Personal Finance FAQs

An emergency fund should be liquid and easily accessible. Right now HYSAs (high yield savings accounts) are offering some of the highest interest rates seen in years, up to 6%. This is much higher than a traditional savings account; the national average is 0.45%. HYSAs are FDIC insured, and you can make deposits any time.

You may want to consider that some have a minimum balance requirement, and they are generally offered online, with no branch locations, so make sure you compare several options.

Many people hear the word "budget" and immediately cringe, but think of a budget as a way to make your money work for you, rather than viewing it as restrictive.

Without a budget, you won't know where your money is going, and you may find yourself in a paycheck to paycheck cycle. You can start by tracking your spending for 30 days, then use that information to inform your budget. Note if there are any surprises; did you spend more or less on certain items than expected? Make adjustments as needed.

Automate transfers to your savings account. You can often do this directly through your employer, or through your own bank account.

Prioritize paying off high-interest debt. If you are carrying a balance on a high-interest loan or credit card (over 8%), factoring in compound interest, you are losing quite a bit of money.

Once the balance is paid off, you will be able to save or invest the money that you were using to pay the card.

You are entitled to a free credit report annually from all three credit bureaus, Equifax, Experian, and Transunion. Your credit score is based on the information in your report. Make note of any inaccurate information, such as incorrect personal information, duplicate accounts, errors in account balances, closed accounts still listed as open, and incorrect late payments. If you notice a discrepancy, reach out to the creditor and the credit bureau in writing.

Late or missing payments will negatively affect your score. This can result in high interest rates and difficulty obtaining a loan. Set up automatic payments so you don't miss any, which will also help you avoid late payment fees.

Your credit utilization is the amount of credit you are using divided by your available credit. The goal is to keep this number below 30%. If you pay off a credit card, don't close it, as this will raise your credit utilization ratio.

Maintaining revolving credit, open credit, and installment credit with on-time payments can benefit your credit score, demonstrating to lenders that you can responsibly manage different types of credit. However, don't open new accounts just to improve your credit score.

A new credit application requires a hard inquiry, in which lenders review your credit before rendering a decision. This can negatively impact your credit score.

Make a list of all outstanding balances and interest rates. Create a budget that provides for payments toward reducing the amount owed, which should be more than the minimum payment. You may also consider consolidating multiple debts into a single loan or credit account, with one monthly payment.

Be aware that this may temporarily lower your credit score, but as you pay off the debt it will go up in the long run.

SRI is a strategy that aligns your values and goals with your investment decisions. It considers a company's ethical, social, and environmental goals, as well as traditional financial analysis.

SRI is related to ESG investing, which considers a company's environmental impact, social impact, and corporate governance. You can choose individual stocks, or invest in an ESG fund.

Check out the MSCI Socially Responsible Investing Indexes, which represents companies with high ESG ratings.

Start by figuring out your retirement budget, which may look much different than your current budget. Consider factors such as: Will you own or rent? Will you owe on a mortgage? Will you move to a lower cost of living area? What will your hobbies and activities be? Will you travel? Will you need a car, or rely on public transportation?

This will give you an estimate of how much you will need to live on each month.

Next, consider your sources of income: At what age will you collect Social Security? Do you have a retirement account or pension? Do you have other investments, such as real estate, that provide passive income?

The 4% rule has traditionally been the retirement "rule of thumb," however, this may not be the best option for everyone. The 4% rules suggests that a retiree withdraw 4% of their savings in the first year of retirement, and adjust for inflation each year thereafter. However, this is based on a portfolio of 50% stocks and 50% bonds, and assumes you will live 30 years past your retirement date. Most advice today is to diversify a portfolio beyond stocks and bonds. It also does not account for Social Security income.

Recent alternatives to the 4% rule are:

Spending Guardrails, which entails setting upper and lower limits to withdrawals each year

Boglehead's Variable Percentage Withdrawal Strategy, which, instead of adjusting for inflation, uses age, asset allocation, and portfolio balance to determine withdrawal rates.

Spend Safely in Retirement Strategy, in which the retiree waits to claim Social Security until age 70, and calculates annual spending from retirement savings based on the RMD (Required Minimum Distribution) formula.