TOGETHER WITH  | Good day. Can you guess what percentage of people in the U.S. who relocated/moved to a new home last year regret it? a. 55%, b. 65%, c. 75%. Follow the wave 🌊 below for the answer. Here are today's personal finance topics: - Savings accounts for newborns
- Some 401(k) mistakes to avoid
- How your credit score can save thousands on a mortgage
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BUDGETING & SAVING Savings Accounts For Newborns | | | | In an idealistic world, we would all have children at the perfect time when we were financially stable so that we could give them everything and more. In reality, though, we know this often isn't how life plays out. But no matter when you welcome a child into the world, the harsh financial truth of that remains the same — life is expensive, and the more you can save the better. Child savings accounts are becoming an increasingly popular means of doing this, and 6 states are now helping parents get the ball rolling. Here's what you need to know - What are they? Savings accounts for newborns are just that: savings accounts opened for newborns at birth. Maine, for example, deposits $500 to an account for every baby born to a Maine resident using their Alford Grant program, and California recently launched CalKids, promising to automatically set up a savings account and deposit $100 for every California baby born after July 1st, 2022.
- How it works: These accounts are most often structured as a 529, meaning they're essentially like a Roth IRA for qualified expenses. The state kicks off the account with its initial deposit, and parents can then contribute to it and watch their money grow tax-free when withdrawals are made for qualified costs like education.
- Their importance: The power of compound interest is real, and there's no sooner time to start saving than at birth. By automatically enrolling children in savings accounts like this, the state is setting a tone and emphasizing the importance of not only saving but planning for the future long before it gets here. And it's no secret college education is expensive and getting more expensive by the day.
- Saving early leads to more saving: It might not seem like a big deal, but the truth is that automatically enrolling kids and families in plans like this can have a big impact on overall participation in saving. Thirty-six percent of those Maine families who have received a grant since 2013 have gone on to open 529 plans of their own, and 73% of those have contributed to the accounts.
- How to get started: At the moment, auto-enrollment at the state or local level is hit-or-miss, with only 6 states in total participating for now. Regardless, you don't have to rely on others to reap the benefits of saving early. Even if your state or community isn't offering such accounts, you can still open one on your own. 529 plans reap an average return of 5.2%, meaning if you contribute just $50 per month from birth, your child could have upwards of $17,000 by age 18.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
FINANCIAL PLANNING Some 401(k) Mistakes to Avoid | | | | 401(k)s are by far the most popular kind of retirement account used by working folks in the U.S., taking up nearly double the market share relative to their IRA counterparts. They are without a doubt the backbone of the world of retirement saving, meaning easy mistakes can quickly harm millions. We've talked a lot about how to use a 401(k) properly, but perhaps not enough about what not to do. Let's take a look at some of the most common, yet often overlooked, mistakes made by 401(k) holders. Our top 5 mistakes - Not matching: A whopping 98% of employers that offer 401(k) plans are also offering a full or partial match, and not taking advantage of that is electing to miss out on free money. If your employer offers a 50% match on your contributions of up to 6% of your salary, and you make $50K, not only are you missing out on $1,500, of free money that year, but $1,500 per year and all of the capital gains and compounding that would come with that.
- Not vesting: Although an employer match is technically free money, that money is sometimes not available to you until it's considered "vested" — meaning you're not eligible to keep those funds until a certain period of time has passed. Sometimes this is instant, but sometimes it takes years. Each employer is different. We understand that sometimes circumstances change and it makes sense to leave a position before that vesting takes place, but if you've accrued a significant amount of unvested match funds and the situation is salvageable, it would be worth another look.
- Not making it a habit: The fire of compound interest burns the hottest when it's consistently being stoked, not when we just throw on a log every once in a while. Not making saving a habit can eventually cost 401(k) holders thousands of dollars in the long run. As we've covered before, even a 1% auto-increase can make a big difference.
- Not knowing your holdings: Although it seems pretty foundational, the reality is that it's extremely common for 401(k) account holders to simply not know what they're invested in. It's often easy to take the "set it and forget it" approach to an extreme here, but this lack of attention and optimization can yet again cost you thousands over the long haul.
- Not picking the right account type: This falls right in line with letting your account go on autopilot. 401(k)s come in different flavors, all having different pros and cons for different situations. Not knowing the difference between a traditional 401(k) and a Roth 401(k), for example, can end up causing you to choose one that costs you more in taxes.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
FEATURING NOTION Get More Done | | | | Over 20 million people and hundreds of thousands of teams around the world use Notion to organize their work and get more done. Notion is the all-in-one workspace that combines notes, docs, project management, and wikis — and makes them all customizable. If every person and business can tailor software to their problems, the world will be better at solving its problems. Our mission as a company is to make that a ubiquitous reality. Learn more today. | | | |
MONEY TIP Your Credit Score Can Shave Thousands Off a Mortgage | | | | Taking on a mortgage has always been an expensive endeavor. And it's become even more costly as of late. Back in Q4 2019, the median home would cost a buyer around $327K in principal and $171K in interest, but now, those numbers look more like $467K and $586K of interest. With homebuyers now facing a reality where they pay more in interest than on the principal value of the home, any way to shave costs is welcome. While we can't control interest rates, we can influence the rate we end up getting. How? Your credit score. The difference some points can make - Levels to this: A recent query from BankRate revealed that homebuyers with a credit score of 760 or higher were securing an average rate of 6.37% on their fixed-rate 30-year mortgages, whereas those with a score around 660 came in around 6.98%. That adds up to about $120 more per month and $44,000 over the life of the loan.
- Shaping your credit: Of course, it's not exactly so simple as cleaning up your credit one day and finding yourself in the upper echelon of scores tomorrow. Your creditworthiness is something that's usually shaped over years of trial and error. But rest assured, there are still steps that you can take right now.
- Making changes: Certain changes will make a more immediate impact on your score. If your utilization rate is higher (above 30%), focus on paying down your debts before applying. The utilization aspect of your credit report has no memory and reducing it will improve your score quickly. Put debt payments on auto-pay if you find yourself forgetting to pay every now and then. And if you're one who pays your rent, utility bill or even Netflix account on time, there are programs — like Experian Boost — that can add up to 40 points to your credit score within days.
- Other considerations: Your credit report may also contain errors that can weigh down your score, and if so, you can request to get rescored or ask credit bureaus to correct those blemishes before applying for a mortgage. Elsewhere, hold off on applying for more credit and other loans as these inquiries can ding your score and often raise "credit hunting" red flags for mortgage lenders.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
🌊 BY THE WAY | - 🧳 Answer: 75% of those in the U.S. who relocated/moved to a new home last year say they had regrets about relocating. Top reasons for regretting: wished they moved to a bigger place (20%) and missed their old home (20%). And just under half of the respondents said they cried at some point during the move, too (CNBC)
- 🚗 Honda recalls nearly 500,000 vehicles because front seat belts may not latch properly (NPR)
- 👀 ICYMI. The banking sector is on edge. Silicon Valley Bank's collapse & what's next? (Finny)
- 📆 Visual timeline of the collapse of Silicon Valley Bank (Visual Capitalist)
- 🏝️ Employees in Illinois can take time off for any reason after governor signs new law (Fortune)
- ✨ Finny lesson of the day. New to the world of credit or don't have a credit score just yet?
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| Finny is a financial wellness platform. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. Finny does not offer investment and stock advice. Please support our corporate sponsor — Notion — as they make rewards on our platform possible! If your company is interested in sponsoring The Gist, please reach out to us. And if you have any feedback about this edition or anything else, please email us. | | | | | | | |
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