Finances

Table of Contents

Savings/Budgeting:

How can I budget?

Credit and Credit Cards:

Managing Debt:

Taxes:

Student-relevant tax issues:

Investments:

Future:

Glossary

Conclusion:

Talking about not being rich in college and how we can save/earn the most of our money to facilitate our college experience is great, but let us not overlook one of the most important topics: Finances.

Finances are one of the most overlooked topics and we tend to be undereducated and having a personal financial advisor can cost us thousands of dollars 💲. 😭

Fortunately, this small chapter will help learn the necessary information that most schools and Econ 101 courses fail to teach us. (And probably some small sub-topics will look familiar)

Savings/Budgeting:

You probably have heard about saving money (if not that's ok, don’t be alarmed) or even budgeting during your adulthood. That's awesome you should do it!!!

A great way to start saving up your money is to have a Bank Account (or Checking Account), especially have a Savings Account and save up at least 10% of every paycheck you’ll get.  (I know some may be scared about having a bank account due to their immigration status, don’t be afraid, you have a right to have a bank account).

To open a Savings account is easy:

• Show up at the bank of your choice :) Credit unions like University of Michigan Credit Union (umcu.org), which has offices in the basement of the Michigan Union and elsewhere in Ann Arbor and Ypsilanti, are generally far better deals for students than for-profit banks (Wells Fargo, Chase, Bank of America, etc...) and will help you avoid hidden fees, especially if you have a low account balance. PNC offers a student bank account that has no fees for up to 6 years after you sign up, as long as you have an .edu email or proof you are a student
• If you can forgo the convenience of physical banking, certain online savings accounts like Ally Bank  offer high yield interest savings accounts (1.45+% vs 0.01% of most banks). Watch out for minimum balances and/or limits on how or how often you can withdraw money.
• Ask to open a Savings Account (if it's your first time, ask for a Checking Account too)

• Present necessary information (ID, Passport, Debit Card if you have one already)

• Wait for the accountant to do his magic
• Sign the documents and Congrats you have a savings account :) :) :)

• Some banks will ask you to have a certain amount in order to not get fees

• You can waive those fees by setting it up to deposit at least $5 every month from your Checking Accounts (deposit depends on the bank)

How can I budget?

• University of Michigan Credit Union offers free budget counseling for all members. Two hours long sessions are available and extremely thorough.

• Free budgeting apps like Mint are available that can link to your bank/credit card/loans and help you set budgets and goals or keep track of bills.
• You Need A Budget (YNAB) - offers free classes on budgeting/cutting spending/credit cards, etc.
• Create a list of expenses and income. (a visual printable template is shown below.)
• 
• Remember to keep track of your spending and set reasonable goals.

Credit and Credit Cards:

Having Credit is important because it will help you have a low interest rate when buying a car, taking loans, getting a mortgage and insurance.

Everyone is entitled to view their credit report from all three bureaus (Trans Union, Equifax, & Experian) once per year for free! To do so, visit: www.annualcreditreport.com 

How do I know my Credit score? A lot of credit cards have score monitoring as a free benefit when you access your account online. Also, you can always check your credit for free with Credit Karma:

• Get reports from 2 bureaus (Transunion & Equifax)

• Log in to Credit Karma
• Provide necessary information
• Voilà! You have your Credit info!
• You can refresh once a week

How do I read it?

Credit report comes from and are affected by:

• Your payment history
• How long you’ve had credit
• The types of credit you have (credit cards, auto loans, student loans, mortgages, etc...)
• Your credit limits and how much of those limits you’re using
• How much debt you have
• Hard inquiries on your credit report

The best way to increase your credit is to have a credit card:

• If you have a bank account and sufficient income (you are allowed to include living allowances given to you by your parents), you can qualify for a credit card

• You can always apply for a credit card online

• If you do not have an SSN (social security number) you may need to go into the physical branch

• Consider starting with a card issued by the Credit Union or Bank that you opened an account with, building on that existing relationship.
• Don’t be sad if your credit limit is only $500 to start with. You’re still building credit. The limit also helps you not get in trouble as you learn to use credit.
• Discover and Journey are great starter cards for college students
• Of course you can always check Nerd Wallet for choices according to your situation and/or preference
• If you are interested in a card with an annual fee, do the math to make sure your spending can help you break even compared to the no annual fee version (e.g., AMEX Blue Cash Preferred vs Blue Cash Everyday). Chances are if you are on a student budget, you will not spend enough to break even. If a no annual fee version does not exist, or if the annual fee version offers more benefits that may be useful to you, make sure you can use the benefits enough to offset the annual fee. For example, if you are interested in the AMEX Delta Gold card, do you often need to check bags on Delta flights? Do you usually do this enough in a year such that you can break even with the annual fee?
• Look for sign-up bonuses - you can always find a no annual fee card offering at least some cash or points bonus for signing up. However, have a plan for meeting the spending requirement in place before applying for a card with a sign-up bonus, as you are wasting money if you make unnecessary purchases to meet the spending requirement. Try to time it with a large purchase that you have to make, such as a flight.

• If you live off-campus, using your credit card to auto-pay monthly bills like water, internet, electric, etc can be an excellent way to build your credit in a controlled fashion. BE SURE THEY DON’T CHARGE EXTRA FEES FOR USING A CREDIT CARD. Dropping $40 extra per month on transaction fees is worse than a marginally slower credit history. The best indicator of creditworthiness is timely payments, not large payments. Do make sure that you have the money on hand to pay these things. If you don’t, you’ll face potential debt and high interest rates.
• Don't be surprised if your credit limit on your first card isn't very large. It is often tied not only to your credit score, which may be non-existent before you got it, but also to your current income. The card issuer wants to be sure that you will be able to pay back whatever you have borrowed, and for your first card, they are not aware of how responsible you may or may not be. (And you may not be aware of how responsible you will be.)

Once you have a credit card, remember to always:

• You should always try to maintain a balance of zero.
• Always pay your bills on time and try to always pay off the full balance of your card. If you find yourself tempted to run a balance instead of paying in full every month, you can always go back to just using a debit card.
• Don’t exceed your card limit. Check the card terms, there may be a steep overlimit charge, sometimes $35-50.
• Avoid cash advances unless you have absolutely no other choice (it should be a life or death situation, not “I want this, but don’t have the cash right now”), as those are very expensive. You get charged a cash advance fee of about 5% the amount you take out or $10 (whichever is greater), AND a fee from the ATM owner or financial institution which you do the transaction with. Also, interest (which tends to be at a higher rate than for purchases) begins accruing immediately, unlike with purchases.

Why use a credit card over a debit card?

• Better fraud protection. When fraudulent charges occur on a credit card, it is your creditor who has to fight to get their money back. If they occur on a debit card, it is you who needs to fight to get your money back. Sure, some banks may advertise that you are not liable for fraudulent debit card charges, but they will likely place a high burden of proof on you to convince them that you did not make the charges in question before they are willing to give you your money back. It really sucks being unable to access your money while waiting for the bank to sort things out. With a credit card, you do not have to pay for the fraudulent charges until the dispute is complete, and only if the dispute is settled against your favor.
• More recourse if you never receive something you ordered. If you make a purchase with a credit card, you can file a dispute if you never received the goods or services you ordered, or if they are damaged during shipping. With a debit card, the transaction can be reversed only if the merchant agrees.
• Avoid having your money tied up. Upon check in at a hotel, or paying for gas at the pump, a hold will be placed on the card you present. This is for the hotel to have recourse if you trash your room, or for the gas station to ensure that you have enough to fill up a tank (whether or not that is what you actually intend to do). With a credit card, you will have some of your credit line tied up, but it is not your own money which access to is being restricted. With a debit card, your own money is tied up and cannot be used until the hold is released. The hold is usually released by the hotel or gas station once everything checks out and the final charged is determined. However, your bank is ultimately in control of when you may access your funds again.
• Rewards. Of course, you can get incentives for making your purchases with a credit card. However, be careful about always paying your bills in full and on time, otherwise the fees and interest can easily negate your rewards. Your account must be open and in good standing to redeem rewards anyways. Also, rewards are usually given for purchases only, not balance transfers and cash advances.

Booo!!! 👻 don’t be afraid!!! It’s not scary, just be safe. (I know you’re smart 😉)

Managing Debt:

So you've bought more than you meant to, or got your hours slashed by your boss for no reason, or really anything. (I'm here to help, not to judge.) No matter how, you’ve gotten some additional debt, so how can you manage it?

First off, do what you can to make all your minimum payments on time. LATE FEES SUCK. Make a schedule, and mentally ‘pre-pay’ those bills and remove the temptation to spend that money (again).

Next, allocate your extra funds to pay down the debt with the highest interest rate first. This is often called the “Waterfall Method”. When it's paid off, pay down the next-highest interest rate. And so on. This will mathematically save you the most money month over month. (Paying down $100 will save you $1.50 the next month on an 18% APY card, but only $0.50 on a 6% loan. Don't be afraid of large balances growing in the short term while you focus on the expensive debts first. They'll be gone soon if you can stick to the system.)

Student loans. As far as loans go, not that bad, rate wise. And there’s a kicker: The interest you pay each year is tax-deductible, essentially lowering how much they cost by a bit. For example, if you're in the 15% marginal tax bracket (earning $9,525-38,700 in 2018) and pay $500 in interest in a year, you can get $500*15%= $75 back on your federal tax return, effectively reducing your interest by 15%. (As a ratio, not percentage points. That would be way too nice.)

Use this recalculated interest rate for your ordering of the Waterfall.

There is a cap of $2500 that you can deduct, so if your balance is high, the effective interest rate approaches the published one.

Taxes:

You have heard that taxes are the most boring process and Americans hate taxes. Yeah, I guess so but it can be easy and fun.

Doing taxes is not that hard and I’m not saying go with a tax preparer. You can do it with the ease of your home and under a couple of minutes. The 1040EZ form is usually true to its name, especially for students. Take a look at it first, and then try the full form. Everything is step by step, and there are detailed instructions to guide you.

Some easy and free services are:

• Turbo Tax (My favorite, gave me a big deduction) - usually it’s free to file online if you file before a certain date in late February/early March (they will let you know via e-mail once you do your taxes with them the first time), and it’s actually fairly straightforward and calming, if you have a lot of anxiety around doing taxes
• Credit Karma Tax (Not my favorite, it didn’t provide me deductions or exemptions)
• HR & Block (haven’t used it)
• IRS (yeah, they can do it for free too, idk exactly their process though)
• TurboTax Sucks Ass (Free tax companies try to scam you when they are completely free versions from the IRS. This link will take you to them.
• VITA (Free community Tax preparation). Just take everything and they do it for you. Usually Business student volunteers are the ones who prepare the taxes. Available all over the US.  https://www.irs.gov/individuals/free-tax-return-preparation-for-you-by-volunteers
• LibertyTaxService Works as good as TurboTax or H&R Block & does not charge to efile file MI state taxes
• United Way of Washtenaw County provides free tax preparation and software: https://www.uwwashtenaw.org/freetaxhelp

How to File:

• Choose your service (Turbo Tax, HR & Block, IRS, etc…)
• Sign up/in
• Have your documents ready (W-2, 1098T, etc…  varies on person to person)
• Write in your info
• Choose the free version (don’t pay if you don’t have to)

• unless you own a businesses (you are required to file additional documents)

• File and let the IRS do its magic
• Congrats you’re done (just wait a couple of days to get your refund)

Student-relevant tax issues:

• Refundable scholarships and fellowships (scholarships which pay in excess of tuition, books, and required fees), such as the flagship university scholarships, graduate stipends, or housing allowances, are considered taxable income and no withholding is taken out of these funds. If you receive a refund each semester and earn enough to owe federal or state tax, make sure you keep some savings through the year to pay the tax. The part of a scholarship used for tuition, books, and required fees is generally not taxable.
• The State of Michigan has a 4.25% income tax and the deductions aren’t as generous as for federal taxes. In lower income brackets, it’s possible to owe more in state taxes than federal tax. If you come from a state with no income taxes and won’t ever be eligible for in-state tuition, it may be advantageous to retain your state of residence, e.g. by listing a relative as your permanent address.
• When preparing your return, make sure you check whether you’re eligible for the American Opportunity tax credit (for undergraduates) and/or Lifelong Learning tax credit (for all students). They are potentially worth thousands of dollars. The AOTC is actually refundable; you might get a tax refund up to $1000 even if you haven’t had any income tax withheld at a job.

Investments:

Even a high-yield savings account doesn’t earn that much interest compared to inflation, so for long term savings you may want to invest in the stock market in order to earn more interest. This can be pretty straightforward if you stick to index funds and mutual funds. Trading individual companies’ stocks can sometimes work out, but for most individuals it would require paying a lot more attention to the market (“day trading”) which is risky and time consuming.

A great way to invest are in Mutual Funds, Stock Market, ETFs,Target Date/Lifecycle Funds and Blue-Chips. Although mutual funds, an actively managed form of investment is marketed really well, do try to look for an Index Fund. The fees are much cheaper and the returns are comparably higher.

Some great apps that will help you invest are:

You can also opt for traditional brokers like Vanguard, Schwab, or Etrade. They charge a fee for each trade, but they’ve also been around for a long time, unlike the above apps.

As for cryptocurrency (bitcoin), the financially responsible thing to do is to avoid it. The volatility and lack of regulation mean that  it’s essentially gambling, not investing.

Future:

In your future, you'll most likely have a great job! That's awesome you made it!!!***

• Not really, don't consider your job as something secured or your only source of income; life happens and we might not have a great job due to real-life situations.

Important things that you should do:

• Save/Budget
• Invest in:

• Stocks
• Mutual Funds
• Yourself

• You can always invest in yourself by:

• learning new skills.
• using those skill by making videos online about your passions
•  on the long run it can become a business
• with that business; sell products

• Have multiple streams of income

• Have more assets than liabilities (in the contrary of popular belief read sidenotes)

• Take advantage of your company’s benefits. (401(k), IRA, Roth IRA, even Roth 401(k))
• If you want to buy a house, consider your income to debt ratio. You may have to make sure your loans are on lower payment plans.

Try to avoid:

• Get rich quick scams
• Lottery tickets
• Multi Level Marketing (MLM) : they tend to be pyramid schemes and lead to financial and social ruin.

Glossary

(goes chronologically from this chapter)

• Hard Inquiries: where a potential lender is reviewing your credit because you've applied for credit with them.

• These include credit checks when you've applied for an auto loan, mortgage or credit card.
• They can also happen when you submit a lease application for an apartment, apply for a non-prepaid cell phone plan, or rent a car using a debit card.

• W-2: report wages paid to employees and the taxes withheld from them.
• 1098T: form giver to student who paid "qualified educational expenses" in the preceding tax year.
• Qualified expenses:  include tuition, any fees that are required for enrollment, and course materials the student was required to buy from the school.
• Mutual Funds: professionally managed investment fund that pools money from many investors collected in a portfolio specifically for you
• Stock Market: equity market or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as those only traded privately.

• or in other words:

• The actual things that make Wall Street's line graphs go up and down. :)

• ETFs: Similar to mutual funds but are funds that treated like stocks.
• Blue-Chips: a share of ownership in a large, well-established and stable company that has a long history of consistent earnings growth and dividend payments.

• Ex. Apple, Google, Disney

• Dividends: Earnings from a company that are would be given back to shareholders.
• Cryptocurrency: is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.

• or in other words: Bitcoin, Ethereum; digital "secure"/crypted stocks

• Asset: economic resource that generates you money instead of spending

• Ex: owning a house that you rent out, have a local business, & having an online business

• Liability: economic resource that makes spend money instead of generating you cash

• Ex:  car you're still paying monthly, paying the mortgage of your house

• 401(k): retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.
• IRA: type of savings account that is designed to help you save for retirement and offers many tax advantages.
• Roth IRA: is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement at the expense of paying normal income taxes on your contributions.

• rules dictate that as long as you've owned your account for 5 years* and you're age 59½ or older, you can withdraw your money when you want to and you won't owe any federal taxes on any contributions or their earnings.
• This is highly suggested for anyone who expects to be in a higher tax bracket when they retire than when they start the account (e.g. an entry-level employee in/straight out of college)
• Roth IRAs are not subject to Required Minimum Distributions (RMDs) at age 70½ like the tax-deferred plans, and can even be given tax-free to children or grandchildren (who can then KEEP earning interest on this nest egg, but subject to RMDs of their own once you’re dead).

• Multi-Level Marketing:  also called pyramid selling, network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce. Don’t do these unless you like losing money and friends.

• Ex: Avon, Herbalife,

Conclusion:

Overall, these are all the info I was able to provide to you all, hopefully this will be helpful and serve you now and in the long run. Always keep up to date your finances and be smart will your future investments. Always educate yourself!!!  :)

Awesome financial sources:

• Ask Sebby
• The Financial Diet
• Jeff Rose
• Nerd Wallet
• Practical Psychology
• Mr. Money Mustache
• /r/PersonalFinance wiki

Some advice from the CFPB:

       Paying for College - Help students make informed financial decisions about paying for college.

·         Consumer guides - Practical advice for students on how to make sure they're getting the best deal.

o   Student Banking: Managing college money (Note: We have specific information on accounts that are sponsored by colleges, which UM has, as they are not always the best deal for students.)

o   Student Loans: Choosing a loan that's right for you

·         Repaying student debt - This tool helps students understand their options and come up with an optimal repayment plan.