Transcript What is Personal Finance?

What is Personal Finance?
• Financial management is a critical part of
everyday life.
• Personal finance is learning how to
manage our money to get most out of it.
• To become financially successful we need
to learn how to plan and use money
wisely.
Culture Difference in money use
• There is a cultural difference in money
management style in Nepal and US
• In Nepal women are less involved in
household budget and money
management
• Personal loans are hardly used
• Everything from daily needs to buying a
house or a car is done in cash.
Culture Difference in money use
• In Nepal most people feel shame to get a
loan and vendors hesitate to sell you even
with a check
• In contrast credit is a way of life in US
• We need to make good credit history to
get a loan to buy bigger things such as
house or car.
• The better credit history, better rate and
larger loan you get.
Basic Banking
• Checking account
– We need checking account for paying bills
– select a free checking account or one with
no minimum balance
– Have minimum or no interest return
• Debit Card or ATM Card
– Use for drawing cash or for shopping
– There might be charges for using an ATM
not associated with your financial
institution
Basic Banking
• Saving account
– Earns more interest rate than checking
account
– Usually keep it to save money monthly basis
– Can deposit and withdraw at any time
• Certificate of Deposit (CD)
– More interest rate than saving account
– Can withdraw only after funds mature
– Longer you keep the higher the rate
Credit Card
• Why do you need credit card?
– Is an important medium of transaction in US
– Accepted in almost all stores where as
personal checks may not be accepted in
stores outside your state
– Also important if you shop through internet
– Good to have it but beware of interest rate
charged on balance not paid.
Credit History
• What is Credit history?
– Credit History is record of money borrowed
and paid back
– It is also a measure used by financial
institution to see if you are eligible for loan
• Why do you need credit history?
– Credit history is crucial to get loans for larger
items such as buying a house, or cars
How to Built Credit History?
• There are many components that helps to
built Credit History:
– Employment history: Lenders wants to see
you have continuous job
– Residence history: to see you have been
paying rents regularly
– Utilities in your name: to see you have been
paying bills in time
Steps to Establish Credit History
• Start with your bank by opening and
maintaining a checking account
• Apply for Credit Cards; if you don’t get one
due to no credit history
• Consider a Department Store Card as it is
easy to get than a credit card
• Secured Credit (Last Option)
Insurance
• Insurance is also a new concept for us
coming from Nepal as we need insurance
for everything in US.
• Important Insurances to consider are:
– Auto: should not drive car without insuring it Liability
– Home: need for disaster recovery
– Renter: to save your personal property during
disaster
– Life: to protect family from unexpected death
How to Save on Financial
Charges?
• Auto Loan:
– When you buy cars, deposit as much as you
can for a down payment
– Take shorter term as possible
– Shop around and compare price
How to Save on Financial
Charges?
• Home Mortgage:
– Can save a lots of money in interest charges
by shopping for shortest-term mortgage (15
years versus 30 years)
– Shop around for better rates
– Can pay off mortgage faster if you make one
extra payment once a year through bi-weekly
payments
– Consider direct payment
Mortgage Refinancing
• Consider refinancing your mortgage if you
can get a rate that is lower (at least 1%)
than your existing mortgage rate and plan
to keep the new mortgage for at least
several years.
• Calculate precisely how much your new
mortgage (including points, fees and
closing costs) will cost and whether, in the
long run, it will cost less than your current
mortgage.
Home Equity Loans
• Equity is the cash you would have if you
sold your house and paid off your
mortgage loans
• You can use this loan for emergency
purpose with lower interest rate than
personal loans
• Be careful this loan may reduce or even
eliminate the equity that you have built up
in your home
• If you are unable to make payments you
could lose your home
Housing
• Home Purchase:
– Good to have buyer broker who can get lower
rate than seller
– Don’t purchase house without examined by
professional inspector
– Shop around
• Renting a Place:
– Again shop around and find where you want
to live
– Make sure you understand all the terms
before you sign the lease
FICO Score
• What is Fico Score?
– FICO is a credit score developed by Fair
Isaac Corporation
– It is primarily used in credit decisions made by
banks and others
– It is a numerical expression based on a
statistical analysis of person’s credit files to
represent creditworthiness of that person.
FICO Score
• Why do you need to keep FICO score
higher?
– Credit scoring is not limited to banks. Other
organizations, such as cell phone companies,
insurance companies, employers, and
government departments employ the same
techniques.
What’s In a Credit Score?
• There are five categories that go into your credit
score:
– Payment History – 35%
– Total Amounts Owed – 30%
– Length of Credit History – 15%
– New Credit – 10%
– Type of Credit in Use – 10%
• Majority of credit score comes from payment
history and the total amounts that you owe.
• This means late payments and high balances
have the greatest impact on your overall score.