The Daily Tip Jar

Whether you just took personal finance in school last year or 30 years ago, it’s always a smart choice to review good money management practices. In the case you’re part of the 83.6 percent of the population who weren’t required to take personal finance in high school, here are the top takeaways to keep in mind.

 

1. The Magic Proportions for Your Income: 50/30/20

This proportion gets at how to enjoy today while ensuring financial stability for tomorrow. The order goes from “Needs” to “Wants” to “Savings.” One way to know if you’re living within your means is to see if you’re spending under 50 percent of your paycheck on your needs (groceries, housing, utilities, insurance). If you’re spending under 50 percent, you’re in the green! If not, it might be a good idea to reconsider your budgeting. Wants such as shopping, entertainment, dining out should only take up 30 percent of your budget, and the remaining 20 percent should be put in savings (such as emergency funds) and/or investments. While it’s not suggested to increase the percentage of income dedicated to needs and wants, it’s highly encouraged to up the percentage of income for savings.

2. It’s Never Too Early To Save For Retirement

The topic of retirement itself is worth dedicating a whole other article to, but to keep it short and sweet, here are the top reminders. There are two top ways to save: Employee 401k (obtained through your employer) or Individual Retirement Account (IRA). For an IRA, you can choose to go with the traditional route (taxed when you withdraw) or Roth IRA (generally earnings and withdrawals are tax-free; eligibility depends on income). Check out this online tool from Merrill Edge (an online service of Bank of America) to see which IRA is better for you. Start saving the first day you start receiving an income, and if you’ve already started, see if you can up the amount of income you put into to your retirement funds. If you need more reason to see why you should start saving up for retirement now, check out one of our previous articles here!

3. How DO You Fill Out Your W-4 Form?

Part of any on-boarding process for any job or position requires filling out your W-4 Form. This form determines how much federal income tax your employer should withhold as well as other standard deductions. The allowances section seems pretty simple to read, but it’s important you claim the right amount of allowances. Filling out your W-4 Form inaccurately runs the risk of you owing the government money come tax return time. Here’s a more in-depth breakdown on the amount of allowances you should claim depending on which employment situation you’re in, but all in all, if you’re a working student, you’re more likely than not going to want to claim zero allowances. If you’re not married and working one job, the usual threshold is one to two allowances. For those with families, the amount of allowances depends on if your spouse also holds a job as well as the number of children you have. Also, remember to update your W-4 following significant life events such as marriage and the birth of your child!

5. Ways To Grow Your Money

Common options for investing include stocks, mutual funds, bonds, Certificates of Deposit (offered through your bank), and of course, your own retirement fund (invest for your own future!). Each of these options have varying degrees of risk with stocks holding the highest amount of risk. With the other four options, there may not be as much risk, but their rate of return won’t be astounding. You just put the money away, and let it (slowly) grow by itself. The top tip to keep in mind with your stocks is to diversify. No one we know of has a glass ball that can tell the future, so don’t fall victim to the dynamic fluctuations our stock markets are so prone to.

While these four topics are far from everything a semester of personal finance provides or should provide, it’ll hopefully help you start thinking of your own financial literacy and help you save for a better tomorrow!

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