There are some basic financial products that every person should have a little knowledge of. Below is some info on some of these important starter products that might help you have a better understanding. If you have questions let us know.

Checking Account | Savings Account | Credit Card | 401K | IRA | Renter’s Insurance | Car Loans

Checking Account:

A checking account is a federally protected account provided by a financial institution that gives you a safe place to deposit and withdraw your hard earned cash! You can use this account to pay your bills or most any other purchase you make as well.

Checking accounts generally come with checks you can fill out and an ATM/debit card that you can use to make purchases or payments. You can use your ATM/debit card to pull cash out of your account, too, at an ATM.

When you open up a checking account, be sure to find out if your account requires a minimum balance to avoid fees. You can usually find a free basic checking service which can be a great option if you don’t need all the perks. Also find out where ATMs that don’t charge a service fee are located. Using your ATM/debit card at a machine not affiliated with your checking account provider can charge you a fee.

Having a checking account can make some other things easier as well. You can use your checking account to set up automatic payments on some of your bills that are relatively the same amount each month. That way you can make sure the lights stay on and avoid any late penalties. A checking account can also provide you the option of using direct deposit with your employer. You can have the money you make automatically deposited into your account on payday. Also, if you have a checking account you can take advantage of online banking to keep track of your spending and manage your finances 24/7. The online tracking of your spending can also help when you sit down to work on your budget.


Savings Account:

A savings account is an account available at a financial institution where you can deposit money you don’t plan to spend immediately. The amount of money you keep in the account earns interest that is paid back to you, just for keeping your money in the account (it really does pay to save!)

A savings account can be used for just about anything! You can use it to save money for a purchase you want to make soon, like that pair of boots or new game system you’ve been wanting. Or, you can use it to build up a “just in case” fund – just in case you lose your job, you move and need extra money for a deposit or any other unforeseeable cost.

When you open an account, look for a HIGH interest rate. Unlike loans and credit cards, where you pay interest, with a Savings Account, YOU get paid! Also – unlike a 401k or an IRA, you can pull money out of this account without any penalty. Some accounts limit the amount of withdrawals you can make each month for free so be sure to find out when you open an account and find what fits your needs best.


Credit Card:

A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid later to the merchant. The card is issued to the user with a predetermined amount of credit (usually determined by your credit score) for you to purchase goods and services. When you use your card to buy stuff – you’re doing so on “credit” which means you’ll have to pay it back. And, just like a loan, there is an interest rate that you pay if you carry a balance (meaning – if you don’t pay off the amount you’ve spent on the card in full each month).

Credit cards can be a great thing, but can also get you into a lot of trouble if you aren’t careful! They are a great tool to use to build your credit history if you are just starting out, but carrying a large balance will mean you end up paying a lot of money toward interest. When you sign up for a credit card, always look to see how much the interest rate is going to be – the lower, the better. Also look to see if your card will have an annual fee or other high fees or interest rate adjustments (meaning dramatic increases for things like late payments).

Missing a credit card payment is the easiest way to ruin your credit history – and overspending with credit cards is the easiest way to get into debt. So, be sure when you use your card, you’re buying something you can pay back within the month. And, if you know you won’t be able to pay it back immediately – think carefully about how important it is you make the purchase or if it can wait until you save.


401K:

So what’s the big deal about that 401k plan your parents have been hounding you to invest in at work? To put it simply – a 401k plan is a retirement plan your company has gone out of its way to make available to you. (Yippee!) By investing a portion of your paycheck into it – you are putting back money for the future – AND you have the opportunity to play the stock market (without having to understand what all those guys in green jackets are doing waving those pieces of paper in the air – what’s with that anyway?)

When you begin your 401k plan at work, you get to choose how much risk you’re willing to take and how much you want to contribute and then watch your money grow. The money you put into your 401K is tax deductable – that means you get more money back on your tax return (and cash in your pocket!) Some companies even match your contributions – that means they GIVE you money just for saving – NICE!

Every 401k plan is slightly different – depending upon the provider your company uses. Be sure to talk to someone at your company about the details. Make an appointment and ask as many questions as you can come up with – no question is silly when it comes to your financial future – you’re the only one who can take control of it, so do!


IRA:

IRA stands for “Individual Retirement Account” and is exactly that! It is an account to help you save for your retirement. It may sound like a regular savings account, but the big difference is that IRAs are either tax-deferred or tax-free as long as you don’t withdraw from it before you reach retirement age.

There are two main types of IRAs, Traditional and Roth. The main difference between a traditional and a Roth is that a traditional is tax deductible while a Roth is tax exempt. Basically this means when you put money in a Traditional IRA you are not taxed but when you take the money back out you are taxed, therefore deferring your tax payments on the money. A Roth works a little differently, when you put the money in you are taxed but when you are ready to take it out the money is not taxed including any profits you have made. A Traditional will tax you on those profits. Here is a simple rundown of one vs. the other:

Traditional IRA Profile

  • Tax deductible contributions (depending on income level)
  • Withdrawals begin at age 59 1/2 and are mandatory by 70 1/2.
  • Taxes are paid on earnings when withdrawn from the IRA.
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Available to everyone; no income restrictions
  • All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (subject to exception).

Roth IRA Profile

  • Contributions are not tax deductible.
  • No mandatory distribution age
  • All earnings and principal are 100% tax free if rules and regulations are followed.
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.
  • Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

For more details on IRAs check out the Wikipedia page.


Renter’s insurance:

In case you didn’t know, your stuff is not insured by your landlord’s insurance. The contents of your apartment are up to you to protect. You may not have your dream TV or that flat screen monitor for your computer you’ve always wanted, but that’s no reason not to protect your stuff. Renter’s insurance can do just that, and for a very reasonable monthly price (around the cost of a CD), you can protect all your stuff – your TV, couch, laptop, jewelry, clothes, shoes and iPod.

Having renter’s insurance means if your stuff ever gets stolen, your neighbor catches the apartment complex on fire or a tornado pulls off your roof – you can get some cash to replace your things.

Before you sign up for renter’s insurance, take a long look around your pad and make a list of your things – even the things you may not think have a lot of value – so you can estimate how much your stuff is worth. You might just be surprised! Taking pictures or videoing your home is also a great way to have a record incase the unfortunate occurs – just be sure to keep the pictures or video somewhere other than your house!


Car Loans:

When the transmission on your ’85 model finally gives out, it’s time to go car shopping! But before you blow your paycheck on $500 a month payments on your dream Corvette – be sure to get informed about what you can afford. Figuring that out will depend a lot on the car loan you get.

A car loan is similar to other loans – where a financial institution loans you money to cover the cost of the car and, in turn, you pay monthly payments. When you borrow money from any financial institute, you have to pay the money back and pay the interest you’ve incurred. The interest rate you get on your loan is VERY important! A high rate will mean you pay more on the interest then on the “principle” or the actual loan amount. A lower rate means you pay more on the principle then interest.

Paying attention to the interest rate you are getting on a car loan is the MOST important thing. You will need to determine how quickly you can pay off the car as well. Sometimes you can get a lower interest rate with a shorter payoff period. It’s always best to have a good sized down payment when you plan to buy a car (another good use for a savings account!)

For some tips on how to buy that car check this out.


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Content of this site is provided as information only and is not intended to serve as advice or representation whatsoever. Investigate these topics further by contacting appropriate advisers.

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