The Money Toolkit

Money in, money out

Left over (or short) = money in minus money out = $ 

Guess, then check

Write your guess first. Then fill in the actual amount from your statement. Difference = actual − guess.

The 50/30/20 guideline

One common starting point: about 50% of take-home to needs, 30% to wants, 20% to savings and debt payoff. It is a guideline, not a rule, and high housing costs can make it unrealistic. Target = take-home pay × 0.50, 0.30 or 0.20. Needs are housing, utilities, groceries, transportation, insurance and minimum debt payments. Wants are everything else. Savings & debt is what you save plus any debt payment above the minimum.

The one category I am going to change first, and by how much:

List your debts

Circle the method you will use, and say why

I am choosing:   Snowball  /  Avalanche

Rank them, then attack one at a time

When the first debt is gone, roll its entire payment onto the second. That rolling amount is what makes either method work.

Where will the additional payment come from?

Find your target

My essential monthly expenses (your actual Needs spending from p. 4): $ 

Starter target, 3 months (× 3): $ 

Full target, 6 months (× 6): $ 

Your credit score affects the rates you are offered on loans and cards. A few main factors move it:

Four things you can start this month

1. Pay every bill on time. Set up autopay for at least the minimum.
2. Keep card balances under about 30% of the limit.
3. Leave older accounts open to lengthen your history.
4. Check your free credit report and dispute any errors you find.

Four steps, in order

How long to the first $500?

If I set aside $  per week, I reach $500 in   weeks (round up).

If I set aside $  per week instead, I reach it in   weeks.

Boring on purpose, but still earning

Keep it separate from checking, federally insured, and with no debit card attached. Then make it earn more with a certificate (a CD, or share certificate at a credit union): a set, guaranteed rate for a set time. A ladder splits the fund across several so one comes due every few months. Cash is never far away, and the rest earns the higher rate. Fort McClellan offers Certificates.

When a rung comes due, renew it for 12 months. Keep your first $1,000 in savings for same-day needs. Cashing a certificate early usually costs some interest.

Bank vs. credit union

Who can join Fort McClellan: Anyone who lives, works, worships, or attends school in Calhoun, Cleburne, Talladega, Clay, Randolph, Cherokee, Etowah, St. Clair, and Chambers Counties, Alabama, plus their family, can join.

What is your account costing you?

Pull up your last few statements. Estimate each cost for a full year.

Then compare. Current savings and loan rates for Fort McClellan are at fortmcclellancu.org. If your loan rate is higher than Fort McClellan’s, ask whether refinancing would lower your payment.

The same $22,000 loan at 8%, different terms

Interest paid = total paid − $22,000.

The 84-month loan is $346 a month cheaper. How much more does it cost in total? $ 

Why long loans are risky

Cars lose value faster than a long loan pays down. Being upside down means owing more than the car is worth, which traps you if it is wrecked or you need to sell.

Which term above would you choose, and what would you do if the payment felt too high?

What this car really costs each month

Keep all transportation under about 15% of take-home pay.

Checklist

Check each one you will do.

• Get pre-approved for a loan at your credit union first, so you have a rate to beat
• Negotiate the price of the car, not the monthly payment
• Ask for the out-the-door price in writing, including fees
• Get an independent mechanic to inspect any used car
• Decline add-ons you have not researched, and know you can say no
• Check what your insurance will actually cost before you buy, not after

What a mortgage payment contains

Together the first four are called PITI. Add PMI if you pay it, and that is the number to compare against rent.

Rent versus own, same month

The cash you need up front

Home price you would consider (not sure? use $200,000): $ 

Closing costs, paid on top of the down payment, run 2% to 5%: from $  (2%) to $  (5%)

Your debt-to-income ratio (DTI)

All monthly debt payments divided by gross monthly income. Most lenders want it under about 43%.

Is buying right for you in the next two years? What would have to change first?

What each one is

The match is a raise you have to claim

1. 4% of your salary is $  a year.
2. Your employer would add $  a year.
3. Contributing nothing means turning down $  a year.
4. Over 10 years, before any growth, that is $  left behind.

Compound interest

Compound interest means you earn a return on the money you put in and on the   it already earned (fill in the missing word). Your growth starts earning its own growth. Each year, multiply the year before by 1.10.

$200 a month at 10% a year, until age 65

10% is roughly the S&P 500’s long-run average yearly return before inflation. Some years lose money. Illustrative only; returns are never guaranteed.

1. The 25-year-old put in $24,000 more than the 35-year-old. How much more did they end with? $ 
2. What does that tell you about the value of the first ten years?

What you actually buy: index funds

An index fund owns every company in a list, called an index, so one low-cost purchase spreads your money across hundreds of businesses.

Funds are named as examples, not recommendations. Unlike savings, investments are not federally insured and can lose value.

My start: three things to do this month (check each as you finish it)

• Find out my employer’s match
• Contribute to get it all
• No plan at work? Open an IRA

I will start with $  per month. Over 50? Catch-up contributions let you put in more.

S&P 500 return each year, 2000 to 2025 (percent)

Dashed line: the simple average of all 26 years, about 9.6% a year.

$1,000 invested at the start of 2000

Why does steady growth of 8% end where an average of 9.6% does? Losses hurt more than gains help: after a 50% loss, you need a 100% gain to get back to even.

1. Which was the worst year, and how much did it lose? Year   lost  %
2. How many of the 26 years went down?  
3. Someone sold in a panic at the end of 2008. What return did they miss in 2009?  %
4. Why should money you need in the next few years stay in savings, not stocks?

Source: S&P 500 total returns, Aswath Damodaran, NYU Stern. Since 1928 it has grown about 10% a year. Past returns do not guarantee future results.

The numbers

What I will do, and by when

1.   by  
2.   by  
3.   by