Smart spending: Part 2

Credit and investing are two important topics to learn in order to plan for your financial future.

The range of financial topics cannot be complete without a discussion about credit. There are many credit terms that deal with various aspects of credit that might be unfamiliar such as APR, collateral, debt to income ratio, default, discretionary income and principal. In addition, there are federal laws dealing with consumer credit such as the Truth in Lending Act, Fair Credit Reporting, etc. that affect many aspects of credit. If you will be using credit for any reason, learning how to shop for the least expensive type of credit or the best source of credit for your circumstances is a valuable skill which can save a lot of money for the borrower.

Credit reports and credit scores have become increasingly important because of their use not only for determining credit worthiness but also because of their use by insurance companies, landlords and employers. It is important to know how to obtain your credit report, what to look for on your credit report, how to improve your credit if your credit score is less than desirable. Credit scoring is a complicated system determined by many variables like credit history, age of credit accounts, balances of other credit accounts versus credit limit and more.

According to CNN Money, 76 percent of Americans are living paycheck to paycheck with little to not emergency savings. There is a difference between savings and investing. Savings provide funds for emergencies and purchases in the near future. The primary purpose of savings is to store funds and keep them safe. For many people, however, the goal of investing is to increase net worth and work toward long-term goals. There is usually risk associated with investing. Although earnings are usually higher in investments, they are not guaranteed and you could actually lose some of your principal. Looking for the right type of savings includes learning about the safety of your funds, what is the interest rate, any fees or penalties associated with your account and minimum amount of deposit.

Investments are not just for the wealthy. One type of investment is an employer-sponsored retirement plan such as a 401(k) or a 403(b) plan. Sometimes these earnings are tax-deferred until the investment is sold or withdrawn. Employer-sponsored retirement plans may be “self-directed,” meaning you will make decisions on what types of investment you will invest your money.

Other types of investments include mutual funds, bonds, certificates of deposit and much more. If you are choosing to invest your money, it is important to understand the general characteristics of selected investment categories and how they might fit into your investment plan.

A basic knowledge of record keeping and organization will help you to keep your financial records easily accessible, save time and possibly even money.

There are many financial capabilities resources through various state Extension Services, eXtension, other government sources and also private sources. To increase your financial capabilities look for unbiased resources first until you have some basic knowledge. Michigan State University Extension offers financial capability classes such as Money Management – Dollars Works 2. A list of classes being offered around the state can be found at MI Money Health.

Another option is to take an on line course such as eMoney. Another resource for financial education is eXtension where you can “ask an expert” specific questions you have about finances or take a course through the eXtension Campus. You can also look for news articles written about financial matters at the MSU Extension website or on the eXtension webite.

In short, there is much to learn and the sooner the better so make the decision now to increase your personal knowledge about financial matters both for now and for your future.

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