- What is financial planning?
Financial planning is making conscious decisions to save and/or
invest money for your future security. A financial plan might
include a list of your goals, the cost, their time horizon,
savings/investment method(s) and anticipated rate of return needed
to achieve these goals. Another important piece of a financial plan
is protection against financial loss.
- How do I begin to create a financial plan?
The first step is to identify your future goals- a car, a home,
education for your children, retirement, etc. Then you can categorize
these goals by time frame- how long will it take to achieve each
goal? By identifying goals and determining time horizon, you can
begin to develop strategies to achieve each goal. Remember, a
financial plan helps you get from Point A (today's situation)
to Point B (goals accomplished). The Financial
Plan Worksheet will help you get started.
- What is my "net worth" and how do I determine how
much it is?
Net worth is simply the amount of wealth a person has. Their wealth
is measured by assets
To determine your own net worth, make a list and total your assets,
then make a list and total your liabilities. Subtract your total
liabilities from your assets and the remaining amount is your
net worth. Use the Net Worth Calculator!
- What if I find that my net worth is zero or a negative number?
Do not panic. It is not uncommon for students to find that their
debts outweigh their possessions, giving them a negative net worth.
In time, your debts (credit cards, student loan, etc.) will be
paid down and you will accumulate assets (car, home, money in
bank, etc.). Being smart about your spending habits and saving
money will help you to increase your net worth more quickly.
- How do I know which goals are short-term and which are long-term?
Only you can determine how long it will take you to achieve each
of your goals. Typically, goals that take less than five years
to achieve are short-term goals, and goals that take longer than
five years are long-term goals. For instance, it may take you
two years to save for a car down payment, and seven years to save
for a home down payment. So in this case, purchasing a car is
a short-term goal and purchasing a home is a long-term goal.
- How can I start to save money toward my goals if I am in
Remember, no matter what your situation, to "pay yourself
first." This means contributing to a savings or investment
account before you pay other monthly bills. It's important to
get into the habit of saving, even if it just a small amount while
you are in school. Cutting costs and being smart about spending
will help you to save money. Some of the places where you can
trim expenses are:
- What if, after I graduate, I can't afford my student loan payments?
You can avoid a panic attack after graduation by researching your
loans now and figuring out what your monthly payments will be.
Contact your financial aid office or go to www.nslds.ed.gov
for a complete list of your loans. But if your monthly loan payment(s)
is un affordable, there are a variety of repayment options available
that will help make your loans more manageable. Review the links
below and talk to your lender for more information.
- What are the tax benefits that are available to students
in school and borrowers paying on their student loans?
There are several tax benefits that allow a student (or student's
parent) to claim either a tax credit or tax deduction against
tuition and fees paid toward a college education. There is also
a tax deduction that a borrower may claim against the interest
paid on his/her student loan. See the Tax
Benefits Guide for more information on these and other programs.
- What is the best way to start saving money towards my goals?
The time horizon for each goal determines the best strategy for
saving. Short-term goals (five year or less) may be accomplished
by saving. This means putting your money into a savings account
or CD. Long-term goals (more than five years) are typically achieved
by investing. Investments are generally riskier and provide higher
returns over the long-term.
- How does investing work?
Investing is simply committing money in order to make a profit.
You can invest your money in a company, the government, or a product.
Many employers offer retirement plans as an investment option
to their employees. Below is a short list of the basic types of
- What concepts do I need to understand to make sure the money I invest continues to grow?
In order for your money to continue to grow, you'll need to understand three very important concepts: risk,
diversification and volatility.
- Why is "risk" an important concept to investors?
Risk is the possibility of losing money. By investing, you are
accepting the possibility of losing some money. Risk may vary,
depending on the type of investment. Generally, stocks are riskier
than bonds. This means that you could lose more money OR you could
make more money with a stock. Investors want to make sure they
do not lose all their money, so they balance their investments,
making sure to include some low-risk types along with higher-risk
- What is meant by "diversification"?
Diversification means "not putting all your eggs in one basket."
Diversifying is like protecting your money. Investors diversify
by spreading their investments across a variety of investment
types and industry types. So if one company or industry falters,
investors do not lose all of their money.
- "Volatility" is a term that I have heard used, but what is it?
Volatility is the sudden swing in an investment value from high to low or from low to high. The more volatile
an investment is, the more money you can make but it can also work the other way, the more money you can lose.
- Why is an employer retirement plan such a good investment?
There are several reasons that an employer retirement plan makes
- How does time impact the amount of money I save and end up
You earn interest on your savings and investments, and with time
you'll be earning interest on that interest- it's calling compounding.
The longer you leave the money in the account, the more interest
will accrue. Remember, interest is free money! So the sooner you
start, the sooner you will have free money growing for you!
- What is the best way to start saving/investing?
To begin saving (for short-term goals) visit your bank or credit
union and ask about savings accounts and CDs. For investing (for
long-term goals) talk to your employer about its retirement plan
or you can research plans and types of investments online. See
the Links for recommended sites.
- Why is insurance important and how do I determine whether
I need it?
Insurance helps to protect you financially in case of an accident
or loss of property. To determine whether you need insurance to
cover something, ask yourself if you would be able to recover
financially if that item were broken, lost, or damaged.
- How does insurance work?
When you have insurance you transfer the risk of a loss to the
insurance company. The insurance company would then assume the
cost of repairing, replacing, or compensating you for the item.
Below are three helpful terms to know when dealing with insurance:
- What are some common types of insurance?
Below is a list of the most common types of insurance. Please
refer to the Links section for resources that can provide additional
information about each type.
- Are there on-line forms I can use as a guide to develop a long-term financial plan?
Yes, the Financial Plan Worksheets include two sample financial plans and
a blank one you may use to develop your own plan.
- Won't social security benefits be enough for a comfortable retirement?
Social Security payments replace only a fraction of your earnings during retirement. Contrary to what most
people think, Social Security is the government's pay as you go retirement system. The contributions
collected from current workers are not invested for their future retirement but are immediately paid out
as benefits to retirees.
- What are FICA payments?
FICA is one of the deductions your employer withholds from your paycheck. These funds are collected for
the Federal Government, as the benefits to current retirees.
- What types of retirement plans can employers offer in addition to Social Security?
Some employers offer retirement plans which can be divided into two general groups: Defined Benefit
pension plans and Defined Contribution plans.
- What is a defined benefit pension plan?
The defined benefit pension plan guarantees a specific dollar amount at retirement. It is
based on salary and/or length of service at the company. Your employer contributes an amount to
be invested and manages the investment. This plan is what is often referred to as a pension.
- What is a defined contribution plan?
In a defined contribution plan you and/or your employer contribute money to your retirement account
each year. The benefit amount is not guaranteed because it depends on the amount that is contributed,
the management of the plan, and any changing economic conditions. This type of plan leaves much of the
responsibility in the hands of the employee who must decide where and how to invest. 401(k), 403(b),
457 salary reduction plans, part of salary, etc.
- What do the 401(k), 403(b), and 457 plans have in common?
They are all salary reduction retirement plans because a percentage of your salary is deposited in a
retirement account. That amount of your income is deferred and not counted as part of your taxable
income until you retire. These plans are cousins and operate under the same general rules. The major
distinction between these plans is eligibility.
- Who is eligible for a 401(k) Plan?
Employees of businesses and corporations that sponsor the plan are eligible.
- Who is eligible for a 403(b) Plan?
A 403(b) is often referred to as a tax-sheltered annuity, which is restricted to employees of non-profit,
tax-exempt organizations such as public schools, hospitals, and charities.
- Who is eligible for a 457 Plan?
A 457 Plan is restricted to the employees of state/local governments and municipal workers.
- What if the combination of Social Security and my employer's retirement plan isn't enough income for retirement?
If social security and pension plans won't fund a comfortable retirement, then your own private savings
must make up the difference. This can be achieved through individual retirement accounts (IRA's).
- What is an individual retirement account or IRA?
These are tax deferred personal retirement plans. You put money aside each month and your money will grow as it
accumulates interest. You owe no taxes on your earnings until you withdraw them.
- Are there student loan repayment options that should be considered in developing my financial plan?
For information on grace period, deferment, economic hardship deferment, repayment options, and consolidation
watch the videostreamed presentation "Strategies for Managing Your Student Loans".