From savings and investing to credit cards and retirement, get the ultimate money breakdown designed for real people just like you and not financial fanatics. After this quick read, you’ll know a 401(k) from a CD from the FDIC!
You might know that APR is the Annual Percentage Rate, but what does that even mean? This is the rate charged annually for borrowing money and lenders are required to disclose it when lending. Check out your credit card statement, you’ll see the APR right on there, but don’t confuse it with the interest rate—the APR includes other fees that regular transactions many not!
Don’t get caught up in the numbers here, what you really need to know is that is a 401 (k) is a simple retirement plan that allows you to invest part of your income before taxes are taken out. So instead of waiting until you get your paycheck and then investing 70 cents after taxes, this allows you to invest the whole dollar you earned before taxes. Plus, some employers will even match your contributions—so it’s a little like getting free money!
Defined as a "certificate of deposit," or CD for short, this is a good savings option if you want to play it safe. Sold by banks, thrifts and credit unions, you can earn a little interest in a low-risk environment for a set amount of time. There is a catch though, once your dollars are in there, you cannot take them out until the end of the CD—if you need your money out sooner, then you will have to pay a fine or penalty. But it’s perfect if you want to leave it and forgot about it while it earns a little extra!
The biggest investment you may ever make is your home. The value of your home builds up over time as you pay off the mortgage while property appreciates—the current market value minus any remaining mortgage payments equals your home equity. You can use a home equity line or loan to help you achieve other goals like make a major purchase or home improvements, or even pay for education or medical expenses with a home equity line of credit or loan.
All money matters start with your credit score, also known as your FICO score. Your three-digit number from the Fair Isaac Corporation (FICO) can range from 300 (poor credit) to 850 (excellent credit). These are used by a variety of companies from auto to banking to even cell phone carriers! Got a low number? Don’t worry, you can raise your score with some simple, yet effective steps like paying debts on time and keeping low credit card balances. Oh, and don’t confuse this with FICA, which is a different thing all together! FICA is the Federal Insurance Contributions Act which has to do with money from your paycheck that goes toward Social Security and Medicare.
Ready for another acronym? The Federal Deposit Insurance Corporation, a.k.a. FDIC, protects you, the customer, in the event of a bank failure—think the Great Depression! Originally set up to restore faith in the financial system after that collapse, it lets you relax, knowing your money is safe when you trust it to a bank. FDIC deposit insurance only covers the loss due to bank failure; it will not cover fire, fraud or theft. But never fear, most individual banks also carry private hazard and casualty coverage for those kinds of losses!
Want to know more? Check out LetsStartToday.com or chat with a State Farm agent. They can make dollars and cents out of any lingering money lingo questions you have, and so much more!