digitalliteracy

9.2 Credit Cards: A Tool, Not a Crutch




Typically, those who can access the
information in your credit report are
lenders, insurance companies, land-
lords seeking a credit check for rent-
ers, credit card companies, employers
(only with your written consent), state
and local child support enforcement
agencies, some government organiza-
tions for specific needs, and other
organizations with which you may have
initiated business. You can and should
check your credit report annually to
make sure there aren’t any errors.
AndreyPopov/iStock/Thinkstock
Equifax, Experian, and Trans Union are
Equifax, Experian, and TransUnion provide one
required to provide you with one free
free credit report per year, so use these websites to
credit report per year, which you can
your advantage. Checking your credit report often
obtain from http://www.annualcredit
will help you avoid any errors or missteps in your
report.com. And be sure to learn more
credit score.
about your rights as a consumer under
the Fair Credit Reporting Act, which
helps insure that the information about you contained in the files of consumer reporting agen-
cies is accurate, fair, and private: https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-
reporting-act.pdf.



Why Does Good Credit Matter?

Having good credit does matter. If you need to finance your next car, you might not be able to
get a loan if you have a low credit score (or no credit score at all). In fact, you may not be able
to buy a car at all if lending institutions view you as too much of a risk. Finance companies
advertise that they don’t care whether you have good credit, bad credit, or no credit at all.
What these companies really mean is that although they may give you a loan, they will charge
you a very high interest rate for the privilege of borrowing their funds. If you have good credit,
you can get what you want at the lowest possible cost.

To give you a comparison, a bank might charge a customer who has an excellent credit score
2.5% for an auto loan, whereas a finance company that deals with borrowers who have less-
than-perfect credit may charge 17% or more. A person with poor credit may have the same
payment on his used Corolla that someone with good credit pays for his new Escalade. The
difference is the quality of their credit. Borrowing money from a check-cashing firm or title
loan company will have you paying some of the highest rates on the planet—sometimes in
excess of 500%! Read Strategies for Success: What Do I Do If I Have Bad Credit? for tips on how
to deal with bad credit.













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9.2 Credit Cards: A Tool, Not a Crutch





Strategies for Success:
What Do I Do If I Have Bad Credit?


We’ve probably all forgotten to make a payment on time, or at all. When Elena Maria finally got
her first credit card, she forgot to make a payment, and it was reported as a late payment on
her credit report. Most creditors will not report you as being late until you miss the second due
date (but don’t count on it!). One late payment would have minimal impact, but a history of
late payments would be very detrimental to your credit score. In the fine print of some credit
card agreements, credit companies may include a clause that allows them to substantially
increase your credit card interest rate if you miss a payment. Thus, a missed payment not only
negatively impacts your credit score but could increase your borrowing costs considerably.
This amusing yet informative video sheds some light on this process: https://www.youtube
.com/watch?v=g6_YvIhPKMk.
If you have bad credit, your primary goal should
be to stay on top of all payments and avoid late
or forgotten payments at all costs. You will have
to reestablish a history of good credit in order to
bring your credit score up. This takes time, and
anyone who claims that they can “fix” your credit
score fast (a popular scam) only wants to separate
you from your money.
Often payments are late or forgotten because you
never received the bill in the first place. Avoid this
problem by signing up to receive bills via your Newnow/iStock/Thinkstock
bank’s bill-pay website. This way your bank sends If you have a history of late payments
an e-mail alert that the bill is there, and you can on a loan, you will have to reestablish
see it is unpaid on your bank’s website. a history of good credit. This can be a
However, you should think twice before giving frustrating process that will take time,
a creditor access to your bank account to make but it is important for improving your
automatic withdrawals. To set up an automatic credit score.
withdrawal, you agree (in writing) to allow a
creditor to retrieve the amount you owe directly
from your checking account every month. Although this can be a convenient way to make sure
you never miss another payment, once you let someone have direct access to your account it
can be tough to undo. For those bills that you cannot receive electronically (e.g., a local utility
company bill), put an automatic monthly repeated reminder on your phone or other electronic
calendar when that bill is due; if you don’t get it in the mail, call the company immediately.
To learn more about common mistakes that affect your credit score, check out this link:
http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php.
Reflection Questions


1. Why do late payments hurt your credit score?
2. What measures can you take to improve your credit score?














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9.3 Being Credit Savvy



























Now that we’ve established just how big of an impact credit has on your daily life and your
financial future, let’s take a look at some strategies for navigating the world of credit cards.
This section outlines some of the best ways to shop for credit cards and protect yourself from
damaging criminal activity, as well as some ways to tackle debt and pay it down more quickly.

Shopping for a Credit Card

How can you find the best credit card for you? One of the best places to find great credit card
offers is at Bankrate (http://www.bankrate.com). You will first need to decide what kind of
credit card you want. Do you pay off your balance at the end of every month? If so, then a card
that has the lowest interest rate may not be the best product for you. A rewards card, cash
back card, or a card that has no annual fee would be a better match. If you do occasionally
carry a balance, then you would be more interested in a low-interest credit card.


At the bottom of Bankrate’s credit cards menu is a link to its list of best credit cards. Bankrate
sorts the best credit cards by credit card type—best low interest, best balance transfer, best
rewards, best cash back, and best airline and travel credit cards. Bankrate selects the best
cards in each category based on unbiased reviews. On Bankrate’s credit cards home page,
there are additional categories on the left-hand menu, one of which is student cards. These
cards have special features designed to allow students to build up a credit history, which is



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9.3 Being Credit Savvy




key to establishing good credit. For example, a student credit card may not charge any fees for
a first late payment, and there may be no over-limit fees and no annual fee.

Be wary of balance transfer credit cards. These cards often boast very low or even zero inter-
est rates, but only for the first 6 months or so—then the interest rate increases substantially.
If you think you can simply move your balance from one card to another in an effort to pay no
interest on your balance, think again; it will wreak havoc with your credit score. Every time
you sign up for a new credit card, the new credit card company checks your credit file, which
creates a hard credit inquiry. An increase in the number of hard credit inquiries is detrimental
to your credit score.


Protecting Your Credit


Identity theft occurs when someone uses your
stolen data to obtain goods or services. There are
two types of identity theft. In one, someone steals
your credit card information and uses it to purchase
goods or services. In another, someone gains access
to your personal information (e.g., your Social Secu-
rity number, mother’s maiden name, date of birth,
and so on) and uses it to open new credit accounts
in your name without your knowledge. The results
of such criminal behavior can be financially devas-
tating, and it may take years to undo the damage.
According to the Fair Credit Billing Act, credit card
issuers can only hold you liable for the first $50
charged on a lost or stolen credit card. If you report
the loss prior to the card being used or if your credit
card number (not the actual card) is stolen, you
are not responsible for any losses. In reality, most
credit card companies do not hold their customers
liable for any amount, but it is your responsibility to
report a lost or stolen credit card promptly. In addi-
tion, be sure to look through your credit card bill for Rick Madonik/Toronto Star/Getty Images
any unauthorized purchases and report suspicious Skimmers can be used to grab credit
activity immediately. card numbers from a swipe.

Simply because your credit card is still in your wallet does not mean that you are safe from
credit card fraud. It can happen without your knowledge. When you give your credit card to
a cab driver or a waiter in a restaurant, they can swipe it through a handheld device called a
skimmer and copy the information off the card. The following video offers additional infor-
mation about this type of scam: https://www.youtube.com/watch?v=ra_fijIt2CI.

To reduce fraudulent activity, banks may contact customers to confirm the legitimacy of recent
charges. This is good protection for both the customer and the bank. If you plan to go out of
town, alert your credit card company so that it does not put a hold on your card because it
assumes your out-of-town charges are fraudulent. (See also Strategies for Success: Be Careful
With That Debit Card!) Thieves, being ever more creative, have called credit card customers




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9.3 Being Credit Savvy




posing as the card-issuing bank and asked the cardholder to verify his or her credit card num-
ber, expiration date, and security code. Remember that your bank or credit card issuer would
never ask for private financial information.


Unfortunately, there are other ways thieves can obtain your credit card information. New
credit cards and even your smartphone use technologies that make you vulnerable to virtual
pickpockets. Watch this video to learn more about these threats and protect yourself from
them: https://www.youtube.com/watch?v=7fVuX7Pl4-Q.


What do you do if your credit card information is stolen? Contact one of the credit bureaus—
Experian, Equifax, TransUnion, or Innovis—and place a fraud alert on your credit file. To exe-
cute a fraud alert, you only need to notify one of the credit bureaus, and it will automatically
notify the others, which saves you time and energy. The fraud alert is free, lasts for 90 days, and
can be renewed if necessary. A fraud alert tells potential creditors to be particularly careful
about granting any credit. You can add a phone number along with the alert so creditors can
contact you directly to verify that you are the person who applied for a credit account.



Strategies for Success:
Be Careful With That Debit Card!

If you rent a car or make a hotel reservation, these vendors block the amount owed on your card,
making it unavailable to you for future purchases. This may only be a problem if you have a low
credit limit on your card. Suppose you have made a reservation for your hotel with a credit card
over the phone or online. When you arrive at the hotel, a staff member will ask you for a card
(debit or credit) to cover “incidentals” such as the mini fridge or room service. When you hand
over your debit card, the hotel will put a hold on your card for, say, $300 per night. If you plan to
stay 2 nights, that’s $600, and then any subsequent use of your debit card could result in your
card being declined or incurring fees and penalties for overdrafts. If you used one card to make
your reservation, it’s best to stay with that card. The hotel has already blocked the cost of your
2-night stay on that particular card, and if you use another card to pay your bill, the hotel may
forget to lift the hold on your first card. The best defense is not to use a debit card; use a credit
card for the majority of your transactions because you are not liable for fraudulent activity.



Paying Down Debt

It is very easy to financially overextend yourself and get in over your head with too much
debt. There is a way out, but it is not easy. (See Strategies for Success: Developing a Healthy

Relationship With Money for tips.) Let’s look at Elena Maria’s case. When Elena Maria needed
to borrow money to pay for a hospital bill, she borrowed $5,600 from a finance company at
an interest rate of 26% with a beginning minimum payment of $177.33. Elena Maria did not
know to shop around for the best loan rate; she simply trusted a friend’s recommendation.
She is desperate to pay it off, but she can barely make the minimum payments and can see no
end in sight.

Now that she feels more confident about her ability to reach her goals, she is going to attack
this high-interest loan and pay it off. We will assume that her minimum payment is calcu-
lated as interest plus 1% of balance. Elena Maria used Bankrate’s credit card calculator
(http://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx)



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9.3 Being Credit Savvy




to consider her options. If she keeps paying the minimum payment (which drops over time
as the balance declines), it will take her 300 months to pay off her balance, costing her
$11,440.14 in interest (more than twice what she borrowed initially). If she held her repay-
ment amount constant at the beginning minimum payment of $177.33 instead of the declin-
ing minimum payment, this would drop her time for repayment from 300 months to 54. Her
total interest paid over the loan’s life would be $3,936.70 instead of $11,440.14—a savings
of $7,501.45! Figures 9.3 and 9.4 put these numbers into perspective.

Figure 9.3: Interest and balance when making declining payments

By paying only the minimum amount required on her credit card statement each month, it would take
Elena Maria 286 months to pay off her debt, and she will have paid a whopping $11,440.14 more than the
original amount.



























Figure 9.4: Interest and balance when making constant payments

On the other hand, if Elena Maria pays a constant amount, based on the beginning minimum payment, it
would take her only 52 months to pay off her debt at $3,936.70 above the original amount. This is still a
lot of cumulative interest, but it is far better than the first scenario.




























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9.3 Being Credit Savvy





Strategies for Success:
Developing a Healthy Relationship With Money


It’s easy to have a love–hate relationship with money. After all, it allows us to buy necessities
such as food, housing, clothes, and other essentials. However, money can also cause friction in
relationships, tear apart families, and make you miserable if you do not have enough. So how do
you develop a healthy relationship with your money? Remember who is in control. That’s
right—you are! You work hard for your money, so your money should work hard for you.
One way to maintain control over your money is to
purchase only those items included in your budget. If
you are tempted to buy something that doesn’t fit into
your budget, take a moment and ask yourself whether
you really need the item. Do the mental need–want
argument in your head. If you lose the need–want
argument and you absolutely want to get the item in
question, sleep on it. You can always visit the website or
store the very next day and purchase what you wanted.
Remember that marketers hope you will make an
impulse purchase. But it’s your money. Don’t let anyone
manipulate you out of it. The truth is that 95% of the Pkanchana/iStock/Thinkstock
time you won’t go back, and that saves you money! Sticking to your budget is one way
to stay in control of your finances.
It is always best to take time to think through decisions
about how to spend money, especially when it involves
big-ticket items. Many people commonly skip steps in their decision-making process. Once Elena
Maria graduates, she really wants to get her own car. She is tired of using public transportation.
What should she do? Should she head to the car dealership and pick out her new car? Before
doing that, Elena Maria decides to weigh her options. Although she doesn’t love the idea, she
decides to use public transportation for a few more weeks while she investigates carpooling
options with her new coworkers. In the meantime, she will look into apartment options that are
within walking distance of her new job. If she does not have a car payment, she can afford to live
on her own without a roommate. In a month, she will reassess the situation. She can always buy
a car and live with her mom if she needs to. Either way, she has made a conscious decision to not
live beyond her means.
Money can affect how you feel about yourself and those around you. Although money cannot
make you happy, it can affect your level of misery. Worrying about bills—or worse, having debt
collectors who call because you are not able to pay your debts—can generate one of the most
stressful episodes in your life. The acquisition of more material things may provide only short-
term happiness. Before you know it, you may want something else because the newness of your
purchase wears off. This may be true of nearly every product or service you purchase. Once you
accept that truth, the acquisition game loses some of its attraction. It becomes easier to stop
overspending and start saving for the things you really want. The following article offers more
valuable tips for developing a healthy relationship with money:
http:/www.dallasnews.com/business/personal-finance/headlines/20130531-how-your
-money-script-can-affect-your-finances.ece
CashCourse also offers free advice on how students can take control of their finances:
http://www.cashcourse.org
Reflection Questions

1. Why is it important that you think before you spend?
2. Why is living within your means important?



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Summary & Resources




Summary & Resources


Module Summary

Borrowing money is a big responsibility. One of the key components is to understand how
interest rates work for you (when you are a saver) and against you (when you are a bor-
rower). Interest is simply the rent you pay on money you borrow. Unfortunately, the more you
borrow, the higher the rent; the longer it takes to repay your loan, the longer you pay rent.

Student loan options include subsidized and unsubsidized federal loans, as well as loans from
private lenders. How you time your repayment impacts the overall cost of your loan. The
smaller the repayment, the longer it will take to repay your student loan and the more you
will pay in interest. You may find a monthly payment you can live with, but spreading out your
loan payments could literally cost you thousands of dollars in extra interest and find you pay-
ing your college expenses for many years after you graduate. You need to investigate the vari-
ous loan options available and what you need to qualify for lower cost loans. It is very easy
to sign a piece of paper and put yourself into debt for years to come. Exercise caution and do
not borrow more than you absolutely need. What you borrow should go toward educational
expenses only and not be used to finance a lifestyle you really cannot afford.

Credit cards and other consumer debt can make life easier to manage and help you obtain the
goods and services you need. Understanding what your credit report contains and who can
see it is an important step to becoming a responsible borrower. Once you have established
credit, it is important to keep a close eye on your credit score. Your score lets potential credi-
tors know how reliable you are as a borrower. Good credit matters because the higher your
score, the lower your interest expense. Making late payments or missing payments can give
your credit score a black eye. Having too much available credit or using a large percentage of
your available credit shows you may be overextended, which decreases your score and makes
creditors reluctant to lend to you.

Be vigilant in protecting your personal information. There are scores of scam artists who
work hard to separate you from your personal data so they can open credit accounts in your
name and use your good credit to get loans. To combat such scoundrels, you need to keep
a close eye on your credit report and credit score and remain alert to possible scams. One
way to do that is to remember that no reputable institution would ask you for your personal
information.


Should you find yourself with credit complications, know that only you can “fix” your credit
report and score by being a responsible borrower and repaying your bills on time. If you find
yourself overextended and paying exorbitant rates, do not succumb to making only the mini-
mum payment; instead, faithfully pay as much as you can each month until the debt is repaid.
Pay off the highest interest debt first.


Critical-Thinking Questions


1. Caleb is trying to decide if he should get his student loan from a private lender or
take out a federal subsidized student loan. Which kind of loan would you recom-
mend to Caleb, and why?




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Summary & Resources




2. Marcos is looking forward to college. His parents will not be able to help him much
with the costs, so he is going to finance his own education. He has already found a
one-bedroom apartment that has all the amenities he has always wanted, such as a
workout facility, tennis courts, swimming pool, and covered parking. What advice
would you give Marcos if he asked for your opinion on his college future?
3. Camila recently graduated with a degree in finance and has landed a coveted job
at the Federal Reserve Bank. She will begin to pay off her student loans in a few
months. She would like to lower her payment so she has more money to rent an
apartment, buy furniture, and save up for a car. As Camila’s best friend, what advice
might you give her? What are the consequences of making a lower payment on her
student loans?
4. Daniela’s carpool buddy was recently transferred to a different job location and can
no longer drive Daniela to work. Daniela does not have access to public transporta-
tion. She needs to buy a used car to get to work and will need to borrow money to do
so. She has never looked at her credit report and did not even know she had a credit
score until she talked with her bank. Why is it important that Daniela see her credit
report and be aware of her credit score?
5. Kevin has had money problems over the past few years and feels like he will never
catch up. He seems ready to give up. How would you respond to Kevin when he says,
“What does it matter? No one cares if I have good credit or not.”
6. Julie received a credit card in the mail that she did not order. What is the first thing
she should do?
7. Mariana does not look over her credit card statement. She knows what she bought
and sees no need to spend her time examining every purchase. What is the problem
with Mariana’s philosophy?
8. Shana recently broke up with her boyfriend and went on a shopping spree that put
her deeply in debt. She cannot return what she purchased and has been making the
required minimum payment on her store credit cards. What can Shana do to get out
of debt as quickly as possible?



Key Terms

compound interest Interest that is applied credit score A rating created by a credit
to the principal balance of a loan or invest- bureau based on your credit history and
ment plus any interest that has accrued. publicly available information. A higher
score means lower interest costs because
credit The act of borrowing money to pur- the lender considers you a reliable borrower.
chase goods and services.
deferred-interest loan A loan for which
credit bureau An organization that gath- interest does not accumulate over time. If
ers credit history and other publicly avail- you have a deferred student loan, you do not
able financial information about individual accrue interest until you graduate.
consumers.
Fair Credit Billing Act A federal law that is
credit report A statement that shows all intended to protect consumers from unfair
your credit accounts, repayment history, billing practices and give them a way to
open lines of credit, credit limits of each address billing errors for credit card and
account, and whether the account is in good charge card accounts.
standing.



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Summary & Resources




Fair Credit Reporting Act Federal legisla- loan principal The amount of money you
tion intended to ensure that the consumer borrowed or the amount you still owe on
information contained in the files of con- your loan.
sumer reporting agencies is accurate, fair,
and private. loan term The length or duration of your
loan.
Federal Deposit Insurance Corporation
A federal entity created by Congress whose simple interest Interest that is applied
purpose is to preserve and promote public to the original principal balance after each
confidence in the U.S. financial system by period; it is not applied to interest that has
insuring depositors for at least $250,000 per accrued.
insured bank; by identifying, monitoring,
and addressing risks to the deposit insur- skimmer A card reader that can store
ance funds; and by limiting the effect on the credit or debit card information to then be
economy and the financial system when a reproduced on a credit card encoder.
bank or thrift institution fails.
soft credit inquiries The perusal of a credit
fraud alert A notification placed on your report by an insurance company, future
credit report to let potential lenders know employer, or credit card company that looks
that there have been incidents of suspected through credit bureau reports to determine
fraud on the consumer’s account. A fraud whether to extend a preapproved offer for
alert helps consumers protect themselves credit to an individual in the future. These
from anyone opening an unauthorized credit inquiries do not work against the consum-
account in their name. ers’ credit score and are unseen by hard
credit inquirers.
grace period The period of time between
when an individual graduates and when loan VantageScore 3.0 A mathematical formula
repayment begins. Typically this is 6 to 9 that the three major credit bureaus devel-
months following graduation. oped to generate your credit score based
on payment history, age and type of credit,
hard credit inquiries Checks by a credi- percentage of credit line used, total balance
tor on a consumer’s credit report to deter- or debt, recent credit behavior, inquiries,
mine whether to extend credit for which the and available credit.
consumer has applied. These inquiries can
remain on a credit report for up to 2 years.


identity theft A situation in which someone
steals your personal information with the
intent to open credit accounts in your name.




















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Module 10

Personal Finance










































Gregory_lee/iStock/Thinkstock



By Katherine L. Jackson, Truman State University



Learning Objectives


After reading this module, you should be able to

• Evaluate your current financial position to establish a benchmark to measure your progress.
• Establish financial goals and create a budget.
• Apply savings techniques to achieve your short- and long-term financial goals.

• Demonstrate why saving early for retirement is crucial to success.















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Introduction: Ensuring a Bright Financial Future


Congratulations! You made it to the final module of the text. Our focus in this module will be
ensuring that you have a bright financial future. Let’s begin with some reflection on what you
would like to accomplish in the years to come. What type of career would like to have once
you’ve completed your degree? What promotions do you hope to get down the line? When
would you like to retire? Beyond your professional life, think about where you’d like to live
and what you’d like to do for fun. If you have children, what would you like to do for them?
Identifying your goals is the first step in achieving them. Once you know where you would
realistically like to be 5, 10, and 20 years down the road, you can put financial plans in place
that allow you to actually reach your destination—and hopefully enjoy the ride!

Recall Elena Maria from Module 9. She is determined to leverage her education to get a good
job that will allow her to save for her retirement and take care of her mother, who wasn’t able
to do that for herself. Elena Maria recently began saving and investing her money, at the rate
of $100 per month. Figure 10.1 shows how much money she can accumulate over 30 years
with this rate of savings. Her cousin, Alberto, has also been working full time, but he spends
all of his money on his car and going out with his friends. What if Alberto waits another
10 years to start investing $100 a month? If they both retire in 30 years and earn a 10%
return, Elena Maria will have $226,068 and Alberto will have only $75,944—a whopping
$150,000 difference! The lesson is to save early and save often.


Figure 10.1: Saving now versus 10 years from now

By starting to save now, Elena Maria accumulates a significant amount of money over the next 30 years.











































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This is not to say that it’s ever too late to start saving. If you get a late start (and the majority
of savers do), you can still save enough to reach your financial goals. Those who start to save
later in life have to save a bit more, but they can still enjoy a secure financial future.


In this module, we will take a close look at both your present financial situation as well as
your plans for the future. We will cover the basics of what you need to know to be financially
competent and live within your means. We will work to assess your current financial state,
discuss how to create and use a budget, examine how to set goals and achieve them, and
explain why an emergency fund is a must. We conclude the module with a look at how to
make your money work for you, how to plan for retirement, and how to take advantage of
investing sooner rather than later.


































































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10.1 Getting Your Personal


Finances in Order

























In order to plan for the future, it’s
important to get a sense of where you
are right now. In this section, we will
work to create your personal income
and expenditure statement and bud-
get. Although this process takes an ini-
tial investment in time, the benefits are
worth the effort. A good budget will
allow you to live within your means,
help you prepare for emergencies and
unexpected events, and guide you to
make sound financial decisions so you
can achieve your goals. Living within Tetra Images/SuperStock
your means is not magic; it is as a To begin the process of getting your personal
result of your hard work that you take finances in order, it is important to create a personal
control of your financial well-being. income and expenditure statement and a budget.










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10.1 Getting Your Personal Finances in Order



Assess Your Finances With an Income and Expenditure Statement


Before we can create your budget, we need to track your income and expenditures; in other
words, the amount of money you make versus the amount you spend. We can do this in an
income and expenditure statement, which reflects your finances over a certain period of
time, usually a month or a year. Let’s begin by calculating your expenses for one month.

We start with your income from your employer and then deduct income taxes and Social Secu-
rity taxes to calculate your after-tax income. If we divide that figure by 12, we get your monthly
take-home pay. Then we identify all of your monthly expenditures and track them for 1 month.
Most people are not aware of where their money actually goes; after this exercise you’ll have a
much better idea. You can see Elena Maria’s income and expenditure statement in Table 10.1.
Table 10.1: Elena Maria’s income and expenditure statement for one month

Income (cash inflows) Expenditures (cash outflows)

Gross salary $35,000 Fixed expenses % of after-tax income

Income taxes ($8,000) Rent paid $317 16%
Social Security tax ($2,500) Health insurance premiums $100 5%
After-tax income $24,500 Student loan payments $300 15%

Monthly after-tax income $2,042 Transportation fees $92 4%
Cell phone $50 2%

Internet $58 3%
Total fixed expenses $917
Variable expenses

Utilities $150 7%
Groceries $225 11%

Dining out $120 6%
Medical expenses $25 1%
Clothing $180 9%

Books and school supplies $40 2%
Entertainment $63 3%
Personal care expense $40 2%
Total variable expenses $843

Total expenses $1,760
Cash surplus/deficit $282
Allocation of surplus

Emergency savings $83 4%

Retirement $200 10%



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10.1 Getting Your Personal Finances in Order




Let’s look at Elena Maria’s percentages in her income and expenditure statement. She spent
16% of her after-tax income on rent. Typically, most people in her age group spend up to 27%
on housing (Burbank & Keely, 2014), so having a roommate has allowed her to have a nicer
place and save money. The percentages also give her the opportunity to see where she might
cut expenses. For instance, after she sees what percentage of her budget she spent on cloth-
ing, she may decide to cut back so she can save up for a larger financial goal, such as buying
a car.

The best way to get a handle on your expenditures is to track them for a longer period of time,
since your spending will vary from month to month (see Strategies for Success: Know Thyself).
Try keeping an income and expenditure statement for several months or even a whole year.
With that information, you can figure out how much you spend on average, which will give
you even greater insight into your spending habits. There are a number of mobile apps, such
as Mint, Money Manager, Money Tracker, and Expense Tracker, that can help you keep a record
of your expenses. Some banks offer this feature as part of online banking, as well. But good old
paper and pencil is fine, too. Collect all of your receipts and be exact.



Strategies for Success: Know Thyself


You may be surprised by how much you spend on items like dining out, entertainment, or a cup
of coffee. It is not always easy to cut back on those types of expenses, because they require you
to break established habits. If you know your weakness is impulse shopping, take only the cash
you need to the place you are going and leave your extra cash and credit cards at home. If you
are easily influenced by friends (and who isn’t?) to spend money you do not have, then take
only $10 with you, which prevents you from spending more. You need to know and understand
yourself to be able to negotiate around your weak spots.
Reflection Questions

1. Why does it help to know what percentage you spend on a particular category?
2. How will tracking your expenses for a month help you with your finances?




Define Your Goals: Be SMART


Now that we know Elena Maria’s current state of
income and expenditures, we can concentrate on
her financial goals. Elena Maria wants to save up for
a car. Her older sister, Sofia, borrowed the money
to buy her car and complains often that so much of
her hard-earned money went to pay for the interest
on the loan. As a result, Elena Maria wants to save
up enough cash to pay for the car outright, without
borrowing. In other words, she wants to set for her- Moodboard/Moodboard/Thinkstock
self a SMART goal, which stands for “specific, mea- Write your goals down, or you risk not
surable, action-oriented, realistic, and time-based.” achieving them. People who write down
Let’s see how we can make Elena Maria’s goal a their financial aspirations are much
SMART goal. more likely to accomplish their goals.





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10.1 Getting Your Personal Finances in Order




• Specific: Indicate (in writing) exactly what you need or want. Elena Maria researched
reliable economy cars and determined that she would like to buy a used Toyota
Yaris, and she wants to spend $8,000.
• Measurable: Elena Maria calculated that it will take her 4 years to save up for the
car and pay for it outright. She estimates that she will need to save approximately
$167 per month.
• Action-oriented: Elena Marie plans to save the $167 by taking on a part-time Satur-
day morning job (which will earn her an additional $67 a month) and cutting back
$50 per month on both dining out and clothing expenditures, which will net her an
additional $100 per month. With the additional income and reduced expenditures,
she’ll be able to meet her goal of $167 per month.
• Realistic: Elena Maria feels confident she can achieve her goal. If she had wanted to
acquire a new turbo-charged Porsche 911, which has an estimated price of $85,000,
this would not be a realistic goal, given her current financial situation.
• Time-based: Elena Maria has identified the amount of time it will take her to achieve
her goal: 48 months.

We can assign goals to one of three time-based categories.

1. Short-term goals: These include goals you hope to achieve in the next year, such as
saving up to install new carpet or to purchase a high-end video console.
2. Medium-term goals: These include goals that you plan to achieve within 1 to 5 years,
such as your emergency savings, saving for a car (like the example of Elena Maria),
or saving for a down payment on a house.
3. Long-term goals: These include goals that take a bit longer, such as saving up for your
child’s college education or putting aside enough to see you through retirement.

Teamwork is essential if you have a spouse or family. You need to work together to come up
with agreed-upon goals, and you must function as a team to achieve them. Without clear com-
munication, you may not achieve your goals. Once you have a goal and an action plan to make
it happen, everyone can pitch in and help! Keep visual reminders of your goal by creating a
goal poster or putting a picture on your fridge. You should evaluate your goals over time to
see if you are still on track and whether the goal is still relevant: Perhaps based on new cir-
cumstances, you may want to revise your goal. For more information about setting goals, see
https://www.youtube.com/watch?v=1-SvuFIQjK8.


How to Create a Budget


Once you have tracked your spending for a month, you will be in a better position to create
a budget that fits your needs. After you have created a budget like the sample one for Elena
Maria (see Table 10.2), you will be able to track your spending on any given day and for any
given category (for example, dining out, groceries, personal care, and so on). Ideally, you will
be able to estimate what you spend on average in each category in your budget (based on
previous tracking), and you can fill in those amounts to see where you think you are at any
given point in the month. You can find free budget software options at the following link:
http://www.vertex42.com/ExcelTemplates/monthly-cash-flow.html, or you can use a sim-
ple spreadsheet such as Google Docs Simple Budget Planner (found here: https://docs.google
.com/templates?type=spreadsheets&sort=hottest&view=public).





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10.1 Getting Your Personal Finances in Order




If you have an unexpected financial
event (such as your car breaking down),
you will need to review your budget to
see where you can adjust your spending
so you do not have a deficit at the end of
the month. Being prepared for such
things with an emergency fund or ade-
quate savings is also important if you
want to stay on budget. To that end,
Elena Maria has already put $1,000 into
her savings for her emergency fund. She
plans to continue to build up her emer-
gency savings until she can cover at least
6 months of her monthly expenses. Caia Images/SuperStock
Before creating a budget, track your spending for
Elena Maria’s monthly budget allows her at least 1 month to determine where your money
to see what she has available to spend in goes and where you can cut back.
each category. Don’t expect to achieve
the perfect budget. The point is to have Table 10.2: Elena Maria’s monthly budget
a budget that works for you so you
are able to live within your means and Expense Amount
accomplish your financial goals. Notice
Elena Maria has already incorporated Rent $317
her plan to save $167 for a car, which Health insurance $100
required her to reduce the amount she
Student loan $300
spends on clothes and dining out by
$50 each. The remainder she will cover Transportation $92
through her new part-time job.
Cell phone $50
A budget helps Elena Maria keep her Internet $58
spending on track. She can compare what
Utilities $150
she spends to her budgeted amount to
see where she is in any given category at Groceries $225
any given point in time. So if her friends
Dining out $70
ask her to join them for dinner at one
of her favorite restaurants, Elena Maria Medical expenses $25
will look at what she has spent to date
Clothing $130
before she accepts the invitation. In fact,
Elena Maria sees that she has already Books and supplies $40
spent $67 on dining out this month. She
Entertainment $63
calls her friends back to politely decline
the invitation and offers to have them Personal care $40
over for games after they are done. This Savings for car $167
way she stays within her budget, works
Emergency fund savings $83
in some needed study time, and yet still
has fun with her friends. Find more tips Retirement savings $200
for saving in Strategies for Success: Tips
Total $2,108
for Saving.





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10.1 Getting Your Personal Finances in Order





Strategies for Success: Tips for Saving


By now you have a budget and some financial goals in mind. But where are you going to get
money to meet your financial goals? To save money, you either have to increase your income or
reduce your expenses. Although it is a simple formula, it can be difficult to put into practice
when you have to cut back on comforts and conveniences to achieve your goals.
Here are a few tips to help you build up your savings.

1. One key component of an effective savings
plan is to pay yourself first. Ask your
financial institution to automatically
reroute a portion of every paycheck to
your savings account. Learn from Elena
Maria’s mistakes. She used to save by
putting away whatever was left over at
the end of the month. The problem was
she rarely had anything left over. Rather
than simply assume she couldn’t save
and give up, Elena Maria decided to make
saving a priority and make it automatic.
She had a hard time at first, but she got
used to it. Now her savings has built up
over time. All it took for Elena Maria to
be successful was a new approach and a
positive attitude.
2. Pick up that loose pile of change from
your pants pocket or wallet and put it into
a piggy bank, because saving spare change
can add up over time.
3. Write yourself a check every week and
put it on the fridge. Deposit the money
into an account you have set up for your Fancy Collection/SuperStock
financial goals. There are several steps you can take to
4. Any windfall money should be saved create adequate savings for yourself.
immediately before you think of
20 different ways to spend it. If you get an unexpected tax return, reimbursement
check, or money from relatives for a birthday or holiday, stuff it into the financial goal
account. If you can’t bring yourself to do that, then compromise and put half of it into
the goal account and spend the rest.
5. Make coffee at home or at work. An extravagant coffee concoction every day can be
more costly than you think! Let’s say you spend $3.50 per day on an iced caramel
macchiato. That’s $17.50 per week and $915 per year (not including sales tax)! Treat
yourself to a special coffee drink every few weeks instead—you’ll savor it that much
more.
6. Pack a lunch. Eating out at work, whether at the sandwich shop across the street or
lunch out with the gang, costs between $7 and $12 per day (not including tax or tip).
Alternatively, you could pack your lunch for about $1.50 per day. This would save you
around $40 per week, or more than $2,000 per year! This doesn’t mean you can never
eat out with your colleagues or friends, but instead of every day, how about twice a
week? That would still save you more than $1,000 per year. Your friends may follow
your example once they see how much money you save.

(Continued)


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10.1 Getting Your Personal Finances in Order





Strategies for Success: Tips for Saving (Continued)


7. Take a long, hard look at your cable, Internet, and phone bills. There is no denying that
some of these services are essential. You need reliable Internet service to complete your
course work. Yet how much time do you really spend watching cable, especially now that
you’re a busy student? Could you stream some of your favorite shows online instead?
Analyze your usage and consider making some cuts. You may not even miss much of it
once it’s gone! Here are some creative solutions for cutting some of your cable expenses:
http://time.com/2897949/5-ways-to-cut-cable-but-keep-all-your-shows.
8. Barter! If you need some work done on your house or a car repair, ask friends who have
the knowledge to help you and in turn, provide some type of reciprocity such as pet-
sitting while they are on vacation. This saves money and creates a larger networking
web of friends.
Reflection Questions


1. How does making small sacrifices today benefit your future?
2. What small changes can you make in your daily life to meet your financial goals?





Setting Up an Emergency Savings Account

What happens to you if you lose your job and it takes months to find another? Losing a job is
not something anyone wants to think about, but you will likely work many jobs during your
career. Consider what would happen if you got hurt and were unable to work for several
months. Your health insurance may not cover all of your medical expenses, and who is going
to pay your rent, utilities, and groceries? You can protect yourself from financial catastrophes
if you prepare for the unexpected. Almost all of life’s calamities are, by definition, unexpected.


This means that one of your top financial priorities, and very first SMART goal, should be to
create an emergency savings account that contains at least enough money to cover 6 months
of your expenses. If your employment position is particularly risky or your line of work is
such that there is a greater supply of people who can do your job than there is demand, you
should have money saved for more than 6 months. You do not have to come up with this
amount overnight, but you should make steady progress to build up that fund as quickly as
you can. You read that Elena Maria contributed money to her emergency savings account
because it was one of her financial goals.






















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10.2 Saving and Planning


for Your Retirement























As you finish up school, you will hopefully be in a
position to move beyond contributions to your emer-
gency savings fund and start contributing toward
long-term investments. This is the key to a secure
retirement. The sooner you start to save, the bigger
your nest egg will be when you are ready to retire.
When you retire, you will likely live for another
20 to 30 years (Social Security Administration, n.d.).
That’s a long time to go without a paycheck. That’s
why it is imperative to plan accordingly.
LDProd/iStock/Thinkstock
These two young people have discov-
ered the value of saving money. They
What Is Social Security? want to prepare and save for retirement.

The Social Security Act was passed in 1935 and included the Old-Age, Survivors, and Dis-
ability Insurance program. A large component of this program is the payment of retirement
benefits, intended as a safety net for lower paid workers who can’t save enough for retire-
ment to sustain themselves. The amount of Social Security benefits workers currently receive
at retirement varies based on how much they have paid into the system over their working
career. To review your own benefits, you can visit the Social Security Administration here:
http://www.ssa.gov/myaccount.

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10.2 Saving and Planning for Your Retirement




Why worry about saving for retirement when there is Social Security? There are a couple of
reasons. First, Social Security was never intended to cover everyone’s retirement needs. As
mentioned previously, it was established as a safety net for the poor. Second, there are unan-
swered questions about the viability of Social Security’s future. Social Security is an unfunded
pension plan, which means that your contributions go to today’s retirees. With baby boomers
retiring at a rate of 10,000 per day, the number of workers who support those retirees grows
ever smaller over time. Finally, the amount workers receive from Social Security is barely
enough to live on. A single worker who averages $3,000 a month during his or her working
career would currently receive 35% of this amount, or $1050 a month, at age 62.



Making Your Money Work for You

We have spent quite a bit of time emphasizing how vitally important it is to save your money.
Once you have learned how to live within your means and how to save for your financial
goals, the next step is to learn how to make your money work for you. The best way to put
your money to work is to invest it and let it grow. Both the interest rate your investment earns
and how long you plan to invest the money affect the amount you are able to accumulate. It
is important to understand that the interest you earn will be compounded, meaning that you
will earn interest not only on your initial investment, but also interest on the interest you
earned in the previous period(s).

Recall from the module introduction how Elena Maria and her cousin Alberto started to save
for retirement at different times. Let’s imagine that Elena Maria began saving at age 18, whereas
Alberto did not start until age 30. They both save the same amount ($200 per month) until
they reach age 66, and they both earn the same rate of interest (10% compounded monthly).
Figure 10.2 shows the visual differences in their accumulated wealth. Elena Maria will have
saved $2,834,820, whereas Alberto will have only $501,951 in his retirement account. Alberto
would need to save nearly $1,125 per month in order to catch up to Elena Maria at age 66! That
said, $500,000 is a lot more than nothing and proof that it is never too late to start saving.


Figure 10.2: Value of accumulated wealth

By saving early and often, Elena Maria will be in great shape by the time she retires. Alberto’s savings is
still significant, however. It is never too late to start saving!



























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10.2 Saving and Planning for Your Retirement




There is one proven way to increase your net worth: Put your money into assets that increase
in value. Clothing, electronics, and cars all drop in value over time. So, the rule of thumb is to
invest less in assets that decline in value and more in assets that have the potential to increase
in value, such as real estate and financial investments (including retirement accounts).



Retirement Plan Basics: 401(k)s, 403(b)s, and IRAs

Now you have a sense of what you can achieve with
long-term investments, but how do you get started?
One of the best and easiest things you can do is take
advantage of your company’s matching 401(k) sav-
ings program, if it offers one. This is free money!
Many employers will match your contribution, up
to a certain percentage. For example, if you make
$50,000 and you set aside 3% of your income, or
$1,500, your employer will also contribute $1,500
to your 401(k). Another benefit of this program is
that your contribution is tax-deferred, meaning
that it is deducted from your income before taxes
are taken out. If you work for a nonprofit, you may
have access to a 403(b) savings program. Both
plans are defined-contribution plans funded with
before-tax dollars. You will not have to pay taxes on
this income until you withdraw it at age 55 or 59½,
depending on your circumstances. Use of before-tax
dollars allows you to contribute more now, which
improves your growth potential. In addition, you
may be in a lower tax bracket once you retire, and,
thus, pay less in taxes. You can learn more about this Monkeybusinessimages/iStock/Thinkstock
important opportunity here: http://guides.wsj.com Thinking about and saving for retire-
/personal-finance/retirement/what-is-a-401k. ment early in your career is vital to
your well-being later in life. There are
What if you do not have access to an employer- different types of accounts that can
sponsored investment program? No need to worry; work for you, depending on what type
there are still options available to you. Individual of job you have.
Retirement Accounts (IRAs) are an effective way
to save for retirement. There are two kinds of IRAs:
the traditional IRA and the Roth IRA.



Traditional IRA

With traditional IRAs, you make contributions that you can deduct from your taxable income.
This is similar to contributing to a 401(k) using pretax dollars, described earlier. The value
of a traditional IRA grows tax free until you may begin to withdraw money at retirement age.
With a traditional IRA, the Internal Revenue Service (IRS) taxes each withdrawal made dur-
ing retirement at your tax rate at the time of the withdrawal.






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10.2 Saving and Planning for Your Retirement




To qualify for a traditional IRA deduction, you must not have access to a 401(k) retirement
account through your place of employment. In addition, the maximum allowable contribution
is subject to certain income limitations. For example, if you are single, do not have a 401(k)
through your employer, and you make less than $60,000 per year, you can make the full con-
tribution ($5,500 as of 2016). If you are 50 years old or older, you can add an extra $1,000 to
your eligible contribution as a “catch-up” for older Americans. The IRS adjusts the maximum
allowable deduction to account for inflation, and thus the amount is different each year. You
can contribute to a traditional IRA even if you have a 401(k) at work, but the amount is not
deductible and you are still subject to the income limitations.


Roth IRA


With a Roth IRA, you make your contributions with after-tax income. The maximum amount
allowable is the same as for the traditional IRA ($5,500 as of 2016), with annual adjustments
for inflation. You can also add an extra $1,000 contribution if you are age 50 or older.

The beauty of the Roth IRA is that you can still make contributions regardless of whether you
have a 401(k) at work. In addition, you will not be taxed on the money when you withdraw
your funds. If you want to start a Roth IRA, contact your local bank or an investment company
such as Vanguard, Fidelity, or Dreyfus, all of which can help get your Roth IRA started. There
are advantages and disadvantages to both, many of which depend on your own personal cir-
cumstances. The following comparison should help you determine which one might be right
for you: http://www.rothira.com/traditional-ira-vs-roth-ira. To determine how much you
need to save for retirement, try out the calculator in A Closer Look: How Much Do I Need to
Save for Retirement?.



A Closer Look:
How Much Do I Need to Save for Retirement?


As an exercise, you can input your own variables into a retirement calculator (http://www
.retirementcalculator.biz) to see how much you need to save by the time you retire. Be good
to the older you, and start saving for retirement early. Knowing the amount you need will help
motivate you to save and give you a measurable goal.



























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Summary & Resources




Summary & Resources


Module Summary

You now know how to create financial statements and a budget. Take the time to do so! The
key to the income and expenditure statement is in the surplus or deficit generated. A surplus
increases your assets and, thus, increases your net worth. A deficit increases your liabilities
and, thus, decreases your net worth. If you track your spending for a month, or better yet for
several months, you will learn where you spend your money and where you can cut back or
reduce your debt. Once you have a handle on where your money goes—or more importantly,
where you want it to go—you can create a budget. The budget should indicate how much you
are spending in each category so you can live within your means. Saving is tough because it
means forgoing some of the things you want in order to save up for the things you need. The
most important rule is to always pay yourself first. Have a portion of each paycheck automati-
cally whisked away to your savings account so you do not have to decide to save; you simply
do save.

Setting goals is the smart way to get what you want. With no specific direction, your money
will slip through your fingers like melted butter. To be successful, you need to set goals that
are specific, measurable, action oriented, realistic, and time based: SMART. One of your first
goals should be to build an emergency savings account that covers at least 6 months of your
expenses. This will help protect you against loss of employment, illness, or other calamities.

Saving early and often is the winning plan to retirement. If you started late, you will have to
invest more dollars to make up for lost time, but you can still save enough for retirement. If
you work for a corporation, you may have access to a 401(k) plan. If you work for a nonprofit,
you may have access to a 403(b) plan. Both plans are defined-contribution plans funded with
pretax dollars, which gives you more to invest in your retirement account. Your employer may
match your retirement savings dollar for dollar up to a specific percentage. This money grows
tax free until you withdraw the funds upon reaching retirement age. If you do not have access
to a 401(k) or 403(b), you may be eligible to save for retirement using an IRA. If you open a
traditional IRA you can make (income-limited) contributions with pretax dollars and let the
money grow tax free until you withdraw the money when you retire. If you open a Roth IRA,
you invest with after-tax dollars and make (income-limited) contributions that grow tax free,
and you may withdraw these funds tax free upon retirement.


Critical-Thinking Questions


1. Daryl has struggled with money all his life. He cannot seem to get a handle on where
all his money goes every month. He is desperate to get control over his financial life.
How can creating his own income and expenditure statement help him assess his
current financial situation?
2. Now that Daryl has created his income and expenditure statement, he is ready to
establish some financial goals and create a budget. How can Daryl establish SMART
goals, and how can using a budget help him achieve his goals?
3. Now that Daryl knows what his goals are and has a budget, how can he save enough
to reach his financial goals?





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Summary & Resources




4. Will and Gabriela met in college and were married the summer after their gradu-
ation. They both work for different employers and have access to matching funds
through their employers’ 401(k) plans. Will’s employer offers matching up to 4%,
and Gabriela’s offers matching up to 7%. They are reluctant to put so much aside,
because they have other things they want to spend their money on. What might you
say to Will and Gabriela about the importance of matching funds? Why is it impor-
tant to start saving early for retirement?


Key Terms

budget What you plan to spend in each of Internal Revenue Service (IRS) A federal
your spending categories. You can create a organization that carries out the respon-
budget on the back of an envelope or in an sibilities of the secretary of the treasury
Excel spreadsheet. under Section 7801 of the Internal Revenue
Code. The secretary has full authority to
emergency savings account A bank administer and enforce the internal revenue
account intended to cover at least 6 months’ laws and has the power to create an agency
worth of your expenses in case of unemploy- to enforce these laws. The IRS was created
ment, medical leave, or other emergency. based on this legislative grant.

401(k) savings program A defined contri- Old-Age, Survivors, and Disability Insur-
bution plan offered by corporate employers ance The part of the Social Security Act of
in which the employee makes before-tax 1935 that established a system of retirement
contributions for retirement purposes. The benefits for workers.
employer may offer to match your contri-
butions up to a certain percentage of your Roth IRA An individual retirement account
gross income. that allows an eligible person to make con-
tributions in after-tax dollars. These dollars
403(b) savings program A defined contri- are not taxed by the IRS when they are with-
bution plan offered by the nonprofit employ- drawn at the appropriate retirement age.
ers in which the employee makes before-tax
contributions for retirement purposes. The SMART goals Financial goals that are spe-
employer may offer to match your contri- cific, measurable, action oriented, realistic,
butions up to a certain percentage of your and time based.
gross income.
traditional IRA A retirement account an
income and expenditure statement A investor can use if he or she meets certain
report that shows a family’s income and specifications; individuals can deduct from
expenditures over a period of time such as a their taxable income the amount (up to a
month or a year. limit) contributed to a traditional IRA.

Individual Retirement Accounts
(IRAs) Individual retirement accounts
that encourage workers to set aside greater
amounts for retirement.










210
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sol82612_10_m10_195-210.indd 210 6/29/16 5:21 PM

Glossary






401(k) savings program A defined contri- newspapers, and other resources in elec-
bution plan offered by corporate employers tronic form.
in which the employee makes before-tax
contributions for retirement purposes. The Ashford University 24-hour Technical
employer may offer to match your contri- Support Center The technical support cen-
butions up to a certain percentage of your ter can help you with problems concerning
gross income. a course website or with accessing, sending,
or retrieving course materials on your com-
403(b) savings program A defined contri- puter. You can reach the center through a
bution plan offered by the nonprofit employ- link in your current class, by phone at (800)
ers in which the employee makes before-tax 285-9796, by e-mail at helpdesk@online
contributions for retirement purposes. The .ashford.edu, or online at http://247support
employer may offer to match your contri- .custhelp.com.
butions up to a certain percentage of your
gross income. Ashford University Student Portal The
entry point to your personal Ashford Uni-
APA style Developed by the American Psy- versity student home page and your college
chological Association, the rules and guide- courses. You can access your home page by
lines for writing used by Ashford University. clicking the Student Portal hyperlink in the
upper right corner of the Ashford University
application software Available for edu- website at http://www.ashford.edu and
cational, professional, and personal use on entering your login information.
desktop computers, laptops, tablets, smart-
phones, and other mobile devices, this soft- Ashford Writing Center The Writing
ware represents all the programs that allow Center offers learning resources and oppor-
you to do things on your computer. tunities to connect with writing tutors or
librarians who can help you succeed in your
apps Short for applications, the software classes.
that runs on mobile devices.
Ask Your Instructor An Ashford University
Ashford Café A discussion board in your discussion forum (available in your course)
course where you can get to know your where you can post your question; everyone
classmates; talk with them about your per- in the class benefits from the instructor’s
sonal lives, your favorite sports teams, response.
or other topics; and share experiences with
one another. You will also find links in the avocation A hobby people engage in out-
café to social media sites such as Pinterest, side of work for their own personal enjoy-
LinkedIn, Google+, Twitter, and Instagram, ment and the enjoyment of friends and
where you can connect with classmates family.
outside of class.
bits Measurements of the speed at which
Ashford Online Library Multiple databases the computer performs calculations or
of books, scholarly journals, magazines, transfers data.




211

Glossary




blog An online journal or personal writing accomplishments for a particular job, with
platform. each section organized into skill areas, fol-
lowed by a summary of your work history.
blogosphere The worldwide community of
bloggers. compound interest Interest that is applied
to the principal balance of a loan or invest-
browser cookie A computer file containing ment plus any interest that has accrued.
a small piece of data that is stored in a web
browser while (and sometimes after) a user computer network A group of computers
is browsing the website. It records informa- that connects with other computer networks
tion about the user and the user’s activity on and individual electronic devices, so each
the site. Also known as a tracking cookie. computer can send and receive information
to and from other computers and peripheral
budget What you plan to spend in each of devices.
your spending categories. You can create a
budget on the back of an envelope or in an computer virus A software program that,
Excel spreadsheet. when installed on a computer, creates copies
of itself and often modifies other computer
bytes Pronounced “bites,” measurements programs or files or performs harmful activi-
of the size or capacity of a computer file and ties such as destroying data or damaging
the computer memory or storage devices. computer hardware. When such a program
is installed, it is said to “infect” the computer.
career fair An event held by companies,
groups of employers, local communities, computer worm A type of malware that
government agencies, school districts, and scans your computer for holes or openings
other organizations to find qualified job in your security system. The worm enters
candidates. Also called job fair. through one of these holes and, on a com-
puter network, can copy itself from machine
Career Services The Ashford University to machine.
career services center, which offers digi-
tal resources and guidance related to skill Constellation The e-reading platform that
set identification, career exploration, self- houses digital textbooks for Ashford Univer-
promotion, and networking with others in sity courses.
this new digital world. You can reach the
center through a link in your current class, cookie profiling The use of browser cook-
by phone at (866) 974-5700 (ext. 20057), ies to track personal information about a
by e-mail at [email protected] or user who visits a website and to create a
online at http://www.ashford.edu/student record of that user’s activity online; this
_services/careerservices.htm. record is commonly used by marketers, so
they can market products and services to the
cloud storage Also known as “the cloud,” user more effectively the next time he or she
storage on the Internet and remote servers. visits the website.

collective intelligence The ability to col- cover letter A document that accompanies
laborate with others on the web. a résumé or curriculum vitae that sum-
marizes your career objectives, explains
combination functional and reverse what you can bring to the organization or
chronological résumé A document company, and should persuade the reader to
that focuses on your relevant skills and invite you for an interview.




212

Glossary




credit The act of borrowing money to pur- that you leave on the web as you browse
chase goods and services. from one website to another.

credit bureau An organization that gath- digital literacy The ability to understand
ers credit history and other publicly avail- and appropriately use electronic technology
able financial information about individual to accomplish educational, professional, and
consumers. personal goals.

credit report A statement that shows all digital tools Electronic devices and pro-
your credit accounts, repayment history, grams that translate data into readable
open lines of credit, credit limits of each information, including documents, images,
account, and whether the account is in good videos, and games.
standing.
discussion forums Online class discussions
credit score A rating created by a credit that occur in class on a weekly basis.
bureau based on your credit history and
publicly available information. A higher domain name A name assigned to a web-
score means lower interest costs because site and linked to the website’s IP address
the lender considers you a reliable borrower. that has two parts: a web page name and a
web extension. Also known as host.
curriculum vitae (CV) A document used in
academia that summarizes your educational emergency savings account A bank
achievements, academic qualifications, and account intended to cover at least 6 months’
professional accomplishments. worth of your expenses in case of unemploy-
ment, medical leave, or other emergency.
data aggregator An individual or company
that makes money by collecting and compil- Fair Credit Billing Act A federal law that is
ing data and information about people from intended to protect consumers from unfair
the web and selling it to others. billing practices and give them a way to
address billing errors for credit card and
deferred-interest loan A loan for which charge card accounts.
interest does not accumulate over time. If
you have a deferred student loan, you do not Fair Credit Reporting Act Federal legisla-
accrue interest until you graduate. tion intended to ensure that the consumer
information contained in the files of con-
desktop computer Computing devices that sumer reporting agencies is accurate, fair,
are designed to rest on a table or desk and and private.
be used in a single location. They are fairly
large because they consist of several compo- Federal Deposit Insurance Corporation
nents connected together to create a com- A federal entity created by Congress whose
plete computer system. purpose is to preserve and promote public
confidence in the U.S. financial system by
digital citizen A person who participates insuring depositors for at least $250,000 per
productively, safely, and responsibly in insured bank; by identifying, monitoring,
today’s technological society. and addressing risks to the deposit insur-
ance funds; and by limiting the effect on the
digital footprint The electronic trail of economy and the financial system when a
digital data about you and your computer bank or thrift institution fails.





213

Glossary




firewall A network security software language or computer skills.
system that monitors incoming and outgo-
ing information and protects the computer hardware Equipment associated with
network from harmful information from your electronic devices; in other words,
other computers or other networks such as the machinery, wiring, and other physical
the Internet. components.


flaming An increasingly intense and vicious hashtag On social media, a word or phrase
online debate. preceded by a pound sign (#) and used to
identify, describe, and organize messages on
flash mobs Similar to tweetups, gatherings a certain topic.
of people organized through social media.
hierarchy A system in which people’s
font A specific size and style of type or status or importance in the organization is
printed characters within a type or font determined by rank, job title, or position.
family.
host See domain name.
fraud alert A notification placed on your
credit report to let potential lenders know hotspots Physical locations such as coffee
that there have been incidents of suspected shops, bookstores, and other establishments
fraud on the consumer’s account. A fraud that offer Internet access over a wireless
alert helps consumers protect themselves network.
from anyone opening an unauthorized credit
account in their name. hyperconnectivity A state in which we are
always connected to the Internet through
geosocial footprint The location informa- some kind of device.
tion revealed by users through social media.
identity theft A situation in which someone
geotagging A feature that allows a website steals your personal information with the
to identify information about your location. intent to open credit accounts in your name.

global village The shared human connec- income and expenditure statement A
tion through technology. report that shows a family’s income and
expenditures over a period of time such as a
grace period The period of time between month or a year.
when an individual graduates and when loan
repayment begins. Typically this is 6 to 9 Individual Retirement Accounts
months following graduation. (IRAs) Individual retirement accounts
that encourage workers to set aside greater
graphics Visual images. amounts for retirement.

hard credit inquiries Checks by a credi- interface The point where the user and the
tor on a consumer’s credit report to deter- device interact. The interface is represented
mine whether to extend credit for which the by the look, feel, and overall user experience
consumer has applied. These inquiries can of a device, browser, or operating system.
remain on a credit report for up to 2 years.
Internal Revenue Service (IRS) A federal
hard skills Abilities or skill sets that can be organization that carries out the respon-
learned or trained. Examples include foreign sibilities of the secretary of the treasury




214

Glossary




under Section 7801 of the Internal Revenue metadata Big-picture data that is compiled
Code. The secretary has full authority to from many smaller data points; often used
administer and enforce the internal revenue by corporations and intelligence groups to
laws and has the power to create an agency create user or target profiles.
to enforce these laws. The IRS was created
based on this legislative grant. mobile computing device A small, porta-
ble computer such as a smartphone, laptop,
Internet A massive global computer net- or tablet.
work of other computers and other, smaller
networks. modem In a home or office network, the
device that connects with the Internet
intranets Internal networks that busi- through a telephone landline.
nesses and organizations use to share
files and information among stakeholders, multimedia Text, graphics, and sound.
develop collaborative projects, and share
computer applications. netbooks Sometimes referred to as mini
laptops or subnotebooks because they have
IP address Internet protocol address; a less computing power, these small, light-
series of numbers assigned to every digital weight computing devices are designed
device when it is manufactured and to every primarily for consuming content. Google’s
site on the World Wide Web. These numbers Chromebook is a type of netbook.
are recorded on the device and on the site
when the two are connected. Thus, every networking The process of meeting and
website has a record of the devices that have talking with people to exchange informa-
visited, and every device has a record of tion, contacts, and experiences for common
every website it has visited. professional or social purposes.

job fair See career fair. Old-Age, Survivors, and Disability Insur-
ance The part of the Social Security Act of
laptop Also referred to as a notebook, 1935 that established a system of retirement
a portable computer that has the same benefits for workers.
components and capabilities as a desktop
computer. online etiquette Polite and professional
behavior that is appropriate when you use
literacy The ability to read and write. digital resources.

loan principal The amount of money you open-source software Software that can
borrowed or the amount you still owe on be used, modified, and distributed by any-
your loan. one. Google Drive applications are an exam-
ple of open-source software.
loan term The length or duration of your
loan. paraphrase The act of writing someone
else’s ideas in one’s own words.
malware Harmful software programs that
are intended to interfere with other com- phishing An attempt to obtain sensitive
puter systems and disrupt their operations, information from another computer user,
gather sensitive information, or cause other often for malicious or fraudulent purposes
types of damage to the system. Also known such as identity theft, by masquerading as a
as spyware. trustworthy source.




215

Glossary




plagiarism The use of someone else’s Roth IRA An individual retirement account
language, ideas, or other original (non-com- that allows an eligible person to make con-
mon-knowledge) material without acknowl- tributions in after-tax dollars. These dollars
edging its source. are not taxed by the IRS when they are with-
drawn at the appropriate retirement age.
platform Also known as the operating sys-
tem, the software that runs all the programs router In a home or office computer net-
and applications on your device. work, the device that connects the computer
to the modem, other computers in the home,
pop-up ads A form of online advertising and/or a printer or other devices to share
on the World Wide Web designed to attract data and information.
readers by displaying specific ads to them
when they browse pages on the web. scam A dishonest plan, especially one to get
money from other people by misleading or
pornography Printed or visual mate- tricking them.
rial that contains explicit descriptions or
displays of sexual organs or activity that is simple interest Interest that is applied
intended to create sexual excitement. to the original principal balance after each
period; it is not applied to interest that has
presentation software Software that accrued.
allows the user to create electronic slides
that display text and incorporate multimedia skill set A combination of personal traits,
and links to websites. abilities, and proficiencies that people
develop through education, training, and
proprietary software Software that is experience. It may also include talents and
owned and controlled by its creator; for abilities that can be offered to an organiza-
example, Microsoft Office and Apple iWork. tion to help it succeed.

recycling The act of submitting a paper skimmer A card reader that can store
written by you for another Ashford Univer- credit or debit card information to then be
sity class. This is not condoned unless you reproduced on a credit card encoder.
have permission from your instructor and
clearly indicate that the paper was submit- SMART goals Financial goals that are spe-
ted previously for another purpose. The cific, measurable, action oriented, realistic,
university’s policy on recycling is detailed in and time based.
the “Student Responsibilities and Policies”
link in the classroom. smartphone Mobile devices that offer
phone, text, and Internet capabilities. Fast
résumé A summary of your professional connection speeds, a wide range of storage
background, talents, skills, job experience, options, and an ever-increasing number of
education, and/or accomplishments. downloadable software applications make
these devices popular and user-friendly.
reverse chronological résumé A docu-
ment that summarizes your professional social learning Learning that takes place in
background and education, with an empha- a social context through the influence of our
sis on work history and postsecondary edu- peers.
cation and each section organized in date
order, with the most recent date first.





216

Glossary




social networking A method of building reading devices; others perform additional
networks or social relationships among tasks, and some of the latest tablets allow
people who share common interests, back- you to access the Internet and perform
grounds, or activities. some of the functions of a desktop or laptop
computer.
soft credit inquiries The perusal of a credit
report by an insurance company, future tracking cookie See browser cookie.
employer, or credit card company that looks
through credit bureau reports to determine traditional IRA A retirement account an
whether to extend a preapproved offer for investor can use if he or she meets certain
credit to an individual in the future. These specifications; individuals can deduct from
inquiries do not work against the consum- their taxable income the amount (up to a
ers’ credit score and are unseen by hard limit) contributed to a traditional IRA.
credit inquirers.
transferable skills Abilities that have been
soft skills Traits and behaviors based on developed in one workplace or situation
personal strengths and unique personality that can be useful in another workplace or
characteristics. Examples include athletic situation.
ability or people skills.
Trojan horse A type of malware that
software The systems and programs that disguises itself as one type of program but
run on your computer hardware. is actually a different type of program. The
Trojan horse is usually spread when a com-
spam E-mails that are sent, usually to large puter user opens an e-mail attachment or
numbers of people on the Internet, that are downloads a file that contains the malware.
not requested and often not wanted.
tweetups Similar to flash mobs, gatherings
spreadsheet software Software that of people organized through social media or,
includes graphing functions, so you can in this case, Twitter.
show numbers in a bar, line, or pie chart.
Spreadsheets can also be used to balance uniform resource locator (URL) See web
your personal checkbook and create and address.
monitor a family budget.
USB Internet stick A small device that
spyware See malware. acts like a modem, plugs into your laptop
computer through a USB port, and gives you
sync The ability to synchronize all elec- wireless Internet service. These services use
tronic devices, so that when the user makes mobile broadband telephone services from
changes to any of these devices, the changes cellular service providers.
are made everywhere.
VantageScore 3.0 A mathematical formula
tablet computer A thin, flat slate that that the three major credit bureaus devel-
is small, lightweight, and portable. Users oped to generate your credit score based
operate the tablet by touching the screen in on payment history, age and type of credit,
various ways to perform different functions, percentage of credit line used, total balance
although some tablets have a small keyboard or debt, recent credit behavior, inquiries,
attached. Some tablets are simply electronic and available credit.







217

Glossary




virtual classroom A learning space that Wi-Fi Internet service Wireless access to
exists electronically and is accessed any time the Internet, whether in a home, business, or
of the day by means of digital devices with public space.
an Internet connection.
word processing software Software that
web address A standardized address allows users to quickly and easily compose,
or path to locate documents and other edit, and revise written documents such as
resources on the World Wide Web. Also class notes, outlines, essays, poems, short
known as uniform resource locater (URL). stories, books, brochures, and flyers.


web extension The part of the domain World Wide Web Commonly known as
name that indicates the type of organization “the web,” a method of accessing and shar-
or institution the website represents or the ing information on the Internet. The web
country designation for that website. is likely the part of the Internet with which
people are most familiar.
web page name The name or title of any
page on the World Wide Web that is given
to it to make it easier to find than having to
type in the web address/URL.




















































218

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219

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