courses › Finance & Money

Personal Finance

level 24 course

Card interest, savings goals, emergency funds, employer matches, and which debt to pay first.

Pen and paper is fine · no calculator needed why?

Opens at level 24.

Builds on: Money Basics (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

A card's annual rate is charged monthly as one-twelfth of it, so an 18% card charges 1.5% a month on the balance.

Saving toward a goal, count only the gap still to fill, and round the months up: part of a month still leaves you short. Asking how long savings last, round down: a month you can't fully pay doesn't count.

An employer match covers your contributions only up to its cap. And extra money for debt saves the most interest on the highest rate, whatever the balances.

Techniques

Gap, divide, round the right way

Months to reach a goal, or months your savings cover.

For a goal, find the gap: the goal minus what you have.
Divide the gap by the monthly saving, and round up.
For savings that must last, divide savings by monthly spending, and round down.

worked example

Example: You have $2,000 saved and want $5,000. You add $400 at the end of each month (ignore interest). After how many months do you first have at least $5,000?

Gap: $5,000 − $2,000 = $3,000.
$3,000 ÷ $400 = 7.5.
Round up: 8 months.

Answer: 8

Match only up to the cap

An employer matches part of what you contribute.

Take the smaller of your contribution and the cap.
Multiply that percent by your salary: the matched part.
Apply the match: 50 cents per dollar is × 0.5, dollar for dollar is × 1.

worked example

Example: Your salary is $50,000. Assume your employer adds 50 cents per dollar you contribute, on contributions up to 4% of salary. You contribute 6%. How much does the employer add per year?

Only 4% is matched: $50,000 × 0.04 = $2,000.
50 cents per dollar: $2,000 × 0.5 = $1,000.

Answer: $1,000

One-twelfth of the annual rate

A card charges its annual rate monthly on the balance.

Divide the annual rate by 12 for the monthly rate.
Multiply this month's balance by that monthly rate, as a decimal.

worked example

Example: Assume a credit card charges a 24% annual rate, applied each month as one-twelfth of that rate on the balance. This month's balance is $1,500. What is this month's interest?

24% ÷ 12 = 2% a month.
$1,500 × 0.02 = $30.

Answer: $30

Tips by skill

TipCredit card interest this month: Divide the annual rate by 12, then take that percent of this month's balance.
TipMonths to a savings goal: Divide the gap still to save by the monthly amount, then round up to a whole month.
TipEmergency fund months: Divide savings by monthly spending and round down. A month you can't fully pay doesn't count.
TipEmployer match: Only contributions up to the cap are matched. Then apply the match: half, or dollar for dollar.
TipWhich debt first?: Look past the balances. Extra money goes first to the debt with the highest rate.

Watch out for

Charging the full annual rate for one month. At 18%, a $1,000 balance costs $15 this month, not $180.
Forgetting the money already saved, or rounding the months to a goal down.
Matching your whole contribution when it is above the cap.
Paying off the smallest balance first instead of the highest rate.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

Credit card interest this month par 18 s not tried yet
worked example
Assume a credit card charges an 18% annual rate, applied each month as one-twelfth of that rate on the balance. This month's balance is $3,800. What is this month's interest?

Answer: $57.00
1. Monthly rate = 18% ÷ 12 = 1.5%.
2. $3,800 × 0.015 = $57.
Months to a savings goal par 16 s not tried yet
worked example
You have $4,800 saved and want $6,000. You add $300 at the end of each month (ignore interest). After how many months do you first have at least $6,000?

Answer: 4
1. Gap = $6,000 − $4,800 = $1,200.
2. $1,200 ÷ $300 = 4, so it takes 4 whole months.
Emergency fund months par 11 s not tried yet
worked example
You have $19,700 saved and spend $9,200 a month. How many full months of expenses does it cover?

Answer: 2
1. $19,700 ÷ $9,200 ≈ 2.14, which covers 2 full months.
Employer match par 22 s not tried yet
worked example
Your salary is $59,000. Assume your employer adds $1 for every dollar you contribute, on contributions up to 3% of salary. You contribute 1% of your salary. How much does the employer add per year?

Answer: $590.00
1. Your 1% is within the 3% cap, so all of it is matched: $59,000 × 0.01 = $590.
2. Dollar for dollar, the employer adds $590 a year.
Which debt first? par 17 s not tried yet
worked example
You pay the minimum on every debt and have $750 extra each month. The rates are fixed annual rates. To pay the least total interest, which debt should get the extra payment first?
1. Student loan at 8% ($29,000)
2. Credit card at 27% ($4,000)
3. Car loan at 6% ($24,000)
4. Store card at 20% ($3,000)
Answer: Credit card at 27% ($4,000)
1. An extra dollar saves the most interest where the rate is highest: the credit card at 27%.
2. Paying off the smallest balance first can feel good, but it costs more.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

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