Handouts

Why is Personal Finance Important?

How to Use These Modules

Key Terms

Introduction to

Personal Finance

These modules are designed to give you a brief overview on how to

navigate the confusing world of finance, as well as give you some tips on

how to best manage your finances.

Are basic intentionally. Research the areas

you feel less confident in.

As a customizable guide. There is not a one

size fits all method to personal finance. Use

the information provided, research, and take

action on what is best for you.

Are designed for encouragement. Use the

information to take control of your financial

health and protect your future.

These modules:

Topics Covered

The average American carried $5,589 in credit card debt at the end of 2021

(Experian, 2022)

56% of Americans can’t cover a $1,000 emergency expense with savings (CNBC,

January 2021)

58% of Americans are living paycheck to paycheck after inflation spike (CNBC,

June 2022)

Take a look at these startling statistics:

HELPFUL HINT

Look for these symbols

throughout. They give

helpful information

that is often

overlooked!

Income & Expenses

Budgeting

Bank Accounts

Credit Cards

Retirement Planning

Mortgages

Student Loans

Federal Income Taxation

Insurance

Income

Disposable Income

Expense

Need

Want

Withholdings

Income & Expenses

50/30/20 Budgeting

Envelope System

Pay Yourself First

Zero-Based Budgeting

Budgeting

Bank

Credit Union

Checking Account

Savings Account

Interest Rate

Deposit

Withdrawal

FDIC Insurance

Debit cards

Bank Accounts

Credit Limit

Annual Percentage Rate

(APR)

Monthly Statements

Minimum Payment

Credit Scores

Creditworthiness

Credit Cards

Compound interest

Traditional IRA

Roth IRA

401 (k)

Tax-deferred growth

Tax-free growth

Contribution limits

Growth strategies

Retirement Planning

Mortgage

Collateral

Principal

Interest

Fixed rate mortgage

Variable rate mortgage

Preapproval

Appraisal

Downpayment

Mortgages

Direct Subsidized

Direct Unsubsidized

Direct PLUS

FAFSA

Private Student Loan

Repayment period

Student Loans

Gross income

Adjusted gross income

Taxable Income

Tax Rates

Tax Liability Refund

Deduction

Tax Credit

Federal & State Tax Basics

Auto insurance

Health insurance

Homeowner's insurance

Premium

Deductible

Claim

Insurance

Income & Expenses

This module will explain the key concepts related to income and expenses.

Income

Expenses

Extra Resources to Explore

An expense is anything you

spend money on.

Income is the money earned by an

individual from any given source.

Utilize these resources to gain further insight on income & expenses!

Remember, your "take home" pay from most jobs will be different than your gross pay.

Governments typically WITHHOLD (or take out) federal/state income tax, Social Security and

Medicare taxes, while companies can withhold various amounts for retirement, benefits, and

other items.

Disposable income is the money

you earn after taxes and fees, also

called after-tax income.

Hourly wages/salary

Bonuses

Investment dividends/distributions

Rental income

Profit-sharing

Side businesses

Income can be earned from:

HELPFUL HINT

Try not to rely on a

single source of

income! Having

multiple sources of

income can improve

your financial stability

and overall wealth.

Expenses can be categorized into

needs and wants. Needs are basic

things required to live. Wants,

however, are not necessary to live,

but provide extra comfort and

enjoyment.

Rent / Mortgage

Food

Transportation / Gasoline

Utilities

Insurance

Phone/Internet

Examples of Needs

HELPFUL HINT

Although something

may be considered a

want, it does not mean

it is not important.

Wants play an

important role in your

quality of life.

Gaming consoles

Luxury furniture

Latest model phones

Dining out regularly

New car

Examples of Wants

Needs can and have changed over the

years. Previously, phones and the internet

would have been considered a luxury. Now,

they are widely considered necessities.

Gross income is your total pay

before taxes and fees are taken out.

Key Terms to Remember

Gross Income

Disposable Income

Withholdings

Expenses

Needs

Wants

Personal Income: https://www.investopedia.com/terms/p/personalincome.asp

Increase Income: https://www.indeed.com/career-advice/starting-new-job/how-increase-income

Benefits to Multiple Income Sources: https://www.forbes.com/sites/theyec/2020/02/25/five-benefits-of-

having-multiple-sources-of-income-as-an-entrepreneur/?sh=1c3360bd43bb

Needs vs. Wants: https://www.thebalance.com/how-to-separate-wants-and-needs-453592

Example

This is John.

John is a 22 year old IT analyst who

just graduated from a four year

college and landed his first full-time

job at Advanced Technologies.

$50,000 per year base salary before taxes

Retirement, Insurance packages included

Paid time off and sick leave included

John accepted this position with the following

information:

john's salary will be taxed, and he will let his

employer take out money for retirement and

insurance (more on that later).

John has ordinary expenses like

any other person. He has to pay

rent, insurance, phone bills,

grocery, car payments, internet,

and utilities to survive daily life.

He also has a few hobbies. His

most expensive is golfing and his

club membership. He also has a

gym membership and a streaming

platform subscription.

Why Budgeting is Important

50/30/20 Budgeting

Which budget should I choose?

Options for "Extra" Money

Budgeting

This module will explore the importance & key concepts of budgeting.

Problems to Overcome when Budgeting

A budget is a financial tool used to

track income and expenses to better

manage your finances.

If you find that you have "extra" money left over after spending it within your

budget, consider investing it, saving it, spending it, or giving it to charity!

Many people view budgets as a scary, rigid tool with no

flexibility. It doesn't have to be this way! If you fail to follow a

budget for a month, try again the next month, and the next!

DID YOU KNOW?

You should keep 3-6 months of

emergency expenses in "liquid"

cash, meaning easily accessible

in a savings account!

The Envelope System

Pay Yourself First

Remember, budgeting uses your after-

tax income. This can be anywhere from

60-70% of your gross income!

Zero-Based Budgeting

50% of after-tax income goes to needs

30% of after-tax income goes to wants

20% of after-tax income goes to debt

repayment, savings and investments

Is a type of pay yourself first budgeting,

just with set amounts to allocate

Be sure to use AFTER tax income

Categorizes spending into 3 buckets

Cannot spend more than the allotted

amount

Rigid by nature

Cash is traditional; digital apps exist

that mimic the paper system

Use "envelopes" to separate spending into

categories (rent, groceries, insurance, etc.)

Start with savings/investments

Then go to need spending

Lastly go to want spending

YOU decide how much to allocate to

savings/investments, the rest is flexible Every dollar has a purpose

Spending proportions are flexible

Zero dollars left at the end of each

month

Utilize every dollar towards an expense

Am I disciplined enough to follow flexible budgets, or do I need

a rigid system?

How much effort am I willing to give to track spending?

Do I prefer tangible cash, or online/mobile budgeting?

Am I willing to pay to have a financial coach or planner help me

through the budgeting process?

Ask yourself the following:

These questions should be balanced and considered against the

variety of budget options available. Make sure you value your

personal and emotional health as well as your financial health.

You may even need to try more than one budget to see what bests

fits your lifestyle. Trying one is better than trying none!

The All-or-Nothing Mentality: the thought of tracking EVERY

penny for months is unrealistic. Get a good idea of where your

money is going, and adjust your spending habits is the big

picture

Labor-Intensive Tracking: Paper receipts and physical cash is

no longer the norm; apps and other programs are available to

make modern budgeting easier

Paying in Cash is Better: People who spend in cash (including

debit cards), not credit, usually spend less. Keep this in mind.

Keep Disciplined but Flexible: Unexpected expenses will

always occur. Budget some in, but always remember that life

changes, so can your budget!

Extra Resources for Budgeting

50/30/20 Budgeting: https://www.nerdwallet.com/article/finance/nerdwallet-budget-calculator

Envelope Budgeting: https://www.investopedia.com/envelope-budgeting-system-5208026

Pay Yourself First: https://www.thebalance.com/the-pay-yourself-first-budgeting-method-453955

Zero-Based Budget: https://www.ramseysolutions.com/budgeting/how-to-make-a-zero-based-budget

General advice on how to choose a budget and best practices:

https://www.nerdwallet.com/article/finance/how-to-choose-the-right-budget-system

https://consumer.gov/managing-your-money/making-budget#what-to-know

https://www.nerdwallet.com/article/finance/budgeting-tips

Example

John has decided to get control of his

finances using 50/30/20 budgeting. His net

income, after taxes (just Federal), is $42,393.

Monthly income is then $3,532.75

The Needs, 50%: $1766.38

Rent: $900 for 1 bed, 1

bath

Utilities: $250 for electric,

water, sewer, trash

Food: $300 groceries

Car Payment: $150 (used,

old Honda civic)

Car Insurance: $60 (takes

advantage of discounts)

Phone/Internet: $100

(uses a package deal)

Running Total

$900

$1150

$1450

$1600

$1660

$1760, at budget

The Wants, 30%: $1059.83

Golfing: $400 (club fees

and golfing supplies)

Gym Membership: $30

(24 hour gym)

Streaming Services: $60

(3 different platforms,

substitutes cable)

Fast Food: $100

Video Games/computer

parts: $200

Running Total

$400

$430

$490

$590

$790, under budget

The Finance, 20%: $706.55

Retirement Contribution:

$300

Emergency Savings: $200

Student Loan Debt: $206.55

Running Total

$300

$500

$706.55, at budget

He could pay extra on his student loans or

car, whichever is higher interest

He could spend it on wants, or save it!

John has roughly $276.21 "extra" in his budget.

What should he do?

Bank Accounts

This module explains the basics of banks and bank accounts.

Typically have transaction limits

Generate more interest than

checking accounts

Are great for emergency savings

and "nest eggs" that can still be

accessed relatively easily

A savings account is a less flexible

account that is designed to hold money

that you don't plan to spend right

away.

Savings Accounts:

What is a bank?

Checking Accounts

Savings Accounts

Extra Resources for Bank Accounts

Allow you to make deposits (add

money to) your account

Allow you to make withdrawals

(take money out of) your account

Spend money using debit cards,

electronic transfers or paper

checks

Are great for daily/weekly spending

A checking account is a flexible

account that is common to nearly all

financial institutions.

Checking Accounts:

How do I open a checking or savings account?

There is a lot to consider when choosing an institution. Researching the following wil

be extremely helpful!

A bank is a for-profit financial

institution that accepts deposits,

makes loans, and handles other

financial transactions.

There are thousands of banks in

the U.S.! Many large banks offer

online services, as do many

regional and local banks!

Checking accounts are designed for ease of access to the money inside. There are

usually no transaction limits, and many institutions offer free accounts!

What is a credit union?

Credit unions offer many of the

same services and products as

banks, including the accounts

mentioned below!

A credit union is a non-profit financial

institution that is founded to serve

its members.

HELPFUL HINT

If you are unsure of

which institution to

choose, research!

Check online reviews,

set your priorities, and

inquire with the

institution itself.

Checking Accounts

utilize DEBIT cards,

not to be confused

with credit cards.

HELPFUL HINT

Utilize BOTH checking and

savings accounts for their

intended purposes! Using the

same financial intuition allows

for easy transfer of money

between accounts, too.

Interest rates

Limited transactions number

Fees

Debit card availabilty/service

Customer service ratings

Reputation

Minimum balance requirements

Physical or online

FDIC Insurance

Research:

What is FDIC Insurance? If an institution is FDIC insured, the Federal Deposit Insurance

Corporation will protect the depositor against loss of deposits, typically up to $250,000.

Name

Address

Phone Number

DOB

Social Security Number (or other

identification depending on the

situation)

Government Issued ID

Be ready to provide:

What if I don't have a SSN? https://www.consumerfinance.gov/ask-cfpb/can-i-get-a-checking-account-

without-a-social-security-number-en-

929/#:~:text=You%20are%20not%20required%20to,%2C%20address%2C%20and%20ID%20number.

Guide to checking accounts: https://www.investopedia.com/personal-finance/complete-guide-checking-

accounts/

Guide to savings accounts: https://www.forbes.com/advisor/banking/savings/what-is-a-savings-account/

How to choose a financial institution: https://www.investopedia.com/how-to-choose-a-bank-5183999

Consumer Financial Protection Bureau: https://www.consumerfinance.gov/consumer-tools/bank-

accounts/

Example

Since John graduated and joined Advanced

Technologies, he decided to switch banks for

a more convenient experience. His new bank is

Professionals Regional Bank (fictional). Here

are a few details of his accounts.

FDIC Insured to $250,000

Earns 0.05% APY up to $100,000 balance,

then 0.01% on anything over

No fees if minimum balance of $300 is met

No transaction limits

Debit card provided (VISA), $5 replacement

fee, waived if due to theft

Checks: $20 for pack of 100

Can utilize ACH and other wire transfers

Basic Checking

FDIC Insured to $250,000

Earns 0.5% APY up to $50,000 balance,

then 0.01% on anything over

No fees if minimum balance of $1000 is

met

8 limited transactions per month

(withdrawals/deposits/transfers)

Can utilize ACH and other wire transfers

Basic Savings

John has directed his employer to deposit his

entire paycheck ($3532.75) into his checking

account. John will then disperse the money,

from his budget, into savings and retirement

accounts.

Each month, John will transfer at least $200

into his savings account.

What is a credit card?

Credit Card Best Practices

Types of Credit Cards

Credit Scores

Extra Resources

Credit Cards

This module will explain the basics of a credit card, credit scores, and best

practices when using credit cards.

Always pay in full each month to avoid interest charges

At minimum, pay the minimum balance to avoid extra charges to your account

Avoid using more than 30% of your credit limit (this can hurt your credit score)

Avoid opening too many lines of credit in a short amount of time

A person's credit score is a number between 300 and 850 that explains someone's

creditworthiness. The higher the score, the more likely it is than lenders will issue a

loan or credit.

A credit card is a card that allows you

to access a line of credit offered to

you by a bank or financial institution.

Visa, Mastercard, Discover, American Express, and many other processing companies

handle financial transactions for credit cards. Merchants (stores) are usually charged fees

for the use of cards, which is why many businesses have credit card usage fees.

Improve your credit by doing the following:

·Pay bills on time

·Use less than 30% of your limit on any given credit card (lower is better)

·Pay down high balances before the billing cycle ends

·Ask for higher credit limits (lowers your credit utilization)

·Add to your credit mix

·Limit the number of new accounts applied for (reduce inquiries)

·Keep old accounts open, even if no longer used

Have a credit limit (the amount you

can spend using that card at any given

time)

Have the card issuer (bank, etc.) cover

the transaction total each time it is used

Send you a monthly statement, on

which is your total balance, minimum

payment due and due date

Charge interest for purchases when

you don't pay in full each month. This

interest is called APR, or the Annual

Percentage Rate

Credit Cards

HELPFUL HINT

Credit cards are way different

than debit cards! While debit

cards allow you to access your

own money in a checking

account, credit cards use other

people's money to cover your

purchase initially, which you

then must repay.

Cash Back: usually either

Flat rate on all purchases (2% everywhere)

Tiered rates (grocery stores get 5% whereas gas stations get 2%)

Rotating (this month, grocery stores get a bonus, next month, auto part stores get

a bonus)

Travel cards: Typically give you "points" or miles that can be used to travel with

airlines or hotels, often specific airlines and hotels

Designed for students with little or no credit, generally with zero fees and no credit

history requirement

Designed for those who can't pay the full balance each month. However, they charge

less interest for longer periods of time

Many credit cards give rewards, or something for each purchase.

Student Credit Cards

Low-interest Cards

Payment history (10% weight)

Paying on time is preferred

Total amount owed (30%)

Credit utilization: total % of available credit being used

Length of credit history (15%)

Longer credit history = less risky

Types of credit open (10%)

Car loans, mortgage, credit cards, etc.

New credit (10%)

Number of new accounts applied for, called inquires

(more inquires usually hurts your score)

Other factors (dependent on the company)

Credit Scores are usually dependent on the following:

HELPFUL HINT

·Excellent: 800 to 850

·Very Good: 740 to 799

·Good: 670 to 739

·Fair: 580 to 669

·Poor: 300 to 579

Consumer Financial Protection Bureau on credit cards and credit reports:

https://www.consumerfinance.gov/consumer-tools/credit-cards/

https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/

Credit Card Debt Resources https://consumer.ftc.gov/articles/settling-credit-card-debt

Common Credit Card Terms https://www.cnbc.com/select/common-credit-card-terms/

Types of Credit Cards https://www.experian.com/blogs/ask-experian/what-are-the-different-types-of-

credit-cards/

Fraud: The Case for Credit Cards and which card to use: https://money.usnews.com/credit-

cards/articles/credit-cards-vs-debit-cards-what-should-i-use

Example

John avoided credit cards throughout college.

Now, he is ready to look at some offerings

from a major credit card provider and his

bank (all fictional).

Option 1:

Professionals Regional

Bank Starter Card

APR: 17.5%

Annual Fees: $75

Credit Limit: $1500

Rewards: 1% cash back

on all purchases

Late Penalties: $0 on

missed payments for 1

year

Special Features: Cash

back is matched for the

first year, free fraud

protection, 24 hour card

replacement, more

lenient on approval for

low/no credit applicants

Option 2: Credit Source

Silver Cash Back Card

APR: 16%

Annual Fees: $100

Credit Limit: $2500

Rewards: 2% cash back

on gas and restaurants,

1% on all other

purchases

Late Penalties: Extra

2% added to next

statement plus $20 fee

Special Features: Earn

triple cash back in the

first year if paid on time,

free fraud protection, 24

hour card replacement,

online card payment

services available

John has a tough decision on which card to

choose for daily purchases. He is concerned

about missing a payment, and was only going to

use the card for small purchases to get cash

back and build credit.

He chooses to stick with Professionals

Regional Bank and get their starter card.

The Power of Compound Interest

Growth Strategies

High risk with potentially large returns

Recommended for young investors

Medium risk with average returns

Recommended for middle-aged investors

Low risk with potentially lower returns

Recommended for elderly investors

Aggressive

Moderate

Conservative

Contributions are tax deductible

Tax-deferred growth

Taxed as ordinary income at time of withdrawal based on current tax bracket

10% penalty for funds withdrawn before age 59 ¹/²

Contributions limited to $6,000/year, but those age 50+ can contribute up to

$7,000/year

Must start removing funds at age 72

Contributions are not tax deductible

Tax-free growth

Withdrawals during retirement are tax-free

Tax penalty based on tax bracket on gains earned if withdrawn before age 59 ¹/²

Contributions limited to $6,000/year, but those age 50+ can contribute up to

$7,000/year

Contributions are not allowed if income exceeds $137,000 as a single taxpayer or

$203,000 as a married taxpayer.

Offered as a benefit through employer

Contributions are tax deductible

Taxed-deferred growth

Taxed as ordinary income at time of withdrawal based on current tax bracket

10% penalty for funds withdrawn before age 59 ¹/²

Contributions limited to $20,500/year, but those age 50+ can contribute up to

$26,000/year

Employers may choose to match employee contributions. If so, it is highly

recommended that employees max out their employer's matching policy.

According to 2019 data from the Vanguard investment firm, the average employee

contribution is 7%, while the average employer contribution is 3.7%.

Traditional IRA

Roth IRA

401(k)

Three Common Retirement Accounts

Retirement Planning

If you invest $1,000 at age 20,

expect to retire at age 67, and

assume a 10% growth rate, you

would have approximately one

million dollars upon retirement.

While simple interest is earned at the same rate over

time in a savings account, retirement accounts earn

compound interest, which allows you to earn interest

on the interest earned over the life of the investment.

Example: You invest $6,500 for 10 years in a savings

account that pays 6% simple interest. After the tenth

year, you would have $10,400 (earned interest of $3,900

($6,500*6%*10 years) plus the principal of $6,500).

However, if the interest was compounded, you would

have $11,640.51, which is a difference of $1,240.51.

This may not seem like much, but because the future

value depends on the rate and the time factors, it will

be a game changer when planning for retirement.

This module will explain the power of compound interest, the most

common retirement accounts, and growth strategies to fit your needs.

HELPFUL HINT

Most financial experts

suggest that you save

between one and two

million dollars for

retirement, due to rising

costs of living and

increasing life expectancy.

HELPFUL HINT

Set up automatic

transfers from your

checking account to

your retirement

account so you don't

miss out on growing

your nest egg.

Does not offer matching contributions. It

does, however, offer a package where the

employer pays fees associated with

Traditional and Roth IRAs.

If John's employer offered a match, he

would instead choose a 401(k)

John's Employer, Advanced Technologies

John will retire at 65, he is currently 22

43 year investment period

Assume $300 contribution never

increases/decreases monthly

Chooses a moderate investing strategy

(about a 4.92% rate of return)

John stays in the same tax bracket now and

at retirement

Basic Information for John

Example

As mentioned in the Budgeting portion of this

handout, John plans to contribute $300 a month

to retirement. Which route should he go?

Total of $954,435 saved for retirement

Using the 4% rule of withdrawal:

First year of retirement: $38,177.40

Tax free

ROTH IRA

Total of $886,239 saved for retirement

Using the 4% rule of withdrawal:

First year of retirement: $35,449.56

Minus 22% Federal Taxes: leaves

$27,650.66 (John has no state income

tax)

Traditional IRA

Common Types of Mortgages

Mortgage Tips & Tricks

Approval Process

Mortgages

This module will explain the four parts of a mortgage, common types of

mortgages, the preapproval process, and extra advice on mortgage strategy.

Putting down at least 20% of the purchase

price will result in a more competitive rate

and you will avoid paying private mortgage

insurance (PMI), which is a monthly fee to

protect the lender against defaults on loans

arranged with a small down payment.

Presenting yourself to the lender as a

trustworthy borrower (i.e., strong credit

score, stable income, and minimal debt) that

will repay the amount borrowed may allow

you to obtain a lower rate, since your

personal circumstance is considered when

determining the interest rate on a mortgage.

Same interest rate over the life of the loan

Predictable monthly payments

Same interest rate to start out (usually 5-10 years)

After the teaser period, the interest rate will vary

depending on current economic conditions.

Subject to changes in inflation, which could lead to

drastic increases in mortgage payments.

30 or 15 year Fixed-Rate Mortgage:

30 year Adjustable-Rate Mortgage (ARM):

The lender will review the

prospective homebuyer's income,

assets, and credit to determine

the amount of money the

homebuyer qualifies to borrow.

The lender will issue a mortgage

preapproval letter to the

homebuyer.

The homebuyer can attach the

preapproval letter to their offer on

a house. This will notify the seller

of their ability to go through with

the sale.

Mortgage Preapproval

1) Collateral

The financial institution will require your home to be offered as collateral in case

you default on the loan. This protects the lender and holds the homebuyer

accountable.

2) Principal

Initially, this is the amount borrowed from the financial institution and

represents the remaining balance throughout the life of the loan.

3) Interest

Based on the interest rate and the principal amount, the interest represents the

cost of borrowing money from the lender.

4) Taxes & Insurance

Property taxes and home insurance will be included in the monthly mortgage

payment, which will accumulate in an escrow account until the time comes for

the lender to transfer those funds to pay the property taxes and insurance

premiums due.

Initially, monthly

mortgage payments

will apply largely to

the interest;

however, over the

life of the loan,

payments will

increasingly apply to

the principal, thus

increasing your

equity in the home.

What is a mortgage?

A mortgage is a loan acquired from a lender, typically a

bank, that is used to fund the purchase of a property.

It is an agreement between the homebuyer and the

lender to pay back the amount borrowed plus interest.

The Four Parts of a Mortgage

An appraisal to check the

value of the home

An inspection to make sure

the home is safe to occupy

A title company will verify

the title of the home

Final Mortgage Approval

HELPFUL HINT

Save time by

getting

preapproved prior

to home shopping.

This will ensure

that you are

shopping within

your budget.

HELPFUL HINT

In today's seller's

market real estate

market, getting

preapproved prior to

submitting an offer on

a house has never

been more important

since sellers may not

consider offers without

a preapproval letter.

Example

Fast forward 10 years, John is tired of

apartment living. He has saved around $30,000

for a house down payment and closing costs.

Using this calculator:

At $50,000 per year salary, $350 in debt

per month, $30,000 saved for a down

payment

At 20% down, John could afford a house

worth $149,320 based in Fort Wayne, IN

His monthly payment would be $900, the

same as his rent!

What can John afford?

https://www.wellsfargo.com/mortgage/home-

affordability-calculator/

It depends!

Buying a house builds equity over time. It also

comes with greater maintenance expenses

and responsibilities. It is also generally more

long-term in nature than renting.

Renting allows people more flexibility and less

worry regarding maintenance and

responsibilities.

John could get a 3 bed 2 bath home that

needs a little work for $900 per month, or a 1

bed 1 bath apartment that is ready to go for

$900 per month

Should John continue renting, or buy a house?

A Direct Consolidation Loan will incorporate all of your federal student loans into

one, single loan from one lender, making it easier to monitor and pay your debt.

Also, know that the loan fee for undergraduate federal student loans is 1.057%.

Federal

Student Loan:

Offered to:

Financial Need

Based?

Builds interest

while in school?

Amount you

can borrow:

Direct

Subsidized Loan

Undergraduate students

Yes

$5,500 to

$12,500 per year

if undergrad

Direct

Unsubsidized

Loan

Undergraduate or graduate

students

Yes

$5,500 to

$12,500 per year

if undergrad, up

to $20,500 per

year if grad

student

Direct PLUS

Loan

Graduate students and parents of

dependent, undergraduate

students

No, but requires

a credit audit

Yes

Remainder of

college costs if

grad student or

parent of

dependent

undergrad

Types of Federal Student Loans

Benefits of a Federal Student Loan

Private Student Loans

Student Loans

Fixed interest rate that is lower than other loans

Repayment period begins 6 months after leaving college

Flexible options for repayment

May be eligible for loan forgiveness if working in a certain field

Government will pay interest on select loans if you have financial need

Complete the FAFSA

Work with your financial aid office to apply any aid

Verify your understanding of the loan's terms and

conditions through entrance counseling

Sign the promissory note

To obtain a federal student loan:

Keep in mind that you can only use the

loaned funds for expenses related to

education, which include, but is not

limited to, off-campus housing,

groceries, and transportation.

Though federal student loans offer a grace period

of up to 9 missed monthly payments, private

student loans may only allow up to 1 missed

monthly payment before defaulting on the loan,

which could wreak havoc on your credit history.

This module will explain important information about student loans, such

as the differences between federal student loans and private student loans,

how to get a student loan, and crucial pieces of information to remember.

What is a student loan?

A student loan represents an amount borrowed from

either the federal government or a private lender to

fund the completion of higher education requirements.

HELPFUL HINT

To take advantage

of lower interest

rates, maximize

your federal

student loan aid

prior to taking out

private loans.

HELPFUL HINT

Only borrow money

that you need to

avoid paying interest

on funds that were

not necessary to

borrow. Remember,

you can always

borrow more later as

needed.

Issued by a private organization or a bank

Higher interest rates compared to federal loans

May have to start repayment process while attending

school

Most build interest while enrolled in school

May contain annual caps, which restrict the aid available

Interest rate may vary depending on your credit history

as well as your cosigner's credit history

Example

John graduated recently with a bachelor's

degree in IT. Unfortunately, due to income limits,

John did not qualify for any federal student

loans; therefore, he got private ones. Here is

some information regarding financing his

education:

Total loan amount: $30,000

Fixed interest rate: 4.25%

Interest builds during school

Interest payments required during school;

principal payments required starting 6

months after graduation

1 missed payment grace period; 2 missed

payments incurs fees & late penalties

15 year payback period

John attended a four year, in-state college.

John's Estimated Monthly Payment: $226,

according to lender Sallie Mae

John's total cost of attending school was

$45,000. He got $15,000 covered with

scholarships!

John plans to use the "extra" $276 per month

(in his budget) to meet the $226 monthly

payment required by his lender. He currently

only budgeted $206.55!

He paid interest during school. This means he

has less to pay overall through the life of the

loan.

Here is what helped John with student loans:

Basic Tax Formula

Gross Income

Deductions/Tax Credits/Prepayments

Federal Income Taxation

Business expenses (if owner and if expenses are

directly related to business)

Student loan interest (up to $2,500)

½ self-employment taxes

Standardized Deduction

Every taxpayer is entitled to the standard

deduction, which is as follows for 2022:

$12,950 for single taxpayers

$25,900 for married filing joint (MFJ) and

qualified widow(er) taxpayers

$19,400 for head of household (HH) taxpayers

Additional standard deduction for age (+65) and/or

blindness

$1,750 for single or HH taxpayers

$1,400 for MFJ or qualifying widow(er) taxpayers

Itemized Deductions include, but are not limited to:

Medical expenses (in excess of 7.5% of AGI)

State or local income taxes (limited to $10,000 for

MFJ)

Mortgage interest and charitable contributions

Gambling losses (to extent of winnings)

Deduction for Qualified Business Income

Applies to taxpayers with qualifying business

income from most flow-through businesses

Child Tax Credit (max. = $2,000/qualifying child, but

reduced by $50 for each $1,000 of AGI above $200,000 if

single or HH taxpayer, $400,000 if MFJ)

American Opportunity Tax Credit (max. =

$2,500/student)

Lifetime Learning Credit (max. = $2,000/tax return)

Earned Income Credit helps low-income workers offset

employment taxes

Business Tax Credit encourages the hiring of specific

people (i.e., previously unemployed) and research and

development

Foreign Tax Credit reduces the tax liability for US

citizens taxed on worldwide income to avoid double

taxation

Deduction - Dollar-for-dollar reduction of taxable income.

Only allowed if a certain tax law approves the deduction.

Two classifications of deductions — for AGI or from AGI.

For AGI Deductions:

From AGI Deductions:

Tax Credits - Dollar-for-dollar reduction of tax liability.

Tax credits include, but are not limited to:

Prepayments - Dollar-for-dollar reduction of tax liability.

Examples include withholdings, estimated tax

prepayments, and prior year overpayment of taxes applied

to the current year's tax liability.

Includes all revenue, such as wages, interest,

capital gains from selling stock, and business

income, unless a certain tax law states otherwise.

Includes long-term capital gains and qualified

dividends, even though these items are taxed at

preferential tax rates.

Tax-exempt interest, child support, welfare, and

gifts are examples of items excluded from gross

income.

Gross income is not the same as taxable income;

gross income will be greater than taxable income.

Taxable income is used to compute your tax

due/refund, as depicted by the tax rate chart above.

Gross Income

- Deductions for Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI)

- Greater of Standard Deduction or Itemized Deductions

- Deduction for Qualified Business Income

Taxable Income

* Tax Rates

Income Tax Liability

- Tax Credits

- Prepayments

Net Tax Due (or Refund)

Example: You are a single taxpayer

with $50,000 in salary, $3,000 of

ordinary dividend income, and $1,000

of child support. How much revenue

will be included in your gross

income?

$50,000 + $3,000 = $53,000

Assuming you take the standard

deduction since you have no other

deductions, what is your tax liability?

53,000 - 12,950 = 40,050 = Taxable

Income

Tax Liability = $1,027.50 + ($40,050 -

$10,225) * 12% = $4,600.50

HELPFUL HINT

Tax credits are more

helpful than tax

deductions in reducing

your tax liability because

tax credits reduce your

tax liability dollar-for-

dollar, while tax

deductions only reduce

your tax liability by the

rate your taxable income

is taxed at for each dollar

in deductions.

This module will explain the basic tax formula, elucidating topics such as gross income,

deductions, taxable income, tax credits, and prepayments.

Example: You are a MFJ

taxpayer with $100,000 in

salary, $5,000 of ordinary

dividend income, and no

qualified business income.

You paid $2,000 in student

loan interest, $8,000 in

state income taxes, $4,000

in mortgage interest, and

$10,000 in charitable

contributions. You and

your partner also have 2

qualifying children under

age 17 and $4,000 in

withholdings from

employee wages. What is

your tax due?

Gross income = $105,000

- For AGI deductions

($2,000)

AGI = $103,000

- MFJ standard deduction

($25,900)

Taxable income = $77,100

Tax Liability = $2,055 +

($77,100 - $20,550) *

12% = $8,841

- Child tax credit ($4,000)

- Prepayments ($4,000)

Tax Due = $841

Automobile Insurance

Health Insurance

Homeowners Insurance

Insurance

Covers the house and its contents

from damage and theft, liability if

an injury occurs on the premises,

and moving expenses, if necessary.

Two different types of coverage

provided include "replacement

cost" or "actual cash value".

Replacement cost provides used

goods to replace the lost items.

Actual cash value provides a

replacement up to the entire

cost of the items.

Most people are covered under an

employer-sponsored plan

May be purchased privately as well

U.S. government offers healthcare to

the elderly (Medicare), low-income

(Medicaid), and the military

Adding supplemental insurance (at

additional cost), such as dental

insurance, will increase your health

care coverage

Required by law in every state except NH

Required extent of car insurance, and thus cost,

differs by state

Indiana requires at least PLPD (bodily injury

liability coverage and property damage liability

coverage) as part of the state-mandated car

insurance, protecting both parties in an accident

National average cost of car insurance

premiums is $1,682 annually

The average cost of car insurance premiums in

IN is $1,256 annually (sixth lowest in the nation)

There are a multitude of

factors that insurance

companies use to determine

the cost of car insurance

premiums including, but not

limited to, infrastructure

conditions, weather, traffic,

crime, minimum state

coverage required, and the

rate of insured drivers.

If renting, you may want to

consider purchasing Renters

Insurance, which covers your

belongings from damage

and theft, liability if an

injury occurs on the

premises, and moving

expenses, if necessary.

Typically, the landlord pays

for the insurance of the

physical property, since it is

not in your possession.

Your health care plan will most likely have a list of

exclusions and limits, so it is important to understand

the terms and conditions of your policy. For example,

you might only be able to receive a referral to a

specialist within your permanent state of residence.

HELPFUL HINT

When evaluating insurance policies,

choosing a higher deductible will lower

your recurring premium payments. A

higher deductible may be better for

those on a tight budget who may not

be able to afford pricey premium

payments. However, a lower premium

payment may lower your policy limit

that will be assured by the insurance

company if you suffer a loss.

This module will explain the idea behind insurance as well as the most

common types of insurance, such as automobile insurance, health

insurance, and homeowners insurance.

Why do we have insurance?

Life is full of risks — something that we can never escape. For instance, no one

plans for a house fire, a car accident, or the diagnosis of a critical illness. These

risks, and the financial consequences attached, affect everyone and are simply

a part of life. Insurance attempts to mitigate those risks by collectively pooling

together the risks each person carries and spreading them out among

policyholders that pay cyclical premiums for their insurance policy. This way,

when an incident does occur, the insurer is able to tap into the funds

previously paid by the insured to cover the financial losses of a policyholder.

In addition, a deductible payment (amount varies) may be required by the

insured to claim funds for losses covered by the insurance provider.

Example

Unfortunately, John hit a deer with his vehicle

while traveling on a major highway. John did the

following:

Immediately pulled over and turned on

hazard lights. He was not injured.

Contacted local authorities to file an accident

report and an officer en route

Took pictures of the accident, called roadside

assistance, and got his vehicle towed to the

nearest body shop

John had to pay $500 for towing

$3500 estimate for body shop repairs

John decides to total the car and instead get a

new one (the old Honda Civic was only worth

$4000, making it not worth the $3500 repair

bill in his opinion)

Instead of $60 payment, a $100 monthly

payment

Towing is covered

$300 deductible, all other costs covered

Monthly premiums not increased due to no

fault

John paid $60 per month in car insurance and

he did not have full coverage. Instead, he only

had "PLPD" or bodily injury and property

damage. Therefore, hitting a deer is NOT

covered by insurance!

If John had full coverage, his costs may have

been the following:

Important question from this example: Is the

extra $40 per month worth full coverage? You be

the judge! Each type of coverage has a purpose.

Reference Page (APA 7)

Module 1

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Module 2

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Module 3

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Module 6

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Module 7

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Module 8

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Module 9

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Module 10

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