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Creating a budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Why create a budget? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Add up your sources of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Determine your required expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Understand fixed vs. variable expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Determine your discretionary expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Create a funds and expenses worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Ways to increase available funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Ways to reduce expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Helpful hint: Use computer software to track your money and spending . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Being a savvy borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Recognize the cost of borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Case study: Budgeting and borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Graduate student credit card use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Be a smart credit card user . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Saving for the future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Time is money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Think ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Plan ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Create a savings plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Pay yourself first . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Where can you put your savings? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Investing your money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Keeping good financial records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Why keep good financial records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Keep important financial records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Keep important tax records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Get into the habit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Online banking tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Creating a budget
A personal budget is like a roadmap for your finances. If you create a budget youll have a better understanding of the costs that are necessary in your life and those that are nonessential. A budget will help you avoid unnecessary debt and make informed financial decisions.
Expenses Fixed Rent Car payment Car insurance Variable Phone Utilities Food Healthcare $50 $150 $300 $50 $1,260 $440 $500 $150 $60
% of Funds
Due Date
29% 9% 4%
20th 5th
Total Income
$1,700
Total Expenses
Discretionary Income
For illustrative purposes only
Helpful hint: Use computer software to track your money and spending.
Low and no-cost budgeting software and web-based tools are available online. Examples of computer programs that help people manage their finances include Quicken and Microsoft Excel. Web sites such as www.AIE.org and www.Mint.com offer free online budgeting tools.
*Interest rates are provided for illustrative purposes and are not necessarily representative of current market rates.
To further understand the value of budgeting, borrowing, and saving, consider this example involving two students, Michael and Angela. Michael and Angela attended the same graduate program. Both completed their program, got good jobs once they graduated, and plan to repay their education loans over the next 10 years. But thats where the similarities end. While he was in school, Michael did not create a budget, spent freely, and chose not to seek part-time employment. He graduated with $50,000 in federal student loan debt at an interest rate of 6.8%. To pay off his loans in 10 years, he will need to pay $575.40/month and will end up paying over $19,000 in interest. Angela, on the other hand, built and adhered to a budget, was frugal with her spending, and got a part-time job at a retail shop nearby to help defray her expenses. She graduated with only $20,000 in federal student loan debt at an interest rate of 6.8%. To pay off her loans in 10 years, she will need to pay only $230.16/month and will pay just over $7,600 in interest charges.
What if Angela decided to invest the difference? Monthly investment Investment return Investment period Ending Investment $345.24 4.0% 10 years $50,836
After graduation, the difference between Angela's and Michael's required monthly student loan payments is $345.24. If Angela chose to make a monthly investment of that amount in an Individual Retirement Account (IRA) with an average investment return of 4% per year, she would have over $50,800 in retirement savings by the time her student loans are paid off. Well discuss more about the benefits of saving and investing later. Although Michael would have paid off his student loans, he would have missed out on the opportunity to build up his retirement savings.
According to a survey by Nellie Mae, graduate students are more likely to use credit cards the longer they are in school. Ninety-four percent of graduate student survey respondents used credit cards to pay for some portion of their direct education expenses, primarily textbooks. Twenty-eight percent paid for some portion of their tuition with credit cards. Of the non-education expenses charged on credit cards, food proved to be the most prevalent purchase with 77% of respondents indicating they had used credit cards to buy food. Clothing was the next most prevalent expense charged (69%), followed by transportation and cosmetics/toiletries (both cited by 56% of respondents).
(Source: Nellie Mae, http://www.nelliemae.com/pdf/ccstudy_2006.pdf)
Interest rate = 6%, compounded monthly (Annual Percentage Yield (APY) = 6.17%)
Think ahead.
It will be much easier for you to save money once you know what you are saving it for. Saving may seem impractical now (little discretionary income, unforeseen expenses) However, it is much easier when you establish specific goals. Consider your future plans Vacation, new car, home down payment, retirement, computer, wedding
Plan ahead.
Make a list of your financial goals by identifying specific priorities and timelines around your future plans. Estimate the amount required to achieve each goal. In the event that money gets tight, identify which goals are most important.
This table is an example of what a savings plan might look like. First, list your future goals along with their estimated financial goal and time horizon. If your financial goals are long-term, the savings plan should take into account an estimated rate of return or growth rate (i.e., compound interest, investment appreciation, etc.). The rate of return will vary depending on the length, type, and riskiness of the investment. The interest rates in this example are for illustrative purposes only and dont necessarily reflect current interest rates. Students will need to estimate interest rates based on the types of savings instruments they use and current market factors. Finally, use the time horizon and estimated rate of return to calculate the required monthly savings. There are many calculators on the Web that can help estimate a required monthly savings based on an interest rate and number of payments. Start with www.bankrate.com.
Remember
If you start practicing good money management and personal finance skills now, youll likely reduce your debt and be more prepared to handle financial obligations like repaying your student loans. You will be more prepared for the future, such as when it comes time to buy a car, a house, or even retire. And when you become a [Professor, Doctor, Lawyer, CEO, etc.] you will be prepared to live like one.
About TG
TG is a public, nonprofit corporation that administers the Federal Family Education Loan Program (FFELP), a federal government-sponsored program of low-interest loans to help families and students pay for education beyond high school. As a FFELP administrator, TG does not issue loans but guarantees loans. Much like securing an insurance policy for a home, guaranteeing a student loan protects the lender from possible loss if a borrower fails to or is unable to repay the loan. Because of the backing student loan guarantees provide, lenders more readily issue loans to borrowers for higher education. For more information about TG, visit www.tgslc.org. To learn more about college and career planning, visit www.AIE.org.
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2009 Texas Guaranteed Student Loan Corporation
0903-44474
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0903-44474