Rich nerd, poor nerd

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This is a presentation on financial planning for college students.

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  • 1. Rich nerd, poor nerdTwo cents on managing your financesafter you graduateLaura A. McLay Virginia Commonwealth

2. My parents celebrate their 40thwedding anniversary next week (These are their celebrity doppelgangers) 3. My parents gave me a lot of advice Always say please and thank you. Exercise every day. Eat your vegetables. Eat a green vegetable every day. Dont eat sugary breakfast cereals. Lift with your legs, not your back.Today Im going to talk about their financial advice 4. We didnt have a lot of money when I was growing up We clipped coupons We ate food from the generic aisle We took free classes at the park district We read books at the library rather than buying books We didnt belong to a gym, we used the heavily subsidizedworkout facilities at parks & recreation We only went to museums on free days We only ate out on special occasions We shopped around for clothes, shoes, get bargains(the 21st century version of my mom usescraigslist, ebay, and Groupon) Etc. 5. but we were richMy parents were able to buy a nice houseThey saved for retirementWe took family vacationsI even graduated from college without loansWithout my parents savvy financial habits, noneof this would have been possible!They could easily have been broke. Here are their six basic financial rules. 6. Lesson #1 Live within your means,even if you are on a graduate student stipend.Exception: taking out student loans is OK. 7. Work toward paying for these things in cash Appliances Furniture Bathroom and kitchen remodels Used cars New cars!anything that costs $150Kc) 4.7%d) 9.8%For those making $100-$150Kc) 12.9%d) 10.8% 16. How much should you save? You should save enough to live for six months with no income. In this current recession, we have seen record numbers of long- term unemployment (more than 6 months of unemployment) 17. Lesson #2bStart saving for retirement. Now. 18. Retirement savings 2% inflation, 3.5% interest $1,200,000 $1,000,000$5000 x 5 = $25,000 makes you $136,000 at retirement$800,000Retirement Savings$600,000$400,000$200,000$020 25 30 35 4045 50 55 60 Age when you start saving for retirement ($5000 net present value in savings per year)* This ignores dividends and other benefits of starting to save early! 19. Retirement savings $1,800,000 2% inflation, 5% interest $1,600,000 $5000 x 5 = $25,000 makes you $270,000 at retirement $1,400,000 $1,200,000Retirement Savings $1,000,000$800,000$600,000$400,000$200,000$020253035 4045 50 55 60Age when you start saving for retirement($5000 net present value in savings per year)* This ignores dividends and other benefits of starting to save early! 20. How much can you save?Roth IRAs $5000 per year, with a potential increase basedon inflation Available to single filers who earn up to $105Kper year or joint filers who earn up to $169Ktogether One benefit is that the tax is not deferred.401Ks $16,500 per year, generally tax-deferred 21. Lesson #3 Pay off your credit cardsin full every single month.There are no excuses. 22. What happens if you dont? Say you have $2000 creditcard debt on a card with15.7% interest with aminimum payment of $25. You will never pay off the debt!! If you pay $30 per monthinstead, you will end upspending $4553.69 over 28+years to pay off the debt. The $2554 in interest alone can be put in your ROTH IRA. 23. Lesson #3bCorollary: Never ever take out a title loan. 24. Lesson #4Dont gamble. 25. If youre forced to play the lottery pick large numbers! 26. Lesson #5 Pay off your student loans.(OK, this one wasnt from my parents, since their frugallifestyle led to no student loans for me back when college was a lot cheaper. This rule is in the spirit oftheir financial advice for those going to college now) 27. Why?From Megan McArdle, MBA: Congress has made it very difficult to shed student loan debt. No student loans, not even the private ones, can be discharged in bankruptcy. As a result, all the personal finance experts Ive ever listened or talked to say that theyre incredibly hard to get rid of There are only two ways to erase the debt: prove youre permanently disabled and will never again earn more than a pittance; or die. 28. Lesson #6Marry well.(i.e., marry a saver!) 29. If you follow this advice, youll lead a frugal life and you might drive acar like this, but youll be rich. 30. But then again, what do I know?Dr. Laura A. McLaylamclay@vcu.edu on twitter