1 FINANCIAL PLANNING for a Successful Transition Michael A. McIsaac Michael A. McIsaac Personal Financial Management Specialist Marine & Family Services,

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FINANCIAL PLANNINGFINANCIAL PLANNINGfor a for a

SuccessfulSuccessful TransitionTransition Michael A. McIsaacMichael A. McIsaac

Personal Financial Management SpecialistPersonal Financial Management Specialist

Marine & Family Services, Building 14Marine & Family Services, Building 14

MCRD San Diego MCRD San Diego

(619-524-1204)(619-524-1204)

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Keys to a Successful TransitionKeys to a Successful Transition

Take Responsibility for Your Money! Take Responsibility for Your Money!

““Do”Do” Your Financial Planning for Transition Your Financial Planning for Transition

Make Financial Comparisons between Make Financial Comparisons between Staying in and Getting out - Staying in and Getting out - Numbers!Numbers!

Take Advantage of Services to Help You Take Advantage of Services to Help You Plan & Prepare for your Transition Plan & Prepare for your Transition

Think WIIFM and Be Proactive!Think WIIFM and Be Proactive!

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What is Financial Planning?

A Hands-On ProcessProcess that leads to becomingfinancially stable & includes on-going planning, execution and review in the areas of:

Money Management (Over 55%) Risk Management Investment Planning Tax Planning Retirement Planning Estate Planning

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Responsible Money Management

To be Successful in Life and with your To be Successful in Life and with your Money, take Personal Responsibility:Money, take Personal Responsibility: Set SMART goals and focus on what you wantSet SMART goals and focus on what you want Know everyday where your money is goingKnow everyday where your money is going Know exactly how much money you haveKnow exactly how much money you have Know how much you owe, to whom & whyKnow how much you owe, to whom & why Take immediate action to control your cash flowTake immediate action to control your cash flow Create a spending plan, and work your planCreate a spending plan, and work your plan The The “Choices”“Choices” you make – you make – “Make You!”“Make You!”

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Money Management(Planning, Execution & Review)

1.1. Set SMART Goals (Short & Long Term)Set SMART Goals (Short & Long Term)

2.2. Determine Present Financial Position (Determine Present Financial Position (p32-36p32-36))

3.3. Draft a Spending Plan to support your GoalsDraft a Spending Plan to support your Goals

4.4. ““Reduce Debt”Reduce Debt” – focus on high interest rates – focus on high interest rates

5.5. Establish a Transition Fund (at least 3 months)Establish a Transition Fund (at least 3 months)

6.6. Avoid Financial Drains - be a Savvy ConsumerAvoid Financial Drains - be a Savvy Consumer

7.7. Keep Records, Track Progress, AdjustKeep Records, Track Progress, Adjust

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Ways to Reduce Your Debt Pay more than the minimum & Focus your $$Pay more than the minimum & Focus your $$ Use low-interest savings to pay off debtsUse low-interest savings to pay off debts Get on a cash-only diet (freeze credit cards)Get on a cash-only diet (freeze credit cards) Spend only for necessities (Needs vs. Wants)Spend only for necessities (Needs vs. Wants) Avoid credit rip-offs (e.g., predatory loans)Avoid credit rip-offs (e.g., predatory loans) Comparison shop for anything over $100Comparison shop for anything over $100 Clean up Credit Reports & Improve ScoresClean up Credit Reports & Improve Scores Request lower interest rates – keep askingRequest lower interest rates – keep asking Improvement requires “Improvement requires “PERSISTANCE!”PERSISTANCE!”

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Saving for a Transition Fund

Goal is to cover 3 months of Basic Living Expenses Goal is to cover 3 months of Basic Living Expenses (see page 34 of TAP Book) without tapping your (see page 34 of TAP Book) without tapping your Savings, Investments, or Credit Cards:Savings, Investments, or Credit Cards: Mortgage / UtilitiesMortgage / Utilities $ 1,800$ 1,800 Car paymentCar payment $ 350$ 350 FoodFood $ 400$ 400 GasGas $ 250$ 250 InsuranceInsurance $$ 200 200

TOTALTOTAL $ 3,000$ 3,000

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Saving for a Transition Fund

Goal is 3 Months of Goal is 3 Months of BBasic asic LLiving iving EExpensesxpenses Monthly BLE = $3,000Monthly BLE = $3,000 Transition Fund = $9,000Transition Fund = $9,000 Months to GoMonths to Go Savings RequiredSavings Required

66 $ 1,500 / mo$ 1,500 / mo 1212 $ 750 / mo$ 750 / mo 1818 $ 500 / mo$ 500 / mo 2424 $ 375 / mo$ 375 / mo

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“Avoid” Financial Drains

Credit cards & high interest rate debtCredit cards & high interest rate debt New car loans, & auto leasesNew car loans, & auto leases Rent-to-Own storesRent-to-Own stores Payday, pawnshops, and title loansPayday, pawnshops, and title loans Window shopping and impulse buyingWindow shopping and impulse buying Distinguish between “Needs & Wants” – Distinguish between “Needs & Wants” –

remember, little things count & remember, little things count & Debt SucksDebt Sucks!!

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Financial Points to Compare (Military to Civilian)

Medical / Dental BenefitsMedical / Dental Benefits Life Insurance / Survivor BenefitsLife Insurance / Survivor Benefits Commissary / Exchange PrivilegesCommissary / Exchange Privileges Recreational Facilities and ServicesRecreational Facilities and Services Family / Legal / Financial / Tax ServicesFamily / Legal / Financial / Tax Services Retirement Benefits and SavingsRetirement Benefits and Savings GuaranteedGuaranteed “Pay & Allowances” “Pay & Allowances”

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Pay ComparisonSingle LCpl Over 3

Marine Corps Pay Marine Corps Pay Base Pay 1859.70Base Pay 1859.70 BAH 1472.00BAH 1472.00 BAS 323.87BAS 323.87 TaxesTaxes -- --

241.32241.32 FICA FICA --142.27--142.27 Net Pay Net Pay 3271.983271.98

Civilian Pay ($21/hr)Civilian Pay ($21/hr) Base Pay 3655.57Base Pay 3655.57 Taxes --680.26Taxes --680.26 FICA --279.65FICA --279.65 SDI --29.24SDI --29.24 Medical Medical --183.00--183.00 Net Pay Net Pay 2483.422483.42 Diff (788.56)Diff (788.56)

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Pay ComparisonSingle Sgt Over 4

Marine Corps Pay Marine Corps Pay Base Pay 2334.90Base Pay 2334.90 BAH 1680.00BAH 1680.00 BAS BAS 323.87 323.87 TaxesTaxes -- --



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Pay ComparisonMarried GySgt Over 12

Marine Corps Pay Marine Corps Pay Base Pay 3577.50Base Pay 3577.50 BAH 2159.00BAH 2159.00 BAS BAS 323.87 323.87 TaxesTaxes -- --



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Pay ComparisonSingle Capt over 8

Marine Corps Pay Marine Corps Pay Base Pay 5197.20Base Pay 5197.20 BAH 2085.00BAH 2085.00 BAS 223.04BAS 223.04 TaxesTaxes ----



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How Much Can you Expect to Make in Your Civilian Job?

Salary-what’s your minimum requirement?Salary-what’s your minimum requirement?

Benefits (Do a cost analysis!)Benefits (Do a cost analysis!)

Total “COMPEN$ATION PACKAGE” isTotal “COMPEN$ATION PACKAGE” is

(Salary + Benefits = Total Compensation)(Salary + Benefits = Total Compensation)

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Benefits Package Medical / Dental / VisionMedical / Dental / Vision Short / Long term DisabilityShort / Long term Disability Annual Leave / Sick LeaveAnnual Leave / Sick Leave Family Friendly BenefitsFamily Friendly Benefits Employee Assistance ProgramsEmployee Assistance Programs Car / Computer / Cell PhoneCar / Computer / Cell Phone Out-of-Pocket Expense AccountOut-of-Pocket Expense Account Tuition AssistanceTuition Assistance Employer Retirement Plan (Pension)Employer Retirement Plan (Pension) 401k / 403b / TSP Contribution Plans401k / 403b / TSP Contribution Plans

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Salary Comparison by Geographic Location

Based on $60,000 of San Diego SalaryBased on $60,000 of San Diego Salary- Orlando- Orlando $38,426$38,426

- Virginia Beach- Virginia Beach $44,449$44,449

- Dallas- Dallas $37,992$37,992

- Chicago- Chicago $51,690$51,690

- Boston- Boston $52,161$52,161

- San Francisco- San Francisco $76,535$76,535

Source is http://www.bestplaces.com/Source is http://www.bestplaces.com/

Also see page 141 in TAP Manual for Wage ChartAlso see page 141 in TAP Manual for Wage Chart

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Will You Relocate?

How much can you expect to make in the new How much can you expect to make in the new location? (How much do you need?)location? (How much do you need?)

How much can your spouse expect to make?How much can your spouse expect to make? What is the cost-of-living in your new location?What is the cost-of-living in your new location? Will you rate unemployment? (How long?)Will you rate unemployment? (How long?) What will your out-of-pocket expenses be?What will your out-of-pocket expenses be? Have you established a moving fund? Have you established a moving fund? Will you rent or buy a place to live?Will you rent or buy a place to live? Do you have a relocation plan? Is it written?Do you have a relocation plan? Is it written?

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Financial Services to Help You Make a Smooth Transition

Financial Planning and Analysis Spending Plan Development Review of Credit & Debt Usage Review of Credit Reports Review TSP Withdrawal Options Tax Planning and Preparation

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WIIFM?

1.1. Chance to avoid/eliminate financial problemsChance to avoid/eliminate financial problems

2.2. Opportunity to map-out and test alternate Opportunity to map-out and test alternate courses of action – “run the numbers”courses of action – “run the numbers”

3.3. Knowledge to implement immediate actionKnowledge to implement immediate action

4.4. Financial “Peace of Mind” – you’re good to go! Financial “Peace of Mind” – you’re good to go! Remember, happiness is a “Positive” Cash Remember, happiness is a “Positive” Cash Flow, and you create it one step at a timeFlow, and you create it one step at a time

5.5. The information and assistance necessary to The information and assistance necessary to develop your own “Financial Transition Plan”develop your own “Financial Transition Plan”

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Summary of Key Points

Develop a Financial Transition Action PlanDevelop a Financial Transition Action Plan Set Up a Transition Fund – and Save!Set Up a Transition Fund – and Save! Pull Credit Reports – Review / Correct!Pull Credit Reports – Review / Correct! Estimate Relocation Expenses and the Estimate Relocation Expenses and the

Cost of Living in a New LocationCost of Living in a New Location Research Salaries - How Much Are You Research Salaries - How Much Are You

Worth? Look by Geographic Location.Worth? Look by Geographic Location. Review Benefit Packages and CompareReview Benefit Packages and Compare Have a Plan “B” and Seek Help if NeededHave a Plan “B” and Seek Help if Needed

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QUESTIONS?QUESTIONS?

Semper Fi! God Speed!Semper Fi! God Speed!

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To Succeed

1.1. You must “Believe” that it is possible to You must “Believe” that it is possible to achieve a smooth transition (Concept)achieve a smooth transition (Concept)

2.2. You must believe that “You Can” achieve You must believe that “You Can” achieve a smooth transition (“I Can Do It”)a smooth transition (“I Can Do It”)

3.3. You must have a “Plan” that works; andYou must have a “Plan” that works; and4.4. You must “Work your Plan” (Action)You must “Work your Plan” (Action)5.5. You must provide the “Motivation” to You must provide the “Motivation” to

follow through (Commitment)follow through (Commitment)

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Setting Goals How do you do it?How do you do it?

Write downWrite down whatwhat you want. you want.

Decide Decide whenwhen you want it. you want it.

Look at Look at wherewhere you are. you are.

Compare the Compare the differencedifference..

Determine the Determine the howhow..

Take Take ActionAction!!

TrackTrack and and ReviseRevise!!

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Develop a Spending Plan to Control Your Outcomes

Determine present monthly incomeDetermine present monthly income Determine current living expensesDetermine current living expenses Identify required debt payments and ratiosIdentify required debt payments and ratios Calculate present monthly cash flow (+/-)Calculate present monthly cash flow (+/-) Determine Net Worth (Benchmark)Determine Net Worth (Benchmark) Develop Plan for future income & expensesDevelop Plan for future income & expenses Review, revise & improve on a regular basisReview, revise & improve on a regular basis

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What is a Spending Plan?

A monthlyA monthly

breakdown of breakdown of how bills and how bills and debts are to debts are to be paid, and be paid, and how / when how / when money will be money will be saved and saved and invested.invested.

13%

31%

17%

3%2%

14%

1%8% 6%

5% DeductionsHousingFoodClothingHouseholdTransHealthPersonalSavingsCredit Card

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General Spending Plan(Using Net Income)

70% Living Expenses70% Living Expenses

20% Indebtedness20% Indebtedness

10% Savings10% Savings

ExpensesIndebtednessSavings

Living Expenses Net Income 70% Debt Payments Net Income 20% Savings Net Income 10% (Note: Net Income is Gross Income minus Taxes)

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Ways to Improve Your Spending Plan

Increase incomeIncrease income

Decrease living expensesDecrease living expenses

Decrease indebtednessDecrease indebtedness

Set GoalsSet Goals

Take Action!Take Action!

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How Your

Money Flows

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Reduce / Eliminate Debt Make debt reduction 1Make debt reduction 1stst priority! (Discipline) priority! (Discipline) Monitor your Debt-to-Income Ratio Monitor your Debt-to-Income Ratio Get on a cash-only diet (freeze credit cards)Get on a cash-only diet (freeze credit cards) Use low interest savings to pay off debtUse low interest savings to pay off debt Pay more than the minimum & Focus your $$Pay more than the minimum & Focus your $$ Clean up Credit Reports & Improve Scores Clean up Credit Reports & Improve Scores Move balances to a lower interest rate cardMove balances to a lower interest rate card Renegotiate terms with your creditorsRenegotiate terms with your creditors Set up a Debt Management Plan if neededSet up a Debt Management Plan if needed

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Debt-to-Income Ratio

Total of all monthly debt payments (non-mortgage) Total of all monthly debt payments (non-mortgage) divided by net monthly income x 100divided by net monthly income x 100::

<15% <15% In control - some additional debt In control - some additional debt may may be considered be considered (with caution)(with caution)

15 - 20%15 - 20% Fully extended – Slow Down!Fully extended – Slow Down!

21 - 30%21 - 30% Overextended – You have a Overextended – You have a Problem!Problem!

>30%>30% Red Alert! Seek help Immediately!Red Alert! Seek help Immediately!

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Beware the Myth of the Minimum Payments

$1,000 credit card balance, 18% APR

Payment Pay Off Interest Paid

2% ($10 min) 19 yr 4 mo $1,931 5% ($10 min) 5 yr 10 mo $ 382 10% ($10 min) 3 yr 1 mo $ 168

$20 7 yr 10 mo $ 862$50 2 yr 0 mo $ 198

$100 0 yr 11 mo $ 92

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Beware the Myth of the Minimum Payments

$5,000 credit card balance, 18% APR

Payment Pay Off Interest Paid

2% ($10 min) 46 yr 1 mo $ 13,931 5% ($10 min) 9 yr 7 mo $ 2,097 10% ($10 min) 4 yr 7 mo $ 874

$100 7 yr 10 mo $ 4,311 $250 2 yr 0 mo $ 989 $500 0 yr 11 mo $ 458

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Who Should Check Their Credit Report?

EVERYONE!!EVERYONE!!Over 70% of Credit Reports

have errors and/or omissions!

Get One Free Credit Report each Year from each Credit Reporting Agency at:

www.annualcreditreport.com

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Information on Your Credit Report

Personal InformationPersonal Information Name, Address, and Social Name, Address, and Social Security NumberSecurity Number

Public Record InformationPublic Record Information Judgments, Liens, EvictionsJudgments, Liens, Evictions

Account Information/HistoryAccount Information/History Revolving, Installment, Collection accountsRevolving, Installment, Collection accounts

InquiriesInquiries

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Credit Scores

Called FICO (Fair Isaacs & Co.)

www.myfico.com Rates potential risk

of default Not the decision

maker for credit 300-850 points

Permissible inquiries include self, employer, landlord, etc. and do not affect your FICO score

Inquiries for pursuit of credit cost you points each time!

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Your Credit Score,Who’s looking?

Lenders Employers,

including the military

Auto Insurers Landlords Utility

companies IRS ?

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Check Your Credit Scores at:www.myfico.com

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Where do you stand? 780-850780-850

Excellent credit ratingExcellent credit rating 720-779720-779

Great credit ratingGreat credit rating 690-719690-719

Average credit ratingAverage credit rating 620-689620-689

Below average credit ratingBelow average credit rating 300-619300-619

Credit challengedCredit challenged

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Self-Insure for Minor Risks with your Emergency Fund

Raise Deductibles on Vehicle Insurance Drop Collision Coverage on Older Vehicles Drop Road Service Coverage unless traveling Pay for Dental / Vision Care out of pocket Pay for Appliance Repairs as needed Pay cash for out of pocket travel / relocation

expenses rather than using a credit card Supplement unemployment with cash from your

emergency fund rather than using a credit card

Documents

1 FINANCIAL PLANNING for a Successful Transition Michael A. McIsaac Michael A. McIsaac Personal Financial Management Specialist Marine & Family Services,