When it comes to understanding complex financial topics, do you ever feel like you’re back in school and struggling to keep up with the lesson? You’re not alone, but financial concepts don’t have to be intimidating. Sometimes all you need is some stellar instruction from a qualified teacher to have your “a-ha!” moment.
To help, we tapped our experts to answer common financial questions in simple, digestible nuggets in our “Finance Like I’m Five” video series on Reddit— our take on the popular subreddit “Explain Like I’m Five.”
Pull up a seat and get ready to learn because class is in session!
Should I Stop Putting My Usual Amount Into my 401 (k) to Buy a House?
When you’re gearing up to make a major purchase like a home, it may be tempting to do everything you can to have more cash on hand— including cutting back on your 401(k) contribution.
According to Ally’s Executive Director of Consumer Strategy, Research and Innovation Emily Shallal, though, this could be a mistake. Instead, Shallal recommends talking to a lender to find out the amount of mortgage you qualify for at your existing contribution. If it’s not what you were hoping for, pushing out your timeline a bit may be the better long-term solution.
What Are the Benefits of Banking Online Instead of a Physical Bank?
Digital banks like Ally Bank offer many of the same features people have come to know and expect, such as a variety of account types and security you can trust. But as Deposits & Consumer Strategy Executive Anand Talwar explains, Ally has several unique advantages as well — including 24/7 access, consistently competitive interest rates and smart digital tools that make saving easier, such as Boosters, which are a feature of Ally Bank’s Online Savings Account.
Should You Open a 529 College Fund Right Away if You’re Having a Baby? Is It Essentially the Same as a 401(k)?
One similarity between a 529 account and a 401(k) is that it can include a mix of stocks and bonds and will increase or decrease with market fluctuations. While a 401(k) helps you save for retirement, a 529 plan allows you to save for your child’s future higher education. The money grows tax-free and can be withdrawn tax-free at any time. According to Shallal, starting a 529 as early as possible could maximize how much you can save before your child is ready to head to college. But if you don’t yet have an emergency fund, have a higher level of debt or aren’t yet saving for retirement, those goals may take precedence over building a college fund for a child.
When’s the Right Time to Invest?
Investing is not one size fits all, but as Ally’s former Senior Investment Strategist Callie Cox points out, a few guidelines can help you determine when you should get started.
When it comes to investing, the sooner, the better because in this case, time really is money due to the power of compound returns. Next, figure out how investing fits into your overall budget. If you have some extra cash, think about how it can be best utilized. Even if you have debt or are building savings, you can still invest. Start small and ramp up over time.
How Do I Get Rich if I’m Not Born Into a Super-Rich Family?
If generational wealth is not part of your family tree, it’s easy to feel discouraged about ever becoming “wealthy.” Start by thinking about what “rich” means to you.
Cox emphasizes that we all have different definitions of wealth — and yours may not be exclusively tied to your bank balance. Wherever you are in your financial journey, you can start taking steps to build wealth by investing an amount that fits your budget. It’s important to know why you’re investing and then make a plan.
Learn Your Way to Financial Mastery
You may not be in school anymore, but when it comes to finances, lifelong learning is key.
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