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Answers to 6 Common Money Management Questions

Money Management Answers

Everyone has money questions. Some people wonder about how they can save more money, while others are facing major life changes, like starting a family or preparing for retirement, and looking for advice. While every situation is unique, there are general rules of thumb you can use to help steer you in the right direction.

Here are some basic guidelines on how to approach six common money questions.

1. Can I afford to take on an auto loan right now? 

The general rule of thumb is that when combined, your car payment and other automotive expenses shouldn’t be more than 20 percent of your monthly take-home pay. Here are a few other things to keep in mind as you consider whether you can afford a new or used car:

  • Your auto loan interest rate will depend on many factors, including your credit score. A higher credit score will get you a better interest rate and make you more likely to qualify for special financing deals and cash-back offers.
  • Take advantage of Summit’s free auto loan preapproval. We’ll help you figure out just how much you can afford to borrow.
  • Always read the fine print. Lenders can place restrictions on the loan. Some lenders won’t let you use the vehicle for business purposes or ride-sharing services, for example.

2. What should I do with my inheritance?

If you haven’t already, create an emergency fund. We recommend saving about three to six months’ worth of expenses in a fund for “just-in-case” situations. A large lump sum like an inheritance is the perfect way to start or boost your savings. Next, consider paying off any high-interest debt you have – this can include student loans or credit card bills.

From there, here are a few good options to consider:

  • Put it toward retirement savings
  • Invest in the stock market (Note that you should only do this if you are sure you won’t need the money within the next five years, to ensure you get the most out of your investment.)
  • Spend it on a major expense, like making a down payment on a house

And don’t forget to treat yourself with a little bit of fun. Take out 5–10 percent of the inheritance for flexible funds you can spend any way you like.

3. Should I keep the house after the divorce?

It depends. Choosing whether to keep or sell the house after a divorce can be a difficult decision for anyone to make, especially if there are kids involved. The added emotion makes the decision even harder. Some questions you need to answer before making your decision:

  • How big is the house?
  • What is the debt on the house?
  • Can I afford to make monthly mortgage payments?
  • Can I afford future repairs and maintenance?
  • Am I financially able to refinance the house in my own name?
  • What’s the value of the house?
  • How long would I want to live there?

It’s important to try to take emotion out of this decision, as hard as that is to do. So consider scheduling a meeting with a financial coach, who can help you run the numbers.

4. How do I get the benefits of having a credit card without falling into debt? 

This is all about balance. You can start by creating a pay-with-cash and pay-with-credit list. For larger expenses, pay in cash. Use your credit card only in situations where you know you can pay for it.

And when you do, make sure to pay your credit card bill on time, every time. Consider setting up automatic payments each month, so you never miss the deadline and incur interest. And, if you can, up the ante and pay off the bill in full every month.

If you do spring for a reward credit card, don’t forget to make the most of those rewards. If you have a card that’s part of a rewards program, every purchase will earn you points you can eventually redeem for rewards or cash back. Every little bit helps!

5. How do I balance retirement savings with my children’s college funds?

We recommend starting with your own retirement savings and adding a little bit to your kid’s college fund when you can. Remember: there are many ways to pay for college when the time comes (financial aid, loans, etc.), but very few options to save money once you are retired. It’s just another case where the “pay yourself first” rule applies.

The best way to start saving for college? Invest in a 529 plan – a college savings account that will allow you to get state tax benefits for contributing. Any gift money that your child receives, such as on birthdays and holidays, should be deposited directly into the account. Some cash-back credit cards also offer rewards that go directly into qualifying 529 plans.

6. How do I teach my kids about money?

According to a 2018 study, money habits are formed as early as age 7, with children picking up on how you handle and use money even earlier. To get started on financial literacy, consider the following age-appropriate activities with your kids:

  • Birth–2: Open a savings account for your child as early as possible to start putting money away for the future. It’s never too soon to start. 
  • Ages 2–3: Play store with your child. By exchanging fake coins for play food or items, they begin to understand the basics of commerce.
  • Ages 4–5: Cut out coupons and take your child with you to the grocery store. Let them have the coupons and look around for those products at the store.
  • Ages 6–8: Start a weekly allowance so your child can begin learning how to budget and make decisions about their own money. Give some allowance in cash, and transfer some allowance into their savings. This gives them money to spend and save.
  • Ages 9–12: Begin to discuss comparison shopping and the value of saving. Consider buying a brand name product one week and using a generic product the next week, then have a discussion with your child about whether the brand name was worth the extra cost.
  • Ages 13–15: Open their own checking account with a debit card and online banking. Begin transferring their allowance right into their account through your mobile banking app. They can learn how to track spending and develop smart spending and saving habits.
  • Ages 16–18: Discuss the stock market and teach investing skills. Practice with online gaming tools that simulate investing – and learn the basics about stocks, bonds, money markets, mutual funds, and compound interest.

Have more questions? Give us a call or stop by one of our branches and let us know what’s on your mind. We’re always happy to help.

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