Educators Credit Union Personal Finance Guide Learn the basics and begin to secure your future. Earner. Planner. Saver. Member. For the teacher in you. 262.886.5900 ecu.com
Table of contents What s personal finance? 1 Types of financials 2 Depositing into your accounts 3 Account management 4 Planning to save 5 Goal setting 5 Types of accounts 6 Budgeting 6 Checking accounts 7 What is a checking account? 7 Types of checks 9 Credit 10 What is a credit score? 10 Protecting your credit score 11 Credit cards 11 Investing 12 401(k)/403(b) 12 IRAs 13 Stocks 13 Bonds 13 Mutual funds 13
What s personal finance? Personal finance is about how we use our money. This includes spending it at the store, putting it away in a savings account, investing in a 401(k) and more. Understanding where your money goes is the key to successfully managing your personal finances. The money we spend today doesn t just impact what we have available tomorrow but what s available next week, next month, next year and even 60 years down the road. Because of this, it s important that you are tracking how and why you are spending your money. Planning to put some money aside for bills, some aside for saving and some aside for retirement will help make sure you have the money you need throughout your life. This guide will discuss how we use money and the different ways you can manage it. 1
Types of financials A financial institution is an organization that makes financial transactions, such as loans, deposits or investments. The three most common types of financials are credit unions, banks and check cashing businesses. Each type of organization has key differences in how they operate. Credit unions A credit union is a not-for-profit financial cooperative where every member is an equal owner. Credit unions are run by volunteer boards that make decisions based on the financial needs of its members. The board returns profits to its members as rewards. Credit unions have limited to no minimum balance requirements or fees. Banks Banks are for-profit institutions with stockholders as owners. A paid board makes decisions based on what will generate the most profit for the bank s stockholders. Banks generally include minimum balance requirements and a variety of fees. Check cashing Check cashing businesses offer two types of services: check cashing and payday loans. The business will charge a fee to cash someone s check. A payday loan is a loan obtained by a customer when they post-date a check in exchange for cash. Payday loans often come with large interest rates, some well over 100%. 2
Depositing into your accounts In-person deposits In order to deposit money into your account, most financials require you to fill out a deposit form. A deposit form details your account number with the financial, the amount you are depositing, which share (e.g. savings, checking, etc.) the funds are going into and if you will be receiving any money. Please see the example below. TRANSACTION TICKET Account Number Name Date Signature Password (signature required for withdrawals or transfers) (optional) Checks or Cash from Member Withdrawal From Account # Cash $ Cash Back $ Savings Checking Other 1 Coin $ Cash Back $ 2 Total Checks $ Money Order (max. $1,000) $ Grand Total $ Cashiers Check (no min.-no max.) $ Check Payable to: Deposit or Payment to: Transfer Savings # Amount $ 3 From Acct. # to Acct. # Checking # $ Amount to transfer $ 4 Loan # $ From Acct. # to Acct. # Other # $ Amount to transfer $ Internal Use Only DL - State ID - Known - Other ID# Exp Deposits may not be available for immediate withdrawal. All items accepted are subject to our rules and regulations applicable to this account. Rev. 06/15 CHECKS DOLLARS CENTS 5 TOTAL Must Be Entered On Front Side 1 Source of funds Cash, coin or checks for deposit are entered here along with the grand total and any cash back amounts. 4 Transfer Amount of a transfer is entered here along with the share it is withdrawn from and the share it will be deposited to. 2 Withdrawal Amount being withdrawn and the share it will be taken from. 5 Checks Additional fields where other checks to be deposited can be listed. 3 Deposit/Payments Amount being deposited and the share it should go to. 3
Mobile banking Instead of moving paper checks between financial institutions, the government allows for checks to be processed electronically. The electronic deposit requires a picture of the front and back of the check. You can do these deposits with smart phones or tablets linked to the internet. It may need to be done through the financial institution s website. Direct deposits A direct deposit is an electronic payment transferred from the account of the payer directly to the recipient s account. This is most commonly used for paychecks. Employers will ask an employee for their account information and make payment directly to their account come payday. Account management There are many ways to manage the funds in your account. You can use deposit forms to transfer funds from share to share. You can move money online or through a mobile app. These tools allow you to constantly monitor and manage the funds in your account. 4
Planning to save Goal setting Looking to repay debt, save for a new car or make a down payment on a house? Setting goals is an important step to help you prepare for that next purchase in your life. There are generally three types of goals: Short-term These goals normally include items such as a new computer, a vacation or clothes. Since you are normally saving to purchase these items quickly, a basic or Prime Share Savings account is normally an ideal account to hold this money. Mid-term The goals are large purchases that are in the not-too-distant future. Items can include paying for a new vehicle or a down payment on a house. These savings goals normally stretch from two to five years. Long-term These are the goals that take much longer to save for, such as retirement or a child s higher education. Generally these savings will go into special high interest accounts to help accumulate more money over time. 5
Types of accounts Savings A savings account is an account where you can store your money for use at a later date. While your money sits, most savings accounts make money by earning interest. Interest is money paid to your account at a particular rate over a certain period of time. If you have $1,000 in your account and your account has an interest rate of 1%, your account will earn $10. Interest rates change based on the type of account. Money Markets Money Markets earn more interest than basic savings accounts. These accounts are great for setting aside money as an emergency fund or mid-term savings goals. However, they likely won t build interest as quickly as an Individual Retirement Account (see page 13), or other accounts for long-term savings. Share Certificates Share Certificates, or Certificates of Deposits, are great for short-term savings goals. This account offers high interest or dividend rates in exchange for a commitment to leave the money in the account for a set period of time. At Educators, we require a minimum balance of $500 and offer a variety of term lengths. You could face a penalty for an early withdrawal. Budgeting Budgeting is an important part of reaching your savings goals. Document where your money goes so you understand how you spend your money and where you could potentially save. The graph below shows how financial experts recommend you spend your money: 35% Housing rent, mortgage, utilties, insurance, taxes 10% 15% 15% Savings Transportation Debt personal savings account car payment, auto insurance, gas, parking student loans, credit cards, personal loans, tax and medical 6 debt 25% Other food, clothing, entertainment, child care, vacations Of course, these goals can be different from person to person and household to household. 6
Checking accounts What is a checking account? A checking account allows you access to your money through checks or a debit card. Checking accounts sometimes come with a minimum required balance, fees and little-to-no interest. Personal checking A personal checking account is a checking account used for personal reasons. This could be paying your monthly bills, groceries, etc. This is different from a service like a business checking account, where the funds could only be used to support the needs of the business it is used for. A personal checking account generally offers two types of payment: checks or debit cards. 7
Checks A check is a paper document stating that you agree to transfer funds to another person. In the diagram below, you can see the anatomy of a check and how to properly fill it out. 3 Robert A. Williams Mary J. Williams 101 Park Place Yourtown, State 12345 5 4 12 8 9 2 6 1 7 10 11 1 1 2 3 Check Number Helps you keep track of who you paid. You can use this number in your register to keep track of any checks you write. Date Month, day and year the check is being written. Account Owner Person, authorized signer or business that is writing the check and their address. 6 7 8 9 Written Amount Amount of the check in numbers. Padlock Indicates a checks security features (they are listed on the back). Memo Space to write a note on what the check is for. Signature Signature of the authorized signer of the check. 4 Pay to the Order of (Payee) Name of the person(s) or company the payment is going to. 10 Routing Number Nine digits that identify the check writer s financial institution. 5 Legal Amount Amount of the check in words and fractions of dollars. Fill in any leftover space to the right with a line to prevent tampering and fraud. 11 12 Account Number Account number from which the check is being drawn. Financial Institution Name and address of the financial institution the check will be drawn from. 8
Debit cards A debit card is like a credit card but instead of borrowing money and paying interest on it like you would with a credit card, the money comes straight from your checking account. This means you can only spend the money you have available. Prepaid cards Many employers have started paying their employees through prepaid cards. Each payday, the employer transfers their employees paychecks to the card instead of cutting checks or sending a direct deposit. Employees can use their card like a debit card by swiping it for transactions or withdrawing money from an ATM. While prepaid cards offer many conveniences, they do not offer the same protection a credit union or bank will offer to the owner s money. Types of checks Personal Personal checks are linked directly to your checking account. You can fill them out to whomever you would like and for whatever amount you d like, as long as this amount is available in your checking account. Cashier s A cashier s check is a guaranteed payment where funds are held for a particular person or business. This official check is made out by a financial institution or business and usually requires a small fee to print. Money order A money order is a check that works like cash in hand. Whoever holds and signs the check gets the money that is allocated on the check. Because of this, Educators Credit Union does not print money orders for amounts higher than $1,000. There is normally a small fee associated with printing a money order. 9
Credit Credit is an important part of a financial life. It is a factor in determining how much money you are allowed to borrow, what interest rate the borrower may give you and much more. What is a credit score? A credit score is a crucial piece of your financial life. It is a report that summarizes the business or organizations currently lending you money, any inquiries of your credit score, history with bill payments, and much more. Based on those factors, you are given a score between 300 and 850. The higher the score, the better. Educators Credit Union offers a free credit report called What s Your Score?. It s a soft inquiry that doesn t impact your credit score and can help you understand how to maintain or repair your credit. A low credit score could keep you from reaching some of your life goals, like owning a car, buying a house, starting a business and more. 10
Protecting your credit score There are several crucial steps to protect your credit score: Payment history Pay your bills on time. Late payments on bills show negatively on your credit card. A bill that goes to collections can stay on your credit report for seven years after it is paid. Amount owed The total amount you owe to lenders impacts your credit score. If credit cards are at or near the card limit, it can hurt your score. Length of Credit History The longer you have had credit, the less of a risk lenders see you as and vice versa. If you are just now starting to build credit, don t apply for many loans at once. Credit Checks Hard credit inquiries can negatively impact your credit score. These are generally used to see if your credit score qualifies for you to get a loan or credit card. Credit cards A credit card is a card you can use to pay for items. Most credit cards come with a limit on the amount you can spend. Once you buy something, you are borrowing money from the credit card company. If you don t pay that money back after a certain period of time, you will owe interest on the money you spent. There is much to consider when looking at getting a credit card, such as: APR The amount of interest you are charged on your card balance. Interest grace period How long you can go after making a purchase before it starts accumulating interest. Late payment fee The charge you pay for not paying your bill on time. Annual fee The charge you pay just for having a card. And more. Responsible use of a credit card or cards can help establish a good credit history. 11
Investing Investing is a way to take money you save and build wealth. Although investments can seem like free money on the money you have already earned, all investments carry risk. 401(k)/403(b) 401(k)s and 403(b)s are savings accounts sponsored by an employer. A 401(k) is for a private company, where as a 403(b) is used by non-profit companies. Employees have the chance to save and invest part of their paycheck before taxes are taken out. Some employers will match employee contributions to one of these investment accounts. The money in your 401(k) or 403(b) account is tax-deferred until you withdraw your money. 12
IRAs An Individual Retirement Account (IRA) is a personal savings plan used to save for retirement. There are two types of IRAs. Traditional A traditional IRA is an account made with pre-tax contributions. When a withdrawal is made, it is treated as taxable income and may be subject to penalty. There is an annual contribution limit with Traditional IRA. Contact your financial advisor to learn the current limit. Roth A Roth IRA is a collection of funds that have already been taxed. When a withdrawal is made, it is tax-free but contributions are not tax deductible. Stocks Stocks represent ownership in a company. The number of shares you own in a company in proportion to the share available determine how much of the company you own. When you buy stocks, you are investing in a company s success. If that company does well, your shares become more valuable. If the company does poorly, those shares lose value. Stocks involve a great amount of risk since stock values can move up and down quickly. A financial advisor can help make a recommendation that is best for you when it comes to investing in stock and how long you may leave your money invested in a company. Bonds A bond is an example of you loaning money to a corporation, the government or a government agency. For promising to give one of these groups a set amount of money, they will pay that money back and increase it after a set period of time. Bonds are one of the safest forms of investments but generally have a lower return. Mutual funds A mutual fund is a collection of stocks, bonds or other securities. By buying shares of a mutual fund, you indirectly own a variety of stock and bonds, spreading your risk throughout investments. 13