Ages and Stages of Money Management:
A To-Do List To Successfully Reach Your Financial Goals

A lot depends on what you do and when. Here are just a few ideas young adults can consider at key stages of their life.

You’re in High School

Consider earning money outside of your home, whether it’s babysitting, lawn mowing, or working in a movie theater or another “real” business. A job can provide a sense of accomplishment and responsibility. It also can be a good opportunity to learn about careers and to “network” with professionals.

Learn the concept of “paying yourself first” — that is, automatically putting some money into savings or investments before you’re tempted to spend it. Start small if you have to and gradually build up.

Consider opening a bank account, either on your own or with a parent or other adult. It’s a good way to learn about managing money. You also may want to start using a debit card — you can use it to make purchases but you won’t pay interest or get into debt because the money is automatically deducted from your bank account.

Take a personal finance class or join an investment club at school.

If you’re planning to go to college, learn about your options for saving or borrowing money for what will be a major expense.

If you (and your parents) are comfortable with getting a credit card, you should know that there are cards designed just for teens. One is a credit card with a low credit limit that can keep you from getting deeply in debt. Another is a pre-paid card that comes with parental controls, including spending limits.

You’re in College

Realize that as you pay bills and debts on your own you are building a “credit record” that could be important when you apply for a loan or a job in the future. Pay your bills on time…and borrow only what you can repay.

If you decide to get your own credit card, choose carefully. Take your time, understand the risks as well as the rewards and do some comparison shopping. Don’t apply for a credit card just because you received an invitation in the mail or a sales person was offering a free gift on campus.

Protect your Social Security number (SSN), credit card numbers and other personal information from thieves who use someone else’s identity to commit fraud. Examples: Use your SSN as identification only if absolutely necessary and never provide it to a stranger. Safeguard your personal information when using the Internet or borrowing a computer provided by your school.

Consider a paying job or even an unpaid internship at a workplace related to a career you’re considering.

If possible, set aside money into savings and investments.

Try to take a class in personal finance. Read money-related magazine and newspaper articles.

You’re Starting a Career

Keep your credit card and other debts manageable. Maintain a good credit record.

Save money for both short-term and long-term goals. Contribute as much as you can to retirement savings, which often can be used for other purposes, including a firsttime home purchase. Take advantage of matching contributions that your employer will put into your retirement savings.

Do your best to stick to a budget and control your spending, especially if you’re still paying back student loans or working at an entry-level job.

Although insurance sometimes seems like a waste of money, you only need one accident or catastrophe to wipe you out financially. Think about disability insurance (to replace lost income if you become seriously ill) and health insurance (to cover big medical bills). Check into low-cost or free insurance offered through your employer.

You’re Starting a Family

Continue saving and investing money, including in retirement accounts.

If you don’t already own your home do some research to see if this is a good option for you. A home purchase can be expensive but it also can be an excellent investment and a source of tax breaks. Check out educational resources for first-time homebuyers.

Make sure you are properly insured, including life, health, disability and home owner’s or renter’s insurance.

Talk with an attorney about the legal documents you should have to protect your loved ones if you become seriously ill or die. These documents typically include a will, a “durable power of attorney” (giving one or more people the authority to handle personal matters if you become mentally or physically incompetent) and a “living will” (specifying the medical care you want or don’t want if you become hopelessly ill and cannot communicate your wishes.)

Sourc: FDIC

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What Are You Saving and Investing For?

Home
Car
Education
Comfortable Retirement
Your Children
Medical or Other Emergencies
Periods of Unemployment
Caring for Parents

Make your own list and prioritize your goals. Determine how many years you have to meet each specific goal, because when you save or invest you’ll need to find a savings or investment option that fits your time frame for that particular goal.

Know Your Current Financial Situation

Sit down and take an honest look at your entire financial situation. You can never take a journey without knowing where you’re starting from, and a journey to financial security is no different. You’ll need to figure out on paper your current situation— what you own and what you owe. You’ll be creating a “net worth statement.” On one side of the page, list what you own. These are your “assets.” And on the other side list what you owe other people, your “liabilities” or debts. Subtract your liabilities from your assets. If your assets are larger than your liabilities, you have a “positive” net worth. If your liabilities are greater than your assets, you have a “negative” net worth. You’ll want to update your “net worth statement” every year to keep track of how you are doing. Don’t be discouraged if you have a negative net worth. If you follow a plan to get into a positive position, you’re doing the right thing.

Know Your Income and Expenses

The next step is to keep track of your income and your expenses for every month. Write down what you and others in your family earn, and then your monthly expenses.

Pay Yourself or Your Family First

Include a category for savings and investing. What are you paying yourself every month? Many people get into the habit of saving and investing by following this advice: always pay yourself or your family first. Many people find it easier to pay themselves first if they allow their bank to automatically remove money from their paycheck and deposit it into a savings or investment account.

Likely even better, for tax purposes, is to participate in an employersponsored retirement plan such as a 401(k), 403(b), or 457(b). These plans will typically not only automatically deduct money from your paycheck, but will immediately reduce the taxes you are paying. Additionally, in many plans the employer matches some or all of your contribution. When your employer does that, it’s offering “free money.”

Any time you have automatic deductions made from your paycheck or bank account, you’ll increase the chances of being able to stick to your plan and to realize your goals.

Source: Securities and Exchange Commission

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Pay Off Credit Cards and High Intrest Debt

Speaking of things adding up, there is no investment strategy anywhere that pays off as well as, or with less risk than, merely paying off all high interest debt you may have.

Many people have wallets filled with credit cards, some of which they’ve “maxed out” (meaning they’ve spent up to their credit limit). Credit cards can make it seem easy to buy expensive things when you don’t have the cash in your pocket—or in the bank. But credit cards aren’t free money.

Most credit cards charge high interest rates—as much as 18 percent or more—if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you the high returns you’ll need to keep pace with an 18 percent interest charge. That’s why you’re better off eliminating all credit card debt before investing savings.

Once you’ve paid off your credit cards, you can budget your money and begin to save and invest.

Two Ways to Make Money

1. You work for money.
Someone pays you to work for them or you have your own business.

2. Your money works for you.
You take your money and you save or invest it.

Your Money Earns Money.

When your money goes to work, it may earn a steady paycheck. Someone pays you to use your money for a period of time. When you get your money back, you get it back plus “interest.” Or, if you buy stock in a company that pays “dividends” to shareholders, the company may pay you a portion of its earnings on a regular basis. Your money can make an “income,” just like you. You can make more money when you and your money work.

You Buy Something with Your Money That Could Increase in Value.

You become an owner of something that you hope increases in value over time. When you need your money back, you sell it, hoping someone else will pay you more for it. For instance, you buy a piece of land thinking it will increase in value as more businesses or people move into your town. You expect to sell the land in five, ten, or twenty years when someone will buy it from you for a lot more money than you paid. And sometimes, your money can do both at the same time— earn a steady paycheck and increase in value.

Source: Securities and Exchange Commission

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For Major Life Events:
Ways to Cope Financially During and After a Big Change

Here are suggestions for staying focused and avoiding costly decisions during changing times.

Getting married. Newlyweds should say "I do" to a plan to manage money together responsibly. Before getting married, a couple should understand each other's attitudes toward saving and spending money. And to avoid big surprises, they also should know about any major outstanding debts held by their partner. A husband and wife also should set short-term and long-term financial goals.

Buying your first home. For most people, buying a home will be the biggest expense of their life, starting with the initial purchase (including a "down payment" and fees paid to the lender and others) followed by years of monthly mortgage payments, real estate taxes, insurance and maintenance costs. But homeownership often can be a tremendous (perhaps your best) investment and a source of tax breaks as well as stability.

A new child. A new member of the family brings extra financial responsibilities. You can have one fewer thing to interrupt your sleep at night if you get the family finances in shape. Start by getting spending under control (preferably with a budget). Also build your savings accounts for short-term expenses (especially if a spouse will be leaving a job) and long-term needs (including college tuition costs). In addition, review and update your insurance coverage (life, health, disability) and wills (to designate who will raise the child and handle finances in case of your death). #

The death of a family member. Contact the deceased person's attorney and other financial advisors. Before committing to any funeral costs, consult with other family members and the lawyer about any prior instructions or arrangements.

Locate important documents, such as insurance policies and the most recent will (an original, not a copy). Obtain multiple copies of the death certificate, which will be needed to apply for death benefits (such as through life insurance policies or Social Security) and to access bank and brokerage accounts.

If the family's medical insurance is through the deceased person's employer, consider options for continuing coverage.

Also, if your family has deposits of more than $100,000 at one bank, and one of the depositors or beneficiaries dies, you should review the coverage to determine whether funds exceed the insurance limits. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate planners a chance to restructure accounts. But if you fail to act within six months, you run the risk of, for example, joint accounts becoming part of the survivor's individual accounts, and that could put the funds over the $100,000 limit. Also note that the death of an owner or a beneficiary named in trust accounts can reduce the deposit insurance coverage.

For more guidance about deposit insurance coverage, click here.

A medical emergency. First, carefully review all doctor and hospital bills and insurance claim payments/denials, because mistakes do happen and uncorrected errors can be costly. If you are unable to resolve a billing dispute with a doctor, hospital or insurer, contact your state consumer protection office or insurance regulator for guidance.

Think twice before using credit cards to pay for large medical expenses, especially if you are already deep in debt or if it will take years to pay off the card balance, in which case the interest charges could add up significantly.

If you can't afford your medical or hospital charges, don't allow the debt to be turned over to a collection agency, which could damage your credit score. Instead, contact the service provider's billing department to try to negotiate a reduced bill or a payment plan with monthly payments. Also ask about assistance from a government program or charitable organization.

You can also consider turning to a credit counselor for guidance, but choose one carefully because some offer questionable or expensive services and others may be scams. For guidance on choosing a credit counselor, see a Web site from the Federal Trade Commission at www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm.

If your medical bills are sufficiently high, you could qualify for a federal tax deduction, so be sure to save bills and cancelled checks or other receipts for your tax preparer. #

A divorce. Consult legal counsel because uninformed decisions could cost you. Also consider discussing tax issues with an accountant or other advisor because certain decisions, such as who will claim children on his or her tax return, can affect each parent's tax liability. For more information, see IRS publication 504, "Tax Information for Divorced or Separated Individuals," online at www.irs.gov/pub/irs-pdf/p504.pdf - PDF 1,025k (PDF Help).

You also may be able to reduce some legal fees by working with a mediator to resolve issues such as child custody.

Cancel joint credit cards to prevent the other spouse from running up large bills. Start or build your own credit history independent of the marriage, such as by opening a new credit card in your name only. Decide who is responsible for debts incurred during the marriage. If you change your last name, notify the major credit bureaus (www.equifax.com, www.experian.com and www.transunion.com).

It's also important that you update your will and the list of beneficiaries you designate on life insurance policies, retirement savings accounts and U.S. Savings Bonds, so your money and other assets will go to the right people upon your death. #

A job loss. Try to keep spending under control so you can pay your bills using existing bank and brokerage accounts for, say, the next three to six months. If possible, avoid withdrawing or borrowing money from your retirement savings. If you anticipate problems paying debts, such as your mortgage or the minimum due on your credit card, contact your creditors immediately and attempt to work out a payment plan.

One reason to keep loan and credit card payments current is so that you can maintain the best possible credit record. Prospective employers may review your credit reports when you apply for a new job.

Also, carefully review your employer's severance benefits, including the temporary continuation of your salary and health insurance, and try to negotiate a better deal.

You can't make your mortgage payment. Regardless of the cause, if you're having difficulty paying your mortgage, you should contact your loan servicer and find out if you qualify for modified loan terms or other options to help you keep your home instead of losing it to foreclosure.

You may also want to seek help from a trained homeownership counselor. To find a reputable counselor, contact the Homeowner's HOPE Hotline at the Homeownership Preservation Foundation (1-888-995-4673 or www.995hope.org) or the U.S. Department of Housing and Urban Development for a referral to a HUD-approved homeownership counseling agency (1-800-569-4287 or www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm).

You're having problems making credit card or other loan payments. No matter what triggers a personal financial crisis, the important thing is to be proactive and address the problem as soon as possible by contacting your lender to try to negotiate a long-term, workable solution.

And if you need help negotiating with a lender or otherwise getting a debt problem under control, consider asking an attorney, accountant or another trusted advisor to refer you to a reliable credit counselor who, at little or no cost, can help you develop a recovery plan. If you're facing problems on a loan secured by your home, including a home equity loan, see the previous bullet point about mortgage payments.

Source: FDIC

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Teaching Children the Financial Facts of Life

Showing the importance of saving, spending wisely and sharing with others

We try to teach our kids to be street-smart and use good manners, but teaching them the financial facts of life can be difficult. To help parents, guardians and even grandparents raise responsible money-managers, FDIC Consumer News offers the following suggestions.

Play "show and tell" while you manage your own money. If you expect your kids to become responsible with their money — and yours — practice what you preach. Serve as a good example of what it means to save, spend wisely and share with others. You'll make more of an impression on your children if they can see and hear what you're doing to manage your money.

So, take your child along on shopping trips and discuss what makes some items "too expensive" and others "good buys."

Also take your child to the bank. Note the variety of services provided by visiting different departments of the bank. Explain basic principles, such as how money deposited in insured accounts is protected by the government against loss.

Around the house, let your child help with simple tasks associated with preparing deposits or investments, or balancing the checkbook. As you pay your bills, especially the ones for your credit cards, explain how debts must be repaid on time or you can face additional fees and have trouble getting a good loan in the future.

Also discuss your charitable contributions and why you are making them. Ask your child for input on which charities to support. He or she also can help you prepare contributions, even if just by stuffing checks into envelopes.

Help your child start a savings or investment account. Young kids will enjoy saving money in piggy banks, but at around age eight, think about helping them open a small savings account. That way they also begin learning what banking is all about.

Many parents reward their children for sticking to a savings plan by matching or adding to what the child contributes.

As children get older, discuss the pros and cons of owning investments, such as stocks, bonds and mutual funds. Investments can produce higher returns than bank deposits over the long term, but remember that investments can lose money and they are not insured by the FDIC.

Give an allowance. If used as a teaching tool and not a giveaway, an allowance can be one of the best ways to teach kids, even as young as five or six, about money management. It also allows children to experiment with money management and learn from their mistakes without losing too much in the process.

Encourage them to decide in advance how much should go into savings (which reinforces the concept of "pay yourself first"), how much should go into the spending pile (for their use as "pocket money") and how much should be set aside to share with others — for charity or birthday or holiday gifts. Giving an allowance in small bills or coins also allows them to easily set aside the portions for the different purposes.

Consider gifts that encourage saving. Examples include U.S. Savings Bonds and books that reinforce financial responsibility.

Encourage older children to get work experience. Summer or part-time jobs can teach young people good business skills and how to be responsible. They also may enjoy earning and saving money.

For more help or information for parents: The FDIC has a new financial education program for youths between the ages of 12 and 20 that is primarily for use by teachers but also can help parents explain the basics of good money-management to their children. You can order a free CD of the FDIC's "Money Smart for Young Adults" at www.fdic.gov/consumers/consumer/moneysmart/young.html.

Source: FDIC

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Starting a Household on Solid Ground Financially

For newlyweds, the first big financial decisions go beyond how to pay for the honeymoon and how to invest all those checks. They also involve starting a new household on solid ground financially. “Financial incompatibility is a primary reason for a significant number of failed marriages,” said Lee Bowman, National Coordinator for Community Affairs. “Achieving harmony regarding financial matters before marriage, or as early in the marriage as possible, is critical to sustaining the relationship and preventing conflicts.”

Before exchanging wedding vows, have a candid discussion about your finances. Be open and honest about matters that could be a source of friction in the future, such as major outstanding debts from student loans or credit cards.

Some experts suggest that both of you order your latest credit reports and then, together, sit down and review them to avoid major surprises. Credit reports include information on debts outstanding and, for example, whether someone has filed for bankruptcy. By federal law, you can receive one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies (www.AnnualCreditReport.com or call toll-free 1-877-322-8228).

Set short-term and long-term financial goals. Figure out how much money each of you should be able to spend for “fun” and how much you should set aside for important goals, perhaps to buy a home. Financial advisors suggest that young couples consider preparing and following a monthly budget (see Page 6).

Understand the risks and responsibilities of jointly held accounts. If a husband and wife are co-owners of a credit card and one of them goes on a spending spree, the other spouse may be held responsible for paying the bill. Likewise, irresponsible use of a jointly owned credit card by one spouse would be reported on both of their credit histories, and that could damage the “innocent” partner’s chances of getting a good loan or credit card in the future. And when two people use the same checking account, they should share one checkbook and record all transactions, because otherwise they risk losing track of their balance and paying charges for insufficient funds.

Source: FDIC

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Helping Disabled or Elderly Relatives With Money Management,
Even From Far Away

Preventive Measures

Consider taking these steps before someone becomes ill or disabled:

Make sure the family knows where to find personal and financial documents in an emergency. These include bank, brokerage and credit card statements; original wills; insurance policies; and Social Security, Medicare and pension records.

Think about the direct deposit of pay and benefit checks into bank accounts. Direct deposit is safer and more convenient than paper checks. There are no delays in getting funds deposited, and no checks are lost or stolen in the mail or forgotten at home.

Consider automatic payment of important, recurring bills. You will have one fewer thing to worry about if you can arrange for utility bills as well as other regular commitments (such as insurance and the mortgage) to be paid electronically out of your loved one’s checking account.

Try to make sure your elderly relatives are properly insured. If you have doubts about someone’s insurance coverage or ability to pay for long-term care, get a second opinion from a financial planner or an insurance agent you trust.

Consider a “durable power of attorney.” This is a legal document giving one or more people the authority to handle finances or other personal matters if the individual becomes mentally or physically incapacitated.

Suggest a “living will” or other instructions about future medical care. Most people should have a living will specifying the type of medical care they want or don’t want if they become terminally ill and are unable to communicate their wishes.

Experts also recommend a “health care power of attorney” or “health care proxy” designating a family member or other trusted person to make decisions about medical treatment.

Living wills and health care proxies are intended to ensure that someone’s wishes regarding medical care are honored, but they also can prevent unnecessary and costly procedures.

After an Illness or Disability

The following should be on a family’s checklist after a serious health problem:

Get solid financial and legal advice from professionals you know and trust. Contact bankers, lawyers, accountants, insurance agents or financial planners your family has dealt with in the past. Ask how they’d recommend you deal with money matters and how they can assist.

Guard against frauds that target the vulnerable. Among the saddest and costliest issues facing families is fraud and theft committed against the disabled or elderly by unscrupulous relatives, contractors, caregivers, friends, neighbors or other individuals. These sinister acts cover a wide range of lies and deception, including cashing checks without permission and changing legal documents to give this other person rights to conduct transactions or take ownership of property.

“First, it helps to have a trusted family member who is in regular contact with a disabled or elderly relative and, if necessary, helps review bank and investment account statements to look for unusual activity,” said Linda Ortega, an FDIC Community Affairs Officer. “Beyond that, there are precautions to take, including arranging for direct deposit of Social Security or government payments, and making sure that checkbooks and credit cards are properly protected.”

To learn more about how to avoid or report elder fraud, contact your state’s Adult Protective Services department.

Source: FDIC

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