Money Talks Blog by Oxford Planning Group

April is designated as Financial Literacy Month in the U.S., so I thought this topic would be fitting for the blog today.

Financial literacy is the ability to understand personal finance and economics and in turn be confident in making financial choices for one's self to achieve your goals.

Most people recognize that finances are important for personal well-being as well as the well-being of an entire family unit. However, it seems all you hear about the younger generations is how wasteful we are with money or how most of us are not interested in learning about finances.

A 2018 study conducted by Charles Schwab about financial literacy in young adults found that the average young adult owed around $8,000 in debt, used their parents as their primary source for financial information and were not financially independent but it was their top goal.

Another study conducted by Charles Schwab back in 2009 found that 2/3 of young adults in the study considered financial fitness more important to them at the moment than physical fitness. About the same amount of young people ranked financial priorities such as eliminating debt more important than things such as getting a car or paying for graduate school.

These studies show that young adults are interested and see the importance of financial literacy; but they don’t always know where to start when trying to learn.

First off test your own knowledge with this short quiz:

http://www.usfinancialcapability.org/quiz.php

Now watch this video and read a bit of this article to see how peers around your age answered the same types of questions:

https://www.cnbc.com/2017/09/19/94-percent-of-americans-failed-this-financial-literacy-quiz.html

Where to start? Personal Finance!

Step 1: Savings

Check out some of my previous posts on this blog to learn some basics about financial literacy such as how to budget, best types of savings accounts, and how to understand retirement plans. 

• Create a budget if you do not already have one
• Determine if you have the best type of savings account for yourself
• Invest in your future self with company sponsored retirement plans!

Step 2: Debt

Look at credit card statements, student loans, car loans, ect. and determine the best way for you to pay them off.

Step 3: Goals

What are you future goals? Is it to have your own, a specific car in the future, or maybe you want to start your own business! Start saving now! Build up an emergency fund and start building up money towards your personal goals.

What’s Next? Further Your Knowledge

Next, use some of the resources listed below to begin learning about other topics to improve your financial literacy further. Find a topic that interests you, you think would be personally beneficial, or just something you have heard a lot about and have questions on. The more you know, the better off you will be.

Resources:

Beginners’ Guide by National Endowment for Financial Education:

https://www.smartaboutmoney.org/Portals/0/Resources/Your-Spending-Your-Savings-Your-Future.pdf?ver=2012-09-14-134128-837

Resources for College age and Beyond for Financial Literacy Month:

https://jumpstartclearinghouse.org/resource/search/results/?grade_levels=Adult-Consumer&grade_levels=college-young-adult&page=1&page_size=8&price_high=1000&price_low=0

• Some of these are free and some are not, price is listed right next to the quick look link for each

2009 Study

https://www.schwabmoneywise.com/public/file/P-4065778/

2018 Study Results

https://www.schwabmoneywise.com/public/moneywise/tools_resources/literacy_survey

What is the stock market?

• The stock market is made up of a network of exchanges with stocks listed on specific exchanges
• Market indexes track performance of a group of stocks and are used as a benchmark for performance
  • Common indexes: S&P 500, Nasdaq, Dow Jones Industrial Average
• Many factors can affect whether the stock market is up or down, so it is very hard to predict changes to stock values

What are stocks and bonds?

• Stocks are a way for companies to raise funds and for investors to potentially grow their money
  • When you purchase stock, you purchase a small piece of that company (a share)
• Common Stock pays dividends but are not guaranteed and the amount is not fixed
  • Dividends: regular payments to stockholders
• Preferred Stock pay fixed dividends and holders are first to get paid and receive a liquidation of assets, over other stockholders, if company goes bankrupt
• Within those categories stocks are further broken down into various sectors
• Bonds are debt with an agreement to pay interest while the company uses the money
  • Have maturity dates where principal investment is paid back
  • Good for investors who want income (in the form of interest payments)   

Stock and Bonds vs. Mutual Funds

• Individual stocksor bonds:
  • Takes significant time to do proper research on individual stocks and build a well-diversified portfolio
  • Additionally, trading costs can be higher for an individual investor
  • Learn how to research stocks efficiently if you really want to get into individual stocks
• Mutual Fund & ETFs: Group of stocks and/or bonds professionally managed
  • Easier to build a diversified portfolio
  • Generally, have steadier investment returns as the return is not reliant on a single stock or bond
  • If you have a 401(k) you are most likely already investing in stocks and bonds through mutual funds available in the plan

What to Consider Before Investing in Stocks :

• Put in enough money to a 401k to get the employer match and maximize the value of tax deferred assets
• Make sure you are paying for adequate health insurance and consider other coverage such as disability and life insurance depending on your personal situation and other employer benefits you have available
• Pay off any debt you have or have a plan to pay off that debt in coordination with other goals
• Start an emergency fund- you don’t want to have to sell stocks at a loss to pay for an emergency
• Learn the basics of investing instead of just picking stocks that look interesting

You’ve Decided to Invest, Sit Down and Make a Plan :

• Determine your reason and timeline for investing
  • Are you investing to bulk up your retirement funds that you won’t need for 30 years? Or maybe trying to save for a house that you hope to purchase in ten years? Long term goals are usually the best when dealing with the stock market
  • If you have a short-term goal that you really need money for, the stock market may not be the best option
• Assess your risk tolerance (this should correlate with your timeline)
• Are you the DIY type or do you want someone else to manage the process?
• Diversification is the key to success: build a broad portfolio (either on your own or with the help of an advisor) by investing in different stocks, across different sectors and investing in mutual funds and ETFs
• Have patience!

For Short Term Goals (3-5 years) Consider:

• Individual bonds
• CDs with maturity dates less than 3-5 years
• Money Market Accounts

For Long Term Goals Consider:

• A diversified portfolio including Cash, Bonds, and Stock Funds
  • Amounts in each asset class will vary depending on your timeline and risk tolerance

Take Away Note:

• If you have read over what to do before investing and decided that you have enough extra funds to invest in the stock market, start researching now! The stock market is complex and learning as much as you can will help you and your investments in the long run.

What’s a credit score and how much does it really matter? 

A credit score is a number given to an individual that represents their ability (based on previous payment history) to repay a loan.   And yes, it REALLY matters - a lot. 

Do you have a credit score?

• As stated above, a credit score is based on history. So, if you have never had a credit account, there is no history to create the score from. This does not mean you have a score of 0, it simply means you just don't have a score at all.
• If you have a credit card, but it is a joint account with your parents, that won't provide a history for yourself.

The two major US credit scoring companies are FICO and VantageScore. Quick breakdown of rankings:

Credit Score Rankings

Excellent: 800-850            Good: 700-749         Poor: 600-649

Very Good: 750-799         Fair:     650-699        Very Poor: 300-599

What affects your credit score:

# 1: Payment history

• AARP states that just one late payment on a credit card can drop your credit score 100 points. Yikes.This is true even if you have a long credit history and have never missed a previous payment.

# 2: Credit Utilization Rate: percent of total credit limit that you have as a balance.  Most sources recommend staying below 30% utilization of your credit limit. Meaning, you need to make sure you are paying off your credit card every month don't have an outstanding balance of more than 30% of your available credit.

So - if your credit limit is $5,000, try to stay below $1,300 each month

    Other factors: how long you have had credit and what kinds of credit have you have had?

What your credit score affects:

• Ability to get a credit card
• Ability and rate for a car loan or mortgage
• If you can rent the apartment you want to rent
• The article below describes how credit scores can be used to determine risk for car insurance,

https://wallethub.com/edu/car-insurance-by-credit-score-report/4343/

How to keep/build a good credit score:

• Pay your bills on time- all the time!
• Keep your credit utilization balance below 30%
• Don't open too many credit cards. Store cards may cause your FICO credit score to drop.    Resist the temptation of store clerks offering to help you “save extra money today”. 
• Taking a small car loan can help build up good credit as well
• Save separately for emergencies to avoid having to put the money on credit cards
• Check your credit at least once a year at all 3 bureaus to make sure there are no errors or fraud
• Credit builder loan to help build credit as well as build your savings (use as a last option because it ties up your money while you pay off the loan)

UltraFICO score

• Currently in the pilot phase for consumers, estimated full launch by mid-year
• FICO states that the UltraFICO score gives you the ability to enhance your credit score by choosing to securely link your checking, savings, and money market accounts
• Has potential to be a good option for those with no credit score or a low credit score

Where to find your credit score? 

This is the only actual free site to check your credit score authorized by Federal Law.  Be sure you’re on the right site – many have very similar sounding names:

http://www.annualcreditreport.com

• Free once a year from each of the three major credit bureaus - it's a good idea to check your credit score 2-3 times per year by checking once a year each

You work hard for your money – don’t lose the benefits of keeping that good credit score!    

Thinking about getting a pet? Let's walk through the true cost of having one. To keep things simple, in this blog I am going of focus on the cost of having a dog and use mostly average prices. Pictured above are our very much loved family dogs Finn & Haley.

One- Time Fees:

• Initial Price: Cost depends on age and breed and whether you want to adopt a rescue or adopt from a breeder.
  • Maryland SPCA adoption fees for dogs range from $125 to $325 plus $25 for mandatory microchipping
  • According to an article by Forbes, adopting from a breeder can range anywhere from $500 to $3000
• Neutering/spaying: Cost varies. Many vets offer puppy packages that can reduce the cost for shots, visits, and spaying or neutering. Vetstreet.com states that at private vet practices, the procedures can run from $100-$600.
  • There are plenty of low-cost spaying/neutering clinics available with a quick google search; however, don't go that route just to save money. Do your research. They must skimp on many things to be able to provide the procedure at a low cost
  • Question to ask yourself: Which price point allows me the standard of care I am looking for, for my pet?
• Crate: $40 to $50 for a heavy-duty crate that can grow with your puppy
• Shots: Puppy shots series can average $120, plus annual shot fees

*If you aren't adopting a puppy, the dog you adopt may already be spayed/neutered and have most of its early shots already so some of these costs may not apply.

Annual/ Monthly Fees:

• Toys: Varies for each pet owner. If you have a toy shredder like my family, you could have to replace them every month. $10-$20 per month.
• Dog food and treats:Anywhere between $200-$500 per year depending on the type you want to buy
• Annual Medical Checkups: $50 to $100
• Random: pet collars ($20), leashes ($15), beds ($30), food and water bowls ($10 to $20)
• Medicine: Either for acute incidences or chronic conditions. Pets get sick and can also be diagnosed with lifelong problems. Be prepared for either and have enough emergency fund money for your pet to pay for them.
• Grooming: Certain breeds require regular grooming because they don’t naturally shed or maybe you don't have enough space in an apartment to bathe your dog at home. Also, if you aren't comfortable clipping your dog’s nails that is another fee to consider.
• Pet Sitting: Do you have friends or family that can stay with your dog if you go on vacation? If not, you will need to look into having someone dog sit or find a place to board them. Also consider vacations that you can bring dogs on. Boarding a dog averages about $35 a night for a medium size breed.

Emergency Fees:

• If you are unfortunate enough to have a pet need urgent medical attention, the cost can hit hard. If it is outside of normal veterinary practice hours, an emergency vet is probably your only option. The fees for emergency vets can add up quickly (our puppy ate a bee and cost us $1000 one weekend). Dogs and puppies alike get into random trouble all the time so once again make sure you have an emergency fund for your pet.

Other Costs:

• Training classes: Whether you are a first-time dog owner or have a rambunctious puppy like we did, classes are awesome for socialization and help with training. Prices vary per company and number of sessions.

Time:

• One really big consideration before adopting a dog is time. What kind of hours do you work? Will you need a dog walker or some type of doggie day care while you’re at work?  If you like to go out multiple times a week after work or maybe you have a side hustle to help make some extra money, adding a pet will change that routine a lot.  

In my opinion, a dog is so worth the cost - as long as you have the extra cash and time to spend!

Author: Kirsten Eddy, Junior Portfolio Analyst 

As a young adult, it can be daunting to try to find information about the best way invest for the long term – specifically retirement accounts.  I know, it’s easy at this stage to think “I have tons of time to start thinking about getting my finances in order!” and - it's hard to sort through all the information out there to get down to the basics of what you need to know.

In this blog, I'm going to break down four retirement accounts (there are many more) and give you some facts to help you understand your options. This is by no means meant to be a comprehensive list of information. My goal for this post is to create a starting point that you can use to jumpstart further research into the type of account or accounts that will best work for you.

Types of retirement accounts:

401(k) and Traditional IRA: Contributions are made before being taxed (saving you taxes upfront) and your money grows tax deferred

• The money is taxed when you withdraw it for retirement
• 401(k)’s are sponsored through employers; however, not every employer offers one
• An IRA is a good choice for people who do not have access to a 401(k) or other retirement plans at work

Roth 410 (k) and Roth IRA: Contributions are made with money from your paycheck that has already been taxed, so it’s tax free to withdraw during retirement if certain criteria are met.

• If you believe you’re in a lower tax bracket now than you will be later, it’s smart to choose the Roth option and pay the taxes now instead of later.
• Not everyone qualifies for a Roth account, you must meet certain salary requirements.

Where to Start: Does your employer offer a 401(k)?

• If your employer does offer a 401(k) plan take advantage of it, especially if they offer a match. Put in enough money to get the maximum match. If you have maximized your 401(k) contribution and still have more you want to put into savings, review whether you are eligible to contribute into a personal IRA or Roth IRA. Depending on your income you may or may not be eligible to do so.

What to Know About Your 401 (k) Plan:

• Employer's 401k plan documents: What you need to find out -
• When you can contribute
• Company match- is there one? And if so, what are the rules
• How much can you contribute
• Investment options offered
• Maintenance costs and fees
• Roth options- if available, do you qualify and is it a good option for you currently?
• What happens to your money if you leave the company
•  If your employer offers a 401(k) match, put in enough money to get the maximum match
• Bonus note: you are lowering your taxable wage base in the process

What to Know About Your IRA Plan:

• Opened individually at a brokerage or bank
• Without access to an employer available 401(k), an IRA is a smart choice to start your retirement savings
• Do you qualify for a Roth IRA?
• Do you qualify for full, partial, or no deduction of taxes based on your salary?

Contribution limits:

                                                              Below Age 50               Above Age 50

2019 Contribution Limits 401(k):        $19,000                        $25,000

2019 Contribution Limits IRA:            $6,000                          $7,000

Don't take early withdrawals!

• Roth 401(k)’s and Roth IRA’s are only tax and penalty free upon withdrawal if the account has been held for five years or longer and withdrawal is made in the event of disability, death, or the account holder is above 59 and a half years old.

• If you wish to withdrawal money from your 410k before age 59 and a half, you must pay a 10% penalty fee on top of income taxes.

Final Thoughts:

Do: Start ASAP, Increase Contributions, Rebalance Annually and Diversify

Don't: Time the market, cash out early, or Take a 401(k) loan

If you can't max out both a 401(k) and an IRA in a year, max out the 401(k) first to get the total employer match and then put as much as you can (if eligible) into an IRA.

If your employer does not offer a match, still consider maxing out your 401(k). If your 401(k) has a Roth option, consider whether you are in a lower tax bracket today than you will be in the future. If so, consider using the Roth 401(k) option.

Start saving now!If you read through this information and thought "That was useful, but I probably won't start savings for another couple of years" rethink that logic! No matter your age, you are never too young to start saving for retirement. Compounding interest is your best friend. The earlier you start saving, the easier it will be for you to accumulate a healthy nest egg.

Tools and Resources:

Take a look at our calculator to see how you can grow your retirement savings with early planning.

• https://www.oxfordplanning.com/resources/calculators?view=calculator&id=31

Further Resources for Information

• https://www.nerdwallet.com/blog/investing/best-retirement-plans-for-you/
• https://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index.htm
• https://money.cnn.com/retirement/guide/401k_basics.moneymag/index.htm

Author: Kirsten Eddy, Junior Portfolio Analyst