Finance Class: Lesson 2

Young Women Finace Class
Lesson 2: Struggling with Stuff!!

The Big Picture
We are going to look at the world’s unhealthy spending habits. We often buy things that we cannot afford on credit, thinking we’ll just pay for it later. Many times, later never comes. This lesson will help us learn to plan our purchases wisely and create an age-appropriate budget.

Application
We live in the most marketed-to culture in the history of the world. Companies aggressively compete for our attention—and our dollars. But a good manager of God’s resources always has a plan for where, when, and how to spend money.

What it Boils Down To:
Handling money Heavenly Father’s way is much different than how the world tells you to spend, spend, spend. Honestly, it may even be different than the way your family uses money. Credit cards and other forms of debt are simply ways for people to spend money they don’t have on stuff they usually don’t need. The bottom line is this: If you can’t pay for it, you aren’t ready to buy it.

Understanding Credit and Debt
• The average family has an $8,000 balance on their credit cards.
• Any time you use credit-no matter what type-you are tying up future
income.
• The information contained in your Credit Report can have a severe impact on you. It can keep you from getting a job, obtaining insurance, or buying or renting a home. It can even keep you from getting into Graduate School or qualifying for your dream job. It is important!
• It’s your responsibility to yourself and your future family to keep debt to a minimum!

So it may be that at the same time executives are gathered around their large mahogany tables figuring out ways for you to spend, you may be sitting at your small kitchen table figuring out ways to pay off your debt. If you are one who has taken the bait and fallen into the credit trap, it's time to launch a counter-attack. The people who create advertisements are ruthless. They are good at mind games, and you need to play a few of your own. Fight back with your own determination to picture something different. Here's an ad campaign from a university financial aid office. Although geared to students, it applies to everyone.
Someday I will dine in the finest restaurants on earth, but for now I'll try not to bite off more than I can chew and settle for sack lunches. Taking a sack lunch to school or work can save you money.
Someday I will attend Hollywood's finest premiers, but for now I'll watch my budget and settle for the dollar flick. You could also wait for the movie to come out on video and have a video party.
Someday I will own the fastest car around, but for now I'll put the brakes on spending and settle for my bicycle. If you have a car, total your monthly car expenses. Payment, insurance, gasoline, repairs. When you actually think about those costs, a bike may look pretty good. (This may not apply to everyone, but if you're single and living in the city or going to school, it may work for you.)
Someday I will get away to my own tropical island, but for now I'll send my credit cards on vacation and settle for weekends at home. Plan fun day trips or just enjoy being home. Do something different from what you normally do each day and save the get-a-way trip for when you have the cash!
Someday I will own a house with rooms as big as my whole apartment, but for now I'll try not to mortgage my future and settle for roommates. Roommates are part of life's little experiences. You can learn a lot from roommates. You haven't lived until you've had several and some of them make life-long friends.
Someday I will wear the hottest fashions of the season, but for now I'll avoid debt like it's going out of style and settle for the clearance rack at outlet stores. Shop smart! Don't be fooled by a good bargain. Buy only what you'll wear. (Sometimes clearance sales at your favorite store are better than at the outlets).
Here's another idea for their ad campaign.
Mind games.
It's time you played a few of your own.
I may want you, but I don't need you. I like me just the way I am. I'm smart about interest. I'd rather earn it than pay it!

Credit Cards
It does cost you to have credit cards. You are charged interest and fees for the privilege and convenience of using a credit card. That's how credit card companies make their money. Because interest and fees vary greatly, you'll want to use the credit card(s) that offer you the best terms. The ideal card would be one with no annual fee and a low interest rate.
Now, answer the following questions about each card:
Do you know the annual percentage rate? Do you pay an annual fee? Are you charged a fee if your payment is late? If your payment is late, is the interest rate on your card increased? If you exceed your credit limit, are you charged a fee? Do you know the total amount owed?
Except for the total amount owed, the answers to these questions can be found in the terms and conditions that were sent to you at the time you received your credit card. Every card has its own terms and conditions. The terms and conditions are hard to read because they are written in a very small print with very little white space and thus they look overwhelming and complicated and you tend to cast them aside. Don't. They're important. They say things like:
If we do not receive your minimum monthly payment, as calculated by the terms of your account, for two consecutive billing periods, the rate for purchases, cash advances and balance transfers may be increased to a variable rate of Prime plus 16.4% currently equal to 25.9% percent.
If you exceed your credit limit, you will be charged $35.
If your payment is late, you will be charged $25.
Can you imagine paying 25.9% interest when you thought you were paying 18.9%? Or, what if you purchased a $35 shirt on your credit card which you paid in full, but your payment was received one day late. Wouldn't you be so ticked if you got a bill the following month for the $25 late fee? That means the shirt would have cost you $60.
To determine how much interest you are charged each month, the credit card company looks at your average daily balance. But, average daily balances are not determined the same way. One company figures it one way; another company, another. With some cards, if you pay your balance in full each month, you don't pay interest. With others, you are charged interest even if you do pay your account in full. So, if you bought the $35 shirt on the first day of the month and the end of the billing cycle is the twenty-fifth day of the month, your credit card bill would reflect $35 for the purchase and $1.89 for the interest charge. Just think what it would be if you charged $200 that month!

To Spend or Not to Spend—that is the Question
• Identify alternative and consequences before making decisions.
• Opportunity Cost: “If I choose this, I’m giving up that.”
• The value of having a spending plan is this: it will keep you focused on using your money for things that matter to you. A spending plan allows for chose and flexibility. It put you in control of your money.
• Identify what you want your money to do.

The Three Principles of a Spending Plan
1. Pay yourself first. You need six months living expenses in an emergency fund and put 10% into savings or retirement account.
2. Pay something to others. 10% tithing and fast offerings.
3. Live on what’s left over.

Create a Spending Plan
Step 1: What you want your money to do.
Step 2: Identify total money income.
Step 3: Identify the amount you currently spend.
Step 4: Determine your current cash flow. Cash Flow = how much goes in and how much goes out.
Step 5: Evaluate the past--create the future.
Step 6: Determine the cash flow of your spending plan.
Step 7: Implement your plan.


Sample Budget Template
Income Monthly Income
Estimated Income (after taxes)
Other Income
Total Estimated Income

Fixed Expenses Monthly Cost
Rent
Car Payment
Car Insurance
Tuition
Rental Insurance
Other
Flexible Expenses Monthly Cost
Telephone
Utilities
Gas
Electric
Water
Sewer
Food
Clothing
Household Supplies
School Supplies
Gas/Oil
Bus Pass
Health Care
Other
Discretionary Expenses Monthly Cost
Savings
Recreation
Movies/Concerts/Sports
Dining Out
Magazines/Newspapers
Hobbies
Other
Total Estimated Expenses $