make that right out of
cosmetology school. Find out what a brand new stylist makes right out of school.

105

Review Questions:

If you ask yourself, Can I afford to borrow this? and the answer is no,
does that mean you cannot go to school? Or that you should drop out?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Take the night off!

Suggested Activity:

Take the night off!



Fun Facts:

Currently, the rate of student loan default is just under 9% (Source: NY Times).

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
106
Unit 4 Lesson 4: Student Loans: What If I Cant Pay?


If you ask yourself, Can I afford to borrow this? and the
answer is No, does that mean you cannot go to school? Or
that you should drop out?

Answer: No. It simply means you need to rearrange your life so
you can make the costs work. Maybe you should take a second
job, get a roommate, or move back home. Once you ask, Can I
afford this? then ask How can I afford this? Then make the
necessary adjustments.
107

Lesson 4:
Student Loans: What If I Cant
Pay?

List the additional collection powers that the government has.
Name the website where you can find out who your loan servicer is.
Summarize this lesson in one sentence.

Lesson Summary:

Student loan lenders often have enhanced collection powers. Normally, a
creditor only has two options to collect money from you: They can hurt your
credit score and they can take you to court to get a judgment. A judgment is a
legal ruling that allows a creditor the enhanced powers to collect their money.
Some judgments allow creditors to garnish wages, take money out of a bank
account, or even tow your car.

With public student loans, lenders can take money WITHOUT going to court.
They can, for example, take your tax refund. They can also garnish your wages.
Whats more, with student loans, it is very difficult to get rid of them in a
personal bankruptcy.

Because of these enhanced powers, it is very important that you know the
number one question when it comes to student loans: Can you afford to borrow
this money? In other words, can you afford to pay it back? Look at the budget
you did during Unit 2 Lesson 5. How much will the payments be on this loan?
How will you pay for them?

If you are in trouble, the first step is to admit you are having trouble paying.
Then ask your financial aid administrator or your loan servicer what options are
available to you. How do you find your loan servicer? Go to the National Student
Loan Data System website at www.nslds.ed.gov.

The good news is that student loans also have built-in payment restructuring
plans for people who are having trouble. Most other loans DONT have this
108

feature. Here are some of the options for folks who are having trouble making
their payments.

Loan term extension. If you have a 10-year student loan, you might be
able to extend it to a 20-year loan (sometimes even longer). Even though
you will pay more in interest (because you are borrowing the money for a
longer period of time) your monthly payments will be smaller.
Loan forgiveness. Okay, this one is not easy, but sometimes, if you agree
to volunteer, either in AmeriCorps, the military, or even to teach in a
teacher shortage area, you can get your loans forgiven. This option is
not for everyone, but it is a possibility.
Loan modification. Your loan may qualify for modification. This is where
you pay interest only for a few years and then it becomes an amortized
loan.
Loan deferment. Even after you graduate, the loan can be deferred. This
automatically happens if you enroll in school again (to get another degree
or certification) but it can also be done if you can prove a financial
hardship.

Review Questions:


What is a garnishment?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

If you are going to change your existing loan in any way because you
cant make payments, what should you do?
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

109

Why is being open and honest the best policy when it comes to
renegotiating payment terms on your student loans? If you are trying to
negotiate with your lender, it might make sense to hold at least some
information back, right?
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________


Answer: ____________________________________________________

Action Assignment:

Write down 5 unexpected things that could prevent someone from paying their
loans. Perhaps a car accident or a spouse gets laid off. What can they do to plan
now to prepare for those emergencies?

Suggested Activity:

Look at your list from the Action Assignment. What could prevent you from
paying your student loans? What can you do now to prevent those things?


www.studentaid.ed.gov - The Department of Educations website has
everything from calculators to information on modifications.

www.ombudsman.ed.gov - The Student Loan Ombudsman Office helps
borrowers who are in trouble.

www.nslds.gov - The National Student Loan Data System allows students to find
out who their loan servicer is.

110

Your states secretary of states office can tell you what the laws are for wage
garnishment in your state. While lenders are able to do it with student loans;
how much they can take is often limited by state law.

Fun Facts:

NBA star Allen Iverson had his earnings garnished by Aydin and Company
Jewelers for an unpaid jewelry bill. The court ruled that the jewelry company
could take $859,896.46 from Iverson for the unpaid jewelry bill, court costs,
interest, and attorney fees (Source: TMZ.com report).

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________
111
Unit 4 Lesson 5: Student Loans: Tips for Paying on Time

What is a garnishment?

Answer: A wage garnishment is a legal right, obtained by a
debt collector to contact your employer and have part of your
paycheck sent directly to them before it comes to you. This
ensures the debt will get paid. There are also bank account
garnishments, and tax refund garnishments.

If you are going to change your existing loan in any way
because you cant make payments, what should you do?

Answer: Be able to prove WHY you cannot make the
payments. Show them your monthly expenses and income.
Write up a plan of how you will pay once everything is
modified. Be as open and honest as you can.

Why is being open and honest the best policy when it comes to
renegotiating payment terms on your student loans? If you are
trying to negotiate with your lender, it might make sense to
hold at least some information back, right?

Answer: Not when it comes to student loans. Remember if
they want your money, they can just take it. You can feel safe
112
baring your soul. They know anyway! Also, there is nothing to

negotiate. The repayment plans are already set up; you just
have to find the one that is right for you.


Answer: If you get into trouble, just call your loan servicer.

113
Lesson 5:
Student Loans:
Tips for Paying on Time

Explain what a Return of Title IV Funds is.
Explain the importance of making your loan payoff automatic.

Lesson Summary:

At base, student loans are simple. If you dont borrow over your head and you
just pay your bills on time every month, then all will be well. If you did borrow
too much, try to give it back right away. You can do this officially with a Return
of Title IV Funds. This is a process that occurs when you have leftover money
from your student loans. Most people keep that money (and often spend it on
silly stuff like clothes and guitars). However, you can send the money right back,
which is the simplest way to avoid borrowing too much. Ask your financial aid
administrator for help.

Still, many students want to keep the leftover money just in case. This is
understandable, but you can still start sending money back another way, by
making payments immediately. You are allowed to pay off your student loans
before they are due, in any amount you choose, on any schedule you like. Just
make sure you write apply towards principal on the check.

Sadly, many students borrow more than they need, and dont send any money
back. Not surprisingly, these students get into trouble. As we learned in the last
lesson, there are repayment programs already set up if you find yourself in this
situation. Students who fall behind should ask what programs are available to
help their situation.

Here are more quick tips to make sure you pay loans on time:
Set up alerts. You can do this with a smart phone or with email, or both.
Send yourself a reminder seven days before your bills are due.
Set up automatic withdrawal. Your bank can arrange to take an amount
of money out of your account at the same time every month to pay your
loans. (Just make sure there is enough to cover it!) Some lenders even
give a discount for this! (See the Fun Facts Section of this lesson.)
Have a buddy remind you. And you remind them!
114
Take a job that will pay your student loans. To attract talented people,
many companies will do this. Be on the lookout when you are job
hunting.
Pick the date that works for you. Many lenders will let you choose the
date you can make your payment. Arrange it so it makes sense for you.
Create a completely separate bank account. In this account, keep one
extra month of payments. Whenever you get your paycheck, put a
months payment into this account and then set up an automatic
withdrawal to pay your loan. Dont have a debit card or a checkbook with
this account. Use automatic bill pay.

Review Questions:


Why is it so important to make student loan payoff automatic?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Call your bank and ask about how to set up an automatic payment.

Call your student loan servicer and ask if you can choose the date that
you make your payment. Also ask the student loan servicer to suggest
ways to ensure payments are made on time. Can you pay a month in
advance? Set up alerts with the servicer? What does the servicer
suggest?

Suggested Activity:

Think of some other tips and tricks on how you can pay your bills on time. Ask
other people what they do. Get as much feedback as you can. Here are two
examples:
115
I know a student who sleeps on the floor for the night if he pays a bill
late. It may seem silly, but he creates a physical change whenever he fails
to pay on time.
Another student I know of treats herself to a day at the spa if she pays on
time for a year.

www.mint.com - This is a great, free website that helps you track your bill
paying.

www.studentaid.ed.gov - The Department of Educations website has
everything from calculators to information on modifications.

www.ombudsman.ed.gov - The Student Loan Ombudsman Office helps
borrowers who are in trouble.

www.nslds.ed.gov - The National Student Loan Data System allows students to
find out who their loan servicer is.

Fun Facts:

Many lenders offer discounts for borrowers who set up auto-debit (This is where
the servicer takes a pre-agreed amount out of your bank account once per
month.). Federal loans offer a 0.25% interest rate reduction, while private
student loans often offer a 0.25% or 0.50% interest rate reduction for the
remainder of the repayment period. Some lenders will require electronic billing
to get the discount. Ask your lender what they offer!

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________________________________

116

Why is it so important to make student loan payments
automatic?

Answer: The less you touch the money the better. The physical
act of writing a check, getting a stamp, and going to the post
office add up to a lot of steps. You may delay going because its
raining. You may be out of stamps. You may have soccer
practice. Whatever it is, get rid of as many barriers between
you and on time payments. Use your banks bill pay system to
make it automatic.

117
Unit 5
Investing
118
Unit 5 Lesson 1: Introduction to Investing Part 1
Lesson 1:
Introduction to Investing
Part 1

Identify the two most common types of investments.
Explain why diversification is important.

Lesson Summary:

At the beginning of this course, I mentioned that you can either trade your time
for money, a.k.a. working, or trade your money for money, a.k.a. investing.

Investing is the act of risking your resources in hopes that those resources will
grow in value. The more risk you accept, the more reward you should get for
that risk. Investing is different from saving. Saving is the act of putting your
resources somewhere safe to be used later.

Basically, all investments fall into one of two categories: growth investments and
income investments. Growth investments tend to be riskier but offer a higher
reward. These investments fluctuate more with the ups and downs of the
economy, so they are safest when bought with a long-term view. Income
investments tend to be less risky and therefore pay a smaller reward. They have
a more predictable return.

Combining these two types of investments builds the basic investment strategy
that everyone should follow. When you are young, go heavy on the growth
investments and light on the income investments. As you get older, more money
should go to income and less to growth. It is important to remember that even
our income investments can let us down, so we still need to save.

While most investments fall into those two basic groups, smart investors own
many different investments within those groups. They do this by diversifying
their investments. Diversification is the act of spreading your money around to
reduce risk. No one knows for sure which investments will perform well
tomorrow. You can create a safety net by buying a little bit of everything.

119
Review Questions:

Can an investment be BOTH an income investment and a growth

investment? Explain.
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

What is the relationship between risk and reward when it comes to

investing?
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

(Answers are located at the end of this lesson under Action Assignment Answers.)

Research the following investments. Spend 10 minutes researching each one.
Are they growth investments or income investments? Or are they both? Are they
risky or safe? Is there a limit on the reward?
Gold.
Stocks.
Bank account.
Your own business.

Suggested Activity:

Fill out the answers below based on your research.

120
1. Gold coins
Answer:
Growth, income or both? __________________
Risky or safe?
__________________
Limit on reward? (y/n) __________________

2. Stocks
Answer:
Risky or safe?
__________________

3. Bank account
Answer:
Risky or safe?
__________________

4. Your own business
Answer:
Risky or safe?
__________________

121

www.investopedia.com - This site has all sorts of resources for investors. Its a
great resource for the Action Assignment!

Fun Facts:

Lack of diversification has hurt investors for years. In 1637, the country of
Holland was in a tulip craze. Investors were clamoring to buy tulip bulbs. Some
single tulip bulbs sold for more than ten times the annual income of a skilled
craftsman. A year later, the tulip market completely crashed, and many people
lost everything they had. Had some of these investors diversified, they would
have been okay when the bottom fell out. (Source: www.investopedia.com).

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
122

Can an investment be BOTH an income investment and a
growth investment?

Answer: Yes. If you own a real estate rental property, the value
of the property is (hopefully) going up, while the tenant is
paying a monthly rent an income to you every month. As
you will see, some stocks pay an income and grow in value.

What is the relationship between risk and reward when it
comes to investing?

Answer: Investing ALWAYS involves risk. Risk is the likelihood
that you will lose your money. The only reason you would take
on more risk is to have the chance at a higher reward. If
someone is offering a high reward, no risk investment, be
careful; it may be a scam.


1. Gold:
Answer: Growth. You buy gold at one price and sell it at a
higher price. Gold does not pay any income. There is no
limit on the reward. Gold tends to be a risky investment.
123

2. Stocks:
Answer: Well talk more about them in an upcoming lesson,
but stocks can be both growth and/or income investments.
Stocks can grow in value and they can also pay income in
the form of a dividend. They tend to be on the riskier side,
but because of this, there is no limit on the reward.

3. Bank account:
Answer: Even though we use bank accounts for savings,
they still pay us a bit of income in the form of interest. That
makes a bank account an income investment. The
government insures your money; so bank accounts are very
safe. However, there is a limit on the reward. You will only
earn the stated interest rate, which is not very high.

4.
Your own business:

Answer: Both growth and income. Ideally your business pays
you an income, but hopefully you can also sell it one day for
a higher price. Your own business tends to be a risky
investment. But as we have seen with the success of
Facebook and YouTube, there is no limit on what you can
make from starting your own business.

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Lesson 2:
Introduction to Investing
Part 2

Explain the concept of rebalancing.
Explain dollar cost averaging.

Lesson Summary:

Smart investors practice two strategies to limit their risk and increase their
reward. First, they rebalance, which means they adjust their investments.
Typically, investors use three criteria to determine the best time to rebalance:
the investments performance, their financial goals, and their age.

The second strategy is called dollar cost averaging. Dollar cost averaging is the
practice of investing the same amount of money every month into the stock
market. You may, for instance, decide to invest $200 per month into the stock
market. If the stock market soars to new heights, you invest the $200. If it
crashes, you still invest the $200. By investing the same amount every month,
you ensure that you buy fewer shares when prices are high, and more shares
when prices are low.

Dollar cost averaging takes the emotion out of investing. By relying on numbers,
and not emotion, youre more likely to come out ahead over the long term.

Review Questions:


The lesson mentioned that most people ALREADY have experience
investing. If you have never invested before, how is this true?

Answer:_____________________________________________________
____________________________________________________________
125
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

How important is dollar cost averaging? Look up the 52-week high and low price
of the following stocks - Google, Microsoft, McDonalds and Coca Cola. Write
down the high and low price and then compare. Is there a huge difference? (You
can find this information online or in any financial newspaper.)

Suggested Activity:

Fill in the missing blanks on dollar cost averaging. Assume you invest $200 a
month in a certain stock.
In Month 1, at $10/share, you would buy _____shares.
In Month 2, at $50/share, you would buy ____shares.
In Month 3, at $100/share, you would buy ____ shares.

Even though the stock goes up, you are not trying to guess the highs and lows.
Notice how when the price goes up, you buy less stock. While everyone wishes
they could have buy all the shares in Month One, and then sell them all in Month
Three, to do this consistently is very difficult.


www.yahoo.com (their finance page) - Get up-to-date information on finances
around the world as well as helpful articles and tools for your everyday life.

www.investopedia.com - This educational website has a lot of great information
to help you better understand personal finance and the stock market.

www.magicformulainvesting.com - If you are really interested in investing, this
website is a great start. It was created by Joel Greenblatt, who wrote The New
York Times Bestseller The Little Book That Beats The Market.

Fun Facts:

Your financial life is a bit like being healthy and fit. Its all about doing the same
things over and over again.

126

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
127

The lesson mentioned that most people ALREADY have
experience investing. If you have never invested before, how is
this true?

Answer: Investors simply set a monthly budget and invest that
same amount every month. They also keep an eye on when
investments are selling for a bargain and when they are
overpriced. They also diversify, which means they dont put all
their money in one place at one time.

You have probably done the same thing with shopping. You set
a monthly budget (and hopefully stick to it). You, also, keep an
eye out for bargains. You diversify. You spend your money on a
lot of different things. You know that if you spend all your
income on a car, or on clothes, you wont have any money left
over for the other stuff.

Suggested Activity Questions and Answers:

Fill in the missing blanks on dollar cost averaging. Assume you invest $200 a
month in a certain stock.

In Month 1, at $10 / share, you would buy 20 shares. ($10 x 20
= $200.00)
128
In Month 2, at $50 /share, you would buy 4 shares. ($50 x 4 =

$200.00)
In Month 3, at $100 / share, you would buy just 2 shares. ($100
x 2 = $200.00)

129
Unit 5 Lesson 3: How The Stock Market Works Part 1
Lesson 3:
How the Stock Market Works
Part 1

Explain what the stock market is and how a company becomes
public.

Lesson Summary:

The stock market is a market like any other. It is a place where stuff gets bought
and sold. In the stock market, people buy and sell stocks.

A stock is a unit of a company. Those units are often referred to as shares.
Stockholders (or shareholders) are owners in a company. Every company has at
least one stockholder. If you own your own landscaping business, consisting of
just you, a mower, two rakes and a shovel, you are the sole stockholder.
Granted, you are not like Coca-Cola, which has millions of stockholders all over
the world. However, there is really only one difference between your company
and Coca Cola, aside from size. The difference is that your company is private,
while Coca Cola, which began (as all companies do) as a private company, is now
public. Companies make the leap from private to public for only one reason:
They need money.

Businesses need money to expand, and there are only two ways to get that
money: borrow it, or sell part of the company for cash. When a company
borrows money, lenders expect to be paid back their money, with a
predetermined interest rate, within a predetermined period of time. Thats a lot
of restrictions for a new company. Instead, the new company can sell shares to
investors. In this option, there are no such restrictions. If the company does well
and makes money, the shareholders get paid. If it doesnt, they dont.

When companies are seeking investors, they can do it one of two ways. They can
do it privately asking family, friends, and fools or they can do it publicly, by
130
asking everyone. If a business needs to raise a lot of money, like several hundred
million dollars, family and friends usually dont cut it.

Instead, they go the public route, by enlisting the help of an investment bank.
Investment banks help companies raise money, often by conducting an Initial
Public Offering or I.P.O. This event is the first time that shares in the private
company are available to the public. People who buy shares are now owners.

Yes, yes, yes. But, then what? Where do these people sell their shares if they
want to dump them? That is where the stock market comes in. The stock market
provides a place where people can trade their stocks. After an IPO, a company
becomes listed on a stock exchange, such as the New York Stock Exchange, the
American Stock Exchange, or an overseas stock exchange. Here, all the stocks, on
that particular exchange, are traded every business day.

Prices of stocks are determined by only one variable, the number of buyers and
sellers. More people buying will drive a stock price up. A lot of sellers will cause a
stocks price to plummet. People buy out of greed and sell out of fear, and its
important to recognize this may or may not have anything to do with the actual
performance of the company.
Investors can make money by buying a stock at one price and selling it at a
higher price. They can also make money through dividends. Dividends are
company profits that are distributed to shareholders. Typically bigger, older
established companies pay dividends. The smaller companies reinvest their
profits right back into the business.

Review Questions:

If buyers and sellers influence prices in the stock market, what influences
them?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Must a company go public? Can it stay private forever? Why or why not?
131

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Pick a stock and research it. Write 1-2 paragraphs on why you think it is a good
investment. Whats todays price? What is the 52-week high and low price? Use
websites like yahoo finance to glance over the research reports about that
company. A great place to start is with companies whose products you already
use.

Suggested Activity:

Three months after doing the Action Assignment for this lesson, go back and look
at your stock. How did it perform? Why do you think it went up or down?


www.yahoo.com - Here you will find a great (and free) financial site to get
quotes and research about stocks.

York Times bestseller The Little Book That Beats The Market.

Fun Facts:

The worlds first publicly issued stock was issued by the Dutch East India
Company in 1602 (Source: www.investopedia.com).

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
132
20 Questions to Ask Before Buying an Investment

If you are considering an investment, either a stock or a 50% stake in your uncles
carrier pigeon pizza delivery business, these are some great questions to ask yourself
before you buy:
1. What other companies offer similar products and services and why would someone
use them?
2. Do I understand this companys products and services?
3. Do I ever patronize its competitors? Why?
4. Are its competitors bigger or smaller than the company I like?
5. What is it that makes me choose this companys product/services over another? Is it
price, quality, brand name, or something else?
6. How does this company make money?
7. What are some things that would prevent this company from making money?
8. Who uses this product?
9. What do I like and dislike about this companys products?
10. How long have I liked this companys products?
11. Can the company grow or diversify into other products? (In other words, what can
this company do to make more money?)
12. Are the products and services competitively priced?
13. What is their market niche? Are they the cheapest, the highest quality?
14. Can a competitor easily copy the products?
15. What do my friends think about this company and its products?
16. How do my answers compare with theirs and why?
17. What would make this company go out of business?
18. Is this company a target of government regulations?
19. Does this company make anyone angry? (Environmentalists? Unions? Civil Rights
activists?)
20. Is this company heavily dependent on another industry for success? (For example a
tire company may be heavily dependent on auto sales for its successlike Ford and
Firestone.)
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Unit 5 Lesson 4: How the Stock Market Works Part 2

If buyers and sellers influence the market, what influences
them?

Answer: It could be anything. Someone might sell their Apple
stock because they think Apple stock is going down, others
might sell their Apple stock to pay for their daughters
wedding.

Must a company go public?

Answer: No. In fact, many companies dont. Even though going
public can be a great way to raise money, there are many
additional rules and regulations for public companies. The
burden of these rules and regulations keep some very large
companies private.

134
Lesson 4:
How the Stock Market Works
Part 2
Explain what stock market indexes are.
Explain what a mutual fund is.
Lesson Summary:
Currently there are thousands of stocks available in the United States alone. Its
too cumbersome to look at every single stock individually to see where the
economy is at and to guess where its headed. Indexes were created to address
this problem. The stock market indexes are lists of publically traded companies
designed to represent a sector of the economy or even the economy as a whole.
There are indexes for small companies, health care companies, big companies,
foreign companies, and so on. The most famous index is the Dow Jones Industrial
Average. Youve probably seen it quoted daily in the global media. Apparently,
when this index goes up, the stock market as a whole is doing well. When it goes
down, the market as a whole goes down.
Buying individual companies can be costly, risky and time consuming. That is why
most people purchase mutual funds. Mutual funds are money pools where
several thousand investors surrender the management of their money to a
manager who invests that money on behalf of the fund. Naturally, the manager
charges a fee to do this. A very popular mutual fund is the index mutual fund,
because it has no manager and therefore very low fees. In an index mutual fund,
a computer picks the stocks.
Review Questions:
Why do index mutual funds often outperform those managed by a living

breathing human being?
135
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
How are the fees on mutual funds calculated?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Research a mutual fund (These can be searched just like stocks on websites like
yahoo finance. Type in phrases like Top Performing Mutual Funds.). What are
the fees? What does the fund invest in?

Suggested Activity:

Build a fake mutual fund. What stocks would you put in it and why? (Assume no
one stock can be more than 5% of the funds position). Based on the stocks you
picked, what type of fund do you have? Is it a technology fund? A consumer
products fund? A healthcare fund? A food manufacturing fund? This is a great
way to get into the mindset of a professional investor.


www.etrade.com

www.scottrade.com
www.fidelity.com

www.edwardjones.com
www.vanguard.com

www.troweprice.com
(Note: All these companies above can help you with a Roth IRA and mutual
funds. We receive no compensation or referral fee for mentioning them here.)

Fun Facts:

The first mutual fund is often credited to a Dutch merchant named Adriaan van
Ketwich. He created an investment trust created in 1774 Ketwich most likely
thought that offering diversification would increase the appeal of the fund to
smaller investors with minimal amounts of money. The name of Ketwichs fund,
Eendragt Maakt Magt, translates to unity creates strength.
136

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
137
Unit 5 Lesson 5: What to Buy

Why do index mutual funds often outperform those managed
by a living breathing human being?

Answer: Because you have to pay that living, breathing human
being! Remember, fees cut directly into your investment
profits, so the lower the fees the better your investments will
perform. Index mutual funds dont have a manager and staff to
pay, so they have lower fees. Those savings get passed onto
you in the form of increased profits!

How are the fees on mutual funds calculated?

Answer: Usually as a percentage of the money that is in the
fund. So if a fund has $100 million in it, the manager might
take a 1% annual fee. In this case, $1 million.

138
Lesson 5: What to Buy

Explain the 3-step investment process.

Lesson Summary:

To get started on your investment plan, follow a 3-step process:
Step one: Determine your risk level. Simply subtract your age from the
number 100. The answer is how much of your portfolio should be in
growth investments. The rest should be in income investments. Every
year, do this same subtraction and rebalance.
Step two: Dollar cost average. Pick an amount you will invest every
month and set up an automatic plan to have that money transferred from
your paycheck or your checking account to you stock brokerage account.
Step 3: Set up an account and buy something. Your local bank or
financial company can help you set up an investment account. If you are
employed, ask human resources for information on your companys
retirement plan.
Review Questions:


What if you set up an investment account and you want to change
something? Are you locked in?

Answer:________________________________________________________
_______________________________________________________________
_______________________________________________________________

Action Assignment:

Write up your investment plan by answering three questions:
1. What is your risk level?
139
a. Write your age here: ________________

b. Subtract your age from 100: __________________
c. Answer is % of investments in growth: __________________
d. Your age = amount of money that should be in income
investments: __________________
2. Write down how much you will invest every month:
___________________ (Even if it is $1, write SOMETHING down.)
3. Write down the name of one bank or financial company you will talk to
within the week about opening up a retirement account:
______________________________________ (Even if you are deep in
debt and dont have a dime to your name, just write down a company
and call them up. It costs nothing to talk to them. )

Suggested Activity:

Finish this sample rebalancing activity.
Imagine in 2007 a 50-year-old woman had $50,000 in growth investments
and $100,000 in income investments. The growth investments have done
well due to the strong stock market of the previous few years. Based on
her age, she needs to rebalance. What does she do?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Then along comes 2008. The market drops considerably and her new
portfolio is $75,000 in income investments and a sad $32,000 in growth
products. Her portfolio again is out of line. Only this time, its in the other
direction. What does she do?

140
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________


www.yahoo.com - Here you will find a great (and free) financial site to get
quotes and research about stocks.

www.irs.gov - This is the official website of the IRS which provides information
on Roth IRAs and other retirement accounts.

York Times bestseller The Little Book That Beats The Market.

Fun Facts:

Reviewing your investments periodically is important. Things do change! The

Dow Jones Industrial Average began in 1896 with 30 companies in the index.
Today, only one of those companies, General Electric, is still in the Average.
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
141
Sample Retirement Account Portfolios

Note: These portfolios are merely samples. Do your research and discover what is
comfortable for you. Some people will want to take on more risk in hopes for more
reward. Others will be hesitant. The most important considerations are that you start,
stick with it, and be consistent.
Age: Under 25 years old:

Risky: 75%
o 20% U.S. stock index funds
o 20% Foreign stock index funds
o 20% Real estate index funds
o 15% Natural resource index funds
Safe: 25%
o 10% Guaranteed funds
o 5% Money market funds
o 10% Income funds
Age: 26-35 years old:
Risky: 70%
Safe: 30%
o 12.5% Guaranteed funds
o 12.5% Income funds

142

Risky: 60%
o 17.5% U.S. stock index funds
o 17.5% Foreign stock index funds
o 17.5% Real estate index funds
o 7.5% Natural resource index funds
Safe: 40%
o 15% Income funds
Risky: 50%
Safe: 50%
o 20% Income funds

143
Questions to ask When Opening a Stock

Brokerage/IRA account
What is the minimum amount of money I need to open an
account? Depending on the company, this number will be
somewhere between $500 and $2500. Often companies will
waive this minimum if you agree instead to contribute $25-$50
a month through a monthly withdrawal from your bank
account.
Can you tell me ALL the fees associated with this account?
These will vary, but when in doubt, gravitate towards
companies with lower fees. Some of the fees might be:
o Annual maintenance fee: ($25-100)
o Commissions: To buy and sell stocks ($7.50 to 5% of the
amount of the transaction.) Dont worry too much about
this; because to start we arent buying stocks, we are
buying mutual funds.
o Loads on mutual funds: DONT pay these. These are
commissions to buy mutual funds. Most companies have
both load and no load funds and thats okay. Just stick
with no load funds.
Can you tell me about customer support? All companies
should have an 800 number and customer support during
business hours.
What is your website? Browse their website. If its easy for
you to use, thats a great sign. If its not, find another company

144

What if you set up an investment account and you want to change
something? Are you locked in?

Answer: Absolutely not. You can change your investment account
to a different company at any time. You can contribute more or
less money at any time. You can stop altogether.

Suggested Activity Questions and Answers:

Finish this sample rebalancing activity.
Imagine in 2007, a 50-year-old woman had $50,000 in growth
investments and $100,000 in income investments. The growth
investments have done well due to the strong stock market of
the previous few years. But, based on her age, she needs to
rebalance. What does she do?

Answer: She sells $25,000 worth of growth investments and
puts the money into safer, income investments. Her balance is
now $75,000 safe, $75,000 growth.

Then along comes 2008. The market drops considerably and
her new portfolio is $75,000 in income investments and a sad
$32,000 in growth products. Her portfolio again is out of line.
145
Only this time, its in the other direction. What does she do?

Answer: Bravely, she moves $21,500 out of the income side
and puts it into the growth side, giving her portfolio a balance
of 50/50. When the market does go back up, shell be glad she
had the courage to sink money in when times were tough.

146
Bonus Unit
Financial Life
Events
147
Bonus Unit Lesson 1: Buying a Car
Bonus Lesson 1: Buying a Car

Explain the ideal age of the car you should buy.
Explain why the monthly car payment means NOTHING.
Explain the downside of leasing.
List seven tips for buying a car.

Lesson Summary:

Where buying cars is concerned, the advice is simple to understand, but difficult
to follow. In three sentences, here it is: Buy the cheapest car you feel safe in. Pay
cash. Shop around.

The sad truth about car shopping is that most people swindle themselves when
than actually get swindled by a slick salesperson. As a society, we now believe
cars are a reflection of ourselves, so we want to buy something cool. Dont fall
for it. Safety and price in that order should be your focus.

Here are some additional car buying tips:
Dont buy a new car. Ideally, buy a car that is 2-5 years old. Studies have
shown this is the sweet spot. A new car loses 25% of its value instantly,
while cars older than 5 years are often plagued with repairs, despite their
low price.
Shop the car AND the financing. You dont have to get a loan from the
dealer. You can get it from your bank or even a bank you have never used
before.
Check the book value. Visit www.kbb.com and www.edmunds.com.
These are sites that have prices of used cars.
Find a senior citizen. Retired seniors usually dont drive a lot (since they
have no commute). They may have an older car with very low mileage.
Monthly payment means NOTHING. What matters is the value of the car
you are getting. Any car salesperson can stretch out the monthly
payments until the number works for you. Think in terms of the dealers
price, compared to the price of the book value.
Dont lease. The way to get value out of a car is to buy a car that is 2-5
years old and drive it until it dies. Even when it dies, you can always sell it
for something. With leasing, you never own the car. If leasing looks
cheaper, its often because the salesperson is fooling around with
monthly payments.
148
Buy on a Tuesday or Wednesday. These days tend to be the slowest days

at a dealership, which means the salespeople may be willing to bargain.

Review Questions:


Is a car an appreciable or depreciable asset?

Answer:_____________________________________________________

Why is a senior citizen typically a good person to buy a car from?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Cassandra looked at buying versus leasing. It appears buying is actually

more expensive. Whats wrong?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Pick the kind of car you want to buy. Then research the different ways to get it.
Compare leasing versus buying outright versus getting a loan. Next write a
summary of your research and your decision about what to buy. Visit the
websites mentioned in this chapter. Look at the classified ads, maybe call up a
salesperson on the phone. Compare buying new versus buying used. Get familiar
with the actual process. Youll have to do it sometime.

149
Suggested Activity:

Go car shopping, even if you are not in the market. Be honest that you are just
looking, but feel free to ask questions about price, terms and service (Note: DO
NOT let the salesperson check your credit report, as this can hurt your score
unnecessarily.). The purpose is to get comfortable with the car buying process.


www.edmunds.com - This site lists the book value of used cars.

www.kbb.com - This site also lists the book value of used cars.

www.carfax.com - This site is an insurance database, which has accident
information on cars. All cars have a unique Vehicle Identification Number or VIN.
When a car is in an accident, the insurance company makes a note of the vehicle,
the VIN, and the details of the damage. Carfax can tell you the accident history of
a used car.

www.lendingtree.com - This website reveals what banks are currently offering
for car loan rates. Take this information to the car dealership.

Fun Facts:

Sam Walton, when he was the richest man in America, drove a pickup truck. He
was the guy who founded Walmart.

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
150
Car Buying Checklist

____
Did you go online to Kellys Blue Book (www.kbb.com) or Edmunds Car

Guides (www.edmunds.com) to check what the model you want is selling
for? Also look in the classified ads to get some comparison numbers.
____
Did you go online to www.lendingtree.com to search for car loan rates to

compare to the salespersons offer? Did you also ask your bank for rates?

____
Did you go online to www.creditkarma.com and print out your credit report
and score (Show this to the salesperson so they dont check your credit at
every dealership.)?

____
Determine what you can afford based on the prices and rates youve seen.
Grabyour zero-based budget, and take a good look. Can you afford the car
you want? If not, you may have to make some lifestyle adjustments or look
at cheaper vehicles.
____
Try to get pre-approved by a bank, internet bank, or another lending

institution. When you get pre-approved, a lender looks at your financial
information and determines how much money you can afford to borrow.
When youre pre-approved by one lender, it gives you some negotiating
power with other lenders, as well as the car dealer.
____
Decide on the trade-in versus sell-it-yourself dilemma. If you trade in your

old vehicle (if indeed you have an old vehicle) to the dealer, you wont get as
much money. Its convenient to pull up to the dealer in your old wheels, and
say, Hey, sell this and you will end up paying for this convenience. In most
cases, the amount of money a dealer offers you on your trade will be less
than the amount of money you could get by selling it yourself.

______
Check the vehicles insurance history on carfax.com.
151
Bonus Unit Lesson 2: Renting an Apartment Part 1

Is a car an appreciable or depreciable asset?

Answer: A depreciable one. The longer you own it; the less it is
worth.

Why is a senior citizen typically a good person to buy a car
from?

Answer: Cars are priced in both age and mileage. An older car
will have a lower price. But if it also has low mileage, chances
are, it will last longer. Many seniors who are retired dont drive
a lot because they no longer have a daily commute. Their cars
often have very low mileage.

Cassandra looked at buying versus leasing. It seems like buying
is actually more expensive. Whats wrong?

Answer: Often when leasing appears more attractive, the car
salesperson is assuming you are going to buy a new car every
three years. This is an expensive way to go through life. Most
people should own a car for seven to ten years. Ask the
salesperson to run the numbers with that timeframe in mind
and things change.
152
Bonus Lesson 2:
Renting an Apartment
Part 1

List four ways to save money on an apartment rental.

Lesson Summary:

Every dollar you spend on rent, you will never get back. So while I want you to be
happy with where you live, I also want you to get a good deal. Heres how:
! Negotiate. Remember to get a better deal; sometimes all you need to do
is ask.
Take on roommates. The more roommates you have, the lower the cost
per room. You also save on bills. Cable for one TV is the same price,
whether one person or ten people are watching it.
Remember Chain Reaction Shopping. Speaking of bills, you cant just
look at the cost of rent. How much it is to heat the place? Do you have to
pay for parking or laundry? Will you need new furniture?
Live at home as long as you can. I know, I know. But it is a powerful way
to save.

Review Questions:


Is rent an asset or liability?

Answer:_____________________________________________________

Action Assignment:

Find out the average starting salary in your career field. You might be able to find
this online or you can ask the career center at your school. When you have that
number, try to find an apartment in the area that supports that salary, including
estimated electricity and other expenses. Write up a one- to two-paragraph plan
on how you will pay for it. You might have to live at home for three months first.
You might have to take on roommates or skip cable.
153
Suggested Activity:

Find someone you know who just rented an apartment in the city youd like to
live in. Ask them about their experience. What worked and what didnt during
the apartment hunting process? What could they have been done differently?

If you live at home, think about that experience as well. What do you like and
not like about living at home? Do you share a room with a brother or sister? How
do you deal with conflicts? Answering these questions can prevent future fiascos
when you get a place of your own.


Your states real estate commission should have a standard lease for your state.
If not, you can ask your local board of Realtors or local real estate agent for help.

www.craigslist.org - This is a great place to find not just apartments but
roommates and furniture as well.

www.realtor.org - This is the official website of the National Association of
Realtors, the professional association of real estate agents. They also have local
chapters in every state.

Fun Facts:

In 1759, Arthur Guinness, founder and creator of Guinness Beer, needed to rent
some space to make his beer. So he signed a nine thousand year lease to rent
space at the St. James Gate Brewery. Today, the lease is no longer valid, as
Guinness bought the property outright many years ago.

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
154
Apartment Rental Checklist

Numbers to find out:
Monthly Rent
________________
Realtor Fee
________________
Average Electric Bill ________________
Average Gas Bill
________________
Average Water Bill
________________
Washer/Dryer Fee
________________
Parking Space Fee
________________
What to do when looking at an apartment:

____
Turn on faucets.
____
Flush all toilets (If a bubble of air pops up, that means the toilet
has been improperly vented.)
____
Turn on stove and microwave and make sure they work.
____
Turn on all lights.
____
Look in the closets for water damage (Often landlords forget to
paint over water damage in the closets.)
____
Check the basement. Any evidence of flooding?
____
Which way does the apartment face? (Many prefer a sunset
view.)
____
How far is it from the stuff you want? Subway, bus stop etc.
____
Ask the current tenants why they are moving out.
____
If you can, talk to neighbors about the neighborhood.
____
Is there storage?

What to look for in the lease:
Who pays for utilities?

______________________
How long must they notify you (or you them)
about renewing?

______________________
Can the rent increase to any amount
next year?

______________________
Are there any special items not allowed in the
apartment - pets, waterbeds, aquariums, etc.?
______________________
How much are the average heating/ electric
bills? (Fill in above.)

______________________
Can you sublet? (Rent out your unit to someone
before your lease is up in the event you move?) ______________________
155
How much is the security deposit?
______________________
156


Is rent an asset or liability?

Answer: A liability. There is no profit in renting. Like buying a
car, try to get the cheapest place you feel safe in. If you want a
nicer place, get roommates.

157

Bonus Lesson 3:
Renting an Apartment
Part 2
List six ways to save money on an apartment rental.
Explain what a co-signer is.

Lesson Summary:

Congrats! Youve found a place! Now what?
Read your lease. A lease is a legal agreement to rent space. Most leases
are standard but some landlords will ask the tenant to do extra stuff. For
example, they might ask you to shovel the driveway, or care for the yard.
When you read the lease, youll know these items in advance.
Ask your roommates about their habits. And do this BEFORE they
become your roommates. What are your pet peeves? What are theirs?
Does anyone have weird habits? Who will be visiting? Who has a
significant other?
Everyones name must be on the lease and ALL the bills. If you have
roommates, youll need to put everyones name on the lease and all the
bills so no one person is stuck with everything.
Take pictures. Before you move in, photograph the place and save the
photos until you move out. This can serve as proof if something is
damaged.
Do a walk through. A walk-through is done the day you move in, and it is
done with the landlord. If something is different than when you first
looked at the place, ask about it. Also be sure to get any agreements in
writing. If the landlord says, Oh yeah Ill be sure to replace that before
you move in. Get it in writing, on the lease.
Get renters insurance. Renters insurance costs around $25 a month. It
covers your stuff if your stuff gets lost or stolen and protects you if you
get sued. Please dont skip it.
158

Review Questions:


What will you need to provide to the landlord before you move in?

Answer:____________________________________________________
___________________________________________________________
___________________________________________________________

Whats a cosigner?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Go look at an apartment that you are interested in living in, even if that day is far
in the future. (If there is no time for an in-person visit, you can look online.). Be
sure you take the Apartment Rental Checklist.

Suggested Activity:

Fill out the Apartment Rental Checklist for the apartment you just looked at.
Even if you already have an apartment, this exercise gets you comfortable with
the process of how to find an apartment. (Often people get swept up by a nice
view or granite countertops, and they miss other stuff that will become a
problem later.)


Your states real estate commission should have a standard lease for your state.
If not, you can ask your local board of Realtors or local real estate agent for help.

159
www.craigslist.org - This is a great place to find not just apartments but

roommates and furniture as well.

www.realtor.org - This is the official website of the National Association of
Realtors, the professional association of real estate agents. They also have local
chapters in every state.

Fun Facts:

So which cities have the best rental deals? According to Today Money, your
dollars will go furthest in these cities:
1. Wichita, KS
2. Oklahoma City, OK
3. Tulsa, OK
4. Knoxville, TN
5. Dayton, OH
Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
160
Bonus Unit Lesson 4: Huge Debt Problems Made Simple

What will you need to provide to the landlord before you
move in?

Answer: Most landlords will ask for the following: your tax
return, your credit report, some references, the first months
rent, and a security deposit of one months rent.

Whats a cosigner?

Answer: A co-signer is a person who agrees to guarantee the
rental payments. Sometimes landlords ask for a co-signer if
your credit or income or even references arent good enough.
While I dont recommend YOU being a co-signer for someone
else, you may need to ask mom or dad for help, especially if it
is your first apartment.

161
Bonus Lesson 4: Huge Debt

Problems Made Simple

Explain why you should NOT focus on the total amount of debt you
have.
Explain why having a plan to pay off your debt is so important.

Lesson Summary:

Debt can be a major stress inducer. While eliminating your debt overnight is
difficult, you can reduce the stress quickly with a little planning and a slight
change in perspective.

The first step in dealing with debt is to plan ahead. If your credit is terrible, it will
be tough to get a cell phone, an apartment, or to borrow money perhaps to
even get a job. Be prepared to address these issues in advance. There are
landlords who dont do credit checks, and you can get a prepaid cell phone. So
think to the future.

The second, even simpler step, is to just change your perspective on debt. If you
have $10,000 in credit card debt that amount can be intimidating. By changing
your prospective, you can conquer this intimidation. Imagine the payments on
that $10,000 debt are $300 a month. Let's also assume that all you can afford to
pay is $250 a month. So every month you are $50 short. Looking at the situation
this way, it quickly becomes frustrating.

A slight shift in perspective however, changes everything. Really, you only have a
$50 a month problem. If you can increase your income, or cut your expenses, or
make a large enough payment toward the debt to get rid of that $50 gap, you
just made huge progress with a very small step.

Look for a part-time job for a month. Have a yard sale. Sell some clothes. Do
whatever you need to do to bridge that gap.

162
Review Questions:


How does changing your perspective help with your debt problems?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

This lesson mentioned that people with bad credit should plan ahead.
What are some things they can do?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Go to www.peterbielagus.com and find the credit card payoff calculator. Type in
$10,000 of debt, a 15% interest rate and a payment of $250 a month. How long
does it take to pay it off? Now type in a payment of $300 a month, just $50
more. How much quicker is the payoff? How about just 5 extra dollars? What
does that do? Play around with different debt amounts, interest rates and
payments. Find out how much of a big difference a tiny change can make.

Suggested Activity:

Create a pretend student who has $10,000 in credit card debt and $10,000 in
student loan debt. Imagine they get a job right out of school making $27,000 a
year. How could this person could arrange their financial life to make sure their
loans are paid on time?

163
Assume their student loan payments are $100 a month and the credit card
payments are also $100 a month. Now think about the other expenses this
student might have, like food, gas etc. What could they do to be sure they meet
their debt obligations? Could they:
Live at home for one year and put all their rent payments toward the
debt?
Get an extra roommate for one year and put that savings toward debt?
Walk to work?
Carpool to work?
Get creative and come up with some ideas. Remember, even though this is a
pretend student, this pretend student may very well be YOU one day!


www.nfcc.org - The National Foundation for Credit Counseling can help if you
have huge debt problems. They can help with everything from debt
consolidation, to home foreclosure issues, to bankruptcy.

www.bankrate.com - This website has a whole bunch of calculators, including
ones for credit cards.

Fun Facts:

According to Delray Credit Counselings website, the city of Montreal needed 30
years to pay off its Olympic debt of $2 billion, held in 1976!

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

164
Debt Payoff
A 5-Step Plan

Step 1: List all of your debts, with the name of the creditor, the type of debt
(student loan, credit card, home loan, car loan), monthly payment, total
amount owed, interest rate, minimum payment, and whether it is a fixed or
variable interest rate. (REMEMBER: Credit cards have no fixed rates!)

Step 2: Re-prioritize by putting the smallest debt first.

Step 3: Pay the MINIMUM on all debts, except the smallest one. Put as
much as you can toward that one.

Step 4: Once the smallest debt is wiped out, apply that payment toward the
NEXT smallest debt.

Step 5: Keep repeating this process. Paying the minimums on all, except
the smallest debt, which gets as much money as you can afford. As a debt
gets wiped out, put those payments toward the next smallest debt. The
amount of your total payments wont change, but you are creating a
snowball effect, for as your debts shrink, you keep paying the same
amount.

165
Debt Payoff Sheet

Creditor
Amount You
Owe
Interest
Rate
Monthly Payment
Fixed?
Type
of
Minimum
Debt Payment
10
166
Bonus Unit Lesson 5: Dealing with Debt Collectors Part 1
Where Can You Find Cash?

Unclaimed.org: This website is a database of all the Unclaimed Funds
Offices in the United States. These offices collect the missing
money- unclaimed tax refunds, unclaimed security deposits, maybe
even an inheritance you never knew about. Visit the site, type in your
name and any state have lived in. Good luck!
Work binge: Can you get a second job for a few weeks? Can you take
on extra hours or an extra shift at your current job?
Savings binge: Commit to a couple weekends where you spend
NOTHING. This means no driving, no grocery shopping, and no going
out. Often youll find yourself doing something productive, like
cleaning your apartment!
Sell stuff: Look at your list of depreciable assets. What can you get
rid of?
Freeze your memberships: If you have a monthly membership to a
gym or studio, can you freeze it for 6 months?
Shop around: Have you shopped your car insurance? Heating bill?
Cell phone plan? Look to see if you can shave some money off your
monthly heating expenses.
167

How does changing your perspective help with your debt
problems?

Answer: It turns an unsolvable problem into a solvable one.
Many people dont have the money to instantly wipe out their
debts. But with many debts, finding just an extra $5, $10 or
$50 will change everything. Those numbers are manageable
amounts. So break your debts down into bite-size numbers
and work from there.

This lesson mentioned that people with bad credit should plan
ahead. What are some things they can do?

Answer: They can attach a 100-word statement to their credit
report explaining their situation. They can build their own
credit report like we discussed in Unit 3 Lesson 5. They can ask
friends and family for references for landlords and banks that
work with people who have bad credit.
168
Bonus Lesson 5:
Dealing with Debt Collectors
Part 1

List the 4 options people have when it comes to dealing with debt
collectors.
List the 5 items they can negotiate with a debt collector.
Explain the 3 things debt collectors can do if you do not pay your debts.

Lesson Summary:

If you owe money to someone, that person or company is called a creditor.
Creditors will sometimes hire third-party debt collectors or collection agents. All
creditors fall into two groups, public creditors or private creditors.

Public creditors are government agencies, like the IRS, or the Department of
Education. Private creditors are everyone else, like credit card companies and car
loan companies.

When you owe money to a creditor and you cannot make your payments, you
have four basic options:
Run and hide - By far the most popular option but also the most useless.
Remember, creditors dont give up easily, even if it appears that they
have. Just because theyve stopped calling, doesnt mean theyve given
up.
Negotiate on your own - Usually the best option, because you dont have
to pay someone to do what you can do for free. In addition, negotiating
with creditors is easier than most people believe.
Hire someone to negotiate for you - This is another popular option but
with one drawback. Normally, the money you pay to the third-party
negotiation company would be better spent just paying the debt.
Declare personal bankruptcy. Bankruptcy is the legal process where you
ask the court to assist you in settling your debts. This is not as easy as it
used to be, as the laws changed in 2005. Also, bankruptcy varies between
states. It is easier in some states than in others. Remember, a personal
169
bankruptcy stays on your credit report for 10 years, so it is only worth

doing in extreme cases.
When you negotiate with a creditor, there are only 5 things you can ask for:
A lower interest rate - Often this is one of the easier concessions
to get. The creditor is still getting the full amount of their
principal, just not as much interest.
Principal reduction - You can ask that the total amount of money
you owe be reduced, but this is much tougher to get. It means the
creditor will actually lose money.
A lower monthly payment - Without changing the principal or the
interest rate, you can ask the loan be stretched out longer to
make the monthly payments more manageable.
How the items are reported on your credit report - For example,
if you owe $1000 and you send in $800, you can ask the collection
agent report paid as agreed as opposed to settled for less than
full amount, on your credit report. Often this negotiating point
isnt too hard to get. (Unless the debt collector is under orders
from the original creditor not to agree to this.).
Some combination of the first four items - Often, when working
with a collection agent, youll get a little of everything, rather than
total success on one item.

When you fail to pay, there are only a few things a creditor can do to you:
Charge off the debt - A charge off is when a creditor writes your
debt off as a loss. At this point they no longer believe they will be
able to collect from you, so they take a loss on their business
profits.
Take you to court - When a creditor takes you to court, they are
trying to get a judgment against you, which will allow them to
receive part of your paycheck or take money out of your bank
account. (Remember, public creditors dont need to take you to
court.)
Negotiate directly with you - Unless they are under restrictions,
creditors have the freedom to negotiate any of the 5 items
mentioned above.
170
Review Questions:


Why is negotiating often the best option for a creditor?

Answer:
_____________________________________________________
_____________________________________________________
_____________________________________________________

When a debt is charged off, are you free and clear?

Answer:
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________

Action Assignment:

Make a large list of all the ways you could reduce your debts (Do this even if you
do not have any debts right now.). While many students may have no debt at all,
this will really help the students who are in debt. And remember, one day you
might be in debt, so youll be thankful you did this list. To help you get started,
here are some ideas:

1. Switch to a credit card with a lower interest rate - Often you can get a
better rate simply by asking for it. You can also use one credit card to pay
off the other (AS LONG AS YOU CUT UP THE OTHER!!!).
2. Knock off a tiny debt ASAP - If you have a small debt of, say $250, get rid
of that, regardless of the interest rate. This will motivate you.
3. Sell your stuff - The average yard sale yields $600, tax free! If you dont
have a yard, try eBay.
4. Get a temp job for a very short period of time - You probably dont have
the time or energy to work another job. But working a temporarily job for
171
just a few weeks might be doable.

Suggested Activity:

Make a list of cheap stuff you like to do. Often we spend money because we
hang out with people who spend money (We pay for cable because our
roommates want cable. We go out to eat because our friends go out to eat.).

Or we feel the need to spend money to make something special or memorable.
(We spend money on an expensive Valentines Day dinner. We spend a lot of
money on spring break or New Years Eve.).

Having a written list of fun activities that are also affordable will prevent you
from opening your wallet the next time you want to have an enjoyable night.

www.nfcc.org - This is the website of the National Foundation for Credit
Counseling. This is a great place to start, as they can discuss everything, from
credit counselors, to doing it yourself, to bankruptcy (They will not, of course,
discuss the run and hide technique.).

Fun Facts:

Total U.S. consumer debt: $11.74 trillion, as of 2014 (Source: Nerd Wallet.com)

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
172
7 Questions to Ask a Bankruptcy Attorney

In selecting a bankruptcy attorney, the following questions and possible answers may be
helpful.

1. How much will this cost?
Depending on where you live and what your financial life looks like, you may be
out $1,500-$3,500.

2. How long will this process take?
This depends on how complex your financial situation is and how hard you and
your creditors fight. A Chapter 7 Bankruptcy will take 3-6 months. A Chapter 13
filing could take 3-5 years, but part of that reason is because it is an ongoing
payment plan.

3. What will I have to give up?
The court decides what you must cough up. And it will vary by state (in some
states you can keep your house, even it is worth $20 million!). Items that you
dont need to survive (your motorcycle, your gold coins) you may have to fork
over.

4. What are my rights in my state?
States have their own rules about what you can keep in bankruptcy. If your
cousin John was happy with his bankruptcy experience in Florida, you may face a
different situation in Wyoming. Dont listen to Johns experience; find someone
in your state or ask your attorney.

5. What will I get to keep?
Again, this is a state-by-state question. But typically youre allowed to keep what
you need to survive (Remember, the whole point of bankruptcy is to get you
back on your feet, not to cut off your feet.). You can usually keep the following -
retirement account money, clothes, a car, household furnishings, and the house
itself.

6. I know this will totally screw up my credit, but can you give me an idea of what
life will be like after bankruptcy?
A bankruptcy will stay on your credit report for 10 years. However, even after it
disappears, many landlords and loan applications still ask if youve ever declared
personal bankruptcy. So it actually stays with you longer than those 10 years.

Contrary to popular belief, you still can get credit after a bankruptcy; it will just
come at a higher interest rate. Some people are even able to buy a house, albeit
at a very high interest rate. So life will be drastically more expensive.
173

Its possible an employer will ask about bankruptcy and look scornfully upon it.
This will vary from company to company, but in general, more and more
employers are pulling credit reports.

7. Whats this Chapter 7 and Chapter 13 stuff?
The Chapter refers to the location in the Bankruptcy laws. Chapter 7 is a clean
slate. Declaring Chapter 7 actually wipes out debt. Its best for people with
massive debts who have no chance of paying it off. But as of October 2005,
Chapter 7 is not so easy. Chapter 13 is a court-ordered payment plan. Your
payments get extended, creditors cant harass you - but you MUST pay. Chapter
13 doesnt wipe out debts. Why do it then? It can be used for debts that not
even a Chapter 7 bankruptcy can wipe out, like taxes.

174
8 Questions to Ask a Credit Counseling Service

When meeting with a credit counseling service, the following questions may help.
1. How is your service compensated?
There are a few firms out there who will charge an hourly rate to negotiate a
debt payment plan. The majority of them will get a kickback of the money they
bring in for creditors. Needless to say, this kickback can create a bias.

Kickback firms have helped thousands of people dig their way out of debt
without declaring bankruptcy; just realize the bias can be there. Naturally, firms
that charge by the hour are going to bash those who work on kickback
commission, and those who are on kickback commission are going to make you
think twice about paying hourly. There is no easy way around this. Try meeting
with both types of firms. Do what youre comfortable with and what you can
afford. And always remember, the money you would send to these firms may
better used by sending it directly to the creditor, to get you out of debt faster.

2. Can you get rid of negative marks on my credit report?
The answer is NO! There are only two ways to get negative marks off your credit
report. One, let enough time pass by so they disappear. Two, prove that the bad
mark is indeed a legitimate mistake made by the creditor. No one can erase your
wrongdoings. Dont buy services from anyone who claims they can.

3. How exactly will you help me get out of debt?
There are a few ways a credit counseling service can help you get out of debt. If
the credit counseling service is a law firm that youre paying hourly, they may
approach each creditor one at a time and negotiate down the debt. Because its
a law firm, which no doubt offers bankruptcy services as well, creditors might be
willing to listen for fear you will declare bankruptcy.

Some credit counseling services can reduce your payment by acting as a
middleman. These services meet with hundreds of clients who owe thousands of
dollars. Rather than Visa meeting with every single client to hear their particular
sob story, the counseling service does that. Then the counseling service
negotiates with Visa (or whomever), leveraging the bulk amount of payments
they can help bring in.

Sometimes states have their own repayment plans which may allow you to force
your creditor to take principal only payments. Your lawyer or your counseling
service can tell you more about what your state offers.

4. Will you help me with all my debts?
175
5.
6.
7.
8.
The answer you want here is YES! Some services just help with credit cards.
Dont use such a service. Why work with a service to pay off credit card debt,
only to leave your mortgage payments, taxes and student loans, untouched? This
is silly. If youre going to get back on track, get ALL your debts back on track.

I guess because youre a not-for-profit corporation you have my best interests
at heart, right?
Beware of the phrase not-for-profit. I have a few friends who run not-for-profit
companies and they make more money than I do! Im not saying not-for-profits
are scams in disguise, but dont think a flashy corporate law firm is pure evil and
a not-for-profit has a halo over its head. You need to dig deeper.

What about bankruptcy?
Its important to at least ask this question and see what they say. If they balk at it
instantly, that may indicate some bias. While bankruptcy is a last resort option, it
is an option. Dont dismiss it instantly, especially if you have so much debt you
see no way out.

Will this hurt my credit rating?
Using a debt counselor wont hurt your score. It used to, but the laws have been
changed.

Am I actually saving money working with your service?
This seems like a dumb question but be sure the credit counselor can actually
save you money. If not, you may be better off making the payments directly to
your creditors to get out of debt faster. You can, if you feel comfortable, ask your
creditors. Tell them, Look, all I can pay is X a month. If you dont agree to that, I
need to go see a credit counselor and maybe even declare bankruptcy. Do you
want me to pay you or go look into these other options? Often such phrases get
the response you are looking for.
176
Bonus Unit

Why is negotiating often the best option for the creditor?

o Answer: Because a charge off means they will lose
money, and because going to court is expensive
and time consuming.

When a debt is charged off, are you free and clear?

o Answer: Sadly, no. The creditor will often sell a
collection agent the right to collect their charged-
off debt. If you owe a creditor $1000, they might
sell the right to collect that $1000 from you to a
collection agent for $300. Any money the
collection agent collects above $300 is their profit.
177
Bonus Unit
Bonus Lesson 6:
Dealing with Debt Collectors
Part 2

Explain what validating an account means.
Explain the 4-step process to working with debt collectors.

Lesson Summary:

This second lesson on dealing with debt collectors focused on how to create a
plan to work with them. Basically, all debt repayment plans have four steps:

1. Ask that your account be validated. Validating an account means the
debt collector must prove that they have the right to collect the money
from you. There is a time limit about how long you can request this, but
ask it anyway, even if that time has passed. Sometimes they oblige.
2. Ask the debt collector not to call you. You want them to only contact
you in writing.
3. Come up with a plan. How much can you pay and when? The plan
should be realistic for YOU.
4. Present the plan. Most likely a debt collector will not agree to your first
offer, but you can keep working with them. REMEMBER they just want
their money. Every minute they spend negotiating costs them money. So
they do want to work with you.

Dont get nervous! Debt collectors only have three tools they can use against
you. They can:
Hurt your credit report - Often this isnt such a big deal, because once
the nasty phone calls come, your credit has already been ruined.
Take back the item the debt was tied to - If, for example, you bought a
car with a car loan, they can take the car back. Typically, they do this as
soon as you become a few months late on your payments, so if you are
way behind, it has probably already happened.
Take you to court - In court, a debt collector is trying to get a judgment
against you. A judgment allows the debt collector to take money out of
your bank account, or take a portion of your paycheck (Dont worry, you
178
Bonus Unit
will be formally notified about the court date.). But remember, court is
expensive, it takes a long time, and they may not win. So collectors do
want to work with you.

Public debt collectors can often take money out of your bank account, take
your tax refund, or garnish part of your paycheck without a court order. You
will be notified before this happens, but be aware they can do it, in most
cases, without taking you to court.

Review Questions:


Why is presenting a written plan to the debt collector so important?

Answer:________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________

Why is it important to NOT talk on the phone to collection agents but instead
communicate in writing?

Answer:________________________________________________________
_______________________________________________________________
_______________________________________________________________

Action Assignment:

Go online and type into your favorite search engine: wage garnishment laws in
the state of _________________. Put in your home state. What are the rules in
your state?

Suggested Activity:
179
Bonus Unit
Roll play! If you are having problems with your debts, find a friend and use one
of the scripts at the end of this lesson. One person is the debt collector and one
is the debtor. Run through some of the scripts. This is a great exercise because it
gets you comfortable with talking to a debt collector.


www.nfcc.org - This is the website of the National Foundation for Credit

Counseling. This is a great place to start, as they can discuss everything, from
credit counselors, to doing it yourself, to bankruptcy (They will not, of course,
discuss the run and hide technique.).
Fun Facts:

According to Readers Digest, debt collectors usually have the pre-approved
power to cut between 15-35% of your debt immediately. So it pays to negotiate!

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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How To Handle a Collection Agent Call
Get your tools. We recommend you tape this checklist to the wall near the
phone. Also keep a recording device, a pen and a piece of paper as well as a
calendar.

Say this first - Could you hold on just a moment? Then go grab a pen and piece
of paper. DO NOT talk on the phone unless you are taking notes. Write the date
of the call at the top of the piece of paper. Then ask them for:
o Their first and last name (If they wont give their full name ask for their
initials. Get as much information as you can get.)
o Ask for their employee number (if they have one)
o Ask for the name of the company they are calling from
o Ask for their phone number and extension

Dont panic - Remember, collection agents just want their money. This is a
business transaction.

Be polite (even if they are not) - Should the situation ever wind up in court, you
want a record that you were always courteous and polite. Remember, there are
ONLY two things a collection agent can do to you:
o Ruin your credit. (If they are calling, your credit is probably already
ruined).
o Take you to court. To garnish your wages or your tax refund, they need a
court order. You will be notified they are taking you to court.
o EXCEPTION: The IRS and student loan companies with federally-insured
student loans, have much more power. Also, companies that have
secured debt (like car loans) can usually take your car (or whatever
security) back without a court order. If you have problems with the IRS,
we recommend you FIRST talk to a tax professional. If you have problems
with a student loan company, call your student loan servicer.
o Beyond this. Collection agents are making threats that are most likely
illegal. WRITE THESE DOWN, as any illegal threats may help your case
later.

Do not tolerate verbal abuse - It is illegal, end of story. If they keep screaming,
tell them you are going to record the call or you are going to hang up.

They have broken the law if they say any of the following:
o Threaten to call your neighbors, friends or employer
o Call you names like deadbeat, cheater, etc.
o Make illegal threats, like threatening to get you fired
o Threaten to come to your house
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o Threaten any physical violence.

If this is the first time you get a call, ask that they validate your account - This
means they must send you all the information that they have on this account,
proving they have the right to collect it. Technically, you must make this request
within 30 days of being contacted by the collection agent, and most people
forget to do it. However, if the collection agent is organized, they will often send
this information, even if the 30 days have passed.

When a collection agent calls, one of two things will happen:
o They will scream at you and break the law. If this happens, keep reading.
Either tell them you are going to record the call or hang up. Whatever
they do, send them a follow up letter (see sample.).
o They will be polite and ask what you can pay. At this point, feel free to
tell them you are working on coming up with a plan. The best thing to do
is give them an ideal time to call again when you will be available with a
plan (see Sample Collection Agent Script).

Always confirm with a letter in writing, sent certified mail, return receipt
requested - Its a pain in the butt, but youll be glad you did this if you are ever
taken to court.

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Sample Validation Letter to Send to Collection

Agents
(Use this letter as a guide to create a letter to send after a debt collector has contacted you. A
validation letter should be sent within 30 days of being contact by a collection agent.)

Your Name
123 Happy Street
Anywhere, NH 00000

Gimmie Da Money Collections
123 UOME Ave
Payupp, IA 00000

Todays Date

Re: Acct # XXXX-XXXX-XXXX-XXXX Request For Validation.

Dear Sir/ Madam,

I am sending this letter in response to a notice sent to me on ______________________. Please
understand that this is not a refusal to pay, but a notice sent pursuant to the Fair Debt
Collection Practices Act (15 USC 1692g Sec. 809 b) that your claim is disputed and a validation is
formally requested.

Please note this is not a request for verification or proof of my mailing address, but a request
for VALIDATION made pursuant to the above named Act. I request that your company provide
me with written evidence that I have any legal obligation to pay you.

In your response, please provide and/or explain to me the following information:

Describe what the money you claim I owe you is in regards to.
Explain how you calculated the amount you claim I owe.
Provide me with copies of any documents or contracts that show I agreed to pay
what you claim I owe.
If applicable, provide a verification or copy of any judgment.
State the name the original creditor with their complete contact information.
Prove the Statute of Limitations has not expired on this account.
Show me that you are licensed to collect in my state.
Provide me with your license numbers and Registered Agent for your company.

I will also inform you at this time, that if your company has reported invalidated information to
any of the credit bureaus, this action might constitute fraud under Federal and State Laws.

If your company is able to provide the proper documentation stated above, I will require at least
30 days from the date I receive your response to investigate this information. During such time,
all collection activity must cease and desist.

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Also during this validation period, if any action is taken which could be considered detrimental
to any of my credit reports, I will consult with my legal counsel for suit. This includes, but is not
limited to:

Listing of any information with a credit reporting agency that could be inaccurate or
invalidated.
Verifying an account as accurate when there is no proof that it is.

If your company fails to respond to this letter requesting validation of the above referenced
account within 30 days from the date of your receipt, all references to this account must be
deleted and completely removed from my credit file. You must, at that time, also send a copy of
the deletion request to me at the address above.

Be advised at this time I also request, in writing, that no telephone contact be made by your
offices to my home or to my work. If your company attempts telephone communication with
me, including but not limited to computer-generated calls and calls or correspondence sent to
or with any third parties, I will consider such action to be harassment and I will have no choice
but to press legal charges. All future correspondence with me must be done in writing and sent
to the address stated in this letter by first class U.S. Mail.

Please be sure that your records are in order. Invalidated or inaccurate information will force me
to take legal action. This is an attempt to correct your records; any information obtained will be
used for that purpose.

Best Regards,

Your Signature HERE

Your Name HERE

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Sample Collection Agent Script

(A Professional Collection Agent)

YOU: Hello?

THEM: Hi, is this Joe Debtor?

YOU: Whos calling?

THEM: This is Carl from Gimmie Da Money Collections. Is this Joe Debtor?

YOU: Yes it is. Could you hold a minute? (Now go grab a pencil and paper and start
taking notes. Be sure to write the date and time down.)

THEM: Mr. Debtor, this is the third time I have called. I need to-

YOU: Carl, Im sorry, the company is Gimmie Da Money Collections?

THEM: Yes.

YOU: And Carl what is your last name?

THEM: Our policy is not to give out our last names. But my employee number is 1234.

YOU: Okay thank you. How can I help you today?

THEM: Mr. Debtor, this is the third time I have called. Your account with us is way
overdue. We need a payment of $750 from you immediately.

YOU: Carl, could you please tell me what this is in regards to?

THEM: This is an overdue phone bill from Sneaky Cellular Incorporated.

YOU: Im sorry, Carl, could you validate my account? Could you send me all the
paperwork you have on this debt, including the documents that prove you have
the right to collect it?

THEM: I already sent that 3 weeks ago.

YOU: Carl, unfortunately I did not get it, would you mind sending it again?

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THEM: Look, we handle all the collection accounts for Sneaky Cellular. You know you
had an account with them, and this is the third time I have had to call. My client
wants to be paid!

YOU: Carl, I understand that and I certainly want to work with you. I am going through
a tough time now, but it is my goal to settle all of my outstanding debts.
However, the number you suggested sounds high, and I need the paperwork
verifying the amount. When I receive it, I will look it over, and if I agree with
everything it says, I will call you back one week from receiving the paperwork to
discuss. If I disagree, I will still call you back one week from receiving the
paperwork. Is this the best number to reach you?

THEM: Yes. However, I would like to receive part of the payment today.

YOU: Carl, unfortunately I am unable to do that without the file. If you send it right
away I will look at it immediately.

THEM: Okay, is the address still _________________.

YOU: Yes.

THEM: Okay I will send it out today, and I will look forward to your call on
_______________.

YOU: Thank you Carl. Goodbye.

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(Follow Up After a Collection Agent Calls.
Remember to take notes.)

YOU: Yes, hello is this Carl?

THEM: Yes it is.

YOU: Carl, this is Joe Debtor. I promised to call you today at 11 a.m., after I had a
chance to review the file you sent over. Thank you for sending it so quickly.

THEM: No problem. What have you come up with?

YOU: Carl, it says that I owe $750, but my records indicate I owe only $650, because I
have an email terminating the account in November, when your file says it
wasnt until December.

THEM: Can you send me that email now?

YOU: Already did, it should be in your box.

THEM: I see it. And I see the company confirmed it as well. That must be a mistake on
our end.

YOU: That leaves $650, which I agree I owe you. Unfortunately, I cannot pay all $650
now. I would prefer to pay $25 a month for 4 months until April when I expect
my tax refund of $300. So thats $400 by April 30.

THEM: My client has been looking for this money for over a year. I cant take less than
$50 a month.

YOU: Carl, I would love to give it to you, if I had it. Believe me, I dont like this hanging
over my head. But I can get you $400 by late April. In the summer, I help a buddy
mow a few lawns in the neighborhood, so by July, I think we can square this
away.

THEM: Alright, Ill just need your bank account information to debit your account.

YOU: Carl, Im sorry, I do not give that out. I am putting a check in the mail today.

THEM: Id prefer the debit. Checks often get lost.

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YOU: That is why I am sending this one certified mail, return receipt requested.
Remember, I told you I would call you today at precisely 11 a.m., and I did.

THEM: That is true and I appreciate that. Most people avoid me and I have to track
them down.

YOU: You will not have that problem from me. You will get a letter from me, with a
check for $25 on the 15th of every month. If the money is going to be late for
any reason, you will hear from me in advance.

THEM: I appreciate that. Stick to that schedule and well do fine.

YOU: One more thing Carl. My credit is very important to me and I do not want any
further damage to happen to my credit report. I am asking that you report every
payment I make as paid as agreed. When I am done, I want this account on my
credit report to read PAID IN FULL.

THEM: Youre asking a lot, Mr. Debtor.

YOU: Remember Carl, it is easier for me to pay my bills with a good credit score.

THEM: Okay. I can handle that.

YOU: Thank you, Carl. Can you just send me a quick email confirming that?

THEM: Sorry I cannot email out, but I just told you I would.

YOU: I know Carl, but I prefer a paper trail.

THEM: Okay, I cannot send an email, but I can send a written letter.

YOU: Thank you. Goodbye.

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What to do if a Collection Agent Takes You to

Court
Read the summons - The summons is the official notification from the court
that you are being sued. In order for there to be any action against you, a
summons must be properly served on you according to the laws of your state
(often a sheriffs deputy has to do it in person). The summons will tell you
precisely what you need to do and how much time you have to do it. BE
AWARE, you may not have much time.
DO NOT SKIP OUT - This is very bad. If you cannot make it, notify the court in
writing and get a confirmation in writing that the court agrees to move the
date.
Bring a lawyer - Okay, ha ha. If you can get a family friend to represent you for
free, do that. But if you cannot do that, most people will not be able to spend
$5,000 to bring a lawyer to court. If you have that kind of money, JUST PAY THE
DEBT! ;-)
Bring your paperwork - Have it as neatly organized as possible. Remember all

those follow up letters, sent return receipt requested, that highlight how the
collection agent broke the law? Well, those will work to your advantage in a BIG
way now. The courts do not like to see such abuses by debt collectors.
Have a plan - If you do not show up with a plan, the courts will force you on a
plan. They may force you on a plan anyway, or they may arrange to have your
wages, bank account, or tax refund garnished, but this is not easy to do. Having
a plan proves you want to pay your debts.
Their lawyer probably will try to negotiate with you before the court date goes
through. Dont just agree to what he says. You are in court, but remember, its
YOUR day in court as well. You can argue why you cannot pay what they have
asked. Dont sign any agreements without reading and understanding them.
Even if you dont have your own lawyer, you can ask the judge questions.

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Sample Letter to Send after a Call from a

Collection Agent
Carl Smith
123 Oweme Street
Payup, IN 01234

This letter has been sent via certified mail, return receipt requested.

Date: _____________

Dear Carl,

I am writing to confirm what we agreed on our call on _______________ (date) at 11
a.m. You called me at my home and stated you were from Gimmie Da Money
Collections. You mentioned you believe I have an amount owed of $750 for an unpaid
phone bill from Sneaky Cellular.

I explained the amount seemed high to me, and I asked you to validate the account, by
sending me copies of everything in your file, proving I owe that money and that your
firm has the right to collect it. We agreed that you would mail it to my address you had
on file and that upon reviewing, I would contact you in one week to discuss a payment
plan.

Carl, I appreciate your time, and I look forward to working with you.

Sincerely,

Signed You

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(An Abusive Collection Agent)
YOU: Hello?

THEM: Hi, is this Joe Debtor?

YOU: Whos calling?

THEM: This is Carl from Gimmie Da Money Collections. Is this Joe Debtor?

YOU: Yes it is. Could you hold a minute? (Now go grab a pencil and paper and start taking
notes. Be sure to write the date and time down.)

THEM: Mr. Debtor, this is the third time I have called. I need to-

YOU: Carl, Im sorry, the company is Gimmie Da Money Collections?

THEM: Yes, you know who this is.

YOU: And Carl what is your last name?

THEM: Our policy is not to give out our last names. But my employee number is 1234.

YOU: Okay thank you. How can I help you today?

THEM: I think you know the answer to that. I have called three times about a $750 phone bill
you owe. Now when can my client get their money?

YOU: Carl, could you validate the file?

THEM: No, we are way beyond that, Mr. Debtor. Now I am sure you do not want your two kids
to know their father is a deadbeat.

YOU: Hold on a second Carl, I am trying to work this out with you.

THEM: Then PAY UP! Which part of that sentence is confusing to you? Does your employer
know youre not an ethical person? Maybe I should tell him.

YOU: Carl, that is far enough. Under the Fair Debt Collection Practices Act, you know what you
just threatened is illegal.

THEM: Dont site the FDCPA to me pal, I know the law and unlike some people I pay my bills.

YOU: I wasnt finished. I am now recording this call. Under the Fair Debt Collection Practices
Act, I am exercising my right to not have you contact me any further. Goodbye.
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Sample Letter to Send after a Call from a

Collection Agent
(Abusive)
Carl Smith
123 Happy Street
Payup, IN 01234


DATE: _____________

Dear Carl,

I am writing to confirm what transpired on our call on _______________ (date) at 11
a.m. You called me at my home, and stated you were from Gimmie Da Money

When I asked you to validate the file, you suddenly became hostile. You threatened to
inform my children of my financial situation as well as my employer. You called me a
deadbeat, which I did not appreciate. This is clearly a violation of the Fair Debt
Collection Practices Act.

Please let this letter serve as my notice that I do not want to be contacted any more by
your agency, unless, by law it is to inform me of a court order or to confirm there will be
no more contact.

Sincerely,

Signed You

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Sample Letter to Send to a Collection Agent

Outlining a Plan of When and How You Will Pay

Carl Smith
123 Happy Street
Payup, IN 01234


DATE: _____________
Dear Carl,

I am writing to confirm what I agreed to on our call on _______________ (date) at 11
a.m. You called me at my home, and stated you were from Gimmie Da Money

As I mentioned in on the phone, I was recently laid off from my company. However, I
want you to know that paying this debt is not only important to me, it is morally the
right thing to do. At this point I am able to offer the following:

(Outline your plan here:)

$100 paid immediately.
$25 paid every month on the tenth of the month for the next 4 months.
The remaining balance, $550 I can pay when I receive my tax refund,
which I estimate will be on April 30.
In exchange I am going to need the following:
o Any and all late fees on the account waived and the monthly
interest charge of 1.5% per month to stop.
o All payments referenced on my credit report to this account to be
reported as paid as agreed.
o No further phone correspondence with me, please send
everything to the address you have on file via certified mail.

Carl, I want to work with you and your company to get this debt cleared. If the above is
acceptable, please let me know by December 10, via certified mail.

Sincerely,

Signed You
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Why is presenting a written plan to the debt collector so
important?

Answer: When you present a written plan, you have a record that
you have at least attempted to make good on your debts. If a
collection agent ever takes you to court, it hurts their argument
when you can prove you have tried to pay the debts.

Why is it important to NOT talk on the phone to collection agents
but instead communicate in writing?

Answer: If it is not in writing, it never happened. You need a
paper trail of what you and the collection agent agreed to.

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Bonus Lesson 7:
Retirement Accounts
Explain the importance of investing through retirement
accounts.
Explain the two main types of retirement accounts.
Explain the difference between a Roth retirement account and
a non-Roth retirement account.

Lesson Summary:

One of the simplest things investors can do to make more money is pay very
close attention to taxes and fees. Both of these costs dig directly into your
profits. In one of the lessons on investing, we discussed how index mutual funds
have lower fees, since they dont have a manager. Because of this simple fact,
index funds often outperform the majority of funds that use a manager.

For most investors, the largest fee of all are taxes. One of the easiest ways to
minimize taxes is to invest inside a retirement account. Retirement accounts are
tax shelters that the government set up to encourage people to save for their
own retirement. These accounts protect your investments from taxes until you
turn age 59 . Since taxes are essentially a fee, and a large fee at that, its worth
considering these accounts.

There are two types of retirement accounts:
Accounts sponsored by your employer - Employer sponsored accounts
are the 401k, the Roth 401k, the 403b (for non-profit companies), the TSP
(for government employees), and the SEP or SIMPLE (for small business
employees).
Individually sponsored accounts - These include the IRA (Individual
Retirement Arrangement) or the Roth IRA.

One way that retirement accounts differ then is by who manages them. Is it you,
or the company you work for?

The other distinction has to do with the word Roth. If an account (individual or
employer) has the word Roth in its title, which simply means you get the tax
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break later. If it doesnt have the word Roth in the title, you get the tax break
now.

To set up an employer plan, ask your boss, or the head of human resources,
what plans are available. If you work for a for-profit company, most likely the
plan will be a 401k or the Roth 401k. If you work for a non-profit company, most
likely your plan will be called a 403b.

If nothing is available, then consider setting up an IRA. You can set one of these
up at your local bank or any financial company. You can ask the company all
about IRAs vs. Roth IRAs, but for most young people, the Roth IRA is the way to
go.

There is one final consideration to keep in mind about retirement accounts. You
must have earned income to have one of these plans. If you are a full-time
student, living off your parents or student loans, youll have to wait until you
have a job. Be patient, youll get there (Remember one of my big themes: You
need to know this stuff before you need to know this stuff.).

Review Questions:


For most young people, why is a Roth-type account the better choice?

Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Can you have both an individual retirement plan and an employer

sponsored retirement plan?
Answer:_____________________________________________________
____________________________________________________________
____________________________________________________________

Who can help you open an individual plan?

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Answer:_____________________________________________________
____________________________________________________________

Once you start a retirement plan, whether it is an individual or employer

sponsored plan, are you committed to anything?

Answer:_____________________________________________________
____________________________________________________________

Action Assignment:

Research getting a retirement plan. If you already have one, get the information
on where the money is invested. If you dont have one, but do have a job, ask
your employer or call a brokerage company and interview them. Use the sheet in
the Resources Section.

Suggested Activity:

Often students are hesitant about investing for retirement. It seems too far away
and there are far more urgent things to address. Write down some of your
concerns.

Now find someone - perhaps a parent, relative or even fellow student - who is
already investing in a retirement account. Did they have any of your same
concerns when they started? What did they do to overcome them? What advice
do they have for you?


Below are some companies that can help you open a retirement account. Your
local bank can help as well.

www.etrade.com

www.scottrade.com
www.fidelity.com

www.edwardjones.com
www.vanguard.com

www.troweprice.com

Note: All these companies can help you with a Roth IRA. We receive no
compensation or referral fee for mentioning them here.)

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www.irs.gov - The IRS website is surprisingly easy to use. You can search for the
terms 401k or "Roth IRA" and read about them.

Fun Facts:

The ROTH IRA was named after its creator, Senator William Roth.

Notes:__________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Six Questions to Ask Your Employer and/or

Financial Company about Retirement Accounts
How much can I contribute to the plan?

Amounts vary from company to company and can depend on your salary. For
IRAs, the IRS sets a limit every year and again, sometimes it is tied to salary.
Ask the financial company.

When can I start contributing?
Some companies may want you to work for them for a little while before
taking advantage of the plan. So, if they wont allow you to start right away,
you may want to go with an IRA.

What type of investments can I invest in?
A typical 401k will allow you to invest in just about anything you want, like
stocks, bonds, and mutual funds. IRAs will allow that as well. If your
employer has a very limited plan, one that does not contain index mutual
funds, an IRA may be the better way to go.

Do you offer matching contributions?
Hopefully the answer is yes. Matching contributions are when your employer
contributes money based on how much you contribute. THIS IS FREE MONEY.
If your employer has matching contributions, go with their plan over an IRA.
IRAs dont offer matching, since YOU are the sponsor.

What is the speed velocity of a swallow?
This will depend on whether or not it is an African or Australian Swallow.

What happens if I am fired or if I leave the company?
This is important. Sometimes you can leave your 401k with that company
and just let it grow on its own. Other times you can transfer it into your new
401k with your new company or into an IRA using a direct rollover. A rollover
is: A) The one trick you could never get your dog to do, or B) How you move
money from one retirement account to another. You guessed it! Its B. The
word direct means that you do not take possession of the money before
moving it into the new account. Dont take possession of the money, because
youll pay taxes and penalties. Of course, since an IRA is an individual plan, it
is not affected when you change jobs.
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Different Types of Retirement Accounts:

Traditional IRA: This is an account sponsored by you. In most cases,
you get a tax break for putting money in, but the money is taxed as
income when you take it out. You must leave the money in the
account until you turn 59 years old, otherwise you will pay
penalties to remove the money. You can set up a traditional IRA at a
brokerage company, such as Edward Jones, Merrill Lynch, Etrade,
Scottrade, etc. Remember, you MUST have earned income to open
one of these accounts.

Roth IRA: This is an account sponsored by you. You do not get a tax
break for putting money in, but the money is not taxed when you
take it out. Any money you put in is called a contribution. Any money
earned inside the account is referred to as earnings. You must leave
the earnings in the account until you turn 59 years old, however,
unlike the traditional IRA, with the Roth, you can take out your
contributions at any time. You can set up a Roth IRA at a brokerage
company, such as Edward Jones, Merrill Lynch, Etrade, Scottrade,
etc. Remember, you MUST have earned income to open one of these
accounts.

401k (for profit) 403b (nonprofit): These employer sponsored
accounts work the same, they just have a different title, depending
on whether you work for a profit company, or a nonprofit company,
such as a school. You get a tax break for putting money in, but the
money is taxed as income when you take it out. You must leave the
money in the account until you turn 59 years old. Your human
resources department can explain more about these plans.
Sometimes employers will match your contributions to these plans
with money of their own. Typically, you can put more money into a
401k or 403b than into an IRA.

Roth 401k: This is an employer sponsored account. You do not get a
tax break for putting money in, but the money is not taxed when you
take it out. Any money you put in is called a contribution. Any money
earned inside the account is referred to as earnings. You must leave
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the earnings in the account until you turn 59 years old, however,
unlike the traditional 401k or 403b, with the Roth, you can take out
your contributions at any time. Your human resources department
can explain more about these plans. Sometimes employers will
match your contributions to these plans with money of their own.
Typically, you can put more money into these plans than into an IRA.

SEP-IRA or SIMPLE: These are retirement plans for self-employed
people. They work like a Traditional IRA, but you may need the help
of a professional to set them up.
201

For most young people, why is a Roth-type account the better
choice?

Answer: Most young people dont need a tax break now, they
need a tax break later. When young Americans enter the
workforce, their incomes are at a lifetime low. Low income
means low taxes. So, they dont need a tax break now. But, if
they save and invest, their net worth will grow to a huge
amount when they retire. Thats when they will need a tax
break. The Roth provides the tax break upon the withdrawal of
money, not upon the contribution of money.

Can you have both an individual retirement plan and an
employer sponsored retirement plan?

Answer: Yes, but there may be some restrictions. Start with
the employer plan and then move into the individual plan. You
may have to ask your tax advisor about the restrictions, which
are based on income.

Who can help you open an individual plan?

202
Answer: Your bank or any brokerage company like, Scott

Trade, E Trade or Edward Jones. Dont get too hung up on
picking the ideal company. You can always switch later.

Once you start a plan, whether it is an individual or employer
sponsored plan, are you committed to anything?

Answer: No. You can stop contributing at any time. You can
also lower the contributions at any time (However, some
employers only allow changes once a month or once per
quarter, so be sure to ask.). You can stop contributing for five
years in a row; then start again it you like. In short, there is NO
EXCUSE not to do it!

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Bonus Lesson 8: Giving Back

Explain how to create more abundance in the world.
Explain why you should lighten up.

Lesson Summary:

During a session we did a while back on resources, we stated that the world can
be an abundant place because we dont all want the same things. What is
borderline worthless to you, is of great value to others.

Often people dont give back because of one of three reasons:
1. There is something more exciting to do or more interesting to spend
money on.
2. They dont have time for a long term commitment.
3. They worry they only have enough money for a small donation, which will
seem insulting.

This lesson debunked all these excuses. We talked about a charity I volunteer for
where I get to repel down the side of a building! Pretty exciting! And for those
who claim they have no time, there are charities that will take your help for a
day or even a few hours. Finally, when it comes to money, dont be embarrassed
by the amounts you send, everything helps. If a charity had to pick between a
person who sends $1 and a person who sends nothing, they will take the $1
every time.

The lesson also talked about lightening up your financial life. The stuff you own
costs you time and money to own it. It costs you time and money to insure it, to
organize it, and to clean it. So lighten up. Sell, donate or recycle as much of your
stuff as you can. Remember, what is worthless to you is of great value to others.

You can give back without having it hurt. Start by finding a charity that you
would love to volunteer for. Next, donate all the stuff in your life that you no
longer want but someone else would love. And finally make small tiny financial
contributions. (The amount doesnt matter, its the action.)

Review Questions:


204
If you only volunteer for charities that you think are fun, arent you being
a bit selfish?
Answer:_____________________________________________________
____________________________________________________________

If you donate money or stuff, can you get a tax break?

Answer:______________________________________________________
____________________________________________________________
____________________________________________________________

Action Assignment:

Go through your home and start getting rid of your stuff. Sell it, donate it or
recycle it. If you do donate it, make a list of what you donate and put it in your
financial file.

Suggested Activity:

Using the websites in the Additional Information Section of this Lesson,
research some charities you would be interested in volunteering for. Start by
asking yourself, what do you enjoy doing? Then see if you can find a charity that
lines up with this activity.


All the websites below have links to volunteering opportunities. You can search
by location and type of service you want to do.
www.volunteermatch.org
www.idealist.org
www.serve.gov

Fun Facts:

According to the United Way, the hourly value of a volunteer is $20.25. That
means for every hour you volunteer, you save that nonprofit $20.25! So get out
there!
205

Notes:__________________________________________________________________
________________________________________________________________________

If you only volunteer for charities that you think are fun, arent
you being a bit selfish?

Answer: Who cares?! According to the Bureau of Labor
Statistics, only about 26% of the country volunteers. A quarter!
More people need to get out there. So find something you
enjoy doing and do it!

If you donate money or stuff, can you get a tax break?

Answer: You might be able to! So keep a list of everything you
donate and get a receipt if you can. Save this in a tax folder.
How crazy is that, you could get PAID to donate your old
clothes?

206

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Financial Fundamentals

A DIVISION OF MAGNA PUBLICATIONS

Unit 1 Lesson 1: Introduction

2015 National Center for Student Life

Printed in the United States of America.

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 1: Introduction

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 1: Introduction

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 1: Introduction

When it comes to investing, what is meant by the term return?

How did you do?

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 1: Introduction

1. As of right now, do you have written goals?

2. Do you know your credit score?

3. Do you feel you are raising financially savvy children? _______

5. Do you have a retirement plan?

6. Do you have a current, typed resume and cover letter? _______

8. Do you have health insurance?

9. Do you currently have a tax advisor?

10. Do you know how the stock market works?

How did you score?

Unit 1 Lesson 1: Introduction

Review Question Answers:

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Unit 1 Lesson 2: Goals

Understand the importance of goals.

Name three clarifications that every goal should have.

Explain the term opportunity cost.

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Unit 1 Lesson 2: Goals

What are the five steps to writing goals?

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 2: Goals

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 2: Goals

Unit 1 Lesson 2: Goals

Review Question Answers:

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Unit 1 Lesson 2: Goals

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 3: Compound Interest

Lesson 3: Compound Interest

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 3: Compound Interest

$1,000 invested every year at 8% for 35 years equals $________.

$1,000 invested every year at 8% for 25 years equals $________.

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Unit 1 Lesson 3: Compound Interest

How much does that item cost you every year?

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Unit 1 Lesson 3: Compound Interest

Unit 1 Lesson 3: Compound Interest

Unit 1 Lesson 3: Compound Interest

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Unit 1 Lesson 3: Compound Interest

Compound Interest Chart

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Unit 1 Lesson 3: Compound Interest

Unit 1 Lesson 3: Compound Interest

2015 National Center for Student Life. All rights reserved.

Unit 1 Lesson 3: Compound Interest