If you’re new to investing, compounding should be at the start of any investing discussion. Compounding refers to earning interest on top of the interest you’ve already accumulated from previous periods, and it’s a way to potentially magnify your savings over time just by staying invested in the market.

If you can understand compounding as a beginner, it allows you to get excited about the possibilities of investing and set expectations about how that money can grow over time.

So, what is compounding?

Simply put, compounding is the percentage of money you earn on top of your original investment (aka your principal investment) plus its earnings from previous periods. It can be calculated by banks or financial institutions on a daily, monthly, or annual basis. 

How does compound interest work?

Compounding interest is the interest on a loan or investment found by the initial principal plus the interest accrued from preceding periods. 

The principal is compounded because it’s periodically increased by a percentage (i.e., adding 10% each month). This differs from linear growth when the principal is increased by a fixed number (i.e., adding 10 each month). Let’s look at an example: 

Imagine that you deposited $100 in a savings account that accrues 10% interest annually. After one year, you’d have $110 in that savings account. After two years, though, your interest would have compounded, and you’d have $121.

That’s because you’re not just earning 10% interest on your initial deposit ($100)—you’re earning interest based on your new total earnings ($110). So after two years, you’ll earn your 10% interest based on your new total of $110. Here’s a breakdown of how those earnings could compound over time: 

Initial deposit: $100

Year 1: $100 + (100 x 10%) = $110

Year 2: $110 + (110 x 10%) = $121

Year 3: $121 + (121 x 10%) = $133

And after 10 years of compounding at a rate of 10%, your $100 deposit would grow to $259.37. That’s the power of compounding in action.

So, what does compounding have to do with you and your money? 

Compounding can either work for you or against you, depending on whether it’s for an asset or a liability. The example above shows how compounding works in your favor if it’s for a savings deposit or investment (assets). 

But it can also apply to liabilities, like money owed on a loan—when compounding interest is accrued based on your unpaid principal plus interest charged over time. In this case, the compounding interest means the amount you owe increases (compounds) over time. Compounding money when it comes to accounts with debt is something you want to avoid. 

The compound interest formula

The formula to calculate compound interest is A=P(1+r/n)nt.

• A = the total amount of money accrued on your principal plus interest, after n years 
• P = principal (the initial investment or deposit) 
• r = interest rate (in decimal form) 
• n = number of compounding periods (how often the interest is compounded per year) 
• t = time in years (how long the principal remains invested/deposited)  

Let’s put this formula into action with some concrete numbers. Say you deposit $500 into a savings account with a 5% interest rate that compounds monthly for 10 years. So: 

• P = $500 
• r = 0.05 
• n = 12
• t = 10

Now let’s plug those numbers into the compound interest formula: 

A = P (1 + [r / n]) ^ nt

• A = $500 (1 + [0.05 / 12]) ^ (12 * 10)
• A = $500 (1.00417) ^ (120)
• A = $500 (1.64767)
• A = $823.84

In 10 years, your new total is $823.84—your principal plus $323.84 in interest. 

Compound interest vs. simple interest

Simple interest is interest that’s paid only on the initial principal of a loan, and not on any interest from previous periods. That means the interest isn’t compounded. 

Going back to our $500 savings deposit example, a deposit of $500 with a 5% interest rate would mean earning $25 a year, every year. Instead of the earned interest being added back into the principal (compound interest), simple interest is calculated based on the original principal alone.  

Here’s how to calculate simple interest: 

A = P (1 + rt) 

• A = the total amount of money accrued after n years, including interest
• P = principal (the initial investment or deposit) 
• r = interest rate (in decimal form) 
• t = time in years (how long the principal remains invested/deposited)  

We can see that this formula is just a simplified version of the compound interest formula. Here’s what it looks like using our $500 example: 

A = P (1 + rt) 

• A = $500 (1 + [0.05 * 10]) 
• A = $500 (1 + 0.5) 
• A = $500 (1.5)
• A = $750

Ten years of earning 5% simple interest on your $500 deposit yields an extra $250 earned. 

Compound returns

The answer to “what is compounding” is incomplete until we also understand the element of compound returns.  The magic of compounding is revealed when it comes to compound returns on your investments in the market. 

When you keep reinvesting the dividends you earn, your returns have the chance to compound significantly over time. And if you’re a young investor who still has a ways to go until retirement, your opportunity to accumulate long-term wealth grows exponentially. 

Timing is everything when it comes to compounding. The sooner you start investing, the more time that money has to grow. Even a small amount a day can add up to sizable returns thanks to the power of compounding. Here’s a brain teaser to prove it: 

If you were offered the choice of $100,000 today, or a penny today with the amount you receive doubled every day for a month (a penny on the first day, 2 cents on the second day, 4 cents on the third day, etc.), which would you choose?

Surprisingly, it’s smarter to start with the penny, because by day 31, you’d have more than $10 million. That’s the magic of compounding. 

Examples of compounding

As we mentioned earlier, compound interest can work for you or against you, depending on whether you’re investing money or owing money. Here are some  examples of compounding in different types of accounts: 

• Savings and checking accounts: Making deposits into an interest-bearing account like a savings account means that interest will be added to your balance, allowing your money to grow over time. 
• Tax-advantaged retirement accounts (401(k)s and Roth IRAs): Investments in accounts like a 401(k) or a Roth IRA also compound over time, and you can grow your balance faster if dividends are reinvested regularly. 
• Student loans, mortgages, and other personal loans: Compound interest works against you when you’re borrowing money. Compounding on loans means any unpaid interest for a given period is added to your loan balance, from which future interest charges are accrued. 

Best practices for approaching compound interest

Any new investor should apply the power of compounding if their goal is to accumulate long-term wealth. Use these tips to reap the full benefits of compound interest and allow your money to work for you: 

• Start early: The sooner you start investing, the longer your money has to grow. Every day you wait is a missed opportunity to benefit from the power of compounding. 
• Pay off debt: Since compounding works against you when you’re borrowing money, prioritize paying down any debts to avoid paying more over time. 
• Focus on the long term: Time is on your side when it comes to compound interest. Instead of going after short-term gains or cashing out when the market is high, learn to ride the waves of the market and give your money time to grow. 

• Look at APY, not APR: Focus on annual percentage yield (APY) rather than APR when comparing accounts. The APY provides a more accurate view of expected interest earnings, whereas APR accounts only for the simple interest rate. 
• Choose accounts that compound interest daily: Compounding frequency is the interval at which your interest is paid out. The more often interest is paid, the greater returns you’ll see from compound interest—look for accounts that compound daily rather than quarterly or annually. 

The concept of compounding reveals why investing can be a smarter path to building wealth than simply saving. Not to mention, one of the keys to maximizing your financial potential is to save or invest money early and often.

If you’re looking for extra support, consider turning to a platform like Stash—users can automate the investing process with the help of Auto-Invest, which can save or invest money for you automatically.

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Compounding FAQs

Have more questions along the lines of “what is compounding?” We have answers.

What is the rule of 72?

The Rule of 72 is a calculation that estimates how long it would take for an investment to double in value as a result of compound interest. Here’s the formula:

Years to double = 72 / rate of return on investment (the interest rate) 

In other words, you can find the number of years it would take to double an investment by dividing 72 by the interest rate. 

How can investors receive compounding returns? 

Investors can receive compound returns through dividend payments. If you’re investing in stocks and the value of a stock grows over time, you can earn compound interest by reinvesting your profits. 

If payouts are made in cash, they will need to be manually reinvested in order to potentially earn additional compounding returns. Mutual funds, on the other hand, often offer automatic dividend reinvestments in order to earn compound returns.  

What type of average is best suited for compounding?

For investments that have compounding, the time-weighted rate of return (TWR)—also known as the geometric average—is best suited for calculating average returns. It’s able to provide a more accurate estimate of returns by isolating returns that were affected by cash flow changes, balancing out the distortion of these growth rates. 

The post What Is Compounding? An Explanation of Compound Interest appeared first on Stash Learn.

In this article, we’ll cover:

• The 5 principles of financial literacy
• Putting financial literacy to work

The 5 principles of financial literacy

Financial literacy empowers you to make informed decisions about your money, helping you build a secure future and achieve your financial goals. This article will explore the five basic principles of financial literacy: earn, save & invest, protect, spend, and borrow, providing you with actionable insights to enhance your financial knowledge and make the most of your resources.

1. Earn
2. Save & invest
3. Protect
4. Spend
5. Borrow

1. Earn: empower your earnings

At the heart of financial literacy lies the principle of earning. It’s about developing skills, pursuing education, and securing employment that enables you to generate a steady income. Increasing your earning potential opens doors to financial stability and growth. Your income is the foundation upon which your financial stability rests. To empower your earnings, adopt these strategies:

• Diversify your skills: In today’s ever-changing job market, diverse skill sets are invaluable. Invest in learning new skills or expanding your expertise. The more versatile you are, the more opportunities you’ll have to earn.
• Negotiate your worth: Don’t shy away from negotiating your salary or rates. Research market standards and present your achievements confidently. Negotiating effectively can significantly boost your income over time.
• Side hustles: With the continual development of new technologies, the possibilities for side hustles are endless. Whether it’s freelance work, online tutoring, or starting a small business, a side hustle can supplement your income and accelerate your financial progress.

2: Save & invest: planting seeds for the future

Saving money is the cornerstone of achieving financial goals. A well-structured savings plan involves setting aside a portion of your income regularly, creating an emergency fund, and working towards both short-term and long-term objectives. Here’s how you can strengthen this principle:

• Emergency fund: Build an emergency fund that covers approximately three to six months’ worth of living expenses. This safety net ensures you’re prepared for unexpected financial challenges.
• Budgeting: Create a budget that outlines your income and expenses. Tracking your spending helps identify areas where you can cut back and allocate more funds toward savings and investments.
• Invest wisely: Educate yourself about different investment options, such as stocks, bonds, mutual funds, and real estate. Work toward diversifying your portfolio to minimize risk and maximize potential returns.

Automating savings through direct deposits and utilizing tools like budgeting apps can make the process seamless and effective. By adopting a disciplined savings strategy, individuals can prepare for unexpected expenses and work towards achieving their dreams, whether it’s buying a home, starting a business, or traveling the world.

3. Protect: Safeguard your financial well-being

Life is full of uncertainties, but you can safeguard your financial well-being through proper protection measures. Prioritize the following steps:

• Insurance coverage: Different types of coverage, like health, life, and disability insurance, are essential to protect you and your loved ones from unforeseen expenses and loss of income.
• Estate planning: Regardless of age, having a will and an estate plan ensures your assets are distributed according to your wishes and minimizes potential conflicts.
• Identity theft prevention: Safeguard your personal and financial information by using strong passwords, regularly monitoring your accounts, and being cautious about sharing sensitive data online.

Planning for retirement is a key element of financial literacy and should be taken seriously. Even if it feels far off, now is the right time to start saving for retirement and investing in long-term vehicles such as 401(k)s, IRAs, and annuities. 

Stash offers a smart way to secure your future. With Stash, you can easily start small, choose from diverse investment options, and build a personalized portfolio. Whether it’s stocks, bonds, or ETFs, Stash helps you grow your wealth over time, making retirement planning accessible and hassle-free. Review your retirement plan consistently to ensure it meets your changing needs.

4. Spend: mindful and purposeful spending

Your spending habits play a significant role in your financial journey. Being mindful and purposeful about your spending can lead to greater financial freedom. Here’s how to master spending:

• Differentiate needs and wants: Assess whether it’s a genuine need or a fleeting want before purchasing. This practice can help you make more conscious spending decisions.
• Prioritize quality over quantity: Invest in quality items with long-term value, even if they come with a higher price tag. This approach often saves you money in the long run.
• Track your spending: Use budgeting tools or apps to track your expenses. This insight helps you identify spending patterns, make necessary adjustments, and allocate more funds toward your financial goals.

5. Borrow: responsible borrowing for future growth

Borrowing can be useful for working toward financial goals, but it requires responsible management to avoid debt traps. Here’s how to approach borrowing intelligently:

Understand Interest Rates: Before taking on any debt, understand the interest rates, terms, and conditions associated with the loan.

• Manage credit cards wisely: Credit cards offer convenience but can also lead to debt if not used responsibly. Pay your balance in full each month to avoid accumulating interest charges.
• Strategic debt: While some debt, like student loans or a mortgage, can be strategic, always borrow within your means and have a clear plan for repayment.

Responsible borrowing entails informed decisions about debt, understanding terms, and ensuring repayment ability. Assess if the debt is necessary and valuable, avoiding discretionary items. Understand loan terms, including interest rates and fees, to prevent future surprises.

Putting the principles of financial literacy to work

While the five principles provide a solid foundation for financial literacy, earn, save & invest, protect, spend, and borrow, seven additional components further enrich your understanding and ability to manage your finances effectively:

1. Interest: Whether you’re earning or paying it, interest plays a significant role in your financial freedom. Interest earned from savings accounts, investments, and other financial instruments can bolster your wealth. Conversely, understanding interest rates on loans, credit cards, and mortgages helps you make informed borrowing decisions.
2. Budgeting: Budgeting involves creating a comprehensive plan for managing your income and expenses. By tracking your spending, setting financial goals, and adhering to a budget, you gain control over your financial resources and can allocate them strategically.
3. Debt management: Effectively managing debt is critical to maintaining a healthy financial profile. Learning about different types of debt, interest rates, repayment strategies, and debt reduction techniques empowers you to minimize debt and avoid falling into a debt spiral.
4. Credit: Your credit history and credit score profoundly impact your financial options. Understanding how credit works, monitoring your credit report, and practicing responsible credit behavior can open doors to favorable loan terms and financial opportunities.
5. Identity theft protection: Protecting your personal and financial information is paramount. Educate yourself about identity theft, cybersecurity best practices, and steps to safeguard your sensitive data from malicious actors.
6. Savings: Establishing a robust savings habit is essential for financial stability and growth. Learn about different types of savings accounts, investment options, and strategies for building an emergency fund and achieving long-term financial goals.
7. Financial Goals: Setting clear financial goals provides direction and purpose to your financial journey. Define short-term, medium-term, and long-term goals, such as buying a home, funding education, or planning for retirement. Regularly assess and adjust your goals as circumstances evolve.

1. The power of compound interest

Imagine a snowball rolling down a hill, growing larger and faster as it goes. Compound interest works similarly – your money grows over time, earning interest not only on your initial investment but also on the interest earned. Start early, and let compound interest work its magic to help you achieve your long-term financial goals.

2. Creating a Budget

A budget is your financial roadmap, guiding you toward your goals. Track your income and expenses to gain a clear understanding of your financial habits. Allocate funds to essential categories such as housing, transportation, and groceries, while also setting aside money for savings and discretionary spending.

The 50-30-20 rule: a blueprint for budgeting success

Budgeting is a cornerstone of effective financial management. The 50-30-20 rule provides a simple yet powerful framework for allocating your income:

• 50% for needs: Allocate 50% of your income toward essential needs, such as housing, utilities, groceries, transportation, and healthcare. These are expenses that are necessary for maintaining a basic standard of living.
• 30% for wants: Devote 30% of your income to discretionary spending, including entertainment, dining out, hobbies, and other non-essential expenditures that enhance your quality of life.
• 20% for savings: Reserve 20% of your income for savings and investments. This category encompasses emergency funds, retirement contributions, and other financial goals.

Adhering to the 50-30-20 rule helps strike a balance between meeting immediate needs, enjoying life’s pleasures, and securing your financial future.

Try to start by listing your sources of income and categorizing your expenses as fixed (e.g., rent, mortgage) and variable (e.g., entertainment, dining out). Prioritize essentials while setting aside funds for savings and debt repayment. Regularly reviewing your budget empowers you to make informed decisions about your finances. 

3. Getting out of debt

There’s no shame in being in debt, whether it’s the “good” or “bad” type. The difficulty is that carrying debt over time can have a negative effect on your life, from impacting your cash flow and ability to save money to impacting your credit score. It can also cause a significant amount of stress and take a toll on your mental health. Regardless of your situation, the sooner you can work your way out of debt, the sooner you can refocus your money toward other financial goals you have. Here are a few tips for repaying your debt:

1. Create a budget: Begin by comprehensively assessing your income and expenses to design a realistic budget. Allocate a portion of your budget towards debt payments, ensuring consistent progress towards debt reduction.
2. Prioritize high-interest debt: Focus on paying off high-interest debts first, as these can accumulate rapidly over time. Tackling these debts swiftly minimizes the overall interest you’ll need to pay.
3. Debt snowball or avalanche method: Consider two popular strategies for repaying multiple debts. The snowball method involves paying off the smallest debts first, providing a sense of accomplishment and motivation. The avalanche method targets debts with the highest interest rates, resulting in greater interest savings over time.
4. Negotiate interest rates: Reach out to lenders to negotiate lower interest rates, which can significantly ease the burden of repayment. Lenders may be willing to accommodate if you demonstrate a commitment to clearing your debt.
5. Avoid new debt: Temporarily halt the accumulation of new debt to prevent exacerbating your financial situation. Focus on breaking the cycle of debt before considering additional financial commitments.

4. Navigating the credit landscape

While cash might be king, credit is the trusted advisor that helps you realize these dreams sooner. Credit plays a vital role in your finances, and understanding how it works is vital to your financial success. 

From credit cards, personal loans, mortgages, and various other factors, each type serves a different purpose to your overall credit score and comes with its own terms and conditions. Responsible use of credit can help you build a positive credit history, while excessive borrowing can lead to financial strain.

Credit scores and reports

Your credit score is a three-digit number that represents your creditworthiness. Ranging from 300 to 850, the higher your score, the better your credit. A good credit score (typically above 700) opens doors to favorable loan terms and interest rates. To maintain a healthy score:

• Maintain on-time payments
• Keep low credit card balances
• Avoid opening too many new accounts.
• Regularly review your credit reports from major credit bureaus – Experian, TransUnion, and Equifax – to ensure accuracy and spot any fraudulent activity.

5. Identity theft protection

In an increasingly digital world, protecting your personal and financial information is of paramount importance. The threat of identity theft looms large but armed with knowledge and vigilance, you can minimize the risks.

Protecting your personal data is the first line of defense against identity theft. Be cautious when sharing information online, and regularly update your passwords. Use strong, unique passwords for each account, and consider using a reputable password manager.

Regularly monitor all of your financial accounts for any suspicious or unauthorized activity. Set up alerts for transactions exceeding a certain threshold, and promptly report any suspicious activity to your financial institution.

6. Building a strong foundation: the importance of savings

Think of savings as your financial safety net – a cushion that provides peace of mind during unexpected circumstances and paves the way for achieving your dreams.

Life is full of surprises, and having an emergency fund can alleviate financial stress during challenging times. Think of saving as a non-negotiable. Automatic transfers to a separate savings account will help you form this habit as soon as you receive your paycheck. This disciplined approach ensures that you prioritize your future financial security.

Whether it’s a vacation, a down payment on a home, or starting a business, earmark specific savings goals. Divide your goals into short-term, medium-term, and long-term categories, and allocate funds accordingly.

7. Setting and achieving goals

Imagine embarking on a road trip without a map – you might get lost or miss out on exciting destinations. Similarly, setting clear financial goals is essential for navigating your path to success.

Start by envisioning your financial future. What do you want to achieve in the short term and over the course of your life? Whether it’s buying a home, retiring comfortably, or funding your child’s education, define your goals.

SMART goals

Use the SMART framework to refine your goals:

• Specific: Clearly define what you want to achieve.
• Measurable: Set concrete criteria to track your progress.
• Achievable: Ensure your goals are realistic and attainable.
• Relevant: Align your goals with your values and priorities.
• Time-bound: Establish a deadline for achieving each goal.

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The post The 5 Principles of Financial Literacy appeared first on Stash Learn.

Just over half of Americans have difficulty passing a basic financial literacy test, according to industry data. What’s more, roughly 40% of respondents to a Stash survey¹ lacked an understanding of basic economic terms, like compounding and inflation.

While you can always bone up on your money-related vocabulary words, cultivating a deeper understanding of financial basics can help you reach your long-term goals. That can include buying a car or house, starting a family, or even retiring one day.

What does it mean to be financially literate?

Financial literacy, or a basic understanding of principles concerning money, is essential if you want the ability to honestly consider your financial situation, map out realistic goals, and develop a strategy to achieve them.

That can include making smart daily choices for spending, saving, and investing, as well as getting yourself out of debt, and avoiding unnecessary risks.

If you’re one of the millions of Americans wondering why financial basics weren’t covered during your high school years, it’s never too late to learn.

Here’s a quick rundown of some basic personal finance principles that can help you get caught up.

Learn to make a budget

Building a budget is step one on your path to understanding your own personal finances. A budget is a blueprint for your money, accounting for your income and spending, which should help you establish a plan going forward. 

Read How to Use a Budget to Stay on Track to get started. 

Get smarter about banking fees

You probably have a bank account, and you probably have a general idea of how a bank works. But not all banks are the same, and some will nickel and dime you with fees.

Are you paying too much in bank fees? Find out here: Bank Fees to Avoid

Be savvier about your saving

Saving is critical. If you’re in a tight spot, you’ll want to have a little extra cash you can use. And if you have goals such as buying a house, you can save for them over time. 

At Stash, we commend having a rainy day fund with $500 to $1,000 for surprise expenses, as well as an emergency fund with three to six months worth of expenses. Saving is part of our financial philosophy, the Stash Way. 

It can be difficult to start saving. But as of April 2020, Americans were saving a record amount as a result of the Covid-19 pandemic. If you have extra cash right now—maybe from a stimulus check or your tax return, if you got one—consider putting a chunk of that money into an emergency fund now before you spend it.

Good to know: Many people often conflate saving with investing. They can both be used for financial planning, but there are some differences. We won’t get all preachy and tell you that you need to save more, but more than half of Americans regret not saving more, according to a Bankrate survey. 

You may want to consider reviewing concepts like compounding and inflation while tackling your savings goals.

Read Saving vs. Investing: What’s the Difference?

Learn investing vocabulary

You can quickly go down a rabbit hole when you start digging into the world of investing. The basic premise, of course, is that you’re trading your money for a share in an asset such as a stock, bond, or ETF. The hope is that your investment may grow and benefit you in the future. Or, in other words, you’re putting your money to work. Keep in mind, however, that the market is not predictable and that your investment is subject to volatility, meaning that it can gain or lose value over time. 

Get your education started with Investing for Beginners: a How-to Guide. Our glossary of financial terms might also help you.

Overcome performance anxiety

A portfolio is an investing term that means your assets, including stocks, bonds, and cash. Your portfolio’s performance and return refers to how the assets in your portfolio gain or lose value over time.

Learn more about investment performance. Read: What is Investment Performance?

You may also want to consider Stash’s Smart Portfolios.² They are personalized portfolios, created by Stash’s investment team of financial experts³, that can help take some of the guesswork out of building a diversified portfolio.

It’s all in your hands

This checklist can help you start building your financial foundation by budgeting, saving, and investing. With Stash, you can do all of these things in one place.⁴ You can save for your goals with Goals⁵ pay your bills automatically with Bill Pay⁶, and invest in fractional shares of stocks, bonds, and ETFs. 

Also, remember to check out the Stash Way, our financial wellness guide for saving, investing, and planning.

The post Clip & Save: Your Financial Literacy Checklist appeared first on Stash Learn.

Hold on. Take a deep breath. And before you make any decisions, read the rest of this column. As someone who has taken out a personal loan and paid incredibly high interest, I’d like to help you avoid my own mistakes.

When we use the term “personal loan,” we mean it’s a loan from a bank, credit union, or financial technology company that you pay back in monthly installments over a period of years. 

Personal loans defined

That  loan isn’t tied to anything other than your need for money. It’s not an auto loan. It’s not a home mortgage. It’s not a payment plan on your fancy spin bike. It’s money sent straight to you with plenty of strings attached—including fees and a fixed monthly payment that you’d better make, and a steep annual percentage rate (APR) that will ensure the bank makes a profit off this exchange.

It’s dangerous to imagine the answer for debt is, well, more debt. And the sudden abundance of personal loans is disturbing. In fact, personal loan balances swelled to $156 billion in 2019, and the number of loans taken out surged to 23 million, from 16 million in 2016, according to this 2019 article from Forbes.

But beyond the idea that you ought not to rack up too much debt, there are other unsavory elements to this booming personal loan business. The APRs on personal loans tend to be higher than you might expect, ranging from 6% to a staggering 36%. 

And if you think you need to take out a personal loan, chances are you’ve experienced some money troubles that may have impacted your credit score already. The lower your credit score, or the more credit card debt that you already carry, the higher the likelihood that you’ll only get a personal loan if you agree to an astronomical APR and/or high fees. I once got one for…drumroll please…22.99%.

Yeah. I know. Don’t be like me, at least in that regard.

Here’s a list of reasons why you should do your best to avoid an unsecured personal loan.

You won’t have a tangible piece of collateral

Okay, you know how your auto loan is secured with collateral – your vehicle? Right. You know that if you don’t make your payments, eventually your auto loan company might send somebody to take your car away. That can be a pretty powerful incentive to keep up your payments–or, at the very least, to pick up the phone and negotiate with a representative from said company if you run into financial trouble.

But an unsecured personal loan means you have no physical thing in front of you to remind you to use your funds wisely. Sure, maybe you take it out to pay down some credit card debt…but hey, wait, what’s that shiny new piece of exercise equipment online? Maybe you need an online meditation or educational subscription to some fancy website that overcharges for stuff you could get for free. Or maybe you need to buy gifts for your family – not just necessities, but little things to make them smile. That’s cool, right?

Sure – in theory. But that credit card debt ain’t going anywhere, and neither is your new personal loan debt. And your stress level is about to rise exponentially—like your total debt. 

An unsecured loan may worsen your spending habits

If you’re somebody with addictive tendencies, you know that there will never be enough booze, chocolate, sex, gambling apps, or other outlets to satisfy your particular craving. 

I am one of you, so I’m speaking from experience. I’ve been in Get Your Money Together school for some time now. I want you to learn from my mistakes. Taking out an unsecured personal loan may feel like a free pass. Take a deep breath, take a walk, and talk to a smart friend or two about this before taking the plunge.

Lenders are not your friend

They’re not. They’re counting on you sticking around forever and ever and ever. After all, that’s how they make their money. By taking out the loan, you’re helping an entity that absolutely does not have your best interests at heart. You’ve got to weigh the pros and cons sincerely before you do it.

You may be ignoring folks who’d be glad to help

Now, it’s generally best to not do business with family and friends. But there are major exceptions. If you can work out a deal in writing with a family member or friend, why not discuss the terms of an interest-free loan? Perhaps you can make payments on a schedule that suits both of you. Or you may be able to help in a different way. Do you have particular skills you could teach a friend’s kid over Skype, FaceTime, Zoom or Google Hangout? Can you take care of some landscaping or errands for a pal?

It’s a rough time for many of us financially, but we will get through it. Please avail yourself of stress relief resources, including free online yoga and meditation. (Try Yoga with Adriene.) Check out low-cost and no-cost mental health care providers, or call someone who’s been recommended to you and ask if they’ll work with you on a sliding scale. Of course, everyone’s situation is different, and you need to carefully consider what works best for you.

I know that won’t put money in your pocket, but it may help you pause and lower your fight or flight response before you get into a bad financial deal. I wish I had done the same!

The post How to Avoid the Personal Loan Trap appeared first on Stash Learn.

The price of cars has increased dramatically in recent years due to rising interest rates for auto loans, higher demand globally for cars, the increasing price of gas (until recently)—which has made car parts more expensive to transport. And of course, technology, including upgraded infotainment systems and safety systems all add coats, according to LeeAnn Shattuck, auto expert at The Car Chick and champion race car driver. 

“Your car is more sophisticated than the Space Shuttle,” she says.Additionally, more buyers are opting for SUVs, which are bigger and more expensive than a sedan. (Small luxury SUVs started at $42,000 in 2019 according to KBB.)

With average car prices increasing rapidly, you may be tempted to increase the length of time you have to repay your loan so you can afford everything you want in a vehicle. And car salesmen won’t stop you. According to a 2019 Experian LTD study, more than one third of new cars are purchased with loans lasting at least six years. That’s an increase of more than 20% compared to ten years ago.

Dealerships are selling loans

In fact, car dealerships now make more money selling you financial products than the cars themselves. 

Historically, most auto loans maxed out around five years. But over the last several years, lenders have realized consumers are open to taking out six or seven-year car loans, which is great news for them: It’s in the lender and dealer’s best interest to pull you into a longer loan since you’ll end up paying more over time. 

“Do the math yourself,” Shattuck says. “Don’t let the dealer do the math for you, as they will extend the loan term out as far as needed to get you to say ‘yes.’ It’s not their job to help you make a smart financial decision–that’s all on you.” 

A (value) losing game

Besides owing more over time, another problem with six and seven-year loans is that as your payment stretches on and on, your car value decreases. Your car loses 10% of its value when you drive it off the lot, 20 % more in the next 12 months, and then 10% more every year for the next four years, according to Carfax, a service that supplies vehicle history reports to consumers. 

Plus, most people want a new car before they’re done paying off their last one. 

“The challenge they face will arise two years after their purchase when they want to move into a different car. What are they going to do then with the negative equity they owe on the car?” says Zach Shefska, auto expert at Your Auto Advocate, a car buying service that employs former dealership employees to research, locate, and negotiate car deals on behalf of their customers. “No one thinks about this when they buy their first car and get the monthly payment that they want. It’s when they get bored of their car and are faced with the ‘oh crap’ moment of ‘you owe $4,000 if you get rid of this car today,’ that it becomes reality.”

Tips for smarter car borrowing

So what should you do if you’re in the market for a car, but don’t take out a loan you’ll regret later? The experts have some ideas:

1. Cap out at a three-year loan. “If you don’t feel comfortable with the monthly payment for a 36 month loan, then you should be looking for a cheaper car,” Shefska says, meaning if you need to finance your purchase, you should make sure you can pay off the loan within three years.
2. Don’t roll equity from your last car into a new one. Wait until you can pay off your current car before taking the plunge to get a new one. “Many people roll over the negative equity into a new loan and dig the hole deeper,” Shattuck says. “I’ve seen people essentially paying for two cars under one loan.”
3. Buy used. The bright side to a car’s value rapidly decreasing from the moment it’s driven off the lot is that you can buy a used car for so much less than a new one. The average used car price is $20,000, compared to nearly twice that for the average new car, according to reports. That might explain why the Experian study on car loans found that only 20% of used car buyers took out 6+ year loans (compared to more than 33 percent of new car buyers). 
4. Look for good deals this spring and summer. “The good news is that we expect rates to drop and the manufacturers to release more incentives, including special low APRs, to get people to buy cars during this crazy time,” Shattuck says, referring to the Covid-19 pandemic, which has temporarily stalled the economy and auto sales.

The post Why a Longer Car Loan Might Not be for You appeared first on Stash Learn.

We’ve all been there—when you take a look at our bank statement or account balance, only to find that you have less money than you thought. Where did it go?

Then you see it: Your bank has hit you with fees that you never anticipated. It could be for simply accessing your money, having too low a balance, or even receiving your paper bank statement. It’s enough to make you want to keep your money in your mattress.

A dollar here, $20 there—these bank fees can really add up. In 2022, the average overdraft fee was $33.58—and that’s just one of many kinds of fees banks typically charge.

Here are five of the most common fees banks like to charge, and ways to avoid them.

1. ATM fees

• What it is: A fee for withdrawing money from an ATM machine.
• Average fee: $4.59, according to recent industry data

How to avoid it: Banks typically charge ATM fees when you’re withdrawing money from an out-of-network machine—or, an ATM that’s owned or operated by another institution.

To avoid ATM fees, get cash from your own bank’s machines, or go inside and do it the old-fashioned way: Speak with a teller. (Just make sure your bank doesn’t charge a teller fee, see below.)  You can also get cash back when you make a purchase with your debit card to get cash or switch to a bank that refunds ATM fees.

You can also shop around for a bank that covers a certain number of out-of-network ATM fees.

The Stash debit card gives you access to thousands of fee-free ATMs around the U.S.² You can deposit cash to your account through your linked bank account, via direct deposit, or at participating CVS Phamacy®, Rite Aid and Walgreen stores³.

2. Account maintenance fees

• What it is: A fee levied to service your account, typically your checking account. Maintenance fees are sometimes called minimum-balance fees.
• Average fee: Variable (Bank of America and Chase, for example, charges $12 per statement cycle for balances under $1,500;  Wells Fargo charges $10.

How to avoid it: If your bank charges custodial and maintenance fees, ask if they have a different kind of checking account option that doesn’t have minimum balance fees. If not, the easiest way to dodge them is to switch to a bank that doesn’t charge them in the first place. Otherwise, you’ll need to abide by your bank’s rules in regard to balances and deposits.

As a last-ditch effort, you can try arguing with your bank to get these charges refunded. The customer service agent may be kind and refund a month or two to keep your business—but that probably isn’t going to prove a fruitful long-term strategy.

3. Overdraft, and/or non-sufficient fund (NSF) fees

• What it is: A charge for overdrawing your account, and for the bank covering the difference.
• Average fee: $33.58

How to avoid it: One of the biggest money-makers for banks, overdraft fees are also the hardest to swallow. If you overdraw your account, you’re basically borrowing money from your bank—and your bank is happy to lend it to you at an incredible markup.

The difference between an NSF and overdraft fee is small but important. When you’re charged an overdraft fee, the bank covers the charge for you. When you’re charged an NSF fee, the transaction isn’t approved, as the bank declines to pay it on your behalf. You’ll be charged one or the other, depending on which action your bank takes.

If you write a check for more than your account balance, it’s possible that you’ll be hit with an NSF fee or overdraft fee, and the recipient will also be levied a returned-check fee. This is a fee charged by the recipient’s bank for depositing a bounced check.

One way to think about it is if you borrowed $24 and were hit with a $34 overdraft fee, you’d be paying 17,000% APR, according to the Consumer Financial Protection Bureau.

How can you dodge these fees? You’re entitled to decline or cancel overdraft coverage. If you cancel the coverage, the transaction will be declined, saving you from overdrawing.

A word of caution: Always, be aware of your account balances and plan purchases accordingly.

4. Paper statement fees

• What it is: A fee incurred for receiving a paper statement from your financial institution
• Average fee: Varies, but usually around $2

How to avoid it: It’s simple: Sign up for electronic statements, delivered via email. This is as easy as it gets, and while it may only save you a buck or two a month, it’s another dollar that can go toward your investment portfolio or retirement savings. Electronic statements are also good for the environment because they don’t require paper.

5. Teller fees

• What it is: A charge for talking to a live person—be it a teller or another bank representative
• Average fee: $3-$5, depending on account type

How to avoid it: Teller fees aren’t new, and the concept has been around since at least the mid-90s. They’re generally associated with online-only accounts, which typically don’t include in-branch services.

If you think you’ll need more than attention than an online-only account provides, opt for a traditional checking or savings account to avoid teller fees. Eighty-three percent of bank customers still visit their bank in-person, so be mindful of these teller fees if you do sign up for an online-only account.

Bank with Stash

Stash banking can help you avoid excessive bank fees. It won’t cost you anything to set up, there are no minimum balance requirements, and we won’t charge you any monthly or annual fees to maintain the account1.

Here’s a rundown of what we have to offer:

• No overdraft fees.¹
• No monthly maintenance fees.
• No minimum balance fees.
• Access to thousands of fee-free ATMs.
• Early payday—get paid up to two days early.³
• Stash Stock-Back®⁴—Why not earn stock when you spend? If you enroll in the program, every time you make a qualifying purchase at your favorite stores using your Stash debit card, you’ll earn a percentage back as stock.

The post 5 Bank Fees You Should Never Pay Again appeared first on Stash Learn.

Yet approximately 40% of U.S. consumers–and nearly two thirds of millennials—say winning the lottery could be a good retirement bet, according to a new survey conducted by Stash on attitudes toward investing. Stash partnered with Propeller Insights for an online survey of 1,156 respondents in March.

Not a bull market for everyone

Although the stock market has been in the middle of a bull market for close to ten years, most survey respondents said they lack the know-how to invest, and they consider putting money in the stock market to be confusing and out of reach.

In fact, nearly half of survey respondents said they would start building retirement nest eggs if they had more knowledge about how and where to invest. Additionally, more than one third said access to free, high-quality advice would be an incentive for them to invest.

Slightly less than one-third of respondents said they avoid investing because they feel they lack the necessary expertise to do so, they also find the whole process of investing overwhelming.

Millennials struggle with financial basics

Millennials, people who are currently between the age of 22 and 37, are even more likely to lack a financial plan for retirement.

In fact, a staggering 59% of millennials said winning a lottery jackpot is a reasonable way to retire.

Additionally, more than three-quarters of millennials said they live paycheck to paycheck. That means they also haven’t built up an emergency fund that can help cushion the blow for unexpected life events that cost money, such as unexpected medical care, car repairs, or even a layoff.

“Playing the lottery may be fun, but it’s the opposite of a safe bet,” Brandon Krieg, the co-founder and chief executive officer of Stash, said in a statement. “Instead of crossing their fingers and hoping their lottery jackpot dreams come true, people can take concrete steps to improve their finances. And we’ve created a tool to help them do just that.”

Lack of retirement planning

Here’s how else people plan to retire:

• More than one-fifth (22%) of survey respondents said they plan to spend their retirement working a part-time job.
• A minority (4%) said they will move to another country to find cheaper living abroad.
• An additional 4% said they will depend on their children.
• And 3% said they will try to find a rich spouse to support them.

The post Why Saving for Retirement Isn’t Playing the Lottery appeared first on Stash Learn.

Stumped? You’re not alone. Less than half of Stash customers answered that question correctly on our 2019 Financial Literacy survey. (The correct answer is three and a half years.)

Every year Stash conducts a study of its users, to understand how well they grasp financial basics.  In February, Stash polled 4,800 customers about their financial knowledge and habits, including the use of credit, investing and retirement fundamentals, as well as basic financial principles such as how interest rates and inflation affect borrowing and saving.

While the results of Stash’s 2019 survey show slight improvements among our customers compared to our 2018 survey, lack of financial literacy continues to be a big problem in the U.S. for everyone. The Stash survey shows that so-called Generation Z, those who are currently between 18 and 24, may particularly need more financial education.

Meanwhile, managing credit continues to be a big problem across all age groups. One way you can see that is in the ever-increasing amount of debt that consumers take on. Consumer debt is at a record high, of more than $4 trillion, which comes out to about $4,300 per household.

Here are some top takeaways from this year’s survey:

Gen Z may need more education

So-called Generation Z, people who are currently between 18 and 24 years old, showed less knowledge of financial basics than older generations, particularly when it comes to using credit.

For example, two-thirds of Gen Zers demonstrated confusion about the advantages and disadvantages of credit.

• Gen Z more likely, by 10 percentage points, to say that credit cards could be used to pay for things they couldn’t afford, as well as to alleviate the burden of large expenses by allowing them to pay a monthly minimum.
• 71% of Gen Z respondents said it was important to pay their balances in full each month, compared to 77% for all other generations, and 80% for those in the Baby Boom generation.
• Gen Zers were more likely to believe that maintaining a balance on credit cards can improve your credit score than all other generations, by six percentage points. (27% vs. 21%.)
• When it comes to retirement accounts, 74% of Gen Zers know they can fund both a 401(k) and an IRA, about 10 percentage points less than other generations. Similarly, 85% know that a retirement account is actually a brokerage account, compared to 95% for other generations.

Women vs. Men

Women and men showed very similar knowledge of financial basics, with some differences related to investing and use of credit.  In fact, 81% of women answered all questions on the survey correctly, compared to 84% of men.

However, there were differences, particularly when it comes to some of the more technical aspects of investing:

• 81% of women said it was reasonable to expect a rate of return between 0% and 15% for a fund with moderate growth goals, compared to 88% of men.
• Nearly 30% of women said money would do better in a savings account or emergency fund rather than a brokerage account to keep up with inflation, compared to 20% of men.
• About 35% of women don’t understand the relationship between inflation and interest (vs. 24% of men).

In contrast, women seemed to know more about credit, with 44% saying one potential benefit of having a credit card is to build credit, compared to 39% of men. Similarly, slightly more women than men said the best tactic with credit cards was to pay your balance in full each month (78% compared to 76%).

Check yourself

Becoming financially literate is a lifelong process. Check out some of these questions. If you answer “no” to more than one of them, it may be time to start brushing up on your financial knowledge.

• Do you spend less than you earn?
• Do you always pay your bills on time?
• If you have debt, do you pay more than the monthly minimum?
• Have you created an emergency fund that can cover three to six months of expenses?
• Do you have medical, home-owners or renters insurance, to insulate you from financial shocks?
• Have you created a retirement savings plan?
• Do you know your credit score, and what it means?

The post Why You May Have a Financial Literacy Problem appeared first on Stash Learn.

Here’s the thing. Many of these things we want (and need) cost money. This activity can teach kids how they can save for their goals and learn how long it takes (and how awesome it is) to achieve a goal.

No need to get fancy or be boring. All you need is a plan, plus four jars and a few simple craft supplies.

Teach your kids about saving and investing

Download the activity sheet

Let’s get started

Each jar will have a label for each “Stash” to be labeled: Needs, Wants, Goals, Causes.

What’s a “need?” – Something kids will use every day. Maybe new sneakers for basketball or a new writing journal.

What’s a “want?” – Something that’s special that may take a little while to save for. Think a new guitar or a tickets to see a favorite team.

What’s a “goal?” – Does this child want to get better at something? Or be something special when he or she grows up? A goal could be years into the future. Maybe foreign language camp? Or a fancy set of turntables to become an amazing DJ? Goals take time, this jar may take a while to fill.

What’s a “cause?” – Kids want to make the world a better place. Maybe he or she wants to donate money to support finding a cure for a disease or keeping their public library open. A little bit of change over the course of a year can make for a big donation. It’s never too early to be a philanthropist!

Final note! Consider rewarding your child for their great saving habits by matching their contributions in their Stash custodial account. You can use Stash dollars to signify each deposit!

What You Need

• Wants, Needs, Causes and Goals activity sheet — Download and Print [PDF]
• 4 jars or containers
• Scissors
• Tape or glue
• Writing or drawing utensils, decorations (optional)

Instructions

1. Brainstorm a list of wants, needs, goals, and causes that the child cares about.
2. Use scissors to cut out each label.
3. Adhere one label to each jar using tape or glue. (Optional: personalize your jars with decorations)
4. Place your jars somewhere safe, but in plain sight (so you don’t forget!).
5. Add money, loose change, or Stash dollars to them regularly. Spread the money among your four Stashes.

Talk to your kids

How is a want different from a need? Is clothing a want or a need?

What’s the difference between a need and a goal? Is owning a house a need or a goal?

How much money do you need for your Wants? Needs? Goals? Causes?

How much time do you have to save for these?

How much money should you contribute each day?

How will you spread your money across all four jars? Are some jars more important than others?

The post Got Four Jars? You Can Teach Your Kids About Money appeared first on Stash Learn.

Like what you’re hearing? Leave us a review on Apple Podcasts (or wherever you listen to your favorite podcasts).

Procrastination. Confusion. Intimidation.

New York Times science writer John Schwartz was confident writing about infrastructure, rockets, and climate change but when it came to his personal finances, he just couldn’t face it.

How can we be so smart in life but willingly turn a blind eye to our money lives? Actually it’s pretty easy to put things off. Until you can’t.

John Schwartz, author of “This is the Year I Put My Financial In Order,” has been through it all: High interest credit card debt, foreclosure, career volatility, and putting two kids through college.

He knows what it’s like to be forced to eat a $2 lunch because that’s all that’s in the budget. He didn’t want to face his retirement fears. Can we blame him?

But from tough times comes a lot of great practical lessons. John has emerged intact and talks to me about facing up to it. We talk making a will, life insurance, real estate nightmares, and how to get ahead when you feel like you’ve been behind your whole life.

Ready to start investing?

The post Podcast: Face Your Financial Fears with John Schwartz appeared first on Stash Learn.

Like what you’re hearing? Leave us a review on Apple Podcasts (or wherever you listen to your favorite podcasts).

When do we finally feel like financial adults? Maybe when we get our first jobs or when we take out our first loan? Some people seem like they’re born ready to tackle their money. But the rest of us? Well, we feel like we’re always going to be amateurs when it comes to our finances.

Bobbi Rebell, CFP, is the author of the book “How to Be a Financial Grownup” and host of the Financial Grownup podcast.

She talks to me about money shame, learning (or not learning) from our parents, knowing when to spend on luxuries, and why retiring at 30 doesn’t have to your goal.

The post Podcast: How To Be a “Financial Grownup” with Bobbi Rebell appeared first on Stash Learn.

It’s pretty different from the prospectus an ETF or mutual fund files, because it’s likely to contain many more details. The average investor might find much of this information confusing.

That said, it’s still important to be able to read a stock’s prospectus, especially if you’re considering investing in a company. The prospectus can give you an important snapshot of what’s going on inside the company.

What is a prospectus?

In the case of a U.S. stock, the prospectus is called an S-1 filing. (If a non-U.S. company files for an IPO on a U.S. exchange, it files something called an F-1).

Companies are legally required to file this document, and just like a fund prospectus, you can find the S-1 of any public company at the SEC website, called EDGAR.

What will you find in the S-1? ou You’ll get a sense of the company’s performance and other details that relate to how it operates.

For example, you’ll find out how much money the company actually makes, how much debt it has, and whether the company is profitable. You’ll also find out who runs the company, and how well they’re compensated.

Here are some of the most important things to look for in a stock prospectus:

The prospectus can give you an important snapshot of what’s going on inside the company.

Investment bank: The investment bank, or the underwriter, helps the company go public by purchasing the shares and reselling them to investors. It also makes a market for the stock. That means it ensures there are enough buyers and sellers of stock on the first day the stock trades. By knowing which investment bank the company used to go public, you can get a sense of the reputation of the financial backers behind the company.

Number of shares to be sold to the public: Near the top of the S-1, the document will also tell you how many shares the company is selling, and how much money it hopes to raise through the sale. For example, the prospectus may say that the company plans to sell 1 million shares at a price between $14 and $16 per share. That means it’s hoping to make between $14 and $16 million by selling shares. (A lot goes into whether or not the company can actually sell the shares for that much money, and at the end of the day, it may not be able to do so if there is too little demand for the shares.)

Balance sheet: This portion of the prospectus lays out the company’s assets, as well as any liabilities, or debts, it may have. It will tell you how much cash a company has on hand, as well as the value of its assets, which could include property, machinery, or office space. It will also tell you the dollar value of its debts, which is a critical number to know if you’re considering investing in any company. The balance sheet can help you determine the actual value of a company.

Income statement: This will tell you lots of things about a company’s operations. Two of the most important things are revenues, sometimes referred to as sales. The other is net income, or profit. The income statement will tell you about the cash flow from operations of a company, usually over a period of two to three years.

Management: The company’s executives are also named in the S-1, as well as the members of the board of directors. They’re important to know about  because they lead the company, and will have a big impact on the performance of the business. In the section about executives, you’ll also find information about their salary and other compensation, not to mention how much of the company they own.

Risks: Companies that are just listing on an exchange are likely to have more risks than mature companies, and those risks are detailed in the S-1. These can include market risks, due to competitors in the same space, the general ability to get loans to fund operations, regulations that can tamp down on earnings, or risks from having an executive who defines the company, and without whom the company could experience difficulties. The risk section might also tell you if the company has any ongoing litigation that could impact earnings and performance.

Good to know: The prospectus, or S-1, is just the start. Public companies are required to file quarterly financial documents with the SEC, called earnings reports. They must also file annual documents detailing executive compensation, and any important changes or developments that affect the company and its potential performance.

The post How Do You Read a Stock Prospectus? appeared first on Stash Learn.

Does it really matter what happens to your stuff once you’re gone? The answer is yes.

You don’t want random strangers deciding who gets your collection of concert stubs or the bicycle on which you logged so many miles. And you definitely don’t want your friends and family squabbling over the last $200 in your checking account or the $5,000 vacation fund you worked so hard to accumulate.

There’s so much information out there about what actually goes into a will. New York City estate attorney Michael C. Levy helps us separate myth from fact.

Myth #1: I can leave everything to my cat (or dog or parakeet)

Believe it or not, you can. But it’s a bit more complicated than a simple yes or no.

“You can’t technically leave property directly to a pet because a pet has no means to accept the property,” Levy says. “They are not human, and they are incapable of understanding the concept of money or property.”

What you can do, is set up a pet trust and leave all the money, real estate and property you want to that trust to be administered by an executor of your choice.

Don’t think it happens? That’s what heiress Leona Helmsley did when she died in 2007, leaving her beloved Maltese named Trouble a whopping $12 million.

A judge eventually slashed Trouble’s extravagant inheritance down to $2 million — the remaining $10 million went back into her charitable trust — but the pooch lived a lavish life until she died in 2011 at the age of 12.

Myth #2: I can just write my wishes on a piece of paper and give it to my mom

“That’s not a good idea because most states require certain formalities to have a will entered into probate and actually considered valid,” Levy says.

Generally speaking, you must state your final wishes and intentions in writing, and have the document signed by two witnesses who must affirm that they saw you sign the will, Levy says.

“If you cannot prove that the will was validly signed, it will ultimately not be admitted to probate,” Levy says. “The piece of paper to mom is not going to work.”

Myth #3: I can put in whatever I want, right? It’s my will!

Actually, no. The probate court will not uphold anything that’s illegal or against public policy.

Levy has also seen wills that place conditions on heirs that they be married or marry a person of a particular religious faith. None of this is likely to hold water in court, he says.

And explicitly disinheriting someone sets up the estate to be challenged in court by the disgruntled relative, so that’s usually frowned on as well, Levy says.

If you’re dreaming of strange and creative ways for your money after you die, best to consult a lawyer before penning those grand plans.

Myth #4: I have one copy of my will. I can just keep it in a sock drawer or a safety deposit box

Don’t do it, Levy says.

In New York, if the client has possession of the original will and loses it, the probate court will assume it’s been revoked and will consider your estate without a will.

That’s why Levy strongly recommends leaving the original with your estate attorney and keeping a copy for your own records.

“But if you have a safe place where you know it’s not going to get lost and you know it’s not going to be turned into a paper airplane by a child or used as a ‘wee-wee’ pad by a dog that’s fine,” he says.

Connecticut estate planning firm Cipparone & Zaccaro based in New London, Connecticut, also suggests leaving it with your attorney. Other sensible options, they say, are in a fireproof safe either at your house or with the executor.

Levy did issue one caveat about safety deposit boxes — don’t lose the key. If you lose the key and then die, the bank is going to require proof that your executor has permission to access your safety deposit box … permission still located inside the safety deposit box.

Just let your lawyer keep it, Levy says.

Myth #5: I don’t need a lawyer to write a will!

No, technically you don’t. A quick online search of “online will documents” turns up dozens of do-it-yourself offerings.

But be careful what forms you use. And since state estate laws vary wildly, a one-size fits all type of legal document may not hold up in court.

“If serious legal mistakes are made, you’ll never know because they will not become apparent until you die,” Combs writes. “And the people left to deal with the mistakes are the people you’re probably creating your will to protect.”

The post Will Myths! Can I Leave Everything to My Cat? appeared first on Stash Learn.

The online study, conducted in February 2018 by Stash and Survey Monkey, polled 53,000 Stash users and 2,500 members of the general public to gauge their knowledge of common financial terms and concepts.

The survey reveals that a worrisome number of people lack a basic understanding of many of those terms and concepts, though Stash users fared better than members of the general public. Overall, Stash users scored 25% higher overall scores compared to non-Stash users.

No infatuation with inflation

One of the most surprising findings is that 42% of those surveyed don’t understand inflation.

The term, a basic financial concept, refers to the tendency of money to lose value over time due to the rising cost of living. More than four in ten respondents expressed a misconception about what inflation means, and how it works, and how it affects the long-term value of money.

Inflation is, for example, the primary reason your retirement account shouldn’t consist of cash stashed under your mattress.

Compounding is confounding

Compounding, even to those who understand it, can still seem like some sort of magic alchemy that fuels your portfolio’s growth. But 40% of respondents said they didn’t understand how compounding works.

While most people are familiar with the concept of interest, compounding — which, in a nutshell, is interest applied to interest plus the principal of your investment—is what really allows assets to grow in value over time.

The lack of understanding, when it comes to compound interest, could fuel unrealistic expectations about returns, too.

Great expectations

In what may be the survey’s most important finding, a full third (33%) of respondents believe that the average return on a moderate risk fund would be more than 15% annually.

While a moderate risk investment can show a return of more than 15% during a particularly good year, a bad year can put you in the hole by the same margin. For perspective, the S&P 500 index over the past 30 years has an annualized return of around 8%, without adjusting for inflation.

Further, 46% didn’t understand the concept of diversification, creating a mix of assets that can potentially spread out risk. A moderate risk fund would be comprised of stocks and bonds from many different industries and countries, making it less risky but also subject to lower returns.

The importance of financial literacy

While it’s never been easier for budding investors to get a foothold in the markets thanks to new technology and web platforms, automating your saving and investing isn’t enough to build wealth. Understanding basic financial concepts, like inflation and compounding, is imperative to your long-term financial health.

“One of the most common misconceptions people have is that automation can replace the knowledge needed to succeed, especially in today’s all tech world. The emphasis on education and the financial fundamentals has been forgotten,” Brandon Krieg, CEO and co-founder of Stash says. “Without understanding and taking advantage of benefits like compounding and diversification there is almost no way to make financial progress.”

The post Stash Asks: How Well Do You Know Money? appeared first on Stash Learn.

Like what you’re hearing? Leave us a review on Apple Podcasts (or wherever you listen to your favorite podcasts).

We all know how important health insurance is. But why does it have to be so complicated? It’s bad enough that it’s one of the biggest bills we pay each month. But in today’s political climate, it’s hard to understand what’s going on. 

For most of us, we just want to be able to go to the doctor when we’re sick and not have to pay a fortune when the bills come. We all have different health issues that require different kinds of care.

In the U.S.,12.2% of adults are living without any kind of health insurance, according to recent data. And that number is rising.

If you don’t have health insurance or you’re about to kicked off your parents’ plan, this episode with Jennifer Fitzgerald, the CEO of Policygenius, is a must-listen episode.

Ready to start investing? Sign up for Stash and then enter the promo code PODCAST and you’ll get $5 to get started on your financial journey.

The post Podcast: Learn About Health Insurance with Jennifer Fitzgerald appeared first on Stash Learn.