Money Management

Have you saved enough money? Read on to find out what you should know about your savings progress. 

First of all, if you’re worried about how much money you’ve saved at 25, you’re already a step ahead of many of your peers. Many 25-year-olds are just getting their careers started and are more concerned with figuring out how to cover their current living expenses, and justifiably so.

Having said that, here’s a rundown of how much you should aim to have in savings by the time you’re 25 years old, and what to do if you need to start prioritizing savings. And we’re going to talk about two different kinds of savings — retirement savings and emergency savings.

How much should you have saved for retirement at age 25?

Most financial planners don’t even have savings targets to suggest to clients prior to age 30, at which point the standard guideline is to have retirement savings equal to your annual salary.

At 25, don’t worry too much about the number in your retirement account. You have four decades until you reach the average American’s retirement age. Because of this, you should have two focus areas.

Get started

If your employer offers a retirement plan, such as a 401(k) or 403(b), enroll and set your contribution rate to a reasonable level. At the very least, you should take full advantage of whatever your employer is willing to match, but an ideal savings rate for retirement is about 10% of your compensation. If you don’t have an employer-sponsored retirement plan, open an IRA and start making regular contributions.

Get your asset allocation right

In simple terms, your 20s are the time to be aggressive when it comes to investing. This not only means a high contribution rate, but also a more aggressive asset allocation. Many retirement plans offer guidance or age-based retirement funds that make this easy to set up, but the short version is that your retirement savings should be mainly invested in stocks and stock-based investment funds at this stage.

Emergency savings goals

Did you know the average American couldn’t handle a $1,000 unexpected expense without going into debt or selling something?

Here’s why having an emergency fund is important, even if you’re doing a great job of saving for retirement. If you have to use a credit card at a 20% or higher interest rate every time you have a flat tire, unexpected medical bill, or other unplanned expense, you’re setting yourself up for a cycle of debt that can be very difficult to break. Having an emergency fund can help you stick to a budget long term, prevent you from derailing your retirement savings, and give you much-needed financial peace of mind.

Experts generally suggest that you aim to save six months’ worth of expenses in a separate, readily-accessible savings account. This includes your fixed expenses like rent, car payments, insurance, etc., as well as other costs such as groceries and utilities. The idea is that even if you lose your job and are unemployed for a few months, you’ll be okay.

Don’t be discouraged if a six-month emergency fund sounds like a massive amount of money to save. It is, especially when you’re just starting out. You don’t need to get there (or even close to it) right away, and in full disclosure, I didn’t have six months’ worth of expenses set aside until well into my 30s. My point is to get you thinking about emergency savings as an individual financial goal, and to set a plan in motion to start building yours.

How to get (and stay) on track

If you haven’t started saving for either retirement or unplanned expenses, there’s no better time than right now.

The number one thing I usually suggest to younger savers is to automate the process as much as possible. An employer-sponsored retirement plan takes care of this for you, but if you save in an IRA, set up an automatic transfer every time you get paid. The same goes for your emergency savings. Choose an amount that you can comfortably afford, set it to automatically transfer at set intervals, and you might be surprised at how quickly you build up a meaningful amount of money.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Many people are moving money out of banks as they look for better returns elsewhere. Read on to find out what that could mean for the economy. 

There have been a lot of increases to the federal funds rate over the past year, as the Federal Reserve tries to stem inflation. This move has had a lot of interesting side effects, not the least of which has been a sharp decline in the amount of money kept in banks.

According to CNBC’s Steve Liesman, money has been leaving the banks in the hundreds of billions. Indeed, Liesman says as much as $600 billion has left the top 25 banks, and $150 billion has left the smaller banks.

So where’s all that money going? Unfortunately, not into the economy.

Money markets and Treasuries are the big winners

Liesman says that much of the moving money has found its way into money market accounts, which have seen an increase to the tune of half a trillion dollars. A lot has also been put into government Treasuries — both directly, and indirectly, as money markets like to keep funds in short-term Treasuries.

Interest rates have been a strong driver of this behavior. Treasury rates have been competitively high for more than a year now, and even regular folks have been getting in on the action with a big revival of I bonds (though that particular love affair may be cooling down).

In the end, it all comes down to where the best return can be found. And despite the recent rise of high-yield savings accounts, right now, the best rates aren’t at the big banks.

Big banks don’t need your deposits

Part of this is an active choice by banks, according to Liesman. Banks have better profit margins when they’re not paying out high rates on deposits.

Another part of it all? The largest banks simply don’t need the extra deposits in the first place.

The money we deposit into banks is, in part, what banks use to finance the loans they offer. The more deposits the bank has, the more loans it can provide.

Since many banks make a lot of their profit on the interest from those loans, you’d think they’d want to offer as many as they can. But there’s a risk-reward balance that needs to be carefully maintained, especially in times of economic uncertainty. (If the loans are defaulted on, for instance, all that lovely interest income disappears.)

So, rather than increase rates on deposit accounts to draw in new money, banks have gone the other way: They’re tightening their credit requirements. Stricter credit requirements means fewer loans, but it also means what loans are offered will be lower risk.

The real impacts have yet to be felt

When lenders tighten credit standards, the impacts can be felt throughout the economy. And while a lot of money has already shifted, there is still a lot in motion.

Liesman says the real impacts have yet to be felt. Some experts expect we’ll see a drag on GDP growth later this year or early next year as a result of what’s happening now.

Some amount of that impact will depend on what the Fed does throughout the summer. We may (finally) be at the point where rates stop increasing — or, at least, stop increasing at such a high rate — which could help things settle.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

A credit card is maxed out when the cardholder uses the entire credit limit. Find out what happens next and how this can affect your credit score. 

Maxing out a credit card occurs when you reach its credit limit. For example, if your card has a $5,000 credit limit and a $5,000 balance, then it’s maxed out. This is something you want to avoid whenever possible, because it can cause several issues for you. To understand the potential repercussions, here’s what happens if you max out a credit card.

Additional transactions will be declined

Since you’ve reached your card’s credit limit, you won’t be able to keep using it until you pay down the balance. If you’re unfamiliar with how credit cards work, they’re what’s known as a revolving line of credit. You can keep borrowing from them and reusing them, as long as you pay back what you borrow.

Let’s say you max out your credit card with a $5,000 limit. Then you make a $3,000 payment. That brings your balance down to $2,000 and frees up $3,000 in credit you can borrow from again. Keep in mind that it’s normally better to pay off your full balance, though, to avoid paying interest charges.

There are, however, a couple of situations where you could keep using your card:

You may be able to opt into over-the-limit transactions, in which case you could go over your credit limit. These transactions almost always have an additional fee.Some credit cards are flexible spending cards. These allow you to exceed your credit limit on a case-by-base basis, without a fee.

Your credit score will drop

Your credit score is a measure of your creditworthiness. One of the factors used to calculate it is your credit utilization ratio, or the amount of your credit that you’re using. For example, if your card has a $200 balance and a $1,000 limit, that would be 20% credit utilization.

Lower credit utilization is better for your credit score. A popular guideline is to stay below 30% credit utilization. There are two types of credit utilization that are important:

Overall: The combined credit utilization across all your credit cards. This is calculated by dividing all your cards’ combined balances by their credit limits.Individual: The credit utilization on each card you have.

If you max out a credit card, you’ll have 100% credit utilization on that card. This can have a big negative impact on your credit score. It will be even more significant if that’s your only credit card, since that means you’ll also have high overall credit utilization. High credit utilization can drop your credit card as much as 50 points, according to Rod Griffin, senior director of consumer education of Experian.

You could end up in credit card debt

When you use credit cards, it’s extremely important to be careful about your spending. If you overspend and can’t pay off your balance, you’ll have to deal with credit card debt. Unfortunately, many consumers end up in this situation. The average amount of credit card debt held by consumers is over $5,000, according to recent credit card debt statistics.

Maxing out your credit card doesn’t guarantee you’ll end up in debt. After all, you may still be able to pay off the balance in full by the due date. But many people who max out their cards can’t do that and instead carry around a hefty balance from month to month.

That’s what you want to avoid. Credit cards tend to have high interest rates, and their interest rates even recently hit a record high. The best approach is to spend only what you can afford to pay back.

There are a few things that can happen when you max out a credit card, and none of them are good. Be aware of your credit limit and aim to avoid maxing out your credit card. You’ll be able to keep using your card, and you won’t need to worry about your credit score or credit card debt.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Max My Interest helps you manage your money and earn higher interest rates. Learn more about how it works and find out if you should give it a try. 

Interest rates increased quite a bit last year. While that has made it much costlier to borrow money, it has also led to banks offering higher interest rates. Savings account rates are at their highest point in years, with some currently offering APYs of 4% or more.

Most people want to earn as much back on their savings as possible, but chasing the best interest rates can be a hassle. Banks often adjust their rates, so the bank with the best rate today might not be on top tomorrow.

Enter Max My Interest, normally referred to as just Max. It does the work for you, finding the highest rates and showing you where to put your money.

How Max My Interest works

Max is a cash-management platform that recommends the highest-yielding bank accounts to you. Now, it’s easy enough to get this information online. You can just look at the highest savings account interest rates for that. But there are a few advantages to using Max:

It monitors bank account rates. When rates change, it will keep you up to date on which savings accounts offer the most interest.It makes opening new bank accounts easier. Using its MAX Common Application feature, you can open a bank account in as little as 60 seconds.It also helps you keep your cash fully insured. Most U.S. banks offer FDIC insurance, which covers up to $250,000 per eligible account. Max will show you how to spread your money around to multiple high-yield accounts so all your money is covered.

That last benefit could come in handy for those with a significant amount of savings. If you have over $250,000 in a single savings account, then your money most likely isn’t fully insured, because that exceeds FDIC insurance coverage. With Max, you’ll get recommendations that keep you below the insurance limits with all your accounts.

There is a membership fee of 0.04% per quarter (0.16% per year) for Max. However, there’s also a minimum fee amount of $20 every three months. Although anyone can use Max, it really only makes sense for consumers with large savings. To avoid paying more than 0.04% per quarter, you need at least $50,000 in balances.

Is Max right for you?

If you have lots of money in savings, and you’re always trying to get the best interest rates, then Max could help with that. It will let you know where you can earn the greatest return and simplify the process of opening new accounts.

However, you’d probably be better off just picking a high-yield savings account and sticking with it. The amount you make by chasing the best interest rates is rarely worth the time and effort.

Let’s say Max helps you earn 0.40% more in a year thanks to its bank account recommendations. After the 0.16% in fees, you’d come out ahead by 0.24%. On a $100,000 balance, that would amount to $240.

It’s always nice to make another $240. But if you have $100,000 in savings, is it really worth micromanaging your bank accounts just to squeeze out a little extra interest? That’s for you to decide. Some people might not mind, while others prefer keeping it simple to save time.

One last thing to think about is that if you have a large amount in savings, and you want to earn a better return, you could also invest more. Over long time periods, investing in stocks can pay off far more than any bank account. You wouldn’t want to invest your emergency fund, or any money you’ll need in the near future. But for long-term goals, like retirement, investing beats saving.

These savings accounts are FDIC insured and could earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

 Read More