6 min read
October 12, 2020
Expert advice so you'll never wonder again
Financial independence is a wonderful thing. That first paycheck out of college seems like a fortune and puts most of us in a giddy state, daydreaming of shopping sprees and beach holidays. But along with the income comes a whole host of new questions — dealing with multiple accounts, setting up a budgeting habit, investing for the long term, retirement planning — it’s enough to drive anyone insane. And while we can’t really tackle everything in one go, much like your savings, learning about money has to start in increments.
And so, we’ve looked across the internet and compiled 12 of your most frequently asked questions about money.
When most people hear the word ‘budget’ they cringe. Thoughts of ‘No Fun Ever’ and saving every penny, cutting out every expense that brings them joy — basically living like a miser. But that’s not it at all! At OnJuno, we believe that budgeting is a fundamental pillar of financial wellness. In fact, we believe in it so much that we even created the most comprehensive guide on budgeting seen anywhere on the internet.
Simply put, a budget is a plan for your money so that you can maximize its potential while leaving space for spending on what is most important to you. Here’s an easy three step process to get you started.
Step 1: Add up your net income after tax.
Step 2: Track your spending. Tally up your spending for the past few months and figure out how much you’ve been saving.
Step 3: Choose a budgeting method and you’re on your way! It’s really that simple. Budgeting isn’t a one-size-fits-all financial solution. Personal style definitely comes into play, and luckily, there are a few different budgeting options like the 50/30/20 method or the Zero Balance budget.
If you don’t already have your emergency fund in place, now is the time. Your emergency fund should cover you for three to eight months. The experts all suggest a different number of months to cover, but they all agree on one thing: get one! To determine the goal amount for your big emergency fund, multiply your fixed expenses (needs) by whichever amount of months makes you comfortable. It will take time to get that amount of money stocked away. Remember, slow and steady wins the race.
It is a sad reality that most of us never choose our bank accounts. We either signed up at our parent’s bank or the one closest to your our college or place of work. While this may have seemed convenient at the time, you may be paying up to $329 in hidden bank fees.
Some national banks allow you to close your account online but in most cases, you will have to either do it in-branch, by mail, or by telephone. There is usually no fees associated with closing a bank account but you have to make sure you transfer over your direct deposits and other recurring transactions like utilities and rent.
The traditional answer for this used to be a savings account. There was a time when you could expect to earn 5–6% interest on the money sitting in your savings account…but those days are long gone. The current average interest rate for savings accounts is 0.06%. With the average inflation rate for the past ten years set at 1.8%, it just doesn’t make financial sense!
On top of that, increased regulations limit you to six pre-authorized, automated, or telephone transfers or withdraws during any given month. And if you’re required to have a minimum balance and your account drops below that number? The fees involved may outweigh any potential benefits of having the account at all. The writing is clear: a savings account is not meant for growth!
What you need is a high yield checking account, preferably from a digital banking platform like OnJuno. These are just like the checking accounts you use right now but they offer interest! And none of the restrictions or the fees of a savings account.
Although several factors determine your starting credit score, it’s not uncommon to start at the bottom, or 300. That’s considered poor credit. But to be honest, when you’re just starting out or before you’ve applied for any credit at all, you have no credit score.
According to Experian, a score between 300–579 is considered very poor, 580–669 is fair, 670–739 is good, 740–799 is very good, and anything over 800 is considered exceptional. A mere 21% of people are thought to carry exceptional credit scores on average.
There’s a whole host of reasons why your credit score may have dropped. Late or missed payments are usually the biggest culprit. Other probable reasons are that you have too many outstanding credit applications or that you overuse your credit limit every month.
Getting a secured credit card or applying for a credit builder loan are two of the fastest ways to build your credit score. They both have lower barriers to entry so you can reap its benefits even if you’re just starting out.
Before you invest, it’s best to have your financial house in order. Life’s little emergencies can and will pop up so build an emergency fund first. The best place to stash both of these accounts is in a high-yield account that allows your money to earn interest that will in turn compound.
Second, make sure you have zero or manageable debt, meaning debt that will not bankrupt you and that your monthly income can easily cover. If you stand to earn more in returns from your investment than you’ll pay in interest on the debt, then you’re ready.
Lastly, start by investing your surplus income, that is money left over after you have covered your basic expenses and have contributed to your monthly savings plan.
A basic rule of thumb is to open a Roth 401(k) if you anticipate having a higher income in retirement than you do now. This usually applies to workers who haven’t reached their peak salary. If you think your income is higher now than it will be in retirement, it’s probably better to choose a traditional 401(k).
It’s hard to know what future tax laws will look like, so one strategy is to open both types of 401(k)s and split your contributions equally between them. Just make sure that your total contribution stays below the annual limit.
Every company can choose its own 401(k) provider and which funds they provide. Some companies have low-cost funds, while others may only offer funds with high fees. If you’re comparing job offers from multiple companies, ask to see their 401(k) fund options.
While they both contain a collection of different financial products, mutual funds are actively managed by a financial expert and are less liquid, while ETFs are index-based making them passively managed and also tradeable like stocks. Mutual funds offer higher risk-reward and are generally more expensive while ETFs track indexes so are much more conservative and easier to invest into. For a more detailed breakdown of mutual funds vs ETFs vs index funds, check out our explainer piece here
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