What is a discount broker?

A discount broker is somebody (typically a stock broker or brokerage firm) that charges a small fee on orders they carry out for you. An order is the process of submitting a request to buy or sell a stock. Below are the main pros and cons of a discount broker.

Pros

  • Small fee (typically less than $10 per transaction)
  • Simple

Cons

  • No additional services

As you can see, the disadvantage to a discount broker is that the only thing they do is carry out the order for you. On top of carrying out the order, a full-service broker offers investment advice, retirement planning, tax tips and more for their clients. But remember, those extra services come at a price. Depending on your needs, it may be in your best interest to consider a discount broker. They are simple and relatively inexpensive. Just be sure to research your investment choice!

 

Written by: JT Donahue, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017

Early In My Career: Is it necessary to understand the difference between a Traditional and a Roth IRA?

During our college years the thought of retirement is way down the road, so far down the road, a lot of college students and recent graduates don’t even bother thinking about it. There is a false notion that people do not need to start thinking about retirement until we are well into our careers. However, becoming aware of what retirement plans can offer and contributing to them early can make your retirement that much more enjoyable.

Many people are confused about the difference between a Traditional and a Roth IRA, or if a difference even exists between the two. An IRA is an abbreviation for Individual Retirement Account; it is available for any working Americans. The two most common IRA’s are the Traditional and the Roth IRA.

In a Traditional IRA, the account owner puts pre-tax dollars into their account. Once the owner withdraws their money from the account they then pay ordinary income tax on the withdrawals.

In a Roth IRA the individual pays tax on income, then puts after-tax dollars into their Roth account. If the money has been in the account for at least five years and the owner is 59 ½ years old the principle and earnings are both tax-free when they decide to withdraw from the account. Roth IRA’s are typically a good idea for young people because they have many years for earnings to grow tax-free. Roth IRA’s also appeal to those who believe their tax bracket is likely to be higher in the future.

For more details about the differences between the two, read Traditional and Roth IRA’s, https://www.irs.gov/retirement-plans/traditional-and-roth-iras

 

Written by: Brandon Wyeth, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017

How can I prepare financially for transitions while in school?

What’s up next for you?  A big move? An internship? Graduation? Marriage?

Unexpected costs can often be overwhelming and sometimes difficult to manage.  The busier we get, the easier it is to miss something or develop a bad habit.  It could be a bad eating habit or it could be a bad spending habit.  Both increase stress, which is the last thing you’ll want during that time.  So, take some time now to prepare so you don’t experience even more stress during what should be an exciting time!

Create or maintain savings.  Savings is often that last thing we add to our budget, if at all, but even setting aside $5 a week yields $260 after 1 year!  It can be hard to predict how much money we need during times of transition, which is why creating a habit of saving can reduce the burden if not eliminate it.  However, to prepare for a transition you can consider all the costs you know you’ll experience and use that amount, or a little more, to help set a goal.  Divide your total goal by the amount of time you have until your transition. For example, if you need $1,000 by September 2017 you’ll need to save $91 a month, or $3 a day.

You can use a savings account to separate that money and you’ll earn some interest!  Take a look at our blog post Why get a savings account? for more information about why savings accounts can be beneficial for you.

It’s easy to make split second decisions that can derail your savings goals.  If you don’t have a budget, this is a great time to make one.  If you feel comfortable and confident to make it on your own—great!  Stop by the Student Money Management Center’s website for tips and tricks to create a solid budget.

Written by Carol Brobeck, University of Illinois USFSCO Student Money Management Center.

Making the Most of Job Benefits (Recorded Webinar)

In today’s economy, we are happy to have jobs, but many college graduates are underemployed. This webinar on job benefits is to inform students across the state how to get the most from their employment perks. Topics that will be discussed include salary negotiation, pension plans, and many more employee benefits. This is a great opportunity for students to prepare for the working world so they can be better informed when making decisions on those post-graduation job offers.

University of Illinois Extension, along with the University of Illinois’ Student Money Management Center, hosted the webinar “Making the Most of Job Benefits” on February 24, 2015. The FREE webinar focused  the types of job benefits employers could offer you and how to make sense of them. Watch it below!

Earning badgeThis is an Earning Badge eligible program, so make sure to take the quiz after watching to get credit!

“Making the Most of Job Benefits” is part of the Get $avvy: Grow Your Green Stuff webinar series.

 

Written by Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center

Why get a savings account?

The most noticeable benefit of a savings account is interest earned on money deposited. The interest rate on a savings account is currently very low, but it still provides extra money. A savings account has many characteristics of a checking account, but it offers other benefits. A benefit of having a savings account is that it can create a saving mindset. Finally, a savings account will provide additional security.

A savings account annual interest rate is, as of April 2015, ranging anywhere from .05% to 1%. This may not seem like a high number, but it is still creating money. For example, 1% of a thousand dollars is ten dollars. Current rates can be checked regularly through your institution’s website or other online sources such as http://www.bankrate.com/.

A savings account is a great offer because it has very high liquidity. Liquidity measures how quick an asset or any financial instrument can be converted into cash (usually into a checking account). The process is as simple as doing a quick online transfer from savings to checking. In addition to having liquidity, a savings account is backed by the FDIC in conjunction with a bank’s checking account, or the NCUSIF if your saving account is with a credit union. Your account is insured up to $250,000. (Personal limits also apply if you have multiple accounts.) Basically, a savings account provides interest with zero risk on savings up to $250,000. Specific variations on a savings account, like a money market account, may provide higher interest rates but may limit the amount of transactions that can occur. It is important to talk with a bank or credit union representative to figure out which account fits your needs.

Besides earning interest, savings accounts are great for creating a saving mindset. First, while savings accounts are liquid, the money is set aside from regular checking. This makes it more difficult to spend unexpected amounts of money on any good or service. The process of transferring money from savings to checking creates time to mull over the decision and can prevent unnecessary expensive purchases. However, the money is still available and accessible in times of emergency. Next, taking extra income and depositing into a savings account can develop a mindset more geared towards saving. Saving money is important for achieving future financial goals, and a savings account is the first step in saving and earning interest income.

Finally, a savings account can create additional security for money stored in an account. For example, a savings account has a different account number than the checking account, so if account information were to get stolen, the savings account funds would remain difficult to be stolen. It is a good idea to not link your debit card to your savings account. This will create an extra barrier if your debit card were to get stolen.

In conclusion, a savings account is a great complement to a regular checking account. It provides many of the same features of a checking account but earns interest on the money deposited. It also allows you to create a saving mindset which is important in the long run. Savings accounts can also come in many different styles, so it’s important to contact your financial institution to figure out which is right for you!

Written by Jonathan Alton, Financial Wellness for College Students Peer Educator, and Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension