The questions you're nervous to ask

I fear asking questions in an open forum.

Remember when you were a kid and the teacher asked “anyone have questions?” Meanwhile you’re still trying to figure out what she said 15 minutes ago.

Same.

There’s plenty of those when it comes to your finances. Let’s tackle five.

RAPID FIRE.

Tools mentioned today:

Are there any drawbacks to using credit cards for all purchases if I pay them off in full every month?

No.

Using credit cards for all purchases can be a smart choice if you pay off the balance each month. You can earn rewards, build your credit score, and get extra protection against fraud.

However, it’s easy to overspend because you don’t feel the money leaving your bank account right away. To avoid this, stick to your budget and treat your credit card like cash.

If that inspired you, here are the best credit cards right now (US only).

How much money should I keep in my checking versus savings account?

Your checking account should have enough to cover your monthly expenses, like rent, groceries, and bills. This helps you avoid overdraft fees. A good rule of thumb is to keep 1-2 months’ worth of expenses in checking. For example, if your bills are $2,000 a month, keep $2,000-$4,000 in checking.

The rest should go into your savings account, especially for emergencies. Your savings should ideally cover 3-6 months of expenses, so you’re prepared for unexpected events, like losing a job or car repairs.

To make it super easy, here’s an emergency fund calculator - the minimum amount you should have in your savings account.

Is it bad to only pay the minimum on my credit card? 

Yes.

Only paying the minimum on your credit card can cost you a lot in interest. The minimum payment is usually just a small percentage of what you owe, so the rest stays on your balance and accrues interest.

Always try to pay the full balance, or as much as you can, to save money and avoid debt.

To see the stats for yourself, check out this credit card repayment calculator.

How much should I be investing vs. saving?

This depends on your goals, but a common guideline is to save for short-term needs and invest for long-term growth. For example, if you’re building an emergency fund or saving for a vacation, put money into a savings account. If your goals are years away, like retirement, consider investing!

A good starting point is to save 3-6 months of expenses, then invest any extra. For instance, if you make $3,000 a month, aim for $9,000-$18,000 in savings, and invest anything beyond that.

If we go by the 50/30/20 rule, you should be saving 20% of your monthly income. If you’re starting from scratch, save towards your emergency fund. If you’ve already got that, save for some short term goals. If you’ve already got that (congrats), invest!

Here’s a 50/30/20 budget calculator to help you out.

What is a credit score and why does it matter?

A credit score is a number that shows how trustworthy you are with money. It ranges from 300 to 850. A higher score makes it easier to get loans, rent an apartment, or even get a job.

Your score depends on things like paying bills on time, how much debt you have, and how long you’ve used credit. For example, paying off your credit card balance every month can boost your score. A good credit score can save you money by helping you get lower interest rates on loans.

Not sure what your credit score is? Check it out for free with CreditKarma.

Anyone have questions?

We covered a few common ones, but we know there’s a million of them. If you’re nervous about asking a nameless faceless person that wrote this newsletter, I get it. But we’re here for you always!

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