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Author: Nathan Astle

Why personal finance matters

If you are following this blog, you probably care a little bit about personal finance. Thank goodness! Even if talking about and dealing with money isn’t your favorite thing, it definitely affects your life. How much money you have, how you spend it, how you navigate financial conflict, all can affect things like overall happiness, relationship satisfaction, stress, anxiety, depression, and a horde of other factors. So even though money may not be the most fun thing to think about, especially as a college student, it heavily impacts your life.

That’s where we come in. Some of you may take a personal financial planning class as part of your college career and some may not. However, every single student can come to Powercat Financial to learn the skills necessary to lead a successful financial life. We can teach you everything from budgeting, to managing credit cards, repaying student loans, understanding your benefits, and more! This financial education is top-notch, and our program is a unique program that helps hundreds of students in one-on-one counseling sessions and thousands of students in our financial presentations.

But what is the point of all this information? Reality is, information is only as good as it is applied, or as Albert Einstein says, “Information is not knowledge. The only source of knowledge is experience. You need experience to gain wisdom.” So until you apply the things taught here in your life, the info isn’t much good in your life. So this is my challenge to you. Apply what you learn and see if it turns out fruitful for your life. Information about how budgeting is important (it is) and how crucial it is to plan ahead for your future (also true) won’t do any good until you decide to actually budget and plan ahead. I promise you, if you consistently keep a budget and plan for the future, you will see the fruit of the work.

Powercat Financial is here for you no matter where you are on your college and financial journey. Whether you are feeling totally confident about your financial future or you are on the brink of tears because of your financial stress, we are here for you. It’s our job. It’s what we are here for. So do your future self a favor and make an appointment with us today!

www.k-state.edu/powercatfinancial

Nate Astle

Graduate Assistant

Powercat Financial

Budgeting for your internship

Well everyone, it’s that time of year again. The weather is getting better, the days are getting longer, and finals week is just around the corner. Prepping for finals week is just one of the steps we all need to take to prepare for the summer months ahead. If you were lucky enough to land a summer internship there is plenty to think about before you head to your new job on day one including, budgeting, finding a place to live, and comparing living costs in a new city.

Budgeting

Budgeting is step one of planning for your financial future. If you are lucky enough to have a paid internship then you will need to determine how to use your new found income. If your internship is paying you with a fantastic experience then you will need to plan how to live off of built up savings. Some important things to consider is how you are being paid.

  • Hourly: If your income is based on an hourly rate, then your income estimate must reflect your hours of work each week multiplied by your hourly wage. Then multiply that amount by the number of times you are paid each month (twice for bi-monthly, four times for weekly) to compute your monthly income, less any withholding from your paycheck.
  • One-time payment: If your payment is a one-time stipend then you will need to plan how to utilize that total over the next few months. A good method is to divide the total you are being paid after withholding by the length of the internship in months. This calculation will determine the amount you can afford to spend each month throughout your internship.

Powercat Financial’s spending plan worksheet is a great resource to get you started with the budgeting process. Step 1 will have you estimate your income and expenses in a given month. Step 2 has you record the actual amount of income and expenses you had for that month. Then, you complete the budgeting process by setting your budget based on the information you gather while comparing your estimates and actuals. The spending plan worksheet is available on the Powercat Financial website under the Budgeting tab.

Finding a place to live

Finding a place to live is often the toughest part of an internship. It’s important to consider not only overall cost but also your individual needs. If you aren’t able to live with family or friends in a new city, there are still other options available. The main housing options I will discuss today is intern housing offered by the employer, long term Air BNB reservations, or standard rent.

  • Intern housing: Often times your employer will have a predetermined housing option. This is a great way to meet your fellow interns and often comes at a cheaper rent than what you could find on your own. A downside is the preset housing may not have all the same amenities you could find at other locations. Often the employee housing could be campus dormitories of a nearby school or even a long term stay hotel. It’s critical that you consider what is most important to you and that you thoroughly evaluate the options presented.
  • Long-term Air BNB: This is another option that has become more prevalent in the last few years. When selecting an Air BNB or similar option you will need to make sure that all your needs are met and that the host can house you for the full length of the internship. Additionally, always use caution when evaluating Air BNB hosts.
  • Standard rent: Another option is renting. Whether it is a house with some friends or just an apartment by yourself or with another intern this is a nice option. A few things to look for when searching for an apartment over the summer is to find one that has a lease for only the month’s you will be living there. This allows you to avoid paying rent for times that you aren’t using the space.

 

Comparing cost of living

Finally, you will want to be aware of any changes to cost of living based on the city you will be in. A great resource to make this comparison is the cost of living comparison from Bank Rate available here: https://www.bankrate.com/calculators/savings/moving-cost-of-living-calculator.aspx. This calculator allows you to put in a salary in one location and it will determine the salary you would need in a new location to maintain the same style of living. Additionally, great detail can be found about housing prices, food prices and much more.

These are just a few of the things you need to consider before starting on day one of your new internship. Starting a new role, possibly in a new city, can be a stressful time but Powercat Financial is here to help. If you would like to come in and discuss a job offer, living in a new city, or any other financial topic just visit https://www.k-state.edu/powercatfinancial/ and select the request appointment button.

Good luck on finals and best of luck this summer!

 

Will Orth

Graduate Assistant

Powercat Financial

302 K-State Student Union, Third Floor

(785)532-2889

Leverage your debt

Finally. You’ve graduated college, accepted a new high paying job, and are ready to start paying down your student loan debt. For the last 4 years, these loans have been a weight on your shoulders. Your goal is to pay off your loans as quick as possible so you can live the rest of your life in peace; forgetting that they were ever a source of oppression during your college years.

Paying off your debt quickly may seem like the best option for everyone since you are avoiding paying extra interest, but that isn’t always the case. The question you have to ask yourself is “What are my dollars doing for me?”

For instance, say you have a 10-year $30,000 dollar loan with a 4% annual interest rate. You also just happen to have $30,000 in your checking account. One option would be to pay off your loan in full before any interest accrues. You’d be saving $6,448 by not paying any interest. Seems like a good deal right? But what happens if you decide to invest the $30,000 in a tax advantaged investment account that returns 6% annually and then make regular monthly payments on the loan? At the end of 10 years your account would have grown to $54,582! You’ve earned $24,582 minus the $6,448 interest payments on the loan. So, by not paying of your debt your total benefit is $18,134! You have tripled your savings!

This concept is not out of the ordinary. Businesses use debt and financial leverage to get the highest return on investment as possible. Professional investors will borrow money in order to invest it at a higher rate. It can be applied to many personal finance situations as well. If your after-tax interest earnings on investments are greater than your savings from paying off your debt early, then you should leverage that debt and avoid paying it off early. This holds true as long as you’re able to make required monthly payments on your debt.

One important thing to remember is that investment returns are not guaranteed. In the short term, stock market volatility can make returns difficult to predict, so leveraging short term debt might not be the best move. In the long term (10+ years), stock market returns have averaged around 7%. But with that, past performance does not indicate future performance. You do have the possibility of losing money while investing, so you need to account for your risk tolerance. The best case would be to speak with a Certified Financial Planner (CFP) on this issue.

It’s also great to realize that interest paid on student loans and mortgages may be tax deductible, so there are additional savings there. Taxes on earnings for investments you’ve held longer than a year may be taxed at a lower rate (sometimes even 0%). There are also tax advantaged retirement accounts.

To better illustrate this concept, here is an example:

Sallie Mae is a recent K-State graduate with $50,000 in total student loan debt. $30,000 of that is a Federal loan with a 4% interest rate and $20,000 is a private loan with a 15% interest rate. Both loans are for 10 years and are eligible for tax deductible interest. She has a full-time job and can easily afford the monthly payments. She has recently returned from a vacation to Vegas where she won $50,000 on her first spin on the slot machine. She has several options:

  1. Pay off the Federal loan
  2. Pay off the Private loan
  3. Invest in a tax advantage retirement account that earns 6% annually
  4. Any combination of the options listed above

Here is the outcome of 3 different decisions:

  Pay off all debt (15%, 4%) Invest it all (6%) Pay down high interest rate debt (15%), then invest the rest (6%)
Interest paid* $0.00 ($25,168.64) ($6,448.25)
Interest payments avoided* $25,168.64 $0.00 $18,720.39
Investment earnings* $0.00 $40,969.84 $24,581.90
Total benefit $25,168.64 $15,801.20 $36,854.04
*assuming monthly compounding      

 

As you can see, Sallie had the greatest savings when she paid off her high interest rate debt first, then invested the rest, while she made required payments on her low interest rate debt for 10 years.

So maybe you weren’t as lucky as Sallie to win $50,000. But, maybe you do have room in your budget to put an extra $50 dollars a month towards something. Well, the good news is this concept applies to extra monthly payments as well!

If you’re curious to learn about how you can maximize your money, schedule an appointment with a peer counselor! You can schedule an appointment at www.k-state.edu/powercatfinancial/

References:

 www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/

www.investopedia.com/articles/pf/08/invest-reduce-debt.asp

 

Morgan Flax

Peer Counselor I

Powercat Financial

www.k-state.edu/powercatfinancial

 

More bang for your buck: Taxes

**Disclaimer: This does not constitute as tax advice. Please seek out a licensed accountant or financial adviser for information on tax related questions.**

Government Bonuses!

Although receiving a tax refund may feel like a bonus, it’s really not. So where does this money come from? Each year you set your withholding amount, this is the amount of tax that you would like the government to take out of your paycheck. If you set the withholding amount to high the government ends up taking more out of your check than they needed to pay your taxes. This extra money is then returned to you in the form of a tax refund. So really you were just letting the government hold a little bit of each paycheck and then give it to you all at once. There can be advantages and disadvantages to this. First, let’s consider the advantages of receiving a large tax refund.

Advantages

Receiving a lump sum is always nice. It allows you to go on that vacation, catch up on bills or simply invest it toward a project. By allowing it to come out of our check automatically we are forced to save it and not touch it. This can be a great way if you are struggling to save money. Another advantage is that you do not have to worry about facing a tax bill at the end of the tax season.

While this sounds like a great idea, there are also some disadvantages. Below are some of the disadvantages of receiving a large tax refund.

Disadvantages

Ever heard the saying “Money now is worth more than money tomorrow”? This saying leads to one of the major disadvantages. By having a tax refund you sacrificed the opportunity to use that money throughout the year. That money was worth more when it was taken out of your paycheck due to inflation. Inflation means that over time the value of the dollar decreases, so you cannot purchase as much with it when you receive your refund as you could have along the way.

While receiving a tax return is neither good nor bad in any situation there are other ideas. Below are a few ideas to consider for next year.

Adjust Your Withholding

Adjusting your withholding can allow you more room in your monthly budget. If you are worried that extra money may get washed away in the day to day expenses, set up an account and set an automatic contribution to it. This could be a savings account, investment account, ext. By doing this you can have your money work for you in the form of interest earnings.

Have a Plan for Your Refund

Before your check comes in the mail, take time to write out a plan for how you will use the money. Whether it’s for one of the ideas mentioned above or another use, have a plan. The more specific your plan is the better.

Invest Your Refund

It is important to prepare for the future. It is easy to put this lower on the priority list because the future does not affect us now. If you find yourself doing this, maybe using your refund to catch up on investing is a good idea. Be sure to evaluate your goals and make educated investment decisions if this is what you decide to do with your refund.

Josh Payne

Peer Financial Counselor II

Powercat Financial

powercatfinancial@k-state.edu

Spending Post-Graduation: The 50/30/20 Rule

 

Seniors: buckle up. If your parents and/or FAFSA are cutting you off any time soon, you will need to learn how to manage your money yourself. The 50/30/20 rule is a great starting place for first-time budgeters because it is a simple way to make sure your spending habits are on track with generally acceptable benchmarks. Using this philosophy, your income should go towards 3 main buckets:

50%* of your income should go to NECESSITIES.

  • Necessities are living expenses such as:
    • Rent/Mortgage
    • Utilities
    • Transportation (gasoline, Uber/Lyft, public transit)
    • Groceries
    • Insurance
    • Minimum payments on debt
  • Your rent or mortgage payments should be no more than 30% of your income.

*If your necessities require more than 50% of your income, dip into the next bucket…

30% of your income can go to DISCRETIONARY EXPENSES.

  • Any “fun” purchases are considered discretionary expenses:
    • Eating out (restaurants, fast food chains)
    • Entertainment (concerts, sporting events, streaming music/video)
    • Hobbies (art supplies, books, sporting equipment, gym membership)
    • Traveling (airfare, hotel)

20%** of your income should be SAVED or put towards PAYING OFF DEBTS.

  • The earlier you start saving, easier it will be to achieve financial security and achieve your financial goals:
    • Emergencies
      • According to Dave Ramsey’s “7 Baby Steps,” start an emergency fund by working up to $1,000 in a savings account.
      • Financial planners recommend saving 3-6 months’ worth of expenses in a savings account.
      • If you don’t have very stable employment, perhaps this number should be higher for you. Your needs depend on your situation!
    • Student Loan/Other Debt Repayment
      • Find out what your monthly student loan payments are going to be by looking at the Federal Student Aid website and using their repayment estimator.
      • Use our student loan repayment estimator worksheet to see how much of your income you need to put towards your student debt.
      • Use your credit card like a debit card; only charge purchases you know you can afford. Pay off your credit card in full every month and start chipping away at your total balance.
    • Retirement
      • For someone starting young (ages 25-35), the industry-recommended benchmark to shoot for is 10-13% of your gross pay toward retirement accounts.
      • A peer financial counselor can help explain to you all the different types of retirement accounts!
    • Financial Goals
      • Whatever is left over can be used to achieve your own personal goals.
      • Use the S.M.A.R.T. acronym to remember how to set good financial goals: specific, measurable, attainable, realistic, and time-bound.
        • Example: “I want to have $20,000 in my savings account at the end of five years so I can put 20% down on a $100,000 house.”

**Like before, if your debt repayments require more than 20% of your income, dip into the discretionary expenses bucket.

This method, and other methods of budgeting, will look different for everyone. Make an appointment with Powercat Financial today at www.ksu.edu/powercatfinancial and we can help you fill out a spending plan specific to your unique situation!

Abby Pope, Peer Counselor II

Powercat Financial

302 K-State Student Union, Third Floor

918 N. 17th Street

Manhattan, KS 66506-2800

785-532-2889

www.k-state.edu/powercatfinancial

PowercatFinancial@k-state.edu

 

How should I invest my money?

“How should I invest my money?” This is a question I have received from a couple of students who have come in to Powercat Financial to discuss their financial futures. It excites me when I talk with these students who are in the game and are already preparing for retirement. These students often have little to no student loans and are already looking to the next part of life. They are thinking strategically and wanting to build wealth for themselves and future generations. For those who are reading this post and are themselves about to graduate or are wanting to invest, I am hoping to inform you of professional organizations and websites who will help you find excellent professionals. These professionals can help guide and assist you as you plan for and journey through life.

The CFP (CERTIFIED FINANCIAL PLANNER™) Board website is a great starting point. This website has an excellent search engine designed to help you find qualified individuals who care about you and your future. The website helps you search for CERTIFIED FINANCIAL PLANNER™ professionals. CFP® professionals are individuals who have gone through rigorous education, ethics training, examinations, and have obtained experience within financial planning before they are able to use the CFP® designation.

The National Association for Personal Financial Advisors (or NAPFA) is another great organization helping consumers find financial advisors. Financial advisors who are members of NAPFA hold themselves to a standard of fee-only financial planning. Fee-only means these financial professionals receive no commissions on any products they provide. This helps, not insures, they will provide unbiased advice that is best for you, the client.
The third place to go when searching for a financial planner is the Financial Planning Association website. The Financial Planning Association is a large group of CFP® professionals. Much like the website of the CFP Board, this website can help connect you with CFP® professionals who are masters of their craft.

CFP® Professionals are held to a fiduciary standard. Fiduciary standard simply means the advisor will always act in the best interest of the client. Are you surprised? Yes, not all financial advisors are required to act in your best interest. All financial professionals are held to the suitability standard. This standard means they will always provide whatever is “suitable” for your situation, not necessarily what is best.

For those wondering how much a financial planner will cost, it depends. Some financial planners are compensated by a percent of the money you have them invest/manage. This is called assets under management (AUM). There are some financial planners who provide “startup packages” for young professionals. The financial planner charges a flat fee for developing a basic financial plan and helping the young professional gain solid footing for their financial future. Other planners are paid on commissions for products (i.e. mutual funds, insurance, etc.) they sell. The immediate cost of hiring a financial advisor may be high, but in the long run it’s worth it. Financial planners help bring objectivity to what can be an extremely emotional subject.
On an end note, invest time in finding a financial planner. This can be an uncomfortable, nerve wracking process. Work through these feelings and find a financial professional who you can trust. I recommend starting with those who hold the CFP® designation and work from there. You are entrusting your future into the hands of this individual, do not be afraid to ask them hard questions about how they are compensated or if they are a fiduciary advisor.

While Powercat Financial cannot provide specific investment advice, we can help prepare you for the next steps of your financial future. Our office can help you walk through budgeting and helping you understand some of your larger financial goals. To schedule an appointment with our office, you can go request a free and confidential appointment at https://www.k-state.edu/powercatfinancial/.

References:
http://www.letsmakeaplan.org/?utm_source=LMAP&utm_medium=header&utm_content=homepage&utm_campaign=header.
https://www.napfa.org/find-an-advisor
http://www.plannersearch.org/

Philip Wegman
Peer Counselor I
Powercat Financial
www.k-state.edu/powercatfinancial

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