Financial Goals Archives - Page 36 of 271

Apache is functioning normally

October 21, 2023 by Brett Tams

Many students take out loans to pay for college. While federal student loans don’t require a credit check, private student loans typically do. And, since students often don’t have much credit history, they typically require a cosigner. A cosigner can be a parent but it doesn’t have to be. You can ask other family members, friends, or even mentors to cosign your student loan.

Since a cosigner will be responsible for paying back your loan in the event you’re unable to, it’s important to choose someone you feel comfortable entering a financial agreement with. A cosigner with good credit and high income could result in lower interest rates on your loans.

Read on for a simple, step-by-step guide on how to get someone to cosign your student loan.

How to Ask Someone to Cosign Your Private Student Loan

You may have someone in mind who would make a good cosigner. The problem is, how do you ask someone to cosign a loan? It’s a big ask, and approaching the topic can be intimidating. Not to worry. What follows are some tips that can help ensure you come to the conversation prepared.

Recommended: Avoidable Mistakes for Choosing Student Loan Cosigners

1. Research Your Financial Aid Options First

Before you ask someone to cosign a private student loan, it’s a good idea to explore all of your college funding options. Around 85% of students receive some form of financial aid to pay for college.

Filling out the Free Application for Federal Student Aid, or FAFSA, will give you access to any federal student aid you may be eligible to receive. This might include grants, work-study, federal subsidized loans, federal unsubsidized student loans, and even private scholarships. Completing the FAFSA is free, and it’ll also show potential cosigners that you’ve done your due diligence and have tapped all your available options to finance your education before asking for help.

Recommended: 11 Strategies for Paying for College and Other Expenses

2. Explain Why You Need a Cosigner

Once you’ve decided who you want to ask to be your cosigner, it’s important to come to the table with a clear explanation of why you need a cosigner and what costs the loan will cover. You’ll want to be prepared to share details on your own savings, debts, and credit history. This shows a cosigner why you need help and what kind of risk they would be taking on.

Providing a clear picture of what you have and what you need demonstrates that you’re taking your education and financial goals seriously. Having followed tip #1, you’ll be in a position to show the funding gap between your own funds plus any aid you’ve received and the cost of attendance at your chosen college.

3. Outline Your Plan for Repaying the Loan

When asking someone to cosign a student loan, it’s a good idea to let them know that you have a plan for repayment and exactly what that plan is. Some private lenders allow you to defer making payments until after graduation, while others require you start making interest-only payments while still in school. Either way, you’ll want to have an idea for how you will make those payments on your own.

Failing to make payments on time each month will impact both you and your cosigner, so it’s a good idea to also make a backup plan in case something doesn’t work out. This might be getting a part-time job in any field if you find that it takes longer than expected to get hired in your chosen field.

Demonstrating your plan for repayment can help build your potential cosigner’s confidence and help them feel more comfortable about entering into a cosigner agreement with you.

Recommended: 6 Strategies to Pay Off Student Loans Quickly

4. Make Sure They Understand What They’re Agreeing To

Before moving forward to a written agreement, it’s a good idea to go over the requirements and responsibilities for being a cosigner. For starters, your cosigner must meet a minimum credit score and demonstrate a certain minimum monthly income. The exact requirements will depend on the lender.

You’ll also want to let them know that, as a cosigner, they have a legal obligation to make sure the loan is repaid, and that any late or missed payments on the loan can impact both your and their credit scores.

While these risks can feel intimidating to bring up, outlining your plan to avoid loan default can help address their concerns and show you’re taking the commitment seriously.

Recommended: Ca$h Course: A Student’s Guide to Money

5. Make a Plan for a Cosigner Release

A cosigner release effectively removes a cosigner from a loan, freeing them from any continued responsibility for repayment of your loan. Private lenders may offer the option for a cosigner release if you, at a certain point down the road, meet certain credit requirements and have a strong track record of on-time payments.

Discussing a plan or timeline for when your cosigner will be released from their responsibilities shows that you’re being considerate of the risks of being a cosigner and the impact it can have on their finances. While you may not have the strongest qualifications as a borrower today, your creditworthiness can build over time as you consistently make on-time loan payments.

You might also have the option of refinancing your student loan and, in the process, releasing your cosigner from the original loan agreement.

6. Give Them Time to Think

Cosigning a loan is a serious commitment and whomever you ask may need some time to think over the decision. For this reason, it’s a good idea to approach your potential cosigner early on so you have plenty of time to talk through the agreement and, if necessary, pursue another option.

Handling Potential Concerns and Objections

Cosigners will likely have questions and potential concerns about how the agreement could impact their finances, as well as your relationship. After you’ve made your pitch, it’s important to hear them out and be open to their input to reach an agreement that works for you both.

If a cosigner has objections that you can’t resolve, it may be time to seek out a different cosigner.

Formalizing the Cosigner Agreement

If the person you ask to cosign your loan says “yes,” it’s time to find the right private student loan for your needs. It’s generally a good idea to shop around and compare rates and terms from different lenders, including banks, credit unions, and online lenders. Some lenders allow you to pre-qualify for a student loan online, without impacting your (or your cosigner’s) credit score. This allows you to compare offers, go over rates and terms with your cosigner, and decide which loan is the best fit.

When you officially apply for the loan, you and your cosigner will need to provide a number of financial documents to the lender, so be sure to give your cosigner time to gather all their paperwork.

Repaying the Loan Responsibly

When you take out a private student loan, you’ll typically have a choice of several repayment plans. Which one you choose can have a significant impact on both your monthly payment and total cost of the loan. Options may include:

• Immediate repayment This means you make full monthly payments while still in school. Doing so will minimize the interest you pay, resulting in the greatest savings.

• Interest-only repayment Here, you’ll pay only the interest on your loan while you’re still in school. Payments will be lower than immediate repayment but you won’t chip away at your loan balance (or save as much on interest).

• Partial interest repayment This involves making a fixed monthly payment while still in school that only covers part of the interest you owe. Payments will be lower than interest-only plan but your loan balance will grow.

• Full deferment Here, you’ll pay nothing while you’re enrolled in school. During this time, though, your loan balance grows.

Once you choose a plan, you’ll want to create a budget for the minimum payment you owe each month. It’s also a good idea to enroll in autopay, to ensure you never miss a payment. Some lenders also offer a rate discount if you enroll in autopay.

After you’ve graduated and your finances allow, you may be able to make extra principal-only payments — this can help lower the total interest you pay over the life of the loan.

The Takeaway

If you need a cosigner on your student loan, you have options. Whether you choose a parent, other family member, friend, or mentor, it’s important to be transparent about the requirements and risks that go into being a cosigner.

Coming to the conversation prepared can build trust and confidence with potential cosigners and put you on the path to funding your education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How do you convince someone to cosign a loan?

You’ll want to be transparent, as well as fully prepared for the conversation. Explain how the loan will support your long-term educational and financial goals, how you plan to make future loan repayments, and why you are a trustworthy borrower.

Who can I ask to be my cosigner?

It’s common for students to use parents or family members as cosigners, but there are no rules stating that your cosigner must be a relative. You can also ask mentors or family friends who are invested in your success. Just keep in mind that a cosigner will need to meet the lender’s financial and credit requirements.

Can I hire someone to be a cosigner?

There are businesses that advertise online that they will cosign your student loans for a fee, but borrower beware. These are often scams in which the “cosigner” requests cash payment in advance, then disappears. Or, the business might be legitimate but will require you to give them a portion of the loan in exchange for cosigning. Generally, it’s not worth the risk or cost.

What percentage of student loans are cosigned?

Roughly 92% of undergraduate private loans are cosigned. About 66% of graduate school loans from private lenders require a cosigner.

How do I assess my creditworthiness before seeking a cosigner?

To assess your creditworthiness, you’ll want to check your credit score and take a look at your credit reports.

You can often access your credit score for free through your bank or credit card company (check your statements on log into your online account). You can access your credit reports from the three main consumer credit bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com.

Photo credit: iStock/NoSystem images

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Apache is functioning normally

October 21, 2023 by Brett Tams

Inside: Are you considering opening multiple Roth IRA accounts? You need to know if you can have multiple Roth IRAs. Here is what you need to know before making the decision.

While managing multiple Roth IRAs can create confusion, especially with tracking contributions across different custodians and potentially violating the five-year rule, I have found a method to use them to my benefit.

By having multiple Roth IRAs, I am able to diversify my investments as each Roth IRA account has a specific purpose.

However, you must know the rules about having multiple IRAs.

For the average investor, having multiple Roth IRAs may seem like a potential strategy to diversify your investments and attain financial independence, but it often leads to more confusion than benefit. Therefore, simplifying your finances by having a single Roth IRA might be a more feasible approach to reaching financial independence.

However, readers at Money Bliss know there is always a reason if I am strategic about why I do something.

So, let’s go through everything you need to know about having multiple Roth IRAs and if it is worth it for you.

What is a Roth IRA?

A Roth IRA stands as a type of retirement account with distinct tax benefits. The Internal Revenue Service (IRS) manages specific rules on who can open a Roth IRA, along with the contribution limits and withdrawal policies. ¹

When your contributions in this retirement account and their interest earnings grow, they do so tax-free. ²

“Roth IRAs give you the flexibility to increase retirement savings tax-free. Thus, helping you to reach financial independence quicker.”

Kristy @ Money Bliss

Can You Have Multiple Roth IRAs?

Absolutely! You can certainly have more than one Roth IRA.

Different from some other types of retirement accounts, no restrictions apply to how many Roth IRAs you can manage.

From the IRS perspective, regardless of how many different IRA custodians you choose to utilize, your contributions are treated as one Roth IRA. You must still follow the guidelines on contribution amounts on your Roth IRA and traditional IRA. ³

This could potentially lead to tracking or contribution errors, or even unintentional violations of the Roth IRA’s 5-year rule, which can result in penalties. Furthermore, managing multiple accounts can also lead to an accidental overweighting of one investment strategy due to faulty fund allocation.

Why would a person want more than one Roth IRAs?

Several reasons could motivate an individual to manage multiple Roth IRAs:

Saving for various objectives. Investors might manage different IRAs for distinct purposes—one for retirement income, another as a cushion for emergencies.
Diversification of investment portfolio. Multiple Roth IRAs facilitate varied levels of risk adoption across different types of investments.
Raising insurance protection. With multiple Roth IRAs spread across separate institutions, each account can avail of $250,000 FDIC insurance protection. ⁴
Simplifying inheritance. Dealing with inheritance matters gets easier upon having distinct Roth IRAs, as assets can be split and handed down according to wishes.

Personally, I choose to have multiple Roth IRAs because I actively trade options contracts in one while the other is for long-term holdings.

Is it smart to have multiple Roth IRAs?

This is a highly personal decision as it depends on individuals and their unique circumstances.

Multiple Roth IRAs can offer remarkable benefits. However, keep in mind that more accounts may mean more fees and added complexity when managing your retirement savings.

You must consider your financial goals, risk tolerance, and time horizon is crucial before opting for multiple IRAs.

Many people end up with multiple IRAs when they decide to rollover a 401k from a previous employer.

Benefits of Opening Multiple Roth IRAs

You will have to decide if these benefits of multiple Roth IRAs are worth it for you:

Diversified investments. By having multiple accounts, it allows you to vary your investment strategy by account.
Conversion Flexibility. Managing the tax implications of converting traditional IRAs or employer-linked retirement accounts to Roth IRAs gets easier.
Varying Savings Objectives. Different Roth IRAs can be maintained for different purposes such as retirement income, house maintenance or rainy day funds.
Elevated Insurance Protection. If one Roth IRA is reaching the FDIC insurance limit, a second account with a different institution ensures additional protection.⁴

Drawbacks of multiple Roth IRA accounts

While having multiple Roth IRAs has broader benefits, it comes with some shortcomings:

Complex Management. Managing several Roth IRAs requires frequent monitoring and coordination.
Increased fees. Many IRA accounts come with fees. Even low fees across multiple accounts can add up.
Unequal Investment Allocation. Spreading investments across multiple IRAs makes monitoring performance difficult.
More Paperwork. More accounts mean more paperwork, which could be time-consuming.

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Unfolding the Complexities of Multiple Roth IRAs

With multiple Roth IRAs, complexities unfold around the management and tracking of these accounts. The investments need to be monitored on a regular basis to maintain strategic alignment with retirement goals.

It’s necessary to regularly check for fees and investment performance.

Balancing the portfolio of multiple IRAs plays a vital role, as the percentage of each investment differs between accounts. This could make it challenging to form a streamlined portfolio until you have sufficient experience.

Nevertheless, this is an easier question to answer than is now a good time to buy stocks.

Understanding the rules with multiple Roth IRAs

Understanding the regulations with multiple Roth Individual Retirement Accounts (IRAs) is essential when planning for a stable retirement.

With a comprehensive overview of the laws governing multiple Roth IRAs, one can strategically leverage these tax-advantaged accounts for optimal retirement savings.

No more confusion or lack of knowledge on how many Roth IRAs they can legally own, this section provides clarifications on these essential rules.

Does having multiple Roth IRAs mean you can contribute more total money each year?

The short answer is no.

Regardless of how many Roth IRAs you have, your total annual contributions combining all accounts can’t surpass the IRS-placed limits.

For 2023, the limit stands at $6,500 if you’re under 50 or $7,500 if you’re 50 or older. ³

In 2024, the limit stands at $7000 if you’re under 50 or $8000 if you’re 50 or older. ³

Can I contribute to a Roth IRA and a Traditional IRA?

Yes, you can contribute to both a Roth IRA and a Traditional IRA.

However, the total contribution to all your IRAs cannot exceed the annual limits set by the IRS. ³

For instance, in 2023, the total contribution limit is $6,500 for individuals under 50, and $7,500 for those who are 50 or older.

You don’t want to be taxed on excess IRA contributions.

Tips for managing multiple IRAs

Managing multiple IRAs comes with its own set of challenges. But, with the right approach, you can reap substantial benefits:

Organize Your Investments. Keep your IRAs clearly labeled for distinct goals—a critical step.
List Your Beneficiaries Properly: You must list your beneficiaries on each Roth IRA account.
Consolidate Accounts. If you find managing many accounts overwhelming, think about consolidating them at one institution.
Regular Review. Evaluate your portfolio time and again to see if adjustments are needed.
Monitor Fees. Fee accumulation can hollow out your retirement savings. Keep a close watch on them.
Use Software to Help You. My personal favorite is Quicken Classic

For many people, they learn how to invest 10k the first time using their Roth accounts.

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FAQs About Having Multiple Roth IRAs

For 2023, the total combined contribution limit for all of your Roth IRAs stands at $6,500, or if you are 50 or older, it is $7,500 thanks to an extra ‘catch-up’ contribution.

This limit applies to the total contribution made across all of your Roth IRAs and traditional IRAs.³

The IRS does not impose a limit on the number of IRAs an individual can own. You are free to open as many IRAs—Roth or traditional—as you want to suit your retirement savings strategy.

Remember, however, that total annual contributions across all your IRAs must stay within the defined limit. [Quote from IRS documentation stating there’s no limit on the number of IRAs]

No, unfortunately, you can’t.

The yearly limit of $7,000 (or $8,000, if you’re 50 or older) applies to the total amount you contribute across all of your Roth and traditional IRAs, not each individual account for 2024. ³

Yes, you can. The IRS doesn’t set a cap on the number of Roth IRA conversions you can execute.

So, you can certainly convert multiple traditional IRAs into just one Roth IRA.

Take note that you’re likely to owe income tax on the entire amount converted in the conversion year.

Learn more about converting a traditional IRA to a Roth IRA because this decision will affect your taxes.

From my experience, there are times when it is wise to convert and I did. Then, there were others that converting the account did not make financial sense. So, make sure you figure out the best-case scenario for you.

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Now, How Many Roth IRAs Can I Open?

In conclusion, it is not only possible but also potentially advantageous to hold multiple Roth IRA accounts.

By diversifying your retirement savings across various Roth IRAs, you can expose your money to different asset classes and investment opportunities not all available in one account.

Learn how to invest in stocks for beginners.

Nevertheless, the decision to open multiple Roth IRAs must be driven by your personal financial circumstances, retirement objectives, risk tolerance, and expected time horizon. If the decision aligns with your financial blueprint and retirement strategy, opening multiple Roth IRAs today could be a smart move.

Given the unique tax advantages Roth IRAs offer – tax-free withdrawals during retirement – this could ensure a financially secure and tax-efficient retirement.

Honestly, I think choosing the right brokerage is harder for most people.

As always, consider seeking guidance from a trusted financial advisor to help navigate these decisions and ensure your retirement planning is optimally structured for your financial needs and goals.

Remember, the key to successful retirement planning lies in understanding all associated rules, benefits, and potential drawbacks.

Sources

Internal Revenue Service. “Types of Retirement Plans.” https://www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans. Accessed October 10, 2023.
Internal Revenue Service. “Roth IRAs.” https://www.irs.gov/retirement-plans/roth-iras. Accessed October 10, 2023.
Internal Revenue Service. “Retirement Topics – IRA Contribution Limits.” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits. Accessed October 10, 2023.
FDIC. “Your Insured Deposits.” https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/. Accessed October 10, 2023.
Internal Revenue Service. “Retirement Topics – IRA Contribution Limits.” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits. Accessed October 10, 2023.

Source: moneybliss.org

Apache is functioning normally

October 19, 2023 by Brett Tams

A flexible expense is a non-essential item in your budget. Because it’s not a must-have, you can change the expense in question to help save money. For example, while the newest smartphone (with all kinds of amazing camera functions) might be enticing, purchasing it could add strain to your budget. Instead, you could continue using the phone you bought last year and not increase that expense. In this way, managing flexible expenses can be key to making a budget that helps you reach your financial goals.

Flexible expenses span many categories, from dining out to travel to self-care. These expenses are negotiable, meaning you can save money by reducing or changing how often you spend on these items and services.

Here’s how to distinguish flexible expenses from inflexible expenses and how to reduce your monthly costs on them.

What Is a Flexible Expense?

The definition of a flexible expense is an item in your budget that you can modify or adjust as needed. These are different from necessities with fixed costs, such as rent and health insurance.

In addition, it’s worth noting that a fluctuating bill is not necessarily a flexible expense. For instance, while you might turn the thermostat down a degree or two to be thrifty or the price of fuel might shift, heating your home during cold months isn’t a negotiable expense.

Flexible expenses are those you change to make room in your budget. These may at times be commonly forgotten monthly expenses, such as buying birthday gifts or loading up on toys for your pet, but they aren’t essential for life.

Therefore, you can change them if you want. Perhaps you realize something (boredom? FOMO?) has been a cause of overspending in a specific area, or maybe you want to start saving money for a financial goal, like the down payment on a house.

Flexible Expense Examples

Flexible expenses are daily or monthly expenses you can change or eliminate. Here are examples of items in your budget that have wiggle room:

• Vacations. You might decide against saving for a vacation in Mexico and instead have a staycation to free up some funds.

• Beauty treatments. Having your hair or nails done is an expense you could eliminate or pay for less frequently.

• Electronics. A new phone or tablet can be a nice upgrade, but, if the one you bought three years ago is in working order, replacing it is a flexible expense.

• Food. This is a good example of an expense that can be either a flexible or inflexible expense. Everyone has to eat, that’s a fact. But planning meals and saving money on groceries when you shop are examples of how you might manage the inflexible cost of feeding yourself. There is a range of how much you might pay, but you will have to pay something.

However, when it comes to how often you eat out, get fancy lattes on the go, and meet friends for drinks, those are flexible expenses you can cut (even entirely) to save money. Those expenses are likely to vary too; for instance, you might dine out more around holidays.

• Entertainment. How much you spend on streaming services and cable television isn’t a necessary expense. It’s a flexible one. Yes, this kind of entertainment can be fun and relaxing, but you could cut cable or limit yourself to one or two streaming services.

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Flexible Expenses vs Inflexible Expenses

When you make a budget, inflexible expenses are the ones that are permanent and vital to daily life. For example, your mortgage, credit card minimum payments, and car loan costs are inflexible expenses. But, of course, they are flexible at a certain point. For instance, you could refinance your home to lower your mortgage payment or pay off a debt to get rid of it.

However, these require significant financial shifts and are more challenging to adjust to than your flexible expenses. As mentioned above, flexible expenses can reflect the wants vs. needs in life, or your discretionary spending. Flexible expenses can include dining out, deciding to upgrade your car or electronics, taking a vacation, purchasing gifts for others, paying to redecorate your home, joining a gym or yoga studio, and the like.

These are things many of us spend money on, but how much you spend and how often is under your control.

Flexible Expense Budgeting

Taking control of your flexible expenses can mean making a budget to manage your money and prevent overspending. One approach to take is the 50/30/20 budget rule. This popular system involves designating 50% of your income for essentials, such as housing and transportation, 30% for nonessential expenses, and saving the remaining 20%. Your flexible expenses will go into the 30% portion of the budget.

For example, say your monthly take-home pay is $5,000. Half your income ($2,500) goes towards your needs, and 30% ($1,500) is for flexible expenses. The remaining $1,000 gets put towards savings. So, your job is to make your non-essential expenses fit into the $1,500 portion of your budget.

That said, the 50/30/20 rule might not work for you, especially if more than half your income goes toward essentials. Not to worry: You can approach flexible expenses from another angle. Instead, you can take your bank and credit card statements from the past three months, identify the flexible expenses, and decide which ones you can cut from your budget or reduce. For instance, you might realize you’re spending $75 at coffee shops every month and decide to make your own coffee every morning.

Where Flexible Expenses Should Be Funded From

You can pay for flexible expenses by opening a checking account and using funds in it for those charges. For instance, you might have your cable bill linked to your bank account to make an automatic payment every month. You might tap a linked debit card when you shop for, say, some new shoes.

A credit card with rewards could also be a good way to pay for flexible expenses. Getting cash back on every purchase can be a good perk when paying for flexible expenses. For example, using specific credit cards for such major expenses as flights and hotels during a vacation can provide considerable rewards. However, you’ll want to be wary of carrying too much of a balance on your credit card since that’s typically high-interest debt that can be hard to pay off.

Also worth noting: If you have enough money in an emergency fund, that could be useful for specific flexible expenses, such as unexpected bills. Not things like taking a long weekend away, but perhaps paying for a car repair bill that you didn’t see coming.

Recommended: Reasons Why It’s So Hard to Save Money

The Takeaway

A flexible expense is one you can usually change at will to fit your budget or an expense that can pop up without warning. These irregular expenses usually reflect your spending habits, such as how often you’ve dined out or treated yourself to some new clothes or electronics. Recognizing and wrangling these flexible expenses can help you take control of your finances. Also, keeping some cash in an interest-bearing bank account can be one way to afford fluctuations in these expenses.

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FAQ

Is rent a flexible expense?

Because rent is a consistent monthly cost, it isn’t a flexible expense. This bill doesn’t fluctuate, and you’re usually only able to change it by moving somewhere else.

How do you budget for flexible expenses?

You can budget for flexible expenses with the 50/30/20 rule, where 50% of your income is for inflexible expenses and 30% of your income is for flexible expenses. The remaining 20% is for saving. This 30% provides a boundary in which you must fit paying for the nonessentials, like entertainment and travel.

What is an example of a flexible expense?

Flexible expense examples include a vacation and a meal out. Both are flexible expenses because they are nonessential expenses. You dictate the cost because you choose where you’ll go and what luxuries, treats, and events you’ll pay to partake in.

Do flexible expenses stay the same?

Flexible expenses regularly change based on your spending habits. For example, your choices regarding food and entertainment drive how much you’ll spend in these areas. You can change these habits weekly or monthly to adjust how much you’re spending, unlike rent or a car note.

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

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October 19, 2023 by Brett Tams

As anyone savvy in personal finance knows, it’s never too early or too late to start thinking about retirement. An individual retirement account, or IRA, is a retirement account that allows you to save money for your golden years in a tax-advantaged way.

There are several types of IRAs—Traditional, Roth, SEP, and SIMPLE—with varying rules and benefits. With the right account, you can grow your savings, manage your tax burden, and prepare for a comfortable retirement.

6 Best IRA Accounts

Check out our top 6 picks for 2023‘s best IRA accounts. Let’s examine each one so you can decide quickly and easily which is best for you.

Charles Schwab

Charles Schwab offers one of the best IRA accounts available thanks to its superior customer service. The company offers 24/7 customer support as well as extensive resources about retirement planning.

Merrill Edge

Merrill Edge is one of the best brokerages for hands-on investors. The company is owned by Bank of America, so it’s a great option for anyone who is already a customer of the bank.

Betterment

Betterment works to automate and simplify the investment process and offers traditional, SEP, rollover, and Roth IRAs. This robo-advisor makes managing your IRA extremely hands-off while helping you save money on excessive fees.

Ally Invest

Ally Invest is a great option if you’re just starting to build out your IRA rather than rolling over existing funds. It’s also directed to individuals who want to manage their own investments.

Wealthfront

Wealthfront is a robo-advisor that’s growing quickly. Your first $10,000 is managed for free. Thereafter, you’re charged an annual management fee of 0.25%, regardless of how much you have in your account.

E*TRADE

E*TRADE offers a ton of financial products, and their IRA offerings are straightforward with low fees.

Understanding Different Types of IRAs

Now that we’ve explored the best IRA accounts of 2023, it’s crucial to understand the differences between the various types of IRAs. Each one comes with distinct advantages and rules tailored to unique financial circumstances and retirement goals.

Whether you’re just starting your retirement journey or you’re well on your way, familiarizing yourself with these options can help you make informed decisions about your future. Here, we delve into Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs.

Traditional IRAs

Traditional IRAs provide a way to save for retirement with tax-deductible contributions. The contributions you make to a traditional IRA may lower your taxable income, meaning you’ll pay less income tax in the year you make the contribution.

You’ll pay taxes on your withdrawals in retirement. This type of IRA might be beneficial if you anticipate being in a lower tax bracket during retirement than you are now.

Roth IRAs

With Roth IRAs, you make contributions with after-tax dollars. This means you pay income taxes on contributions upfront, but qualified withdrawals in retirement are tax-free. Roth IRAs are attractive if you expect to be in the same or higher tax bracket in retirement.

Additionally, Roth IRAs don’t have required minimum distributions (RMDs) during the owner’s lifetime, a feature that can provide significant tax advantages.

SEP IRAs

SEP (Simplified Employee Pension) IRAs are for self-employed individuals and small-business owners. They work like a traditional IRA, allowing you to contribute pre-tax money, which grows tax-deferred until you withdraw it in retirement.

SIMPLE IRAs

SIMPLE (Savings Incentive Match Plan for Employees) IRAs are also for small businesses and self-employed individuals. They offer higher contribution limits than traditional and Roth IRAs but come with mandatory employer contributions.

Criteria for Selecting the Best IRA Accounts

As you embark on IRA investing, there are a few key factors you should consider when selecting the best IRA accounts.

Fees: Look for IRA providers with low or no annual account fees, low expense ratios on mutual funds or exchange-traded funds (ETFs), and no transaction fees. Even small fees can add up over time, eroding your investment returns.
Investment options: The best IRA accounts offer a broad array of investment options, including mutual funds, index funds, ETFs, bonds, and individual stocks. More options mean more opportunities to create a diversified portfolio.
Minimum balance requirement: Some providers require a minimum deposit to open an account, while others don’t have account minimums. This can be a barrier for new investors who want to start small.
Customer support: Excellent customer support can be invaluable, particularly if you’re new to investing. Look for providers that offer easy-to-use platforms, comprehensive educational resources, and responsive support.
Additional services: Some IRA providers also offer services like automated investing, financial planning, and wealth management, which can help you craft and stick to a retirement savings strategy.
Taxation: Understanding how different IRAs are taxed can help you optimize your retirement savings. For instance, traditional IRAs provide a tax deduction on contributions, but you’ll pay taxes upon withdrawal. Roth IRAs, on the other hand, don’t offer a tax deduction on contributions, but the growth and withdrawals are tax-free.

How to Open an IRA Account

Opening an IRA account is a fairly straightforward process, similar to opening a regular savings or brokerage account.

Choose an IRA provider: Decide whether you prefer an online bank, an investment firm, a robo advisor, or a traditional bank for your IRA. Each of these financial institutions offers unique benefits, so choose the one that fits your needs best.
Decide the type of IRA: Choose between a Roth IRA and a Traditional IRA based on your current income, future income predictions, and tax considerations. If you’re self-employed or a small business owner, you might consider a SEP or SIMPLE IRA.
Open an account: Visit your chosen provider’s website and select ‘open an account.’ You’ll need to provide some personal information, including your Social Security number, date of birth, mailing address, and employment information.
Fund your account: Decide how much you want to contribute to your account. Be mindful of the annual IRA contribution limits set by the IRS. You can fund your account through a transfer from a bank account or rollover from another retirement account.
Select your investments: Choose how your money is invested. Depending on the provider, you might be able to choose individual stocks and bonds, or you might select from a list of mutual funds or ETF trades. Some providers also offer target-date funds, which automatically adjust your asset allocation based on your age and retirement timeline.
Set up automatic contributions: If possible, set up automatic contributions to your account. Regular, consistent contributions can help your retirement savings grow over time.

Remember, it’s essential to regularly review your IRA to ensure it aligns with your retirement goals. Over time, you may need to adjust your contributions or rebalance your investment portfolio.

Common Mistakes to Avoid When Investing in an IRA

Procrastinating on opening an account: The sooner you open an IRA and start contributing, the more time your money has to grow. With the power of compounding, even small contributions can grow significantly over time.
Not contributing enough: Try to contribute the maximum amount to your IRA each year to take full advantage of the tax benefits and growth potential. If you can’t afford the max, aim to increase your contributions over time.
Investing in high-fee funds: Fees can eat into your retirement savings. Be sure to understand the expense ratios, management fees, and any transaction fees associated with your investments.
Not considering your tax situation: The tax benefits of Traditional and Roth IRAs are different, so consider your current and future tax situation when choosing an account. If you anticipate being in a higher tax bracket when you retire, a Roth IRA may be a better choice since withdrawals are tax-free.
Ignoring the income limits: Roth IRAs have income limits that can affect your ability to contribute. If you earn too much, you may be unable to contribute directly to a Roth IRA, though you might still be able to contribute to a Traditional IRA or execute a backdoor Roth IRA conversion.
Failing to update your beneficiary designations: Life changes, and so should your beneficiary designations. Make sure to review them regularly, especially after major life events like marriage, divorce, or the birth of a child.

Bottom Line

When it comes down to picking your IRA account, two of the most important factors are cost and your preferred management style. The two generally go hand in hand.

Do you want a DIY IRA that lets you do your own trading? You’ll need to compare online brokers and robo-advisors that offer free trades or lower-cost trade fees based on your trading activity.

Prefer a hands-off style? Think about how much money you’re likely to invest in the near term. Then, pick an IRA account that lets you go on autopilot while charging a flat annual fee.

For these types of IRA accounts, you’ll definitely want to dig deeper into how the financial advisors’ portfolios are chosen and whether their investment styles agree with your own.

Having any type of IRA can help you prepare for retirement. You can always transfer or roll over your funds into another IRA. However, choosing the best account in the first place can help prevent unnecessary fees.

And once you’re ready to retire, you’ll have a healthy nest egg helping you to finance your daily expenses.

Frequently Asked Questions

What is the maximum contribution limit for IRAs in 2023?

The maximum contribution limit for IRAs in 2023 stands at $6,500 for individuals who are under 50 years of age, and it’s $7,500 for those who are 50 or older. This represents a $500 increase from the 2022 limits for all age groups. It’s important to remember that these contribution limits apply collectively to your contributions to both traditional and Roth IRAs.

Can I have both a traditional IRA and a Roth IRA?

Yes, you can have both a traditional IRA and a Roth IRA. However, the total amount you can contribute to both accounts combined cannot exceed the annual contribution limit.

What is a backdoor Roth IRA?

A backdoor Roth IRA is a strategy for people whose income exceeds the Roth IRA income limits to still contribute to a Roth IRA. It involves contributing to a traditional IRA and then converting that contribution to a Roth IRA. There may be tax implications with this strategy, so it’s recommended to consult a certified financial planner or tax advisor.

Is the money I contribute to an IRA protected from loss?

No, the money you contribute to an IRA is not protected from loss. The value of your IRA is subject to market fluctuations and the performance of the investments within the account. It’s important to diversify your investments and align them with your risk tolerance and retirement goals.

Can I withdraw money from my IRA before retirement age?

Yes, you can withdraw money from your IRA before reaching retirement age. However, early withdrawals are subject to income tax and potentially a 10% early withdrawal penalty. There are some exceptions to the penalty, such as using the funds for qualified education expenses or a first-time home purchase. Be sure to understand the rules and potential tax implications before making an early withdrawal.

Are there any penalties for not taking distributions from my IRA?

Yes, there are penalties for not taking required minimum distributions (RMDs) from your traditional IRA. The penalty is 50% of the amount you should have withdrawn but didn’t. Roth IRAs, on the other hand, do not require minimum distributions during the owner’s lifetime.

Source: crediful.com

Apache is functioning normally

October 18, 2023 by Brett Tams

phototechno / Getty Images/iStockphoto

If you’re thinking about purchasing a home but you’re not really happy about the current mortgage rates, you’re not alone. According to Freddie Mac, home sales have slowed due to the 30-year fixed mortgage rate staying above 6.5% since May.

Kevin O’Leary: Coming Real Estate Collapse Will Lead to ‘Chaos’ – Here’s What You Need To Know
Learn: 3 Things You Must Do When Your Savings Reach $50,000

Since the end of 2021, mortgage rates have made quite a leap. For example 30-year fixed-rate mortgages have increased from 3% to over 7.5% and 15-year fixed-rate mortgages have jumped from 2.3% to more than 6.7%. Even so, Dave Ramsey says the increase in mortgage rates shouldn’t deter you from shopping from a home.

Here’s why you shouldn’t wait for mortgage rates to go down to buy a house.

Why You Shouldn’t Wait for Mortgage Rates To Go Down

According to Ramsey’s blog, even though mortgage interest rates are high right now, if you’re financially ready to do so, you should go ahead and buy a house.

“Mortgage interest rates are high right now,” Ramsey said, “but we don’t know for sure whether they’ll go back down anytime soon — they may even keep going up if the Federal Reserve decides to raise the federal funds rate again.”

Ramsey also wrote that, no matter what, housing prices will keep increasing, as is normal, and the best course of action is to buy now and lock in your home’s price. Once interest rates decrease in a year or two, he wrote, you can refinance to a lower rate.

Additionally, Ramsey pointed out that because interest rates are high right now, fewer people are buying homes, which means you won’t have as much competition when you make offers.

Also: Grant Cardone Reveals 6 Cities He Would Buy Investment Property in Right Now (and Where He Would Avoid)

What If You Wait Until Mortgage Rates Go Down?

Matt Ricci, a home loan specialist with national lender Churchill Mortgage, said it’s reasonable to expect lower interest rates in the next 18-24 months.

“The United States will be in an election cycle,” he said, “so the economic climate will most likely favor lower interest rates.”

However, don’t get too excited. According to Ramsey, the drop in interest rates likely won’t be enough to make a significant difference.

“But even if mortgage rates do go down in 2024, odds are the drop won’t be drastic — it’s not like rates are going to quickly return to the 2% to 3% range we saw at the end of 2021,” Ramsey wrote. “The bottom’s not about to fall out here.

“For example, even though the National Association of Realtors believes rates will go down in 2024, they’re only predicting a half-percent drop — from 6.5% to 6% — by the end of the year. A lower rate is definitely nice, but that small of a drop isn’t worth waiting around for.”

Besides that, there are other issues to consider if you wait until mortgage rates decrease.

“While lower interest rates would certainly favor additional inventory,” Ricci said, “the ratio of renters in the market compared to homeowners — in combination with a major gap in new construction — will still favor a larger demand for housing than supply of housing for sale.”

Ricci also said that when rates come down, home prices could increase. “So, while you certainly would have a lower rate on a mortgage, you would also be spending and borrowing more.”

Are You Financially Ready To Buy a House?

Before you start the homebuying process, Ramsey recommends you check the following four boxes. If you can’t check all four, he recommends waiting until you can.

You don’t have any consumer debt. This includes student loans, credit card payments or car notes. This will ensure that you have more room in your budget.
You have at 3-6 months’ worth of typical expenses saved. Unexpected expenses happen and having a solid emergency fund will allow you to pay for them without using your credit cards or dipping into your retirement accounts.
You’ve saved a substantial down payment. If you’re a first-time homebuyer, you’ll need at least 5% to 10%, Ramsey wrote. Additionally, putting 20% down can allow you to forgo mandatory private mortgage insurance, which could save you hundreds of dollars per month.
You can afford the house payment. Your house payment, including principal, interest, homeowners insurance and HOA fees should not equal more than 25% of your take-home pay, according to Ramsey. If it is, you risk not being able to meet your other financial goals.

Ensuring you are financially ready to buy a house will help you avoid your home being a financial burden that you might regret.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Dave Ramsey: Why You Shouldn’t Wait for Mortgage Rates To Go Down To Buy a House

Source: finance.yahoo.com

Apache is functioning normally

October 17, 2023 by Brett Tams

Ready to get started investing but not sure where to start? We’ve compiled a list of the best online stock brokers for beginners that we recommend for 2023.

Whether it is customer service, affordability, or platform versatility, each of these online brokers shines in its own way.

Be sure to compare the most important differentiators, such as trading costs and account minimums before you make your choice. As a beginner, you may also place more value on educational resources and customer support while you’re still learning the ropes.

6 Best Online Stock Brokers for Beginners

Robinhood

Robinhood is aptly named, offering commission-free stock and ETF (exchange-traded funds) trades. Not just some of the time—all the time.

Merrill Edge

Merrill Edge is a great option for beginning investors. You can open an account with $0 minimum investment. They also offer excellent customer service, strong education and research, and low fees.

Charles Schwab

There are only a few online brokers out there where we can honestly say are well suited for both beginning and advanced investors, but Charles Schwab is one of them. It has the tools to satisfy anyone, no matter their level of expertise.

Vanguard

Perhaps one of the best online stock brokers for low-cost investing, Vanguard is frequently utilized by buy-and-hold and retirement investors with high account balances.

Fidelity

With low $4.95 commissions per trade, Fidelity is one of the most affordable online stock brokers, considering what it offers to its customers.

Ally Invest

If you’re a seasoned investor, you may never have heard of Ally Invest, but its newness to the scene shouldn’t make you discredit it.

Why Beginners Should Consider Online Stock Brokers

Diving into the world of stock trading can be both exciting and intimidating. As a beginner, you might have certain apprehensions, especially with traditional stock trading often being associated with experienced and wealthy individuals.

However, with the advent of online brokerages, the investment landscape has dramatically transformed, making it more accessible for everyone. So why should you, as a beginner, consider going the online route? Let’s break it down.

Leveling the Playing Field

Traditionally, stock trading was a complex system with many barriers to entry. It was time-consuming, requiring regular phone calls with brokers, and often demanded a substantial initial investment.

However, online stock trading platforms have simplified this process, allowing anyone with an internet connection to participate in the market. They’ve effectively democratized stock trading, enabling a broader demographic to engage in investment activities.

Cost-Effectiveness

Cost has been one of the biggest hurdles for beginners interested in stock trading. High brokerage fees were once a significant barrier to entry. Online stock brokers have dramatically reduced this burden by offering lower trading fees compared to their traditional counterparts.

Many even offer commission-free trades, which is especially beneficial for those who are just dipping their toes in the investment waters and may not have a significant amount to invest yet.

Flexibility and Control

With an online broker, you get the advantage of real-time trading from the comfort of your home, or anywhere else for that matter. You have more control over your trades, with the ability to review and modify your orders whenever you see fit. This flexibility can be a game-changer for beginners who are still learning the ropes and need the freedom to make adjustments as they see fit.

Access to Tools and Education

Most online brokers provide a wealth of resources to help you understand the stock market better. These resources often include educational articles, webinars, video tutorials, and even simulated trading environments. You can learn at your own pace, apply your knowledge in a risk-free environment, and then proceed with more confidence when you’re ready.

Busting the Myth: Stock Trading is Not Just for Experts

You might be thinking, “Sure, these benefits sound great, but isn’t stock trading still a field best left to the experts?” This is a common misconception, but it couldn’t be further from the truth. While knowledge and experience undoubtedly play a role in successful investing, the barrier to entry has significantly decreased with online brokerage accounts.

They’ve built platforms that cater to investors of all experience levels, with easy-to-use interfaces, educational content, and customer support to guide you through your investment journey. In fact, the rise of online trading has given birth to a new generation of investors who’ve started with little to no knowledge of the stock market.

Choosing Your Online Broker: Essential Criteria to Consider

Selecting an online broker as a beginner can seem daunting. However, by focusing on the right criteria, you can make a well-informed decision that suits your individual needs and goals. Here are the key factors you should consider when choosing your online stock broker.

User-Friendly Platform: Navigate with Ease

As a beginner, the last thing you want is to grapple with a complicated platform while trying to understand the intricacies of stock trading. Hence, a user-friendly interface is essential.

An intuitive platform will make navigation a breeze, allowing you to focus on your investment decisions rather than struggling with complex tools. Look for brokers that offer clear layouts, easy-to-find features, and streamlined processes for trading.

Educational Resources: Your First Step Towards Mastery

Education is paramount when you’re embarking on your investment journey. The best online brokers provide a variety of learning materials, including tutorials, webinars, articles, and even a glossary of trading terms.

These resources can help demystify complex financial concepts, making it easier for you to understand market trends and make informed decisions. Ensure the broker you choose places a strong emphasis on education and continuous learning.

Customer Support: Guidance When You Need It

No matter how user-friendly a platform is, you’re likely to encounter queries or issues that need resolution. This is where robust customer support comes in.

A good online broker should offer responsive, efficient, and friendly customer service, ready to assist you via multiple channels – be it phone, email, or live chat. Remember, as a beginner, having readily available support can be a significant confidence booster.

Fees and Commissions: The Impact on Your Investments

Even the smallest fees can add up over time and eat into your returns. So, it’s essential to understand the fee structure of any online broker you consider. This can include trading fees, account maintenance fees, withdrawal fees, and more. Many online brokers now offer commission-free trades, which can be particularly advantageous for beginners starting with a smaller investment.

Account Minimums: Barrier or Welcome Mat?

Some online brokers require you to deposit a minimum amount to start trading. This can be a hurdle for beginners who are looking to start small. Therefore, finding a broker with low or no account minimums can be a significant advantage when you’re just getting started. It allows you to dip your toes into investing without committing a substantial sum upfront.

Diverse Investment Options: The Power of Choice

While you might start with trading stocks, having a range of investment options can be beneficial as you grow and diversify your portfolio. Look for an online brokerage account that offers a variety of investment products, such as bonds, ETFs (exchange-traded funds), mutual funds, and more. Having these options at your disposal allows for more flexibility in your investment strategy.

Security: Safeguarding Your Investments

With the increasing number of cyber threats, security has never been more critical. You want to ensure that the online broker you choose uses top-tier encryption and security measures to protect your personal information and investments. This can include two-factor authentication, biometric recognition, and advanced encryption technologies.

Tips for Getting Started With Online Stock Trading

Stepping into the world of online stock trading can be thrilling. The possibility of seeing your money grow can be enticing, but it’s also crucial to approach this journey with a strategic and educated mindset. Here are some practical tips to get you started on the right foot.

Understand Your Investment Goals

Before you make your first trade, take some time to understand your investment goals. Are you saving for retirement, a down payment on a house, or your child’s college education? Having a clear idea of your goals will help you make informed decisions about the type of investments you want to make.

Start Small and Gradually Increase Your Investments

As a beginner, it’s wise to start small. You might be eager to dive in, but starting small allows you to get a feel for trading without risking too much. As you become more comfortable and experienced, you can gradually increase your investments.

Diversify Your Portfolio

Don’t put all your eggs in one basket. Diversification, or spreading your investments across a variety of assets, is a key strategy to manage risk. By diversifying your portfolio, you can protect yourself from significant losses if one of your investments underperforms.

Practice with a Demo Account

Many online brokers offer demo or “paper” trading accounts. These accounts allow you to practice trading with virtual money. It’s a great way to learn the ropes, try out different strategies, and understand the dynamics of the market without risking real money.

Keep Emotions in Check

Investing can be an emotional rollercoaster. The value of your investments can go up and down, but it’s crucial to stay calm and stick to your investment plan. Avoid making impulsive decisions based on short-term market fluctuations.

Develop a Disciplined Investment Strategy

Having a disciplined investment strategy means making thoughtful and researched decisions rather than chasing ‘hot’ tips or trends. This strategy involves regularly reviewing and adjusting your portfolio, reinvesting dividends, and not being swayed by market volatility.

Embrace Continuous Learning

The investment world is dynamic and ever-changing. Make an effort to learn continuously about different investment products, market trends, and trading strategies. Take advantage of the educational resources offered by your online broker.

Consult a Financial Advisor

While online stock trading can be done independently, consulting a financial advisor can be beneficial. They can provide personalized advice tailored to your financial goals and risk tolerance.

Frequently Asked Questions for Online Stock Trading Beginners

Here are some commonly asked questions that beginners often have when they’re starting out with online stock trading.

What is a brokerage account?

A brokerage account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through it. Essentially, it’s the account you use to make trades and hold your investments. The brokerage acts as the intermediary between you and the markets.

In a typical brokerage account, you can invest in a wide variety of securities, including stocks, bonds, mutual funds, and ETFs (exchange-traded sunds). There are also different types of brokerage accounts, like individual or joint accounts, retirement accounts, and education savings accounts, each serving different investment purposes and offering varying tax benefits.

Why should I consider online stock trading?

Online stock trading offers a host of benefits, including easy access to financial markets, lower transaction costs, real-time trading, a wealth of educational resources, and the ability to trade at your own pace and convenience.

How much money do I need to start online trading?

The amount needed to start online trading can vary greatly depending on the broker you choose. Some online brokers require minimum deposits, while others do not. It’s possible to start trading with a small amount, but remember that it’s crucial to only invest money that you can afford to lose.

What are the risks of online stock trading?

Like any investment, online stock trading comes with risks. The value of your investments can fluctuate based on market conditions, which can lead to losses. It’s also possible to lose money due to poor investment decisions. It’s important to educate yourself, develop a solid investment strategy, and consider diversifying your investments to manage these risks.

What is a stockbroker?

A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. Online stock brokers offer platforms where you can conduct these transactions yourself.

How do online stock brokers make money?

Online stock brokers make money in several ways. Some charge commissions on trades, while others offer commission-free trades but may charge other types of fees, such as account maintenance fees or withdrawal fees. Some brokers also earn money from interest on cash in trading accounts or by lending out securities in margin accounts.

What is diversification?

Diversification is a risk management strategy that involves spreading your investments across various types of assets, such as stocks, bonds, ETFs, etc. The idea is to reduce risk by investing in different areas that would each react differently to the same event.

Is my money safe with online brokers?

Most reputable online brokers are members of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which provide certain protections for investors. However, while these protections can safeguard your money if the brokerage fails, they do not protect against losses from trading.

Source: crediful.com

Apache is functioning normally

October 17, 2023 by Brett Tams

Saving and investing both involve setting money aside for future expenses. However, there are key differences between the two.

Each has its own set of rewards and challenges. A balance of the two can lay the groundwork for financial prosperity and safeguard your wealth.

The Basics: Defining Saving and Investing

Saving: The Safety Net

What is a Savings Account?

A savings account represents the initial wealth-building step in most financial journeys. At its core, saving means putting money in a secure location, like a bank account. This ensures your money remains safe while also earning interest. High yield savings accounts, frequently found with online banks and credit unions, offer particularly appealing interest rates.

The Role of the FDIC

The safety of savings accounts, money market accounts, and CDs is often reinforced by the federal deposit insurance corporation (FDIC). This entity ensures that even if a financial institution faces challenges, your money remains protected up to the FDIC-defined limits.

Emergency Funds: Why Are They Important?

Life throws curveballs, making it essential to have an emergency fund—a financial buffer. This fund should ideally encompass three to six months’ worth of living expenses, ensuring you’re prepared for unexpected financial setbacks.

The Savings Trade-Off

While savings accounts offer peace of mind, they come with a compromise. The interest rates, especially in traditional savings accounts, often lag behind inflation. This dynamic means your diligently saved money might gradually lose purchasing power.

Investing: The Growth Engine

Dipping Into the Investment World

Investing means allocating money into assets with the hope of appreciating value. Whether it’s shares in the stock market, real estate properties, or units in mutual funds, the primary objective is growth.

Stock Market: A Historic Wealth Builder

The allure of the stock market lies in its historical track record. Over extended periods, it has typically provided returns surpassing those of standard or even high yield savings accounts. Diversifying investments, like putting money in mutual funds, can help harness these potential gains.

The Reality of Investment Risks

However, with potential reward comes inherent risk. Unlike the predictability of an FDIC-insured savings account, money put into the stock market or other investment vehicles isn’t guaranteed. It’s possible to see significant gains, but it’s equally possible to encounter losses.

When to Save vs. When to Invest: Making the Right Call

It’s vital to recognize that while both saving and investing are pillars of financial security, their roles vary according to your needs and circumstances. It’s important to know when to use each of these financial tools.

Immediate Needs and Short-Term Goals

Emergency fund: It’s always paramount to have savings set aside for unexpected expenses. Whether it’s a medical emergency, sudden job loss, or major car repair, an emergency fund acts as a financial buffer. Keeping this in an easily accessible savings account or money market account allows for quick withdrawal without penalties.

Upcoming purchases: If you’re planning major purchases within the next 1-3 years, such as a down payment for a house or a new car, the priority is preserving the principal. In such cases, a high yield savings account or a short-term CD might be more suitable than volatile investments.

Travel plans: Saving for a vacation in the next year? While it’s tempting to try to “grow” your vacation fund quickly through investments, the short timeframe means a higher risk of not having enough money when it’s time to book that trip. Opt for saving in this case.

Mid to Long-Term Objectives

Retirement: For goals that are more than a decade away, such as retirement, the potential returns from the stock market or mutual funds typically outweigh the risks. Even with market fluctuations, long-term investing often results in appreciable growth, especially if one starts investing early.

Children’s education: If you’re saving for your child’s college and they’re still in diapers, investing might offer the growth potential needed to meet rising education costs. 529 plans or other investment accounts might be apt choices.

Building wealth: If you’re aiming to increase your net worth over time and don’t have a specific goal in mind, investing is the route. It leverages the power of compound interest and potential market returns.

Debt Consideration

High-interest debts: If you’re carrying a significant credit card balance or other high-interest loans, focus on paying these down before considering investing. The interest on these debts often surpasses potential investment returns.

Personal Risk Tolerance

Emotional comfort: Your comfort with market fluctuations plays a role. If the thought of losing some of your investment keeps you up at night, even if it’s a generally recommended strategy, you might lean more towards saving or very conservative investments.

Strategies to Optimize Your Financial Balance

To establish and maintain an ideal equilibrium between saving and investing, it’s essential to employ strategic approaches that cater to evolving financial scenarios and goals. Here’s a deeper dive into methods that can help you optimize this balance.

Diversification: The Financial Safety Net

Spread your assets: Avoiding concentration in one type of investment can mitigate risks. By dividing your capital across varied assets, such as stocks, bonds, and real estate, you can potentially safeguard against significant losses in any single asset class.

Low cost index funds: These funds replicate the performance of a specific market index, like the S&P 500. Due to their broad exposure, they offer a balanced growth potential coupled with relatively lower risk. Plus, their typically lower fees mean more of your money stays invested.

Seek Professional Guidance: Navigate with Expertise

Why advisory services?: The financial landscape is vast and often intricate. For those unfamiliar or even those looking for a second opinion, brokerage services or financial advisors provide valuable insights. They help decode the complexities, ensuring your strategies align with your objectives.

Certified financial planners: CFPs undergo rigorous training and certification processes. They can offer comprehensive financial planning advice, ensuring your saving and investing strategies are cohesive and well-aligned with your broader financial goals.

Automate to Accumulate: Consistency is Key

The power of direct deposits: By automating transfers from your checking account to investment or savings vehicles, you ensure consistent contributions. Over time, this approach can substantially amplify your savings and investments.

Harness dollar-cost averaging: This strategy involves investing fixed amounts regularly, irrespective of market conditions. It can potentially reduce the impact of market volatility on your investment.

Review, Reflect, and Refine: Adaptability Matters

Changing tides: Life isn’t static, and neither is the financial world. Personal milestones, market shifts, or alterations in financial objectives can necessitate a change in strategy.

Scheduled check-ins: Dedicate time periodically (annually or semi-annually) to review your portfolios. Rebalancing, which involves realigning the proportions of your investments, can be essential to ensure they continue to match your risk tolerance and goals.

Common Myths and Pitfalls: Separating Fact from Fiction

While financial literacy has grown over the years, myths still abound. These misconceptions can hinder sound financial decision-making. Let’s demystify some of the most common myths and pitfalls in the realm of saving and investing.

Investing Equals Gambling: A Risky Misconception

Understanding the difference: Yes, both investing and gambling involve risk. However, investing is about making informed decisions based on research, market trends, and historical data. Gambling is more reliant on chance and often lacks a strategic foundation.

Strategic approach: Investors often utilize various tools, analyses, and professional advisory or brokerage services to make informed decisions. Over time, while there are market fluctuations, historically, the stock market has trended upwards.

Age Constraints: The Timeless Truth

Power of compound interest: Starting young has its perks. Even small investments can grow exponentially over time, thanks to compound interest. But it’s essential to note, it’s not just for the young.

Every moment counts: Older individuals can still benefit from investing, especially with more substantial amounts and a well-thought-out investment strategy. No matter your age, it’s about finding the right investment portfolio that aligns with your financial goals and risk tolerance.

Minimums and Barriers: Breaking the Monetary Myth

Modern investing landscape: The financial markets have become increasingly accessible. With advancements in technology and the emergence of online banks and brokerage platforms, the barriers to entry have significantly lowered.

Fractional shares & micro-Investing: Some platforms today allow individuals to invest with as little as a few dollars, purchasing fractional shares of stocks or ETFs. This democratization means that virtually anyone can participate in the financial markets, regardless of their initial investment size.

Avoiding paralysis: One of the pitfalls here is waiting for the “right amount” to start investing. This can lead to missed opportunities. Consistently investing, even smaller amounts, can be beneficial in the long run.

Safety Nets, Backups, and Financial Security: A Three-Pronged Approach

Achieving true financial security is akin to constructing a sturdy building. It’s not just about the facade or height but ensuring a robust foundation and safety mechanisms in place. Here’s an expanded view on establishing a comprehensive financial safety framework.

Building a Strong Foundation: The Indispensable Emergency Fund

Significance of the fund: Think of an emergency fund as your financial cushion. When unexpected expenses – like medical emergencies or sudden job losses – arise, this fund ensures you don’t have to dip into long-term investments or accrue high-interest debt.

FDIC insured banks and credit unions: Parking your emergency savings in institutions insured by the Federal Deposit Insurance Corporation or similar protections in credit unions offers an added layer of security. Such institutions guarantee the safety of your deposits up to a certain limit, ensuring your money is shielded against unforeseen institutional failures.

Insurance: Your Financial Umbrella

Different types, singular purpose: The world of insurance is vast: health, life, disability, homeowners, renters, and more. Each type serves a unique purpose but shares a common goal: safeguarding you and your loved ones against financially detrimental events.

Preventive approach: Paying insurance premiums might feel like an added expense. However, in the face of adversities, insurance policies can prevent significant out-of-pocket expenses, ensuring financial stability.

Tax-Savvy Approaches: Maximize Your Returns

Taxable vs. tax-advantaged accounts: Recognizing the difference between these two is crucial. A standard brokerage account will have its earnings subject to taxes annually. In contrast, retirement accounts, like IRAs or 401(k)s, offer tax advantages, either deferring tax payments until withdrawal or eliminating them altogether, depending on the account type.

Compound and save: Over time, the money you save on taxes can compound, potentially leading to significantly larger returns. Being tax-smart is a key component of holistic financial planning.

Stay Liquid: Balancing Accessibility and Growth

Importance of liquidity: Investments tied up for the long term can offer excellent growth potential. However, it’s equally vital to have assets that can be quickly converted to cash for immediate needs, without penalties or a significant loss in value.

Ideal liquid venues: Savings accounts and money market accounts are perfect contenders for such liquid assets. They offer a blend of easy accessibility and modest growth, ensuring you’re not caught off-guard by short-term financial needs.

Bottom Line

Balancing saving vs. investing is an ongoing journey, not a one-time decision. As you navigate life’s ups and downs, your strategy will need tweaks and adjustments. However, with a solid foundation, informed choices, and a commitment to both saving and investing, you can optimize both risk and security, paving the way for a bright financial future.

Frequently Asked Questions

How much should I aim to save before I begin investing?

While it varies for each individual, many financial experts recommend building an emergency fund covering 3-6 months’ worth of living expenses before starting to invest aggressively.

Can I lose all my money if the stock market crashes?

While stock market downturns can lead to significant losses, diversified portfolios can mitigate this risk. It’s rare to lose all money unless invested in single, high-risk stocks.

Do I need a financial advisor, or can I start investing on my own?

You can certainly start on your own, especially with numerous online platforms and resources available. However, a financial advisor can offer personalized advice tailored to your goals and risk tolerance.

Is real estate a safer investment than the stock market?

Both real estate and stocks come with their risks and rewards. While real estate is tangible and can provide rental income, it requires more capital upfront and may not be as liquid as stocks. Diversifying investments across asset classes can help balance risk.

What’s the difference between a Roth IRA and a traditional IRA?

Both are retirement accounts, but they differ in tax treatments. With a Roth IRA, you contribute post-tax money, and withdrawals during retirement are tax-free. With a traditional IRA, contributions may be tax-deductible, but withdrawals during retirement are taxed.

How frequently should I review and adjust my investment portfolio?

While there’s no one-size-fits-all answer, many experts suggest reviewing your portfolio at least annually or whenever there are significant changes to your financial situation or goals.

Can I invest in stocks without going through a brokerage?

Yes, some companies offer Direct Stock Purchase Plans (DSPPs) that allow investors to purchase shares directly without a broker. However, using a brokerage can offer more options and tools for managing investments.

How can I protect myself against inflation eroding my savings?

Investing a portion of your savings can help. Stocks, bonds, and real estate have historically outpaced inflation over the long term. Additionally, consider high yield savings accounts or inflation-protected securities.

Source: crediful.com

Apache is functioning normally

October 16, 2023 by Brett Tams

Are you wanting to invest in the stock market but don’t know where to start? You’re not alone. Buying stocks online is a simple process. But doing the research can be a bit overwhelming if it’s your first rodeo. But don’t fret. Read on for a step-by-step guide on how to buy stocks.

Mastering the Basics: A 4-Step Guide to Buying Stocks for Beginners

Embarking on your stock trading journey can be both exciting and overwhelming. With this concise 4-step guide, we’ll help you navigate the essentials of stock trading, from setting up a brokerage account to making informed decisions on stock purchases.

Step 1: Set Up a Brokerage Account

To buy stocks, you’ll need to apply for a brokerage account. With an online brokerage account, you can transfer funds into your account electronically from a linked bank account to fund any future investment orders. And upon making a purchase the stocks will remain in the account until you trade them.

Types of Brokerage Accounts

The basic types of brokerage accounts are:

Discount Broker

Common amongst online brokers
Similar to a do-it-yourself option with limited support
Minimal fees and commissions
Some don’t have a minimum deposit requirement

Full-Service Broker

Designed to help investors from start to finish with planning and execution of trading goals
Offers extensive support from financial advisers at brokerage firm
Commission or fee-based structure

When analyzing brokerage firms, you want to consider the following:

Minimum deposit requirement: if you’re just starting out, you may only want to invest a small amount to get your feet wet. Once you’re acclimated with buying and selling stocks online, you’ll beef up your stock portfolio. But until you reach that point, a discount brokerage with minimal fees and little to no deposit requirement may be best.
Short term goals: do you plan to hit the ground running? Do you need all the support you can get to maximize your investment in the shortest amount of time possible? If so, a full-service brokerage may be the better choice.

Some of the most popular online brokers include Ameritrade, Charles Schwab, E*Trade, Fidelity, Merrill Edge, Robinhood, and Vanguard.

Direct Stock Purchase Plan

Some publicly-traded companies also offer a direct stock purchase plan (DSPP), which allows you to buy stock from them. This is another way to buy stocks that require using online brokers. Instead, the company’s transfer agent manages the transaction.

Check Out Our Top Picks for 2023:

Best Online Stock Brokers for Beginners

Step 2: Evaluate Your Options

There are tons of individual stocks to choose from. So how do you narrow down your options and select the best fit for your financial situation? You can sift through mountains of financial data inundated with jargon you’ve never seen a day in your life.

A better idea: think about industries or businesses you have a keen interest in. Are there a few that you’d like to own a piece of? If so, start there. Otherwise, you can always ask your financial adviser for data on up-and-coming companies or pay attention to market trends in the media.

Get a Copy of the Annual Report

Once you have a list of top prospects, head on over to the company’s website and download a copy of the annual report. It’s an extensive document that provides an overview of how the company performed in the last year, along with detailed financial reports.

The U.S. Securities and Exchange Commission (SEC) mandates that public companies provide this report to shareholders on an annual basis.

But it’s usually available through the company’s website as well for the public to see. If you’re unfamiliar with any of the terms listed, the broker’s website should have information and resources that can assist.

Monitor the Company’s Performance

You may also want to consider monitoring the company’s performance before making a purchase decision. Steep fluctuations or signs of declining revenues could indicate that it may not be the right time to invest.

(Most brokerage firms will also offer tools and resources to help you stay on top of what’s going on with the companies you’re considering).

Step 3: Get a Quote

You’ll want to pay close attention to the information presented in the quote. Stock quotes, which are represented by ticker symbols that are abbreviations of the company, include:

Bid: highest price per share a buyer wants to pay per share
Offer or Ask Price: lowest price per share a seller will accept per share
Historical information on trading volume
Interactive resources to help gauge projected performance

Contact your online broker to learn more or visit Nasdaq.com to retrieve a real-time quote.

Step 4: Place an Order

Now that you’ve gotten all the technical/admin duties out of the way, it’s time to buy stock. But before you get too excited, it’s important to familiarize yourself with order types.

Market Order

A market order ensures you get the amount of shares requested, even if the asking price is a bit higher than your bid. This is usually the case when your primary concern is the share volume and not stock price.

This type of order is best for investors who are in it for the long haul. Why so? Well, a slight spread, or the difference between the asking price and bid, shouldn’t make that much of a difference over time.

Let’s say you want to buy 75 shares at $150 and the quote states:

Bid: $149 (75)
Ask: $150 (60)
Last: $151 (100)

If the seller agrees to issue 75 more shares at $153, your market order will be for 60 shares at $150 and 15 at $153.

Limit Order

A limit order ensures the broker purchases shares at the desired price point. So there’s a possibility you may not receive the number of shares you want until the price point decreases.

Let’s say you want to buy 80 shares at $160 and the seller is only offering 45 at that price point. If you decide to execute a limit order, you would get 45 shares and wait for sellers offering at least 35 or more shares at $160 to reach 80 shares.

No Guarantees

When you place a limit order, understand that there are no guarantees your order will be filled since market orders are executed first.

If it takes several rounds of trading to get the desired volume of shares, expect a hefty amount of broker fees because commissions are tacked on after each transaction.

In this case, it may be in your best interest to execute a market order and pay a bit more per share since the cost of commissions may wipe out the cost-savings per share of stock.

AON Limit Orders

You should also be mindful of all-or-none (AON) limit orders, which indicate to the seller that you’ll only purchase if the price is at or below the amount of your bid. Furthermore, the requested amount of shares must be offered during that specific bid.

If you want to leave the order on the table for an extended period of time, it can be coded as good till canceled (GTC). The timeframe can span from a few to several months.

Stop Orders

Stop orders are driven by price and are only filled when the requested amount of shares reaches the stop price. There are two types of stop orders you should be aware of:

Stop-limit order: functions like a limit order because it’s only executed at the “stop-price”. However, you may not get the number of shares you want.
Stop-loss order: functions like a market order, but the primary difference is the entire order will only be filled when the price is at or below the “stop level”.

How many shares will you be purchasing?

Before you can execute a market or limit order, you’ll need to decide on the number of shares you wish to purchase. There’s no right or wrong amount, and some newbies prefer to start small and scale up once they’re a bit more comfortable with how stock trading works.

The Next Steps

Kudos to you on your first stock purchase. It’s a great first step toward building wealth and helping secure your financial future.

And even if your first round doesn’t turn out as planned or your experience steep market downturns, don’t throw in the towel right away. Remember why you started and focus on the light at the end of the tunnel, or your future earning potential.

If you are unsure of which stocks to pick, you might want to consider buying mutual funds or ETFs.

Best Online Brokers and Trading Platforms for Buying Stocks

The best online brokers offer low commissions and fees, and great research tools, such as charts and stock screeners. You will also want to choose a brokerage platform that is easy to use and intuitive.

Good customer service is also essential when considering an online brokerage account. Check to see if the broker offers phone and email support, as well as live chat. Here are some of the most popular brokers to look into:

Robinhood is a good choice for buying stocks with zero commissions. It offers a simple mobile app with a limited selection of commission-free ETFs and no-transaction-fee mutual funds.
Charles Schwab offers a comprehensive trading platform with powerful research capabilities. You also get access to a wide variety of financial products, and Schwab offers 24/7 customer service.
Fidelity offers comprehensive research and market analysis tools, low trading fees and commissions, and a dedicated customer service team.
With E-Trade, you can easily invest in stocks and other financial instruments online or on your mobile device. They also offer advanced trading tools and charting.

How to Buy and Sell Stocks FAQ

How do I buy and sell stocks?

You can buy and sell stocks through a stockbroker or online trading platform. A stockbroker can help you with the purchase and sale of stocks and provide advice on the best investments for your portfolio. If you decide to use an online trading platform, you’ll need to research and choose one that best meets your needs.

What is the best way to buy stocks?

The best way to buy stocks is to do your research and learn about the different stocks and companies you’re interested in. Then, choose the ones that best fit your investment goals and risk tolerance.

You should also consider the fees associated with trading and the terms of the broker you plan to use when making your purchase. Additionally, it is important to practice patience and discipline to avoid making rash decisions.

How do I choose which stocks to buy?

When choosing which stocks to buy, you want to consider a variety of factors. You should look into the company’s financial health, its competitive advantage in the market, its management team, the industry it operates in, and its earnings potential.

Additionally, you should consider your own financial goals, risk tolerance, and investing timeline. Before you start buying stocks, it is important to do your own research. You may even want to consult a financial advisor to ensure that the stocks you are considering are appropriate for your individual financial situation.

What is the risk associated with investing in stocks?

Investing in stocks carries a certain level of risk, as the stock market can be volatile and movements in stock prices can be unpredictable. It’s critical to understand that stocks have the potential to both increase and decrease in value.

What are the costs associated with buying and selling stocks?

The costs associated with buying and selling stocks include commission fees, taxes, and any other applicable fees. Depending on the broker, commissions can range from a flat fee to a percentage of the total trade value.

Taxes, such as capital gains taxes, may also be applicable when selling stocks. Other fees such as account maintenance fees, custody fees, and margin interest may also be applicable.

How old do you have to be to trade stocks?

You must be at least 18 years old to open a brokerage account and trade stocks in the United States. However, some brokers, and in certain states, you need to be at least 21 years old to trade stocks.

How much money do I need to start investing in stocks?

The amount of money needed to start investing in stocks will depend on the types of stocks you plan to buy and the amount of money you are comfortable investing. Generally, you should expect to start with at least $1,000. However, some online platforms require a minimum of $500 or less.

How much money can I make from investing in stocks?

The amount of money you can make from investing in stocks depends on the types of stocks you invest in, the amount of money you invest, and the success of your investments. It’s important to remember that stock investing can also result in losses as well as gains.

Source: crediful.com

Apache is functioning normally

October 15, 2023 by Brett Tams

There are numerous ways to invest for college students, including using brokerage accounts, or even retirement accounts like individual retirement accounts (IRAs) or 401(k)s. But there are many other things that college students should take into account before or while investing, too.

For college students, it’s never too early to start investing your money. In fact, the earlier you start, the faster you may be able to meet long-term goals such as a graduate degree, buying a house, or even retirement.

Why You Should Start Investing Early

There are a number of reasons to start investing early. Chief among them is potential return. The average annual return offered by the S&P 500 — a market-capitalization-weighted index of the 500 largest companies in the U.S. – is around 10%.

That’s considerably more than you’re likely to generate from putting your money in a savings account – even a high-yield savings account. That means that while money in a savings account is accruing interest, it’s actually losing value at the same time. Investing may help you outpace inflation and give you an extra boost towards your long term goals.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

3 Ways to Invest While in College

There are numerous ways for college students to invest their money, including the use of tax-advantaged retirement accounts, and traditional brokerage accounts.

IRA

Traditional and Roth IRAs are a type of retirement account that almost anyone can open up and start contributing to. There are rules regarding how much you can contribute every year, and when you can take withdrawals (depending on the type of IRA you open), but they can be relatively easy ways to kick-start a college students’ investment portfolio.

Brokerage Account

A brokerage account allows you to make investments through a brokerage firm by depositing funds with them. Your bank may already have brokerage options, or you may consider other outside firms.

A brokerage account allows students to buy and sell stocks, bonds, mutual funds, and other assets through a brokerage firm. Be aware that selling assets can trigger short-term or long-term capital gains taxes. Short-term taxes are charged at your regular income tax rate, and long-term rates are either 0%, 15%, or 20% depending on your tax bracket.

401(k)

A 401(k) is a type of retirement account offered through an employer, though there are some versions, such as Solo 401(k)s, you can open yourself. Like IRAs, there are annual contribution limits, and traditional and Roth 401(k)s to choose from.

The money you put in the account is tax deductible and it grows tax-free while it’s invested. That said, generally, you can’t withdraw money from the account until you reach age 59 ½, or you’ll be subject to a 10% early withdrawal penalty.

Steps to Start Investing as a College Student

For college students getting started investing, there are several steps that they can take to find their footing. It starts by giving some thought to your overall financial goals, determining what you can afford to invest, and then building your portfolio.

Set Clear Financial Goals

It’s important, before you make your first investment as a college student, to give some serious thought and consideration to your financial goals. Do you want to hit a total net worth or dollar amount by a certain age, for instance? Or, do you want to save up enough to buy a home or start a family?

These are the types of financial goals you should think about. Having clear financial goals in mind before you start investing can help guide your decision-making in regard to what types of investments you make.

Determine How Much Money You Can Set Aside

With your goals in mind, you’ll want to think about how much money you realistically can set aside to invest. Odds are, you won’t be able to invest your entire paycheck – there’s rent to pay and groceries to buy, after all. But if you can free up some additional money in your budget for investing, that should help you get your portfolio started. Again, think about how much you can realistically use for investment purposes.

Choose the Right Investment Account

Knowing how much you have to invest and some end-goals in mind, you’ll need to decide what type of investment account will best help you reach those goals. As discussed, this might be a retirement account like an IRA or 401(k), or a brokerage account, which will allow you to buy and sell stocks, or even day trade, if you’d like – though most financial professionals may caution against it.

Understand Types of Investments

You’ll also want to review and deepen your understanding of the various types of investments out there. That can include a variety of asset types such as stocks, bonds, cash, real estate, commodities, precious metals, and more. Not all types will be best for each and every investor – again, it depends on your goals.

Fund Your Investments

The rubber is finally starting to meet the road! You’ll finally want to actually fund your chosen account (be it a brokerage account, etc.) and make your initial investments. This marks the start of your investment portfolio.

Tips for Investing as a College Student

Investing as a college student may seem relatively easy – particularly to get started – but it never hurts to accept some guidance. Here are a few tips for investing as a college student.

Stay Diversified

A good rule of thumb for investors of all stripes is to try and stay diversified by investing in many types of assets and asset classes. The basic idea of portfolio diversification is that the fewer investments you expose yourself to, the more risk you take on should they perform poorly.

Imagine you invest in only one stock and that company folds — if that happens, you’ve lost your entire investment. However, if you invested in 100 different stocks, one company failing would affect you far less. Diversification, however, does not eliminate all risks, including the risk of loss.

One way to stay diversified is by investing in mutual funds or exchange traded funds, which bundle groups of stocks together, essentially doing the work of diversification for you.

Avoid Emotional Investing

The market experiences natural ups and downs. As these fluctuations occur, it’s important to try to avoid letting your emotions impact your investing.

When the market makes a big dip, you may feel the urge to sell investments. However, by doing so you’re actually locking in your losses. Examine what is motivating you to sell, as it’s usually a good idea to let reason prevail so you don’t miss out on any future upturn that may take place.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Timing the Market vs Time in the Market

When the market is doing well, you may find yourself tempted to get in on the action and end up buying investments that are too expensive. This type of buying and selling is known as timing the market. You may want to avoid checking the market multiple times a day to help keep your emotions in check and avoid the temptation to time the market.

It might help to think of investing as a long-term proposition. The longer you allow your investments to stay in the market, the more opportunity they have to ride out downturns — and the more opportunity you have to take advantage of an upswing.

Balancing Investing With Academic Responsibilities

As a college student, you should keep your studies in mind, first and foremost. Your academic responsibilities, in most cases, should probably take precedence over your investing activity – though you should keep an eye on your portfolio and learn as much as you can about the markets, too. Everyone is different, but the main point is to not ignore your studies in lieu of watching the market fluctuate.

Investing with SoFi Invest®

Investing as a college student isn’t necessarily difficult, and there are many ways to get started. But given that college students are often working with a limited budget, there may be constraints. Even so, it’s important for relatively young investors to take advantage of the time they have on their side, as the market tends to rise over the years.

College students can look at various retirement accounts, or even a simple brokerage account to get started investing. Investing involves risk, however, which is something students should keep in mind, too. It never hurts to consult with a financial professional, either.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

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Apache is functioning normally

October 14, 2023 by Brett Tams

Imagine a life where your monthly paycheck isn’t eaten up by debt payments, where your financial choices aren’t driven by outstanding balances on credit accounts, and unexpected expenses don’t plunge you deeper into debt.

This is the essence of a debt-free life. Living debt free means you owe no money to any person or institution. It’s a state of financial freedom that many dream of, yet few achieve.

But like any significant life choice, it’s not without its pros and cons. The aim of this article is to dive deeper into the advantages and drawbacks of leading a debt-free life. Whether you’re buried under credit card debt or still paying off student loans, understanding the impacts of a debt-free lifestyle can help you set goals and envision a future of financial freedom.

Even if you’re simply looking to improve your personal finance habits, this knowledge can empower you to make informed decisions about your financial future. Let’s unravel the truth behind the debt-free life, its challenges, and rewards.

What does it mean to live a debt-free life?

Living a debt-free life can mean different things to different people, but in the broadest sense, it means having no outstanding debts to your name. This means zero credit card debt, no car loans, and no mortgage.

It’s a financial state where your income is entirely yours, unburdened by any obligations to lenders. But it’s crucial to note that not all debt is bad. Some forms of debt, like low interest debt such as a mortgage, can actually work to improve your financial situation over time.

The Path to Debt-Free Living

So, how do you achieve this seemingly elusive state of debt free living? The first step involves knowing exactly how much debt you have. It’s not enough to know your minimum payments or even your monthly payment, you need a full understanding of your entire debt landscape.

This process involves pulling together data from all your credit accounts, from credit cards to personal loans, and noting the interest rates and balances. If your debt consists of high-interest debt like credit cards, consider strategies like debt consolidation to lower the interest charges and make repayment manageable. You can also consider using the debt snowball or debt avalanche method to pay down your debt over time.

Once you know how much debt you have, the next step is creating a monthly budget. Your budget should include your income, living expenses, debt payments, and any discretionary spending. Budgeting is a vital tool in the journey to financial freedom, allowing you to see where your money is going and where you can start saving money.

As you pay down debt, you’ll also want to focus on building an emergency fund. This is money set aside to cover unexpected expenses when they arise, like car repairs or medical bills. Having an emergency fund helps ensure that these unexpected expenses don’t push you further into debt.

Pros of Living a Debt-Free Life

Living a debt-free life has several notable benefits.

Financial Stability

Being debt-free can contribute to a greater sense of financial stability. Without debt payments to worry about, you can put more money towards savings or investments. You won’t be worried about covering minimum payments or juggling high interest debt.

Financial Flexibility

A debt-free lifestyle also provides financial flexibility. When you don’t owe money to creditors, you have more freedom to make financial decisions based on your needs and wants, not on your obligations.

Improved Credit Score

Less debt usually leads to a better credit score, especially if you have a history of timely payments. Credit bureaus take note of how much of your available credit you’re using, and lower utilization generally leads to a higher score.

Sense of Accomplishment and Personal Growth

The journey to become debt-free isn’t easy, but it can be incredibly rewarding. The discipline and determination required to pay off your debts can lead to personal growth and a significant sense of accomplishment.

Cons of Living a Debt-Free Life

While the benefits of living debt-free are substantial, there are also some downsides to consider.

Lost Opportunities for Leveraging Debt

While it’s true that being in debt can be stressful, not all debt is bad. Certain types of low interest debt can work in your favor. For example, taking out a mortgage to buy a home or borrowing money to start a business can be considered good debt, as these investments often increase in value over time.

Potential for Reduced Credit Score

While it may seem counterintuitive, having no debt can actually hurt your credit score in some cases. Credit scoring models like to see some level of debt management, so a history of well-managed debt can be beneficial. If you have no debt – and have never had debt – you’ll have no credit history. This can make it harder to rent an apartment or even get good car insurance rates.

Risk of Overly Conservative Financial Practices

Living a debt free life can sometimes result in overly conservative financial practices. Avoiding all debt means you might miss out on investment or business opportunities that require upfront capital.

Debt-Free Living vs. Debt Leveraging

Both debt-free living and leveraging debt as a financial tool have their merits. It’s all about understanding your financial goals and your tolerance for risk. If the thought of any debt causes stress, then the path to a debt-free lifestyle is likely right for you. B

ut if you’re comfortable with some level of risk, and understand the potential for greater returns, then responsibly leveraging debt could be a viable strategy.

5 Tips to Achieve and Maintain a Debt-Free Life

If you decide a debt-free lifestyle aligns with your financial goals, your next step is to develop a detailed strategy to get there. Here’s a closer look at some of the key elements of a plan to achieve and maintain a life free from debt:

1. Create a Realistic Budget

One of the cornerstones of any successful financial plan is a realistic budget. This outlines not only your living expenses, but also your debt payments, savings, and discretionary spending. A budget gives you a clear snapshot of exactly where your money goes each month, enabling you to make informed decisions about your spending.

The first step in creating a budget is understanding your monthly expenses. This includes everything from rent or mortgage payments, utility bills, groceries, and transportation costs to smaller expenses like subscriptions, leisure activities, and dining out.

The second part of your budget will be dedicated to any debt payments you have. This could be credit card debt, personal loans, or car payment. Your goal should be to manage these payments while striving to save money and pay down your debt more quickly.

2. Build an Emergency Fund

Life is full of surprises, and not all of them are pleasant. That’s why an emergency fund is a critical component of any personal finance strategy. An emergency fund is money you’ve set aside to cover any unexpected expenses that might arise, such as car repairs, medical bills, or job loss.

By having this safety net in place, you avoid the need to borrow money in an emergency. How much you need to save will depend on your individual circumstances, but a good rule of thumb is to aim for three to six months’ worth of living expenses.

3. Increase Your Income

Sometimes, cutting expenses isn’t enough to move the needle towards your goal of living a debt-free life. You may need to increase your income to make significant progress.

There are numerous ways to bring in extra money. You could seek a higher-paying job, take on freelance work or start a side hustle, or invest in opportunities that yield a return. The key is to use this additional income wisely, funneling it towards your debt payments or savings.

4. Keep Your Credit Utilization Low

Your credit utilization rate, the ratio of your outstanding credit card balances to your credit limits, can significantly impact your credit score. A lower credit utilization rate (generally below 30%) can lead to a higher credit score.

This is beneficial because a higher credit score can make it easier to secure low-interest loans in the future, should you need to borrow. Maintaining low balances on your credit cards, or paying them off in full each month, can help keep your credit utilization rate low.

5. Be Mindful About Taking On New Debt

Finally, as you work towards your debt-free goals, it’s important to be mindful about taking on new debt. While not all debt is bad, taking on debt should not be done lightly. Before borrowing, take the time to thoroughly consider the potential implications.

Ask yourself if the debt is necessary, and whether it aligns with your financial goals. For example, a mortgage to purchase a home or a loan to start a business could be considered “good” debt, as these are likely to increase your net worth over time. However, high interest debt from credit cards or personal loans for unnecessary purchases can hinder your financial progress.

Remember, achieving and maintaining a debt-free life is a journey, not a destination. It requires discipline, planning, and a commitment to your financial goals. But with these strategies in hand, you’ll be well-equipped to navigate your way to financial freedom.

Conclusion

Living a debt-free life can bring numerous benefits, including financial stability, increased flexibility, and a significant sense of accomplishment. But it’s important to remember that not all debt is detrimental, and in some cases, you can leverage debt to reach your financial goals more quickly.

Ultimately, the decision to live debt free or to leverage debt should align with your individual financial situation and long-term goals. By keeping these considerations in mind, you can embrace debt free living in a way that suits your lifestyle and helps you achieve your financial goals.

Remember, personal finance isn’t about following a one-size-fits-all approach. It’s about understanding your financial needs, your tolerance for risk, and your aspirations. Only then can you chart a path that leads to your version of financial freedom, whether that means zero debt, well-managed debt, or somewhere in between.

Source: crediful.com