She Strengthens

Mastering Your Finances: 35 Essential Questions Answered

By the time you’ve reached your 30s, you’ve likely encountered a plethora of financial jargon and acronyms. But do you truly understand what they mean and how they impact your financial well-being? To help you make informed decisions about your money, we’ve gathered and answered 35 crucial questions across various financial topics.

Basics

1. Net Worth: Your net worth is the sum of your assets minus liabilities. Calculate it by adding up your cash, property values, and investments, then subtracting debts and financial obligations.

2. Budgeting: A comprehensive budget should include essential expenses, financial obligations, discretionary spending, and savings goals. Don’t forget to factor in fun!

Saving

1. Emergency Fund: Aim to save three to six months’ worth of living expenses in an easily accessible savings account.

2. Short-Term Savings: For money needed within a year or two, consider high-yield savings accounts or certificates of deposit (CDs).

3. Money Market vs. Savings Account: Money market accounts often offer check-writing capabilities, ATM cards, and higher interest rates, but may have higher minimum balance requirements.

Credit

1. Credit Score: A three-digit number indicating your creditworthiness, calculated based on payment history, credit utilization, credit age, mix of credit types, and inquiries.

2. Good Credit Score: Aim for an excellent FICO score (750+), which can qualify you for better loan terms and lower interest rates.

3. Improving Your Score: Pay bills on time, reduce debt, and monitor your credit report to boost your score.

Debt

1. APR: Annual Percentage Rate, the interest rate charged on outstanding credit card balances.

2. Debt Repayment: Know exactly how much you owe, including credit card balances, student loans, and mortgages, and create a solid repayment plan with an end date.

Investing

1. Stocks vs. Bonds: Stocks offer potential for long-term growth, while bonds provide relatively safe returns with fixed interest rates.

2. Dividends: Periodic payouts of company earnings to shareholders, which can provide income and potentially grow your investment.

3. Passive vs. Active Funds: Passive funds track market indices, while active funds aim to beat benchmarks with varied investments.

Retirement

1. 401(k): Employer-sponsored retirement account allowing pre-tax contributions up to $18,000 (2016).

2. IRA: Individual Retirement Account, a tax-advantaged option for saving without an employer sponsor.

3. Roth vs. Traditional IRA: Roth IRAs offer tax-free growth and withdrawals, while traditional IRAs provide potential tax deductions on contributions.

Insurance

1. Premium vs. Deductible: Premium is the monthly insurance cost, while deductible is the amount you pay before insurance coverage kicks in.

2. FSA vs. HSA: Flexible Spending Accounts and Health Savings Accounts allow pre-tax savings for healthcare expenses, but HSAs require a high-deductible health plan.

Real Estate

1. Housing Expenses: Aim to keep housing costs below 30% of gross income.

2. PITI: Principal, Interest, Taxes, and Insurance – the components of your monthly mortgage payment.

Taxes and Wills

1. Tax Credits and Deductions: Claim standard deductions or itemize expenses, and explore credits like the American Opportunity Tax Credit and Child and Dependent Care Credit.

2. Creating a Will: Establish a will as soon as you have assets to bequeath, outlining your wishes for dependents and estate distribution.

By grasping these essential financial concepts, you’ll be better equipped to make smart decisions about your money and secure a brighter financial future.