What’s a system I can use when doing my holiday shopping?

The holidays can be a time of sensory overload – so much to do, so many events, lights, and people — that it’s easy to become overwhelmed. And, when people are stressed, it’s easy to overspend. To avoid spending more money than you want during the holidays, take time to create a spending plan system that works for you!

What do I need for an effective holiday spending system? I need:

  • To know how much money I want to spend;
  • To know who or what I want to spend money on;
  • A way to track spending; and
  • A way to keep track of what I’ve purchased.

Before you start shopping, think about what kind of system would work best for you. Do you like a(n):

  • app,
  • envelope,
  • small book,
  • budget sheet?

Any of these, and others, can work. Creating a holiday spending system can give you peace-of-mind and help you control your spending, including how much you charge on credit cards. For a free, one page, holiday spending plan form to help you go to http://go.illinois.edu/holidaymoney and click on Control Holiday Credit Card Debt.

Written by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

What is the difference between a credit score and a credit report?

Many people use the term credit score and credit report interchangeably. Although mistaking them may seem harmless, credit scores and credit reports are very different. As stated in the name, your credit score is exactly that, a score. This score is a numerical value that is calculated and used by lenders to determine the risk associated with giving a borrower a loan.

The formula most often used to calculate a credit score takes into account a person’s payment history, amount owed, length of credit history, new credit and type of credit used. A person may receive a different credit score from each lender or reporting agency because the formula used to calculate the credit score will vary. The reason for the variance is because there are different types of credit score scoring models such as FICO, the most commonly used right now, and VantageScore, which both lenders and consumers are starting to use more often.

On the other hand, a credit report contains a person’s credit history. A credit report includes information such as a person’s social security number, current and previous addresses, and employment history. Besides this, a person can find a list of their lines of credit such as credit cards, student loans and mortgages, the date each one was opened, credit limits, and whether their accounts are past due or in good standing. Bankruptcies will also appear on someone’s credit report as well as the names of people that have recently asked to see the person’s credit report.

Knowing your credit score to know where you stand credit-wise, and to be prepared for any outcomes on your credit applications can be helpful. However, it is more important to remember to check your credit report to prevent identity theft and to make sure that all the information on the report is accurate. A person should also check their credit reports from all three credit bureaus to ensure that the information is the same. As stated earlier, a credit score and a credit report are not the same thing, but they are closely related, as the information on a credit report is used in the calculation of a credit score.

Written by Lesly Luna, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

What is ACE 240: Personal Financial Planning?

A great class to learn about the basics of investing is ACE 240: Personal Financial Planning. This class covers the fundamental aspects of compounding interest, risk management strategies in asset management, and principal investment strategies that you can begin to use now or plan to in the future. Furthermore, you will learn about the differences between passive and active investing and the pros and cons of each. A significant portion of the class is dedicated to the Time Value of Money and how you can you use it to your advantage; if you are able to invest early, you will set yourself up for great success.

ACE 240 is offered at UIUC in the Spring, Fall, and online over Winter & Summer break. Not only will you learn about the basics of investing by taking this course, but also about budgeting your money, acquiring financial assets, managing credit, planning for taxes, setting yourself up for retirement, and making decisions in estate planning. The class is open to all majors with no pre-requisites, so go sign up for ACE 240!

Written by Michael Piet, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

When should I start investing?

The right answer to that question is simple: right now. Okay, you might not be ready to invest right this second, but that doesn’t mean that you can’t start planning today. The reason why timing is so important is because of something called compound interest. There is a famous saying that goes: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it”. Since Albert Einstein is arguably one of the greatest minds in human history, his quote might be worth adhering to.

Compound interest is the process of adding interest to the initial investment including interest that’s already been earned. In other words, compound interest allows you to earn interest on interest, and over time this can make a real impact on the returns of your investments. If you’re planning on investing in stocks, they won’t be earning interest per se, but they’ll be earning returns such as dividends and (stock) growth. Then as long as you don’t withdraw what you’ve accumulated, and allow that to be automatically reinvested, you’ll experience compounding returns.

A quick example of this would be as follows: you have $100 in two separate accounts that both offer 10% returns on your investment, and you keep the money in there for 10 years. The only difference is that one account gives you compound interest but one doesn’t. At the end of the 10 years, the account with the compound interest will have $271.79 in it. And the other account? Only $200. Compound interest really makes a difference.

Furthermore, as a young investor you’ll already be ahead of all of those who started investing later than you because you’ll have had a chance to let your money work for you for longer than others have. Young investors also have another advantage, which is safety. Investing funds that are left over after paying bills, etc, allows you to keep a clear head if your positions lose value, as you’ll have plenty of time to wait until the market makes a comeback. Though it is important to remember that one should only invest once they’ve saved up enough money for an emergency saving fund, to reduce risk in case anything goes wrong. All in all, start planning on putting your savings to work now, and you’ll be glad you did in the future. Then 10 years from now when others say that they wished they started investing years ago, you’ll already be ahead of the game. Also, check out our website to access more resources on investing and finances in general.

Written by Robert Sniezko, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.