BUSN108 Final Project:
Finances

M1 | Introductions and The Financial Planning Process

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Three SMART Financial Goals:

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1. Savings Goal:

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I will save $3,000 by the end of next year to build an emergency fund that can cover at least three months of living expenses. This savings goal is important for my future financial security in case of unexpected events like medical emergencies or car repairs. 

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Action Plan:

• Set up an automatic transfer of $250 per month from my checking account to my savings account to make saving easier and more consistent. 

• Create a budget that limits unnecessary spending, such as dining out and entertainment, and reallocate that money to savings. 

• Evaluate my progress every three months to ensure I am on track to meet my goal, making adjustments to my spending or savings plan if needed. 

• Open a high-interest savings account to maximize the return on my savings.

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2. Spending Goal:

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I will reduce my monthly food expenses from $300 to $200 over the next three months by adopting smarter shopping habits and planning meals in advance. With a busy college schedule, I often rely on takeout and impulse purchases, which adds up quickly. 

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Action Plan:

• Plan and prepare meals at home using a shopping list to avoid unnecessary or impulse buys at the store. 

• Use coupons, discounts, or cashback apps like Ibotta to lower grocery expenses. 

• Track every dollar I spend on food using a budgeting app like Mint to stay within my $200 limit. 

• Prepare bulk meals that can be stored and used throughout the week to save time and money.

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3. Sharing (Donating) Goal:

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I will donate $200 to a local charity by the end of the year to give back to the community and support causes that I care about. It’s important for me to practice financial responsibility not just for my benefit but also to contribute to positive social impact. 

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Action Plan:

• Set aside $50 from my paycheck every three months to meet the $200 donation goal. 

• Research and select a local charity that aligns with my values, such as supporting education or environmental initiatives. 

• Make the donation by December 1st to ensure the funds are contributed before the holiday season. 

• Keep a record of my donation for tax purposes and consider future charitable contributions.

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M2 | Taxes and Your Financial Plan

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Steps to File Federal Income Taxes:

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Step 1:

• Gather all necessary documents, such as W-2 forms from my employer, 1098-T for tuition payments, and any receipts or documentation for deductible expenses (e.g., school supplies, charitable donations). 

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Step 2:

• Determine whether I will use tax filing software like TurboTax or file my taxes manually. Since I have relatively simple taxes as a student, I plan to use tax software that offers free filing options for students. 

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Step 3:

• Enter my income and deduction information into the tax software, carefully reviewing the entries to ensure accuracy. The software will guide me through common deductions and credits, such as the standard deduction or the American Opportunity Credit, which I am eligible for due to my education expenses. 

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Step 4:

• Review my tax return for errors or missing information. The software typically provides an estimated refund or amount owed, which helps me understand whether I need to make any adjustments. 

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Step 5:

• File my tax return electronically through the tax software, which ensures quicker processing and refund delivery compared to mailing a paper return.

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Deductions and Credits:

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In addition to the American Opportunity Credit, I may also be eligible for tax deductions such as student loan interest deduction if I’ve made payments on any loans. Additionally, the standard deduction is typically the best option for students who don’t have significant itemizable expenses. Tax credits like the Earned Income Tax Credit (EITC) may also apply if my income meets certain thresholds.

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M3 | Investments Basics I: Financial Services, Stocks, and Mutual Funds

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Three Important Factors for Selecting a Financial Institution:

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1. Fees:

I want to avoid monthly maintenance fees, ATM fees, or overdraft charges since I’m trying to save as much money as possible while in school. 

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2. Accessibility:

Since I travel between my college town and my hometown, it’s important that the bank has a strong online and mobile presence for easy account management from anywhere. 

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3. Interest Rates:

A good interest rate on savings accounts is crucial because I want my money to grow over time, even if it’s just sitting in a savings account. High-interest savings accounts or money market accounts would be ideal.

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Comparison of Financial Institutions:

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Bank of America:

Bank of America has a low monthly fee that can be waived with direct deposit or by maintaining a minimum balance. It offers a good mobile app and widespread ATM access, but its savings rates are low (0.01% APY).

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Chase Bank:

Chase offers no-fee checking accounts if I set up direct deposit, and their mobile app is very user-friendly. However, their savings account rates are also quite low (0.01% APY). They have more ATMs than Bank of America, which is convenient.

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Ally Bank:

Ally Bank has no monthly fees and offers a much higher interest rate on savings (currently 4.00% APY). Since it’s an online bank, it doesn’t have physical branches, but its mobile banking app and customer service have strong reviews.

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Which Institution I Would Choose:

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I would choose Ally Bank because of its high interest rates and lack of fees. Although it’s an online-only bank with no physical branches, the higher returns on my savings are worth it, and I’m comfortable managing my accounts through a mobile app. The money I save from not paying fees and earning more interest would help me achieve my financial goals faster.

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M4 | Consumer Credit and Loans

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Suggestions for Choosing a Credit Card:

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When choosing a credit card, it's important to find one with a low interest rate, ideally below 15%, to save money if I carry a balance. I would also avoid cards that have an annual fee, especially since my income is limited as a student. Rewards programs that offer cashback on things like groceries or gas would be helpful if they match my spending habits. It’s a good idea to check for a grace period to avoid paying interest if I pay my balance in full each month. Finally, I would read the fine print to understand any fees and make sure the card has good customer service in case I need help.

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Six Rules for Using a Store Credit Card:

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1. Use it only for purchases at the specific store or brand it’s issued for. 

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2. Pay off the full balance every month to avoid high interest charges (store cards often have APRs over 20%). 

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3. Don’t use the card to overspend just to earn rewards or discounts. 

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4. Take advantage of any sign-up bonuses but avoid using them as an excuse to spend more. 

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5. Keep track of any rewards or points to maximize the benefits of the card. 

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6. Monitor the card for changes in terms or fees and cancel it if the benefits no longer outweigh the costs.

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Credit Card Debt Payoff Options (Using Bankrate):

If I had $5,000 in credit card debt with a 24% APR:

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1. Option 1:

Pay $250 per month. It would take 2 years to pay off with about $1,500 in interest.

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2. Option 2:

Pay $150 per month. It would take 4 years to pay off with about $3,000 in interest.

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3. Option 3:

Pay $500 per month. It would take 1 year to pay off with about $800 in interest.

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Loan Options:

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1. Personal Loan:

A fixed-term loan that can be used for various purposes, often with lower interest rates than credit cards but higher than secured loans.

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2. Home Equity Loan:

A loan where you borrow against the equity in your home. These typically have lower interest rates but require a home as collateral.

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3. Auto Loan:

A loan for purchasing a car, where the vehicle serves as collateral. Interest rates are usually lower than personal loans but higher than home equity loans.

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Avoiding the Minimum Payment Trap:

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To avoid the trap of making only minimum payments, which can lead to a cycle of debt, I would prioritize paying more than the minimum each month, focus on paying down the highest-interest debt first, and avoid using the card for new purchases until my balance is under control.

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M5 | Home and Automobile Decision

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Leasing vs. Buying a Vehicle:

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After researching leasing and buying, I would prefer to lease a vehicle. Leasing allows for lower monthly payments, which is ideal for my current budget as a student. Leasing also gives me the flexibility to drive a new car every few years without worrying about maintenance costs as much as I would with an older car. However, I would need to be mindful of the mileage limits imposed by the lease agreement. Although buying a car would be a better long-term investment, leasing fits my short-term financial situation better.

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M6 | Types of Insurance

Health and Disability Insurance Coverages:

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1. Health Insurance:

I currently have a student health insurance plan through my college, which covers basic medical needs like doctor visits, hospital stays, and prescriptions. In the future, I plan to switch to an employer-sponsored health insurance plan once I graduate.

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M7 | Investments Basics II: Retirement and Estate

 

 

Planning

Comparisons:

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1. 401(k):

A 401(k) is an employer-sponsored retirement plan where contributions are made pre-tax, meaning the money is taken from your paycheck before taxes. This lowers your taxable income, but you will pay taxes when you withdraw the money in retirement. Employers often match a portion of your contributions, which is a major benefit. However, there are penalties for withdrawing money before age 59½.

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2. Traditional IRA: 

A Traditional IRA allows you to contribute pre-tax income, similar to a 401(k), and grow your investments tax-deferred until retirement. You will pay taxes when you withdraw the money, and early withdrawals before age 59½ come with a penalty. The main difference from a 401(k) is that IRAs are not tied to an employer, and you have more control over where the money is invested.

 

3. Roth IRA: 

Unlike the 401(k) and Traditional IRA, contributions to a Roth IRA are made with after-tax money, meaning you won’t get a tax break upfront. However, when you withdraw the money in retirement, it is tax-free, including any investment gains. Roth IRAs also offer more flexibility with withdrawing contributions (not earnings) without penalty before retirement.

Best Retirement Plan for Me:

For someone like me, a Roth IRA could be beneficial because I’m currently in a lower tax bracket, and the tax-free withdrawals later on would be more valuable when I expect to be earning more.

 

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Works Cited

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“6 Golden Rules for Using Credit Cards.” Chevron Federal Credit Union, www.chevronfcu.org/articles/post/chevron-blog-posts/2022/11/17/6-golden-rules-for-using-credit-cards. Accessed 9 Oct. 2024. 

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Callanta, Elisha. “6 Things to Consider When Choosing a Financial Institution.” Members Cooperative Credit Union, 5 Oct. 2023, www.membersccu.com/2022/08/22/6-things-to-consider-when-choosing-a-financial-institution/. 

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“Choosing a Retirement Plan: Plan Options.” Internal Revenue Service, www.irs.gov/retirement-plans/choosing-a-retirement-plan-plan-options. Accessed 9 Oct. 2024. 

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“Health and Disability Insurance.” Livestrong, 18 Apr. 2024, livestrong.org/resources/health-and-disability-insurance/. 

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“How to File Your Taxes: Step by Step.” Internal Revenue Service, www.irs.gov/how-to-file-your-taxes-step-by-step. Accessed 9 Oct. 2024. 

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Lazar, Adina. “How to Set S.M.A.R.T. Financial Goals (with Examples).” FinMasters, 29 Feb. 2024, finmasters.com/smart-financial-goals/#gref. 

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Linkov, Jon, and Updated by Justin Krajeski. “Leasing vs. Buying a New Car.” Consumer Reports, www.consumerreports.org/cars/buying-a-car/leasing-vs-buying-a-new-car-a9135602164/. Accessed 9 Oct. 2024.