Common Financial Questions
If you have more questions than answers about managing your finances, know you're not alone. So many decisions can significantly impact your finances, so understanding answers to common questions like these is crucial. Knowing these answers can also help you avoid financial mistakes and set up your future self for success. Read on for our top questions!
Should You Pay Off Debt First or Save
The answer is both simple and complicated; do both! Set a goal for a specific amount of money to save for emergencies, which can vary depending on where you live. If you live in a state with a lower cost of living, $600 might be enough, but in more expensive places, you'll want to save $2,000 or more. Emergencies are inevitable, and you don't want to undo all your hard work just because you have an unexpected bill. Once you've hit your savings goal, only touch that account if you have to, and then you can focus on paying off your debt. There are different strategies to pay off debt, but whatever option works best for you, do your best not to go into more debt while trying to pay it off.
How Do You Create a Budget That Works
This all depends on what works best for you. In our article Getting Your Finances on Track, you can find some basic budget options and ways to save. All budgets start with making a list of your bills and any monthly payments you make, like your car and housing payments, and then dividing what's left between bills that change (groceries, gas, things like that), saving, and paying off debt. Even $10 a month adds up over time, so save what you can while making payments.
Should I Set Financial Goals
Yes, you should! Goals can help you focus on saving for something rather than using credit to buy it now and having to pay interest. Even if you don't have your eye on anything specific, like a car or a trip, you should still set a number for saving a specific amount of money to give yourself something to work towards. Saving money is always a good idea.
What is a Good Credit Score
Generally, you want your credit score to be 650 or above. Every financial institution and lender uses your credit score when reviewing your application and deciding whether to approve or deny it. The higher your score, the better your chances are at approval, and the lower interest rate you'll get, which saves you money. You want your credit score to be around 650 or higher for the best chance at a great interest rate.
How Do You Improve Your Credit Score
The main thing to remember is that your credit score (sometimes referred to as your FICO score) takes time to improve. Make your payments on time every month, keep your credit card balance low, and don't open too many new credit accounts. Not only could this hurt your score, but you'll also have access to a lot of credit. Spending can be tempting, and once you start, it's easy to find yourself with multiple maxed-out credit cards. Learn more in our article What is a FICO Score and Why is it Important.
How Do I Find Out What is On My Credit Report
Visit annualcreditreport.com to request a copy of your credit report from each of the three major credit bureaus once every 12 months for free. You are also legally entitled to a copy of your credit report when you apply for credit, such as a personal loan or credit card; request it from the company when you hear back about your application. When you check your credit report, you can dispute anything you see that isn't right and even ask that something be removed or updated. They will work directly with the reporting company on your request.
What is a Checking Account
Also called a spending account, a checking account allows you to deposit money and then spend it electronically through your debit card, withdraw cash, or use other electronic payment options, such as Venmo, Zelle®, ACH, and other automatic payments. You can also get money deposited directly into your account, so you don't have to get a paper check that needs to be cashed or deposited. Checking accounts typically don't have much, if any, interest and can have fees like insufficient funds, where you spend more than you have in your account and are charged a fee. They are also FDIC-insured for up to $250,000, which is much better than being out of luck if your cash is lost or stolen! WaFd Bank offers *Free Checking, among other account options, that gives you access to all the digital tools you'd expect from a Best Bank.
How Do You Choose a Bank
Decide what you want from a bank first. Is it important to have branches everywhere you go so you have in-person help? Would you rather have the latest technology, like Voice-Activated Banking? One with exceptional customer service, like a best bank? Or do you want a bank that's invested in your community? Thinking through these questions will help you decide what's right for you. While you're choosing, consider WaFd Bank. Multiple companies have voted Best Bank for years, so we know a thing or two about caring for our clients and communities with some of the best digital tools out there.
When Should Kids Learn About Money
The answer might surprise you. Kids as young as five can learn the basics of spending and saving, and if you start young, you can build on their knowledge as they grow. If your kids are older, there is always time to learn and develop a foundation for a bright financial future. For tips on where to start, check out our article How to Teach Your Child the Value of Money.
How Does Marriage Impact Your Finances
When you get married, you are legally bound to your partner, including finances, even if you decide to separate your money. So, before you decide to tie the knot, make sure you're both on the same page with your financial situations, like how much debt each of you has, your savings account balances, and what both of your financial goals are so you can work together toward the future. If you're curious about how exactly to do this, we have some tips for you in How to Combine Your Finances After Marriage (still applies even if you aren't there yet!).
How Do CDs Work
CD is short for certificate of deposit. Think of it as a savings account locked for a specific amount of time you set. That amount of time is called a term, and terms generally range from 6 months up to 5 years but can vary depending on the bank. Each term has a corresponding interest rate, so pay attention when considering your options. A CD is an agreement between you and the bank; you agree to leave your money in the account for a specific term, and the bank will pay a higher interest rate than you would get on a regular savings account. You still have access to your money, but because you agree to leave it there, you may be charged a fee if you take out some or all of your money before your CD has matured. That being said, CDs are a great way to help your money work harder for you, especially if you know you will only need that money after your CD has matured (reached the end of the term). They are safe, secure, and a great option to help grow your savings! Check out WaFd Bank CDs to see what's right for you!
What is Compound Interest and How Does it Work
Basically, compound interest is when interest is paid not only on the principal amount but also on the interest you receive. For example, if you open a savings account with $5,000 (your principal amount) and don't deposit anymore, let's say your interest rate is 2%. At the end of month one, you'll receive $8.33 in interest. Now, your balance is $5,008.33. Next month, you have the same 2% interest rate that will be paid based on the balance in your account, which in month 2 is $5,008.33, so you'll receive $8.35 in interest. Over time, these seemingly small increases add up to a lot, and that's the power of compound interest.
What's the Difference Between Closed and Open-End Credit
An IRA is an individual retirement account. Traditional and Roth are two options, and the difference is that you contribute money toward your traditional IRA before taxes are taken out of your paycheck. For a Roth IRA, you contribute money after taxes are taken out of your paycheck. While your money is in your IRA account (either option), it is not taxed. When you withdraw money once you've reached retirement age, your money is taxed using the tax bracket you are in at the time of withdrawal with a traditional IRA. If you have a Roth IRA, you already paid taxes on your money when you contributed to your Roth IRA, so you don't have to pay taxes when you withdraw after you've reached retirement age.
How Much Should You Save for Retirement
This is different for everyone, and there are lots of factors involved. But saving 10-15% of your annual income before taxes is a good place to start. While there isn't a perfect equation to figure out how much you should have by retirement, know that you can base your goal on the lifestyle you want to have after retirement. Consider working with a financial advisor to help you find the correct number and a plan to save the right amount to be ready when retirement day comes.
What's the Difference Between Traditional IRA and Roth IRA
An IRA is an individual retirement account. Traditional and Roth are two options, and the difference is that you contribute money toward your traditional IRA before taxes are taken out of your paycheck. For a Roth IRA, you contribute money after taxes are taken out of your paycheck. While your money is in your IRA account (either option), it is not taxed. When you withdraw money once you've reached retirement age, your money is taxed using the tax bracket you are in at the time of withdrawal with a traditional IRA. If you have a Roth IRA, you already paid taxes on your money when you contributed to your Roth IRA, so you don't have to pay taxes when you withdraw after you've reached retirement age.
What Do You Do if You Have Fraud on Your Account or Credit Card
Contact your bank or credit card provider immediately. Generally, federal law protects consumers from responsibility for unauthorized transactions. You'll need to report any unauthorized transactions to your bank or credit card provider within 60 days after you receive the statement showing the unauthorized transactions. After that, you won't be reimbursed = for the loss, so check your transaction history and statements regularly, either online or through your credit card app. Plus, unauthorized transactions can potentially tie up your credit limit and impact your score until things are resolved. Because some providers have fine print regarding what is or is not covered, you'll want to review all communications from your bank or credit card issuer. Regularly going through your account activity helps you quickly catch billing errors and unauthorized transactions. The same goes for checking and savings account statements!
Common Scams You Should Know About
There are too many scams out there to list, but some basic categories of scams to watch are emails asking for personal information, notifications that you've won a sweepstakes that you didn't enter, and job scams. If anyone, company, or person sends you too much money for something (buying equipment to start a work-from-home setup or they're buying something from you online) and asks you to send back the difference, that is almost always a scam. Always remember that if you get a phone call, text, or email that seems like it's from your bank, the postal service, or another company asking for personal information or that has a strange-looking link, do not provide any information or click on any links. Your bank, including WaFd Bank, will never ask for personal information or a passcode of any kind. When you call WaFd or your bank directly, we may ask you to provide information to verify your identity. Learn more in our article How to Identify Scams and Prevent Them.
WaFd Bank is Here to Help
No question is too small for our friendly bankers, plus you can get Free Checking* with WaFd! With your accounts, you also have access to digital tools and services to help you manage your finances and get the most from your money. Visit us at your neighborhood branch, give us a call at 800-324-9375, or check out what WaFd online banking has to offer.
*Nonsufficient funds fee may apply.
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