The post What To Do When A Loved One Dies: Financial Questions Answered appeared first on Clever Girl Finance.
]]>The death of a loved one takes a large emotional toll on those closest to the deceased. In addition to grief, you’re also expected to deal with closing out the life of your loved one—from rehoming pets to canceling a credit card after death. Figuring out what to do when a loved one dies can leave you feeling stressed and overwhelmed, but this checklist when someone dies can help make the process easier.
Ignoring practicalities after the death of a loved one could cause even more stress in the long term. Closing accounts, dispersing funds and personal belongings, and notifying the proper agencies and organizations reduces the chance for fraud.
This article will help you go through the checklist when someone dies, making it easier to manage everything that needs to be done. We’ve also gathered answers to some of the most common financial questions after someone passes away.
The period immediately following major life events like the death of a loved one is likely one of the most difficult. You’re still coming to terms with their death, and yet you’re expected to take care of things.
You probably aren’t sure what to do when a loved one dies. As soon as you can, start working through these initial steps after the loss of a loved one.
When deciding what to do when someone dies, your first task is to get a legal pronouncement of death.
If your loved one passes in a hospital or nursing home—where a doctor is on staff at all times—the facility will likely take care of the pronouncement, but you can also reach out to a hospice nurse to get a pronouncement if a loved one passes at home under hospice care, according to the National Institute on Aging.
In cases of an unexpected death, you should call 911 as soon as possible. First responders will arrive and transport your loved one to a hospital.
The first responders may also be able to help you deal with the initial shock or trauma of losing your loved one.
After your loved one is pronounced deceased, your next step is to contact family, friends, and those close to the deceased. Family members to notify right away might include a spouse, living parents, siblings, and children of the deceased.
You may also want to notify close friends of the deceased, such as a lifelong friend from childhood.
Employers or volunteer organizations should also be notified of the death soon. Some people forget this step when figuring out what to do when a loved one dies.
However, the last thing you want to deal with when grieving a loved one is a call asking why they’re not at work.
If your loved one passes away in a hospital or other care facility, you can ask the facility what they need from you.
In many cases, these facilities take care of some of the initial steps after a loved one dies, which could reduce your stress and give you more time for grieving and mental wellness. After a loved one passes, call the facility for guidance or procedures related to the next steps.
Did your loved one pass away with pets or dependents living in their home? If so, finding care for them should be a top priority when working out what to do when a loved one dies.
You may be in a position to take them into your home. Doing this could help you in the grieving process by giving you a living connection to your deceased loved one.
If you cannot accept pets into your home, start by asking friends or family of the deceased if they can temporarily take care of the animals or if anyone wants to be a first time dog owner or first time cat owner.
Many animal shelters or rescues may also be available to offer immediate care for animals after the death of their owner.
After taking care of the immediate needs after the death of a loved one, you can start planning the burial or funeral arrangements and going through the checklist when someone dies. Many people use an estate planning checklist to prepare their end-of-life arrangements in advance.
Your loved one may have a detailed pre-existing funeral or burial arrangement plan. This could include pre-purchased funeral or burial services. If not, consider asking those closest to the deceased, such as a surviving spouse, of any known end-of-life wishes or plans.
Using your loved one’s end-of-life plans as a guide, start making funeral, burial, or cremation arrangements.
Loved ones who were in the military or part of a fraternal organization may qualify for specific funeral displays and cost coverages.
Certain deceased veterans, for example, may be eligible for Veterans’ burial allowances to help cover the cost of funeral, burial, and transportation.
Be aware that the average cost of a funeral, according to Policy Genius, is over $6,000 to $15,000 or higher. Even if your loved one has funds set aside for funeral arrangements, you might not be able to access them immediately.
This means you or other loved ones may have to cover the initial cost of the funeral. The deceased’s estate will reimburse you later.
Luckily, the Federal Trade Commission requires funeral homes, directors, and other industry members to follow strict pricing transparency rules. The FTC’s Funeral Rule helps protect consumers dealing with the loss of a loved one.
According to the rule, you must receive an itemized list of funeral home costs. It’s called a General Price List (GPL)—when you visit a funeral facility. Understanding your rights under the rule can help you avoid unexpected costs related to burying your loved one.
Many families choose to include a memorial service or gathering of loved ones after someone passes away. Memorial services might offer closure and peace to those who knew the deceased.
However, you are not required to have one, and planning a memorial right after losing your loved one may be difficult.
In that case, you may want to see if another person close to the deceased is willing to take on the responsibility of planning the event if desired.
If your loved one had a medical condition or was on hospice, you may already have their estate planning documents—such as a will—in your possession. If their death is unexpected, you may have to go to their home and look for the documents yourself.
Stepping into your loved one’s home for the first time after they pass can be an emotional experience. You may want to take a trusted friend along to help you deal with the rush of emotions you may face.
It may help to have someone with you when it’s time to look for important estate planning documents, including:
Once the proper legal documents are in your possession, secure the home and personal property of the deceased. Put the necessary legal documents in a safe, secure location until you meet with the estate attorney.
For now, it’s best to keep any documents you find, even if they seem insignificant. Remember, you can always focus on how to declutter paperwork later.
You can contact the post office to forward mail to the estate executor. Do this after you secure the property until after the will reading and the disbursement of the estate takes place.
Forwarding the deceased’s mail allows you to see what bills are due. You’ll also see if there’s any unexpected activity on their credit accounts. That can alert you to deceased person’s identity theft.
A week or two after your loved one passes away is often when the bulk of your administrative tasks begin with the checklist when someone dies.
Due to the many things you’ll likely need to do in this timeframe, it’s essential to take time in the first week for yourself. You may want to consider some journaling self care or counseling to help you process your feelings.
Remember, however, as you go through the tasks ahead, it’s okay to take time when needed. Even when things seem to be moving quickly, and you’re wondering what to do when a loved one dies.
Two weeks after the death of a loved one is when you should start going through the process of closing accounts, organizing the estate, and initiating probate if necessary.
You’ll need a death certificate for most of these tasks, so starting there is a good idea. Most experts recommend getting 10 to 20 copies of the death certificate. This ensures you have enough certified copies to send to all institutions you have to notify of the death, such as banks or insurance companies.
If you’re working with a funeral home, the director will likely help you secure death certificates from the state. You can also request a death certificate copy from the vital records office of the state where the death occurred.
You may need to talk with an estate attorney if your loved one has a will. Estate attorneys help families plan and execute their estates.
You might also need a probate lawyer. They can help you with the probate process and distributing assets.
For families with a will, the document should name an estate executor or a personal representative for the deceased. Going forward, the executor will likely handle most of the tasks required of the estate.
In many cases, the closest family member is the executor, such as a spouse or eldest child.
Your estate attorney can help you better understand your role if you’re the executor. This can include what steps you need to take regarding the legal proceedings of the estate.
Consider hiring a Certified Public Accountant (CPA) and other financial and tax specialists to help manage the financial aspect of the estate. A CPA will help you navigate the tax process of funds from your deceased loved one.
Depending on the estate size and what types of accounts your loved one had, you may wonder, “Do I need a financial advisor?” It may be a good idea to hire one.
A financial advisor will aid you in understanding the financial assets of an estate. After distributing funds and assets, your advisor can also help you manage any windfalls that come your way.
For example, your loved one had a significant nest egg in a savings account. You now need to learn how to invest 100k. Working with a financial advisor could make it easier to navigate your options.
Probate is the process of legally distributing assets from the deceased’s estate. Estates with a will generally go through probate to verify the document’s authenticity. With a well-defined will and last wishes, the probate process is usually quick and uncomplicated.
However, if your loved one didn’t have a will, the probate process will likely take much longer. An estate without a well-defined plan for assets could lead to lawsuits between heirs, extending the probate process.
Each state has different laws regarding probate, so it’s often worth hiring an experienced probate lawyer to help you through the process.
When deciding what to do when someone dies, you’ll probably wonder what happens to bills (see how to catch up on bills if needed), recurring services, and the physical property of the deceased.
Once the court verifies the deceased’s will, you can begin processing assets, canceling bills, and deactivating the deceased’s identity.
The probate process often includes an inventory of the deceased’s assets and belongings. This list includes significant assets like real estate and cars, as well as personal belongings such as furniture, jewelry, and clothing.
You may consider hiring an appraiser to help sort through your loved one’s belongings and get an accurate estimate of the value of the assets.
Going through a loved one’s belongings can cause a range of emotions. You might feel raw grief being in their home without them, or you may be able to relive happy memories as you go through their things.
No matter what you’re feeling, inventorying a loved one’s things might be overwhelming. It may be a good idea to take a trusted friend or relative to help you through the process.
You may find your loved one had other non-physical assets that need to be counted in the estate’s value. Generally, these assets include bank accounts, investment accounts, and retirement plans.
This process can take years, depending on how many unexpected assets your loved one carries. Start by searching through safe deposit boxes and filing cabinets in the deceased’s home to find documents related to these accounts. It’s also recommended to check your loved one’s mail regularly for statements from unknown accounts.
Additionally, you can look through past tax returns to understand what accounts your loved one owned.
Going through an unexpected bank account after death isn’t the only type of statement you should look for in your loved one’s mail. Your loved one probably had monthly bills, such as utility bills, cell phones, cable alternatives, or cable plans.
Make a list of the ongoing bills and any debt your loved one had at the time of their death. This will help the executor know what needs to be paid by the estate and also give you a list of services that need to be canceled.
The cost of cable, streaming services, cell phones, magazines, and more will continue to be charged to the deceased unless you cancel the accounts. Using your list of bills, cancel any subscriptions or recurring services of your loved one that are no longer needed.
However, you may want to avoid canceling utilities like power or water for now. This will help keep the home livable while you go through your loved one’s belongings and clean up the house.
If your loved one has a passport, you’ll need to contact the federal government to deactivate it, reducing the chances of identity theft. This might require you to send in the passport with a certified copy of the death certificate.
If you’d like to keep the passport as a memento of your loved one, you can request the passport office send it back after processing the cancelation. This allows you to have a keepsake of past travels and adventures with your loved one.
In addition to deactivating your loved one’s passport, there are several agencies, organizations, and businesses you’ll likely need to notify of your loved one’s passing. Many of these organizations will require a certified copy of the death certificate to verify the deceased and may have a form you must fill out.
Common organizations and agencies you’ll likely need to notify include:
Most agencies and organizations will inform you precisely what needs to be done to cancel or close an account.
However, you can get started with this checklist when someone dies to help you close accounts:
Expert tip: Take care of your mental health during this difficult time
Everyone experiences grief differently following the death of a loved one. No matter how you process your loss, it’s important to take care of yourself and get the help you need.
After all, you can’t pour from an empty cup and still be there for family and friends. As you deal with your loss, consider the resources available to you—from talking with close friends to seeking a mental health provider or counselor to help you cope with grief.
Generally, the funeral home director will notify the Social Security Administration (SSA) of your loved one’s death.
However, suppose they do not offer this service, or you’re going through a non-traditional burial route. In that case, you may have to contact the SSA to notify them via phone or by visiting your local Social Security office.
Power of attorney dissolves upon the death of the person and is no longer valid. Though many people authorize a power of attorney during their lives, giving a trusted family member or representative the authority to act on their behalf if they become incapacitated.
After death, the only person in charge of the estate is the named executor in the will. If there is no will, the local probate court will name a personal representative.
In most cases, the representative is a close family member or friend of the deceased.
You may not realize just how many subscriptions, services, and accounts you have until you have to cancel those of a loved one. Common accounts you may have to cancel after the death of a loved one include:
The FDIC will keep insuring the account for 6 months after death. You’ll likely have to provide a certified copy of the death certificate, court documents, and social security number in order to close the account.
If you have a joint bank account with the deceased, you may be able to reclassify the account as an individual account in your name only.
Knowing how to close a bank account is important in this situation.
You will need to call credit card companies to let them know your loved one has passed away. Once canceled, the deceased’s estate pays any outstanding balances for a credit card after death.
No, in most cases, the executor pays off the debt from the estate’s value, and you do not have to pay the credit card debt. If there is more debt than the estate’s value, the debt goes unpaid.
The exception is if someone shares responsibility for the credit card after death of the cardholder. If you are a co-signer on the credit card, you will likely have to pay off the debt.
However, authorized users on a credit card account are usually not considered responsible parties and don’t have to pay back the debt.
If there is no beneficiary named on a bank account after death, the account will go through probate law.
However, this can vary significantly based on state and local law, especially if there’s no will from the deceased. It’s good to check with a local estate attorney to learn more about your situation.
Yes, if a beneficiary takes the 401k inheritance as a lump sum, it is taxed as normal income, but there are many other rules depending on what you do with the 401k.
It’s best to consult a trusted tax professional to figure out what to do when someone dies and leaves you a 401k.
There are rules for beneficiaries with a 401k after death. Most 401k accounts can be rolled into an inherited IRA (individual retirement account), which generally must be emptied in the 10 years following the rollover.
Beneficiaries may also be able to keep the account where it is and withdraw funds over the next decade.
Spouses, however, have additional options when they inherit a 401k after death. A spouse beneficiary can choose to keep the 401k at the current location, roll the balance into their own 401k account, or roll the inherited 401k into an inherited IRA.
There are exceptions and requirements to these options, so it’s a good idea to work with a tax professional or financial advisor to understand better how to handle the money in a 401k.
An inherited IRA is an IRA inherited by a beneficiary. Inherited IRAs can be funded by a rollover from an employer-sponsored account like a 401k plan or an IRA owned by the deceased.
Inherited IRAs differ from other types of IRAs because of required distributions. In some cases, the money in an inherited IRA must be fully withdrawn within 10 years of the inherited IRA account being opened.
There are a lot of common mistakes people make when figuring out what to do when a loved one dies. Some things not to do after the death of a loved one include:
While there are many practical things you shouldn’t do when a loved one dies, perhaps the most important thing to avoid is not giving yourself time to heal or grieve. The stress and pain of losing someone you love can be overwhelming, especially if you don’t make time for healing.
If you found this information and checklist when someone dies helpful when dealing with this challenging situation, read these articles next.
Although difficult, there are many important decisions to make and things to do when a loved one dies. If possible, surround yourself with trusted friends, family members, and support professionals to help make settling an estate more manageable.
Additionally, take time when you need it—you’re going through a major life change, and it’s okay not to be okay.
Sometimes, it helps to have a checklist to help you answer questions and get through things like what to do with a 401k after death or who gets power of attorney after death.
When you’re ready, use this checklist to help you figure out what to do when someone dies and ask for help. And remember, it’s important to know how to nurture yourself and practice attitudes of mindfulness to get you through this difficult time.
The post What To Do When A Loved One Dies: Financial Questions Answered appeared first on Clever Girl Finance.
]]>The post $60,000 A Year Is How Much An Hour? appeared first on Clever Girl Finance.
]]>Whether you’re looking for a new job or just accepted an offer, knowing how much money you’re making—or could make—is essential for planning your finances. But most jobs list salaries as an annual amount, which can be difficult to break down into everyday numbers. If you’re looking at a $60,000 per year job, you might ask, “$60,000 a year is how much an hour?”
This article takes a look at how much you’ll make an hour, weekly, and monthly if you have a 60k-a-year job. We’ll also go over factors that affect your pay and what jobs pay $60,000 per year.
A $60,000 per year annual salary breaks down to about $28.85 per hour. This is assuming you work a 40-hour week for 52 weeks a year.
The hourly pay rate for a 60k salary is a good place to start understanding the actual amount you’ll make working a 60k job. Breaking it down even further can further that understanding so you know if a $60,000-per-year job makes sense for you.
Additionally, some jobs have different pay schedules. You might work a job that pays monthly, which can change how you view your salary, especially if you want to learn how to save money from salary income.
Take a look at the table below to get the approximate answer to the question, “$60,000 a year is how much an hour, week, or month?”
Hourly | Daily | Weekly | Biweekly | Monthly |
$28.85 | $231 | $1,154 | $2,308 | $5,000 |
There are two numbers to consider when looking at your paycheck: gross pay and net pay. Gross pay is the total amount of money you’ve earned on your paycheck.
However, you won’t receive that full amount due to taxes and other deductions. The actual amount of your paycheck is called your net pay or take-home pay.
While a $60,000 per year salary is about $28.85 an hour in gross pay, your net pay will likely be a bit lower. Taxes are generally the biggest deduction taken from your paycheck and can greatly affect how much your take-home pay will be.
Your employer is required to take out certain federal taxes from your paycheck, according to the IRS, including:
But federal taxes are only part of what comes out of your paycheck. Depending on where you live, you might have to pay more in state income taxes and other state-specific deductions.
Your location is one of the biggest factors in how much your take-home hourly pay will be from a 60k salary. Even two people who both make 60k a year might have very different paychecks if they live in different locations.
Most states have a state income tax. However, nine states have limited or no state income tax at all, claims Forbes, including:
Forbes also explains that both New Hampshire and Washington have special income taxes for certain capital gains and interest earnings.
However, income from a job—like your regular paycheck—is generally not taxed in these states.
Additionally, having no state income tax doesn’t mean you should start looking for the cheapest way to move out of state! These states still have to collect taxes for public projects and services. States with no income tax might charge more in taxes for property taxes or sales tax.
Taxes are only part of the discrepancy between your gross and net pay. Many people contribute to retirement plans or pay their health insurance via employer deductions from their paychecks. Common paycheck deductions in addition to taxes include:
If the company you work for offers a health insurance plan, you can usually pay your insurance premiums as a deduction to your paycheck. This means your employer will automatically take out your portion of health or disability insurance premiums before paying you.
Paying premiums this way makes it easy to keep your insurance in force and gives you one less thing to remember to do each month.
Many employers offer a retirement plan so you can save for your future, such as a 401(k). It might be time to ask, should I max out my 401k? To make it easier to save for retirement, employers also let you automate your savings through your paycheck.
Your employer takes your retirement contribution out of your paycheck and puts it into your retirement account for you.
Are you planning to work in a job that has a union? Many union jobs pay hourly wages, making it important to answer, “$60,000 a year is how much an hour?”
Union agreements can help workers get fair compensation for their work. Union members pay dues to be part of the organization, which are generally taken directly from your paycheck.
Not all paycheck deductions directly benefit the employee. In some cases, your employer may take out part of your paycheck to cover court-ordered garnishments on your pay.
A garnishment is a legal order that requires an employer to deduct a certain amount from an employee’s paycheck to pay off debts, such as child support or spousal support.
Expert tip: Understand salaried pay vs hourly pay
When looking at a 60k per year job and figuring out $60,000 a year is how much an hour, be sure to ask if you’ll be paid hourly or with an annual salary.
If working hourly, you may be able to make more than 60k a year by working overtime, which is generally paid at a higher rate.
Salaried employees often don’t receive overtime pay for working overtime, but may get some flexibility in their day-to-day work schedule.
You’ve got the answer to that question, “How much an hour is $60,000 a year?” And it’s making you think, “Should I quit my job?” and then start a new career that makes $60,000.
Before you rush out to put in your two weeks, it’s a good idea to think about what you want to do to earn 60k a year.
Let’s take a look at jobs where the yearly income is $60,000 or more per year. Remember, however, that your location, experience, and training can affect how much you’ll be paid.
Do you love travel? Being a flight attendant might be right for you! Flight attendants can often make $60,000 per year or more for their mean yearly salary, according to the Bureau of Labor Statistics.
Additionally, most commercial airlines utilize their own training systems to get you ready to head to the sky. That means many airlines will hire people without a college degree to work as flight attendants.
Respiratory therapists help patients breathe better—from administering oxygen to managing ventilators. This healthcare career path lets you help people and make $60,000 a year. The mean yearly wage is upwards of 70,000, claims the Bureau of Labor Statistics.
Most respiratory therapists have at least an associate’s degree, but some medical or hospital systems may require extra training or a more advanced degree.
If you’re personable and have good communication skills, you may enjoy being a human resources specialist. This job works in the people operations department of a company or organization to help the human resources division run smoothly.
Day-to-day tasks might include screening or interviewing job applicants, managing employee benefits, or preparing employee training.
In general, you’ll need at least a bachelor’s degree to get started as a human resource specialist. The median yearly wage for this job is about $64,000, according to the Bureau of Labor Statistics.
People who ask, “$60,000 a year is how much an hour?” might be excited to learn they can generally make more than $28.85 per hour as a web developer.
As society relies on the internet and technology more and more, there is a need for quality web developers. As a web developer, you can expect to make $60,000 or more, the median yearly wage is nearly $80,000, claims the Bureau of Labor Statistics.
There’s generally no degree required, but you’ll need to learn web development and design skills to be successful.
Those with an analytical mindset might like working as a loan officer. Loan officers are in charge of analyzing a loan applicant’s credit and financial information to determine if they qualify for a loan.
You can usually get started as an assistant loan officer to get your foot in the door, though you may start out making less than $60,000. The median yearly wage for loan officers is over $65,000, according to the Bureau of Labor Statistics, though.
If you find yourself asking, “$60,000 a year is how much an hour?” you probably know how much money you need to make an hour to cover your cost of living. At the end of the day, $60,000 a year might not be enough to cover your expenses while saving for the future.
Many people live in high-cost-of-living areas, such as expensive cities, where 60k a year may not be enough. Alternatively, you may simply want to make more than $60,000 a year if you want to learn how to save money.
No matter the reason you want to make more than 60k per year, there are steps you can take to improve your annual salary. These generally fall into two categories:
Learning and improving skills related to your job can help make you a more attractive candidate and give you access to higher-paying roles.
Some skills relate directly to jobs or industries. For example, if you work in healthcare administration, adding medical coding and billing certifications might help you earn more money.
However, certain skills are often in demand across industries. This means people with these skills can often pivot between roles or industries easily.
According to job search website Indeed, some of the most in-demand skills include:
Improving your salary through job-related skills can help you earn more than 60k a year, but it’s not the only way to make more money. Today, many people are starting a side hustle of their own or small businesses alongside their regular jobs.
The benefit of a side hustle is that you control how much you can earn and where you want to go in your career. Maybe you want to make a couple of extra hundred dollars per month with a small side hustle. Or, maybe you want to take your small business full-time and leave corporate jobs behind entirely.
The choice is yours when you’re running your own business. Consider these easy side hustles to get started:
60k a year per paycheck is $1,154 weekly, $2,308 bi-weekly, and $5,000 monthly.
Let’s break down these amounts further. You’ve already wondered, “$60,000 a year is how much an hour?” The answer is $28.85 per hour before taxes and other paycheck deductions.
But what does that hourly wage come out to in a paycheck?
The answer isn’t always straightforward because different employers pay their employees differently. The most common payment schedule is bi-weekly, meaning you get a paycheck every other week. However, many employers pay weekly or monthly as well.
Making $60,000 can be a good salary in some cases. However, everyone’s financial needs are different. Determining whether 60k a year is a good salary depends entirely on your personal situation.
For example, someone living in an area with low costs of living and who has no debt may find $60,000 more than enough to live on. They might even live a luxurious lifestyle on 60k a year.
On the other hand, someone who lives in a high-cost-of-living area may find it difficult to cover expenses on a 60k per-year salary, and they could end up living paycheck to paycheck.
Additionally, someone who has a lot of debt, such as student loans, a large mortgage, or high-interest debt like credit cards, may need more than $60,000 per year to pay off their debt.
$60,000 a year monthly comes out to $5,000. While most jobs pay bi-weekly or weekly, some jobs are paid monthly.
Monthly paychecks can be an adjustment, especially if you’re used to getting two paychecks—or more—a month. Carefully budget your income and monthly expenses list to meet your monthly needs.
If you learned a lot from finding the answer to $60,000 a year is how much an hour, check out these other articles next!
The simple answer to “How much an hour is $60,000 a year?” is $28.85 per hour. However, the exact amount you make an hour on a 60k salary depends on your location, tax situation, and even whether or not you’re a member of a union.
Additionally, many jobs make 60k a year. Some will have a starting salary of 60k, meaning your pay is likely to increase with schooling, training, and experience. Other jobs reach the top of their salary range at 60k per year.
It’s important to understand your financial needs, cost of living, and experience level or training as factors to consider when choosing a career. This can help you determine if 60k a year is a good salary for your individual situation.
The post $60,000 A Year Is How Much An Hour? appeared first on Clever Girl Finance.
]]>The post How To Invest $100K? 4 Investment Ideas appeared first on Clever Girl Finance.
]]>Whether you received a large bonus at work or a windfall from a family member, you’re probably not complaining if you suddenly have an extra $100k. But while the extra wealth might be helpful to your financial situation, you likely still have a lot of questions and may be wondering how to invest $100k. There are lots of options, depending on what you value and your finances.
There are many ways to invest $100,000, from real estate to starting your own business. Keep reading to learn how to invest 100k and what you can do to help your money grow even more over time.
Tempting as it may be to spend your 100k on a lavish vacation or a new luxury car, the more practical idea is to put your money to work for you.
Investing your money can help it continue to grow over time, ultimately giving you even more wealth than before. This can be a big benefit in your lifetime, but it also helps build generational wealth for your descendants.
Let’s take a look at four investment ideas for your $100,000:
Approximately 62% of Americans between the ages of 18 and 29 have a retirement account, according to The Motley Fool. However, they also state that only 30% of them feel prepared for retirement.
If you have a retirement account, adding 100k could be a big step in funding your retirement income. If you don’t already have a retirement account, your $100,000 is a great way to get started with a leg up toward retirement savings.
But adding money to your retirement account isn’t just about increasing your income in retirement — it’s also a good way to potentially save on taxes. Your windfall may come with a hefty tax bill, depending on how you got the money. By investing your 100k into retirement savings, you may be able to save on taxes.
For example, you exceeded all of your sales goals this year and earned a 100k bonus. You might be able to save on next year’s income taxes by maxing out your 401k. If you’re wondering, “Should I max out my 401k?” it reduces your taxable income, which in turn lowers your tax bill.
It’s important to note that you probably won’t be able to invest your full 100k into retirement savings alone.
Retirement accounts generally have contribution limits. Contributions to a 401k account are limited to $23,000 in 2024, according to the IRS, for example.
Contribution limits might mean you have to invest part of your 100k elsewhere, but investing in retirement is still a great place to start.
There are three common types of retirement plans: 401k, individual retirement accounts, and defined benefit plans.
A 401k is an employer-sponsored plan that lets you contribute part of your paycheck directly to the plan. The plan is managed by your employer, which can limit your investment and management options and lead to higher fees than other types of accounts.
Individual retirement accounts (IRAs) are owned by individuals, meaning you have full control over your account. Your employer is not connected to your IRA, and you can choose almost any type of investment you like (depending on where you open your account). Fees on IRAs tend to be lower than other account types because you can choose low-fee or no-fee investments.
However, contribution limits are lower, which makes it difficult to quickly build wealth through contributions.
Finally, a defined benefit plan — most often called a pension — is an employer-sponsored plan that makes regular payments to retired employees.
The plan is owned by the employer, who uses their own formula to determine retirement payments. The formula generally takes into account the employee’s time with the company and salary.
Defined benefit plans are most often funded by the employer, but the rise in the popularity of the 401k means fewer companies are offering pensions than in the past.
When it comes to investing 100k, real estate investing might be at the top of your list. One of the biggest barriers to entry to making money in real estate is the initial investment. Buying a house to rent out, for example, could take some serious upfront capital.
That’s why finding yourself with 100k could be a great time to start real estate investing. Real estate uses real property — from single-family homes to commercial buildings — to generate income, usually through rental or lease payments.
Depending on how you invest your money, passive real estate investing can even be a passive income stream that doesn’t require hands-on management. After all, who wants to get maintenance calls from tenants in the middle of the night?
Real estate investing for beginners, however, might be overwhelming. Luckily, you don’t have to go out and buy a four-plex building to start investing.
There are several ways to get started in real estate without buying a property on your own, including real estate investment trusts or REITs.
Buying a house, apartment complex, or commercial building to rent for income is often referred to as direct real estate investing or investing in real property. There are a lot of upfront and recurring costs to this method.
For one, you’ll have to purchase the property and make any necessary repairs or renovations. Even after renting the property, you’ll need cash to cover maintenance, taxes, insurance, and other ongoing costs. And, of course, the property could potentially lose value over time.
The biggest benefit to direct investing, however, is the chance for higher payouts. By owning the building outright, you don’t have to share profits. You might also be able to make money quickly by flipping properties.
That being said, owning real property — even with a property management company — can be a big hassle. A real estate investment trust, which you may also know as a REIT, is a company that owns real property, like a hotel or office building, and provides a real estate investment option for people who don’t want to own their own properties outright.
REITs offer ownership shares of their portfolio of real estate to investors, much like a company stock. As an investor, you purchase shares in the REIT and receive dividends from the company’s profits. You can also sell your shares to make a profit if the price goes up, just like a stock.
Investing in REITs lets you get into real estate investing without the high startup cost. They also give you an easy way to diversify your investment portfolio.
However, you won’t have control of the properties the REIT company owns or the price of rent. The lack of direct involvement in REITs might make it feel more like stock investing than real estate investing.
If you’re wondering what you should do with 100k, a brokerage account will likely be part of your investment plan.
A brokerage account is an investment account which lets you buy and sell stock market assets like stocks, bonds, and funds. Unlike retirement accounts, brokerage accounts have no contribution limits.
However, brokerage accounts also don’t typically have tax advantages like retirement accounts.
The good news is that investing in a brokerage account is one of the simplest ways to build wealth. Even better, the money you earn isn’t tied to retirement, so you can access your money without penalties at any age.
As you grow your investment portfolio, you’ll begin to earn portfolio income from dividends and interest.
In most cases, brokerage investing is a fairly hands-off method of investing. This is especially true if you hire a financial advisor or use a robo-advisor to automate your investment decisions.
Figuring out how to invest 100k in a brokerage account comes down to personal preference. You’ll want to consider your risk tolerance and how you want to make money (dividends vs. buying and selling shares) when choosing investments.
Typically, there are five types of investment vehicles in a brokerage account:
Stocks are pieces of ownership of a specific company. Each piece of ownership is called a share. You can buy and sell shares to make money, typically by buying at a low price and selling your shares at a higher one.
Investing in stocks may allow you to earn big profits, but you have to pick the right ones. A person who invested in Google, Apple, or Amazon when the stocks first became available likely made a large profit from selling the shares within the last few years.
However, there’s no proven way to pick a stock that will make it big. You might also choose a stock of a company that goes out of business, leaving your investment nearly worthless. This chance of loss is why stocks are considered the riskiest type of investment. But you can learn how to research stocks to improve your chances of success.
A bond is a loan you make to an organization, often a government entity. The bond issuer, such as a city government, uses your bond purchase to raise capital.
In exchange, the organization agrees to pay you back with interest for a specific duration. You’ll receive a set interest payment, meaning you can calculate the rate of return on your investment.
The downside to bonds is the low rate of return. Many bonds offer low interest rates, which could limit your ability to grow significant wealth through bond investing.
On the other hand, bonds can be a low-risk investment option as many government-issued bonds are backed by the entity offering them.
A mutual fund is basically a managed portfolio of bonds, stocks, and other assets. It can be a good way to diversify.
The benefit of mutual funds is the ability to invest in lots of different assets without having to individually pick each one. This also means mutual funds tend to be slightly lower risk than individual stocks because you’re spreading out the risk among many stocks.
The drawback of mutual funds is their fees, which tend to be higher compared to other investments like ETFs.
Additionally, you might only have access to certain mutual funds within a retirement account, like a 401k.
Index funds are technically a sort of mutual fund, but they’re considered passively managed funds, states Forbes. This means an index fund isn’t being actively managed by a fund manager who picks specific assets.
Instead, index funds try to follow what a market index does, for instance, the S&P 500. The fund holds stocks of companies within the chosen market index. When the market goes up, the index fund tends to rise in value.
Without a fund manager, index funds tend to have lower fees than their managed counterparts. While index funds tend to build wealth slowly, they tend to perform very well over a long time. This makes investing in index funds a great low-cost, low-management option if you’re deciding how to invest 100k for the long term.
Exchange-traded funds, also called ETFs, are similar to mutual funds in that they’re a portfolio of assets sold as one unit. Like mutual funds, you can get access to multiple investments while buying and sharing shares of an individual ETF.
Additionally, ETFs tend to work like index funds specifically because they’re built to track certain market movements.
For example, you can choose ETFs related to certain industries.
While ETFs are built similarly to mutual funds, they trade more like stocks. Mutual funds have one price per day, whereas ETFs can be purchased and also sold throughout the day, and the price will fluctuate with the market. ETFs also usually have lower fees than mutual funds.
While you can make a lot of money investing in real estate or even the stock market, you could also potentially lose money.
Additionally, these assets may make it more difficult to access cash quickly, such as in an emergency.
The solution? Keep some of your money in highly liquid accounts such as checking, savings, or money market accounts. While stocks, bonds, and other investment options are considered liquid assets, having a protected cash fund can help you get the money you need quickly without the chance of it losing value.
These types of accounts are typically interest-bearing, so you’ll still make some money from your deposits.
In addition, keeping money in an FDIC-insured bank means you won’t lose money if something happens to the bank up to a certain amount.
The general recommendation for cash accounts is to keep around three to six months of living expenses for emergencies. This amount lets you have enough for unexpected expenses without losing potential returns by holding too much money in cash.
Expert tip: How 100k keeps earning money
Leverage the power of compound interest with your 100k! Wondering how does compound interest work? Compound interest is the money you earn from your already-earned interest.
This means you earn interest on the total amount in your account, not just your initial deposit.
So if you invest your 100k, over time, it will continue to provide interest indefinitely in some cases.
There are a few things you’ll want to do before choosing what to do with 100k. Taking the time before investing will help you choose the investments that make the most sense for your financial situation.
Before investing your money, here are five factors to consider:
Having $100,000 is a life-changing amount of money for many people. The possibilities of what you can do with your money may seem endless, but it’s worth taking a step back before investing.
Take the time to think about what you want to do with your money by asking yourself these questions:
Without a solid investment plan in place, you run the risk of investing your money in a way that will lose money.
For example, you get excited about a new company and put all of your money into their stock. The company doesn’t perform as well as you hoped, and your investment value falls.
In addition, investing without a plan doesn’t always have catastrophic consequences. If you invest your money without a plan for it, you might simply end up with investments you don’t enjoy or don’t want to deal with.
Say you are buying a house to rent out, and you become a landlord. After a few years, you realize you’re not making much money from the property, and you don’t enjoy being a landlord.
This is why it’s essential to think about what you want to do with the money before jumping in to something without researching.
Debt can be an unfortunate part of life, and a lot of Americans have it.
A study by TransUnion found that the average credit card debt balance per consumer is around $5,733. That debt can quickly eat into returns on investments if not dealt with first.
By paying off debt — especially types of debt such as high-interest debt with credit cards — before investing your 100k, you can take your earnings from your investments as pure profits. If you leave your debt to keep growing, your overall investment earnings will be reduced by your debt plus interest.
For instance, suppose you have $10,000 in credit card debt and have $100,000 to invest. The credit card interest rate is 15% per year, and you expect to make 6% in gains from your investments.
If you don’t pay off your credit card debt, you’ll have $1,500 in additional interest added to your credit card balance. Your investments made $6,000 in interest.
$6,000 – $1,500 = $4,500 in profit
On the other hand, let’s say you pay off the $10,000 you owe and invest the remaining $90,000. You wouldn’t have any interest costs because you’ve paid off the credit cards.
However, you’ll make $5,400 in earnings from your investments.
By paying off your debt first, you’ve almost made an additional $1,000 from investing. Over time, these additional earnings will really add up.
Do you have a rainy day fund or emergency fund with at least three to six months of living expenses?
If not, filling your emergency fund should be your top priority when choosing how to invest 100k.
An emergency fund is a cash account you can use to easily access money in — you guessed it — an emergency. Common financial emergencies where you might need cash include:
To calculate how much emergency savings you need, you must first determine your monthly expenses.
Add up your monthly recurring expenses, such as mortgage or rent, car payment and insurance, average utility bills, cell phone bills, and average credit card bills. You’ll then take the total of your average monthly expenses and multiply it by how many months’ worth of savings you hope to have.
For example, your total monthly expenses average $4,000. You want to have between three and six months of savings, so you’ll need to put $12,000 to $24,000 into your emergency fund.
Generally, the best place for an emergency fund is a high-yield savings account. These give you easy access to your money, as you can usually tie them to a checking account at the same bank for instant transfers.
Additionally, by opting for a high-yield account, you’ll earn interest on your emergency savings, further growing your rainy-day fund.
Does the thought of losing even a small amount of money on the stock market give you the shivers? Or, do you have no problem losing some money with the hopes you’ll make more overall?
These situations refer to your risk tolerance or how much risk you’re willing to take on in your investments. Those with lower risk tolerance generally invest in lower-risk assets with the hope they won’t lose money and will make steady but smaller earnings.
Someone with a higher risk tolerance might be willing to invest in a riskier asset, such as an unproven stock, in the hopes that the returns will be higher than other investments.
Regardless of your individual risk tolerance, it’s recommended that you do what you can to lower your risks when investing. One of the easiest ways to lower investment risk is to diversify your portfolio.
Diversifying a portfolio means investing in a range of assets to offset the individual risk of any single asset.
For instance, if you only invest in newly-released stocks, you’re at a higher risk of losing your money if all of those companies go bankrupt.
On the other hand, you could invest some money in stocks, some in bonds, some in index funds, and some in ETFs across various industries. This widens your portfolio’s ability to bounce back after an individual company or market sector loses value.
Depending on how you get your $100,000, you may have a hefty tax bill to look forward to. Some scenarios, such as receiving a life insurance benefit payout, are not typically taxed, explains the IRS.
In that case, you’ll have the full $100,000 to invest how you like.
However, if you get 100k from a bonus at work, severance payment, or other type of income, you can expect to owe taxes on the money.
For example, if you receive a $100,000 year-end bonus in the form of a check, you’ll be taxed 22% for federal taxes, or $22,000, according to CNBC Select. That leaves you with $78,000 to invest — a fair bit lower than the 100k you started with. You may also owe state taxes on your bonus in addition to federal taxes.
It’s always a good idea to talk with a tax expert when you come into a large sum of money. They’ll help you determine if you owe taxes and the amount and may be able to provide strategies to help reduce your tax bill.
You should also consider tax implications after you decide what to do with 100k. Depending on how you invest the money, you may have to pay taxes on the earnings.
Capital gains is the term for the money you make on the sale of an investment. Let’s say you buy stocks for $100 and sell them for $200. You made $100 in capital gains on your investment.
These gains can be short-term or long-term, depending on how long you own the asset.
When you sell an asset, you often have to pay capital gains taxes. This tax is higher for short-term capital gains and lower for long-term capital gains.
In many cases, you can save money on taxes in your investment accounts by keeping your assets for over a year.
In most cases, it’s best to avoid investing all of your money at once. That’s because markets fluctuate over time. Even if you invest in a variety of assets, you could be investing at a high point in the market.
Instead, consider investing your money over time. You can keep the balance of your 100k in a high-interest savings account to help it make money while you slowly invest it.
An easy way to automatically invest over time is a strategy called dollar cost averaging. Dollar-cost averaging works by investing a portion of your money at regular intervals. This strategy reduces the risk of trying to “time the market,” which often doesn’t work for the majority of investors.
In addition, dollar cost averaging lets you purchase more shares when prices are less expensive and fewer shares when prices are more expensive, leading to a lower average cost per share.
If you’ve unexpectedly received $100,000, you may wonder, “Do I need a financial advisor?” – well it can be a good idea. Financial advisors can help you invest 100k, as they help their clients invest, save, and manage their finances.
In many cases, a financial advisor is like a personal finance coach who can help you better understand your financial situation. They can help you navigate your investment options and develop a financial plan that works for you.
On the other hand, financial advisors could be expensive, depending on their fee structures. They’re also not the professional you likely need if you have tax questions.
In that case, you should seek out a tax professional such as a CPA (Certified Public Accountant).
To invest 100k and make $1 million will take time and patience, and the ability to invest for the long-term. It’s unlikely to happen overnight without potentially devastating risks.
Long-term investing strategies, such as investing in index funds, are often the preferred way to increase the value of your portfolio without inviting a high level of risk.
Investing 100k for passive income is possible if you consider businesses that run themselves or start investing. Passive income is a type of strategy that lets you earn money without actively working. You’ll continue to earn while you eat, sleep, or read the best side hustle books.
But most passive income streams require a lot of work to get started — or a lot of cash. Luckily, if you’ve found yourself with 100k, starting a passive income stream could be a quick way to make extra money.
You can buy vending machines or ATMs and place them at various businesses or locations for a fee, like rent. When someone uses the machine, the money they spend (or ATM fees) is your revenue. You then regularly check the machines for money — and to restock products or cash — to collect your profits.
This stream isn’t perfectly passive since you’ll have to physically visit the machines for maintenance, restocking, and collecting profits.
However, you could hire someone to take care of the day-to-day operation of your business.
Owning a laundromat lets you earn money as long as people are using the machines. There are a lot more expenses in owning a laundromat than other types of passive income ideas, such as utilities and machine maintenance.
However, laundry services are an ongoing need for almost everyone, making a laundromat a relatively safe investment.
Did you know you can buy and sell internet domain names, sort of like stocks? You might consider starting a side business doing this.
It works by buying a domain name you think someone will want for their business.
For example, the person who first purchased “apple.com” was likely able to sell it for a large profit when the technology company needed the domain.
Although many big-name domains are already bought and paid for, you can still make money flipping domains. There are even marketplaces where you can easily buy and sell domain names directly.
Say you decide to buy a luxury car with your 100k. You can still make money on your purchase by renting out your vehicle for a premium.
And this strategy works with any high-quality items you own. Are you into designer handbags? You could rent them out to people looking for a bag for an event. Other items to rent out include high-quality power tools or yard equipment, an RV, sporting goods, or quality baby equipment.
A common passive income idea is to simply purchase an already profitable business. You take over ownership and continue to let the business run as it has been to make money.
Unfortunately, it takes quite a bit of upfront capital to do this. Luckily, if you have 100k to invest, you could likely find an existing business within that budget or qualify for a business loan with a 100k down payment.
If you’re earning compound interest on your 100k investment, there’s almost no limit to how much interest you can earn on 100k.
However, how much you’ll actually earn in interest depends on a few factors, including where you invest the money and how often you withdraw funds.
For example, if you put your 100k in a typical savings account, your interest rate might only be about 0.5% per year, explains the FDIC. Even with compounding interest, you’re unlikely to make a large amount in interest earnings.
Creating a diversified portfolio of investments, however, could yield a much higher interest rate.
If you enjoyed reading this article about how to invest 100k, check out these other articles about investing!
Figuring out what you should do with 100k can be a daunting — and exciting! — task.
If you’ve found yourself with $100,000 to invest, your first step should be to make a plan for your money. You may want to talk with a tax professional and financial advisor to help create an investment plan that will help you maximize returns on your investments.
Remember to take your time deciding about your 100k, and be sure that the investments you choose are the best ones for you that will bring you financial success.
The post How To Invest $100K? 4 Investment Ideas appeared first on Clever Girl Finance.
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]]>Saving for college expenses can be difficult and takes a lot of time. Many choose to save through a 529 plan to make the process easier. But is a 529 plan worth it? And is it a good idea for you?
Most American parents aim to save just over $55,000 for their children’s college expenses, and 529 plans make up 30% of college savings accounts.
We’ll explain the basics of the 529 plan system as well as where to open an account, and the 529 withdrawal rules. We’ll also go over the pros and cons of 529 plans. Then you can make an educated decision about your child’s education savings.
A 529 plan is a type of education savings plan that helps families prepare for future education costs. Also called qualified tuition plans, 529 plans offer tax advantages and savings benefits for those saving for higher education expenses.
Money in the account is generally put into investment funds that could help build savings faster than a savings account alone.
Additionally, the earnings in the account can be withdrawn tax-free if they’re used for qualified education expenses. The potential for tax savings makes a 529 plan an attractive method for budgeting expenses for college students.
Anyone can open a 529 plan. After opening an account, any money you put into it is meant to be used for education costs for the named beneficiary on the account.
Generally, parents and grandparents are the owners of the account, and their child or grandchild is the beneficiary.
However, a big benefit of 529 plans is the ability for anyone to contribute. This makes it easy for family and friends to add money to the account (which can be one of the best 18th birthday ideas) or they can also add money for holidays.
Most 529 plans are administered by states and their agencies. Every state and Washington, D.C., offer at least one form of a 529 savings plan. Some educational institutions also sponsor 529 plans of their own.
You can choose to open an account from any state, regardless of where you live.
However, residents who open a 529 plan sponsored by their state may receive tax advantages when contributing to accounts.
In addition, some states offer lower fees and administrative costs to in-state residents.
You should consider both in-state 529 plans and out-of-state plans when deciding where to open a 529 account. Be sure to weigh the potential tax savings from your resident state plan with attractive benefits from other states.
You can look up and compare your state’s plan with the College Savings Plans Network search and compare tool.
For example, if your state offers aggressive tax savings on state income tax by using your state’s 529 plan, it may make sense to use this plan.
If, however, your state doesn’t offer tax benefits through its plan, you may want to choose a state plan with better investment choices.
Opening a 529 plan is usually as simple as finding the state’s plan administration website and filling out a form.
Plans sold directly by their administering state are known as “direct-sold” plans, or you may also choose to work with a financial advisor through an “advisor-sold” plan. Advisor plans still work with state 529 programs, but you’ll generally leave the day-to-day management of the account to your financial advisor. Advisor plans also usually have standard investment planning fees.
Is a 529 plan worth it, and what are the important pros and cons of 529 plans? When choosing any type of savings or investment account, you’ll want to consider the benefits and disadvantages. Let’s take a look at the advantages of opening a 529 plan.
By far, the biggest benefit of a 529 plan is the potential for tax savings. Depending on your state, you might be able to save money on state taxes by contributing to your resident state’s plan.
Many states offer tax deductions or credits for contributing residents. Colorado, for example, lets residents filing single tax returns deduct up to $22,700 per beneficiary for the 2024 tax year, according to College Invest. It’s worth noting that there are no federal tax deductions and no credits for investing in a 529 plan.
However, you can still experience great tax savings even if you open a plan outside of your state. Funds you earn in a 529 plan grow tax-free, so you won’t have to pay taxes on the earnings in the account. This tax deferment helps your money grow faster, as you won’t have to pay taxes on investment earnings while the funds are in the account.
When it is time to withdraw money from the account, you might still get to take it out without paying taxes on it. You can withdraw money from a 529 plan for use toward a qualified education expense tax-free.
Generally, qualified education expenses include things like college or trade school tuition, textbooks, and required class supplies.
A 529 savings plan gives you flexibility in addition to tax benefits. Anybody can open a 529 account, regardless of income, and name a beneficiary to their account. You can even name yourself as the beneficiary to your account to start saving as soon as possible.
The beneficiary you originally choose isn’t set in stone, either. You can change the beneficiary on your account to better fit your financial plans.
For example, you open an account for your first child and then start wondering, “Should I have another baby?” You choose to have a second child, and your firstborn receives a large scholarship to college. You no longer need all of the money in the 529 account for their education expenses.
You can change the beneficiary on the account to your second child without penalty. Now, your second child has access to the funds in the account to cover education costs.
I personally like the idea of this plan because you don’t have to do a lot to manage a 529 savings plan. Once you open the account, you can usually “set it and forget” if you want to, which is a big plus when considering, “Is a 529 plan worth it?”.
Most plans let you assign automatic contributions, such as a monthly transfer of money from your checking account into the 529 plan.
In addition, most 529 plans offer targeted investment options based on your child’s anticipated college years.
While targeted investment funds lower the number of investments you have access to in the account, they make it much easier to manage your 529 plan money. Targeted investment funds generally use your child’s age or estimated college entrance year to create a mix of investments that fit the timeline to create a risk profile for your needs.
As your child gets older, the plan automatically readjusts investments in the fund to better meet current needs.
For example, a newborn has approximately 18 years before they head to college. A target fund for this child might include riskier investments with the potential for higher earnings because any losses would have years to correct themselves.
Contribution limits for 529 plans are very high.
Many of these limits are upwards of $200,000 or more, according to The College Investor, meaning most families won’t fear hitting the limit.
Although 529 plans have a lot of benefits, they also come with certain drawbacks. Get to know the downsides of a 529 plan to better understand if a 529 plan is worth it for your family.
A 529 plan can help you save up significant funds for your child’s education. However, the funds can only be used for certain educational expenses.
If you decide to use the funds in a 529 account for non-education costs, you’ll have to pay taxes on the earnings. Using 529 funds for non-education expenses negates the tax-free benefit of the account.
In addition, you’ll also pay a tax penalty for withdrawing the funds without using them for education expenses. This penalty could cut into the earnings you’ve made through investments.
Not all state 529 plans offer the same types of tax benefits. Most give residents who use their plans a tax deduction or credit for contributions.
If you live in a state without income tax, however, you won’t receive the benefits of someone in a state with income tax. Since those in non-income tax states often pay higher property or sales taxes, a state 529 plan may not be the best fit.
Additionally, you should consider your future plans before committing to a 529 plan.
Say you open a 529 plan in your current state to take advantage of the state tax benefits. Your career, however, takes you to a new state within a few years. If you change your 529 plan, this could affect your investments, fees, and taxes.
Having a low-maintenance account can be a big benefit for some parents — and a major drawback for others. Most 529 plans have a limited number of set investment options for your funds.
If you’re a hands-on investor, this limit on your control over your investments could be frustrating.
Without self-directed fund options, you have to accept the investment choices of the plan.
Instead of a 529 plan, you may want to consider opening custodial accounts or a brokerage account to use the money for education expenses. You may not get the tax benefits of a 529 plan, but having control of individual investments could lead to potentially higher returns.
Almost every 529 plan has administrative and investment fees. These fees help cover the cost for the state agency or institution to run and manage the plan. Choosing an advisor-directed plan also generally increases the amount you’ll pay in fees.
As you’re comparing your state plan to other plans, be sure to carefully consider the costs of the plan. Plans explain their fee structures and the fees you’ll pay for certain investment types in the fine print of their offerings. Going over the potential fees of a plan will help you determine if a 529 plan is right for you.
Expert tip
A 529 plan is a great way to save for future education costs for many families. This is because it offers flexible education savings with nearly no contribution limits, all while offering a done-for-you approach to investing.
That said, I recommend doing your research specifically around the tax benefits for different state plans a well as the associated fees. This will help you make an informed investment decision for your 529 account.
Yes, you can lose money in a 529 plan. When you learn how to start investing, there’s always a possibility you’re putting your money at risk.
529 plans are often called savings accounts, but they are almost always used for investing money in the stock market. Investments in a 529 fund could potentially lose money, just like any other investment. This might leave you wondering: is a 529 plan worth it if you could lose money?
The good news is that many 529 plans use a low risk tolerance to determine their fund allocations. Low risk tolerance means your plan puts your money into funds that have historically lower chances of losing money, though the potential is still there.
If your child doesn’t go to college, you can use the money for other education costs. Many parents mistakenly assume they’ll have to pay penalties on withdrawals if their child chooses not to attend college, but 529 funds aren’t only for traditional four-year university costs.
Other ways you can avoid paying taxes and penalties on 529 withdrawals if your child doesn’t go to college include:
You can withdraw money without penalties by using it for qualified expenses. Any money you withdraw from a 529 account to use toward qualified education expenses for the beneficiary is generally tax and penalty-free.
Most people know that college tuition is a qualified expense, but qualified expenses might also include:
There are many different ways to use funds from a 529 in a qualified withdrawal.
It’s important, however, to be careful when you withdraw funds to not overdraw and to know the 529 withdrawal rules. The money you withdraw from the account must go directly to the cost of higher education. Waiting too long to pay a bill or holding funds for a future expense could lead to paying penalties.
For example, say your child’s yearly tuition is $10,000, which the university bills per semester in $5,000 increments. You would want to avoid withdrawing the full $10,000 at the beginning of the year to pay the tuition bill to avoid paying a penalty on the $5,000 in funds for the second semester tuition bill.
Instead, you should withdraw $5,000 when the first bill comes in and the additional $5,000 when the second bill arrives.
There is no limit to how many times a year you can withdraw money. While you should be careful when you withdraw funds from your 529 account, the good news is you can make unlimited qualified withdrawals from the account. Making more withdrawals throughout the year might also make it easier to keep track of which withdrawal was going to certain expenses.
There are generally no restrictions on how long your money has to be in a 529 account before you can withdraw it.
Some states and individual plans, however, may have requirements on how long the account must be open before making a withdrawal. Be sure to check with your plan and the 529 withdrawal rules to see how long the account must be active before removing funds to avoid fees.
A 529 and an education savings account are comparable, but one isn’t better than the other.
State 529 plans aren’t the only savings account for college expenses.
The most common alternative to a 529 plan is a Coverdell Education Savings Account (ESA). Like 529 plans, ESAs help parents save for college expenses for their children.
An ESA is very similar to a 529 plan. Both accounts let you save and invest funds for the college expenses of the beneficiary — which both types of accounts let you change. And just like 529 plans, ESA accounts let you withdraw earnings for the account tax-free if the money goes to qualified education expenses.
However, there are three main differences between an education savings account vs 529 plan:
Either a 529 or a savings account could work for you. In general, an ESA has more restrictions regarding contributions and timeline for use.
This might make it seem like a 529 plan is the best option, but that’s not always the case. The ability to mostly self-direct your investments in an ESA could make it the better choice for some parents.
Other alternatives include custodial accounts for your children. In a custodial account, you are the owner of the account for the benefit of your child until they turn 18 (or 21 in certain states). After they come of age, the account moves into your child’s full possession.
Wondering if a 529 plan is worth it? Both ESAs and custodial accounts could be a good alternative if you feel a 529 plan isn’t for you, such as if you move states often or want to have more control over your investments.
If you enjoyed learning about whether a 529 plan is worth it, you’ll like these articles:
Generally, we at Clever Girl Finance believe a 529 plan is an excellent way to save for future education costs. Many families find the ease of opening and maintaining their accounts — along with the tax savings — to be worth it to save for college.
If you’re considering opening a 529 account for your child or grandchild, we recommend considering these questions to help you decide if it’s worth it:
After considering these questions, you should have a clearer view of whether or not a 529 plan is worth it for your family.
Whatever you decide, it’s always a good idea to plan ahead for your child’s future by saving for education, regardless of the type of account you choose. It is also equally important to consider your retirement savings and other investing goals, so you can create a healthy money story for yourself and your family.
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]]>The post Should I Max Out My 401k? 3 Reasons Why You Should appeared first on Clever Girl Finance.
]]>Did you know you can only contribute a certain amount to a 401k per year? The biggest benefit of maxing out your 401k is the chance to save more money for retirement. If you are already making some contributions, you might start to wonder: should I max out my 401k? Well, keep reading.
The 2024 limit for a 401k is $23,000 for people under 50, according to the IRS, and contributing the full amount is known as “maxing out” your 401k, which might be a good choice for you. But how do you know for sure?
As with most things, the answer depends. Those who are financially stable, have good monthly cash flow, and have access to a 401k with low fees might want to consider maxing their account.
However, locking money up in a 401k generally means you can’t access your savings (without penalties) until you’re near retirement age.
Knowing the pros and cons of maxing out your 401k can help you make an informed decision on whether or not it’s time to up your 401k contributions. Let’s dive in and look at why you would — or wouldn’t — want to max out a 401k.
A 401k is one of the most common types of employer-sponsored retirement plans.
Deciding to max out a 401k is a personal decision, but there are reasons you might want to consider it. Maxing out your 401k could be a smart financial choice if:
Let’s take a closer look at why you might want to max out your 401k.
Your 401k probably has a handful of fees attached to it. In general, 401k fees consist of administration fees and investment fees.
The plan’s service provider charges administration fees to help cover the cost of hosting and managing the plan itself. This might include expenses like record keeping, accounting, and legal services. Investment fees, on the other hand, cover the cost of managing investments and investment-related services.
If you happen to be on a 401k plan with low plan fees, you might want to take advantage of it. With lower fees, you’ll get more out of your money by investing in the plan.
In turn, the more you invest in the plan, the more money you can build for retirement.
For example, you’re trying to decide whether you should max out your 401k or put that money into an individual retirement account (IRA) and other brokerage account. The fees on your 401k average out to 1% of your total balance per year, but the fees for the other accounts are around 3% per year.
In this case, it makes more sense to put your money in the account with lower fees.
One of the biggest benefits of a traditional 401k is the ability to lower your taxable income for the year. When you contribute to a traditional 401k, the money is generally taken from your paycheck and automatically added to your 401k account.
This process happens before your employer calculates taxes on your earnings. Thus, you don’t pay taxes on your traditional contributions.
When tax time rolls around, your year-end earnings statement doesn’t show those contributions as part of your taxable income. The lower your taxable income, the more likely you’ll lower your tax liability.
Let’s say you make $100,000 per year and usually pay taxes on the full amount. Maxing out your 401k would reduce about 20% of your annual taxable income, which could help lower how much you owe in taxes.
If you’re looking for an easy way to significantly reduce your taxable income, maxing out your 401k could be a great tax strategy.
Be sure to talk with your tax advisor about your specific situation to make sure maxing out your 401k for tax benefits makes the most sense for your financial situation, as well as to understand the difference between a Roth vs traditional 401k.
Except in certain situations, you can’t withdraw money from your 401k without a penalty fine before age 59 ½. When you contribute money to your 401k, you’re essentially locking it up in the account until you retire.
Making it harder to access your money, however, can be a big benefit if you’re still learning how to build discipline with finances. The money in your 401k can grow without giving you the temptation to withdraw funds early. Maxing out your 401k further helps you build these hard-to-access retirement savings.
Employer 401k matching is a contribution to your retirement plan made by your employer. A 401k match means your employer will put money into your retirement account based on what you’re contributing on your own. Usually, a 401k is a percentage match up to a certain percentage of your salary and it is essentially free money!
For instance, your employer might offer a 50% 401k contribution match up to 5% of your annual income. If you make $100,000 and contribute $5,000 to your 401k, your employer will contribute an additional $2,500. If you only contribute 4%, or $4,000, to your 401k, your employer would only match $2,000.
Keep in mind that, maximizing your employer match isn’t the same as maxing out your 401k. Maximizing employer contributions means contributing the full percentage of your employer’s match offer.
For example, if your employer offers to match up to 6% of your salary, you could maximize this benefit by contributing the full 6%.
Expert tip
When you’re wondering, “Should I max out my 401k?” this means contributing the full amount allowed by the IRS. Maxing out a 401k might not be financially feasible for everyone, but you can still reap the benefits by taking advantage of your employer match if you have access to one.
After all, you’re essentially getting free, tax-deferred money. Even if you can’t afford to fully max your 401k to the IRS limits, setting a goal to get the full amount of your employer match is a smart financial move.
Maxing out your 401k can be one of the smart tips for retirement planning. The more you save over the years, the more financial freedom you give yourself in retirement.
In addition, having a larger balance in your 401k makes it easier to build wealth through things like interest earnings.
On the other hand, contributing over $20,000 of your annual salary to a retirement account might not be possible. Asking yourself key questions can help you make an informed choice on whether it’s a good idea to max out your 401k. Some questions include:
If you answer “yes” to most or all of these questions, maxing out your 401k could be a good retirement planning strategy for you.
On the other hand, if you answer “no” to most of the questions, you may want to focus on other financial tasks first, such as getting out of high-interest debt or building an emergency fund.
Note: Even if you cannot max out your retirement savings, you can still contribute to it. For example, based on your answers to the questions, you may determine you can only contribute 5% or 10% right now and that’s ok!
There are a few things to consider before maxing out your 401k. By checking off the items in this list first, you’ll set yourself up for financial success when you max out your retirement plan.
Carrying debt and trying to max out your 401k account can quickly throw off your long-term financial goal setting. By trying to both max your retirement savings and pay the minimum on your debt, you’re splitting your finances. This can lead to not being able to pay off more than the minimum on your debt.
If you have debt with high interest, such as credit card debt, you might not be able to keep up with your debt payments or reduce credit card debt. When you can’t pay off more than the minimum on your debt, the interest charges keep adding up. You might have to carry that debt — and interest — into retirement, negating the benefit of maxing out your 401k over the years.
Focusing instead on paying off debt before retiring lets you take care of one of the biggest drains on your finances, your debt. And once you’re out of debt, you’ll have more disposable money to put toward your 401k contributions.
For example, you might decide to contribute just enough to your 401k to get your employer’s match while you focus on paying off debt. If no match exists, you might instead decide to contribute 1% to 5% to take advantage of some tax deferred savings while you focus on your debt repayment.
Having access to emergency cash is one of the most important financial tools you can give yourself. Emergency funds are liquid cash accounts that give you fast access to your money when you need it most.
For example, your car breaks down, and you need several thousand dollars in repairs. Or, you suddenly lose your job and need to cover rent, utilities, and other necessary expenses until you find another job.
Ideally, you’d carry around 3 to 6 months’ worth of living expenses in your emergency fund before putting too much money into other savings, including trying to max out your 401k. You can — and should! —still try to contribute to your retirement fund, but the bulk of your savings should first go toward emergency savings.
You may also want to build some non-retirement savings before maxing out a 401k. As the money in a 401k is basically inaccessible without a penalty, having funds in a non-retirement account can help you cover large purchases or expenses until retirement.
Additionally, non-retirement savings, such as a high-yield savings account or brokerage account, gives you the flexibility to access cash both before and in retirement.
Cash flow is how much money moves into and out of your bank account each month. The goal is to have a positive cash flow — meaning more money is coming into your account than going out.
When it comes to retirement planning, cash flow plays an important role in how much you can save. Even two people with the same income could have vastly different cash flows based on their monthly expenses.
For instance, say two women both make $5,000 per month.
The first woman has only $3,000 in expenses, leaving her with $2,000 to put towards savings and retirement. The second woman needs $4,500 to cover her monthly expenses and has $500 to put toward savings.
The first woman has a larger cash flow and will likely find it easier to max out a 401k than the second.
Your income and cash flow can be good indicators of whether it’s a good idea to max out your 401k.
Let’s say one woman has an annual income of $40,000. She isn’t carrying debt and keeps her expenses low at around $15,000 per year.
However, maxing out her 401k would require her to contribute over half of her salary to her retirement account. Even living on a bare bones budget, it would be difficult for this woman to put around $20,000 into a single retirement account.
A different woman, however, makes a six-figure salary of $150,000 and spends $100,000 per year on expenses. After maxing out her 401k and paying expenses, this woman still has around $30,000 to put toward other savings.
While the second woman has significantly more expenses than the first, her income and cash flow make maxing out her 401k possible.
Like the women in the example above, you can use your income and cash flow to decide if you should max out your 401k. The lower your income, the less likely it’ll be in your budget to max out your 401k (but you can still contribute something to it).
If you have a higher income, you’ll also need to consider your monthly expenses to determine if you have enough cash to max out your retirement plan. To do this, you can list your monthly income and expenses to see how much money you have to put into savings each month.
Ideally, you’ll have enough money left over to invest both in non-retirement accounts and your 401k rather than just investing all of it to max out your 401k.
There are a few downsides to maxing out your 401k, such as:
The most obvious downside to maxing out your 401k is losing easy access to your money. Money in retirement savings is often non-liquid, meaning you can’t withdraw it with ease.
In addition, you may have to pay penalties on the money you take out.
Unless you have ample non-retirement savings, maxing out your 401k could lead to cash flow issues. These issues could be minor, such as not being able to save money as quickly as you wanted for a down payment on a new car. Or these cash flow issues could put you in a serious situation, such as not having the money to pay your mortgage or rent.
Not all 401k plans are created equal, and some plans have high fees that can eat into your savings. If your plan has a large administrative fee or charges fees on many different aspects of your investments, such as placing an investment order, you may want to focus on other retirement saving accounts.
Additionally, your 401k plan is overall managed by your employer and the plan administrator, giving you less control over your investment and savings. You’ll generally get more investment options, lower fees, and more control over your money with other types of accounts, such as an IRA or other self-directed account.
Employer contributions to your 401k don’t automatically belong to you.
Generally, employees must stay at the company for a certain amount of time before vesting in their accounts. In retirement terms, “vesting” refers to the ownership of the money in the account.
Any money you contribute to your account on your own is always 100% vested from the start, meaning you own this money.
However, your employer match funds may not be yours — at least not at first.
Most 401k plans have a vesting schedule. The longer you stay at the company, the more of this money you own or become vested in. If you quit your job before being fully vested, you’ll forfeit any unvested money.
Say you vest 20% each year you’re with a company. Your vesting schedule would look like this:
After five years of service, you’re fully vested. If you leave the company, you’ll take all of your employer contributions with you.
However, if you quit after only three years, you’ll only own 60% of employer contributions to your account.
As you consider whether or not to max out your 401k or employer match, think about whether you plan to stay with the company. If you plan to leave before being vested in your account, you may want to focus on other ways to build retirement savings.
Your age is only one small factor in when to start maxing out your 401k. Your income and expenses, current savings, and debt play a much larger role in whether maxing out your 401k is a good idea.
For example, one person makes $100,000 annually but has no debt and over a year’s worth of non-retirement savings. Their coworker makes $200,000 but spends over half of their income on high-interest debt payments and has no emergency fund.
Despite making less money, the first person may be in a better position to max out their 401k. Their ages may not play much of a role in the decision.
The exception to this is employees over age 50. At age 50, the IRS lets you make “catch-up” contributions to retirement accounts. If it works for your financial situation, maxing out your 401k with the general limit and catch-up contribution limit could boost your retirement savings significantly just before you retire.
If you learned a lot from this post, check out these related articles!
Now you know the answer to, “Should I max out my 401k?” Saving for retirement is a great step to securing your financial future.
Before maxing out your 401k, however, it’s a good idea to consider your current financial obligations. You may want to start with financial wellness tips like creating a debt reduction strategy and building emergency savings, then you can plan to save for retirement and max out your 401k.
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]]>The post Should I Buy A House Now Or Wait? appeared first on Clever Girl Finance.
]]>Homeownership is often one of our biggest goals in life — to ditch landlords and rental apartments and put down roots in our own homes. However, the housing market and financial concerns can quickly put a damper on the dream of homeownership. It’s no surprise a lot of us are asking, Should I buy a house now or wait?
Unfortunately, there’s no one answer to that question. Buying a house is a very personal decision. What makes sense for one person might not work for another.
Keep reading to better understand your financial situation so you can make an informed decision when choosing to buy a house — or wait.
Buying a house is a big undertaking, both financially and emotionally. There’s a lot of research, paperwork, and money that goes into the process.
Whether you’re an experienced homeowner or buying your first house, the process usually looks like this:
These 10 steps might look simple on paper, but the whole home-buying process could take months. That doesn’t mean you shouldn’t buy a house though.
Still, a lot of people go through the process every day, and there are plenty of reasons to buy a house now, including:
Before jumping into homeownership, ask yourself a few key questions to get a better idea of whether or not you’re ready to buy a house.
I mentioned it before, but it’s worth saying again: home buying involves a lot of research. Here are just a few of the things to think about as you start looking at homes and asking yourself, “Should I buy a house now or wait?”
Doing your due diligence now — well before you get into the buying process — can potentially save you a lot of headaches in the future.
For example, you stumble upon what you think is your dream home, but you don’t know a lot about the neighborhood. You decide to jump in with an offer anyway, only to find out after buying the house that it takes over an hour to get to work due to traffic.
In this case, a little research on travel times and distance to your office would have saved a lot of time and money.
The research continues once you know where you want to live. Now, it’s time to look at the housing market in the area. You’ll want to know if it’s currently a buyers’ market or a sellers’ market, as this can affect housing prices.
In addition, you should consider the current pricing trends in your area and local and state tax rates. Prices that are much higher or lower than usual could indicate a shift in the desirability of the area.
Taxes will also play a role in the price of homes in the area. Even if you buy a home below market value, high tax rates could leave you house poor with a monthly payment you can’t afford.
Though it’s likely to be the biggest expense, the purchase price of your new home is far from the only cost of buying a house. Many first-time buyers are surprised to learn of the unexpected costs, so be sure you know how to save up for a house first.
First, there are several immediate fees and expenses you’ll have to cover, usually on closing day. This includes closing costs and fees related to your mortgage loan. Closing costs tend to be around 3-6% of your loan amount — which can add up quickly.
For example, you may have to pay a loan origination fee to the mortgage company simply to get your loan. This fee helps cover the administrative costs of underwriting and processing your loan.
Likewise, you’ll likely have a title search fee, which could cost a few hundred dollars. This fee pays for the title company or an attorney to search for any liens or legal problems with the home you want to buy.
Other costs may not be immediate expenses, but you’ll still have to pay them. Homeowners’ insurance and property taxes, for example, could be a large expense to buying a home, depending on where you live. Usually, these costs are rolled into your monthly mortgage payment.
You may consider waiting to buy if you’re planning on moving again in a year or two due to the time and costs of purchasing a house.
On the other hand, if you plan to be at the location for several years (such as 5 years or more) you’re likely to make up mortgage interest and also closing costs. Then homeownership could make sense for you.
Your credit score acts as a snapshot of your financial responsibility to lenders, and the higher your score, the better. You’ll increase your approval odds when applying for mortgages. Checking your credit score is essential when buying a home.
A higher credit score also often means you’ll get access to better mortgage rates. While a single percentage point might not seem like much now, paying an extra 1% in interest will add up throughout a 30-year mortgage.
Getting your credit score in shape can be a big help to lower the overall cost of buying a home.
If you don’t know your score, you can start by getting your free annual credit report. Your credit report shows your snapshot score, as well as more details about your borrowing and payment habits.
Even if you’re planning to wait to buy a house, monitoring your credit score regularly is a good idea. This can help you spot — and fix — fraud or mistakes on your credit report.
Most home buyers don’t purchase the full cost of their home immediately. You usually need a down payment, which is a lump sum of money you’ll put toward the initial purchase of the home.
The bigger your down payment, the less money you have to borrow using a mortgage. This means you’ll start your homeownership with more equity in your home.
The “standard” down payment is 20%, but not everyone is able or wants to put down a full 20% of the purchase price of a home.
For example, if you’re buying a $400,000 home, a 20% down payment is $80,000. This might be an unreasonable figure for your buying timeline.
The good news for homebuyers with smaller down payments is that there are government-backed loan programs that can help you get a home. Common loan programs include:
Making a smaller down payment could help you get into homeownership sooner rather than later. However, putting less money down on a home purchase has its drawbacks, such as:
If possible, it’s generally recommended to learn how to save up for a house down payment as much as possible before buying.
A key step in the mortgage process is getting a mortgage pre-approval. This is a letter from a lender stating they’ve approved you for a mortgage at a particular interest rate and loan amount.
Before you apply for the full amount of your preapproval, consider the monthly cost of your mortgage payments. This includes homeowners insurance premiums and property taxes.
However, the preapproval amount isn’t the same thing as how much house you can afford. Many preapprovals give buyers a bigger loan than they would realistically be able to handle each month.
You also need to consider your existing expenses. While you’ll probably drop your monthly rent when you move into a home you buy, you’ll still have most — if not all — of your other expenses.
For example, if you have a lot of student loan debt, a high car insurance rate, or an auto loan. These recurring expenses will cut down on the monthly cash flow you have available for a mortgage payment.
Finally, a home doesn’t stop costing you money when you buy it.
In fact, a lot of homeowners start finding problems only after they’ve moved into the home. Even small repairs can add up to a lot of cash over time, which may have you questioning, “Should I buy a house now?”
This is why it’s important to have a healthy emergency fund and budget for savings, even after buying your home. If you can keep your monthly expenses low enough to fund your savings, you’ll find it easier to tackle unexpected expenses.
For instance, shortly after my husband and I bought our current home, the gas fireplace stopped working. The repairs cost over $2,500 and were unexpected. Luckily, we had the savings and cash flow to cover the cost without affecting our other financial obligations.
Buying a house is exciting. And it’s often seen as the top financial goal you can reach. But not everyone’s ready to buy a house.
For many people, it makes sense to wait to buy a home. Check out some of the reasons you might want to wait before buying.
As mentioned before, being in a seller’s market can cause housing prices to go up. If the area where you want to buy your home doesn’t have a lot of homes for sale, you’ll probably pay more than you like.
Additionally, you might feel like you have to settle for a home you didn’t really want because that’s what was available.
Or, you can wait until the market tips back toward a neutral or buyer’s market. This means there’s more inventory on the market.
In turn, you’ll see lower prices and have more options when picking your dream home.
It might not make sense to buy a home if you know prices are likely to drop within the next few years. In 2022, for example, home prices hit a record high. In turn, home sales dropped.
With higher prices (and increased interest rates), fewer people decided to buy. And that’s often a pretty good strategy.
In your research, you’ll probably look at historic home prices in your area.
Although prices may steadily rise over time, a sudden spike could be a sign to wait out inflated prices. If you can keep renting for a couple of years, you give yourself more time to save for a down payment, and you’ll likely get lower home prices.
A home purchase is one of — if not the — biggest single purchase you’ll ever make. Most of us aren’t regularly spending hundreds of thousands of dollars at one time. And while you’ll probably pay the cost off over many years with a mortgage, it’s still a giant financial obligation.
Sometimes, the best thing you can do for your financial situation is to simply wait to make that big purchase. Many people choose to delay homeownership to give themselves more time to save up for a down payment.
In addition to a bigger down payment, waiting to buy can usually help you save up extra for unexpected costs like closing costs, necessary repairs, and things like new furniture.
Remember, a higher credit score usually gives you a better chance of mortgage approval and access to lower interest rates versus someone with a lower credit score.
You might want to put off buying a home so you have time to clean up your credit report and increase your credit score.
Let’s say you have a lot of debt and have missed a few payments. A mortgage lender might be wary of approving a loan and a reasonable interest rate due to past payment history.
Instead, you take a few years and focus on the best way to get out of debt and start making on-time payments each month. As a result, your credit score starts going up. When a lender sees your history of on-time payments, they’ll feel more confident lending money to you.
Expert tip
A house is a long-term financial agreement, so it’s best to ask yourself a lot of questions first, do research, and take your time.
If you feel rushed to buy a house, it’s likely not a good time to buy, regardless of what the housing market is doing.
Should I buy a house now or wait?
Ultimately, that’s the question you have to ask yourself. And the only way to answer it is to look inward. There’s no magic answer on when’s the best time to buy a house because everyone’s financial and housing situations are so different.
Of course, that doesn’t mean you should rush off to buy or put off buying because it seems complicated. Instead, take the time to think about your situation:
Going over these questions can help you decide if buying a home now or waiting a while is the right choice for you specifically. You can also learn a lot about your personal home-buying preferences by asking others about theirs.
For example, ask your friends, family, and neighbors why they did or didn’t buy a home.
To give you a better idea of how personal home buying can be, let me share my story. My husband and I bought our current home right around the peak of the home price spike — late spring 2022.
On paper, it probably made a lot more sense to wait to buy a home once prices came down.
Additionally, the housing inventory was low, so we didn’t have a lot of options.
Still, buying made the most sense for our situation:
Home inventory was low, but finding a rental property that could fit all of our stuff (plus our pets) was essentially impossible. We would have had to rent a house to fit the outdoor equipment and vehicles. In addition, it would have to allow pets and have space for our dog to run around.
With what was available for rent and how much we had for a down payment, the cost of renting would’ve ended up being more than a mortgage. So we started on our moving out of state checklist and began looking for a home.
We also happened to find a house that fit our style, space needs, and budget.
Although we purchased the home at a likely inflated price, our large down payment and great mortgage rate mean it made the most sense for our current financial situation.
There’s been a lot of talk in recent years about an impending recession and how to prepare for a recession. Whether we’re about to enter one or not, you’re probably wondering how a recession can affect home buying.
For many people, buying a house during a recession is a risky move. Job stability might be shaky, leading to uncertainty about your monthly income. Would you be able to cover your mortgage if you lose your job?
Likewise, your down payment and emergency savings may not be as strong as they are outside of a recession.
For example, you have your down payment in an investment account to help it grow. If we entered a recession, the market is likely to go down. Suddenly, your down payment isn’t worth as much as it was before.
On the other hand, someone who is financially stable might find a recession to be a great homebuying opportunity. Home prices tend to drop during recessions. If you have a lot of savings and recession-proof jobs are available, a recession could be a great time to get a good value on your dream home.
Not necessarily. Just because you make enough money to afford a house payment each month doesn’t mean that you’re ready to make such a large purchase. Also, consider if you have money for a down payment and savings for repairs and expenses.
The truth of the matter is that no one can predict exactly when the next housing market crash will be. Plus, there are always deals to be found in the housing market if you are patient and flexible with your search. Waiting for a housing crash should not be the sole decision you base your home purchase on.
For instance, you’d need to ensure you are financially prepared, you’ve identified a location to move to based on research and it all works for the timing of your life.
Enjoyed this article? Check out these articles related to buying a house!
Answering the question, “Should I wait to buy a house?” is a difficult thing to do. The only person who can tell you if it’s the right time to buy a house is yourself. Avoid rushing into the decision one way or the other to clearly determine if the house is an asset or a liability.
You don’t want to accidentally wind up with a house you can’t afford. You also don’t want to miss a good opportunity because you decided to wait without thinking it over.
Before you make your decision, carefully consider your financial situation and financial goals, including your savings, credit score, and career aspirations.
You should also think about your long-term house goals and research what’s going on in your local market. This will help you make the right choice for you and your family.
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]]>The post 9 Ways For Flipping Money: Make Your Money, Make Money! appeared first on Clever Girl Finance.
]]>Building wealth involves making smaller investments and seeing them grow over time. Sometimes known as flipping money, investing your money in various projects, assets, and skills could help you make extra money. Discover how to flip money here!
Keep reading to learn some of the best ways to flip money. We’ll also look at some of the potential downsides to money flipping and how you can get started safely.
There’s no standard definition for flipping money. If you want to flip money, you’re essentially investing it.
You invest a smaller amount of money into assets or projects that are expected to increase in value. Once the value goes up, you sell your portion for a profit. With that, you find a way to learn how to invest with little money.
One of the most well-known ways to flip money is by flipping houses. This is where someone buys a fixer-upper house and renovates it. After renovation, they sell the house for more than they paid (and more than the cost of renovations) to make a profit.
As an investment, it’s important to remember that a money flip could lose value. There’s no guarantee that your flip will make money.
The good news is it’s also possible to make a lot of money through flipping. For example, you might be able to discover how to turn $10k into $100k.
Before you start flipping your money, it’s best to take the time to do lots of research. Things to look for in a flip include:
No, flipping money isn’t the same as gambling.
The main difference is your ability to control the outcome of a money flip versus a gamble.
In gambling, your payout is based entirely on luck and chance. For example, let’s say you buy a lottery ticket for $10.
You have absolutely no control over the outcome of the ticket. Nor can you increase your chances of getting a winning ticket.
On the other hand, flipping is more similar to discovering how to start a business from scratch than gambling. You’ll take calculated risks in your investment.
Good luck, of course, can help make a flip more successful. However, there are a lot of factors you can influence or even outright control to increase your chance of success.
Yes, there are lots of legal ways to flip money. In fact, legally flipping money can be a fun way to make some extra cash.
That being said, there are plenty of money flipping scams and illegal methods to flip money.
The key to avoiding scams or illegal methods is to do your due diligence when looking for a flip. That means taking the time to fully research the process of the flip as well as any third parties that might be involved.
Be sure to avoid flips that seem too good to be true or ask you to give all of your trust (and money!) to a stranger.
Money flipping scams are especially popular on social media sites. You’ll see an ad for an “investment” that promises to help you grow your money fast. These scams might even come from a hacker posing as your friend.
Some telltale signs of a flipping scam include:
There’s no additional information on the company or investor. If you can’t find anything about the flip on the internet, it’s best to avoid it.
The flipping process involves sending money or a prepaid card to an unknown party. This is a huge red flag!
Your friend posts about easy ways to flip money, but the post seems off. It may sound different than their normal tone. This most likely means their account is hacked.
Remember the most important rule of investing: if something seems too good to be true, it probably is! Watch out for ponzi schemes, pyramid schemes, and steer clear of anything that doesn’t make sense with investing.
Flipping is a type of investment. Choosing to invest smart could make you a ton of money and have a high return on investment. Or you could lose money.
If you’re going to start flipping money, you have to be ready for either possibility. Help yourself stay safe while flipping by following these tips:
Ready to learn how to flip money and put it to work for you?
If you want to know the best way to flip money, here are 11 both online and offline ideas.
As we talked about before, flipping houses is probably the most well-known flipping method. You can make a lot of money by buying a house that needs some renovations and reselling it after.
However, getting into the real estate investor flipping market isn’t easy. It requires a lot of upfront capital to buy a property.
Even a cheap fixer-upper will likely cost several tens of thousands of dollars.
Then, you have to pay for materials, contractors, and inspections to bring the home back to life. Plus, the time it’ll take to do renovations—especially if you’re tackling projects on your own.
Luckily, there are other ways to start real estate investing for beginners and flip your money using properties.
For example, you could invest using a real estate crowdfunding platform. Like Kickstarter or GoFundMe, these real estate-specific platforms let groups of investors pool money to buy real estate properties.
If houses are physical real estate, then domain names and websites are digital real estate. And just like houses, you can flip them and make money online.
Flipping websites or domain names is one of the easy ways to flip money. However, there’s some research involved to help make your flip more successful.
Take Mark Levine, who made six figures in a year, domain flipping part-time. When he buys a domain, he does so if he sees that it would be useful and has potential.
Websites take a little more effort to flip than domains. You often need to build the website—and a following. Once a website is established, you can flip it for a profit.
You’ll need to consider your skills, the time you have available, and the market for flipping digital assets. Generally, a domain name flip is an easy way to flip money, while a website flip takes a lot more work upfront.
Imagine you’re shopping for a new cell phone. You find an electronics store that’s going out of business. They’re selling last year’s iPhone model for half the current price!
You could just purchase one for yourself and get a great deal on a new phone.
Another option is to buy several and resell them to other people for a higher price.
You buy 5 phones for $500 each. The current MSRP is $1,000. You sell each for $700.
Your buyers get a great deal. You make $200 in profit from each phone—a total of $1,000.
This is an example of a resell money flip (also known as retail arbitrage).
Reselling products is perhaps the best way of flipping money. However, luck will play a big part in reselling goods.
You have to find products at a discount to make a profit reselling them. If you have to buy close to MSRP, you might not make enough in resale.
You’ll also want to make sure there’s a reliable market for your products. iPhones or the latest Samsung Galaxy cell phones will probably sell. It will likely be harder to sell a no-name phone with limited features.
Some people find resale flipping a really fun way to make extra money. Looking for good deals from retailers can be a bit like treasure hunting. You never know what great deal you’ll find and flip to buyers.
You can also sell the items in multiple places, like eBay or also Facebook Marketplace, if you want. The more places you sell the items, the more opportunities for people to buy.
If you like a little more predictability, you can also look into e-commerce drop shipping as you learn how to flip money.
Drop shipping is the process of selling goods to customers—without ever even seeing the product.
Amazon is one of the most well-known dropshipping platforms. You can open an online store on Amazon and drop ship goods from wholesalers.
Amazon handles the whole process of storing, packaging and shipping your goods to consumers. You pay a fee for this service, which comes out of your profits.
Drop shipping can be incredibly successful. The setup takes only minutes, so it’s easy to get started.
Be aware, however, that a lot of people are doing the same thing. The difficult part of drop shipping is setting your store apart from millions of others. You’ll need to invest some time into marketing your store.
Did you know many banks offer incentives for you to open a new account?
It’s usually in the form of extra cash added to your account. Think of it as a gift from the bank for being a new customer.
The art of bank account churning takes advantage of those incentives. It works like this:
It’s one of the rare times when something sounds too good to be true, but it’s not. Bank account churning is a real—and legitimate—way to flip money.
Banks, of course, don’t want you to do this. To help cut down on churning, most banks require accounts to stay open for a minimum amount of time.
You’ll need to keep your account open for this period before withdrawing your cash to avoid penalties.
It’s also important that you read all of the fine print in your bank documents before trying to churn an account. Missing a disclosure or detail could result in expensive penalties. You could also be barred from opening an account in the future.
And, of course, consider the question, “How many bank accounts should I have?” before opening up several of them.
Let’s say a national bank offers a $300 bonus for new customers to open a checking account. You have to deposit $500 at the opening to get the bonus funds. Your account must stay open for at least 90 days, or you face a $200 penalty.
You deposit $500 into your new account. The bank deposits an additional $300 as a bonus.
You keep the $800 in the account for the first 90 days. After 90 days, you withdraw the money and close the account.
Credit card churning works like bank account churning but with credit card intro offers. Many credit cards let new cardholders earn a statement credit based on their initial spending.
For example, you open a new card that gives a $200 statement credit if you spend $1,000 in the first three months.
To churn credit cards, you open new cards to collect the welcome bonus offers. Then, you close the card and move on to the next one.
Churning credit cards is a lot riskier than churning bank accounts. You could seriously damage your credit score by overspending and opening new accounts.
There’s also the risk that a credit card company will close your account. New card companies might deny your application due to too many new accounts.
One of the most common ways of flipping money is through traditional investing. It includes investments like stocks, bonds, and mutual funds.
Basically, traditional investments are what you trade on the stock market.
Traditional investing works by buying a share of a company. As the company’s value goes up, so does the value of your shares. You can then sell your shares to make a profit.
One of the biggest downsides to traditional investing is the time it takes to build wealth. Very few people get rich quickly by buying and selling stocks. The best way to flip your money on the stock market is to invest for the long haul.
Luckily, investing is probably one of the easiest ways to flip money. You don’t even have to manage your investments by yourself.
You can choose a traditional financial advisor or planner to manage your money. These financial professionals take day-to-day management of your investments. They’ll recommend buying and selling opportunities based on your risk tolerance and investing goals.
First, ask yourself, “Do I need a financial advisor?” before you make a choice.
You can also put your money into a Robo advisor platform. Most major investment platforms offer an automated investing tool.
All that’s needed is to answer some questions about your risk tolerance and wealth-building goals. The technology will take care of investing your funds based on your answers.
Alternative investments can be another easy way to flip money as well. Like traditional investments, you may have to wait several years to see worthwhile returns on your initial investment.
However, over time alternative investments can have one of the highest returns on investment.
Two of the most common alternative investments are commodities and collectibles.
Commodities are raw materials that have value. Common examples include corn, precious metals, oil, and natural gas.
Anything of value that you can keep as a collection can be a collectible. For example, fine wines, art, stamps, and baseball cards can all be collectibles.
You can invest and trade commodities in physical ownership (where you actually hold the product). Of course, you probably don’t want to store thousands of bushels of wheat. Many people trade commodities on futures markets or the stock market through ETFs.
Collectibles often have a little more risk than commodities. Their perceived value may not be the same as their actual value.
Consider Beanie Babies. They were incredibly popular in the late 90s. Many people kept tags and bears in mint condition in hopes of someday reselling them.
But no one seems to want to purchase them. Their value is almost nothing, except perhaps a few very rare pieces.
On the other hand, some collectibles have proven their staying power. Fine art, for example, is generally considered a solid collectible investment. There are many appreciating assets to choose from, so choose what makes sense for you.
Being handy with tools could prove to be a good way of flipping money fast.
Fixing and flipping goods is a little like reselling products. You’ll find a product at a discount price and sell it for a profit.
The difference is that you’re buying broken or run-down products instead of new ones.
That means you’ll also have to put in some time and effort to make the product like new again.
For example, say you’re skilled at restoring and flipping furniture. You go to local yard sales and flea markets to find old furniture. There, you pick up an old chest of drawers with a broken drawer for $50.
You fix the drawer and sand the chest. With some paint and new hardware, the piece looks better than ever. Someone buys it for $300—$250 more than you paid.
This flipping method is one of the most involved. You’ll have to physically do the work (or contract it out) to get products ready to sell.
For many people who flip money, restoring old products just isn’t worth the time and cost of materials.
On the other hand, finding the best items to flip can be a great way to make extra money while doing a hobby you love. If you’re passionate about restoring old cars or fixing up furniture, becoming a flea market flipper could be ideal for you.
For flea market flipping, you can check thrift stores and garage sales for items. And as one of the bonuses, it’s pretty easy to start without much money.
Real estate investing usually focuses on rental properties or house flips. However, there’s another type of real estate that doesn’t require extra work to improve the property—land.
Both vacant land and assets like farmland can be incredibly lucrative ways to flip money. Many investors regard land as one of the most profitable real estate investments. After all, you can’t make more land.
The data backs this up as well. According to the USDA, farmland values have increased every year since 1988 (except in 2009 and 2016).
The biggest drawback to investing in land is the cost, of course. Like buying houses to flip, you’ll have to have the upfront money to purchase your investment.
Do you have any extra space in your home? You could flip it for money.
Renting extra space in your house or apartment (also known as house hacking) is a simple way to earn some cash and learn how to flip money fast.
It’s simplest if you own your own home. Most landlords don’t allow tenants to rent out a portion of their rental.
Homeowners, however, can use their extra space to their advantage. You don’t even have to take on a new roommate to do it!
For example, you could rent out an extra bedroom on platforms like Airbnb or VRBO.
But having an extra living space isn’t necessary to flip money renting your home.
Do you have extra storage space in a closet or garage?
You can rent that storage to someone who doesn’t have enough space. You might be shocked how many people would rather store their things at someone’s private home than in a large commercial storage facility.
A disadvantage of renting your home, however, is giving access to others. If you rent out a room to a guest on Airbnb, for example, you’ll be letting unknown guests stay in your private space.
Using apps is one of the best ideas for how to flip money fast with minimal money.
Try out investing apps like Betterment that allow you to invest your cash and earn a profit over time. There’s also the Acorns app that rounds up your purchases and helps you invest the difference, using a small amount of money to grow your wealth.
Use cashback apps like Ibotta or also Rakuten and then invest what you earn back. Rather than collecting money in the form of gift cards, get the cash and start earning. Then you’ll be making more money for your future!
Rakuten and Ibotta will allow you to earn cash back as you make purchases, and you can then cash out after you make a certain amount of money. So it’s a good way to earn as long as you aren’t spending money you wouldn’t normally spend.
Doing this process of spending as usual, getting money back from apps, and then investing it is a great way to earn.
You can buy an existing business that isn’t doing well and turn it around to make a profit. There’s a lot to this, such as actually finding a business, buying it, and getting it to make money, but it is possible.
At the end of it, you could wind up with a successful side hustle or full-time business that makes an income for years.
However, you need to be smart when buying a business. Look at the numbers, paperwork, and all information to be sure the business is legitimate before buying.
Expert tip
You can make extra cash by being savvy with your money and flipping it. But it’s essential to remember, don’t spend money you don’t have. Work with the money you have saved up, and don’t go into debt to flip cash.
Flipping money isn’t necessarily meant to be a “get rich quick” scheme. You’ll probably find that many money flips are medium to long-term investments.
If you want to know the best way to flip money fast, you’ll have to look for the right opportunity. It could mean you have to wait a little while to get started.
House flipping, for example, could be a way to flip money fast. A house in decent condition may only need a few repairs before it goes back on the market.
Say you buy a house for $200,000. You put in $50,000 of repairs and list it six months later for $400,000.
It sells one month later, and you make $150,000 in profit in less than a year. Of course, you have to have the money to put into the flip to make it work.
Although it may seem challenging to learn how to flip money, most of the battle is finding the money to get started. And some ideas don’t require much money to begin.
You can start by simply cutting the budget and saving up some spare change until you have enough money to start flipping.
Starting a side business to save up some cash is also a possibility. Choose one with minimal start-up costs.
Last, you can start one of these money-earning ideas that doesn’t require a large amount of money to begin. Something like flipping furniture is a good option, or using apps to build up money savings over time.
And once you have all that extra cash, what should you do with it? First, keep the money you earn somewhere safe, like high-yield savings accounts.
You may have ideas for saving up an emergency fund or paying off debt. And you can always put the money back into your flipping business and make even more cash if you’re unsure what to do with it. A savings account can also be one of the best places to store cash while you decide what’s next.
Enjoyed this article on flipping money? Check out this related content!
The best way to flip money for you may be different than someone else’s successful flip. Consider different options for flipping money to find one that works for you.
Remember to think about how much money you can invest, how much time you have to spend on the flip, and how long you want to wait to see returns. Time and money are important factors for this.
Our free investing and money courses are also a great way to get more information about putting your money to work!
The post 9 Ways For Flipping Money: Make Your Money, Make Money! appeared first on Clever Girl Finance.
]]>The post How To Save $5000 In 3 Months appeared first on Clever Girl Finance.
]]>A big part of financial wellness is setting and meeting financial goals. Creating a savings goal is one of the most common types of financial goals. For example, learning how to save $5000 in 3 months.
Why should you know how to save 5k in 3 months? Some good reasons are figuring out how to save up for a house or wanting to buy a new car.
You don’t always need to have a specific use for your savings in mind, however. Maybe you just want to save $5,000 to pad your emergency fund.
Saving $5k in just a few months might seem intimidating, but by learning how to increase your income and lower your expenses, you can reach your goal.
Let’s explore this by breaking down the numbers with a “how to save 5000 in 3 months chart” and going over actionable tips you can use today.
Saving $5,000 can feel like a big task when you look at your goal in one lump sum. It can lead to feeling overwhelmed, which in turn could cause you to veer from your goal.
The best way to make short-term savings goals feel more realistic is to break them down into bite-sized pieces. Think of these smaller pieces as mini goals on your way to achieving your main savings goal.
In addition, looking at your mini-goals can help you understand how to meet your larger goal.
When learning how to save $5000 in 3 months, break your goal down monthly. You’ll need to save approximately $1,667 per month to reach your three-month goal.
A monthly goal is a great place to start when setting larger financial goals. Because a month feels like an incredibly natural timeline for many of us. We often plan by the month for monthly expenses and also events.
Using a monthly breakdown of your $5,000 lets you add your savings to your monthly calendar.
There are 12 weeks in a 3-month timeline, which means there are 6 bi-weeks. In order to save $5,000 in three months, you’ll need to save just over $833 every two weeks with your biweekly budget.
If you’re paid bi-weekly, you can easily compare your bi-weekly savings goal with your paycheck. It’s a simple way to see if saving $5,000 in 3 months is reasonable.
It’s also a good way to determine how much more money you need to earn per paycheck or cut from expenses.
Finally, you can look at the weekly savings necessary to save 5k in 3 months. You’ll have to put about $417 toward savings each week to reach your $5,000 goal.
Weekly savings goals are the smallest but also the shortest timeline. They can be a good reminder to keep yourself on track. However, it can be disheartening if you miss your weekly goal.
In order to meet your goal of budgeting weekly, you may have to hustle a little harder in the next weeks to make up the difference.
Saving more than $1,500 extra each month is a lofty goal for many. For example, someone who works a lower-wage job may find it difficult to save the extra money needed to reach $5,000 in 3 months.
Additionally, someone who makes a lot of money might have debt that lowers their saving potential.
It’s usually a smart idea to assess your income and expenses before setting a savings goal. It will help you create a realistic goal. Furthermore, it’s a good way to see how much money you have available for saving each month.
After figuring out how to save 5k in 3 months, it’s time to start saving. So use these tips to help you realistically meet your goal and find motivation for saving money.
On paper, the easiest way to save more money is to make more money. However, you can only work so many hours a day. You may need to work more and be efficient with your time.
However, once you find a way to earn more money, saving the extra can be easy! Let’s say you work a full-time job. It pays all of your regular bills, and you can even save a little.
You also start a side hustle and make a few extra hundred a month. Try these ideas for how to make 300 dollars fast. That extra money can go directly to your savings goal!
The first way to make extra money is by starting one of the many unique side hustles out there. Side hustles are one of the very best ways to increase your income. Generally, a side hustle involves working as a contractor or starting your own business.
The easiest side hustles to start are gig work, such as driving for Uber or even for Lyft or delivering food with DoorDash. Although it’s easy to get started, how much you can make could be limited.
For example, you drive for Uber but live in a smaller city. The demand may not be too high, so you won’t earn as much as someone in a big city.
Starting your own business from scratch is more difficult to start than gig work. However, your earning potential is unlimited, and you may be able to work flexible hours.
And running your own business can give you valuable skills to use in your career. Additionally, a successful side hustle could potentially become your full-time work in the long run.
Not sure where to start? The best business ideas for women include:
A word of caution: beware of any programs that want you to pay money for work or investment opportunities. There’s a good chance it’s an investment scam.
Do you work a busy job but still want to learn how to save 5k in 3 months? Don’t worry! There’s a simple way to increase your income without adding more stress-ask for a raise.
Many women feel awkward or nervous and don’t know how to ask for a raise. However, you will likely increase your chance of success by being prepared.
Ask your boss for some time, and be clear that you’re asking for a raise. Come to the meeting with research on salary information for your job duties.
In addition, make a list before the meeting of any extra tasks you’ve accomplished to show your value.
Another way to make more income is to find household items to sell for quick cash. Online marketplaces like Etsy, Facebook Marketplace, eBay, and Poshmark make selling your belongings online easy.
Firstly, go through your home. Clean out those closets and storage spaces to find the things you rarely use. Afterward, sort your things into three categories-sell, donate, and trash.
While clothes are one of the most obvious things you can sell, they’re not the only option. A few other things you can sell include:
Taking advantage of discounts or using coupons can help you lower costs on your regular purchases. Accordingly, this helps you have more money available to save $5000 in 3 months.
Grocery stores or gas stations are a good place to begin, as are the best coupon websites.
Many of these types of stores have loyalty discount programs. Even better? Most of these rewards programs are free to join.
If there’s a store you regularly visit, it makes sense to sign up for discounts.
Another place to check for discounts is through your work or any organization where you’re a member. Many employers offer discounts to employees on everything from car insurance to cell phone plans. Just make sure that the discount really saves you money before you use it.
Ask your human resources department about any discount available to employees.
In addition to using discount programs, you can clip coupons. Thanks to technology, many stores even have coupons in digital format. Meaning you won’t have to carry around physical coupons to save money.
A no-spend month is a fantastic way to save money on non-necessities. Eventually, however, you’re going to spend some money, particularly with your grocery budget.
That doesn’t mean you have to spend recklessly.
Planning your shopping trips is one of the great ways to cut back on unnecessary spending. Having a plan-and a shopping list-lets you enjoy the act of shopping without feeling guilty. You’ll also avoid impulse purchases!
Budget meal planning and prepping is a good way to start planning your shopping trips. Before going to the store, make a plan for what you’ll cook that week. Write down all of the ingredients for recipes as well as the pantry staples you need.
Then, when you go to the store, you’ll have a direct list to guide you through the aisles. Be aware you’ll still need to practice self-control to keep your grocery bill low. Even with a shopping list, it’s often easy to grab something you don’t need.
You may also check out discount grocery store options while you’re trying to save, and avoid name-brand purchases.
Everyone has necessary expenses each month. One simple way to figure out how to save $5000 in 3 months is to reduce those expenses with extreme frugal living.
For most of us, the biggest expenses are rent or mortgage payments, utilities, and insurance costs. Debt, such as a large car payment or student loans, can also add to your monthly expenses.
Since these are necessities, you won’t be able to simply cut these expenses out. That doesn’t mean you can’t lower them, however.
Firstly, list your necessary monthly expenses. Secondly, go through the list and make notes on which expenses are negotiable or adjustable.
For instance, you can save money on car expenses and car insurance. Talk with your insurance agent about discounts you might qualify for.
In addition, try to spend less on gas by carpooling to work.
Utilities and energy costs are other places to save money each month. You can lower your utility bill by making your home more efficient. Some ideas to cut energy costs include:
Cutting out small expenses is a classic piece of financial advice. It usually goes like this:
Save money by packing lunch for work, making coffee at home, and skipping avocado toast.
While all of those things can help you save money, they’re not the only way to save money. The key to saving more by spending less isn’t to give up something you love. Instead, it’s to make small changes that can add up over time.
So, if your fancy coffee from the local coffee shop is a highlight of your day, you don’t have to give it up. However, you should still look through your money habits and find at least one small expense to cut.
For example, you pay for Netflix each month, but you only watch it when a new season of your favorite show comes out. So you can cancel your subscriptions in between seasons (Netflix even keeps your viewing history for 10 months). When the new season drops, simply restart your account.
Other things like gym memberships and other subscription services can be canceled for the time being as well, if possible. In addition, hold off on vacation and any unnecessary costs.
It’s difficult to plan and track a savings goal if you don’t know how much money you’re making and spending each month. Before trying to save $5000 in 3 months, create-and follow-a monthly budget and consider ways to start better budgeting practices.
Budgets are powerful financial tools that let you plan where your money goes each month. It’s important to realize that budgets aren’t meant to be restrictive. Instead, they’re simply a way to organize your money and living expenses.
Consider reading up with the best books about budgeting and trying to follow a budget for a few months before starting your savings goal. Knowing where you spend your money makes it easier to see how much extra you can save.
Do you struggle with overspending, especially when you use a credit card? You’re not alone! A lot of women have trouble separating their card spending from what’s in their bank accounts.
Luckily, there’s an easy solution to help you stop overspending. It’s called the envelope method budget.
The cash envelope system uses (you guessed it!) envelopes to categorize your spending money for the month. You label the envelopes for different spending categories and place cash inside. Once the cash in the specific envelope is gone, you can’t spend on that category anymore.
For example, you bring home $4,000 a month. So your envelope system could look like this:
If using physical envelopes seems too complicated for you to save $5000 in 3 months, turn to technology! There are lots of budgeting apps designed to help you save more money.
For example, some apps let you connect your spending card to your bank account and round up your purchases for savings. Say you spend $4.75 on a coffee. So your app automatically rounds the purchase up to $5 and sends the extra $0.25 to your savings.
Other budgeting apps give you daily tips and affirmations to help you stay on track. They also usually have visually-appealing graphics that break down your spending habits.
An excellent tip to save more and spend less is to pay yourself first. Paying yourself first means putting your savings money away before spending money on anything else.
For instance, your paycheck is $2,000. You want to save $600 from each paycheck. When your check comes in, you transfer the $600 to savings first. Then you can start paying bills like rent or your credit card balance.
Remembering to pay yourself first isn’t always easy, but it can be done using automatic savings. There are two well-known ways to automate your savings:
Expert tip
No matter how you choose to save $5000, make a plan in advance. Know how much you’ll save each month and where that money will come from, be it side hustles or lowering expenses.
Remember, to save $5000 in 3 months, you need to save about $417 each week.
You can use visuals like the chart below to make it easier.
This “how to save 5000 in 3 months chart” can help you easily see how much you need to deposit each week-and how much your savings will grow. Print out a copy and then use a highlighter or pen to cross out each week as you reach your money goals.
Week | Deposit Amount | Savings Balance |
One | $417 | $417 |
Two | $417 | $834 |
Three | $417 | $1,251 |
Four | $417 | $1,668 |
Five | $417 | $2,085 |
Six | $417 | $2,502 |
Seven | $417 | $2,919 |
Eight | $417 | $3,336 |
Nine | $417 | $3,753 |
Ten | $417 | $4,170 |
Eleven | $417 | $4,587 |
Twelve | $417 | $5,004 |
$5000 in 3 months is quite ambitious, but you can save more if you want! Earning more money and giving yourself a longer time frame can help you save even more cash.
The 100-day envelope challenge is perfect for saving a little more than $5000 in just over 3 months. It’s an envelope challenge that helps you set aside a specific amount of cash each day for a hundred days until you end up with your goal amount.
To make your savings effortless, automate it. For instance, you have your job’s payroll automatically send deposits to your savings account each time you get paid. Or you can set up automatic transfers yourself from checking to savings in line with your pay dates.
In addition, find ways to spend less on things you’ll hardly notice, like forgotten subscriptions. Then you’ll be saving without it taking much time or effort!
In addition, keep your savings all in one account if you really want to make it effortless.
If you enjoyed this article on saving $5,000 check out this other great content:
Your income (including the potential to earn more) and expenses can help you decide if you can save $5000 in 3 months.
See how much money you can currently save each month. Then check out the “How to save 5000 in 3 months chart”. It gives you a starting point on whether or not you’ll reach the $5,000 goal.
Even if you don’t think you can save $5000 in 3 months, it’s important to set savings goals. If 3 months is too short, you can try saving $5,000 in 6 months.
You can also consider a smaller amount of money for your goal that aligns with your personal financial situation. For more ideas to help you save, find out how to start cutting the budget and also more suggestions for how to save money fast!
The post How To Save $5000 In 3 Months appeared first on Clever Girl Finance.
]]>The post How To FI: Become Financially Independent With These Steps appeared first on Clever Girl Finance.
]]>Imagine you make enough money through investments and savings that you can retire early. You now have time to pursue passion projects or travel full-time. To make that goal into a reality, you need to learn how to FI or achieve financial independence.
We'll discuss how you can become financially independent to retire early through the FIRE (financial independence, retire early) method. We’ll go over how to calculate how long it’ll take to reach FI and the steps to set yourself up for financial success.
In general terms, financial independence refers to the ability to stop worrying about money because you earn enough to pay your bills.
For example, you’re able to pay off your debt, cover your expenses, and still have money for savings and fun each month.
However, you might run into the phrase written with capital letters or shortened to FI. This usually means the author is talking about the FIRE movement. FIRE stands for “Financial Independence, Retire Early.”
In this case, financial independence means more than making enough money to cover expenses. FI means building enough wealth to live on while you’re young, possibly by learning how to build wealth in your 20s or 30s.
Once you reach financial independence, you could leave your job without worrying about money.
The basic idea of the Financial Independence, Retire Early movement is that you save and invest enough money now so you can retire early and live off of your investments.
At its core, FIRE isn’t necessarily about quitting the workforce. In fact, many people who reach financial independence choose to stay in their jobs. Others go back to school or take a lower-paying job that is more in line with their passions. Still, others decide to retire and travel full-time or volunteer with causes they support.
Instead of being about getting out of a career, the FIRE movement is all about taking back your time. Those who reach FIRE have the investment income and savings they need to pursue what matters most to them—whether it’s at work or elsewhere.
Alright, you’re excited to become part of the FIRE movement, but where do you start?
The first step in how to reach FI is figuring out your FI number and how long it’ll take you to reach it. There are two formulas you’ll use to calculate these numbers.
The whole amount of money you need in retirement.
FI Number = Average annual spending / safe withdrawal rate
Once you have your number, you use it to calculate how many years you have to keep working and saving to reach financial independence.
The number of years until you reach financial independence.
You start by figuring out your FI number:
Years to FI = (Financial independence number – existing savings) /annual savings
Feeling a little confused? Don’t worry—I’ll break down each part of the FI calculation process in detail later.
Before you can start calculating your number, you need to figure out how much you currently spend and save on average each year. This is essential to planning your financial independence because it shows you the amount you need to live on and if you’re saving enough for early retirement.
To find your yearly spending and saving numbers, simply go through your regular financial statements for the past several years: credit cards, bank accounts, investment accounts, etc.
Start by adding up your total spending first. Then, look at your savings accounts to see how much money you saved each year.
Retiring early sounds great, right? Learning how to FI is easy, but getting there often requires learning how to build discipline and making potential sacrifices to your lifestyle.
You might not currently save enough to reach your goals. Or, you might worry saving for financial independence means giving up the things you love now.
Luckily, there are several steps you can start right now to help you accomplish your goal of financial independence.
These five ideas can help you speed up your savings and increase your earnings to lower the amount of money you need and the years to financial independence.
It’s almost impossible to save significantly for the future if you’re in debt. Before you can reach financial independence, you have to get out of debt—especially high-interest debt like credit cards.
You also have to work on staying out of debt. It does no good to work hard and pay off your mortgage early only to finance a luxury vehicle and rack up thousands in credit card bills right after.
Once you pay off major debt, it’s important to start putting your extra cash toward savings and investments.
If you’re having a difficult time getting out of debt, you’re not alone. Total credit card balances in America are currently $986 billion.
Luckily, there are a ton of strategies you can use to help reduce or pay off your debt, including:
Switching to cash-only (or a debit card) makes it harder to spend more than you have and prevents you from taking on more credit card debt.
Pay off all your debt faster by paying more than the minimum required amount each month.
To begin, pay off your smallest debt first, then pay the next smallest, and so on until you’re out of debt. Remember to make at least the minimum on all of your debts.
Pay off your debt that has the highest interest at the beginning, then move on to the next highest while still paying at least the minimum on all debts.
If you’re hoping to reach financial independence, having enough money saved up is essential. But just having enough, according to your calculations, doesn’t mean you should stop saving.
You can't know for sure what your future will look like. The more you can save—even past your initial savings goals—the better. Having more savings will allow you to navigate unforeseen expenses after retiring.
An easy way to guarantee you’re saving each month is to pay yourself first. Set up automatic transfers to go to your savings account for the day your paycheck comes in. This takes the money from your account before you have a chance to spend it instead of saving it.
Additionally, putting your money to work will help you grow your retirement savings and reach FI sooner. In FIRE retirement or post-career environments, your portfolio income is often your main source of money.
You’ll need to invest the money if you plan to retire early—often aggressively. Also think of your risk tolerance when picking investments for your portfolio.
If you have a longer number of years of financial independence, it might make sense to invest in higher-risk investments with higher potential rewards.
Those with significant savings or who are close to retiring early may want to lower their investment risk by investing in low-risk investments. You’ll have less potential for significant earnings, but you also lower your chances of losing money on the market.
To maximize your savings, you first have to maximize your income. The more money you make, the easier it is to save and reach financial independence.
Many people in the FIRE movement find the best way to add to their income is to simply work hard at their jobs or careers. If you’re in a field with a lot of room for upward growth, it may be that hard work is key to success for your FIRE goals.
Getting promotions isn’t your only option to maximize your income, however. Doing things outside of work can help you earn more to put into savings.
Increase your income from non-career sources in the following ways:
Understanding active vs passive income streams can be very helpful for your journey toward financial freedom. Passive income refers to money you make without active involvement. Of course, almost all the best passive income ideas require effort to start (and some more than others!).
Once your stream is established, however, you might only have small maintenance tasks to keep your stream on track.
Let’s say you want to sell eBooks to make some extra cash for retirement. You’ll probably spend a lot of time actually writing, editing, and formatting the book. Then you’ll have to put in the effort to market the book, such as using social media ads.
But once your book is written and published, you’ll earn money for each sale without having to do any extra work.
Side hustles and the gig economy are all the rage right now. Even with 35% of US workers being part of the on-demand gig industry, there’s plenty of room for you to join in with gig work or start your own business.
Gig work jobs usually involve being an independent contractor through on-demand service platforms. Think Uber and Lyft for ride sharing or DoorDash for food delivery.
A side hustle, on the other hand, usually means you’re starting your own business. Unique side hustles include:
The greatest thing about starting your own business to earn extra money is you can pick what interests you most! If you like to write, freelance writing might be for you. If you love restoring antiques, reselling used furniture could be a good fit.
Many people can prepare for retirement at a traditional age by saving alone. For those looking to learn how to FI or who want to reach retirement early, saving might not be enough.
You’ll likely also need to reduce your expenses to help you reach your savings goals. Lowering your expenses with a bare-bones budget frees up extra money that you can put into savings and investments.
As a bonus, learning to live on less now could potentially help you after retiring early. You’ll already know how to keep your costs low, so you won’t be as worried about overspending after quitting your job.
When looking to cut expenses, it’s best to start with the big ones like housing costs or insurance expenses. Then work your way down to smaller expenses like spending less on eating out or grabbing coffee. Your major expenses give you the most room to see significant savings over smaller expenses.
For instance, your monthly rent is $2,000, but you have a small second bedroom that’s not in use. You could sublease the room to a roommate to lower your housing costs.
Another expense to think about is the cost of insurance, such as car insurance. It could surprise you how much you could save per year by shopping around for a new policy for different types of insurance. Your current car insurance provider may even lower your rate if you ask about discounts.
Shaving a few hundred dollars a month off of your expenses will add up a lot over time.
Let’s say you manage to cut $200 of expenses per month. That’s an extra $2,400 to add to savings—money you can invest to grow over time.
Reaching financial independence isn’t an easy task. You need discipline, but it’s also important to remain flexible.
Things won’t always go your way. You might have times of higher expenses, like an unexpected medical emergency or home expense. The stock market might drop—along with your investments.
The key to overcoming these downturns is to stay focused and be ready to adjust your strategy as needed. You may have to reduce your savings amount and recalculate your FI amount. But don't give up trying to become financially independent.
Likewise, taking advantage of the good times will help you weather the bad times and reach your goal faster.
Perhaps you'll get a promotion at work, and it comes with a much higher raise than you anticipated. You now have more income to invest in your future.
Expert tip
Learning how to FI and becoming financially independent requires some time, dedication, and strategies for paying off debt and saving. To stay motivated, keep focused on the amount of cash you need and what you will do when you achieve your dream.
The amount of money you need is a combination of how much you need to live on each year (your average spending) divided by the amount you can withdraw annually in retirement.
You should already have your average monthly expenses and annual expenses added up. That’s the first half of the equation.
Next, you’ll need to find your safe withdrawal rate (SWR). A safe withdrawal rate is the exact percentage of your savings you can safely take out each year without running out of your money in your lifetime.
As you can probably guess, figuring out your SWR isn’t exactly easy. One, you don’t know what the market will do over the years before you retire (or after!). Two, how do you calculate what a “safe” withdrawal rate is?
The usual go-to safe withdrawal rate uses the 4% rule. This rule works by assuming you can safely withdraw 4% of your savings in your beginning year of retirement. Each year afterward, you adjust your withdrawal rate based on inflation.
The 4% rule assumes the average person will retire with around 30 years of life ahead of them. It may work well for people who plan to work most of their lives and retire in their mid-to-late 60s.
However, there’s some debate about how well the 4% rule works in the current economic climate.
Additionally, people looking to retire early usually plan to live a lot longer than 30 years after retirement. If you have over 50 years ahead of you after leaving your job, taking out 4% of your retirement portfolio each year could be too much (or too little if prices trend downward).
Should you ditch the 4% rule entirely if you’re looking to FIRE?
Not necessarily. The rule still works as a good starting point to estimate your FI number.
You'll need to consider your unique situation when choosing a SWR. Many FIRE movement followers may want to use a lower SWR percentage than 4% when calculating their savings needs.
Remember, it’s probably better to save more than you need than less.
It’s also essential not to focus too much on the rate of withdrawals but rather on what you can do to lower your investment risk.
For example, diversifying your investment portfolio with a mix of dividend-earning stocks, mutual funds, bonds, and other investment vehicles can help lower your risk of losing money in down markets.
Let’s say you need an average of $50,000 per year to live on and want to use the 4% rule for your FI number calculation.
Your financial independence number is $1,250,000. This is how much you’ll need to have in your savings and investment accounts to safely retire.
The equation looks like this:
$50,000 / 4% (0.04) = $1,250,000
Your years to FI are simply the number of years it’ll take you to reach financial independence. After calculating your number, or how much you need in retirement, you divide it by your average annual savings. Simple, right?
But you probably already have some money saved for retirement. If so, you can subtract your existing savings from your needed amount of money. That’s because you’ve already saved a portion of the money you need.
Let’s look at an example where you don’t have any money saved up, you need to retire with 500k and plan to save $25,000 per year. You have 20 years to FI.
Now let’s say you already have $100,000 in your retirement accounts and savings. This shortens your years to FI to 16.
The years needed will be different for everyone, based on income and how much money you want to save. You just need to subtract your financial independence number from the savings you already have and divide that by your annual savings to see how many years it will take.
Yes, after you calculate how much money you need, you can reach it quickly. This may require that you make a higher income, save more, and spend less, though.
You may need to be a millionaire, or perhaps not, depending on what your needed savings amount is. This comes down to how much you plan to spend in retirement and how much income you want to have. Though it wouldn't hurt to learn the secrets of self made millionaires!
If you have enjoyed this article on financial independence, check out these others:
Whether you get to retire early or not, knowing how to FI and reaching financial independence is a great goal to have. When you’re financially independent, you open yourself up to more chances to do the things you love most.
Start the steps to financial independence today to see where you can end up.
It's also a possibility that you already have what you need to achieve financial freedom. Find out, "Can I retire yet? and more about financial goals and how to set them.
The post How To FI: Become Financially Independent With These Steps appeared first on Clever Girl Finance.
]]>The post 9 Money Truths You Must Know appeared first on Clever Girl Finance.
]]>Being educated on money, investing, saving, and spending can help you develop a healthy financial lifestyle. And there are always new things to learn about money. While that might feel overwhelming, you can start your financial literacy journey by learning some of the most important money truths.
What is a money truth? It’s a fact about money that almost all of the experts—from financial influencers to bank managers—generally agree on.
Learning these truths can help you improve your financial well-being, whether you want to save more, start investing, or cut back on spending.
Let’s start with 9 of the most essential money truths you need to know and take a look at why they’re helpful for financial novices and experts alike.
Now, just because something is expensive doesn’t mean it’s high quality. There are many products that use brand names, social influence, and the appearance of luxury to charge higher prices—even though the product is low quality or low value.
Luxury cars are one of the best examples of the money truths between frugality, quality, and price. A brand-new luxury car usually comes with a hefty price tag. Thanks to depreciation, however, that expensive car loses significant value the second it leaves the dealer’s lot.
If you have some money to spend and are looking for an investment, instead, look at the long-term returns of your purchase.
For example, buying a house or getting a higher education are often considered high-quality, high-return investments. They’re expensive, but in the long run, they could help you improve your wealth rather than lose money.
That old saying, “Patience is a virtue,” is usually used to help kids learn to slow down and wait. Maybe you heard it from your mom when you were little to try to get you to stop asking when dinner would be ready.
But the advice works really well for money, too.
Building real wealth often isn’t quick. In many cases, money takes time to grow.
For example, earning portfolio income from dividends or savings interest might take years to see large returns.
However, if you stay patient, you’ll likely enjoy compounding interest and big returns in the future.
On the other hand, moving too fast with your money can hurt your chances of building wealth.
When the market drops, for example, some investors quickly sell off their stocks for fear of losing any more money. Unfortunately, this could leave you with a loss on your investment, only for the stock prices to rise back up in a few years.
Like the Director of the SEC’s Office of Investor Education and Advocacy Department, Lori Schock, says, “Don’t panic, plan it!”
One of the often-overlooked truths about money: budgets work. Really.
A budget is one of the most useful financial tools you have at your disposal. The key is to change your mindset on budgets.
A budget is not a rigid rulebook you have to follow. It doesn’t tell you when you can and can’t use your money.
Instead, the purpose of a budget is to help you track your earning, saving, and spending. It’s an easy way to see if you’re spending more than you make each month.
You might also use a budget to help you plan and reach your financial goals.
Let’s say you want to save $500 in the next three months. A budget gives you a starting point to see how much money you bring in and how much you spend in a normal month.
From there, it’s easy to see what you need to change to reach your goal.
Maybe it’s as simple as canceling a few subscription services you don’t use. Or, maybe you’ll need to cut out all unnecessary spending to reach your goal.
Either way, a budget makes it possible to quickly assess your financial situation.
Imagine you have an extra $1,000 lying around. Do you know what you’d do with that money?
If not, it might be time to set your financial goals.
Earning, saving, and spending money without both short-term and long-term financial goals could be hurting your overall financial health.
Saving, or spending, money without a goal or direction can lead to overspending, missing out on investment earnings, and missed opportunities.
Financial goals can be as simple or complex as you like. The key is to create goals that you can reach, measure, and give yourself the time to complete them.
For example, you might have the short-term goal of building a rainy-day fund for emergency expenses. You decide to save up $5,000 in a savings account dedicated to emergency needs within 6 months.
This goal is measurable and has a timeline, which are key elements of SMART goals:
Need help setting SMART financial goals? The Consumer Financial Protection Bureau offers a handy worksheet to help you get started.
It’s important that you don’t focus too much on the here and now or the far future when setting financial goals. Financially healthy people use a mix of short and long-term goals for a well-rounded financial outlook.
Short-term goals help you stay motivated. You’ll reach short-term financial goals quicker, so you’ll get a burst of excitement every couple of months.
Long-term goals, on the other hand, are important for wealth building, obtaining assets, and maintaining good financial health for the long haul.
Generational wealth is money and assets that are passed from one generation to the next. Basically, generational wealth is how much of an inheritance you’ll give to your heirs. Then, they use that inheritance to continue growing the family’s wealth to pass on to their heirs.
You could probably guess that building generational wealth takes time.
However, it’s a very important thing you can do for your future children, grandchildren, and beyond. The sooner you start, the more wealth you can build for your future family.
Of course, generational wealth isn’t just money sitting in a savings account.
In fact, it’s often much more than that. Common assets that add to generational wealth include:
Remember, money takes time to grow. Starting with a small amount of money is better than not starting at all.
If you’re looking to build generational wealth for your children and beyond, consider starting an investment account, purchasing a life insurance plan, and saving for a down payment on a home. As you reach each goal, you’ll set your children up for more financial success in the future.
One of the difficult money truths is not everyone has had fair access to building generational wealth.
Systematic racism and unjust laws and practices have made building wealth difficult for people of color, especially Black Americans.
White families have been able to own property, invest their money, and grow their wealth. Black families, on the other hand, faced roadblocks to wealth building from slavery to redlining. Over several generations, these roadblocks have created a striking racial wealth gap.
The US Department of the Treasury reports the median white family has $184,000 in wealth. The median Black family has only $23,000 in wealth.
That means the median white family has over $160,000 more than the median Black family to invest in generational wealth.
While it’s not easy to overcome such a large gap, there are things individuals can do to help close their personal wealth gaps, such as:
It’s easy to forget to save when you’ve got bills to pay. Maybe you pay all of your bills, spend a little money for fun, and get to the end of the month only to realize you didn’t put any money into savings.
Luckily, there’s an easy way to fix that problem by remembering money truths like paying yourself first.
Paying yourself first is a financial strategy that forces you to save for the future. Whether that’s building an emergency fund or saving for a house, you commit to saving when you pay yourself first.
It works by simply putting money towards savings first—before paying bills, buying something new, or going out.
An easy way to start paying yourself first is to make an automatic transfer from your checking to your savings account.
Of course, all of those savings you earn from paying yourself first won't help if you fall behind on bills. You still want to pay all of your bills on time.
That means you’ll first want to create a system for your money so you know how much you can afford to put toward savings.
Say you make $3,000 per month and are paid monthly on the first. Your monthly expenses total $2,500, so you have $500 to put into savings each month.
You make an automatic transfer from your checking or direct deposit account to your savings on the second of every month.
Each month, your paycheck comes in, and your $500 savings moves out of your checking account before you have a chance to spend it.
A lot of people think of mega-rich people like Warren Buffet when they hear the term “investing.” But the good news (and one of the truths about money) is anyone can get started investing, even if they don’t have a lot of money to invest.
And although it might seem intimidating, investing is surprisingly simple to do. Two things make it easier than ever to start investing:
Technology like robo-advisors lets you open an investment account and start investing almost immediately. A robo-advisor is a computer system that uses your risk tolerance level, or how comfortable you are with market fluctuations, to create a customized investment portfolio.
Most major brokerage platforms have robo-advisor options, with little to no fees to open and manage your account.
You might even have an investment account waiting through your employer. Many employers offer retirement savings accounts like a 401(k), but only about 43% of women have a retirement account.
Many employer-sponsored plans come with limited investment options. For seasoned investors, this could be a disadvantage.
However, if you’re just starting out or are unsure of how to invest, a target retirement fund (which uses your anticipated retirement year to invest) could be a great way to start.
When you’re ready to learn more about investing, the internet has plenty of resources. One of the best parts of the internet is the access it gives you to information on just about anything.
You can use free online courses and other tools to help you learn more about investing and finances in general.
Spending less money is one of the easiest and fastest ways to save more.
That being said, there’s a difference between being frugal and being cheap. And it’s definitely better to be frugal.
Being cheap means, you’re buying low-quality products, cutting costs where you shouldn’t, or even relying on others to pay for you in the interest of “saving money.” When you save money this way, you might ruin friendships or end up spending more in the long term.
For example, you can save a lot of money by skipping regular maintenance on your car, like oil changes. Or, you can skip regular dental cleanings to address that aching tooth.
However, these cheap methods of saving money will likely cost you more later.
Skipping car maintenance could lead to catastrophic failure. Now you need a new car, which costs a lot more than a couple of oil changes a year.
Likewise, putting off healthcare could mean you’re ignoring health issues that will only get worse. That aching tooth might turn into a serious infection and a trip to the emergency room.
Frugality, on the other hand, is all about living below your means comfortably. A frugal person recognizes the value of investing in quality without overspending.
Let's say your winter boots are on their last leg, and you need a new pair. You could go the cheap route and buy the cheapest pair you can find, which are:
A more expensive pair, however, might be made of higher-quality materials. The cost upfront is more, but you’ll get shoes that are:
Frugal people don’t save money by only buying the cheapest option. They save money by making a plan for their finances, which includes room for high-quality items and the occasional frivolous purchase.
Financial goals, literacy, and money truths can only help you if you’re willing to prioritize good financial habits. This is usually easier said than done, but a little discipline can go a long way to improving your financial situation.
In fact, making small changes now is one of the best ways to make lasting changes long-term.
For example, if you find your little purchases throughout the week add up to overspending by a lot, consider cutting out shopping trips.
Instead of going to the grocery store whenever you need something, try meal planning and only going to the store once per week.
You can also use your budget to help you curb spending little by little.
Start by setting a limit on how much you want to spend on a particular activity or item. Slowly decrease your limit until you reach a level that’s comfortable and helps you save money.
For instance, you decide to only spend $500 a month on going out to eat. The next month, you can try to limit eating out to $475, decreasing the amount each month. These small changes will make big differences over time.
Having trouble growing your savings each month? Try rounding up each of your purchases and saving the difference.
If you spend $50.75 at the grocery store, put $0.25 in savings. Over time, those little savings will start to add up. There are even mobile apps that do this automatically for you!
These nine money truths are important for anyone to know, but they’re only the beginning. You can use the knowledge from these money truths to help you start saving more, spending less, and building wealth for the future.
At the same time, savvy financial experts know the importance of always looking to improve their financial knowledge.
Consider investing time into money courses, watching financial education videos, or attending a community financial literacy class. You might be surprised by what you already know—and what you’ll learn in the process.
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]]>The post Portfolio Income And How To Earn It appeared first on Clever Girl Finance.
]]>Do you want to start investing, but find you're a little confused about how exactly an investment like stocks or bonds makes money? If so, you’re not alone. Portfolio income is the money you make from an investment account, and there are several ways to earn it.
In this article, you'll find out more about what this is and how to earn it. We’ll also go over the benefits of growing the income for your portfolio and how to deal with taxes from investments!
Portfolio income is income earned from investment accounts. And income for your portfolio can come from a variety of investment sources.
Common accounts that earn this sort of income include retirement accounts, like a 401(k) or IRA, savings accounts, or a general brokerage account that lets you sell and buy investment products like stocks, funds, etc.
Typically, income falls into one of three categories: Earned income, passive income, and portfolio income. Below is a brief overview of the other two types of income for your reference:
Earned income is the money you earn from working (exchanging time for money), such as wages from a job or income from your small business.
Passive income is money you get from a hands-off venture, such as publishing an eBook and earning money with each sale.
Now you are aware of the different sources of income, let's delve further into portfolio income.
Just like the different types of income, portfolio income itself is often divided into three categories.
Generally, the three categories from which you can make money on your investment portfolio are interest earnings, dividends, and capital gains.
Interest-bearing accounts often show up on lists of ways to make passive income. However, interest earnings are generally considered portfolio income rather than purely passive income.
For example, you have a savings account that earns interest. Last year, the account gave you $100 in interest earnings. The $100 is your portfolio income from the savings account.
A dividend is a corporation’s profits given to its shareholders. Shareholders (owners of the company’s stock) receive dividends based on the number of shares they hold.
For example, you have 500 shares of company A. The company pays a yearly dividend of $1 per share. You receive $500 in dividend payments for holding 500 shares of stock.
Companies don’t have to pay dividends. The board of directors usually makes the decision.
The board of directors may choose to reinvest all of the company’s profits back into the organization rather than give out dividends.
However, many companies choose to pay dividends as an incentive for shareholders to continue owning the stock. In a lot of cases, companies pay dividends every quarter, meaning you receive a dividend payment four times a year.
Stocks, bonds, and other investment products are called capital assets. Whenever you sell a capital asset for a profit, you make a gain.
The difference between your cost of buying the asset and the amount you sell it for is a capital gain.
Let’s say you buy a stock at $50 and sell it later for $100. You made $50 in capital gains on the sale.
In some cases, you may also sell a stock or other investment asset at a loss.
Known as a capital loss, this means you paid more for the asset than you sell it for. For example, you buy a stock for $50 and sell it for only $25.
You can’t start earning portfolio income without an actual portfolio. So, your next step to making income from investments is to start investing.
First, you’ll need to figure out what types of accounts make the most sense for you. A few common investment accounts you can use include:
Retirement accounts include employer-sponsored accounts like 401(k)s as well as non-employer accounts like Individual Retirement Accounts (IRAs).
A regular brokerage account lets you buy and sell stocks, bonds, and other investments on an investing platform.
Savings accounts and products like certificates of deposit (CDs) often earn interest, which is usually considered portfolio income.
Once you pick and fund accounts, you can start adding to your portfolio.
Knowing what securities or investments to put into your portfolio is often intimidating for new investors. There are several types of securities products you can purchase. The most common include:
Stocks or equities are ownership shares of a single company. When you purchase a stock, you are essentially buying a piece of a company.
Bonds are a type of loan that's made by many individual investors to corporations, the government, and other organizations.
When you purchase a bond, you are essentially loaning money to the borrower in exchange for regular interest payments in return up until the maturity (or end) date of the bond period.
A mutual fund pools your money with funds from other investors to buy multiple stocks and other securities.
This lets investors invest in many different securities without needing to individually buy each stock.
An ETF is a lot like a mutual fund in that it lets you invest in many different securities in one asset.
However, ETFs work more like individual stocks in that you must buy in shares instead of a specified dollar amount.
Most financial professionals encourage investors to invest in several different types of investments.
Portfolio diversification involves choosing different types of assets that can help you potentially earn more from your portfolio over time.
Diversification is also an important part of lowering your risk of losing money. By spreading your investments into many categories and types of securities, you’re less likely to lose significant funds in a downturn.
For example, individual stocks are generally considered riskier than mutual funds. That’s because you’re putting your entire investment into one company over many.
However, stocks sometimes have higher rewards than mutual funds.
By investing in both stocks and mutual funds, you give yourself a chance to take advantage of the benefits of both types of investment. At the same time, you lower your exposure to the risks of each.
Investing in securities like stocks and mutual funds is risky. No matter how “safe” or "diversified" an investment might be, it always has the chance to lose money.
Luckily, there are ways to lower your risk (in addition to diversification) when investing while still growing portfolio income.
Your risk tolerance is your willingness to deal with market downturns — and your resulting losses.
In general, a higher risk tolerance lets you take advantage of riskier investments. This can pay off big if you invest in the next Apple or Google on the ground floor.
However, a high-risk tolerance also means you must be ready to stomach the downturns if your investments don’t turn out and you lose money.
Low-risk tolerance means you’d rather play it safer when investing. You’re willing to trade the opportunity for big gains in favor of less chance of major loss if the market drops.
Risk tolerance is simply a preference. And it’s unique to every individual and financial situation.
Not sure where your risk tolerance falls? Most brokerage platforms invite new investors to take an assessment when they open their accounts. You can also try an online risk tolerance assessment to get an idea of your risk appetite.
As I mentioned before, investing is always a risk, but there are ways to reduce your risk of losing money and portfolio income. Here are strategies that can help lower your risk:
In addition to using portfolio and asset diversification, these strategies can help lower your risk:
If you’re unsure of what to put into your portfolio, you may want to consider hiring a financial advisor. Contrary to popular belief, financial advisors aren’t only for the ultra-rich.
For instance, most robo-advisors — digital money managers that automatically invest and rebalance your portfolio based on your preferences — require only a small initial investment to start.
While it’s important to reduce risks when investing, ultimately, you still want to make portfolio income from your accounts.
Some investors try to make all of their income from portfolios by buying and selling securities for capital gains. This could be a lucrative way to increase your income, but it comes with a lot of effort and risk.
You’ll have to regularly watch the market and immerse yourself in corporate financial reports to make the right moves at the right time.
There is a better way to earn long-term income from your portfolio by investing in high-dividend stocks. Although not guaranteed, assets with a history of paying dividends tend to continue doing so.
This means you can continuously earn money on your shares without buying or selling assets.
In addition to investing part of your portfolio into high-yield stocks with dividends, you can increase long-term income by reinvesting earnings.
Reinvesting means taking the money you make from your portfolio and using it to buy more assets.
Over time, reinvesting your earnings can help you build generational wealth for you and your descendants.
As if taxes on your earned income from wages wasn’t confusing enough, there are often special rules for portfolio income taxes.
The good news? Some of these rules could potentially help you save money on your taxes.
Many types of investment portfolios are tax-advantaged. An account with tax advantages usually means you’ll either deduct your contributions from your taxable income or you’ll get to take out earnings with lower (or even no!) taxes.
Retirement accounts, health savings accounts, and educational savings accounts are often tax-advantaged.
For example, Roth IRAs and 401(k)s generally allow you to withdraw earnings from your account tax-free in retirement. Likewise, an educational account like a 529 savings plan usually lets you take out money for educational purposes without paying taxes on the earnings.
On the other hand, some accounts let you deduct your contributions from your taxable income when you file your taxes.
If you invest in a traditional IRA, for example, you may be able to deduct the money you put into the account from your income the next year. This lowers your total income and, thus, your tax burden.
As with any tax-related questions, it’s always best to talk with a professional. You may want to seek out a trusted tax advisor or accountant to help walk you through your individual tax situation.
Remember when we talked about capital gains and losses?
If you sell an asset, like a stock, for a profit, that is a capital gain. A capital loss is if you lose money selling the asset.
Those capital gains and losses have tax implications. The exact tax rate you’ll pay (or be able to write off if you have losses) usually depends on how long you hold the investment.
There are two types of capital gains and losses:
Again, it’s best if you work with a tax advisor to figure out your capital gains tax implications.
The biggest benefit of portfolio income is the ability to grow wealth for long-term financial stability. If you continue to reinvest your dividends and earnings, you’ll increase the size of your portfolio.
In turn, this leads to owning more shares and enjoying higher dividend payouts.
So, when’s the best time to start investing? The answer is as soon as possible!
Of course, you want to make sure your immediate financial needs are met, but the sooner you start investing, the sooner you can make portfolio income. Over time, this can help you build wealth and improve your overall financial situation.
The post Portfolio Income And How To Earn It appeared first on Clever Girl Finance.
]]>The post 9 Businesses That Run Themselves appeared first on Clever Girl Finance.
]]>Have you considered starting your own business, but are worried about the amount of work it would take to run it? If so, you’re in luck! With some work in the beginning, there are businesses that run themselves over time.
The types of businesses that run themselves range from physical property rentals to digital product sales. This means there’s probably a business that will work for you!
Let’s dive in and see why you might want to start a business that doesn't require all the time and effort of a regular business and what it’ll take to get it going.
Then we’ll go into some ideas of self-running businesses you can use to start your own small business!
The main benefit of a business that runs itself is passive income.
The definition of passive income is money you make while not actively trying to make it. For example, if you stick $500 in a savings account and it earns $10 in interest over the year, you’ve made $10 in passive income.
Having a passive income stream is a great way to make a little extra money—or a lot!
Additionally, passive income can help you build wealth. This could help you pay off debt, save more money, or also pay for the things you want, like a luxury vacation.
By setting up a well-maintained income stream, you also build generational wealth for your children and other descendants. Ultimately, this could help them maintain a certain lifestyle while pursuing their passions or starting out on their own.
However, passive income streams often require some form of initial effort. Many types of passive income also need ongoing maintenance, including many businesses that run themselves.
Before you can have this sort of business, you have to lay the foundation. Pretty much every self-sustaining business doesn’t start out that way.
If you’re serious about starting and operating a business, consider how much time, money, and effort you’re willing to put into it. There are two main ways a self-sustaining business still needs your help:
One of the main reasons people don’t start their own business is the time and money it takes. While some businesses are less expensive and labor-intensive to start, others take a lot of work to even get off the ground.
For a business to run itself, you have to put in the work to lay a solid foundation. So this could mean a significant initial investment.
Some self-running businesses take a lot of money to get going. Others will need you to spend a lot of sweat equity physically running the business. The most lucrative ones often require both.
Luckily, once you put in the initial effort, many self-sustaining businesses won’t take up a lot of your time.
So, you’ve got your business up and running. Now it’s time to sit back, forget it, and rake in the cash, right?
Well, not exactly.
Even a truly self-running business will need maintenance or management from time to time, including:
The good news is you don’t necessarily have to do all of these tasks by yourself. Many business owners outsource these tasks and simply pay someone else to take care of them.
By now, you know how much work it might take to get your business off the ground — and keep it running (mostly) on its own.
But first, let’s look at the different types of businesses that run themselves.
Generally, self-sustaining businesses fall into one or more of four categories:
There are pros and cons for each category, and also the initial cost and effort of each can vary between them. For example, owning a physical business location will likely have a higher upfront cost than starting an online business.
Now, let’s get into some examples of businesses that run themselves so you can start brainstorming your next business venture!
Did you know many vending machines and ATMs are independently owned and operated?
Businesses like grocery stores, hotels, and also restaurants charge vending machines and ATM owners a fee to place their machines on the business’s property. The machine’s owner then collects the money from selling products (vending machines) or fees paid by users (ATMs).
To set up this type of business, you’ll need to find and buy your machines. Depending on which business you start and also how many locations you want to have, this could cost several thousand dollars.
Then, you’ll want to find businesses or other community locations where you can place your machines.
Once your machines are in place, you’ll need to keep them stocked and ready for customers. So as customers use your machines, you’ll make money off of each sale or transaction.
If you’re in a high-traffic area, you could see high profits very quickly.
Have you ever thrown a large event or party? Maybe you rented linens for your wedding or a friend hired a bounce house for their child’s birthday party.
Behind these party rentals was a rental company. And by outsourcing some of the physical work, you can make a party rental business into a business that runs itself.
You’ll want to make sure you choose a rental business that will be profitable. So that means looking for rentals that are in demand (and will likely be in demand in the future). A few good options include:
Your budget may determine what type of party rental equipment you should invest in for your business. If you have some cash to spare, for example, you could invest in expensive audio and visual equipment.
On the other hand, it could be less expensive to start by renting tableware, which can often be bought in bulk for a discount.
Do you have an eye for design? A print-on-demand business may be a good fit for you!
Print-on-demand businesses work by printing your designs on t-shirts, mugs, and other goods in single orders. Unlike going to a print shop directly, where you often have to order in bulk, print on demand lets you print items only when customers order them.
One of the best parts of print-on-demand is that it’s pretty hands-off for you. You upload your design, choose the products you want it printed on, and wait for customers to order. The printing company handles all of the printing, fulfillment, and shipping.
For example, you have a print-on-demand t-shirt company. You choose a print-on-demand printing company and upload your designs into their system and link it to your website.
A customer buys a t-shirt from your site and the printing company receives and processes the order. Your customer gets a great shirt and you get the profits from the sale (usually after the cost of the shirt and the printing company’s fees).
You don’t even have to be a great graphic designer to make a print-on-demand business work. There are several print-on-demand companies that offer free-to-use (and sell!) graphics you can add to the items in your store.
Laundromats are one of the most popular businesses that run themselves. For one, laundromats tend to have a high rate of success. As a new business owner, this is one of the most important aspects of choosing a business.
While the startup costs tend to be higher than other businesses, many laundromat owners start by buying an existing location. This lets them put their feet into the water with a business that’s already up and running — and hopefully making a profit.
Opening a laundromat could be a good fit for you if you have the capital to invest in a physical location and the equipment necessary to run it. You may also be able to get a business loan for a laundromat, thanks to the generally sustainable business model.
Owning a storage facility is a potentially low-maintenance, high-profit business. Generally, you can choose to purchase an existing storage facility or buy land to build your own.
Those buying an existing storage facility should ask to see the profitability of the business. For example, you could ask the current owner how many of the units are currently rented and what the going monthly rental rate is.
Buying land to build your own storage facility may be less expensive than you think. Many self-storage units are bare-bones buildings that don’t include lights or electricity within each unit.
So this means you’ll only need to pay for the main structure to get started. However, it’s important to pick a location that has the potential to be competitive, including the size of the town or city and how far your storage units are from residential areas.
As a self-storage owner, you may want to require your tenants to purchase insurance for their belongings. Some storage unit owners expand their business by becoming licensed to sell storage unit insurance, which offers an additional revenue stream.
With so much time spent online, it’s probably no surprise there’s a whole industry of digital goods!
Digital products are any type of product created and sold in a digital format. There’s no physical product to store, ship, or manage. Common digital products include:
Digital products can often require a fair bit of time to start selling, but the incredibly low cost of entry makes it a great business that runs itself. Once you create your digital product, you can sell it over and over again without additional work.
For example, you create a digital drawing that customers can buy and print out as artwork for their homes. Unlike a physical art print, you don’t have to start totally from scratch each time you want to sell your artwork. Instead, unlimited customers can buy your artwork over and over again.
Many digital sellers use platforms like Etsy to list their products, but you can also create your own website to sell your goods.
Blogging is probably one of the first ways people started making money on the internet. From lifestyle bloggers to business advice columns, bloggers found they could use the traffic on their websites to make money.
Luckily for you, blogging is still a profitable way to start a business.
You can use ads to generate revenue on your site. However, most people won’t make a fortune running ads on their site, as it usually requires a large amount of traffic.
On the other hand, affiliate marketing is a proven way to make money blogging. It works by using a tracked link on your website to another site.
If a reader follows the link and makes a purchase on the second site, your account gets credit, often as a percentage of the sale price.
For example, you write a blog listing the best car seats for new parents. In the blog, you link to an Amazon page selling one of the recommended seats.
So a reader clicks your link and makes a purchase on Amazon. Amazon then pays you for bringing business to their site.
While startup costs are low for blogging, you will have to commit time to write and edit blog posts. This can be done by writing them yourself or outsourcing your posts to freelance writers.
It’s also a best practice to be transparent with your readers. You want to tell them that you may receive a kickback if they purchase something you recommend on your site.
Think about the last time you traveled down a highway. You likely saw one billboard after another. Businesses pay big money to get their message and brand in front of people on billboards.
And you can be the owner of that prime advertising real estate.
To start a billboard business, you’ll need to either buy an existing billboard or put up your own. If putting up your own billboard, you have to own the land yourself or find a landowner willing to rent you the space for the billboard.
When the billboard structure is up, you then look for clients. Billboards usually work by renting their advertising space to businesses.
The business pays you a monthly or yearly fee to put its message up on the billboard. Even in rural areas with less traffic, having a few billboards to rent out can make you some serious cash.
However, there are certain legal regulations you have to follow before putting up a billboard. For example, in Iowa, you can’t put up a billboard along any scenic byways. Always check state and federal laws before trying to build a billboard, even if it’s on your own property.
We’ve already talked about how you can rent out party equipment like furniture and décor as a hands-off business. But there are plenty of other types of property you can rent out as well.
We’ll go over two main categories:
Real estate rentals aren’t limited to long-term rentals, like apartment complexes. Many people are finding success and profits in short-term vacation rentals.
For example, large groups often prefer to use an Airbnb or VRBO rental on vacation rather than staying in separate hotel rooms. If you have some extra space in your home or an existing vacation property, you can rent it out to vacation-goers.
Be aware, however, that many local and state governments are putting restrictions on short-term rentals. This is especially true in resort areas or places with high costs of living. As more vacation rentals pop up, there is less housing available for local workers.
For instance, in Denver, property owners must follow strict rules when renting their space to short-term visitors. This includes obtaining a license and only allowing primary residences to be rented.
If real estate is too big of an investment, you can also rent out physical goods like power equipment, clothing, or camping equipment.
Starting a business is a rewarding venture that can make money. It’s even better if you can start one that mostly takes care of itself! However, you want to be sure you’re making the right choice when choosing which type of business to start.
While it’s okay to make mistakes when starting a business, you want to limit the cost of those mistakes. Be sure you do your due diligence before jumping into starting a business that runs itself. A little research beforehand could save you a lot of time and money down the road!
The post 9 Businesses That Run Themselves appeared first on Clever Girl Finance.
]]>The post How To Stop Stress Shopping From Ruining Your Finances appeared first on Clever Girl Finance.
]]>Have you ever bought something to make yourself feel better? If so, you're not alone. Many people turn to shopping to relieve stress and help boost their mood.
Yet sometimes, stress shopping or retail therapy can develop into a habit.
Since shopping when stressed can improve your mood, what happens when it goes too far? Overspending to make yourself feel better can easily cause more stress.
That said, keep reading to see how stress shopping changes your mood and how to avoid overdoing it.
You’ve probably heard of retail therapy, which is a common way to talk about stress shopping. It's a habit that is built when you make a purchase to try and reduce stress or improve your mood.
The act of shopping — from visually-stimulating displays to getting something new — has a positive effect on many people’s moods.
Imagine you’ve just left work after a busy day. Your boss spent the day overloading you with new tasks.
Your coworkers were constantly asking for updates about ongoing projects. And your phone kept ringing anytime you started to make progress. You’re feeling stressed, irritated, and tired.
As you’re on your way home, you notice a sign for a new boutique and decide to destress with a little retail therapy. Your mood is instantly better when you walk into the store. It jumps up even more when you spot the perfect pair of boots in your size.
You decide to buy them because you want a reward for getting through a long day. When you get home, you can’t stop pulling the boots out of the bag and smiling.
Stress shopping exists because it works. According to this article by the Cleveland Clinic, a study from the Journal of Consumer Psychology found that shopping can give you a mood boost. These good feelings come from a sense of control and the stimulation of your senses.
Shopping puts you in control of the situation. If you’re stressed, there are likely things you can’t control. For example, you can’t control how much work your boss gives you.
When you shop, you get to choose where to go and what to buy. You're in total control of what you do.
A shopping trip is also great for distracting you from the stress in your life. Think about what you see, hear, and smell when you walk into a store. There are usually visually-appealing displays of your favorite clothes or the latest electronics.
Many stores play popular music that encourages you to stay longer in the store. The shop may use air fresheners or perfumes for a light, pleasant scent. These stimulants focus your senses and keep you distracted from your anxiety or stress.
Retail therapy has real mood-lifting benefits. That doesn’t mean you should reach for your credit card any time you’re feeling down. Let's dig in to see how you can tell if you are developing a shopping problem.
It’s one thing to buy yourself a treat from time to time. In fact, occasionally rewarding yourself can help motivate you to keep working on your goals.
It’s another to let stress relief shopping turn into its own source of stress. For some, shopping can even turn into an addiction known as compulsive shopping.
If stress shopping is causing you to rack up debt and not take control of the true issue at hand it can be a real problem. Let's dig in to see how you can tell if you are developing a shopping problem.
Wondering if you have a stress shopping problem? Even if you shop a lot, you might have your retail therapy sessions in check.
However, stress shopping becomes a problem when you lose the benefits and face new difficulties related to your shopping. Some signs you have a shopping problem include:
Shopping to relieve stress can be a slippery slope if you’re not careful. Luckily, being mindful of your shopping habits can help you use retail therapy in moderation. Try some of these tips to help you reduce the temptation to shop.
Giving yourself less access to shopping is the easiest way to curb spending. Of course, changing this behavior isn’t always easy — especially for online shopping.
Start by unsubscribing from marketing emails. Taking yourself off of email lists reduces how often you see a brand. You should also delete any shopping apps from your phone, such as Poshmark or Amazon.
Finally, remove any saved credit cards from your browsers or online retail accounts.
Simply being in stores less can help cut your spending. Browsing Target is a great way to kill some time while you wait for a friend to meet you for lunch. It’s also a good way to tempt yourself into stress relief shopping.
The next time you’re waiting on someone, skip the store and find somewhere else to wait. Try looking for a local park or art gallery to enjoy while waiting.
You can also spend less time in stores even when you have to go shopping. Everyone has to eat, so there’s no way to avoid grocery shopping. However, you can cut out temptations.
Head to your local store for groceries instead of the big box store the next time you need produce. The grocery store won’t have racks of clothing or an extensive makeup aisle to tempt you into spending.
You can work your stress shopping into your budget. Give yourself a special allowance each month for stress relief shopping. Then stick to it.
For example, let's say you decide to leave $200 a month in your budget for retail therapy. During a stressful time at work, you go shopping every day for a week. However, you only spend $10 each time.
With a budget, you can enjoy your purchases without guilt.
Having trouble sticking to your shopping budget? Try taking out cash for your allocated amount. Once the money is gone, it’s gone.
Sticking to a budget is essential if you are shopping when stressed!
It’s important to figure out why you shop. Knowing what triggers your shopping — and how to avoid it — will help you stop compulsive shopping. For example, shopping after fighting with your significant other.
Instead, learning how to communicate better with one another could help reduce the stress of a disagreement.
Identifying your triggers allows you to change or avoid what's causing you stress.
Did you know you can benefit from retail therapy without making a purchase? Just window shopping or browsing online can give your brain a boost. Your brain releases dopamine (the hormone that makes you feel happy) even if you don’t buy anything.
This comes from the possibility of being rewarded — you start to anticipate a potential purchase. So you can use that to your advantage.
Before you stress shop, spend time just browsing. Don’t make any purchases. Wait at least a day before you decide if you still want the item.
You might find that you’re happy with window shopping. It's all about slow shopping to help reduce the urge to make an instant purchase.
As mentioned before, stores purposely create a more relaxed and stress-free environment. When your home or work environments aren't as inviting, you tend to seek out retailers who provide a calmer place to be.
To avoid the temptation of walking into stores, try making your home and work spaces more inviting. You can do this by keeping your desktop clean and organized. Try adding photos and treasured moments to your space.
At home, try rearranging furniture to make your home feel brand new.
Now that you know how to avoid shopping when stressed, let's discuss some fun shopping alternatives to help you instead!
Cutting out stress relief shopping doesn’t solve the problem of what to do when you’re stressed. The good news is other activities can give you the same stress-relieving feelings as retail therapy.
Here are some fun and productive things to do instead of shopping to relieve stress!
If you’re looking to feel more joyful, decluttering your home can help. The act of freshening up your space can give you similar feelings as shopping.
You’re in control when decluttering — deciding what to keep and what to toss. You might even come across something you forgot you owned, giving you a similar sense to buying something new. So why not declutter your life instead of shopping when stressed?
One of the best alternatives to stress shopping is exercise. Exercise is known to release your brain’s feel-good transmitters called endorphins.
So instead of getting a shopping rush, you can get a natural chemical high without buyer's remorse.
It can also be a good distraction from the things that are stressing you out.
Be sure to start a new routine slowly. You don’t want to hurt yourself by pushing your body too far, too fast. Start slow and work your way into a more strenuous routine as you get more in shape.
If you need motivation to stick with it, find a budget-friendly online trainer to keep you going!
Is there something you’ve always wanted to learn, but never tried? Pouring some energy into a new pastime can help reduce your stress.
Try to find an activity that makes you happy and isn’t related to the things causing you stress.
Some ideas for a new hobby include:
Try out some of these hobbies instead of shopping when stressed. That way, you feel better and prevent yourself from spending money. There are so many hobbies to try out you'll definitely find the one for you.
Learning to be content with what you have can help you stop shopping to reduce stress. Using a 30-day gratitude challenge or starting a gratitude journal is a great place to start.
A gratitude journal is a place to write down what you’re thankful for. Let your personal style shine through in your journal.
Some people love to write long, detailed paragraphs. Others are happy to jot down a few bullet points. Whatever works for you is the right choice.
You can use retail therapy as a reward instead of something triggered by stress. An easy way to do this is to start a savings challenge. Challenge yourself to reach a certain savings goal in a specific timeframe.
Add checkpoints into your timeline with mini-goals. If you meet your goal at each checkpoint, you can reward yourself with a shopping trip.
Make sure to set a spending limit for each reward. You can even ramp up the amount at each checkpoint to encourage yourself to keep saving.
There’s nothing wrong with occasionally treating yourself — as long as you don’t overdo it. How can you tell if you’re going overboard with stress shopping? Start by taking a hard look at your finances.
If your shopping habit is causing you to increase your debt or limit your savings you might want to try changing your behavior.
Focus on reducing your retail therapy by limiting your access to online purchases and setting spending limits.
You can also try out new hobbies and an exercise routine to replace your need for shopping, which can help cut your spending and get your finances back on track.
The post How To Stop Stress Shopping From Ruining Your Finances appeared first on Clever Girl Finance.
]]>The post Specific Self Discipline Examples That Can Help You Right Now! appeared first on Clever Girl Finance.
]]>Self discipline is your ability to control your own actions, feelings, and emotions. Everyone suffers from a lack of self discipline every now and then, but there are steps you can take to help improve yours. A good place to start is looking over different self discipline examples to get ideas for implementing self discipline into your life.
We gathered our favorite examples of self discipline into this handy guide so you can start building self discipline — from your finances to your career and beyond!
Before we can dive into each example of self discipline, we need to understand how they can help inspire us. As you go through these examples, keep these questions in mind:
There isn't a correct or incorrect way to use these examples. The best way to use this list is to be open-minded and make a note when one of the examples inspires you to act.
Your finances are one of the most important places for self discipline. Keeping yourself in check when it comes to spending can help you save more money.
Good self discipline in your finances usually means knowing where your money is going and setting goals to grow your net worth over time.
Creating a budget is a basic example of self discipline in your finances. A budget helps you see how much money you have coming in every month (your income), and how much is going to expenses.
To make a simple budget, follow these steps:
Budgets are especially important for self discipline because they encourage you to identify your strengths and weaknesses when it comes to money.
Maybe you have a shopping habit you want to break, but you’re really good about paying down debt.
The easiest way to have more money in your life is to cut down on spending. Reducing expenses or cutting out unnecessary spending is important to build your savings and pay off any debt you might have.
However, reducing expenses is usually a lot easier said than done. It takes a lot of self discipline to cut out the things you might want to spend money on. The good news is you’ll feel rewarded and fulfilled as your savings increases from your lowered expenses.
A good example when reducing spending is to try a no-spend challenge. These challenges encourage you to cut spending by not making unnecessary purchases for a period of time.
Getting into debt is easy, but getting out of debt is much more difficult. Paying off debt shows a lot of self discipline.
Not only do you have to commit to paying money toward your debt, but you also have to resist the temptation to overspend on other things.
You can help improve your self discipline when paying off debt by making your debt payments automatic.
Automating your monthly payments also means you won’t have to worry about missing a due date. Just be sure to make at least the minimum payment on each debt you have.
Your emergency fund is one of the most essential financial tools you can have. Emergency funds are savings accounts where you keep a healthy amount of cash saved for unexpected expenses.
With an emergency fund, you’ll be prepared to cover expenses like sudden car repairs, medical bills, or a broken water heater.
Building your emergency fund, however, requires self discipline. Even after funding your savings account, you’ll need to use self discipline to keep yourself from using the funds for non-emergencies or non-necessities.
Your mindset is your mental attitude. It’s an important piece of who you are and how you respond to different situations. That doesn’t mean your mindset is set in stone, however!
In fact, changing your mindset through self discipline can help you feel more confident, reach your goals, and live a less stressful life.
Everyone has strengths and weaknesses. Knowing those strengths and weaknesses makes it easier to grow — in your career, personal relationships, and as a person overall.
Identifying your strengths and weaknesses is the first step to building your strengths and reducing your weaknesses.
One way to figure out your strengths and weaknesses is to ask friends, family, and colleagues what they think you excel at and what could use work.
Once you know your strengths and weaknesses, you’ll need to use self discipline to work on them. You don’t want to neglect your strengths, which could cause your skills to slip. However, you also need to put extra effort into improving your weaknesses.
Self discipline will be important to finding the right balance to improve upon the things you do well and overcome your weaknesses.
Like your financial goals, personal goals are one of the major self discipline examples. Any time you set a new goal, you have to use self discipline to stay on track and meet the metrics of your goal.
For example, a common personal goal is to read at least one new book each month. To achieve this goal, you’ll have to use self discipline to manage your time effectively so you can finish each month’s book.
While it’s a good idea to set personal goals and try to improve yourself, it’s also important to accept the things you already have.
Being grateful and content helps you live a more peaceful life. You’ll learn to appreciate the things you have and spend less time wanting the things you don’t.
Contentment and gratitude, however, often require self discipline. One of the hardest parts of contentment is getting rid of jealousy.
It’s easy to feel envious of someone who seems to have more than you, whether that’s nicer clothes, a bigger house, or even relationships with others.
Self discipline requires you to focus on what you do have, rather than the things you don’t, to feel grateful for your current life.
Limiting beliefs are the negative things you feel or think about yourself. Holding a lot of limiting beliefs makes it hard to feel confident and can keep you from reaching your full potential.
You’ll have to use self discipline to let go of limiting beliefs. Long-held beliefs are particularly difficult to get rid of because you’ve convinced yourself of them for so long.
To help yourself overcome your limiting beliefs, try these tips:
Make changes to how you think by cutting out negative words like “can’t, don’t, or never.” Instead of “I can’t do this,” ask yourself “How do I achieve this?”
Do you have unsolved traumas that are contributing to your limiting beliefs? If so, you may want to work with a professional, such as a therapist, to help you overcome these negative feelings toward yourself.
Journaling can be of simple daily achievements as well as the things you’ve done so far in life. For example, maybe you’ve bought a home, graduated from college, or received a bonus at work.
Focus on taking action rather than an end goal of perfection. Oftentimes, just getting started is the most challenging part of trying something new.
Your body is a complicated machine that needs both physical and mental nourishment to run properly. Self discipline is necessary for maintaining a healthy mind and body.
From eating to fuel your body to spending time on self-care, there are plenty of examples of self discipline related to health and wellness.
Setting achievable — and measurable — health and wellness goals is a key part of improving your overall health. Like other goals, your health and wellness goals will require self discipline to stay on track and reach them.
For example, you might have a fitness goal to run a 5K three months from now. You’ll need to use self discipline to stick to a healthy eating plan, and running schedule, and give yourself time to rest your body.
Likewise, you may have a goal to eat more vegetables. You can practice self discipline by incorporating more veggie-based dishes into your weekly meals.
This also includes being conscious of what you’re ordering when you go out for a meal or what you’re purchasing at the grocery store.
Reducing or eliminating unhealthy habits is a good example of self discipline. This is even more important if your unhealthy habit has been part of your routine for a long time.
Smoking, for example, is a common unhealthy habit many people want to quit. But quitting smoking requires a high level of self discipline. You may have to try different methods to reach your goal.
Additionally, you may find yourself facing setbacks. For example, you try to quit smoking cold turkey and eventually give in to your cravings. Having self discipline will help you overcome the setback and adjust your plan to quit.
Starting a new exercise or fitness routine is one of the most difficult new goals to reach. It’s often easy to get started and you might stick to your routine for a few weeks. However, once you fall out of the routine, it’s all too easy to let it slip away.
To create a new exercise or fitness habit, you’ll need to use self discipline to encourage yourself to work out.
Follow these tips to make sticking to your routine a little easier:
Spending time caring for your mental health helps you handle stress, have more energy, and can even lessen your chances of illness. Establishing a regular self-care routine is key to improving your overall wellness.
The best part of a self-care routine is that it’s perfectly customizable for each person. Everyone will do self-care a little differently — and that’s ok!
A few common types of self-care include:
Self discipline is important for a proper self-care routine. You’ll need to use self discipline to make your routine a priority.
Remember, self-care means putting yourself first to refill your personal energy cup. Making your routine a priority will help you be more relaxed, refreshed, and ready to handle the issues of everyday life.
Whether you own your own business, work for a small company, or are climbing the corporate ladder, self discipline examples are necessary for your career.
For most people, having self discipline at work helps them stay focused, get their tasks done, and reach new career milestones.
It might be easy to do the bare minimum at work, but that could leave you feeling unfulfilled. With a little self discipline, you could take on new projects or tasks and have a bigger sense of purpose in your career.
Consider practicing self discipline by volunteering for a new project or taking over a routine task within your team. Showing your self discipline to take on the biggest projects and complete them could also lead to bonuses, raises, or promotions.
We all suffer from distractions at work. Someone who works in an office might be tempted to spend time gossiping with colleagues while someone working from home might find ways to avoid work using housework or other tasks.
Whatever your distractions at work, practicing self discipline is a smart way to get rid of them.
For example, if you tend to spend too much time talking with coworkers, consider noise-canceling headphones so you can’t hear when an off-topic conversation gets started.
Or, if you find yourself spending too much time on social media instead of work, try turning off your personal phone during the workday and blocking social media sites on your work computer.
An easy way to build self discipline habits is to schedule your day. By dedicating time to each task for the day, you set yourself up for success.
What if you don’t know how long a task will take? Try a productivity method, such as the Pomodoro technique. This technique involves breaking a task down into intervals and giving yourself a break between each. For example:
You can repeat the sequence as often as needed to finish your task.
You can track your self discipline at work by tracking your accomplishments. At the end of each day, week, or month, write down everything you got done during the time period. You might surprise yourself with how much you’ve accomplished in such a short time.
This can also help you when it’s time to ask for a new position or promotion. You’ll have a written record of everything you’ve completed while working in your position, which you can use to help show how your self discipline is an asset to the company.
It’s common for people to neglect their homes in favor of other, seemingly more pressing needs. However, a clean, positive home environment is an important factor in your overall health, mental wellness, and attitude.
Using self discipline at home can help you keep your home clean, maintain a positive home routine, and get more out of your downtime by managing your time.
Have you ever cooked a delicious meal and then let your dishes “soak” in the sink for a few days? Every time you looked at the sink, you may have felt some anxiety that there were dirty dishes. But this might have left you feeling even more unwilling to clean up the mess.
Of course, when you finally clean up the dishes, you realize the task only took a few minutes and you felt so much better afterward.
With a little self discipline, you can almost entirely erase the guilt and anxiety of leaving a mess. The fix is simple, too: just try to clean up as you go.
This might be easier said than done, but getting into a tidying habit will help your home stay cleaner overall.
Cleaning up while cooking, for example, is a good way to practice self discipline and enjoy a clean home. As you finish using a dish, measuring cup, or knife in your recipe, take a few minutes to wash it and put it away before moving on to the next step.
Cleaning up as you go can help keep your home tidier, but it’s not a complete replacement for regular deep cleaning. Self discipline can help you create and stick to a regular cleaning schedule.
Keeping a regular cleaning schedule can help you feel more in control of the state of your home. A clean home is also usually a healthy home that’s relaxing to live in.
You can use chore charts or a weekly planner to help you set your cleaning schedule. Try to break down your cleaning tasks by how often they need to be done. For example, make a checklist of your weekly tasks like vacuuming, laundry, and taking out the trash.
You might remember hating bedtime when you were a kid. However, you might also remember feeling exhausted the next day any time you got to stay up past your bedtime.
As adults, we tend to overlook the importance of a bedtime or sleeping routine. But keeping a regular sleep schedule isn’t just good for kids — it’s also a big part of keeping yourself healthy.
Using a regular bedtime and waking up at a set time each morning helps your body develop a rhythm. This ultimately leaves you feeling refreshed and ready to tackle the day when you wake up.
You also need to focus on the quality of your sleep. Ten hours of low-quality sleep where you toss and turn is generally less beneficial than seven hours of high-quality, deep sleep.
Time management goes hand-in-hand with self discipline. In fact, these two skills rely on one another for success. You won’t be able to properly manage your time if you don’t have self discipline.
You can use self discipline to manage your time at home. This means dividing your time between cleaning, chores, family time, and personal time. Self discipline can also help you be more mindful of your downtime.
For example, if you work in front of a computer all day, you can use self discipline to choose to read a book or work on a non-screen hobby instead of watching television or playing on your phone during your downtime.
These self discipline examples are only the beginning of a well-rounded emotional and physical routine.
Try adding one or two of these suggestions into your life to get more self discipline practice. Or, consider creating your own examples of self discipline that fit into your work, fitness routine, home, or mindset goals!
The post Specific Self Discipline Examples That Can Help You Right Now! appeared first on Clever Girl Finance.
]]>The post How To Make A Spending Freeze Actually Work For You appeared first on Clever Girl Finance.
]]>No-spend challenge, “not buying anything” month, spending freeze — whatever you call it, these challenges are supposed to help you cut unnecessary spending. To complete the challenge, you simply stop spending money on things you don’t need.
Of course, that’s usually a lot harder than it sounds. You might find yourself adding unnecessary items to your cart at the grocery store or stopping at a convenience store for a small treat. With how easy it is to spend money, it might seem like a "not buying anything" challenge won’t work.
Don’t fret! In this guide, we’ll go over how to make a spending freeze actually work for you.
This includes the tips and tricks you can use to stop overspending for some time. I’ll also give spending freeze challenge examples you can use to get started.
It's a personal challenge you make to yourself to stop overspending on things you don’t need. While there’s no exact definition or rules, generally it means only spending money on things you need for a set timeframe.
For example, many people try to do a spending freeze for a month. They decide to stop eating out, spending money on entertainment, and buying unnecessary goods for the entire month. They’ll still spend money on necessities, like rent or groceries.
The most obvious benefit of freezing your spending is saving money when you shop by cutting out unnecessary spending. Reducing spending helps you keep more money in your pocket. This money can be put toward savings or other financial goals, like paying off debt.
Additionally, putting a stop to spending could provide emotional benefits as well. No-spend challenges often force you to look at emotional triggers for overspending.
Many people, for example, may spend when feeling jealous or unhappy. As you complete your challenge, you may notice it’s more difficult to stick to the challenge during certain times, events, or emotions.
Another emotional benefit of a spending challenge is the confidence you build. No-spend challenges aren’t always easy, so completing one can really boost your confidence. You’ll feel more in control of your financial situation.
Your no-spend challenge wouldn’t be a “challenge” if it was too easy. Many people who try to cut out unnecessary spending find themselves falling back into old spending habits before the challenges are over. Some common issues challengers run into include:
Not spending for a set amount of time is a relatively simple challenge anyone can try. The basic steps of not spending go like this:
One of the best parts of a no-spend challenge is the ability to customize it to your needs. In fact, customizing your challenge is an important part of making it successful.
Not everyone has the same income, spending habits, or discipline to complete the same challenge. For example, someone who spends a lot of money on entertainment will need to look for things to do that cost nothing.
Someone who doesn’t spend a lot of money on entertainment probably won’t have as hard of a time cutting out those expenses.
Completing a challenge can be hard, but there are some ideas you can use to increase your chances. Follow these tips to help set yourself up for success in your spending challenge.
Figuring out the reason you’re doing a freeze on buying things is one of the biggest hurdles to success. Of course, most people choose one of these reasons:
And those are great places to start!
However, these reasons are vague, which can make it hard to stick to your challenge. Rather than choosing a generic reason for your challenge, dig deeper into your “why.”
Why do you want to do this challenge? Is there something specific you hope to accomplish?
For example:
Specific goals can help you stick to your challenge — especially when it gets difficult. If you find yourself tempted to spend on something you don’t need, you can think back to your challenge goals.
An often-overlooked aspect of this idea is stocking up on essentials before you start. If you’re trying to cut your spending, you don't want to spend money on toilet paper, paper towels, toothpaste, and other essentials halfway through your challenge.
You probably only buy these necessities a few times per month (or even year!), so they’re something you might overlook when starting your challenge.
As you get ready for your challenge, take stock of essentials like paper goods and toiletries. Restock any that are running low or are at risk of running out during your challenge.
Some people wrongly assume you have to follow extreme no-spend rules. However, not everyone can handle cutting out every bit of non-necessary spending for a week or month. This leads challenges to be too difficult to complete for a lot of people who try.
Luckily, your challenge is all about you. You get to set the rules, guidelines, and parameters to follow.
You’re in control of your freeze. And since you know yourself better than anyone, you can customize your challenge for the perfect level of difficulty.
Start with a few of these common freeze rules and tailor them as needed:
Timing your spending freeze can determine if it goes well or not. A well-timed freeze improves your chances of completing it.
December, for example, is often a much more difficult time to do this. The holidays and end-of-year celebrations make it harder to reduce spending.
You might have a long list of holiday presents to purchase. Or, perhaps you plan to travel to visit family for the new year. Even small amounts of spending can add up quickly when you’re trying to reduce spending.
On the other hand, choosing a time when you’re not likely to spend money could make the challenge too easy.
For instance, you decide on a one-day no-spend challenge. You pick a day when you have no plans and are expected to stay home. Most likely, you already wouldn’t have spent money on this day, so it wasn’t much of a challenge.
Spending freezes can help you cut your spending — temporarily. They’re not meant to be long-term fixes to spending problems. Most people tend to go back to their old spending habits once the challenge is over.
However, you can make your spending freeze more impactful by using it as a chance to analyze your spending, saving, and overall money habits. A smart way to do this is by keeping a journal during your challenge.
Taking the time to go over what was easy or difficult and what you liked or didn’t like about your challenge is important. This helps you learn more about your spending habits so you can make long-term changes if necessary.
To get a better idea of your overall money habits, ask yourself these questions after your challenge:
Most spending freezes are determined by the time it takes to complete. For example, a one-month spending freeze is a common way to take the challenge.
However, you can customize the metrics of your challenge to fit your needs. You may want to stop buying specific items until you reach a certain amount in savings, for instance.
An easy way to get started is to try a no-spend day challenge. This type of short challenge is best done during a day when you expect to be out. A typical workday in the office could be a good choice.
In a single-day challenge, you simply avoid spending money for the entire day. This could include not eating out at lunch or skipping your morning coffee shop run.
Trying a week-long challenge adds moderate difficulty. You’ll have to get through a weekend without unnecessary spending.
Try to pick an average week for your challenge. For example, a week that you’re on vacation or going to a concert for the weekend probably isn’t a good option. Like the day-long challenge, a normal work week and weekend is usually best.
Things you might have to cut out during a normal week include lunch out at work, stopping at your favorite boutique on the way home, or going out to dinner and a movie for date night.
A month without spending is usually the longest you should try to complete. Anything longer than that becomes extremely difficult to keep up, which can lead to burnout and feelings of failure.
While a month is difficult, it’s certainly doable. Give yourself a good chance of success by choosing a month with a quiet social calendar.
If you pick a month with four weddings, three family birthdays, and two planned nights out, you’ll make the challenge more difficult than usual.
January is a common choice for month spending freezes because it lets you get a fresh start on the year. It can also help jumpstart any savings resolutions you have.
As I’ve said before, you don’t have to cut out all of your spending during a certain timeframe for a successful spending freeze. Specifying what you’re cutting spending on is an easy way to make your freeze an enjoyable (and worthwhile) experience.
Stumped on what metrics to use? Consider one of these types of spending freezes for your challenge:
Completing a spending freeze challenge is one of the most rewarding feelings in money management. It shows you that you can live on less and be in control of your finances.
When you wrap up your challenge, be sure to celebrate your wins. Consider making a small purchase as a treat, such as a nice dinner out.
However, don’t spend all of the money you saved on your freeze. Instead, put that money to work in your savings account, investment account, or by paying off debt. And then look for other ways to save money, like saving $5,000 in 3 months.
The post How To Make A Spending Freeze Actually Work For You appeared first on Clever Girl Finance.
]]>The post Are You In A Financially Abusive Relationship? Key Actions To Take appeared first on Clever Girl Finance.
]]>Learning the signs of financial abuse and how to safely leave a financially abusive relationship is incredibly important. When people think of abuse in a relationship, physical abuse is usually what comes to mind. However, financial abuse is a form of domestic violence that can in turn lead to intimate partner violence (IPV).
In fact, according to data from the CDC, the physical and mental trauma that IPV causes victims, an abusive relationship costs a woman around $100,000 over her lifetime.
If you’re scared of leaving an abusive relationship, help is available. The resources here can help you plan for your financial future if you’re stuck in a relationship because of money.
Financial or economic abuse is a lesser-known type of domestic violence that affects millions of women every day.
Financial abuse refers to an abuser’s ability to use money and economic well-being to control, manipulate, and dominate their victim. Approximately 94 to 99% of domestic violence survivors also experienced financial abuse.
Partners who withhold money or other access to funds get their victims stuck in a relationship. Many women are forced to choose between leaving their abuser or their economic well-being when in financially abusive relationships. This includes access to funds, housing, and basic necessities for themselves and their children.
It’s important to recognize that financial abuse is defined by the abuser’s desire for control. In a financially dependent relationship, the abusive partner uses money (or access) to force their partner to do what they want.
Although one partner making most of the money in a relationship or being in charge of household funds is common in this situation, these characteristics can be present in non-abusive relationships as well.
For example, it’s not uncommon for one partner to work while the other stays home to take care of the children or the household. If the partners work as equals to manage the money earned by the working partner, it’s not a financially abusive relationship.
Additionally, many couples naturally let one partner handle the day-to-day management of household funds. This could include organizing documents, handling bill payments, or getting ready for tax time.
Most of the time, this is a matter of financial savvy and organizational skills. However, handling funds could become abusive if one partner starts to coerce or control the other using their knowledge of the couple’s finances.
Knowing the signs of financial abuse can help you recognize abuse in relationships. Remember, the abuse comes from one partner manipulating or controlling the other using money.
To keep their victims in a financially dependent relationship, abusers generally use two forms of coercion:
One of the easiest ways for an abuser to control their partner is by controlling access to money. At its most basic, controlling the money is as simple as limiting a partner’s physical access to funds. This could look like this:
Physically restricting a victim’s access to money is only one way abusers take control in a financially abusive relationship. They also commonly take measures to ensure their victim cannot have financial stability by sabotaging their overall financial wellness.
Some ways financial abusers control their victims through sabotage include:
Like other forms of domestic abuse, financial abuse impacts the health and safety of the victim. Domestic abusers aim to make their partners feel insecure, unsafe, and hopeless. This gives them the power they need to control their victim.
People who are stuck in a relationship because of money often face similar impacts on their financial health and wellness. The most obvious is their reliance on their abuser for financial support.
A victim of financial abuse usually doesn’t have access to money to purchase food or housing. This means they usually stay with their abuser to avoid poverty, starvation, or exposure to the elements. For parents, staying in a financially abusive relationship could mean the difference between their children being fed or clothed.
However, the impacts of financial abuse go beyond paying for necessities. Victims of financial abuse might also experience:
Are you concerned your partner is financially abusive? Do you feel stuck in a relationship because of your economic situation?
If so, you may want to consider your options to gain financial freedom and get away from your abuser. Like many women who experience domestic violence, you may feel scared or anxious. It might feel overwhelming to try and leave a relationship when you have no money, but it can be done.
Remember that you’re not alone and there are things you can do to get the help you need.
Below are five moves you can make to help you leave a financially abusive relationship.
If you’re in an abusive relationship, your first priority should be to keep yourself safe. As you start to think of leaving, you should make a plan to get away safely.
The first step is to consider your individual relationship. Not all abusive partners threaten physical violence. However, many turn to physical control if they feel financial control is no longer giving them the power they need over their victim.
Ask yourself if your partner has violent tendencies:
You can use resources like the interactive safety plan creator from the National Domestic Violence Hotline to help you create a safety plan. This helpful resource asks you a few questions about your living situation, job or school status, and location to give you local advice on staying safe in an abusive relationship.
In addition to your overall safety plan, you can prepare to leave an abusive partner by securing your identifying information. Try to safely get access to your identification, birth certificate, and other important documents before leaving. A few documents you should try to collect before leaving include:
It may be impossible for you to collect all of these documents before leaving a financially abusive relationship. In many cases, abused partners can’t get access to these documents. If that’s the case, try to at least collect your identification documents like an ID.
You also may not be able to take physical copies of your documents without your partner’s knowledge. Consider just snapping a picture of the documents on your cell phone instead of trying to keep physical copies.
Be sure to upload the pictures to a secure location or send them to trusted family or friends to keep them safe. Then delete the photos from your phone (including wiping them from your recently deleted folder) in case your partner tries to go through your phone.
One of the hardest parts of financially abusive relationships is the inability to secure housing after leaving an abuser. Many victims of financial abuse have poor credit and inconsistent work history due to the acts of their abuser. This can make it difficult to secure housing after leaving their partner.
Try to line up a safe place to stay before you leave your relationship. This will help you feel more confident in leaving. It can also stop you from having to return to your abuser for shelter.
Staying with trustworthy friends or family members is usually a safe bet when leaving an abuser. However, try to connect with a friend or family member your abuser doesn’t know or wouldn’t think of. This can help keep you and your friends or family safe from retaliation from your partner.
For example, consider staying with a cousin instead of your parents. If you’re close with your parents, your partner may go straight to their home to look for you. They may not think to go to your cousin’s house.
Another option to consider is a women’s shelter or group home. Many cities and counties have local resources to help abuse victims get back on their feet, including offering free or low-cost temporary housing.
In a financially abusive relationship, your partner will likely keep you in the dark when it comes to your money. This helps them limit your access to funds. After all, if you don’t know how much money is available, you can’t spend it.
Knowing your financial situation, however, helps you take back control.
If your partner has cut off access to accounts, there are ways to get it back. Requesting your account information directly with financial institutions, for example, usually only requires some form of ID.
For instance, if you have a joint account with your partner, you can go to a physical branch of your bank and request a balance receipt. This receipt shows your current balance and might show recent transactions.
Everyone has access to a free credit report once every year through the website AnnualCreditReport.com. This free resource is authorized by the federal government.
Getting a copy of your credit score is an important step toward financial freedom from your abuser. It’s common for financial abusers to use credit to devalue you, ruin your financial opportunities, and take advantage of the funds you have.
Your credit report will show you the credit accounts in your name as well as your payment history and current status. This can show you if your partner has taken out an account in your name without your knowledge. If your partner is in sole control of an account they forced you to open, your report will also show you if the balance is current or unpaid.
Your partner may try to tank your credit score after you leave. They might try to overspend on joint accounts or open a new account in your name.
You can use credit monitoring to help alert you if this happens. A credit monitoring service sends you alerts any time there’s a change to your credit report. Depending on the service, you might even be able to easily freeze your credit if something looks wrong.
When leaving a financially abusive relationship, your partner might try to suspend your access to digital finances. This could mean putting a stop on your debit card or withdrawing money from a joint bank account.
Having a reserve of cash can help you avoid your partner’s control of your finances. You can start saving cash before leaving so you have a fund to rely on when you leave.
There are two essential things to remember when saving cash in an abusive relationship:
Your secure savings location depends on your living situation, relationship, and relationship with others. For example, if you regularly visit friends or family, you may be able to keep your money reserves with them. Or, you may want to consider opening a safety deposit box at a bank.
Be careful when keeping your cash savings at your home with your partner. It’s important that you don’t keep it somewhere where your partner may stumble upon it.
Which brings us to the second point: how can you save up money without your abuser knowing?
Getting cash back at the grocery store or convenience store is one way to save cash on hand. First, make sure your cash back doesn’t show up on a bank statement. Second, check that the receipt doesn’t show you withdrew cash, in case your abuser looks at your receipts.
If possible, you could also work odd jobs that pay in cash, such as pet sitting or babysitting. This may depend on your partner’s schedule if they don’t normally allow you to work.
Finally, you can try to sell your belongings to make some extra cash. Consignment shops and pawn shops are often willing to pay in cash for used goods.
Remember, however, to be careful choosing what to sell or selling a lot at once. Try to aim for small batches of items that your partner won’t notice missing.
Financial abusers generally have control of their partner’s accounts. This might be controlling your passwords or using a joint account and withholding access.
As you plan to leave, consider opening new accounts in your own name. Don’t let your partner know about these accounts. You may want to have statements or opening documents sent to a family member’s house.
Having access to a bank account, credit card, or other financial accounts in your name alone gives you more power over your finances. In turn, this cuts down on the power your abuser has over you.
Additionally, plan to change the passwords, PINs, and security questions for any personal accounts you do have access to. This limits your partner’s access after you leave.
However, only change these passwords as you’re leaving or right after leaving. This prevents your partner from guessing your plans before you get out.
It’s not at all easy to leave an abusive relationship. You’ll likely feel anxious, hesitant, or scared as you plan to leave. And that’s okay.
The important thing to remember is that abusive partners use your anxiety, hesitation, and fear to exert control over you. You can help improve your confidence and reject the control of your partner by using the resources available to you.
Your partner has likely made you feel like you can’t handle your money. By keeping you in the dark regarding financial decisions, they make it harder for you to take control of your financial well-being.
One of the simplest ways to recover after being financially stuck in a relationship is by increasing your financial literacy.
Luckily, the internet is full of financial advice. It’s readily available and easy to find. Clever Girl Finance, for example, offers a wealth of free financial resources to help you learn more about money.
These resources can help you save money, make smart money moves, and increase your career options once you’re on your own.
Leaving an abusive relationship is among the most difficult things for a victim to do, especially if you’re worried about retaliation. Not everyone understands what you’re going through.
That’s why it’s often helpful to connect with other survivors of abuse and domestic violence prevention professionals. Having a support system of others who understand your situation gives you the tools to rebuild after getting out of your financially abusive relationship.
Just as with financial literacy resources, the internet is a great place to start connecting with other survivors. Social media groups, online forums, and even social media influencers in the survivor space can help you learn how to heal and move forward after abuse.
If you’re financially stuck in your relationship, you have options. There are free resources you can use to get the help you need.
Finding someone to be your advocate or counselor as you try to leave your abusive relationship is important. This person can become your support system to help you stay safe as you plan to leave.
Many abuse survivors turn to family and friends to be their advocates. However, your partner may have cut you off from family and friends in an attempt to gain more control.
In this case, there are still people who can give you the support and advice you need. Therapists, for example, might offer their services at low costs or free of charge through women’s shelters or domestic violence programs.
Even if you’re not religious, members of the clergy can often provide support and understanding for domestic abuse survivors. Consider contacting a local church or other religious groups to see if they offer help for victims of abuse.
The National Domestic Violence Hotline’s website offers an easy local resource finder for you to get help. Simply select your state and city and what resources you need.
In addition to helpful online resources, the National Domestic Violence Hotline has a phone hotline you can call to get help. The number is:
National Domestic Violence Hotline: 1-800-799-7233
You can also visit the website to chat live with a support professional or text “START” to 88788 to get started taking back your financial well-being today.
If you are in a bad relationship with financial abuse, there are many resources you can use to get out of your current situation.
Once you're in a safe place, you can take steps to improve your finances. You can further educate yourself about money and also work on cultivating positive relationships that help you have a better future and life.
The post Are You In A Financially Abusive Relationship? Key Actions To Take appeared first on Clever Girl Finance.
]]>The post How To Become Financially Stable In 9 Steps appeared first on Clever Girl Finance.
]]>Have you ever met someone who doesn’t seem worried about money? They might always have extra cash for the things they want, or, they always have the money to pay their bills in full — even the unexpected ones. This person is likely financially stable.
What does being financially stable mean? It can look a little different to everyone, but someone who’s financially stable usually doesn’t have to worry about making ends meet each month.
They might also have extra money for things like spontaneous purchases. The great news is you can learn how to become financially stable with a little bit of work. Keep reading to learn the nine steps you can use for financial stability.
Being financially stable means being confident in your financial situation. Generally, people with financial stability live below their means.
That means they spend less than they make each month, leaving enough money to pay their expenses and save for the future.
Financial stability can be different for everyone. For example, you might consider yourself financially stable when you can stop living month to month. Perhaps you think of stability as being debt-free and having a large emergency fund.
While your definition of financial stability is unique, it’s important to be aware of your financial situation. Before you work to be more financially stable, you need to know where you stand.
A good place to start is taking a financial health assessment. The Consumer Financial Protection Bureau, for example, offers a quick quiz you can use to gauge your financial well-being.
Knowing the definition of financial stability is only one-half of the equation. You also need to consider what causes financial instability.
Financial instability comes from any event, habit, or circumstance that causes someone to overextend their income.
Your instability might be self-inflicted. For example, you find yourself unable to quit an expensive shopping habit. You may be unstable financially because you took on too much debt, such as buying a luxury car with unaffordable monthly payments.
However, a lot of financial instability comes from events outside of our control. Financial emergencies are often the cause of financial instability.
For example, you lose your job due to corporate downsizing. You still need to pay your mortgage, car insurance and payment, and credit card bills.
Yet, now you don’t have the income from your job to cover these expenses. You’ll likely feel financially unstable because you’re worried about how you’ll pay your bills.
Remember, however, that financial instability doesn’t have to be a life sentence. It is possible to change a pattern of instability and build healthy, long-term financial habits that promote stability.
Anyone can learn how to become financially stable. For most, it starts with a mindset shift. It’s easy to look at your financial situation and see it as something that is happening to you.
Financially stable people, however, are in control of their finances—even if an emergency changes their immediate plans.
And now that you know the answer to "what does financially stable mean?" you can get started using these nine tips.
You’ll never be financially stable if you don’t know your current financial situation. You might even be surprised and you’re more stable than you thought!
Take stock of your spending, saving, and income so you have a better idea of your financial situation. This will show you if you’re living within your means or outspending your income.
Keeping track of where your money goes each month is vital to stability. Use a budgeting app or keep a spreadsheet of your spending for a few months.
You can divide your spending into categories and create graphs or charts to show how much of your money goes into each. Visualizing where your money goes makes it easier to determine where you should start cutting expenses.
Additionally, your mental state also plays a big role in financial stability. As you track your spending, make notes on how you’re feeling when you spend money.
For instance, you go shopping after work and spend more than you want to on new clothes. You realize you were stressed when you went shopping and used the purchases to try to destress from work.
Some expenses, like rent, are necessary. Others, like going out to eat for lunch, aren’t.
However, just because an expense isn’t necessary doesn’t mean it’s something you want to give up. Being financially stable doesn’t mean completely giving up on fun. It just means you may have to prioritize where you spend your money.
A smart idea is to take your spending tracker and list all your spending categories from most important to least. Necessary expenses like rent and insurance should be at the top. As you go down the list, however, you can decide what you want to spend your money on.
Say you like going out to dinner with friends on weekends. You know this isn’t an expense you’re willing to completely cut out. On the other hand, you hardly ever use your Netflix subscription.
Dining out would rank higher than Netflix on your priority list. When it’s time to cut out expenses, you know you can get rid of the streaming service first.
Building a budget is a great place to start improving your financial stability. A budget lets you allocate your money each month. You’ll have a better idea of where you spend your money and how much you can save.
Budgeting might seem complicated, but your budget can be as simple as you like. You can start by listing out your income and expenses to see if you’re spending more than you make each month. From there, follow budgeting best practices to create a budget that works for you.
Contrary to popular belief, budgets don’t have to be rigid. In fact, the best budgeters regularly adjust their budgets to meet their changing financial needs.
If you find your budget is too restrictive, consider tweaking it to better fit your current spending habits. As you work on lowering your expenses and spending less, you can adjust your budget with more room for savings.
Setting financial goals sets you up for financial success. Your goal gives you a tangible object or event that you can only reach by working towards it. This helps you stay focused and discourages frivolous spending.
Plan to set both short-term and long-term financial goals. Short-term goals generally take place within the next few years. Saving $1,000 in six months, for example, is a short-term goal.
Long-term goals take place over a much longer time—from a few years to decades. For example, saving up money to buy a new car in five years is a long-term goal. Saving for retirement in 30 years is also a long-term goal.
You can increase your chances of reaching your financial goals by following the SMART goal process:
Short-term goals are usually smaller than long-term goals because you have less time to reach them. They may even be a smaller part of a bigger goal.
For example, you want to get out of debt. Your short-term goal is to pay off one of your debts in the next year.
Other types of short-term goals include:
Unlike short-term goals, long-term goals may take decades to achieve. It’s important that you create and follow a financial plan to help you reach long-term goals.
For example, your plan may include saving for retirement by automatically depositing part of your paycheck into a 401(k)-retirement plan.
Some common long-term goals include:
Keeping up with long-term goals year after year isn’t always easy. Try setting mini goals within your long-term goals to help you stay on track.
A key factor in financial stability is living within your means. This simply means not spending more than you make.
When you spend less money than you make, you have leftover funds. This money can go toward savings or help you pay off debt faster.
However, frugality doesn’t have to mean you deprive yourself of fun or frivolous spending. If it did, you’re sure to burn out quickly.
Instead, include fun money in your budget and financial plan. That way you won’t feel bad if you go on an unexpected shopping trip or out for an expensive dinner.
While no one likes dealing with debt, some debt is necessary for many people. Taking out a mortgage, for example, lets you own a home without paying the full price upfront. Likewise, student loans could help you get a degree that gives you more career opportunities.
Debt becomes a problem, however, when it’s used for unnecessary reasons. For example, you wouldn’t want to go into credit card debt to pay for a vacation. Even if you want to go, the vacation isn’t a necessary expense.
You can determine if new debt is necessary or not by asking yourself one simple question:
Is this new debt critical to maintaining and improving my future financial situation?
Taking out a loan to afford a dream wedding is probably not going to help your finances in the future. However, taking out a loan to help you start your own business could set you up for future financial success.
Emergency funds are cash savings you can use to pay for unexpected expenses. When a financial emergency hits, you have the money to cover the bill.
Most people put their emergency funds in a savings account at their bank. This makes it easy to transfer to a checking account or withdraw from an ATM.
When you face an emergency, you simply withdraw the money you need from the account. Don’t forget, however, to replace the money you take out so you still have enough in case of other emergencies.
Consider these best practices when creating your emergency fund:
When you’re financially stable, you have healthy savings for emergencies, debt repayment, and future needs. A great way to build your savings is to pay yourself first. This means you put money into savings before spending it on bills or purchases.
For example, your paycheck is $3,000 and you plan to save $500 each month. The first $500 out of your paycheck goes directly to your savings account. Then you can use the remaining $2,500 on rent, gas, groceries, and other expenses.
This helps you stay on track when building savings. It also cuts down on unnecessary spending, because the money won’t be in your account long enough to spend it. Over time, paying yourself first is a great way to build healthy financial habits.
It’s generally recommended to use automated savings to pay yourself first. By paying yourself manually, you may be tempted to skip saving in favor of spending.
Many employers allow you to split your paycheck via direct deposit so a portion automatically goes into your savings. You can also set up an automated transfer to your savings account on the day your paycheck deposits.
How do you feel when you encounter a new topic?
Maybe you feel overwhelmed by new information or confused by complex ideas. These feelings can leave you discouraged.
However, as you learn more and better understand the topic at hand, your confidence grows.
This is true for personal financial literacy. Learning about your money and how to manage it can certainly be overwhelming.
Over time, however, you’ll find yourself more confident in how you save and spend. You’ll start making your money work for you, instead of just getting by.
The only way to learn how to become financially stable is to start trying. If you’re reading this article, you’ve already taken the first step.
Additionally, the Clever Girl Finance resource library has over 30 personal finance courses to help you improve your financial literacy. The best part? They’re completely free!
Financial literacy and career literacy go hand-in-hand. Your job is probably where most—if not all—of your monthly income comes from. By leveling up your career, you give yourself a better shot at being financially stable.
A word of caution when earning more money: don’t let lifestyle creep take over your increased income. As you make more money, it’s tempting to spend more. After all, you can afford it!
Lifestyle creep can quickly cancel out any extra income you’re earning. For example, your new job increases your monthly income by $2,000. You decide to leave your $ 500-a-month apartment and buy a house with a mortgage of $2,500.
On the surface, you haven’t outspent your new income. However, you also haven’t improved your savings.
You may even have to spend more per month for the upkeep of your new home. Overall, you’re actually less financially stable than before.
Each new opportunity you encounter could be the next step in your career. This might mean a higher salary or a better work-life balance.
Keep your eyes open for new opportunities in your career, such as
If you’re not sure where to find different opportunities, the first step is to be open. For example, you can tell your boss you’re interested in taking on new projects or learning new skills.
You might also want to reach out to professional contacts and let them know you’re open to new opportunities.
Do you dream of being in charge of your career? Starting your own business might be for you. The Small Business Administration’s guide to starting your own business breaks down the process into simple steps.
You don’t have to start with a fully-fledged business, either. A side hustle that takes a few hours each week lets you ease into business ownership.
Driving for a ride-share platform, delivering groceries, or pet sitting are a few common side hustle options.
I won’t sugarcoat it: working for yourself can be a lot of, well, work. However, being a business owner comes with a lot of rewards, such as:
Whether you want to move into a new industry or just want to move up in your current company, learning new skills is a smart way to make yourself more valuable.
In addition, learning something new can help you feel fulfilled in your career. It also improves your adaptability.
For example, your current position is being terminated. Thanks to the skills you learned on the job, however, you can step into a different role at the company without losing your job.
Remember to work on both technical and soft skills when learning. Technical skills refer to techniques, processes, and knowledge that helps you do a specific job or task.
For instance, a nurse takes a certification class for a new type of treatment. After graduating, she can administer the treatment to patients.
Soft skills, on the other hand, are personal attributes that help you interact with coworkers, customers, and leadership. These skills aren’t limited to one job title or industry. For example, critical thinking and teamwork are applicable in any career field.
I said it before but one of the most important steps in learning how to become financially stable is realizing living below your means doesn’t mean cutting out fun or enjoyment.
Anyone who’s financially stable knows the importance of taking a break and letting off steam once in a while. They do this by factoring frivolous spending and fun money into their financial plan.
You can still make smart money choices when spending for fun, as well. Let’s say you budget $300 a month for dining out, but you don’t want to spend it all at once. You can use the envelope method when you go out.
For example, you put $50 cash in an envelope when you go to dinner. You’re only allowed to spend what you have in the envelope. After dinner, you still have at least $250 budgeted for additional dining.
Reaching financial stability often takes dedication and time. You might even make a few mistakes along the way.
That doesn’t mean you shouldn’t try, and you will eventually succeed! Even a small step in the right direction can help you become financially stable.
Each smart money choice you make puts you another step closer and, eventually, you’ll find yourself well on the way to steady finances and wealth building.
The post How To Become Financially Stable In 9 Steps appeared first on Clever Girl Finance.
]]>The post 7 Types Of Financial Emergencies And How To Be Prepared appeared first on Clever Girl Finance.
]]>Did you know that an estimated 56% of Americans can’t cover a $1,000 emergency expense with savings? Whether it’s an unexpected car repair or damage from a natural disaster, financial emergencies can happen to anyone.
Knowing the types of potential emergencies and being prepared can help you avoid the high costs of unexpected expenses.
Keep reading to learn about seven common types of financial emergencies as well as some of the best ways to prepare for them. But first, let's discuss what they are!
A financial emergency is any event that causes you to have an unexpected bill or expense. The key word is “unexpected.” A sudden expense is one you’re not planning for, which means it could have a bigger impact on your finances.
Financial emergencies are not large, planned expenses. For example, a wedding or vacation wouldn’t qualify as a financial emergency.
Generally, you’ll know well in advance how much money you want to spend on these events. This gives you time to plan and budget—reducing the effect on your finances.
In a financial emergency, you don’t usually have time to save up for the event.
What types of unexpected events can put you into a financial emergency? In general, anything that creates a sudden financial bill or expense can be a financial emergency.
Here are seven financial emergency examples to help you understand.
Natural disasters—like hurricanes, tornadoes, and wildfires—are some of the costliest financial emergencies.
According to data from the National Centers for Environmental Information, the estimated cost of major US natural disasters was recently over $152 billion in a year.
Much of these costs land on individuals, such as homeowners and residents of a region. Even with insurance, a natural disaster could cost you thousands of dollars.
For example, a tornado causes damage to your city and surrounding areas. The price of lumber, lodging, and cleanup services skyrockets because of low supply and high demand.
You’ll have to pay more to repair your home, find a temporary living space, and restore your belongings.
Some common costly natural disasters include:
A job loss is a common—and costly—financial emergency example. After losing your job, you suddenly find yourself without a steady income. This affects your immediate cash flow, as well as long-term planning.
In the short term, you won’t be bringing in a steady paycheck. You may worry about paying your rent or mortgage, car payments, or credit card bills.
In the long term, you may have to put off financial goals or planning.
For example, you wanted to buy a new car and were looking at car loans. When your employer downsizes, however, you lose your job. Without a regular income, it’s likely to be much more difficult to secure a loan.
A partner losing their job can also affect your financial situation. If your spouse or significant other is let go, you may have to cover more of the financial burden in your household. This tightens your overall household budget and could limit your financial goals.
Cars make it easy for you to travel where you need to go—when you need to get there. Unfortunately, these mechanical marvels as also known to break down over time. Sudden car repair bills are some of the most common financial emergencies.
For example, your car has a mechanical failure and won’t start. First, you’ll have a bill to tow the vehicle to a repair shop. Then, you’ll have to cover the cost of the mechanic.
Some issues, such as a blown engine, can cost over $5,000 to repair (on the cheap side!).
On the other hand, your car might be in great shape. However, one collision or car accident could cause expensive problems.
Car insurance may cover some of the costs, but it might not cover the full expense. You’ll also have to add in the cost of your car insurance deductible when calculating the cost of your repairs.
Data from the Kaiser Family Foundation (KFF) highlights that around 41% of American adults have debt from medical or dental bills.
When a medical emergency strikes, however, the cost is probably the last thing on your mind. If you’re in an auto accident, for example, your injuries might need immediate medical attention.
Likewise, sudden, severe pain could warrant a trip to the emergency room—even if you know it will cost thousands.
I recently experienced a medical emergency (and the resulting financial emergency). I unexpectedly started feeling pain in my upper abdomen and went to the emergency room.
A few blood tests and a CT scan revealed issues with my gallbladder. The ER doctor recommended emergency surgery to remove it the next day.
The cost of an overnight ER stay, diagnostic tests, and major emergency surgery isn’t cheap. And since the pain came unexpectedly, I wasn’t planning for this major expense. Luckily, I have a well-funded Health Savings Account (HSA) to cover the costs.
While the financial cost of a doctor and hospital visits is obvious from the bill you receive in the mail, there are other costs associated with a medical emergency as well.
One of the biggest is the cost of lost wages or missed work. Depending on the medical emergency, you may have to be out of work for several days or even weeks. If you don’t have adequate paid time off or sick leave, you may lose wages during your recovery.
Like car repairs, an unexpected home repair can be a major, unwelcome expense. Sudden home repairs can range from simple fixes to long-term construction projects. Some home financial emergency examples include:
The cost of a home repair varies depending on what type of repairs you need.
A new HVAC unit, for example, is likely going to be more expensive than a new washing machine. A new roof, however, will probably be more than a new HVAC unit.
The unexpected passing of a family member isn’t just an emotional event. It often comes with unexpected expenses.
If you are a close relative, you may have to cover funeral or burial expenses. You’ll also have personal costs related to saying goodbye. For example, booking last-minute travel and securing lodging during the funeral.
Divorce is an often-overlooked financial emergency example. Even an uncontested divorce could cost thousands of dollars. The more complicated or messy the divorce, the more it will likely cost.
Divorces in America cost on average between $15,000 and $20,000 (though the median price is $7,000). However, much of the cost of a divorce depends on the relationship between spouses, the number of assets, children, and the state of filing.
Some states allow amicable couples to file their divorce on their own. Others require the service of a lawyer.
Although divorce has immediate costs, such as legal fees, the long-term costs of divorce can also affect your finances.
When you split with a spouse, you’re often going from a dual-household income to a single income. You’ll have to cover everyday expenses on your own, like insurance and groceries.
Other long-term costs include traveling and car maintenance if you have children from your marriage.
You’ll likely have to meet up with your ex-spouse to drop off your children for visits. Your children may also struggle with the divorce and may need to work with a qualified therapist to help work through their feelings.
What can you do to minimize the financial burden of a financial emergency? The best thing to do is to plan for the unexpected.
Preparing for a financial emergency can help you reduce the negative effects on your financial situation.
There are so many ways to prepare for emergencies—the process doesn’t have to be complicated. Let’s check out some of the best ways to prepare for unexpected expenses.
An emergency fund is your primary line of defense against financial emergencies. Emergency savings can help you cover any kind of unexpected financial expense.
Having money readily available for the unexpected mean you won’t have to take out a loan or rack up credit card debt for unexpected bills.
It’s important to only use your emergency fund for emergencies. That means your unexpected expense is sudden and also necessary. You shouldn’t use an emergency fund to pay for things you want, like an expensive dinner or vacation.
Most emergency funds should be between 3 and 6 months’ worth of essential living expenses. This includes your mortgage or rent, debt payments (like a car loan or credit card debt), and insurance costs. You should also include the basic groceries and utilities you need to survive.
Your emergency cash fund should be kept in a liquid account. This means your money stays in cash, rather than getting invested in the stock market.
Invested funds take longer to access—it could take a couple of business days to sell your investments and cash out of your account. By keeping your emergency money in cash, you can quickly access it when needed.
While it's important to have cash on hand, you shouldn’t try to keep your entire emergency savings hidden under your mattress. If something happens, like a fire or robbery, you’ll be out of your hard-earned savings.
Instead, plan to keep your emergency savings in an easy-to-access bank account. For example, you can use a savings account at the same bank as your checking account.
Most banks let you move money between accounts instantly. This lets you easily move money into your checking account if an emergency arises.
Insurance is one of the very best ways to safeguard yourself from financial emergencies. There are several different types of insurance to help protect your financial situation, including:
If you haven’t looked at your insurance coverage in a while, the best time to review it is now. Pull out your policies and go over what’s covered, and what’s not, and consider if you need additional types of coverage for your current situation.
An insurance deductible is how much you have to pay out-of-pocket before your insurance covers damages. This varies greatly between types of insurance and even between policies.
For instance, your dental insurance deductible is $50. You go to the dentist for a procedure that costs $150. You pay the first $50, and your insurance covers the remaining $100.
Property insurance is one of the primary types of insurance coverage. It covers your belongings. Car insurance, renters, and homeowners insurance are all types of property coverage.
Generally, property insurance protects you in two ways: physical property and liability.
Physical property coverage helps pay for the repair or replacement of your things if they’re damaged in a covered accident.
For example, you accidentally back into a utility pole at the grocery store. Your car insurance has collision damage protection. Your car insurance company sends you a check to cover the repairs, minus your deductible.
Liability coverage protects you in the event of an accident where someone else (or their property) is harmed. If it turns out you are liable for the accident, you could face lawsuits or have to provide financial compensation for the other party.
Your liability insurance helps protect your finances if this happens. For example, a guest at your home trips over your children’s toys. They fall and break their wrist.
The guest might try to sue you for compensation, such as the cost of their medical bills. Liability coverage from your homeowners insurance should help cover the legal and medical costs.
Where property insurance protects your things, life insurance helps protect your family and loved ones. In case of your death, life insurance pays out a death benefit (the amount of your policy) to your listed loved ones.
This money can help pay for your final expenses, living expenses, and the cost for your family to maintain their lifestyle.
There are two types of life insurance:
Term life insurance gives coverage for a set number of years, known as the term.
For example, you sign up for a 10-year term policy. After 10 years, your insurance expires. If you pass away, your family doesn’t receive the death benefit because your policy is no longer active.
Permanent insurance protects you for as long as you pay your premiums. It’s often called whole life insurance because coverage can last your whole life.
Whole life policies also include an investment element. This investment account helps you build cash value in your insurance policy over time. A portion of your premiums goes to your cash value account.
You can use this money on things like paying your insurance premiums or as extra emergency savings.
Disability insurance, or disability income insurance, helps replace lost wages if you can no longer work. There are two types of disability insurance from private insurance companies:
Short-term disability coverage helps replace your wages if you’re out of work due to injury or illness for a short time. For example, you become ill and are hospitalized for a month. Your insurance should help cover a percentage of your lost wages.
Likewise, long-term coverage helps replace your lost wages after your short-term disability ends. Some policies even cover disability payments to retirement if your injury or illness is severe.
Sinking funds are ideal for planning for the unexpected. A sinking fund is really just a savings account where you deposit money (or “sink” money) each month towards a specific expense.
Unlike an emergency fund, which helps pay for any unexpected expense, sinking funds usually have a defined use.
For example, your car is getting old and has lots of miles. Although it doesn’t have problems right now, it’s probably a matter of time before a component breaks. You can plan ahead by using a sinking fund for car repairs.
Each month, you deposit a small amount of money into the account. When your car stops working and needs repairs in six months, you have the funds to cover the unexpected repair.
A savings account is the most often-used place to put sinking funds. They’re protected with banking insurance, so you know your money is safe. Most savings account also earn a little bit of interest on the money you save.
With the rise of online banks and online banking, it’s even easier to save for financial emergencies using sinking funds. You can open a savings account (often for free) for each fund. This helps keep individual sinking funds separate as you save.
In addition to savings accounts, most people can save for medical expenses using one of two healthcare savings accounts:
Both types of accounts let you save up pre-tax dollars for use on medical expenses.
Employers open FSAs for their employees to help reduce the cost of medical care. The employer owns the account and funds must be used in the calendar year. That means if you have money left in the account on January 1, you’ll lose it.
An HSA is also a savings account for medical expenses. Unlike an FSA, however, your employer doesn’t own your account. Additionally, you can save up funds for as long as you like—you don’t have to use them by the end of the year.
Most HSAs let you invest your savings in mutual funds and other investments to help them grow over time.
Not everyone qualifies for an HSA, however. You need to have a high-deductible health plan (HDHP) to open an HSA. You also can’t be enrolled in Medicare.
An estate plan is a roadmap used by your loved ones to manage your assets after your death. Making an estate plan can greatly help your family and friends in the event of your death.
It lets them focus on grieving, rather than trying to figure out who should get your money, house, or other assets.
Estate plans are also used if you become incapacitated. For example, your health deteriorates and you can no longer make your own decisions.
Your estate plan includes directives or a Power of Attorney giving your loved ones the power to make decisions on your behalf.
You can utilize an estate planning checklist to help you get started. This is a good jumping-off point to get your assets and affairs in order.
Staying organized can help you overcome a financial emergency. It might not seem that urgent right now, but having easy access to documents or other information cuts down on your stress during an emergency. You’ll be able to think more clearly and make sound decisions.
Keep yourself organized by storing important information, such as insurance and identification documents, in a secure location.
You could consider investing in a fireproof safe for your home. Small safes tend to be less expensive but still provide an easy place to store paper documents.
Maintaining your car, home, and body could help you cut the cost of a financial emergency.
Preventive maintenance and care are essential for the longevity of just about everything. It can help you catch—and fix—problems early, before they become expensive emergencies.
Regular maintenance on your car and home helps prevent small problems from becoming big issues. Your insurance company probably even requires it. Most insurance companies won’t pay for repairs caused by a lack of maintenance.
For instance, you forget to get an oil change for your vehicle. The engine dies while on the freeway and you run into a median. It's possible your insurance company might not cover the cost to repair the body damage because poor maintenance caused the accident.
Just like your car or home, regular checkups are important for your body.
An annual physical, for example, can help you detect potential medical issues before they become emergencies. Likewise, regular dental or vision checkups could help you prevent disease before it starts.
Many health and dental or vision insurance companies even cover the full cost of preventive care. This makes it a no-brainer to schedule an appointment and maintain your personal health.
The truth is, no one can predict an emergency. This list of financial emergency examples isn’t exhaustive. However, you can still prepare for an unexpected expense, even if you don’t know when (or if!) it’s coming.
Start by looking through your finances and considering what you’d do in a financial emergency. From there, you can decide how to save for emergencies.
If you don’t have an emergency fund currently, you can start one. Or, if you haven’t maxed out your HSA contributions, you can focus on adding more money to the account.
As always, good financial planning requires a budget that works, and continued research and learning about finance.
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]]>The post What Is The 60-20-20 Rule And How Does It Work? appeared first on Clever Girl Finance.
]]>Budgeting is an important tool that lets you guide where you want to spend your money. But it can sometimes be overwhelming because there are so many different ways to budget. That said, the 60-20-20 rule is a simple budget you can follow to help you save more and spend less.
This article will help you understand what the rule is, how to use it, and if it's right for you. We'll also go over common alternative budgets to consider.
The 60-20-20 method is a percentage-based budget. That means each number in the rule stands for a portion of your income:
Like other percentage-based budgets, the 60-20-20 system is easy to set up and follow. You can use tools like direct deposit and automatic savings transfer to help you automatically budget using the 60-20-20 method.
Using the 60-20-20 rule can help you better understand where your money goes each month. In turn, this gives you the power to make changes in your spending or saving habits.
This can be a big benefit to your overall financial situation.
Other benefits of the 60-20-20 method include:
You choose how to allocate funds within each category.
A quick look at your monthly income and expenses is all you need to start.
Dedicating 20% of your income to savings means you’re prioritizing savings goals.
The 60-20-20 system breaks down your monthly income into three spending categories. You can use the money in each category to pay for a range of products, services, or savings goals.
That said. let’s break down the categories to get a better idea of what items fall into each:
This category includes necessary expenses, including rent or mortgage payments, utilities, groceries, and insurance costs.
Your savings category could include an emergency fund, retirement savings, or education savings for your children.
Funds in the remaining 20% of your income can be used for whatever you want, such as dining out, shopping, or a dream vacation.
When creating a 60-20-20 budget, you’ll want to use your net pay over your gross pay. Net pay is your after-tax, take-home pay. It’s what you actually see in your direct deposit or paycheck.
Using your after-tax pay to make a budget is essential, so you don’t accidentally over-estimate your monthly funds.
For example, your gross (pre-tax) pay is $4,000. After taxes and deductions—like health insurance or 401(k) contributions—your net pay is $3,000.
That $1,000 difference could break your budget and leave you feeling discouraged about budgeting, so you should always budget using your take-home pay.
Creating a 60-20-20 system is straightforward, but it will take a little bit of work. There are a few steps:
The easiest way to understand the 60-20-20 method is to use an example.
Let’s say your monthly take-home income is $3,000. So break down your income into 60%, 20%, and 20%:
Next, list out your monthly expenses, savings goals, and spending habits. Add up how much you spend in each category. If your categories fall within the amount above, you’re already sticking to a 60-20-20 system.
However, what if you’re spending too much or too little in a specific category?
In this example, say you currently spend $2,000 on living expenses, $200 on savings, and $800 on unnecessary purchases. You’ll need to rework how you spend your money to increase the amount you save while decreasing your spending.
For example, you manage to cut your non-necessity spending by reducing shopping trips and entertainment costs.
To reduce your living expenses, you can use coupons and inexpensive meal ideas when buying groceries. You can also cut energy costs by being more efficient with your electricity usage.
Some people are uneasy about budgeting because they think budgets are about denial. In reality, a budget is simply a plan to help you manage your money. That makes the flexibility of the 60-20-20 rule a big benefit for new budgeters.
Instead of planning out every dollar, you’ll be able to spend as you want within the limits of each category.
For example, one month, you might go on vacation and spend a significant portion of your 20% wants on one trip. The next month, you spend the 20% slowly on small gifts or treats for yourself, like a massage or new shoes.
However, the 60-20-20 method won’t fit everyone’s lifestyle or financial situation. Three situations where you might consider a different budget include:
If you make a lower income, you might need more than 60% of your paycheck for living expenses.
You could need more than 60% of your income for expenses if you live in a place with a high cost of living.
Spending 20% of your income on non-necessities might not be the best idea if you have a lot of debt.
If you’re not sure if the 60-20-20 rule will work for you, the best thing to do is give it a try. You can always forget the idea if it doesn’t fit your financial situation.
Consider creating a 60-20-20 system based on your current income and spending. This is a good way to see if you can tweak your current spending habits to fit the system.
If so, try using your 60-20-20 budget for at least two months. Because this gives you enough time to really see if the budget is sustainable.
It’s okay to try a different budgeting method if the 60-20-20 method doesn’t work for you. The ultimate goal of a budget is to get you to think before you spend. You may have to try several methods to find one that works best for you.
Starting a budget might feel intimidating. Luckily, there are a few budgeting best practices you can follow. Try these tips to get the most out of your budget:
The 60-20-20 system isn’t the only budget you can use. It’s far from the only percentage-based budget out there!
As you know, budgets are supposed to be flexible. So that means if one method doesn’t work, you can simply try a different one.
There are lots of reasons you may need to adjust your budget.
For example, you just got married. You now have two incomes to use when budgeting.
You’ll also have changes in your expenses, such as higher grocery or fuel costs. And of course, your partner might have different spending and saving habits than you.
Down the road, you and your partner decide to have children. There are many added expenses with the arrival of a child. You’ll likely need to redo your budget to account for diapers, baby food, and healthcare costs.
Another time to try a different budget is when changing jobs. Let’s say you get a promotion at work—and a big salary increase. Your new salary means you only need 40% of your paycheck for living expenses, rather than 60%.
Percentage-based budgets like the 60-20-20 method are some of the most popular budgeting options. They’re easy to start and give you lots of spending flexibility.
Take a look at some common alternatives to the 60-20-20 rule.
The 50-30-20 budget divides your take-home income into three categories. You’ll put 50% of your paycheck into needs, 30% into wants, and 20% into savings.
You may want to try this method if your savings are on track with your goals. With more money going toward non-necessities, it’s important to have enough savings before trying this method.
A zero-based budget is a common method that doesn’t break your income into portions. Instead, this method allocates all of your money into categories.
For example, you make $2,000 a month. You divvy this number between categories until it’s zero, such as:
The zero-sum budget is great if you struggle with the flexibility of the 60-20-20 method. In the zero-based method, you know exactly where each dollar goes.
Do you feel confident in your money management skills? The 70-20-10 budget could be right for you. This budget gives you quite a bit of flexibility in how you spend your money.
Using the 70-20-10 budget, you’ll divide your money into portions with:
You can spend the 70% portion on whatever you like—from rent and car insurance to dining out or vacations. With nearly unlimited flexibility, this method is ideal for someone with responsible spending habits.
The 60-30-10 budget is a method for aggressive savers. Using this budget, you don’t focus on paying living expenses first. Instead, you’ll pay yourself first by filling your savings with 60% of your income.
The 30% portion of your take-home pay goes to your needs. Meanwhile, the final 10% of your income is for discretionary spending.
While the 60-30-10 rule is aggressive, it’s a great method if you have lofty financial goals. For example, you might use this budget if you want to retire early.
Unlike other rules, the 30-30-30-10 budget breaks down your spending into more categories.
With this method, you’ll spend 30% of your income on housing costs. The next 30% goes toward other necessities like utilities or groceries.
Then, you’ll put 30% toward paying off debt or savings. The final 10% is your discretionary budget for wants.
This budgeting method is often a good choice if you’re shopping for a new home. By separating your housing costs, you get a better idea of how much home you can afford.
Does budgeting still feel overwhelming? Enter the 80/20 rule.
This simple rule is great for budgeting beginners. It simply splits your monthly income into two categories:
The 80-20 rule is often recommended as a starting point because it prioritizes savings without overwhelming the budgeter.
You won’t need to remember a million different spending categories to use this budget. Instead, your biggest focus is putting 20% of your income into savings.
Whether you choose the 60-20-20 method or a different percentage-based budget, it's a great tool for allocating your money. These systems help you make sure your bills are paid in full each month.
They can also help you see if you’re overspending in certain categories, such as spending too much on non-necessities.
The 60-20-20 technique is simple to calculate, so it’s an easy way to get started budgeting. Go ahead and try it out today! You might also like our articles about getting paid monthly and how to make a budget calendar.
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]]>The post Can I Retire With 500k? Food For Thought appeared first on Clever Girl Finance.
]]>According to the data from the US Census Bureau, 50% of women aged 55-66 have no personal retirement savings. Of those who do, only 22% have $100,000 or more in savings. So, how much should you save before you retire? Can you retire with 500k, or do you need more?
Keep reading to find out if it’s possible to retire with 500k — and how to do it.
Like so many financial topics, the answer is maybe.
Some people could easily retire with 500k. Others will need a lot more to maintain their lifestyle.
The good news? It’s pretty easy to calculate your estimated future expenses to see if you can retire with 500k.
For example, say there are two neighbors. Both make the same amount of money, have the same costs of living, and have 500k saved for retirement. They’re both getting ready to retire.
However, one has paid off their mortgage. The other has 5 years left with a monthly payment of $2,000.
Over the next 5 years, the neighbor with a mortgage will pay $120,000 in mortgage payments. If they retire with 500k now, they’ll lose significant retirement income to housing costs.
Meanwhile, the neighbor who’s paid off their house won’t have the added expense of mortgage payments. Their 500k in savings might be enough to cover their other expenses for the remainder of their life.
There are tons of factors that determine how much you need to save for retirement. While it can feel a little overwhelming to think about all of them, it’s not as scary as it sounds.
In fact, you can start making a list right now of the different costs you might face. Be sure to include the most important expenses for you.
For example, you want to travel in your retirement years. You’ll need to budget more retirement savings for travel but might need less for housing costs.
On the other hand, you may have several children (or grandchildren), and you want to help them pay for higher education. You’ll want to make sure to include education savings in your retirement planning.
Take a look below at some of the most common factors that go into your retirement planning needs.
Your cost of living is the cost it takes to maintain a certain standard of living in a specific place for a period of time. Cost of living expenses includes housing, groceries, utilities, and other basic expenses.
A cost of living index helps compare the cost of living in different places. The index shows the cost of living relative to the national average (rated as 100). States or cities that have a higher cost of living will be over 100, while those below the average will have an index less than 100.
For example, if you decide to retire in Mississippi, the average cost of living is 83.3 — almost 17 points less than the national average. Overall, your everyday costs should be lower than in other places.
On the other hand, retiring in Hawaii means paying more for necessities. The cost of living in Hawaii is 193.3. That’s a whopping 93 points more than the average.
Your age at retirement can greatly affect the question, "can I retire on 500k?"
Someone who retires later in life needs, in general, less time with their retirement savings. Someone who retires early will likely have to cover their expenses for more years.
Let’s say two people decide to retire with 500k. Both live to be 100. One retires at 50, while the other retires at 70.
The 50-year-old has to make their 500k savings last for 50 years. The 70-year-old only needs their money to last for 30 years.
Ongoing health conditions or concerns will affect retirement needs.
Being in good overall health at retirement can lower your medical expenses in retirement. Someone with a chronic condition will likely have more medical costs after retiring.
Do you like the finer things in life? It could cost you in retirement.
Your lifestyle will have one of the biggest effects on your retirement needs.
Say you love designer handbags and plan to keep buying them when you retire. You’ll need to include this particular expense in your retirement budget.
Or, let’s say you live a minimalist lifestyle and don’t buy anything other than what you need. Your everyday expenses are likely to be a lot less than someone who invests in luxury goods and experiences.
Most retirees don’t live on their retirement savings alone. It’s common to have other sources of income in retirement, such as a pension from work or Social Security benefits.
The amount of extra money you have coming in each month in retirement will change how much you need to save.
Any debt you carry into retirement still needs to be paid — even if you’re no longer earning a salary.
Common debts you might have in retirement include:
Depending on when (or if) you have children, you might still have costs associated with them when you retire.
For example, you and your partner decide to have kids later in life. Your children are still in high school when you plan to retire. You also want to help them pay for college expenses.
You’ll have to cover their immediate needs like food and shelter. Plus, you’ll need to have enough retirement savings to help them pay for education in the coming years.
Your retirement age is a completely personal choice. Some people dream of retiring at 45 or 50 years old. Others plan to work until their full Social Security retirement age to maximize their Social Security benefits.
You can choose to retire at whatever time you want. However, there are a few important things to consider:
What location you choose to live in retirement could make or break whether you can retire on 500k.
Choosing a place that has a lower cost of living might make it possible — or easy! — to retire with 500k. A more expensive cost of living could mean you need to start saving more each month before retiring.
Most retirees plan to stay in the US when they retire. Luckily, there might be places where you could retire with 500k in the US.
While you’ll still need to consider your health, lifestyle, and family expenses, comparing the cost of living in various places could help you find the right place to retire.
Most of the lower cost of living in the US is in the South and Midwest. The top ten least expensive states are:
The higher costs of living in the US tend to be in the coastal regions. The top ten most expensive states in the US include:
Some retirees plan to move overseas or abroad when they leave work.
Popular destinations include:
Many of the most popular international retirement destinations include tropical locales in South America, Eastern Asia, and the Caribbean. Significantly lower costs of living could make these locations attractive if you’re trying to retire with 500k.
Other popular retirement locations include countries in Europe with tax treaties with the US. This helps retirees avoid the cost of double taxation on their retirement income.
While many European countries have a similar or even higher cost of living than the US, most provide excellent and affordable healthcare coverage — a major benefit for older ex-pats.
Social Security is a government-run retirement program for qualified American workers. If you earn enough over your lifetime, you’ll qualify for benefits. Your benefit is generally delivered as a monthly check meant to help replace your income in retirement.
Eligibility for Social Security benefits depends on work credits. You’ll have to have 40 credits by the time you retire to be eligible for Social Security benefits. Workers earn credits based on the amount they earn, with a limit of 4 per year.
For example, say a credit is $2,000. You make $6,000 this year. You’ll earn 3 work credits toward Social Security.
Once you qualify, your benefit amount is usually calculated using an index average of your monthly earnings throughout your career. The average Social Security income for retirees is about $1,670 per month.
Will your Social Security benefits be enough to supplement your retirement savings?
That depends. You’ll want to calculate your estimated Social Security benefits into your other retirement costs, such as housing or healthcare.
A pension is a type of employer-sponsored retirement plan. Unlike a 401(k) or IRA, you don’t contribute to your pension.
Instead, your employer contributes to an investment portfolio for workers. When a worker retires from the company, the employer agrees to make monthly pension payments for the rest of the employee’s life.
Employers calculate pension amounts using the length of time the employee worked for the company. Someone who retires after 30 years of working will receive a larger pension than someone who only worked at the company for 5 years.
Pensions are a lot less popular than in the past. Most employers have switched to providing 401(k) plans instead of pensions. However, some industries are more likely to offer pensions, such as:
If you have a pension and work for a company for a long time, you may need to save less for retirement. However, you’ll still have to consider your future costs in addition to your retirement income.
Your 401(k), pension, or other retirement accounts aren’t the only way to earn money in retirement. Some retired workers find ways to increase their income even if they’re not working a traditional job.
Consider all of the ways you might earn income when you retire. This will help you determine if you can retire with 500k.
An annuity is an insurance product. You can think of it as income insurance if you outlive your regular income.
Annuities work by converting an initial premium investment into regular payments in retirement. There are various types of annuities that you can customize to your needs.
However, annuities can be costly. Most insurance companies charge investment management fees and other costs to maintain your annuity.
You may decide to get a part-time job in retirement. Whether you start a side hustle or go back to the office part-time, a part-time income can help offset retirement costs.
Be sure to talk with a Social Security representative to understand how working in retirement could affect your Social Security benefits.
Are you planning to sell your house and move when you retire?
Many retirees downsize to a smaller home or move locations altogether. If you move somewhere with lower housing costs, you could make money on the equity in your home. As an appreciating asset, your home could help you pay for retirement expenses.
For example, you and your partner have $500,000 of equity in your home. You sell it and get all of your equity out of the sale.
You purchase a new home for $300,000. The remaining $200,000 can be added to your existing retirement savings.
Not all of your savings will be in retirement-only accounts. You could retire with a savings account or non-retirement investment accounts. This money can help you pay for retirement expenses and supplement your retirement savings.
The “4% rule” is a guideline to help people plan for retirement. Created in 1994, the rule is often a go-to starting point for retirement planning. Following the rule, retirees should theoretically know how much they can spend per year in retirement.
Using the 4% rule could help you estimate your retirement savings needs.
The 4% rule estimates how much of your retirement savings you can spend per year for 30 years after retiring.
The 4% rule states that you can spend 4% of your retirement savings in the first year of retirement. After the first year, you adjust your initial spending amount by inflation. This helps you maintain the same amount of spending power year over year.
For example, you have $100,000 in retirement savings. You could spend $4,000 the first year.
In the second year, inflation is at 3%. You calculate your second-year spending by multiplying $4,000 by inflation (1.03) for $4,120.
How can you use the 4% rule if you have 500k in retirement savings?
First, calculate your spending allotment for the first year of retirement. Four percent of $500,000 is $20,000. This means you should only spend $20,000 of your retirement savings in the first year.
After that, you can recalculate your yearly budget using inflation.
Let’s say the second year of your retirement inflation is 1%. Your new yearly budget is $20,200.
In the third year of retirement, inflation jumps to 4%. You multiply 4% inflation (1.04) by your second-year budget. In your third year of retirement, you could safely spend $21,008.
Remember, the 4% rule is for 30 years of retirement. This means you’d need to retire around 60-70 years of age. If you retire early, you risk running out of funds in 30 years.
The 4% rule isn’t a perfect calculation. Some financial experts criticize the rule because it’s not custom to each unique financial situation. The economist who came up with the rule also didn’t factor in costs like investment fees or volatile markets.
Still, the 4% rule is a great starting point for estimating your retirement income. From there, you can fine-tune your retirement saving and spending habits.
Retiring with $500,000 could be realistic. Whether you need more or less depends on a range of individual factors — from your location to your health.
When deciding "can I retire with 500k", the best way to prepare for retirement is to focus less on just the dollar amount and more on maximizing your investments.
Diversifying your assets, for example, could help you overcome market downturns and maintain steady growth in retirement savings.
Check out Clever Girl Finance's other articles about retiring and planning your financial future so you can reach your goals.
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]]>The post Is Insurance For Handbags A Real Thing? appeared first on Clever Girl Finance.
]]>Do you find yourself drooling over the latest Dior or Louis Vuitton bags? Are you working on building a collection of luxury purses? And did you know you can get insurance for handbags?
If you have one hundred or just one luxury handbag, you probably want to protect it. Bag insurance helps protect your bags by covering costs if you lose or damage them.
In this article, we'll see how insurance for handbags works and whether or not you should get it.
Insurance can protect designer bags and vintage bags. Let's go over the details.
Put simply, designer bags cost a lot of money. Even a small clutch might retail for several thousand dollars. More expensive ones — such as Hermès Birkin bags — could cost you over $10,000.
Replacing a bag could wipe out your savings. So insurance helps reduce your out-of-pocket expenses for lost or stolen bags. This means your insurance company will help pay to replace or repair the bag.
Designer handbags are the most common types of bags to insure. For example, you might want to insure these popular bags:
Your brand-new designer bag isn’t the only one worth insuring. Vintage bags might be worth enough to insure.
Consider the condition and materials of your bag to see if it needs insurance. For example, a mesh purse made of real gold could be worth thousands.
Generally, you can get handbag insurance from two sources:
The type of coverage or policy you need will depend on several factors. For example, how many bags you have and their value.
Do you have a homeowners or a renters insurance policy? Your bags are likely already covered!
Standard homeowners and renters policies cover your personal belongings. In most cases, that includes your handbag collection.
However, the standard coverage has limits for luxury items. Most policies set a per-item dollar limit. That means your insurance company won’t pay more than that to replace your bag.
For example, you have a Gucci handbag worth around $3,000. Your insurance covers up to $1,500 for luxury goods.
When your bag is damaged in a fire, they pay $1,500. Unfortunately, you'll have to cover the remaining $1,500 out of pocket.
While your homeowner's policy may have limits, there is a solution for insurance for handbags. Most policies let you add on coverage. This is through insurance riders or floaters.
An insurance rider or endorsement changes your policy’s coverage. Generally, riders increase the overall coverage of your policy. For example, your policy limit is $1,500 per item. Therefore, you add a rider to increase coverage to $3,000 per item.
An insurance floater is almost the same thing as a rider. The difference is that a floater is used to cover individual items. These may also be called scheduled personal property riders.
Insurance floaters require an appraisal of each insured item to accurately determine coverage.
Let’s say you have a Goyard bag and want to ensure it’s covered by a floater policy. Your insurance company needs you to get a third-party appraisal. The appraisal comes back at $3,500, so your insurance company covers this amount.
Handbag owners can use riders and floater policies to protect their bags. However, when does it make sense to simply increase your overall coverage limit? Versus scheduling individual items?
The big difference is how many handbags you have and their value. Raising your policy’s personal property limit might make sense if:
On the other hand, consider a floater policy if you:
Piggybacking bag insurance off of an existing policy isn’t the only way to protect your investment. Some insurance carriers offer standalone bag policies.
A standalone policy is a type of property insurance that specifically covers your handbags.
However, policies will vary between insurance companies. So definitely shop around until you find the one that fits your needs.
For example, some insurance companies may cover both your bag and its contents. Or, they might offer a high coverage limit to cover multiple bags on one policy.
Like riders, most standalone policies require an appraisal of your bags.
A standalone handbag policy might be a good fit if your homeowner's policy doesn’t offer enough coverage for your bags.
Likewise, a standalone policy could be a good idea if you find an insurance carrier with a policy that works for you.
For instance, you find a policy that includes coverage for multiple, expensive bags. This could help you save money on insurance costs.
When it comes to insurance for handbags, claims work like other property insurance claims. So this means you’ll need to file a claim with your insurance company.
Be aware that you may have a deductible. Your deductible is the amount of repair or replacement costs you have to pay before insurance coverage kicks in.
Many homeowner insurance policies have deductibles of around $500 or $1,000. On the other hand, there may be standalone policies without deductibles.
The procedure of filing an insurance claim is similar across most policies. Follow these steps to file a handbag insurance claim:
Insurance for handbags is often worth the investment if you own expensive designer bags. Your insurance policy can help cover the replacement cost. So even if you can't replace the bag, you'll get compensation.
On the other hand, your bags may not have enough value to need extra insurance coverage. Your standard homeowners or renters policy should cover many affordable designer bags within the standard coverage limit. In this case, extra coverage could cost you more.
Are you trying to decide about insuring your bags? Let’s get into the pros and cons of insuring handbags to see if it’s a good fit.
An insurance policy for your designer handbags could protect your investment. For example, some advantages of insurance include:
Are there any downsides to insuring a handbag? Some reasons you might want to skip insurance include:
In the end, it's up to you to decide to insure your bags. But, there are some questions you can use to help you decide if it’s a good investment:
So remember to shop around to find the right policy. Look for policies that cover replacement costs. It’s also a smart idea to compare the cost and coverage of a rider versus a standalone policy.
Now that you've read about insurance for handbags, check out our articles about luxury purses, like the Lady Dior and Chanel handbags!
The post Is Insurance For Handbags A Real Thing? appeared first on Clever Girl Finance.
]]>The post Is Working Two Jobs Worth It? What To Consider! appeared first on Clever Girl Finance.
]]>Have you ever asked yourself, “Should I work two jobs?” You’d be able to earn some extra income or try out a different industry. On the other hand, you might face more stress. So, is working two jobs worth it?
That depends on a lot of different factors, such as your current work schedule. Keep reading to learn more about getting another job and how to decide if it’s right for you!
When is it worth getting a second job?
That depends on your financial situation. Everyone’s lives are different, so it’s difficult to say if a second job is worth it for you.
However, a second job means you’re making more money. Earning more can help you achieve financial freedom.
You're not alone if you decide it’s worth getting a second job.
According to data from the US Census Bureau, the number of people holding two jobs has gone up over the last 20 years. The data also shows that women are more likely to hold a second job than men.
Why would someone decide they should work two jobs? Even a little bit of extra money can mean reaching your financial goals sooner, including:
Debt like credit card debt or medical debt can make it difficult to save for the future. Dealing with debt can also have negative effects on your overall well-being. Stressing from debt, for example, can cause physical pain.
Getting another job is a great way to earn extra money that can go toward your debt payments.
Are you saving up for your dream wedding, an exotic vacation, or to go back to school without student loans?
Earning more money from a second job will cut the time it takes to reach these savings goals. So you could start a savings account dedicated to your financial goal and deposit all of your second paychecks into it.
You don’t have to get a second job to reach lofty savings goals or pay off mounds of debt. You can get one even if you just want some extra money to spend. In this case, putting extra spending cash in your budget lets you splurge without feeling guilty.
If you're wondering, is working two jobs worth it, know that just getting another job for spending money can make your second job less stressful as well. You’re not relying on the income for necessities like housing or food. That means you can walk away from the job if it becomes too much to handle.
Second jobs also don’t have to be about money. Sure, earning more is always nice. But a second job can help you advance your career or try out different options.
For example, let’s say you’re a nurse who works night shifts four days a week. You’re feeling stressed from your main job and are considering moving to a more administrative role. So you pick up a second job working part-time at the front desk at a physical therapy clinic.
You’ll get valuable work experience and the chance to see if this is a move you’d like to make. Plus, you still earn extra money to spend how you like.
You want to make more money. But, getting a second job means new workplace politics and extra working hours. So is working two jobs worth it?
Let’s look at the pros and cons to find out if it’s worth getting a second job.
Working two jobs definitely has its upsides. Here are some great things if you're on the fence and need to know if it is worth getting a second job.
By far the biggest benefit of a second job is more money. A second job increases your monthly income. You can use that money for anything from paying down debt to buying that handbag you’ve been eyeing.
Do you like meeting new people? Has your main job gone remote and do you miss the office camaraderie?
An additional job lets you meet new people. This might be your new coworkers, such as working a restaurant job. Or, you might try a customer service role where you talk with customers over the phone.
Sometimes coming home from work and binging hours of Netflix gets boring. Maybe you’ve tried a few new hobbies but are still feeling bored.
Taking up another job could be a way to bust your boredom and earn some extra cash at the same time. Some jobs will get you out of the house. Even remote jobs can give you something to focus on while you’re lounging at home.
Having two jobs increases your job security. If you lose one job, you still have the other one to help you stay afloat. Even if your second job doesn’t pay as much, it can help pay the bills if you lose your main income.
Second jobs are an excellent way to pick up new skills — whether they’re related to your current job or of personal interest.
Say you want to learn how to garden. So you get a second job at the local nursery. There, you get to learn all about different plants and keeping a garden. Not you’ve got a new skill you can use in your career or just as a new hobby.
Still wondering is working two jobs worth it? There are some negative things you should know about, as well, before deciding.
You have to work at your second job to earn that extra money. So that means having less personal time. In this case, you might have to cancel or adjust plans based on your new work schedule.
Every job has its stressors. A second one adds more stress to any existing work stress. All that extra stress might burn you out or affect your health.
Stress isn’t the only way a second job could hurt your health. Overworking can lead to less-than-healthy habits, such as:
Is working two jobs worth it if it causes you to perform poorly at your main job? Probably not.
Depending on the job you choose, a second job could impact your performance in your career. So some employers even discourage employees from getting a second job.
If you’re worried about your performance after getting a second job, it might be a better idea to ask for a raise at your current job instead.
Knowing the potential pros and cons of getting another job isn’t the same as deciding if working two jobs is worth it or not.
To figure out if a second job makes sense for your situation, consider these steps:
Carefully consider the pros and cons listed above using your own perspective. Are there pros or cons that you don’t agree with? Can you think of any not listed above that could make your decision to get a second job easier?
Let’s say you don’t like meeting new people. In this case, what might be a positive for some people is a drawback for you. Even a second job that’s remote requires you to virtually meet a new boss and coworkers.
How does your current employer feel about you getting a second job? Will you tell them that you’re looking for an extra job? Is working two jobs worth it if you have to juggle the two schedules?
Some employers — especially if you’re salaried — don’t want employees getting second jobs. This could cause a rift at work or add more stress.
Your second job will probably affect your taxes. For example, the extra income might push you up a tax bracket, meaning you owe more in taxes each year. Plan to adjust your current W-4 if you pick up a second job.
Thinking of starting your own business or being a contractor? Your tax implications will be even more important. As an independent contractor, you’ll have to take out and pay taxes on the money you earn.
The smart thing to do is to talk with an accountant to figure out how another job could change your tax situation.
You should always discuss important financial decisions with your immediate family, such as a spouse or partner.
Your significant other deserves a chance to discuss you taking on a second job. If you have children, it’s even more important that you talk with your partner before taking a new job.
Be sure to ask for your partner’s perspective on the pros and cons. Simply asking them, "should I work two jobs?" may bring up interesting insights you didn’t think of.
The type of job you choose is important to the success of your second job.
Bartending at a club probably isn’t a good fit if you hate staying up late. Neither is bookkeeping for small businesses if you don’t like working with numbers.
Consider these things when researching jobs:
Are you worried you don’t have any skills? Don’t be!
You bring a lot more to the table than you probably realize. So try taking an inventory of your skills to determine where your skillsets fit.
Now that you've decided, is working two jobs worth it, know that not all second jobs will be worth your time. However, some jobs make great second employments.
This list is a good place to start brainstorming second job ideas:
Do you love kids? Are you a longtime pet owner?
A sitting job might be the perfect fit. There are a lot of ways to earn money watching kids or pets.
For example, you could offer to babysit for friends or family members directly. Consider reaching out to your extended network to see if anyone needs babysitting when you’re available.
For pets, apps like Rover make it easy to find pet sitting jobs. You simply sign up and follow the verification process. Then you can list your services and start winning clients.
Remote work has exploded in recent times. And it doesn’t look like it’s going anywhere. Just the opposite.
Researchers even share that remote work is here to stay and will only increase from here.
What does that mean for your second job hunt? It’s easier than ever to get a high-paying remote second job! Some common remote jobs include content writing, web design, and customer service.
If you own your own car you can make money driving for ride-sharing apps or delivering groceries or food.
Apps like Lyft and Uber let you earn money by turning your car into a taxi service. You can earn even more by driving during peak periods.
If you don’t want to drive strangers around, you could deliver goods, groceries, and food using apps like Instacart or Postmates.
However, be sure to think about the costs of maintaining your car for work. With higher gas prices, it might not make sense to offer ride-sharing if you drive a large SUV or pickup truck with lower gas mileage.
Are you unsure if working two jobs is worth it, especially since you already have a job? A seasonal position might be a good way to test the waters of a second job.
Seasonal jobs only last for a few months. You can make some extra money during the season and get to relax afterward.
Summertime seasonal jobs include lifeguarding or working at a summer camp. During the winter holiday season, you can earn extra money as a retail employee or gift wrapper.
Is working two jobs worth it or should you start a business instead? Being your own boss — even just part-time — can have a lot of benefits. One of the biggest is that you get to choose when you work.
The downside to starting your own business? It can take a lot of hard work to be successful.
Consider your existing hobbies or work skills to find the side hustle that’s right for you.
For example, do you enjoy making jewelry or painting? You could open a boutique and sell your goods on a website like Etsy. Are you a thrifting wizard? Can you refinish old furniture? In that case, a resale business might be a good fit.
Or, do you like helping people stay organized? You could start a virtual assistant business.
One of the best parts of running your own business is that the possibilities are endless and completely up to you!
A second job helps you bring in extra money. You could use it to pay for your dream vacation or get out of debt.
At the same time, getting another job could mean a lot of unnecessary stress. So the key is to decide if a second job is right for you.
Is working two jobs worth it for your financial situation? It can be — just be sure you find a second job that fits your schedule without adding extra stress. That means taking some time to research your second job options to find one that works for your lifestyle.
Clever Girl Finance has a lot of resources to help you when you're choosing a new career or even negotiating a pay raise. And our completely free financial courses can guide you as you pursue your money goals.
The post Is Working Two Jobs Worth It? What To Consider! appeared first on Clever Girl Finance.
]]>The post How To Remove A Charge-Off From Your Credit Report appeared first on Clever Girl Finance.
]]>What happens if you simply stop making payments on a debt? In most cases, your creditor will eventually write off your debt as a lost cause. This is called a charge-off, and it can seriously hurt your credit score — and your opportunity for getting new credit in the future. Luckily, you can learn how to remove a charge-off from your credit report.
In this article, we’ll go over how a charge-off affects your credit score and how to request to remove it. We’ve also included templates of a sample letter to remove charge-off from credit report.
If you stop paying a debt, your creditor might give up on trying to collect it. If so, they’ll decide the debt is uncollectable and write it off as a loss to the company. This is known as a charge-off.
Charge-offs can happen to any type of credit account, including:
Most creditors don’t use a charge-off until you’ve missed payments for several months. You probably won’t have to worry about a charge-off if your payment’s late by a couple of days.
If you have missed payments for a few months, you're probably wondering how to remove a charge-off from your credit report. Having a charge-off on your credit history can hurt your score for years to come.
Yes, you’re still expected to pay your debt — even if your creditor writes it off. A charge-off is not the same as debt forgiveness. Most lenders sell a charged-off debt to third-party collections agencies.
The collection agency will start contacting you to repay the debt. Debt collectors can be annoying, but they have to follow debt collection rules.
You can report debt collectors who don’t follow the laws to the Federal Trade Commission, Consumer Financial Protection Bureau, plus your state attorney general.
When a company writes off your debt, they report it to the major credit bureaus. The charge-off is then added to your credit report. Having a charge-off on your report is one of the worst things to happen to your credit score.
It’s easy to see why. Paying on time is the biggest factor in your credit score. If you start missing payments, your score is going to take a hit.
But a charge-off won’t just make your credit score drop like a missed payment. Charge-offs stay on your credit history for up to seven years. Even if you make all of your other payments on time, potential lenders can see the charge-off.
You’ll find it harder to get approved for new credit like credit cards or a mortgage, so it's important to know how to remove a charge-off from your credit report.
What happens if you pay back your charge-off amount in full? Does it still hurt your credit?
Unfortunately, paying off a charge-off doesn’t automatically remove it from your credit history. Lenders will still see a charge-off and may not want to lend you money.
However, a paid designation is added to your credit report if you pay what you owe in full. Some lenders may see a paid charge-off more favorably than an unpaid charge-off.
Lenders don’t have to remove a charge-off from your credit report, even if you pay them back. That being said, it’s still in your best interest to try and figure out how to remove a charge-off from your credit report. The worst that could happen is your request being denied.
The process of asking to remove a charge-off can also help you verify your debt. Lenders and collections agencies do make mistakes. Examining any charge-offs will help you determine if a debt is legitimate and accurate.
If your credit report has an error, such as an inaccurate charge-off, you can report it. You need to write a letter disputing the error and send it to the major credit bureaus. You should also send a copy to the institution that supplied the inaccurate data, such as your bank or credit card company.
Be sure to collect any supporting documentation to go with your dispute letter. This could include statements, contract agreements, or letters from your lender. You need to make a strong case to show that the charge-off is inaccurate.
For example, say you pay off an overdue credit card balance in full before it goes to collections. Your credit card company sends out a letter to you acknowledging you paid the debt.
However, they also accidentally report your non-payment as a charge-off. You would include the letter from the credit card issuer as documentation of the inaccuracy.
Details of your charge-off can be inaccurate as well. That means you could still have a charge-off, but the amount could be wrong.
Let’s say you owe $1,000 on your car, but your lender reports a charge-off for $2,000. You can dispute the inaccurate amount.
What can you do if the charge-off is accurate? Your first step is to talk to your creditors as soon as possible.
Check out your finances and decide how much you could realistically pay on your debt. The more you can pay as a lump sum, the better. A lender is much more likely to remove a charge-off if you can pay back what you owe in full.
Even if you can’t afford to pay your debt in full, your lender may be open to working with you. You could qualify for an income-based payment plan or other repayment programs.
Remember, it’s better to ask and be told no than it is to simply accept a charge-off on your credit history.
Figuring out how to remove a charge-off from your credit report doesn’t have to be complicated. Try these tips to help make the process easier and increase your chances of successfully removing a charge-off.
Creditors often sell debt to collectors soon after reporting a charge-off. Collection agencies also buy and sell debt from other collectors. That means your debt could have been bought and sold several times after the charge-off.
Start by getting a free credit report to verify the details of your debt. You can ask for a free report from each of the three major credit bureaus once every 12 months.
The information you should look for includes:
Once you know who owns your debt and how much you owe, it’s time to start negotiating. There are usually three options for negotiating your payment amount:
Your creditor prefers that you pay the debt in full in one lump sum payment. However, many creditors would rather recoup some of their money than nothing at all. It's possible they'll work with you to set up a payment plan to agree to a lower lump sum.
When negotiating a lump sum payment for a partial amount, try starting your offer low. This gives you more room for negotiation so you’ll end up with a final amount that fits your budget.
For example, you can afford to pay up to 60% of your debt in one payment. You offer your creditor a lump sum settlement of 25%. They counter back with 75% and eventually agree to 50%.
If your debt has been sold, you’ll likely have a better chance of paying less than you owe. Most collectors buy debt for a fraction of the original cost. They can still make a profit even if you pay less than the actual amount owed.
Pay for delete agreements let you leverage payment for the money you owe to remove the charge-off. When learning how to remove a charge-off from your credit report, using a "pay for delete" agreement is extremely important.
In the agreement, you’ll offer to pay back all or part of your debt. In exchange, your creditor will agree to remove the charge-off from your credit report.
Note that your creditor has no obligation to approve your “pay for delete” agreement. Once they charge off the debt, there’s no guarantee they’ll agree to remove the charge-off.
However, as I mentioned before, it’s far better to ask if they’ll remove the charge-off than to not try at all.
Getting your pay for delete request into the right hands is essential to successfully remove a charge-off. An entry-level employee won’t be able to help you get the charge-off off of your report.
You also don’t want to send your charge-off removal letter to the generic correspondence address for your credit.
Instead, try to find a manager or executive-level employee who has the power to change your account status.
No matter what a creditor or collector says over the phone or in person, get your payment or removal agreement in writing.
Ideally, you’ll get the agreement on a copy of the company’s letterhead and signed by the manager or executive who agreed to it.
This protects you from the company backing out of the agreement. Don’t make any payments on your debt until you have the agreement in writing.
The letter you send your creditor to remove your charge-off is called a “pay for delete” letter or a goodwill letter. Generally, you send a pay for delete letter if you haven’t paid the debt and a goodwill letter if you’ve already paid.
When wondering how to remove charge-off from credit report easily, a letter may be your best bet. How you construct your letter can make or break your chances of successfully removing a charge-off from your credit history. In addition to addressing your letter to the right person, remember these tips:
Keep reading to see a sample letter to remove charge-off from credit report for paid and unpaid balances.
If you still owe the money from your charge-off account, there’s some good news. Your repayment is the leverage you can use to help convince creditors to agree to a pay for delete arrangement.
Your removal letter should focus on the benefit to the creditor. That is, your lender will get all or some of their money back if they agree to remove the charge-off.
[Date]
[Your name]
[Your address]
[Lender/collector’s name]
[Lender/collector’s company]
[Company address]
Re: Account Number [Your account number]
Dear [Lender/collector’s name or “Collection Manager” if unknown],
This letter is in reference to the alleged debt owed on the account listed above, [account number]. I wish to settle this debt, saving us both time and effort.
Please note that this letter is neither an acknowledgment that I owe the debt nor an acceptance of the debt. I retain the right to ask for verification of this debt and do not consent to make any payments unless I receive a written agreement to the terms below.
I'm willing to pay [this debt entirely (or) $X as settlement for this debt] in return for your agreement to remove the “charge-off” status of this account from all credit reporting agencies.
This payment is offered in exchange for your written and signed confirmation of the removal of this debt from all records of credit reporting agencies.
If you agree to these terms, please accept them in a letter written on your company’s letterhead. The letter should be signed by a representative with the authority to make this agreement. Once your approved agreement letter is received, I will send a payment for the debt in the amount of [$X].
The offer will be valid for 15 days from receipt, after which I will rescind it and request a full verification of the alleged debt.
I look forward to resolving this matter for our mutual benefit.
Sincerely,
[Sign your name]
[Print your name]
[Your address and contact information]
If you’ve already paid the charge-off debt, you’ll want to try to remove it using a goodwill letter. Essentially, this letter acknowledges your missed payments and repayment and asks for forgiveness from the creditor.
Unlike a pay for delete letter, a goodwill letter doesn’t have the leverage of an unpaid account. Your creditor already has your payment, so there may be less incentive to remove the charge-off. However, with a bit of luck and politeness, you might be able to get your charge-off removed from your credit history.
Use this sample goodwill letter to remove paid charge-off to help you get started.
[Date]
[Your name]
[Your address]
[Lender/collector’s name]
[Lender/collector’s company]
[Company address]
Re: Account Number [Your account number]
Dear [Lender/collector’s name or “Collection Manager” if unknown],
Thank you for making the time to read my letter. This letter is in reference to [account ID/number], which was [paid in full/settled for $x/etc] on [date of payment or settlement].
I acknowledge that this payment was made after a previous non-payment on the account due to [quick description of your personal circumstances, such as losing a job or mistaking the due date]. As evidenced by my payment, I have made the effort to rectify my mistake.
I am currently trying to apply for a mortgage [change reason to best fit your situation]. The status of the above-referenced account is hindering my chances of approval.
I would like to request a goodwill adjustment to remove the charge-off status of this account reported to credit agencies. I believe this will significantly increase my approval odds for future credit.
Thank you for your time and consideration, and I look forward to hearing your response.
Sincerely,
[Sign your name]
[Print your name]
[Your address and contact information]
While there’s no guarantee your creditor will remove a charge-off from your account, it’s always best to try.
If successful, you’ll avoid having a major negative credit event on your credit score for up to seven years.
Don’t wait for debt collectors to start calling — get your latest credit report and check that all of your debts are up to date and accurate today. And check out our free debt repayment course to help you succeed.
The post How To Remove A Charge-Off From Your Credit Report appeared first on Clever Girl Finance.
]]>The post How To Get Out Of A Car Loan appeared first on Clever Girl Finance.
]]>Millions of Americans rely on their vehicles every day. According to data from the American Association of State Highway and Transportation Officials, 79% of workers who own a car use it to commute to work. Many of these drivers also have a car loan. But what happens if you can’t afford your monthly payments? How do you get out of a car loan?
What about if you'd rather not shell out that type of money anymore on car payments every month?
Luckily, you can learn how to get out of a car loan before defaulting. Keep reading to see why you might need to get out of your loan and how to do it. We’ll also take a look at what happens once you’re out of the loan — and how to protect your finances.
There are almost endless personal reasons someone might need to explore how to get out of a car loan. For many car owners, getting out of a car loan comes down to affordability. If you can’t make your car payments, you could quickly lose your car.
Let’s look at some scenarios where you might want to get out of an auto loan.
Losing your job is a stressful financial downturn — even if you have a healthy savings account. When you lose your job, you immediately lose all or part of your monthly income.
You have to figure out how to pay your bills with the money you already have. A car loan that was affordable when you had your job might now be unaffordable.
Whether you go through an amicable split or face spousal disputes, going through a divorce is expensive. The initial costs of the divorce, such as attorney and court fees, could cut into your cash flow.
You might also be going from a dual income to a single income. This could make it hard to cover the monthly car payment.
There are so many things to think about as you get ready to welcome your new child. One you don’t want to overlook is your vehicle. You want a car that’s safe and practical for your growing family.
This could mean you want to get rid of your current car — and loan — and opt for a vehicle that fits your new lifestyle.
A rise in your household expenses could make your car loan unaffordable. For example, inflation could raise your food and fuel expenses. Your new budget may not have enough for your existing car loan.
Or, maybe you recently bought a new house. With the increased mortgage payment, you can no longer comfortably afford your car payment.
The good news is if you’re deciding how to get out of a financed car is that you have options. There are several effective ways to get rid of your auto loan.
However, some methods are better than others — especially when it comes to your credit score and finances. Be sure to carefully compare your choices before getting out of your loan.
Here are the top ways how to get out of an auto loan:
The most straightforward way to get out of a car loan is to pay it in full. Paying off your auto loan closes the loan. You’ll own your car outright and will only need to cover routine maintenance, repairs, and insurance costs.
The downside to paying the loan off in full is the cost. If you’re struggling to make your payments, it’s unlikely that you have the money to pay off the loan. And if you do have the cash it would mean tapping into a chunk of your savings.
You should also check to see if your lender has a pre-payment fee. Pre-payment penalties are fees your lender may charge if you pay off the loan before the term is up.
Trading in your vehicle is another way how to get out of an auto loan. Car dealerships usually let you trade in your existing vehicle when purchasing a new or used car.
The value of your trade-in is subtracted from the price of your new car. Your dealer will take over your existing loan and pay it off.
However, there are a lot of things to consider when trading in your car. Here are a couple of important things to think about first:
Trade-in offers are usually lower than the price you could get selling your car privately. However, you can use a site like Kelley Blue Book to see what the value of your car is before trading it in.
Also, trading in your car doesn’t guarantee that your next vehicle is affordable. You may have to get a new loan for your new vehicle.
But you can reduce the need for a loan by trading in your car for a safe and reliable vehicle that’s in your price range.
There’s also the chance that you have negative equity on your car. That’s when you owe more on your loan than the car’s worth. You’ll have to cover the remaining loan or roll it into your new loan.
For example, you plan to trade in a car with a $15,000 balance remaining on the loan. The dealer only offers you $10,000 for the vehicle. You can either pay off the remaining $5,000 or add it to your new loan.
Be aware that adding it to a new car loan means you’re also paying interest on the amount.
Selling your car privately is another way how to get out of a car loan. Once sold, you can pay off the loan in full.
Generally, selling a car privately is more lucrative than trading it to a dealer. And with online marketplaces, it’s easy to market your car to a wide range of buyers.
There are drawbacks to selling your car yourself, however. For one, you won’t be replacing the car in the transaction. If you rely on your vehicle to commute, you’ll have to find another one on your own.
There’s also more legwork involved when selling your car on your own. You have to take visually-appealing photos of the vehicle and write the listing. Then you’ll have to post it to marketplaces, make flyers, or take out local ads.
You’ll also have to meet with potential buyers to let them check out the car. You may find that the hassle isn’t worth the increased price.
Do you love your current car and don’t want to get rid of it?
You may be able to keep it and make your payments more affordable by refinancing your auto loan. Refinancing is the process of taking out a new loan with better terms. You use the new loan proceeds to pay off the remaining balance of your old loan.
Refinancing can help you take advantage of better loan terms or make your loan more affordable. For example, many people refinance their loans to get a lower interest rate. Alternatively, you might refinance to extend the loan term and lower your monthly payments.
However, taking out a refinancing loan isn’t always the best solution. Anytime you take out a new loan, your credit could take a hit. First, your lender will make a hard inquiry to see your credit report before offering you the loan.
This usually hurts your credit score — at least temporarily.
Secondly, having too many new accounts in a short period can lower your credit score. Lenders may think you have to open new accounts to keep up with your debt.
The effects on your credit score aren’t the only drawbacks to refinancing. You also have to think about how a new loan affects your finances and cash flow.
A longer loan term may drop your monthly payments, but you’ll be in debt longer. You may also have fees for the new loan, such as origination fees, that could offset your potential savings.
Let’s say you have $10,000 and 3 years (36 months) remaining on your car loan. You want to lower your monthly payments by refinancing.
You apply for a 5-year (60-month) loan for $10,000. The loan funds pay off your current auto loan and you start making payments on the new loan.
Auto loans use your car as collateral. When you can’t make your payments, your lender could take your vehicle to help pay off your debt. Vehicle repossession can cost a lot — to your credit score and your personal finances.
When you know you’re about to lose your car, you may have to consider voluntary repossession. Unlike a regular repossession, voluntary repossession is when you choose to give your car to your lender.
You’ll set up a time and place to hand over the vehicle. Generally, voluntarily surrendering your car is a better option than letting your lender repossess it.
You’ll know when your car is going to be handed over. You could also save money on potential towing or storage fees from an involuntary repossession.
Although surrendering your car voluntarily is one way how to get out of a financed car, you should weigh the cons of it before deciding:
Voluntary repossession isn’t a magic wand to get out of a financed car. You still owe the money. Your lender will sell your car, but you’ll be responsible for any remaining balance.
Say you owe $10,000 on your loan. Your lender sells your car for $8,000. You still have to pay back the remaining $2,000.
If you can’t pay, your lender could send the amount to a collection agency. Having a collection account on your credit report will hurt your score.
A voluntary repossession is still considered a default on your loan. That means it can stay on your credit history for up to seven years. This mark on your credit score will likely make you a high-risk borrower.
You’ll have a harder time getting a loan and you’ll face higher interest rates. The good news? Your credit report will show that your repossession was voluntary.
You may be able to find a lender who will take this into account when you seek out another loan. While a voluntary repossession should be a last resort, it’s usually better than involuntary repossession.
Now you know how to get out of a financed car! But again, there are some things you should consider first. So let's dive into what you should consider while figuring out how to get out of an auto loan.
Regardless of how you get out of a car loan, the process can be complicated. You’ll have a lot to think about, but these tips could help make the process easier.
First, try to negotiate with your lender before you decide on how to get out of a car loan. You might be surprised to learn that not all loans are set in stone. Many lenders prefer to negotiate with borrowers rather than go to collections.
Depending on your lender, you might be able to negotiate the terms of your loan.
This is especially true if you’re facing temporary financial hardship. For example, you’ve been furloughed at work. Your lender might be willing to pause your monthly payments or let you make interest-only payments for the time you’re out of work.
Before you decide how to get out of an auto loan, make sure you understand the consequences. Most methods for getting out of a loan will affect your:
For example, refinancing your loan could negatively affect your credit score. However, you’ll still keep your car. You won’t have to worry about finding alternative transportation while looking for a new car.
On the other hand, selling your car to a private buyer could help you get out of your loan without hurting your score. You might even end up with extra money from the sale.
But you’ll have to figure out how to get to work, the grocery store, and other obligations until you get your next vehicle.
You should avoid defaulting on your auto loan at all costs. To do this, you may have to consider your options to get out of the loan in advance. If you feel that your bills are becoming unaffordable, start making your Plan B.
If you default, you risk damage to your credit score that will take years to repair. In the meantime, you’ll be paying higher interest rates for any loans you get — if you’re approved.
Skip this stress by knowing your options before you can’t make your payments.
After getting out of your current loan, you should start thinking ahead so you can avoid overspending on future loans. The best way to make sure your next car loan is affordable is to:
The more money you can put toward your car purchase, the less you have to finance. Saving up for a car now will make it easier to afford when it’s time to buy.
You might even be able to save enough to buy your next car outright, which could be beneficial for a depreciating asset.
While a longer loan term can help lower your monthly payment, you might end up paying more overall. Longer loans often have higher interest rates, so you’ll pay more in interest over the life of the loan.
Let’s say you have two $10,000 loan options. The first is a three-year loan with a 3% interest rate. Your monthly payment is $221 and you’ll pay $624 in interest.
The second loan is a seven-year loan with a 6% interest rate. You’ll only pay $146 a month, but you’ll pay a total of $2,271 in interest.
A good credit score can help you lower the cost of an auto loan. How? By giving you access to better interest rates and loan terms.
Think about those car commercials that advertise 0% interest rates. If you listen carefully, that’s usually followed by “for well-qualified borrowers.” That means you’ll need a great credit history and credit score to qualify.
However, improving your credit score takes time because the most important factor in your score is on-time payments. The sooner you get started, the longer your credit history will show positive payment history.
There are ways to get out of your car loan if you need to. Whether you can pay the loan off or need to refinance, be sure to consider all of your options.
Knowing what solution is best for your financial situation can help you take action right away and avoid defaulting on your loan.
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]]>The post Minimalist Finances And How To Become A Financial Minimalist appeared first on Clever Girl Finance.
]]>Does the thought of managing your money or paying your bills leave you overwhelmed? Are you overspending on things you don’t need? It might be time to try minimalist finances.
Financial minimalism helps you change your mindset around money and spending. The goal is to declutter your financial life to remove stress — just like decluttering your home can help you feel more at peace.
So let’s take a look at how you can become a financial minimalist and how to maintain the lifestyle for the long term.
Minimalism, in general, is about cutting out the unnecessary things in life. A minimalist aims to live with only the things they need to get by. This lets them focus less on the clutter around them and more on life itself.
Financial minimalists do the same thing, but with their money. Financial minimalism works to cut out frivolous spending and simplifies your finances. You focus on putting your money only toward things that add value to your life.
This includes real property like your home and furniture as well as other investments like stocks and savings. Financial minimalism looks different for everyone.
You might spend your money on different things than another minimalist, and that’s okay. The most important part of minimalist finances is to spend with intention. You’re only spending money on something that is an absolute need (such as rent or car insurance) or truly matters to you.
It’s important to note that financial minimalism doesn’t mean you always pick the item or service with the lowest price. You don’t need to live in a tiny, run-down apartment with one set of clothes and a blown-out couch.
It’s often the opposite. A financial minimalist makes an intentional decision to spend their money strategically. This often leads to spending more — less often. You end up with nicer things that last longer.
Let’s say you need a pair of winter boots. You could go to Target and get a cheap pair for around $40. Or, you could spend the money on a quality pair that costs $150. The cheap boots wear out after one winter. The high-quality boots last for five winters and have a lower cost per wear.
Money is a common contributor to stress. A survey by Thrive Global and Discover found that 90% of Americans say money impacts their stress levels. Around 65% of those surveyed say they feel that they can’t overcome their financial struggles.
So that’s where financial minimalism can help. Benefits include:
Financial minimalism helps you eliminate wasteful money habits. By leveraging a minimalist budget, you’ll spend money less often and cut out unnecessary purchases. This helps you save for the future, so you’re ready to spend on things that matter.
Being content with what you have can help you reduce your overall stress. Using minimalist finances lets you shift your mindset from living to impress people on Instagram to living for yourself.
Imagine you have multiple credit card bills, a car payment, and too many subscriptions to count. You’re constantly worrying if you’ll miss a payment or won’t be able to afford a bill.
Financial minimalism helps eliminate financial stress by removing the stressors. For example, you might cancel all but one of your credit cards and trade in your car for one you can own outright.
So what does it take to be a financial minimalist? Some discipline and a mindset shift. Luckily, there’s no right or wrong way to practice financial minimalism.
As long as you’re spending money with intention and cutting down on unnecessary purchases, you’re on your way to being a financial minimalist. These six steps will help you get started.
You can’t spend less if you don’t know how much you’re spending. Before you can be a financial minimalist, you have to examine your spending habits. This can be pretty scary, especially if you’ve been ignoring your overspending.
I suggest sitting down with a pen and paper and writing down all of your purchases in the last month. You’ll probably surprise yourself by how much money’s gone to things you don’t even remember enjoying.
You can even mark each purchase with a “+” or “-“ if you thought it was worth it or not. Tracking your spending is one of the most important steps to minimalist finances because it shows you where your money is going!
Now you know where all of your money is going, it’s time to clean it up. There are some things you have to spend money on — and they’re not always in your control. Keep your pen and paper handy to make a list of your necessary expenses.
Your list might have things like:
You could also include items that aren’t necessary for survival but are important to you. If you consider yourself a gym rat, a gym membership adds value to your life and should be included. Or you could cut down on your membership fees and find an affordable online trainer instead!
Credit cards are a great tool for building credit and taking advantage of rewards programs. However, it’s often too easy to overspend when you put everything on plastic.
Get rid of the chance of overspending by canceling extra credit cards. You’ll probably find that one card is enough to cover your necessary spending. You also still get to build your credit with on-time payments and earn rewards.
However, you should be aware that canceling several cards could affect your credit utilization ratio. You also might see a drop in your credit score. This drop should be temporary, however.
As your practice financial minimalism, you’ll spend less on your remaining card. Less spending will naturally lead to an ideal credit utilization ratio.
Be sure to look for other areas where you’re overspending. Subscriptions services, in particular, are an easy way to rack up extra monthly bills. So go ahead and cancel any recurring charges you don’t need.
Remember those slow fashion winter boots from earlier?
The idea of spending more for something that’s higher quality is a big part of financial minimalism. Quality items tend to last longer than cheap counterparts. Despite the initial financial investment, you’ll end up with more value in the long term.
The other side of spending for quality is avoiding quantity. If your winter boots are still in good shape, there’s no need to buy a new pair. A financial minimalist might spend more for an individual item, but they’re not buying them very often.
Check out our post on "Minimalist Fashion" to learn more!
Minimalism is all about simplification. That usually means consolidating accounts for more minimalist finances.
For me, this is one of the hardest parts of financial minimalism. I used to have a lot of different bank accounts that each serve a different purpose. This helped keep me organized — until it got too messy. I still have multiple accounts, but it’s a lot more manageable.
Instead, we should all try to take a page from my husband’s financial playbook. He manages money using a few basic accounts:
That’s it. It’s simple, effective, and helps a lot around tax time. So if your money is too spread out (like mine was!) try consolidating accounts and closing those you don’t need.
It’s hard to spend money on things that matter if most of it is going into debt. One of the best parts of practicing financial minimalism is not worrying about money.
In the rare case you want to buy something, you know you have the money. This is hard to do when you’re dealing with debt.
Getting out of debt is easier said than done. However, if you can reduce your debt, you’ll have a better chance of taking full advantage of financial minimalism.
The good news? Financial minimalism practices will also make it easier to tackle your debt. Reduced spending helps free up money to pay off credit card balances, medical bills, or car loans.
You’re feeling good about being a financial minimalist, but you’re noticing some frivolous spending habits again. That’s okay. Minimalism is a mindset that takes time — and discipline — to become a habit.
If you’re struggling to maintain your financial minimalism mindset, try these tips.
It’s easy to accidentally overspend. It’s also easy to make it a habit again. The key to maintaining minimalism is to slow down your spending decisions.
Think of it as a mental version of the “I’m not a robot” boxes at the end of online forms. Before you swipe your card or hand over cash, ask yourself if the purchase adds value to your life.
Bringing minimalism into other areas of your life can help you keep up a financial minimalism mindset. Add a day or two each month to declutter your home, car, office, or anywhere that’s feeling overwhelmed.
You can declutter as much or as little as you want. Your goal is to use decluttering as a reminder of the benefits of financial minimalism.
You’ll get an immediate sense of relief after donating old clothes or tossing expired food items. Then you can carry the good feeling into your financial life.
Creating new habits is hard. The best way to keep yourself on track to financial minimalism is to monitor your progress. Your financial health is a lot like your physical health — regular check-ups help you catch problems early and stay on track to a healthy lifestyle.
Making the switch to minimalist finances can help simplify your life. It frees up emotional space so you can focus on what really matters in life.
Remember, there are no specific rules to being a financial minimalist. You can get started by exploring what’s most important to you — whether that’s a nice place to live or traveling the world.
Then you can work on adjusting your finances, so your spending and saving align with your goals.
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]]>The post The Impact Of Inflation On Savings And Investments: How To Plan Ahead appeared first on Clever Girl Finance.
]]>Open any business journal or turn on a news station and you’ll probably hear about inflation. There’s a lot of talk — and concern — about rising inflation and the impact of inflation on savings. From January 2021 to 2022, the cost of consumer goods rose 7.5% — the highest one-year increase since 1982.
What does increased inflation mean for you? As inflation goes up and prices rise, your money doesn’t go as far when buying things.
This article will help answer your questions about how inflation works, where it comes from, and how it affects the value of money. We’ll also look at the effect of inflation on savings and investments and give you ways to plan for rising inflation.
The basic definition of inflation is the increase of prices over a period of time. It’s usually represented as a percentage. Let’s say the average price of a used car went from $10,000 to $10,500 over a year. The inflation rate would be 5%.
You can measure inflation for specific goods or services — like the car example above — or a broader category like energy costs. The consumer price index (CPI) is the most common measurement in the US.
The CPI is a record of the change in price for various sets of goods and services, known as the market basket. The Bureau of Labor Statistics collects actual price data from real consumers for CPI.
Since inflation is a rise in the costs of goods and services, it can happen for several reasons. Anything that could affect the prices of consumer goods could potentially trigger inflation. However, there are two main causes of inflation:
The third type of inflation — built-in inflation — can happen as an after-effect of the other two.
Demand-pull inflation is basic supply and demand. It happens when consumers’ demand for products or services outpaces their production. This leads to a limited supply of the product or service. In turn, consumers are more willing to pay a higher price for it. The price increases as long as demand is high and supply is low.
Demand-pull is the most common reason for inflation. It can happen anytime there is more money for consumers to spend. A thriving economy with increased wages can lead to demand-pull inflation. As workers’ salaries increase, they start to spend more, and the overall supply decreases.
We can look at this on a small scale using an example of a single workplace. Let’s say there’s an on-site cafeteria that sells hamburgers for $5. Most employees don’t buy a hamburger because they want to save their wages.
However, the employer decides to raise everyone’s pay. Now, the employees have more money and decide to treat themselves to lunch. The cafeteria can’t keep up with the demand and raise the price to $8.
Demand-pull inflation is due to increased consumers wanting a limited supply of a product. Cost-push inflation, on the other hand, comes from increased costs of production.
As the cost to create a product goes up, so does the price. Manufacturers and retailers have to factor in the increased cost of making the product into the final price.
By far the most common example of cost-push inflation is crude oil prices. As the cost of oil rises, every industry that relies on it has to pay more to manufacture its products. The manufacturers pass these costs onto retailers, who pass them to consumers.
You’ve probably noticed cost-push inflation at the gas pump — as crude oil prices go up, so do gasoline prices.
Built-in inflation is when workers demand higher wages as a result of increased costs of goods. It’s a direct result of either demand-pull or cost-push inflation. As consumer goods get more expensive, workers ask for higher salaries to cover their costs of living. This can lead to a cycle of increasing wages and costs of goods.
However, built-in inflation relies on workers’ perceptions that prices are going to continue to increase. Prices should be steady if the cause of inflation is addressed. When prices stop climbing, built-in inflation tends to fall off.
Before we dive into how inflation impacts your savings, let's talk about how it affects that value of money.
So, how does inflation affect the value of money anyway? Well, inflation happens when prices rise. It doesn’t decrease the literal value of your money. Rising inflation won’t turn your $1 bill into $0.50. However, it could increase the cost of a household good from $1 to $2.
Higher prices mean that dollar won’t buy as much as it did before inflation because of decreased purchasing power.
Purchasing power is how many goods or services you can buy with a certain amount of currency, such as dollars. Increased inflation leads to decreased purchasing power. As the price of goods goes up, your dollar doesn’t buy as much as it did before.
The price of a car one year ago was $10,000. Rising inflation causes the price to increase to $11,000 this year. Your purchasing power has gone down because you need an additional $1,000 to buy the car.
What about your monthly expenses? How does inflation affect a household? The cost of everyday goods and services went up from January 2021 to January 2022. According to the Consumer Price Index, prices increased for every category:
How do these increased costs affect your family? Higher costs can strain your budget. After paying for necessities like groceries and gas, you’ll have less money left over for other things. This could make it harder to pay down debt or save money.
Katie’s monthly income is $3,000. Her mortgage and insurance costs are $2,000. She has a minimum payment of $300 on her debts. She typically spends $500 on groceries, fuel, and other goods like clothes. This leaves her with $200 to put toward savings, investments, and additional debt payments.
Inflation causes the cost of groceries and other goods to go up. Now, Katie has to pay around $650 per month for these consumer goods. She’s left with only $50 to put into savings or toward her debt.
Inflation has the most notable impact on savings. Most savings accounts let you earn interest on your balance. If you leave your money in the account, you accrue interest and grow your savings.
During inflation, your savings interest rate needs to keep pace with inflation. If your savings rate falls behind the current rate of inflation, your buying power goes down and that's what causes the impact of inflation on savings.
Here is an example of the impact of inflation on savings accounts. You have a savings account that earns 1% interest annually. You have $1,000 in the account. In a year, you’ll earn $10 in interest. To keep the buying power of your interest earnings, inflation needs to stay 1% or less. If the inflation rate is higher, your money loses purchasing power.
So, now you know the impact of inflation on savings, but how does inflation affect investments? Most investments perform better than cash when inflation is going up. However, a lot of different factors can change how an investment will perform during inflation.
Stocks are unpredictable assets. This is even more apparent during inflation. That’s because inflation can cause some stocks to soar in value while others drop.
Why are stocks unpredictable during inflation? Each company’s response to inflation can change its valuation.
Let’s say Company A raises prices on their products by 10% without a drop in demand. They manage to keep their production and labor costs relatively the same as before inflation. Their stock will likely go up as profits outpace expenses.
Company B, on the other hand, raised prices by 10% but also saw a 15% increase in production costs. As the profits and value of the company decrease, their share price could go down.
Real estate investments often perform well during inflation. Property prices tend to increase along with inflation. This means your property could be worth more than when you bought or invested in it.
For example, you bought a home for $200,000 and have $100,000 left on the mortgage. Property values have gone up due to inflation. Your home is now worth $250,000. However, you still only owe $100,000. Your equity has increased from $100,000 to $150,000.
Commodity prices usually go up with inflation. Commodity prices can even be an indicator of inflation. Most goods are made using raw materials that are commodities, such as crude oil or metals. If commodity prices go up, the goods made from them will likely go up as well.
Unlike other investments, fixed-income investments usually perform worse during inflation. Fixed income investments include assets like certificates of deposit (CDs) or corporate bonds. These products give you a guaranteed rate of return on your investment.
When inflation is low, fixed-income investments are a good way to get guaranteed returns. However, the fixed interest rate may not be enough to outpace inflation. As inflation goes up, your interest rate stays the same.
Fixed income investments work a lot like savings accounts during inflation. Say you have a CD with a fixed annual return of 2%. If inflation rises above 2%, the money earned by your CD will lose buying power.
Luckily, certain fixed-income investments help protect you from inflation. Treasury Inflation-Protected Securities (TIPS) are government bonds that adjust with inflation. As inflation goes up, the Treasury adjusts the principal — or original amount — of your bond.
For example, you purchase a TIPS bond worth $1,000 with a 2% rate of return. You get $20 in interest payments. The next year, inflation increases by 5%. To protect your buying power, the Treasury adjusts your investment to $1,050. You still get 2% returns, but the higher principal means you make $21 instead of $20.
The effect of inflation on savings can make you lose buying power. However, it is an important part of the economy. Being prepared for rising inflation can help you protect your assets and buying power. Check out a few ways you can safeguard your financials when inflation starts to go up.
Using a mix of investments is one of the best ways to protect yourself from inflation. A diverse portfolio could include some stocks, bonds, and real property like commodities. Remember, however, that diversifying your portfolio doesn’t guarantee a return. Any investments can be volatile and have the potential to lose value.
Plan to do your research when choosing stocks for your portfolio. For example, you can look at historical prices during previous periods of inflation. Does the company consistently increase in value when inflation is high? Or, does the share price drop whenever inflation rises?
This can help you determine if a stock is potentially a good fit for your portfolio.
Should you pull your money out of your savings account when inflation is rising? No — it’s important to keep some easy-to-access cash in case of an emergency. While the effect of inflation on savings can cause this money to lose buying power, it lets you cover emergency expenses.
If you keep all of your money in investments, you’ll have to liquidate them before you can access the money. This could take several business days — making it difficult to pay for a sudden expense. Aim to keep at least 3-6 months’ expenses in cash savings.
Many employers offer a standard “cost of living” increase for employees. This yearly raise helps combat inflation — when it’s at a reasonable level. When inflation is higher than normal, cost of living increases may not be enough to cover actual increased costs. That means you earn more but still lose buying power.
You can make sure your current wages are covering inflation by comparing them to your costs of living. If regular costs like gas or groceries are unaffordable because of inflation, you may need to increase your wages. This could be done by getting a second job, starting a side hustle, or asking for a raise at work.
You shouldn’t use inflation as the sole reason for a raise. Use these tips instead to approach your boss and ask for a raise:
So, that's the effect of inflation on savings and investments! While it fluctuates up and down, inflation is still a part of the economy. It’s best to be prepared in case inflation increases.
Check out your current finances and look for ways to protect them from inflation. Safeguarding your money against inflation helps keep cash flowing even when prices start to go up.
You can also learn just how inflation impacts business in this article!
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]]>The post Is Pregnancy Life Insurance A Thing? appeared first on Clever Girl Finance.
]]>Starting a family is one of the most exciting parts of life. It can also be one of the most terrifying — especially for new parents. There are so many things to prepare before having a baby, from furniture to diapers. That said, you should also think about pregnancy life insurance.
A life insurance policy helps protect your child if you or your partner passes away. It covers daily needs as well as future costs like education. You might be able to get life insurance even if you’re already pregnant. This guide will help answer all your questions about pregnancy and life insurance.
Yes, you can still qualify for life insurance when you’re pregnant. How far along you are in pregnancy can play a role. It may be more difficult to get life insurance as your body changes through pregnancy.
Life insurance companies want to insure healthy people. A young, healthy person is less likely to pass away than an older person in poor health. This makes the younger person less risky to insure.
Insurance companies look at several factors when deciding to insure someone, including:
Pregnancy doesn’t change which factors the company uses. However, it could change your current health. For example, you might develop a chronic condition during your pregnancy. This could limit access to life insurance until your pregnancy is over.
You should let the insurance company know you’re pregnant when applying for a policy. Pregnancy is an important piece of health information. Your life insurance company needs to know you’re pregnant to assess their risk.
Life insurance applications require you to answer questions honestly. That means disclosing any medical conditions you have — including pregnancy. Not including this information could be considered fraud.
What happens if you don’t tell the insurance company that you’re pregnant? Your policy might be void. If you’re injured or pass away, your beneficiaries may receive reduced benefits.
The reduced amount helps cover additional premiums you didn’t pay. Your policy could be terminated or a claim denied. This would mean your beneficiaries receive nothing.
You should only need to let your life insurance company know you’re pregnant if you’re getting a new policy. You don’t need to tell them if your policy is in force.
Existing policies cover you even as your health changes. That’s why it’s important to try and apply for life insurance before getting pregnant.
Getting life insurance while pregnant isn’t always easy. It’s not uncommon to have your application denied. The good news is you can almost always still get life insurance.
Your best bet might be to wait until after your pregnancy to reapply. Let your body go back to normal after childbirth. This helps reduce health risks caused by pregnancy. You may also see lower premiums than if you got a policy while pregnant.
There is an alternative to waiting until after childbirth. Some life insurance companies offer policies with no medical exam required. This means you can apply for a policy and won’t have to take a medical exam.
No exam life insurance is often more expensive than comparable policies with an exam. The policy options may be less desirable.
For example, you may not be able to get a whole life policy. You’ll also still need to tell the company that you’re pregnant.
However, the underwriting requirements may be more relaxed than traditional insurance. So it makes getting life insurance while pregnant possible.
Being pregnant changes your body. For many women, that means their overall health changes as well. See how these changes can affect your life insurance rates.
The stage of your pregnancy could have a big impact on your eligibility for life insurance. Most women have fewer symptoms early in their term. As you progress, you may face more health issues. Applying for life insurance late in your term could make it less affordable.
One of the factors life insurance companies use when rating policies is weight. Someone who is overweight is often susceptible to other health issues. Pregnancy weight gain could increase your rates just the same as regular weight gain.
Luckily, some policies won’t factor in pregnancy weight gain. Ask your life insurance company if pregnancy weight will affect your potential policy.
Only about 8% of pregnancies involve complications that could harm the mother or baby if left untreated. However, less severe complications can still affect your overall health. Common health issues that could affect your insurance rates include:
Considering the advantages and drawbacks of getting life insurance while pregnant can help you decide if you should apply. Let’s take a closer look at what makes pregnancy life insurance a good idea or not.
Applying for life insurance during your pregnancy could help you protect your future child. Some of the benefits of getting a policy during pregnancy include:
Trying to get life insurance while you’re pregnant isn’t always a good idea. Reasons you might want to skip applying for a policy until later include:
You can apply for life insurance during pregnancy. Remember that you could face higher rates or even have your application denied. For most women, it’s best to apply when you’re not pregnant.
If you’re starting a family and want to get life insurance, there are three times you can apply. The best option is to get life insurance before you get pregnant. However, you can also apply during your pregnancy or wait until after the baby comes.
It’s best to get life insurance before getting pregnant. Your body won’t be going through rapid changes due to pregnancy. You also won’t be facing any post-partum health concerns.
Applying for insurance before pregnancy also helps protect your family if something goes wrong. For example, your policy must be in force for a year before the insurance company will pay claims. You apply six months before getting pregnant. The policy will be completely in force by the time you give birth.
You can still get life insurance while pregnant, but it’s likely to be more expensive. Life insurance companies could see your changing health as an increased risk. That usually means you’ll pay higher rates than you would if you weren’t pregnant.
Applying for life insurance during your pregnancy can also be stressful. Taking a medical exam may not be something you want to deal with when preparing for a baby.
If you’re already pregnant, you might want to wait until after the baby comes to apply for insurance. Remember to give your body a few months to heal and go back to normal before you apply.
Getting life insurance after your baby is born could lead to better rates. That’s because there’s less risk for your life insurance company once pregnancy is over.
Life insurance is confusing enough on its own. Adding pregnancy only makes it more complicated. We’ve got the answers to your pregnancy and life insurance questions, so you can protect your new family with life insurance.
It’s generally not recommended to list a minor as your beneficiary. Minors can’t legally receive the money from a life insurance policy.
In some cases, the state will appoint a legal guardian for your children. The guardian would receive the funds and be in charge of managing them. This could lead to mismanaged funds.
A better alternative to listing your child as a beneficiary is to list your co-parent. A spouse, partner, or other trusted co-parent has shared responsibility for your child.
By listing them as the beneficiary, they receive the funds. They can then use your life insurance proceeds to continue caring for your child after you pass.
Creating a trust for your child is another option. Trusts are legal agreements that use a third party — the trustee — to manage funds. You would create a trust for your child and name a trustee to manage the money.
The trust becomes the beneficiary of your life insurance policy. If you pass away, the proceeds go to the trust. The trustee is then in charge of distributing the money for your children, such as to pay for education. Trusts let you choose certain restrictions and rules. This gives you more control over where the money goes, even after your death.
It’s a good idea for both parents to get a life insurance policy, if possible. Your policy only covers your life.
Let’s say your partner passes away without life insurance. You’ve lost their income, time, and support to help raise your children. You also won’t receive life insurance benefits to help cover what you’ve lost.
Life insurance policies include optional coverage you can add to increase the benefits. This extra coverage comes from life insurance riders. Riders help you customize your coverage based on your needs.
Losing a child is most parents’ worst nightmare. However, having a plan in case your child passes away helps reduce financial stress so you can focus on grieving. Many life insurance policies have a child rider option.
A child rider adds coverage for your children to your life insurance policy. There’s no need to buy a separate insurance policy for each child.
Unexpected disabilities can prevent you from earning income. A disability income rider protects your family if you’re unable to work. The rider works by paying a supplemental income if you become disabled. Be sure to read your policy carefully to know what qualifies as a disability.
Most life insurance companies will let you apply for life insurance while pregnant. Remember that your health plays a big role in getting approved. Weight gain and health complications during pregnancy could lower your chances of approval. Or, you may face higher premiums due to your health.
The best way to get pregnancy life insurance is to plan ahead. Apply for life insurance now if you’re thinking of starting a family. That way, your policy is in force before you deal with health changes. Be sure to check out our list of best jobs for pregnant women!
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]]>The post What Is An Irrevocable Beneficiary? appeared first on Clever Girl Finance.
]]>A life insurance policy helps protect the financial well-being of the people you love. Most people buy life insurance to cover expenses for close family members. These family members are beneficiaries and receive the proceeds of the policy. Beneficiaries can be revocable or irrevocable. An irrevocable beneficiary is near impossible to change once put into place.
So, how do you determine if you should choose which type of beneficiaries to assign? Let’s take a closer look at life insurance beneficiaries and why you may or may not want an irrevocable one.
A beneficiary is a person you wish to receive the money paid out by your life insurance policy. If you pass away, this person gets the death benefit of your policy.
For example, you have a million-dollar life insurance policy. You name your spouse as the beneficiary. When you pass away, your insurance company awards a million dollars to them.
Yes! Beneficiaries aren’t limited to one person. Someone with multiple children will likely want to list each child. You can also name an entity, such as a charity.
Some people set up trusts for their estate and name the trustee as a beneficiary. Life insurance policies without a named beneficiary go to your estate.
You also decide if the beneficiary is revocable or irrevocable. This choice determines how easy it is to change them in the future.
The policy owner can change a revocable beneficiary. That's why most life insurance beneficiaries are revocable. Using a revocable beneficiary means you’ll be able to change your policy as your life changes.
For example, you have two children when you take out your policy. Years later, you have another child. Your first two children are revocable beneficiaries. You’ll be able to add your third child to the policy as another beneficiary. This is usually done in a simple form.
An irrevocable beneficiary is the opposite of a revocable one. When you list an irrevocable beneficiary, you’re giving up your right to make changes. They aren’t designed to change — even if your situation does.
Let’s look at the example we used for revocable beneficiaries. If your children were irrevocable beneficiaries, it would be almost impossible to add your third child to the policy.
If it’s so hard to change irrevocable beneficiaries, why does anyone use them? There are times when a person is sure about their choice. By naming an irrevocable beneficiary, your plans can't change.
Business owners might list their business partners on a business-owned policy. Or, a parent with a special needs child may want to ensure their financial future.
The biggest thing to remember is that you won’t be able to change your beneficiary. That means you can’t add a new one or adjust how much each receives. You need to be sure it's right for your situation and that it won’t change in the future.
Spouses generally shouldn't be irrevocable. Sometimes “till death do us part” doesn’t work out. Say you named your spouse as irrevocable and then got divorced.
Now, your ex-spouse would receive the death benefit, regardless of your current relationship. So, you may not want to list them this way in your estate plan.
There are a few times where irrevocable beneficiaries make sense. Let's take a closer look at these situations.
Life insurance is an important tool for protecting your children’s future. Many people decide to name their children as irrevocable beneficiaries. Of course, there’s always the chance the relationship could sour. However, many parents consider it their duty to protect their children no matter what.
Naming children as irrevocable can also protect them if you marry someone new. Your new spouse won’t be able to claim the benefits or change your policy if you pass away. You can be sure the money will go directly to your children.
Business owners have a lot of financial considerations. A big one is what happens if a key employee passes away. For example, your business partner is in charge of product design. If they pass away, you’ll be without their knowledge or expertise. Your business may not be able to continue without them.
To combat this, many businesses use “key man” policies to protect against the loss of knowledge or skills if a partner dies. This is a policy taken out by the business on the life of the key person. The business is the irrevocable beneficiary.
If the key person passes away, the business receives the death benefit. This financial compensation can help the business stay afloat.
An irrevocable trust gives you more control of where your finances go after death. You can create rules about when and where your money goes from the trust. Parents might use a trust to give funds to children at certain ages. This prevents a young child from receiving a large death benefit all at once.
You can name your trust as your irrevocable life insurance beneficiary. This means your life insurance proceeds are sure to go to the trust. The instructions within the trust then direct the trustee where to send the money.
Some loans let you use life insurance as collateral. To do this, your lender is the irrevocable beneficiary of a life insurance policy. The insurance proceeds cover your outstanding debt if you die before paying it off. If you pay off the loan during your life, the policy dissolves.
There are pros and cons to using irrevocable life insurance beneficiaries. So understanding the advantages and disadvantages will help you decide which type to use.
An irrevocable life insurance beneficiary gives the policy owner peace of mind. You’ll know exactly where your death benefit is going after you die. Having this peace of mind can be invaluable if you’re a parent or caregiver.
They also help protect loved ones from changing family dynamics. Remarriage, for example, could complicate your children’s claims to your finances. An irrevocable designation guarantees life insurance money goes to your children.
The biggest disadvantage is the difficulty to change them. Not being able to update your beneficiaries can cause problems as your life changes.
Naming a spouse, for example, could be difficult if your marriage doesn’t work out. Even if you remarry, your ex-spouse has the claim to your life insurance benefits.
There is a way to change an irrevocable beneficiary. However, it’s difficult. After all, an irrevocable designation isn’t meant to be changed. Your beneficiary has to agree to the changes. This includes adding new beneficiaries to the policy.
Some states have extra restrictions for these policies. You may have to get your beneficiary’s approval before changing the policy. Be sure to check your state’s regulations before naming beneficiaries.
You can only change irrevocable beneficiaries with their consent. Your beneficiary will have to voluntarily give up their status.
It’s important to regularly review your life insurance policies — including beneficiary designations. A good rule of thumb is to look over your policies at any major life event, such as:
A primary beneficiary is the main beneficiary of a life insurance policy. A contingent beneficiary is a secondary one. The contingent beneficiary only receives funds if the primary beneficiary can’t.
For example, a primary beneficiary passes away before the policy owner. The policy owner forgets to update the beneficiaries. The contingent beneficiary gets the death benefit when the owner dies.
Primary and contingent beneficiaries tell life insurance companies who should get the proceeds. Irrevocable and revocable designations determine if you can change a beneficiary. An irrevocable beneficiary will always be a primary beneficiary.
You designate beneficiaries when you first take out a life insurance policy. Most applications have a section for listing them. You will likely need their names, addresses, and Social Security numbers.
This is where you will usually choose irrevocable or revocable. Most people choose a revocable beneficiary when taking out a policy. This lets you make changes to your beneficiaries as needed.
Now you know what the irrevocable beneficiary meaning is, and the seriousness of it. Your life insurance beneficiary is the person or entity who gets your death benefit. Irrevocable beneficiaries are designed to be permanent. They’re nearly impossible to change. Most policies require permission from the beneficiary to make changes.
Are you thinking of using an irrevocable beneficiary? Be sure to talk with an estate planning attorney or other trusted advisor first. They’ll help you decide if it makes sense for your policy.
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]]>The post Do You Really Need A Million Dollar Life Insurance Policy? appeared first on Clever Girl Finance.
]]>For many of us, the idea of having a million dollars is hard to grasp — it just seems too big to be real. Would that million dollars be enough to cover your family’s expenses if you passed away? A million dollar life insurance policy might seem like more than enough coverage but is it?
Million-dollar policies are often touted as the best option for everyone. However, you might find that it’s far too much or too little for your unique financial situation. This article will help you decide if a million-dollar plan is right for you.
Getting life insurance is an important step in securing your financial future. You can define a life insurance policy by its death benefit.
A death benefit is the amount your beneficiaries receive at your death. A million dollar life insurance policy is simply any policy with a death benefit of $1,000,000.
A 1 million dollar life insurance policy isn’t limited to a certain type of life insurance. There are several types of life insurance to choose from. They’re generally divided into two groups:
A term life insurance policy covers you for a set number of years, known as the policy’s term. The most common terms are 10 years, 20 years, or 30 years.
Term policies make for straightforward life insurance. You pick the death benefit and length of the policy. As long as you pay the premiums each month, you’re covered until the term runs out.
At the end of the term, your policy expires and you’re no longer covered. Term life insurance is a popular choice.
According to 2020 data from the American Council of Life Insurers (ACLI), 4.2 million new individual life insurance policies were term insurance.
These plans made up 41% of new individual policies. Some reasons people choose term life over permanent policies include:
A permanent life insurance policy stays in effect your entire life, so long as you pay your premiums. Permanent policies also involve a savings component, known as cash value. Part of your premium goes into a dedicated cash value account.
This money earns interest and some cash value accounts let you invest the funds. You can use your cash value to pay your life insurance premiums from the cash you’ve saved up in the account. Permanent life insurance gives you benefits like:
So, how much does a million dollar life insurance policy cost? Well, it depends. Higher death benefits usually mean higher premiums.
Other factors can also play a role in your total costs. Despite having the same death benefit, the cost of 1,000,000 life insurance can vary a lot. If you’re considering 1,000,000 life insurance, consider all the factors that affect costs.
Insurance companies check several risk factors to determine your costs. They’re looking to cut the cost of insuring a large group of people.
People who are young and healthy are at a lower risk. It shouldn’t surprise you that your health is the most important factor.
This includes common health-related factors like your age, gender, weight, and medical history. Other factors play a role in a million dollar life insurance policy cost as well, including:
If you decide a term 1 million dollar life insurance policy is right for you, your costs change based on how long you want your policy to be active. Longer terms often cost more.
The type of life insurance policy you choose will change the cost of your premiums. Permanent life insurance has higher premiums than term policies.
Many insurers will look at your driving history. Drivers with fewer accidents or traffic tickets are less risky to insurance providers. Safe drivers with clean driving records are less likely to be in a fatal accident.
According to the CDC, giving up smoking can increase your life expectancy by 10 years. Insurance providers take this into account when approving a life insurance policy.
Tobacco users often have to pay higher premiums for coverage. Long-term nicotine users could have trouble finding a policy at all.
The things you enjoy doing on your time off could increase your life insurance costs. People who engage in high-risk activities usually pay more for life insurance. So be prepared for increased costs if you enjoy mountain climbing or skydiving.
Your family medical history could increase your insurance costs, regardless of your health. Insurance companies look for hereditary diseases or conditions when reviewing your insurance application.
Like risky hobbies, a dangerous profession could lead to higher insurance premiums. Some lines of work are more dangerous than others.
Life insurance companies take this into account when deciding your insurance costs. Dangerous occupations include electric line installation, police work, and mining.
The right amount of life insurance is different for everyone. That’s especially true when considering higher death benefit amounts. Not everyone needs a million dollars in coverage.
Life events, like getting married or buying a house, can change your financial needs. Likewise, you may need more coverage if you earn a significant salary. For example, people who need a 1000000 life insurance policy might include:
Not everyone qualifies for a 1 million dollar life insurance policy. Life insurance replaces your income to cover your loved one’s financial needs when you pass.
To qualify for a larger death benefit, you have to justify why you need more coverage. Life insurance companies use your current salary, age, and health to determine your eligibility.
Some insurers will approve a death benefit that’s up to 30 times your annual salary. In that case, you’d need to make about $34,000 per year to be eligible.
Your age is also a factor in approval for a 1 million dollar life insurance policy. Younger people tend to qualify for larger death benefits. Someone young is less likely to need their life insurance benefits anytime soon.
Finally, your current health — and medical history — will affect your approval odds. If you’re healthy, you’re more likely to get approved for a million dollar policy. Most high-dollar policies require a medical exam before approving your application.
It can certainly feel like more is better when it comes to life insurance, but that’s not always the case. Life insurance benefits should replace your income and cover debts if you pass away.
If your earning potential and debts are less than $1 million, you might not need that much coverage. On the other hand, a million dollars can sound like a lot, but it may not be enough.
It might surprise you to learn how many expenses your family faces. Weigh your potential expenses with the cost of premiums for a million-dollar policy. You want to find a balance between enough coverage and affordable cost.
The simplest way to decide how much life insurance you need is to multiply your annual income by 10-30.
Of course, this method doesn’t go into detail. It can, however, be a great place to start when deciding how much life insurance to buy.
Once you have a loose idea of how much insurance you need, you can start factoring in your individual needs.
Add up the estimated cost of each obligation to get a more precise idea of your insurance needs. Some factors to consider include:
Looking for an easier way to calculate your life insurance needs? Modern technology makes it a lot easier to find the right amount of coverage. You can use online life insurance calculators to quickly estimate your needs.
An easy-to-use calculator is this one from Life Happens. This nonprofit’s mission is to help families make smart insurance choices.
Shopping for a 1 million dollar life insurance policy is much like shopping for any type of life insurance. You should plan to shop around for the best fit before committing to a plan.
Comparing policies and insurance providers gives you a better chance to get a policy that’s right for you. You could also end up saving money by shopping around.
Million-dollar plans are usually more expensive than those with lower death benefits. Be diligent when shopping to find a policy — and insurance provider — that serves your needs. Look for these things when comparing policies:
Picking a good life insurance company is an important part of shopping for life insurance. There are several ratings you can use to help you decide if a company is a good fit.
Start by reading reviews of the company to see what current or previous customers have to say. You can also look at the Better Business Bureau to see recent complaints against the company.
The financial security of the company should also be a big priority. After all, you want to know your insurer can pay your claim, especially if it’s a higher amount like a million dollars. You can look up financial strength ratings from independent agencies.
The cost of life insurance is always going to be a big factor in the policy you choose. While you shouldn’t base your whole decision on cost alone, you also don’t want to overpay for coverage.
Collect life insurance quotes for similar policies from multiple providers. Comparing quotes lets you find the best combination of coverage and cost savings.
While term insurance policies expire once the term is up, many are renewable. A renewable policy means you can renew the same policy for a new term.
One big benefit is you won’t have to take another medical exam, which could be helpful if your health has declined.
Another term insurance option is a convertible term policy. These policies let you convert your policy into permanent life insurance at the end of the term.
This can be a great way to get affordable coverage when you’re younger and guarantee coverage when you’re older.
Life insurance policies often let you add optional coverage, called riders. A rider is an extra benefit for your policy. A common option is an accelerated death benefit (ABD) rider.
This lets you access your death benefit while you’re still alive. For example, you can use ADB coverage to help pay for treatment of a chronic or terminal illness, like cancer.
Choosing the right life insurance policy for your needs is a very personal decision. There’s no one-size-fits-all answer to protecting your loved ones’ financial future.
You can find the best fit for your family by taking the time to research potential policies. Be sure to ask insurance agents about the details of a 1,000,000 life insurance policy you’re thinking of buying.
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]]>You’re driving home from work when you notice your check engine light is on. Your mechanic tells you you’ll need several hundred dollars in repairs. There’s not enough in your savings to cover the cost. Your next payday is still a week away. Wouldn’t it be nice if you could get a little bit of your paycheck early? Well, you might consider a salary advance loan.
Salary advances can be helpful in a lot of potential emergencies, but are they a good idea? Let’s dive in and see how advances work and what options you have so you can decide if an advance loan is right for you.
A salary advance is a loan that lets you borrow money from your future paycheck. Essentially, you get your salary in advance. You can use the money to cover an emergency, like car repairs, and pay it back when you get paid. Like other loans, salary advances involve a repayment schedule, interest charges, and potential fees.
Salary advance loans are also short-term borrowing solutions. Most paycheck advance loans are repaid on your next payday. This means the full amount of advance pay— plus any interest and fees — will come out of your next paycheck.
This might sound like a payday loan. Some payday lenders even advertise their products as “payday advances.” However, payday loans and salary advances are not the same.
The most notable difference between salary advance loans and payday loans is who’s offering the loan and the repayment terms you might receive.
A salary advance comes from your employer. Some companies offer advances as private loans directly to employees. Other employers sponsor a credit union just for employees. Employers with credit unions usually provide salary advances through your credit union account.
This makes a big difference from a payday loan lender. It also gives you access to better loan terms than a payday lender, credit card, or other short-term financing options. Unlike payday lenders, your employer or employer-sponsored credit union isn’t trying to lure you into a cycle of debt.
According to data from the Consumer Financial Protection Bureau, 48% of payday loan borrowers rolled over at least one loan in a period of six months. Your employer, on the other hand, will likely offer lower interest rates and little to no fees for an advance.
So, why would an employer offer a paycheck advance anyway? Well, they feel letting you get your salary in advance is beneficial for them to do so. But what are the benefits to your employer offering a salary advance? There are two main reasons:
Paycheck advances can be a lifesaver if you’re low on cash and can’t wait till payday. For example, you might need a pay advance if you:
Depending on your employer’s policies, you may even be able to get an advance for non-emergency expenses, such as:
Of course, it’s never recommended to go into debt for something you don’t need. Even though you can get good terms in a salary advance loan, you’re still borrowing money you don’t have. You might find yourself in a circle of debt trying to keep up with overspending on non-necessities.
Getting advance pay sounds like a great deal, but you still have to qualify. Common requirements for salary advances include:
Not everyone will be eligible for a salary advance. Many employers don’t offer a salary advance program at all. You might find there are other options to cover your expenses that more sense for your financial situation.
If your employer offers a pay advance program, you may be tempted to take advantage of it. Like all types of borrowing, however, advances come with advantages and disadvantages. Take a quick look at the pros and cons of a paycheck advance before jumping into a new loan.
A pay advance can be a surprising way to get money for an emergency. Consider the advantages of using a paycheck advance to help you decide if it’s a good fit.
Paycheck advances give you easy, fast access to money for an emergency. Since your employer or credit union is the lender, they can deposit funds into your normal pay account.
Unlike other types of loans, salary advance loans usually have fewer credit requirements. You’ll just have to meet your employer’s basic requirements for the program.
The interest rate on paycheck advances is usually lower than other forms of credit. You’ll likely get a better interest rate than you would with a payday loan or credit card. Payday loan rates, for example, are usually well over 100%, according to data from the Center for Responsible Lending.
Some advance pay programs have no fees to borrow against your paycheck. Even if you do face fees, they’re usually minimal compared to other loans.
Repaying your salary advance is usually simple. Your employer or credit union can deduct the amount borrowed — plus any interest and fees — from your paycheck.
Salary advances aren’t all good, however. There are plenty of drawbacks to borrowing money from your future paycheck.
Most advances are paid back on your next payday. If you’re struggling to make ends meet, lowering your next paycheck to get cash now may not be an ideal solution.
Most employers only let you take a few hundred dollars as an advance. If you’re looking to cover a large expense, a pay advance may not offer enough funds.
Borrowing against your paycheck could hurt your relationship with your employer. They may consider you irresponsible, which could hurt future opportunities with the company.
Likewise, taking a pay advance means you’ll be in debt to your job. There’s a good chance you’ll have to pay back the advance plus interest immediately if you decide to quit.
You may fall into a cycle of debt if you take out short-term loans. While salary advance loans aren’t predatory, they’re still a form of credit. If you find one advance doesn’t cover all of your financial needs, you have to take out another. This leads to relying on credit to make ends meet and puts you into ongoing debt.
Whether a salary advance is a good option or not, it’s not your only option. There are a lot of ways you can get money to cover an unforeseen expense. Some of them you probably haven’t even considered before. However, it's important that you create a plan to pay off this debt as soon as you can due to the associated interest costs. Alternatives include:
A personal loan is a loan offered by a bank or other lender with scheduled repayment dates. The nice part of a personal loan is the length. You’ll get a lot longer to pay back the money you borrow, even a few years.
Interest rates for personal loans also tend to be lower than credit cards or payday loans. However, there are usually strict credit requirements to get a personal loan. They also aren’t great for low-dollar needs, as many lenders require you to borrow at least a few thousand dollars.
Your credit card could be a surprising option to cover a sudden expense. The benefit of a credit card comes down to whether or not you can use it wisely. For example, you have the available balance to cover an unexpected expense.
You also get paid next week, but your credit card isn’t due for two weeks. This means you have the time to pay for your expense, pay off your balance at your next paycheck, and still avoid high-interest charges on your credit card.
A solid support system of friends and family doesn’t always have to be emotional. If you have the option, borrowing money from a close friend or family member could be an easy way to cover an emergency expense.
Be aware of the potential to damage or change your relationship with this person. Put everything in writing so both you and your friend or family member are on the same page.
Not all bills are set in stone. Try negotiating with service providers to see if you can cut down some of your existing expenses. For example, call your car insurance company and ask about discounts they offer. Or, get in touch with your cell phone provider and see if you can change to a less expensive plan that still meets your needs.
If you make more money, you’ll have more to put towards unexpected expenses. Earning more money could mean picking up a second job or starting a side hustle. You could also make more money by asking for a raise or hosting a yard sale to get rid of things you don’t need.
The best way to pay for a sudden bill is to use your savings. If you have the money to cover the expense, it doesn’t make sense to take out a loan. If you don’t have the money in savings, building an emergency fund is a good goal after you pay off your loan.
You know what a salary advance entails, you know the pros and cons, and now you want to know if an advance is the right choice. The answer, like so many in finance, is it depends. Borrowing money is a highly personal decision, and what’s a good fit for one person may not work for another.
If you’re thinking about asking for a salary advance, remember these guidelines:
Even if you choose a pay advance, start thinking about your financial future. Get into a routine of saving for emergencies after paying off your loan. Some salary advances even make this easier by taking a portion of your loan and putting it into a special savings account. These accounts often earn interest and dividends, so the money is there the next time you need it.
A salary advance loan can be a good alternative to payday loans or credit cards when you need cash fast. Check to see if your employer or employer-sponsored credit union offers salary advances. Read your employee handbook or advance policy.
You’ll want to understand the requirements for borrowing, repayment terms, and any potential fees there are before you need to ask for an advance. This will help you determine if a salary advance loan is a good fit for your financial situation. However, keep in mind that no matter how big your salary is, good money habits are the key to financial success.
Learn how to save more money so you can cover unexpected emergencies with our completely free "Savings challenge" bundle! This bundle includes various savings challenges to make saving money easier and fun! Also, tune in to the Clever Girls Finance YouTube channel and the Clever Girls Know podcast for top tips on saving money, budgeting, and building wealth!
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