Expert Answers Your Burning Personal Finance Questions: Q&A with Kevin Matthews

Summary

Kevin Matthews, a financial educator, answered various questions related to personal finance, including how to understand a recession, credit score calculations, saving for retirement and becoming a millionaire. Matthews also highlights issues with the tax system, college return of investments, and the debt-to-income ratio. In the second part of the Q&A, Matthews discusses investment-related topics ranging from investment benchmarks and philosophies to index funds, ETFs, and investing in cryptocurrency.

Table of Contents

• Understanding a Recession
• Calculating Credit Scores
• Retirement Savings and Becoming a Millionaire
• Issues with the Tax System, College ROI, Debt-to-Income Ratio
• Investment Benchmarks and Philosophies
• Index Funds and ETFs versus Mutual Funds
• Inflation and Its Impact
• Cryptocurrency Investments

Introduction

Personal finance can often seem daunting and overwhelming, especially to those who do not have a finance background. People tend to have a lot of skepticism about what they hear or read about personal finance, as there is a lot of contradictory information available. This Q&A session with Kevin Matthews, a seasoned financial educator, aims to clear the confusion and answer various personal finance questions.

Q&A

Understanding a Recession

Q: What is a recession, and how do we understand if the economy is in one currently?

A: A recession is typically defined as two consecutive quarters of negative GDP growth, and while Q1 and Q2 of 2022 have been negative, the National Bureau of Economic Research has not officially declared a recession yet. However, it’s essential to know that when the economy is performing poorly, we tend to see higher levels of unemployment and lower wages.

Calculating Credit Scores

Q: Can you explain how credit scores are calculated, and what factors impact them?

A: Credit scores are calculated based on five main factors: payment history, amounts owed, length of credit history, credit mix, and new credit inquiries. Payment history is the most significant factor, followed by the balance owed compared to the credit limit. The length of credit history also plays an important part, and it’s critical to maintain a diverse mix of credit to have a higher credit score.

Retirement Savings and Becoming a Millionaire

Q: How much money should one save for retirement, and what are some tips on becoming a millionaire?

A: It’s challenging to give a precise number for retirement savings, as different people have varying needs and financial goals. However, as a rule of thumb, it’s wise to start saving for retirement as early on in your career as possible. A reasonable percentage could be around 10-15% of your income. As for becoming a millionaire, some tips are to invest early, keep your expenses low, and live within your means. Also, avoid debts and make sure to have smart investments.

Issues With the Tax System, College ROI, Debt-to-Income Ratio

Q: What are some of the issues with the tax system today, and how can people overcome them?

A: The U.S. tax system is known for being rigged in favor of wealthy individuals and corporations. One way to combat this is to lobby for legislative action that redistributes wealth more equitably.

Q: What is a realistic college ROI, and how can students make sure they are not overburdened with debt?

A: It’s tough to calculate a precise college ROI, but students can ensure they are not overburdened with debt by making informed decisions about their education investments. Students can weigh the expected benefits and costs of a degree and choose a university that meets their educational goals and interests without breaking the bank.

Q: What does the debt-to-income ratio mean, and why is it essential?

A: The debt-to-income ratio compares the amount of debt a person has with their income. A lower debt-to-income ratio demonstrates that someone is less likely to default on their loans, making them a more attractive borrower to lenders.

Investment Benchmarks and Philosophies

Q: Could you explain investment benchmarks, and what are your investment philosophies?

A: Investment benchmarks can be used to measure the performance of a particular type of investment (stocks, bonds, index funds, etc.) against its peers. My personal investment philosophy is to buy and hold index funds and blue-chip stocks.

Q: How can someone define their investment goals, and what should they do before buying or trading stocks?

A: Defining investment goals can help someone decide on investment strategies that align with their financial objectives. Before buying or trading stocks, people should research and understand the company they plan to invest in, looking at financial statements and other publicly available information.

Q: What does “buying the dip” mean, and why is it important to understand the risks while investing?

A: “Buying the dip” refers to purchasing stock when prices fall, hoping to capitalize on the subsequent recovery in prices. While this strategy can be profitable, it’s essential to understand the risks involved with investing and do thorough research before buying any stocks.

Index Funds and ETFs versus Mutual Funds

Q: What are index funds and ETFs, and why are they favored over mutual funds?

A: An index fund is a type of investment fund that tracks a broad market index, such as the S&P 500, and has lower fees than actively managed mutual funds. ETFs, or exchange-traded funds, are similar to index funds in that they model broad markets, but they trade like individual stocks. Both index funds and ETFs are popular because they have lower fees and no minimum investment requirements.

Inflation and Its Impact

Q: What is inflation, and how does it impact the cost of goods and services?

A: Inflation is an economic phenomenon that causes the price of goods and services to rise over time. When there is a higher demand for goods and services than their supply, the cost of these items increases.

Cryptocurrency Investments

Q: Is it too late to invest in cryptocurrency, and how much of one’s portfolio should be invested in it?

A: While it’s difficult to say whether it’s too late to invest in cryptocurrencies, my advice would be to invest a maximum of 5% of one’s portfolio. Cryptocurrency is highly volatile, and investors should proceed with caution.

Conclusion

Personal finance can be a complex topic, but the Q&A with Kevin Matthews is an informative way to answer many common questions. From retirement savings to investing in cryptocurrency, Matthews provided valuable insights into a range of personal finance topics. Remembering his catchphrase “always aim to learn,” shows that being proactive in learning about personal financial management is essential.