Sixty-four percent of Americans don’t have the savings to cover a $1,000 emergency, according to the National Foundation for Credit Counseling. This means even a small emergency can create a cycle of using credit cards, incurring debt and then charging more or borrowing from friends and family to get by. It’s tempting for new graduates—who are likely facing school loans, new living expenses and some existing credit card debt while trying to land a job—to put savings on the back burner. Overwhelmed yet? Don’t be. Follow these tips to take control of your financial future:
401(k)
With your student loan debt looming on the horizon, it’s tempting to skimp on the 401(k). But the contribution from your paycheck comes out before it’s taxed, saving you even more money in the process. Many companies match a portion of your annual 401(k) savings, essentially putting free money into your account.
Annuities
Annuities are fixed, ongoing payments over a specified period of time. For example, if you received an annuity after a worker’s compensation claim was settled, you might receive a few hundred dollars a month for 10 years. Those payments are yours to do with as you wish, but the money could be reinvested into stocks, bonds or a retirement account. Annuities and structured settlements can usually be sold to a third-party payment purchaser for a lump sum of cash now, which you could then use to reinvest, help pay off student loans or put toward a down payment on a new home. To learn more about selling your future payments, visit the J.G. Wentworth Facebook page.
Annual Percentage Rate (APR)
Most people are talking about credit cards when they use the term APR, or annual percentage rate. The rate is applied to late payments, purchases and cash advances and can vary from card to card. Credit cards will often offer a low APR for a set period of time, but then a higher rate kicks in after that time is up (or once a payment is missed).
Credit Score
Your credit score is a complex three-digit figure based on your credit payment history, debt owed, the length of your credit history, any new cards and types of credit used. There are are various credit scores models, but the FICO score is the most popular and usually ranges from 300 to 850. Credit scores are pulled to qualify you for everything from a mortgage to a new credit card to an auto loan. It determines how much credit, if any, the lender will give you. To learn more about establishing and maintaining good credit, visit CreditScore.net.
Certificate of Deposit (CD)
Banks and credit unions offer CDs to customers looking to save and earn interest over a specific period of time. Most consumers pick CDs lasting from 3 months up to 5 years. The upside: Your cash is stashed away and can’t be accessed without a penalty. This makes it easier to leave it alone to accrue interest at a higher rate than you would find in a regular savings account. While there are exceptions, CDs are typically offered at a fixed interest rate. This means if the interest rate drops, your money is still earning at the same agreed-upon rate. You risk missing out if the interest rate spikes, but generally, a CD is a low-risk way to earn a return on your money, albeit a small one.
Money Market Account
Money market accounts are similar to traditional savings accounts, but they usually yield higher interest. However, they usually require a minimum deposit, sometimes as high as $10,000. Meanwhile, a savings account typically requires a deposit of $5. Money market accounts also restrict the number of withdrawals per month you can make. Most investors look at money market accounts as a conservative savings tool, but it’s a strategic way to take a step-up from a savings account while exploring new methods of investing. To learn more about finding the best rates, visit GetRichSlowly.org.
