How much should I really be saving? Can I just let my debt sit? Or should I just wait to work on finances until I think about purchasing real estate ? Krista Neeley, the Regional Vice President of Appreciation Financial, answers questions you may have wondered about personal finances.

P: Why is financial planning important?

KN: Our financial health and strength is just as important as our mental, emotional, and physical health and strength. Taking time to better understand and empower yourself financially can be the backbone to creating the freedom, flexibility, and peace of mind you desire for your future. Having a strong, stable foundation for your finances is the easiest way to create a bright future in all other arenas of your life.

P: What are the basics of components of a solid financial plan?

KN: 10,10,10,70 Principle. It may sound complicated at first, however, it's a simple break down of what to do with every dollar. 10 % to invest in your future 10% to save for yourself (first principle of wealth building!) 10% to give to charity. A simple principle of finance, if you want to have more money, give more money. What you give always comes back to you! 70% is yours to spend!

P: What's a common misconception about financial planning? Why is it wrong?

KN: A common misconception is that finances are complicated and/or expensive. Finances will only grow if you start saving and stay committed. If you select a savings habit, program, or solution the best thing to do is stay committed long term, if you have time on your side savings does not have to break the bank or be difficult!

P: How diverse should a portfolio be?

KN: The biggest diversity I can suggest is being diverse in your tax codes. You do not want to have all of your savings or retirement income wrapped up in future commitments to the IRS. Save diversely in your tax codes first, then look at different investment strategies for each code. You should also have at least one savings vehicle that is stable, guaranteed, and protected from loss that is intended for RETIREMENT, the money intended for retirement should be secured if you want a secure financial future.

P: What is more important: a portfolio's longevity or its diversity?

KN: Both, you want diversity in your tax codes and investment strategies, however no account will be valuable unless it has the time to grow effectively.

P: If you want to manage your own finances, what are pitfalls you need to avoid?

KN: Avoid any fees that have no long-term benefit. High fees can eat up your account value and are the quickest way to unnecessarily deplete your savings. Fees can be beneficial if they are for something specific (i.e.: riders, benefit, guaranteed returns) however simple management fees can be destructive over extended periods of time.

P: Someone is starting from scratch, what questions does a person need to ask?

KN: Asking what the fees are, company ratings, historical returns, income options, benefit options, and my favorite, ask the adviser offering the product why this strategy would best meet your financial goals.

P: How do you balance paying off debt and saving?

KN: Savings should be a long-term solution and habit (initiated at a young age is best), and debt should be a short-term situation. Promising to pay yourself (saving) 10% of your income is vital, you cannot expect to feel or gain wealth when you blow every dime that comes to your pocket. Debt can be eliminated in chunks and should be done consistently regardless of immediate desires (like a Starbucks drink) or instant gratification (like eating out or impulsive spending).

P: How much should a person be saving?

KN: Savings should be a minimum of 10% of your income for yourself, 10% of your income for your future. If that feels like to far of a stretch start with 2%, 5%, 7% and build your way up to 10% in BOTH categories!

P: Why hire a financial advisor?

KN: Having a trusted financial mentor is helpful when navigating a steady and exciting financial future. There are ways to get support in your finances without it costing you a penny out of pocket, so seek agencies like Appreciation Financial or others who can offer you assistance without a direct cost.

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The Federal Reserve sets the guardrails for the federal funds rate, and through that helps control the money supply for the nation.

When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.

A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.

One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.

The Federal Reserve The Federal Reserve


The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.

This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.

The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.

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