Collection of notes for managing money
Table of Contents
Choose a Bank
- Look for banks that participate in the Federal Deposit Insurance Corporation (FDIC). Need to verify participation on FDIC's Bank Find
- What is the process and options for withdrawing money
- Look up the reputation of the bank for its services if possible
- Look for "account terms" or "disclosures" or Truth in Savings Disclosure for information on accounts
Small Town Bank
- Probably limited hours and ATM fees for ATMs that do not belong to that branch
- Lower overhead can lead to better terms on accounts
Large Chain Bank
- Probably large extensive ATM network with fewer fees but not as competitive terms on checking and savings accounts bc of the overhead of additional branches and ATMs.
- Lowered cost of business (no branches to maintain) can lead to better account terms.
- Convienent to access without having to go into bank. (Physical banks may offer online services too and so this may be a moot point)
- Due to income tax exemptions Credit Unions can sometimes offer good deals on accounts
- Not necessarily available for everyone.
- Find local credit unions here
- Generally earning low to no interest
- Easy to use for transactions
- Have to give permission in advance for overdraft protection
- Avoid like the plague
- Higher interest earnings than checking accounts but historically less than money market funds
- Good banks now can offer competitive rates on savings accounts
- Easier access to money than other options
Start Investing or Pay Off Debt
- Debt with high interest rates should be payed off before investing as you would otherwise have to make enough on your investment to compensate for this loss
- Example: Consumer credit ~18% interest you'd have to make more than 18% post tax to not lose money
Student Loans vs. Investing
- No tax benefits to paying down student loans faster
- Federal tax reduction under very specific circumstances (not a dependent and below a certain annual income)
- Paying down student loans instead of investing reduces amount in emergency reserves
- Depending on the interest rate on the student loans you could make more money from investing in relatively safe investments.
- If you have a higher interest rate on your loans you might have to be ok with riskier investments to still outpace the interest on the loans
Pay Down Morgage vs. Investing
- Like the student loans section you will need to compare the rate of return of your investments to the interest of your loans
- Give up front tax break but are taxed upon withdraw with the exception of Roth IRA's which do it backwards
- Grow tax free
- Generally for employees of larger companies
- Employers will sometimes match a percentange of contributions
- Can sometimes take out a loan against your account then the interest you pay goes back to you
- Generally for non-profit organizations
- Employer may match contributions
Individual Retirement Accounts (IRA)
- Unlike the other retirement options a Roth IRA is included in taxable income when put in.
- Also unlike other retirement account options a Roth IRA is not taxed upon withdraw
Long Term Allocation of Funds
Taken from Investing in your 20's and 30's for Dummies
For safe investors subtract your age from 100 and invest that in stocks and the remaining in bonds
- ex. Age 25 100 - 25 = 75% stocks 100 - 75 = 25% bonds
For safe investors subtract your age from 120 and invest that in stocks and the remaining in bonds
- ex. Age 25 120 - 25 = 95% stocks 100 - 95 = 5% bonds
Types of Investments
|Type of investment||Associated Risk/Return|
|Money Market Fund||Low|
Money Market Fund
- Similar to a savings account.
- Safe place to keep reserve emergency funds or to save up for a big purchase in the near future (1-4 years)
- Mutual funds are combinations of other types of investments and therefore have built in diversification.
- Learn to cook and eat leftovers
- Use store brands instead of name brands. The extra price for name brands is often advertising costs rather than food quality improvements. Sometimes the store brand is even the same product/recipe as the name brand.
- Buy in bulk but be careful with spoilable items
- Split the order with a friend to obtain the better price but not worry about food spoiling
- Using a slow cooker can cut down costs
- Avoid having to eat out on a busy night with a little prep time in the morning
- Saves cooking time on non-busy nights too
- Use less energy than stovetop or oven
- Eat out for breakfast or lunch so that you can spend less for smaller portions
- Put investment money in retirement accounts
- Most retirement accounts reduce your taxable income the year you contribute to the account and are taxable upon withdraw
- Grows tax-free
- Use a health savings account for medical expenses
- Reduces taxable income the year contributed, grows tax-free and can be withdrawn tax free for healthcare costs
Breene, Sophia. "13 Ways to Save Money With a Crock Pot." Greatist. N.p., 16 Mar. 2014. Web. 3 July 2015.
Tyson, Eric. Investing in Your 20s & 30s for Dummies. Hoboken, NJ: Wiley, 2013. Print.
Tyson, Eric. Personal Finance in Your 20s for Dummies. Hoboken, NJ: Wiley Pub., 2011. Print.