Is bankruptcy the answer?

Impacts of bankruptcy Remains on your credit history for 10 years Can still get loans, but will pay double or triple the

going interest rate Unsecured debt goes away, which places the

burden of payment on everyone else

So what is the answer?

No catchy slogans – just personal responsibility

If you don’t have the money for it, don’t buy it Be educated about the true cost of credit and

fees Educate others!

Money trouble? It's your own faultby Liz Pulliam Westonhttp://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/MoneyTroubleItsYourOwnFault.aspx?GT1=9317

Read the important points from this article in your notes

Bankruptcyhttp://www.uscourts.gov/Press_Releases/2008/BankruptcyFilingsAug2008.cfm

In 2005, more Americans filed for bankruptcy than graduated from college

The first 9 months of 2009 in Utah 10,700 bankruptcies filed Up 62% from 2008

#21 = Utah In 2004, we were #1 In 2005, we were #3 In 2007, we were #20

Bankruptcy States with highest bankruptcies per capita

Nevada Tennessee Georgia Indiana Alabama

States with lowest bankruptcies per capita South Dakota Texas South Carolina District of Columbia Alaska

http://www.creditcards.com/credit-card-news/bankruptcies-per-capita-state-rankings-nevada-1267.php

Reasons for Utah Bankruptcies? Tax burden as a result of a high dependency ratio Young families Lower incomes per capita High rates of unsecured debt

The total debt-to-income ratio for Chapter 7 was 194.3 percent or almost twice annual income at the time of filing. For Chapter 13, the ratio was 173.4 percent (in Lown, 2005).

Larger homes than the national average More cars owned or leased per hh than national average More highly educated, which correlates with more likely

to overspend, and does NOT mean more financially literate

Religious contributions – SLC 15% of inc, UT County 24%

Bankruptcy Demographics2008 Annual Consumer Bankruptcy Demographics Report: American Debtors in a Recession Leslie E. Linfield Institute for Financial Literacy

June 1, 2009

As in years past, the average American in financial distress and seeking credit counseling and financial education is a 35 to 44 year old married Caucasian with a high school degree or some college who is employed and earning less than $30,000 per year.

. . . the 2008-2009 Recession is noticeably shifting middle class Americans into bankruptcy.

Bankruptcy Laws (10/17/05)

Means test If your income is above your state’s median, and you can

afford to pay 25% of your “nonpriority unsecured debt” you are required to file Chapter 13

Determining what you can afford to pay under Chapter 13 You and the court will apply living standards derived from

the IRS (what is fair in your area for housing, food, etc.) to determine how much of your income is available for your repayment plan

Homestead Exemptions If your home was acquired less than 40 months before

filing, you can only exempt $125,000 of the value

Lawyer Liability If information about a client’s case is found to be

inaccurate, the lawyer is subject to fees and fines

Credit Counseling & Money Management You must meet with a credit counselor in the 6 months

before filing at your own expense You must attend money management classes at your own

expense before your debts are discharged

If you are accumulating debt, it is IMPOSSIBLE to accumulate wealth

What is your goal?

Budgeting for the College Student

More students drop out of college due to credit card debt than academic failure

Famous Dickens’ quote from David Copperfield Monthly income, 20 schillings, monthly expenses,

19 shillings bliss Monthly income, 20 schillings, monthly expenses,

21 shillings misery

Budgeting, cont.

Budgeting is very simple (but not necessarily easy) List all sources of income List all expenses (including paying yourself first) Make sure you have some left over

Make a Spending Plan Plan how to spend your money You’re probably already very good at spending your money

just need a good plan!

General Spending Plan Principles

Income vs. expenses Needs vs. wants Non-monthly expenses

Questions to consider…

Which expenses are essential to your family’s well-being?

Which expenses have the highest priority? Which areas can be reduced to keep your

family’s spending within its income?

Do I/we need that? If so, how did I/we get along without it up to

this point?

Zero Based Budgeting

Estimate your monthly income Starting with your financial priorities, subtract

obligations until you get to zero Ex. Your monthly income = $________ Subtract charitable donations Then investing money Then housing Then transportation Then food Then personal care And last, misc.

Step-down Principle

Think of a budgeting category What is the most expensive option available? What is the least expensive option available? What’s in the middle?

Example: Food Most expensive: every meal at a restaurant Step down: prepared foods Step down: mixes Least expensive: every meal from scratch

Example: Transportation Most expensive: new car every year Step down: new car every 2 years Step down: used car every 2 years Step down: used car every 5 years

Think about where your spending is. If you can step down just one step just part of the time you will save a lot of money every year

Too much month at the end of the money?

Increase income Cut variable spending Reduce fixed expenses Look at liquidating other assets

Money doesn’t always bring happiness. People with ten million dollars are no happier than people with

nine million dollars.”

-Hobart Brown

Financial goals

Need to categorize goals Short-term Intermediate Long-term

Priorities Emergency fund Insurance needs (life, health, property, disability) Pensions/retirement Extra investing money

How to save money for investments/debt reduction?

HAVE A PLAN! If you have a plan, you are more likely to

accomplish your goals

Pay yourself first Commit to a percentage, like 10%

The 60% solution 60% = expenses

Food, clothing, hh expenses, insurance, charitable contributions, bills, taxes

10% = fun money Anything you want!

10% = retirement savings 401(k), Roth IRA

10% = L-T savings Debt reduction, or other investments (incl. kids college)

10% = S-T savings Use in 1-2 years Vacations, hh repairs, new appliances, gifts

Some more ideas…

Envelope system 101 ways to save money

Link on http://financialplan.about.com/ Go on a “Financial Diet” Automatic deposit Round-up in checkbook Cut unnecessary expenses Save loose change Coupons save difference Others?

More ideas referenced on the Pearls of Wisdom page on webCT

Dave Ramsey – The 7 Steps to Financial Peace

1. Save $1,000 in the bank for emergencies

2. Pay off all consumer debt

3. Increase emergency fund to equal 3-6 months of expenses

4. Save 15% of monthly income for retirement

5. Save for children’s college education

6. Pay off home early

7. Build wealth and give a lot of it away