PERSONAL FINANCE AND INVESTMENT GUIDE === BANKING FUNDAMENTALS === Types of Bank Accounts Checking Account - Purpose: Daily transactions, bill payments, debit card purchases - Features: Unlimited transactions, ATM access, online banking, mobile deposits - Interest Rate: Typically 0.01% - 0.05% APY - Minimum Balance: $0 - $1,500 (varies by bank) - Monthly Fees: $0 - $15 (often waived with minimum balance or direct deposit) - Best For: Day-to-day money management, paying bills, receiving paychecks - FDIC Insured: Yes, up to $250,000 per depositor Savings Account - Purpose: Emergency fund, short-term savings goals - Features: Limited monthly transactions (typically 6), higher interest than checking - Interest Rate: 0.01% - 4.5% APY (high-yield online savings) - Minimum Balance: $0 - $300 - Monthly Fees: $0 - $5 (often waived) - Best For: Emergency fund (3-6 months expenses), short-term goals - FDIC Insured: Yes, up to $250,000 per depositor High-Yield Savings Account - Purpose: Maximizing interest on savings - Features: Online-only banks, competitive rates, easy transfers - Interest Rate: 3.5% - 5.0% APY (as of 2026) - Minimum Balance: Often $0 - Monthly Fees: Typically $0 - Best For: Emergency fund, saving for major purchases - Example Banks: Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings Money Market Account - Purpose: Higher interest with some checking features - Features: Check writing, debit card, higher interest than regular savings - Interest Rate: 2.0% - 4.5% APY - Minimum Balance: $1,000 - $10,000 - Monthly Fees: $10 - $25 (waived with minimum balance) - Best For: Larger emergency funds, parking cash short-term Certificate of Deposit (CD) - Purpose: Fixed-term savings with guaranteed return - Features: Fixed interest rate, penalty for early withdrawal - Terms: 3 months to 5 years - Interest Rate: 3.0% - 5.5% APY (higher for longer terms) - Minimum Deposit: $500 - $1,000 - Best For: Money you won't need for specific period, guaranteed returns - Strategy: CD ladder (multiple CDs with staggered maturity dates) --- === CREDIT MANAGEMENT === Understanding Credit Scores Credit Score Ranges (FICO): - 800-850: Exceptional - Best rates and terms available - 740-799: Very Good - Better than average rates - 670-739: Good - Near or slightly above average - 580-669: Fair - Below average, higher interest rates - 300-579: Poor - Difficult to get approved, very high rates Factors Affecting Credit Score: 1. Payment History (35%): On-time vs. late payments, defaults, bankruptcies 2. Credit Utilization (30%): Amount owed vs. available credit (keep below 30%) 3. Length of Credit History (15%): Age of oldest account, average age of accounts 4. Credit Mix (10%): Variety of credit types (cards, loans, mortgage) 5. New Credit (10%): Recent credit inquiries and new accounts Improving Your Credit Score: - Pay all bills on time (set up automatic payments) - Keep credit utilization below 30% (ideally below 10%) - Don't close old credit cards (maintains credit history length) - Limit hard inquiries (only apply for credit when necessary) - Dispute errors on credit report - Become authorized user on someone's good credit account - Consider credit-builder loan or secured credit card Credit Cards: Rewards Credit Cards: - Cash Back: 1-5% back on purchases (rotating or flat rate) - Travel Rewards: Points/miles for flights, hotels, travel expenses - Annual Fee: $0 - $550 (premium cards) - Best For: People who pay balance in full monthly - Examples: Chase Sapphire Preferred, Citi Double Cash, Capital One Venture Balance Transfer Cards: - Intro APR: 0% for 12-21 months on transferred balances - Balance Transfer Fee: 3-5% of transferred amount - Regular APR: 16-25% after intro period - Best For: Paying off high-interest debt - Strategy: Transfer balance, pay off during 0% period Secured Credit Cards: - Deposit Required: $200 - $2,000 (becomes credit limit) - Purpose: Building or rebuilding credit - Graduation: Many convert to unsecured after 6-12 months of good payment history - Best For: No credit history or poor credit --- === INVESTMENT BASICS === Investment Vehicles Stocks (Equities) - Definition: Ownership shares in a company - Returns: Capital appreciation + dividends - Risk Level: High (individual stocks), Medium (diversified portfolio) - Historical Return: ~10% annually (S&P 500 long-term average) - Liquidity: High (can sell anytime market is open) - Best For: Long-term growth (5+ years) - Tax: Capital gains tax on profits, dividend tax Bonds (Fixed Income) - Definition: Loans to corporations or governments - Returns: Fixed interest payments + principal at maturity - Risk Level: Low to Medium (depends on issuer) - Types: Government bonds (Treasury), Corporate bonds, Municipal bonds - Yield: 2-6% (varies by type and term) - Best For: Income generation, portfolio stability - Inverse Relationship: Bond prices fall when interest rates rise Mutual Funds - Definition: Pooled investment managed by professionals - Diversification: Instant diversification across many securities - Minimum Investment: $500 - $3,000 - Fees: Expense ratio 0.5% - 2.0% annually - Types: Stock funds, bond funds, balanced funds, target-date funds - Best For: Hands-off investors, retirement accounts Exchange-Traded Funds (ETFs) - Definition: Like mutual funds but trade like stocks - Diversification: Tracks index or sector - Minimum Investment: Price of 1 share ($50 - $500 typically) - Fees: Expense ratio 0.03% - 0.75% (generally lower than mutual funds) - Liquidity: Trade throughout day like stocks - Popular Examples: SPY (S&P 500), VTI (Total Stock Market), QQQ (Nasdaq 100) - Best For: Cost-conscious investors, flexible trading Index Funds - Definition: Passively managed fund tracking market index - Philosophy: Match market returns, not beat them - Fees: Very low (0.03% - 0.20%) - Performance: Beats 80-90% of actively managed funds over 15+ years - Examples: Vanguard S&P 500 Index (VFIAX), Fidelity Total Market Index (FSKAX) - Best For: Long-term investors, retirement savings Real Estate Investment Trusts (REITs) - Definition: Companies owning income-producing real estate - Returns: Rental income + property appreciation - Dividend Requirement: Must distribute 90% of taxable income - Types: Residential, commercial, healthcare, industrial - Yield: 3-5% dividend yield typically - Best For: Real estate exposure without buying property --- === RETIREMENT PLANNING === Retirement Accounts 401(k) - Employer-Sponsored - Contribution Limit (2026): $23,500 ($31,000 if age 50+) - Employer Match: Common 50-100% match up to 3-6% of salary - Tax Treatment: Traditional (pre-tax) or Roth (after-tax) - Withdrawal Age: 59½ (penalty for early withdrawal) - Required Minimum Distributions (RMDs): Starting at age 73 - Vesting: Employer contributions may have vesting schedule - Strategy: Always contribute enough to get full employer match (free money!) Traditional IRA - Contribution Limit (2026): $7,000 ($8,000 if age 50+) - Tax Deduction: May be deductible depending on income and 401(k) participation - Tax Treatment: Tax-deferred growth, taxed at withdrawal - Withdrawal Age: 59½ (penalty for early withdrawal, some exceptions) - RMDs: Starting at age 73 - Best For: Tax deduction now, expect lower tax bracket in retirement Roth IRA - Contribution Limit (2026): $7,000 ($8,000 if age 50+) - Income Limits: Phase-out starts at $146,000 (single), $230,000 (married) - Tax Treatment: After-tax contributions, tax-free growth and withdrawals - Withdrawal Rules: Contributions anytime, earnings after 59½ and 5 years - No RMDs: Can leave money indefinitely - Best For: Young investors, expect higher tax bracket in retirement - Backdoor Roth: Strategy for high earners exceeding income limits Health Savings Account (HSA) - Contribution Limit (2026): $4,150 (individual), $8,300 (family) - Eligibility: Must have high-deductible health plan - Triple Tax Advantage: Tax-deductible contributions, tax-free growth, tax-free withdrawals for medical - After 65: Can withdraw for any purpose (taxed like IRA) - Strategy: Pay medical expenses out-of-pocket, let HSA grow for retirement - Best For: Healthy individuals with emergency fund --- === BUDGETING STRATEGIES === 50/30/20 Budget Rule - 50% Needs: Housing, utilities, groceries, transportation, insurance, minimum debt payments - 30% Wants: Dining out, entertainment, hobbies, subscriptions, shopping - 20% Savings & Debt: Emergency fund, retirement, investments, extra debt payments - Example ($5,000 monthly income): $2,500 needs, $1,500 wants, $1,000 savings Zero-Based Budget - Principle: Every dollar has a job, income minus expenses equals zero - Method: Allocate all income to specific categories before month begins - Flexibility: Adjust categories as needed, but account for every dollar - Best For: People who want detailed control over spending Envelope System - Method: Cash allocated to physical envelopes for each spending category - When Empty: Stop spending in that category until next month - Modern Version: Digital envelopes in budgeting apps - Best For: Overspenders, visual learners --- === DEBT MANAGEMENT === Debt Payoff Strategies Debt Snowball Method - Strategy: Pay off smallest debt first, regardless of interest rate - Psychology: Quick wins build momentum and motivation - Process: Minimum payments on all debts, extra money to smallest debt - Once Paid: Roll that payment to next smallest debt - Best For: People needing motivation, multiple small debts Debt Avalanche Method - Strategy: Pay off highest interest rate debt first - Math: Saves most money on interest - Process: Minimum payments on all debts, extra money to highest rate - Best For: Mathematically optimal, disciplined individuals Debt Consolidation - Method: Combine multiple debts into single loan - Benefits: One payment, potentially lower interest rate, fixed payoff date - Options: Personal loan, balance transfer card, home equity loan - Caution: Don't accumulate new debt after consolidating Types of Debt Good Debt: - Mortgage: Builds equity, tax-deductible interest, appreciating asset - Student Loans: Investment in earning potential, relatively low interest - Business Loans: Can generate income and grow wealth Bad Debt: - Credit Card Debt: High interest (15-25%), depreciating purchases - Payday Loans: Extremely high interest (400%+ APR), predatory - Auto Loans (excessive): Depreciating asset, high interest on long terms --- === FINANCIAL GOALS BY AGE === 20s: - Build emergency fund (3-6 months expenses) - Start retirement savings (at least employer match) - Pay off high-interest debt - Build good credit score - Invest in skills and education 30s: - Increase retirement contributions (15-20% of income) - Save for home down payment if desired - Maximize employer benefits - Increase emergency fund to 6 months - Consider life and disability insurance 40s: - Maximize retirement contributions - Pay off mortgage aggressively - College savings for children (529 plans) - Review and update estate plan - Diversify investments 50s: - Catch-up retirement contributions - Pay off all non-mortgage debt - Estimate retirement expenses - Plan for healthcare costs - Consider long-term care insurance 60s+: - Finalize retirement plan - Optimize Social Security strategy - Convert to more conservative investments - Plan Required Minimum Distributions - Update estate documents