Feel like you don’t know much about money? You’re not alone. According to a recent George Washington University study, 24% of millennials have just basic financial knowledge, and only 27% are seeking professional financial advice on saving and investment.
Here are four common money questions, along with some straightforward answers.
How Do I Create a Budget?
Whether using paper and pen or an online budget option like Mint or PocketGuard, creating a budget is easy.
First, add up your total monthly after-tax household income. Second, add up your total monthly expenses, including:
- Rent, mortgage, tax and condo fees
- Heat, water and any other utility costs
- Loan payments
- Auto, home, health, life, and any other insurance payments
- Childcare or child-related expenses
- Grocery and other shopping expenses
- Transportation costs (public transit or gas)
- Retirement, children’s education, and other savings contributions
- Any other regular monthly payments
Subtract your expenses from your income to see how much you have left each month. Setting a budget shows you how much you spend monthly and where you may overspend. Sticking to a budget can help you meet financial goals like saving for the future or paying down debt.
How Do I Save For Retirement?
Many people save for retirement using tax-advantaged accounts. This means you don’t pay income tax on this money now, while you’re likely in a higher income bracket. Taxes aren’t due until the money is withdrawn, when you’re older and more likely to be on a fixed income — so you’ll pay less in taxes. Two common tax-advantaged accounts in the U.S. include 401(k) and Individual Retirement Accounts (IRAs).
A 401(k) is an employer-sponsored retirement account. It lets employees save and invest for retirement using money from their paychecks — before taxes are deducted. Taxes aren’t due until the money is withdrawn.
An IRA is another tax-advantaged retirement savings account, usually opened by individuals, not employers. Different types of IRAs suit people in different situations, like small business owners or self-employed workers. They include Traditional IRAs, Roth IRAs, Simple IRAs, and SEP IRAs.
Why Do I Need a Good Credit Score?
Your credit score helps lenders decide whether they should lend you money, so a good one may improve your chances of borrowing. Credit scores may also be reviewed by potential landlords when you’re applying to rent a new place, or if you’re getting car insurance quotes.
Credit scores get calculated based on the information recorded on your credit report, like whether bill and borrowing payments get made on time and in full, and how much you’ve borrowed in total.
How Much Should I Have in an Emergency Fund?
An emergency fund is money you save to cover future unexpected expenses such as car repairs, medical bills, or even your regular bills if you lose your job. Your emergency fund should have at least enough money to cover 3 months of your living expenses.
Remember, you are in charge of your own financial future. Learn everything you can about savings, investments, and credit so you can make better financial decisions going forward.
Learn more about George Washington University’s research in their recent study, “Millennials & Financial Literacy – The Struggle with Personal Finance” here.