savings

Ask the Readers: What Is Your Top Savings Goal?

Ashley Jacobs — Tue, 23 Apr 2019 08:30:12 +0000

Having savings goals is necessary for any financial plan, but each person may have their own unique set of goals. What one person prioritizes might not be the same for someone else!

What is your top savings goal? Your emergency fund? Retirement? A vacation? Or...?

Tell us about your top savings goal and we'll enter you in a drawing to win a $20 Amazon Gift Card!

Win 1 of 3 $20 Amazon Gift Cards

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This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Everything New Parents Need to Know About College Savings

Tim Lemke — Tue, 26 Jun 2018 12:40:58 +0000

You've just ushered a new baby into the world, and are working to get your brain around all that you need to pay for. Diapers. Food. Child care. College.

College?

It may be nearly two decades away, but thinking about your child's college education now can help you save lots of money for when it's finally time to foot the higher education bill.

Saving for college will require a lot of discipline and patience, but you can make it happen with the right tools and knowledge. Let's take a look at some key things you need to know to send junior off to college without going broke.

Understand the cost of college

Let's start with an understanding that college is costly. The College Board says the budget for a moderately priced public college now is over $25,000 annually, and more than $50,000 for a private college. Prices have nearly doubled in the past decade and costs are expected to continue to rise. It's obviously impossible to know what college will cost in 18 years, but you can make reasonable projections based on current costs and the rate of inflation. Estimating the cost of college is obviously the one piece of information you need when determining how much to save.

Understand value vs. cost

You may have dreams of sending your child to whatever school they wish to attend, regardless of cost. That's fine, but you should also educate yourself on the schools with great reputations at a reasonable cost. The bottom line is that the most expensive schools aren't automatically the best. There are many ways for a student to get an excellent education without going into debt or wiping out your savings. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

Explore community colleges

Some people dismiss community college, but that's a mistake. Community colleges are perhaps the most underrated components of the academic system. There are thousands of these great colleges that offer solid education experiences for a fraction of the price of four-year institutions. They are excellent for students who aren't quite sure what they want to study or are perhaps wary of going away to school.

At community colleges, a student can often take care of many of the core requirements of a major, then transfer to a four-year institution where they can get the rest of the key coursework they need. This can ultimately save families tens of thousands of dollars. Consider community colleges when exploring future education options for your young one.

Open a 529 plan

Most states offer special savings plans that allow you to invest money for the purpose of saving for educational expenses. In most cases, you can withdraw the money tax-free when it's time to pay for college or qualified educational expenses. In a sense, they work like a Roth IRA, only for education.

Some plans also let you deduct contributions from your taxable income. These savings plans can be powerful because you can sign up for them as soon as your child is born. And if you save aggressively over the course of 18 years, you can end up with a sizable fund, perhaps even enough to cover the cost of tuition entirely.

If your child ends up getting a scholarship, you can use the funds for other educational expenses, such as a computer or other similar needs. If they don't attend college, funds can be used for vocational schools as well. You can also assign the benefits to someone else, such as a sibling or even a nephew, and there is no time limit on when you need to spend 529 funds, so you could even hold onto them and pay for your grandkids. (See also: The 9 Best State 529 College Savings Plans)

As a last resort, you can just keep the money for yourself — but you will have to pay taxes on gains as well as a 10 percent penalty. You won't pay the penalty if the beneficiary passes away, gets a scholarship, becomes disabled, or attends a U.S. Military Academy. If a child is disabled and can't attend college, it's also possible to roll 529 funds over to a 529 ABLE plan, which is designed to help disabled people with living expenses and other needs. (See also: Here's What You Need to Know About 529 ABLE Accounts)

Consider a prepaid tuition option

Depending on where you live, you may be able to take advantage of a type of 529 plan that allows you to lock in rates of college tuition now, potentially saving you tens of thousands of dollars. This can be especially powerful given that tuition continues to rise. Note that there may be some restrictions on what colleges the student can ultimately attend. (See also: Should You Save for College Using a 529 Prepaid Tuition Plan?)

Don't cheat your own retirement

You may wish to selflessly pump as much money as you can into your child's college savings account, choosing to worry about your retirement savings at a later time. But this is a dangerous strategy. If you choose to postpone retirement saving, you run the risk of not having enough saved to make ends meet when you stop working. And unlike college, you can't borrow money to pay for your retirement.

With smart planning and frugal living, you may be able to aggressively save for both college and retirement — but if you have to choose which to put money into, pick the retirement fund. If it helps, remind yourself that it's a way to ensure that your children don't have to help you financially in your later years. (See also: How to Keep Student Loans From Wrecking Your Retirement)

Let family members know how they can help

Your child's grandparents may be eager to help with future college costs, and you may have other relatives willing to pitch in as well. You can help guide them as to the smartest way to help.

In many cases, relatives may also receive immediate tax breaks by contributing to college savings plans, and they may even be able to gift money for college as a way to avoid future estate taxes.

Understand how financial aid works

It's important to learn how your income and savings can impact the type of financial assistance that your child may receive to pay for college. To qualify for grants or federal loans when it's time for your child to attend college, you will have to fill out a Free Application for Student Aid (FAFSA) form.

Not all families receive financial aid automatically. A student's eligibility is determined by a formula that takes into account the total cost of college and the expected family contribution, or EFC. The EFC is somewhat complicated, because it takes into account family income, assets, and household size, among other factors. (See also: The 10 Most Common Financial Aid Mistakes — And How To Avoid Them)

Learn about loans and their impact

It may be your plan to save for college and avoid loans entirely, but there's no guarantee you won't need them, especially if costs continue to rise. Navigating the ins and outs and pros and cons of both federal and private student loans will require some research and patience. You should seek to understand the typical interest rates on college loans, and how quickly loans must be paid back. Know that student loans can't be discharged in bankruptcy and that defaulting on loans can hurt a graduate's credit score.

It's also important to understand how student loan debt may impact a graduating student. Many recent graduates are struggling with student loan payments — the average 2017 graduate has more than $39,000 in debt — and that has an impact on everything from the jobs a graduate can afford to take, the city they can afford to live in, and the amount of other debt they end up accumulating. (See also: What to Do When You Can't Afford Your Child's College Education)

Live within your means

This may seem like such a basic piece of advice it's not worth mentioning, but it's crucial when you are trying to save for your own future as well as the college costs of a child. In an ideal world, you can save aggressively for both a child's college tuition and your own retirement, but that requires a hefty sum of cash. To achieve both goals, you must be laser-focused on keeping your spending levels low, avoiding debt, and managing budgets smartly. It may require sacrifices.

For many people, those sacrifices are worthwhile, but just be sure you know what they entail as you embark on this journey. Being prepared mentally and emotionally will help you stay on course.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Smart Things You Should Do With Your First Real Paycheck

Denise Hill — Tue, 22 May 2018 08:00:37 +0000

You've finally landed your first real job. And with that, comes your first real paycheck. This is a monumental occasion and should be celebrated. But what should you do? Should you blow all of your funds on an expensive and wild weekend? Should you buy a new wardrobe? Or should you just pay your bills and save the rest?

The answer to this question depends on your overall financial plan, your budget, and your surplus once you've met all of your obligations. An important thing to do once you receive that first check (preferably before) is to establish a plan. It's OK to splurge a little and celebrate the fact that you are officially a taxpaying, adulting member of society. However, it's critical that you use this first paycheck to jump-start your journey to financial independence.

Here are some important money moves you should make with your first real paycheck.

Let your money breathe

This sounds ridiculous, I know. But one of the biggest challenges people with newfound wealth face is getting used to having money.

One of the most important things to remember is that your thoughts, beliefs, and attitudes about money directly influence how you spend it. When you're not used to having it, it's easy to spend a small windfall immediately. And often, you overspend. You have to give yourself time to acclimate to having money. Paradigm shifts take time. Allowing your checking and savings account to remain full can be difficult.

If possible, allow the money to sit for a while. Pay your bills and let what's left breathe. Buy only what you absolutely need, at least at first. You don't have to go out to eat, buy new clothes, or cop a new ride just because you're earning steady money. Begin conditioning your mind to enjoy seeing a positive checking and savings balance. And vow to keep the trend going.

Create a budget

The most important thing to do with that first paycheck is to create a budget before you spend a dime. Once you see exactly what you're working with, establish a spending and savings plan by creating a zero-based-budget. You want to give every dollar a purpose. There's no such thing as leftover money or a surplus. Every dollar is accounted for, and if you do find a way to save a buck, that buck goes to savings.

Creating a budget is a great way to set a good financial habit moving forward. It's like establishing a healthy diet, but with finances. It helps you determine correct portion sizes and helps you guard against overextending yourself and becoming house poor. It allows you to see where every dollar is going. It also helps you to better track your spending and find ways to save during lean times. (See also: How to Budget When You're No Longer Broke)

When you receive your first paycheck, make a list of all of your regular monthly bills, debts, and necessary expenses along with the due dates, in order of importance. This not only helps you see what needs to be paid and when, but it also helps you establish payment priorities in case there ever is a shortfall.

There are multiple budgeting, bill pay, and tracking apps that can help you streamline your finances. But the most important thing is getting it all written down — in some form — and having a plan. Taking the time to organize your finances and create a budget with your first paycheck sets you on the path to good financial stewardship. (See also: These 5 Apps Will Help You Finally Organize Your Money)

Establish a solid savings plan

After you've listed and prioritized your bills and expenses, it's important that you add savings to the budget and move it to the top of the list. It should be ahead of everything. Your budget shows you how much you owe and how much you have left after the necessities are paid — which allows you to determine how much you should save each month. The old financial advice, "Pay yourself first" is still very true and should begin with your first paycheck.

Start by establishing how much you can afford to save and lock in that number. If possible, set up an automatic transfer so that as soon as your paycheck is deposited into your bank account, your savings amount is automatically transferred to another dedicated savings account. That way you never see the funds. You won't miss what you never see.

Part of savings involves establishing your retirement and emergency fund. Traditionally, an emergency fund is three to six months' worth of daily living expenses, but can be more or less depending on your particular circumstances. This fund should only be used in real emergencies, like an urgent medical bill or a job loss. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

If you work for a company that offers a workplace retirement plan, use your first paycheck to establish how much you'd like to contribute. You should contribute something, even if it's a small amount at first. If you are self-employed, freelancing, or work for a startup that doesn't have a workplace retirement plan option, look into setting up an IRA through your banking institution or other reputable financial management firm. You may need to save up a minimum amount to open an IRA, but you can use a portion of your paycheck as the first step toward saving that amount. (See also: 11 Basic Questions About Retirement Saving Everyone Should Ask)

Set financial goals

After you've gotten your budget in place and saving money is at the top of the list, it's time to set some financial goals. Setting financial goals is important for a variety of reasons. It helps you stick to a realistic budget. It puts something concrete out in front of you and challenges you to go get it. It gives you a purpose for earning, saving, and spending money. Even if you don't reach your goal, you still make progress and move forward. Setting financial goals allows you to view money as a tool that will help you live an independent life.

Financial goal setting is pivotal to becoming and remaining financially independent. You should set immediate, short-term goals (less than six months), some intermediate goals (up to three years), and some long-term goals. Write down legitimate things you want to do with your money and determine the steps you need to take to reach each goal. Make sure your goals fit the SMART frame work (Specific, Measurable, Achieveable, Realistic, and Time-bound) and fit your lifestyle and unique situation. (See also: 5-Minute Finance: Create Financial Goals)

Your first few goals should be to live by your budget, maintain a healthy emergency fund, and kickoff your retirement savings. From there, make other goals that will help keep you on track, such as eliminating debt or paying cash for your next car or vacation.

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Signs You Aren't Ready for a Credit Card

Dan Rafter — Tue, 15 May 2018 08:00:19 +0000

There are plenty of smart reasons to apply for a credit card. Having a credit card can give you financial flexibility, provide a way to build or boost your credit, and offer a range of valuable rewards, cash back, and perks. But having plastic at your disposal is not all fun and games.

Having a credit card can cause problems if you're not quite ready for one. How do you know if you're not ready for a credit card? Here are a few surefire signs.

1. You don't follow a budget

The key to using a credit card properly is knowing how much you can afford to charge each billing cycle. The goal is to make charges during the month and pay off your balance in full every time your payment due date rolls around. This way, you'll steadily build your credit history along with a strong credit score. But if you don't have a budget, you won't know how much you can afford to charge each month.

Before applying for any credit card, make sure you've drafted a budget that includes your monthly expenses — including those that change each month and those that are discretionary, such as entertainment and eating out — and your monthly income. This will provide a guide for how much you can afford to put on your credit card without running a balance from month to month.

Running a balance is a huge financial mistake. Credit card debt comes with high interest rates, and if you don't pay off your balance in full each month, that debt can quickly grow out of control. (See also: Stop Using These 5 Excuses Not to Budget)

2. You're often late on other payments

Do you struggle to pay your landlord on time each month? Do you often pay your cellphone bill a week or two late? Then you aren't ready for a credit card.

Credit card payments are reported to the three national credit bureaus (Experian, Equifax, and TransUnion). On-time payments will boost your score and strengthen your credit profile. If you pay your credit card bill late — 30 days or more past due is considered officially late — your credit will take the blow. A single late payment can cause your credit score to fall by 100 points or more. That late payment will also stay on your credit reports for seven years.

If you struggle to pay your other bills on time, there's no indication you'd be any better at paying your credit card bill every month. Hold off on applying for a credit card until you change your habits. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

3. You can't build up your savings

Before taking on the financial responsibility of a credit card, you should have already built up some savings. This is a sign of financial maturity and stability — the type of maturity and stability you'll need to handle a credit card.

If your bank account falls to zero (or near it) before every payday, you probably aren't ready for the responsibility of managing a credit card and the monthly payments that come with it. (See also: 8 Factors That Could Keep You Broke Forever)

4. You can't stop borrowing money from your parents

Do you frequently turn to your parents for help when the rent is due? Are you constantly asking them for extra cash when you want to go out for dinner or to a concert?

This is another huge warning sign of financial immaturity, and evidence that you are not ready for a credit card. If you can't handle your monthly living expenses without cash infusions from Mom and Dad, you'll be tempted to use your credit card to make those extra purchases. And that's a surefire formula for running up debt that you won't be able to pay off. (See also: 4 Things You Should Make Your Adult Child Pay For)

5. You don't have a reliable income stream

You need a steady stream of income coming in every month if you want a credit card. It's imperative that you're able to pay off your credit card bill in full at the end of each billing cycle. Otherwise, you risk sending yourself into a cycle of high-interest debt.

If you don't have a steady job, or if you're constantly struggling to find enough money to pay your bills each month, avoid the temptation of applying for a credit card. Instead, focus on increasing your income and building up some emergency savings before sending in a credit card application. (See also: 5-Minute Finance: Start an Emergency Fund)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Signs You're Ready to Sell Your House

Dan Rafter — Fri, 06 Apr 2018 08:00:07 +0000

This is a good time to sell a home. The National Association of Realtors reported that the median price for existing homes stood at $240,500 in January 2018, up 5.8 percent from one year earlier. At the same time, homes are selling quickly, too — the NAR reported that the average amount of time it's taking homes to sell is just 42 days.

If you've been thinking of selling your home, this would appear to be the right time to do it. But how do you know if you are truly ready to sell? What financial and emotional steps do you need to take to get yourself and your home ready for buyers?

Fortunately, determining if you're ready to sell isn't overly complicated. In fact, there are clear signs that you are ready to pound those "For Sale" signs into your front lawn. (See also: How to Sell Your Home in a Seller's Market)

1. You have equity

The most important sign is that you have enough equity in your home. With sufficient equity, the odds are better that you'll leave the closing table with profits in your pocket.

Equity is the difference between what you owe on your mortgage and what your home is worth. The more equity you have, the better. If you owe $150,000 on your loan and your home is worth $250,000, you have $100,000 equity in your home.

Determining your equity can take a bit of work. First, look at your most recent mortgage statement to see how much you owe. Next, figure out how much your home is worth today. Don't rely solely on sites such as Zillow — their estimates are often inflated. Instead, call a real estate agent and ask them to perform a market analysis. The agent will compare your home to similar ones that have sold in your area and come up with a market value. Agents shouldn't charge you for this service. They hope, after all, that you'll call them if you do decide to list your home.

You can also hire a professional appraiser to appraise your home. This isn't free, though: You can expect to spend about $300 to $400.

Whatever approach you take, you should get some idea of what your home is worth in today's market. If you have a significant amount of equity — enough to cover a down payment and closing costs on whatever new home you plan to buy — now might be a good time to list your property. (See also: How to Build Equity in Your Home)

2. You have savings

Selling a house isn't cheap. If you want your home to look its best, you might have to hire a stager to clear out rooms and rearrange furniture. You might need to board your pets so that potential buyers won't hear Fido barking or smell Princess' kitty litter box.

There's also the cost of applying for a new mortgage and buying a new home after selling your current residence. You'll need to pay for movers, come up with a down payment for your new home, and pay for home inspections and an appraisal. It all adds up.

And, yes, you might be counting on the profits from your home sale to pay for most of the expenses of moving to a new house. But some bills you might have to pay before you receive your check from your home sale. So, make sure you've built up enough savings to handle the many expenses that pop up when selling.

3. Your credit scores are strong

After you sell, you'll need a solid credit history to qualify for a mortgage for your next home. A strong score also nets you lower interest rates and a lower monthly payment.

Before you list your home, order copies of your three credit reports — one each from Experian, Equifax, and TransUnion — from AnnualCreditReport.com. You are entitled to a free copy of each of your reports once a year.

Study these reports for errors. If a report lists that you missed a car payment that you know you paid on time, contact the offending credit bureau to fix the error. Fixing mistakes can cause an immediate bump in your score.

Next, order at least one version of your credit score from one of the three credit bureaus. You will have to pay for this — about $10 to $15 — but you should know your score before you decide to sell. Lenders consider scores of 740 or higher to be particularly strong. If you have such a score, you won't struggle to qualify for a loan and you'll usually qualify for lower rates. If your credit score is low, you need to improve it before you think about selling. (See also: 7 Ways to Increase Your Credit Score Quickly)

4. Your home is shrinking

Are you growing your family? Are you running out of space for bedrooms? Does it feel like you're living in a clown car? It might be time to sell. One of the main reasons that owners sell is that they simply outgrow their current living space. If your house no longer fits the need — or size — of your family, it might be a good time to put it on the market.

5. You're ready to break those emotional ties

Selling a home is different from living in one. Your real estate agent might recommend that you remove most of your family photos. A stager might suggest that you put a favorite sofa in storage. You might get negative feedback from buyers on the paint in the kitchen and have to make changes.

Can you handle this? Can you take criticism of your home and your style choices and make the changes necessary to sell your home quickly?

If not, you might need to wait before selling. When you've lived a part of — or all of — your life in a certain residence, it's normal to have emotional attachments you aren't ready to part with. But if you are ready to cut those emotional ties to your home, you're ready to make the transition from living in a home to selling it.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Ways to Get Financially Fit for Homebuying Season

Dan Rafter — Mon, 02 Apr 2018 09:00:06 +0000

The housing market is a competitive one right now. The National Association of Realtors reported that there were 1.52 million existing homes for sale at the end of January 2018. That might sound like a lot, but that figure is 9.5 percent lower than it stood a year ago, when 1.68 million homes were for sale.

What does that mean for you? It means that if you're planning on buying a home this year, you need to be financially fit and ready to act fast. Here are the steps you can take to get ready for homebuying season.

1. Check your credit reports

When you apply for a mortgage to finance the purchase of a home, your lender will check your credit reports. You have three of them, one each maintained by Experian, Equifax, and TransUnion. These reports list your loans and credit card accounts. It also lists any financial missteps you might have taken, such as missed payments, late payments, bankruptcy declarations, and foreclosures.

You can get one free copy every year of each of your three reports from AnnualCreditReport.com. Once you get your reports, look them over carefully. You want to know what lenders will see. If you spot any mistakes — such as a late auto payment that you know you paid on time — correct the mistake with the offending credit bureau, either by phone or email. Finding and correcting incorrect information can provide an immediate boost to your credit score, which will set you off on the right foot for buying a home. (See also: How to Read a Credit Report)

2. Check your credit score

Your credit score is a key number when you're ready to buy a home. Your lenders will study your credit score to determine how likely you are to pay your mortgage on time each month. Most lenders consider credit scores of 740 or higher to be strong ones, while scores under 640 make them nervous. If your score is too low, you probably won't qualify for a loan. If you do, you'll be charged higher interest rates.

It's important to know your credit score before you apply for a mortgage. You can pay to receive your score from any of the three credit bureaus, which will cost you between $10 and $15. Your credit card provider or bank might provide you with a credit score for free, but be careful: This free score might not be an official FICO score, and might not be the same one that lenders see when you apply for a loan.

Once you know your credit score, you can determine if you need to take steps to improve it. If your score is too low, it might make more sense to wait until it rises before you start hunting for a new home. (See also: 7 Ways to Increase Your Credit Score Quickly)

3. Start a new history of paying all your bills on time

The best way to build a strong credit score is to pay all your bills on time every month. If you pay certain bills late — credit cards, mortgage, auto loan, student loan, and other forms of installment loans — your credit score could drop by 100 points or more. A bill is considered officially late and reported to the credit bureaus if you haven't paid it by 30 days or more past its due date.

Rebuilding your credit this way takes time. Depending on how weak your score is, it could take months or more than a year of on-time payments to increase it to a level that will qualify you for lower interest rates. The work, though, will pay off in the form of lower monthly mortgage payments. (See also: All the Ways Minimum Payments Are Evil)

4. Pay down your credit card debt

Another way to boost your credit score and gain approval for a mortgage loan is to pay off as much credit card debt as possible. You'll know you're ready to take on the homebuying process when your credit card balances take up no more than 30 percent of your available credit.

Paying down your debt is important, too, after you buy a home. Your mortgage payment is a big financial responsibility. Having as little additional debt as possible will ensure that these new payments are not an overwhelming burden. (See also: The Fastest Method to Eliminate Credit Card Debt)

5. Build up your savings

Buying a home is expensive. You'll have to come up with a down payment, of course. But you'll also have to pay for closing costs on your mortgage loan, and don't forget the added expenses of paying for movers, new furniture, and any repairs that your new home might need.

Build up your savings before you start searching for a home. This will also help you when it's time to apply for a mortgage. Lenders usually want to see that you have enough in your savings accounts to pay for two to three months' worth of mortgage payments. That way, you can still make your mortgage payments if you hit a financial crisis.

6. Get preapproved for a mortgage

Looking for homes is fun. Getting a mortgage loan is not. But before you start searching for new homes, make sure to get preapproved for a mortgage.

To do this, you'll meet with a mortgage lender. This lender will run your credit. You'll also have to provide this lender with copies of your last two months of paycheck stubs, last two years of W2 forms, last two years of income tax returns, and last two months of bank account statements. Lenders will study these forms to determine how much of a monthly loan payment you can afford.

Once it analyzes your financials, your lender will provide you with a preapproval letter stating how much of a loan it is willing to give you. You won't have to waste your time searching for homes that are outside this limit. You'll also be a more attractive buyer. Sellers prefer working with buyers who already have qualified for mortgages. Deals with such buyers are less likely to fall apart because of mortgage issues.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Myths About Health Savings Accounts — Debunked!

Dr Penny Pincher — Wed, 21 Feb 2018 10:01:05 +0000

Health savings accounts (HSAs) provide a tax-advantaged way to save and pay for health care costs. If you have a high-deductible health plan (HDHP), you can contribute pretax income into an HSA and use the money to pay for qualified medical expenses.

The rules and requirements for participating in an HSA can be a little confusing. As a result, misinformation has given rise to several myths that deter people from taking advantage of HSAs. Let's take a look at some of the most common ones. (See also: 10 Reasons an HSA Is Actually Worth Having)

1. HSA funds are lost if you don't spend the money by the end of the year

This is a point of confusion that tends to scare people away from participating in a health savings account. It's not true. Funds leftover in your HSA are not lost at the end of the year, they are yours until you spend the funds. The prevalence of this myth comes from a different health program, the flexible spending account (FSA). You do lose funds in an FSA if you do not use them by the end of the year.

2. You can only earn low interest on your HSA funds

Actually, you don't have to leave your HSA funds in a low-interest savings account. You can invest HSA funds in stocks and other investments for higher growth potential. This is especially beneficial if you don't plan to spend your HSA funds any time soon and can take advantage of tax-free growth for as long as possible. Investment options vary by HSA provider, and some require a minimum balance (such as $1,000) before you can put your HSA funds in investment options.

3. HSA funds can only be used for hospital bills and major medical expenses

Health savings accounts are not only for major medical costs. The IRS identifies a long list of health-related expenses that HSA funds can be used to cover, including smaller expenses that may surprise you. A few examples include:

Acupuncture
Bandages
Chiropractic treatment
Contact lenses
Dental care
Eyeglasses
Hearing aids
Prescription drugs
Physical exams
X-rays

4. You can't get an HSA if you are self-employed

Many employers offer HSA programs as a benefit. Some even kick free money into HSA accounts for employees. However, you don't need to have an employer to open a health savings account. If you sign up for a high-deductible health plan (HDHP), you can fund an HSA through an HSA provider and get all of the same tax benefits.

5. If you never have health expenses, you'll never be able to use your HSA funds

Most people can expect to have significant medical expenses at some point in their lives, especially as they get older. But what would happen to your HSA funds if you stayed healthy and never had any health care expenses? Beginning at age 65, you can withdraw your HSA funds for any reason without penalty, only paying income tax on funds you draw. This feature means that your HSA effectively turns into a traditional IRA when you hit 65, with the added benefit that if you do have qualified health expenses, you can access your HSA funds tax-free for those costs.

6. High-deductible health plans only benefit healthy people with low health care costs

If you have a lot of medical costs, you may decide that it doesn't make sense to sign up for a high-deductible health plan when a low-deductible plan will step in earlier to pay for your care. This isn't looking at the whole picture. The advantages of using an HSA can turn out to be a smart choice for many individuals and families. The higher potential out-of-pocket health care costs with an HDHP can be offset by the lower premiums and tax benefits of a health savings account. You can use an HSA vs. traditional health plan calculator to help you decide which is best based on your anticipated health expenses.

7. HSAs are a hassle to use

This is one of the myths that stopped me from signing up for an HSA at first. I worried that it would be too difficult to get funds out of my HSA when I had medical expenses. However, I found that it is actually easy to access HSA funds. These are some of the features that make an HSA so easy to use:

You can get an HSA debit card to use when paying for health care expenses.
You can write a check to pay for medical expenses, then transfer money from your HSA into your bank account to cover it.
Health savings accounts typically have online tools you can access from your computer or phone to check your balance and see a record of your transactions.

8. If you lose your job or change employers, you lose your HSA funds

Not true! HSA funds are portable from one employer to another, and you get to keep your HSA funds even if you stop working altogether. If you want, you can even change your HSA provider without changing employers.

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15 Smart Things You Can Do With Your Finances, Even if You're Broke

Rachel Slifka — Tue, 20 Feb 2018 09:00:06 +0000

Are you living paycheck to paycheck, unsure if you will have enough money to cover your bills every month? If so, it can seem nearly impossible to get ahead financially.

But even if you're broke, you can focus on making small, smart money moves. By changing the way you handle your finances, you'll be able to prepare for an emergency, save for the future, and break the cycle of living paycheck to paycheck. Here are 15 smart things you can do with your finances, even if you're broke.

1. Pay your bills on time

No matter how broke you may be, failure to pay your bills on time is only going to make matters worse. Not only will this result in late fees or overdraft charges, but it also damages your credit score and could even cause your credit card's interest rate to increase.

Typically, there are two reasons why people do not pay bills on time. One is that they don't have enough money, and the second reason is that they simply forget.

If cash flow is your problem, you will need to figure out how you can lower your expenses while increasing your income. If disorganization causes you to miss bills, it's time to try out systems to better organize your finances. (See also: 5 Ways to Automate Your Finances)

2. Start an emergency fund

An emergency fund can make or break your finances. Though experts say you should ideally have six months' to a year's worth of living expenses saved in an emergency fund, you don't have to let that amount overwhelm you. Even $500 can protect you from many financial emergencies.

You can easily start an emergency fund by opening a new savings account that is specifically for emergencies. You can auto draft a few dollars out of your paycheck every pay period. This will automatically build your emergency fund without any additional effort on your part. Don't forget, these funds are only to be used in emergency situations, such as for a medical expense or car repair bill. (See also: 11 Ways Life Is Amazing With an Emergency Fund)

3. Prioritize debt

Debt, especially high-interest debt, can completely derail your finances. And if you're broke, it can feel nearly impossible to make any progress in paying it off. If you're having problems even making the minimum payments, it's vital to speak with your lenders as soon as possible. They may be able to get you on a repayment plan that works for you.

The more quickly you pay off debt, the less you will pay. Even if you are struggling financially, try to find small ways to slash your budget and earn more income in order to put more money toward debt. (See also: 7 Easy First Steps to Paying Off Debt)

4. Start small with investing

I know, I know; when money is tight, the last thing you think you should do is siphon off money for investments. But investing even a few dollars now can change your financial future for the better. Start small. If your employer offers a match when you contribute to the 401(k) plan, aim to contribute at least enough to receive the full match. (See also: 7 Things You Should Know About Your 401(k) Match)

5. Automate your finances

Automating your finances is an easy way to ensure all your bills are paid and you meet all of your savings goals. You can set up autopay for most bills. Some companies, or even student loan servicers, offer a small discount if you sign up for autopay, so it is certainly worth considering.

Keep in mind, it's a good idea to still thoroughly look over every bill even if it is on autopay. You will want to ensure that you're being billed accurately. (See also: The Pros and Cons of Autopay)

6. Find a better bank

Most people find a bank and stick with it. But what if you could earn more money simply by switching your financial institution?

When searching for a bank, there is a lot to consider. Everyone has different personal preferences, so it's important to find a bank that works for you. For instance, do you prefer to go into a physical branch? If so, you should make sure there are locations convenient for you. Are interest rates important to you? Shop around for the best deals. Do you frequent ATMs? Find a bank that offers plenty of in-network ATMs. (See also: Switch to a Better Bank in 5 Easy Steps)

7. Live frugally

Living frugally doesn't mean you have to be cheap. You can practice frugality by simply making a few small lifestyle changes.

Cook at home instead of eating out. Turn off the lights when you leave a room. Cut back on expensive hobbies and events. You don't have to cut everything out entirely, but by making a few frugal choices, you can save significant money every single month. (See also: The Only 6 Rules of Frugal Living You Need to Know)

8. Track your spending

When you're broke, every cent counts. The most valuable tool at your disposal is a budget. In order to start a budget, you will need to track all of your spending. Where does your money actually go? You might be surprised.

Luckily, tracking your spending doesn't have to be an arduous task. There are plenty of apps that will automatically track your spending for you and provide analytics about your budget. (See also: These 5 Apps Will Help You Finally Organize Your Money)

9. Cut out expenses entirely

While you're tracking your spending, you are likely to find expenses that you didn't even know you had. What could you cut out?

Things like cable TV, magazine subscriptions, or cleaning services might be nice, but they aren't necessary, especially if you're struggling to make ends meet. Cut these expenses out entirely and you may be able to free up a few hundred dollars in your budget every month. (See also: Are You Spending Too Much on "Normal" Expenses?)

10. Communicate with your family

Communication is key to financial success. You'll find it very difficult, if not impossible, to succeed financially if your family is not on board. Talk to your family and friends about your financial goals. Make goals together, so that everyone is on the same page. (See also: How to Talk to Friends and Family About Money (Without Making Everyone Mad))

11. Get organized

Organization can greatly improve your finances, and it costs almost nothing to be organized.

Figure out systems that work for you. How will you track your income? Expenses? Net worth? How will you budget? Make sure all your bills get paid on time? Save money?

You can organize your finances by setting aside as little as one hour per week. Use that hour to update your numbers, check in with your financial goals, and communicate with your family. (See also: 6 Quick Tips for Organizing Your Finances)

12. Prioritize your financial goals

If you're saving for an emergency, socking away retirement funds, paying off credit card debt, sending your kids to college, and plugging away at your mortgage, it can be nearly impossible to hit all of your financial goals at once. Achieving your personal finance goals requires prioritization.

Determine what goal is most important to you right now. Maybe your initial goal is to simply organize your finances, and then focus on paying off credit card debt. Once you set a focus, you'll feel less overwhelmed and you'll be better able to make discernible progress (See also: 6 Simple Money Milestones Anyone Can Hit)

13. Avoid unnecessary fees

Fees are typically penalties for small financial blunders, but they can add up quickly. For example, say you miss one bill because you didn't have enough money to cover it. That biller could charge you a late payment fee, plus you could receive an overdraft fee from your bank. One late bill could cost you an additional $50 or more in fees.

If you have a couple of these a month, you'll find it hard to ever get ahead financially. By budgeting hard for a few months and building enough of a buffer in your checking account, you'll be able to prevent unnecessary fees.

14. Increase your income

Increasing your income is one of the best things you can do for your financial situation. Unfortunately, many people don't think they have control over their income. They might believe that their income is at the sole discretion of the organization they work for.

That's not true. While your boss probably has the final say over your pay, you can always work to earn income outside of your 9-to-5. Whether you start freelancing, baby-sitting, or working a part-time job, there's no shortage of ways to earn extra cash. (See also: 14 Best Side Jobs For Fast Cash)

15. Have fun

Remember, you won't be successful for long if you don't allow yourself to have some fun along the way. Prioritize the things that are important to you, even if they cost money.

Of course, you'll have to make many sacrifices, but by treating yourself every once in awhile, you will be better able to sustain your new financial lifestyle for the long haul. (See also: Yes, You Need "Fun Money" in Your Budget)

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6 Reasons Why Financial Planning Isn't Just for the Wealthy

Dan Rafter — Wed, 14 Feb 2018 10:00:06 +0000

There's an unfortunate divide when it comes to financial planning. The lower your income, the less likely you are to have a financial plan. But it doesn't have to be that way.

A 2016 Financial Engines report found that only 37 percent of American workers with yearly incomes between $35,000 and $100,000 have a comprehensive financial plan to grow their wealth. Meanwhile, 48 percent of workers with an annual salary of more than $100,000 do have a plan. What's more, wealthier Americans tend to have more comprehensive financial plans than those followed by middle-income earners.

The problem with this is obvious: Financial planning can help everyone, not just people with higher salaries. But too many lower- and middle-income earners think that they don't make enough money to warrant having a financial plan. This is dangerous thinking, as lacking a financial plan can scuttle your efforts to save for retirement, help pay for your children's college education, or even buy a home.

Here are six reasons why you need a financial plan, even if you don't make over $100,000 per year.

1. Without a plan, it's harder to set or meet financial goals

How much money do you need to save for a healthy and happy retirement? Without a financial plan, you probably have no idea. And how do you accumulate these savings? Again, if you don't follow a financial plan, the odds are likely that you won't meet your retirement goals.

According to the Financial Engines study, people with financial plans save about 10 percent of their salaries toward retirement, while those without save only 6 percent. This can make a big difference. The study uses the example of a person starting out with $50,000 in retirement savings. If that person earns $100,000 each year, and saves 10 percent of that salary for 25 years, they will have amassed as much as $1.13 million in retirement savings. Meanwhile, someone saving 6 percent of that income for 25 years will only have saved around $890,000. (See also: Here's How Far $1 Million Will Actually Go in Retirement)

2. A financial plan can help you rein in your spending

When you get to the end of every month, is your bank account nearly drained? Do you know where your money has gone? If not, a financial plan can help.

A basic pillar of creating a financial plan involves tracking where your money goes each month. It's all about creating a household budget that lists the average dollars you spend on everything from utilities and rent, to transportation, groceries, dining out, and entertainment. Once you have these figures in front of you, and once you compare them with how much income you bring in, you can adjust your spending so that you aren't constantly running out of money each month. Without a financial plan, you'll just keep overspending. (See also: Build Your First Budget in 5 Easy Steps)

3. It will help you reach big financial goals

Do you want to buy a house? Or maybe you dream of helping your children pay for their college education. Attaining big financial goals such as these is a far more challenging task if you don't have a financial plan to guide you.

A financial plan will spell out how much money you'll need to reach life's big financial goals — everything from saving enough for a down payment on a home, to buying your first car, to saving enough money to help your children graduate from college without mountains of student loan debt.

Unfortunately, a majority of Americans earning lower or middle-class incomes don't plan for attaining these big goals. The Financial Engines study found that only 41 percent of middle-income workers have financial plans for saving for a child's college education. A far higher number — 61 percent — of wealthier Americans have financial plans that address this challenge. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

4. It will help you protect your loved ones

If you died unexpectedly, what financial ills would fall on your children or partner? If you invest in life insurance, you can help protect these loved ones in case you do die.

The problem is, Americans who don't have financial plans are far less likely to take out enough life insurance or disability insurance to properly protect their families. The Financial Engines study found that 67 percent of middle-income earners have purchased life or disability insurance, while 83 percent of upper-income earners have these policies in place. (See also: Why Your Group Life Insurance Is Not Enough)

5. With a financial plan, you're likely to have less credit card debt

The 2013 Household Financial Planning Survey and Index, completed by the Consumer Federation of America and the CFP Board of Standards, found that those with financial plans tend to have less credit card debt and, when they do, are more likely to have a plan for paying it off.

According to the survey, 38 percent of adults without a financial plan have significant credit card debt, and only 47 percent of these people have plans to reduce it. Meanwhile, even a little bit of financial planning seems to help people rely less on credit cards. Among adults who fall into the "limited planners" category — meaning they have a financial plan, though not an especially detailed one — are less likely to have such debt. The survey found that 61 percent of these limited planners have no credit card debt at all. And only one in five people with comprehensive financial plans have significant credit card debt that needs to be paid down, with 92 percent having a plan to do so. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

6. You'll be better prepared for a financial emergency

What happens if your car's transmission goes on the fritz? What if your home's furnace conks out in the middle of a chilly night? If you don't have an emergency fund built up, you might have to pay for those repairs with a credit card.

Even worse — what if you suddenly lost your job? This is why that cushion is so important. Financial experts recommend that you have at least six months' to a year's worth of daily living expenses saved in an easy-to-access fund, like a savings account.

Building an emergency fund takes time, but if you have a financial plan, you're far more likely to set aside the money you need each month — even if your salary isn't particularly high. Just $200 or $300 a month can add up over time. And if you have a financial plan that shows you how to save that money every month — perhaps by cutting down on unnecessary expenses — you're far more likely to build an emergency fund. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Creating a plan

Now that you know why a financial plan is so important, it's time to create one. The good news is that while a financial planner can help, you don't necessarily have to work with one if doing so is too costly.

Start by creating a household budget that shows how much you spend each month, including estimates for discretionary expenses, and how much you earn. Then, determine how much money you need to save for retirement, college tuition, and building an emergency fund. If you can't save a lot, start by saving whatever you can each month. From there, you might be able to boost those savings by reducing some of your less important expenses.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways Your Money Is Being a Jerk (And How to Fight Back)

Paul Michael — Tue, 16 Jan 2018 09:00:07 +0000

They say money is the root of all evil. That’s debatable, but it can certainly be at the center of a lot of problems. You want to get out more, but your money says no. You want to retire someday, but your money gives you the finger. You want to take a vacation to Europe, your money laughs in your face. Money can be a real jerk sometimes. But, you can fight back. Take control of your finances, and you’ll be the one calling the shots.

1. Your credit cards are tempting you to spend, spend, spend

Oh, those credit cards with their promotional APRs, low-rate balance transfers (with a 3 percent fee, of course), and flashy rewards programs. Your mailbox is stuffed with offer after offer of five-minute applications and 60-second approvals. Credit lines are upward of $10,000. That’s $10K you can spend on whatever you want, whenever you want, and you don’t even have to pay it all back at once.

Want a new coat? Swipe the card. Have your eye on a new watch? Grab that plastic. Thinking about a new car? The down payment is in your pocket. And when you have so many of these cards, it feels like a license to spend. The thing is, credit cards aren't free money, and it’s way easier to spend with them than it is to pay them back.

How to fight back

Credit cards are financial tools, and if used correctly, they can be very good to you. They help you build credit, offer travel rewards and perks that make life easier, and are safer and easier to carry than cash. But, you must use them wisely.

Do not spend money on a credit card unless you can afford to pay off the balance in full at the end of each billing cycle. If you don’t have the money to do that, well, maybe you shouldn’t be buying the item you cannot afford. Once you stop paying the full balance, interest is added. And the longer you keep a balance, the more interest is added on. If you’re not careful, the debt will bury you over time. (See also: The Fastest Method to Eliminate Credit Card Debt)

2. Your monthly debt payments are ripping off your budget

You look at the amount of money you have coming in every month and you’re happy with it. But then you look at your debts and monthly obligations; The credit cards. The car payment. The mortgage. The student loan. By the time you’ve paid those bills, you barely have enough left to buy groceries. And money for fun, like going out to eat or a weekend away? Forget about it. Your debt is like a ball and chain around your whole life.

How to fight back

The first thing you need to do is get your financial house in order. Analyze your monthly bills, and make a list of your debts, the payments, and the length of time needed to pay them all off. If this already makes your head hurt, consider meeting with a financial adviser who can help you break the process down into simpler steps. (See also: 5-Day Debt Reduction Plan: Search and Destroy)

Once you have all your ducks in a row, look at ways to pay down the debt. You may have to make some sacrifices to get this done. No trips to Starbucks for a while. Go for cheaper generic brands (which, to be honest, are usually made in the same facility as the expensive brand names). Pack your lunches every day. Free up as much money as possible, and do something with your debt called “snowballing.” Put every cent you can toward paying off the smallest debt first, and make minimum payments on the others. When that debt is paid off, move onto the next in line, applying the maximum to it, and the minimum to the others. It’s a satisfying way to tackle debt because it progresses quickly. (See also: 6 Secrets to Mastering the Debt Snowball)

At the same time, look into other ways to generate extra cash. Can you refinance your home and pay off a debt while still hanging onto a substantial chunk of the equity? Paying 4 percent interest per month is way better than the 22 percent interest some credit cards charge.

3. Your “savings” account is laughing at your dreams

Savings; that’s wishful thinking. For a lot of us, a savings account is just a temporary resting place for our money until the next emergency beckons it.

A recent GOBankingRates study found that 34 percent of Americans have no savings at all, and 35 percent have less than $1,000. Sure, you want to go on that trip to Europe, or finish the basement for the kids. But guess what? The water heater just went on the fritz. Or the furnace just curled up its toes and died. Instead of looking forward to some time away, or something to make home life a little easier, you’re staring into a savings account filled with cobwebs and shattered dreams.

How to fight back

Every financial adviser will offer you the following piece of advice: Pay yourself first. Sure, it’s easier said than done, but you need to get into the habit of squirreling away a percentage of your income each month automatically.

A dedicated emergency fund is critical for surprise expenses that threaten to wipe out your other savings — savings you may have wanted to use for that overseas trip or basement remodel. Many experts recommend having between six and 12 months' worth of your expenses covered in this fund. If you have nothing set aside in an emergency fund, now is the time to start building one.

Set up an automated transfer from your checking account to a savings account and your emergency fund. Find small ways to save money without even thinking about it. There’s an app called Earny that checks price drops on purchases you have made, and automatically claims the difference on your behalf (Earny takes 25 percent of the refund). Put any Earny refunds into your savings account or emergency fund.

Other apps like Digit, Chime, and Acorns can help you save money without even noticing it. Acorns simply rounds up purchases to the nearest dollar, and puts the change into an investment account (fees range from $1 per month for balances under $5,000, to 0.25 percent for larger balances). Do whatever you can to make saving a monthly, or even weekly, habit. (See also: 11 Ways Life Is Amazing With an Emergency Fund)

4. Your retirement fund is MIA

You’re sitting on a beach with a cool breeze kissing your face. The sun is out. The waves are lapping around your feet. You're sipping a Piña Colada. And then you hear that record needle scratch, open your eyes, and realize it’s a dream; a far-off dream. Your 401(k) is looking about as healthy as a fly that just splattered against the windshield of your car. You have been working your butt off for 20 years, and have very little to show for it. At this rate, you’ll be dreaming of retirement for the rest of your life.

How to fight back

Start by taking a breath. Hopefully retirement is still a good 20 or 30 years away, and that gives you time to beef up your fund and take advantage of compound interest.

If you are employed by a company, you probably have a 401(k) match of some kind. The first thing you need to do is max out that match. If it’s 6 percent, put in 6 percent of your salary each month. You’ll actually be saving 12 percent of your salary, and that’s an excellent start. If it’s a maximum amount each year, hit that figure.

Next, look at the kind of 401(k) fund you have. You should be able to choose what kind of risk you want to take, and if retirement is 25 years from now, you can afford to be in an aggressive fund; one that’s going to be a bigger roller coaster ride for your money, but will lead to bigger gains over time. (See also: 7 Roadblocks to Retirement (And How to Clear Them))

5. You’ll be making the minimum payment … forever!

Those accounts whisper in your ear constantly; “There’s no need to empty your bank account to pay me off. Just make this teeny, tiny minimum payment. You’ll hardly notice it.” Yeah, well, that might seem better in the short term, but in the long run those small minimum payments are keeping you in a never-ending cycle of debt.

When you make the minimum payment, most of the money goes toward the interest that was applied to the balance. You pay it, forget about it, and next month you do it again. And again. And again. The balance never seems to go down, and that’s what the credit card companies want. Before you know it, you’ve spent five years paying the minimum and the end is nowhere in sight. (See also: All the Ways Minimum Payments Are Evil)

How to fight back

Never make the minimum payment unless it’s part of a debt snowball plan mentioned earlier. Paying just 2–3 percent of the balance is only making the credit card companies richer.

You also need to stop using the credit card. By paying the minimum and adding to the balance, you’re putting yourself in the pocket of the credit card company for the rest of your life. Instead, cut down expenses and find other ways to make purchases until you can get this balance down to zero.

Look for 0% balance transfer credit card offers. Some will give you 18 months or more at zero interest. Once you grab one of those, all of the money you pay each month goes toward the principal. Find ways to cut costs from your monthly budget and apply that to the payment on this card. The 0% interest combined with a much bigger monthly payment will really help you shrink that balance significantly. Just make sure to pay off the balance transfer card in full within the promotional APR window to avoid interest.

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Your Small Business Needs an Emergency Fund, Too

Denise Hill — Mon, 15 Jan 2018 09:30:06 +0000

The U.S. Bureau of Labor Statistics reports that approximately one-third of all businesses fail within the first two years. Half fold within five years. And of the businesses that fail, a banking survey showed that 82 percent do so because of cash flow issues.

These numbers are not meant to keep small-business owners up at night or deter new entrepreneurs. They're simply a statement of fact and should serve as a reality check for all small business owners: Having an emergency fund is not optional. (See also: 8 Common Myths About Starting a Small Business)

Three reasons your small business needs an emergency fund

In business, the term used to describe emergency or rainy day funds is "retained earnings." Retained earnings are cash supplies that are kept on hand to enable your business to continue operating in lean times or in an emergency. These funds allow your business to keep providing services while making payroll, paying bills, and purchasing supplies, and they allow you — the owner — to continue sustaining your family's income. (See also: How to Pull Your Small Business Out of a Cash Crunch)

Most businesses fail due to a lack of preparation for the inevitable. Below are three major reasons your small business needs an emergency fund.

Emergencies

The most important thing an emergency fund does is it provides immediate access to funds during critical times. And while you may be insured against product loss, property damage, and equipment repairs, the time it takes to process those claims and get your hands on the necessary cash could be detrimental. And insurance may not cover every eventuality.

An emergency fund allows you to continue operating and immediately begin making repairs and replacing any lost, damaged, or stolen products. The saying, "Time is money" applies in business, and having extra funds on hand could be the one thing that keeps you on the favorable side of those business statistics.

Cash flow issues

A staggering 82 percent of businesses that fail do so because of issues with cash flow. Cash flow doesn't just mean the flow of money that is coming in and out. It also encompasses timing and liquidity.

For example, if your business operates on an invoicing system and invoices aren't paid or are paid late — after your loans and other payments are due — you could run into a cash flow problem. This is extremely important if you operate a seasonal or cyclical business.

Having funds that are available and easily accessible is the life raft that can keep your business afloat while you wait for payments to be made. It will also protect you from incurring unnecessary debt since you won't have to borrow money to make ends meet. Accumulating debt through lines of credit to cover problems and shortfalls is a prime reason that so many startups fail within the first few years. (See also: Best Credit Cards for Small Business)

Capitalize on opportunities

Another extremely important purpose of having cash on hand for emergencies is to capitalize on business opportunities. Liquidity supports agility.

It can allow you to expand the business and strategically launch a new product line. It allows you the freedom to capitalize on opportunities in the marketplace, meaning you could buy out a competitor or purchase extra inventory at rock bottom prices. Your retained earnings give you the ability to move with speed. (See also: 10 Smart Ways to Get a Small Business Loan)

Establishing your small business emergency fund

The idea of stashing thousands of dollars in a savings account for the off chance that it may come in handy at some point in the future may seem a bit impractical. Yet there is one guarantee in business — it is going to rain. And the storm is going to impact your cash flow. While the thought of amassing thousands of dollars can be stressful, you can't let it stop you. Having an emergency fund is nonnegotiable.

Establishing your retained earnings or emergency fund is very similar to the personal finance process. You set your goal, and throw every extra dollar at it until you reach it. It's a good idea to set up an automated savings plan so that your emergency fund contributions are made before you have a chance to count them as profit. It should be a regular line item in your budget.

It's also important to regularly prepare and analyze cash flow statements to ensure you have a clear picture of where you are at all times. Hiring a bookkeeper, using cloud-based software such as QuickBooks, or staffing a Certified Public Accountant (CPA) are great ways to help keep a handle on your cash flow.

How much should you save?

Much like a personal emergency fund, businesses should have anywhere between three months' and a year's worth of expenses set aside for emergencies. The specific amount your business needs will depend on your unique circumstances such as your expenses and the reliability of your income sources.

You also must consider other aspects of your company that could affect cash flow, such as the type of business and that industry's culture. Some industries are more susceptible to lawsuits and legal actions. If you operate a medical practice or a financial consulting firm for example, you will probably need a larger emergency fund than someone who runs a graphic design business.

Where should you put the money?

Once you've decided how much you'd like to save, you need a place to put it. These funds are not meant to ride the stock market or earn very much in interest. The goal is for the money to be there, liquid, and available when you need it.

Experts suggest that you consider things like money market funds, savings accounts, and short-term certificates of deposit (CDs). Shop around online for the highest-paying interest rate, or if you have a good relationship with your bank, you may be able to negotiate a better rate. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

As you embark on your journey of grounding and fortifying your business by establishing a solid emergency fund, remember to start off small. Set short, realistic goals and remain steadfast. Look for ways to lower expenses and save more during high volume seasons. Be frugal and stay away from risky deals until you have reached your emergency fund goal.

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Surefire Signs You Have Too Much Debt

Denise Hill — Mon, 18 Dec 2017 09:00:06 +0000

Dave Ramsey once said, "Debt is dumb, cash is king." Truer words have never been spoken.

According to data from the U.S. Federal Reserve, the average amount of credit card debt per U.S. household is over $16,000. And even though debt and consumerism are the American way, staying up at night worrying about money doesn’t have to be the norm.

The ability to make the minimum payments on all your debts each month doesn’t constitute financial stability. Your credit card bills may not be keeping you up at night yet, but if you analyze your financial situation, you may find that you are closer to the edge than you think.

Here are a few warning signs that you have way too much debt:

1. Your debt-to-income ratio is too high

A long-standing rule of thumb says that monthly debt payments (excluding your mortgage) should not exceed 20 percent of your monthly net income. And while rules of thumb are a great gauge, don’t count on this one to be the final word concerning your relationship with debt.

The 20 percent rule is an overarching starting point for evaluating your debt, but it doesn’t consider your total financial picture or your level of income. For example, if your net income is $5,000 a month and you pay little or no rent, $1,000 in monthly consumer debt is manageable. However, if you only earn $2,000 monthly, pay $800 in rent, and have to shell out $400 for credit card debt — you are in trouble.

A better approach is to keep your debt-to-income ratio as low as possible. To stay out of the danger zone, financial experts believe that being at or under 15 percent is considered “safe,” between 15 and 20 percent is “at risk,” and above 20 percent is when sirens are blaring.

2. You can't afford living expenses without a credit card or loan

The dangerous trend of charging day-to-day expenses is becoming increasingly common.

A study conducted by NerdWallet found that household income has grown by 20 percent in the past 10 years, while the largest and most common expenses for most people — medical care, food, and housing — have outpaced income growth.

This is the primary reason why debt reduction is a must. It costs more to simply survive today than it has in times past.

Using credit for standard living expenses, such as gas and groceries, and not paying it off each month is a sign that you are headed for trouble. It could mean that your living expenses exceed your income or that you are living a lifestyle you can’t afford. Financial experts agree that you should only use credit cards to handle the day-to-day if you are paying the balance in full every month. (See also: Should You Pay Your Bills With a Credit Card?)

3. You keep dipping into your savings

Repeatedly dipping into long-term savings to make ends meet or pay for unexpected expenses (car maintenance, traffic tickets, doctor's visits, etc.) indicates that you may have an issue with liquidity and savings. You also probably don’t have enough money to truly handle a financial emergency.

Another good rule of thumb as it relates to savings is that you should have at least three to six months' worth of living expenses in an emergency fund. What constitutes an emergency are things such as a job loss or an unexpected medical expense. Your car note should not be paid from your emergency fund.

If you keep using your emergency stash for every unbudgeted expense, that is a red flag. You need to re-evaluate your budget and spending. You may need to find cheaper housing or transportation and cut some of the little things that nibble away at your budget such as shopping, eating out, and going to the movies. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

4. You can’t pay your credit card balances in full each month

The goal with credit cards should be to pay them off every month. When you only make the minimum monthly payments, most of the money is eaten up by interest and very little goes to paying the principal. Carrying a balance from month to month is costing you.

For example, let's say you owe $5,000 on a card at 17 percent interest with a minimum monthly payment of $100. If you can’t afford to pay more than the minimum, you could be paying that bill for 27 years. And the icing on the cake? Over the lifetime of the debt, you would have paid double the original amount because of interest charges.

If you can’t pay your credit card in full each month, at least pay more than the minimum while keeping the balance as low as possible. You should never carry a balance of more than 30 percent of your credit limit on any one card or in total. (See also: The Fastest Method to Eliminate Credit Card Debt)

5. You have to rob Peter to pay Paul

If you are constantly missing payments, paying things late, or using one credit card to pay another, you are on a high-speed train to financial disaster. Things will only get worse from here if you don’t make some adjustments — quick.

When you use your credit card to pay on other forms of consumer debt — especially other credit cards — you spend more money due to fees you incur. Most credit card, mortgage, and education lenders don’t allow you to pay them directly using a credit card. You have to go through a third-party service or get a cash advance in order to pay with your card, and both of those options come with hefty fees.

The deeper you get into debt, the faster it mounts. If you find yourself in a situation where you are drowning in credit card balances, you need to take action.

Step back, evaluate your situation, and make a plan. The first step is developing a realistic budget and eliminating unnecessary spending. You’ve got to be brutal and savagely cut the things you don’t need.

The next step is to devise a debt elimination plan. This may require you to contact your lenders to renegotiate repayment terms, and you may have to find a way to increase your income. A few options for generating extra income include selling stuff you don’t need or can’t afford, getting a side gig, or even downsizing. The point here is to regroup and take control of your debt instead of allowing it to control you. (See also: 7 Easy First Steps to Paying Off Debt)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Ways to Tidy Up Your Finances Before the Holidays

Mikey Rox — Wed, 04 Oct 2017 08:30:12 +0000

Summer is over. This fall, fortify your finances to take the end of the year in stride. These helpful tips will get you back on track (and help you stay on track) budget-wise.

1. Start your holiday shopping now

Instead of making a mad rush for last-minute deals, spread out your gift buying over the course of the next couple months. Watch your local circulars and emails for discounts and promo codes, and strike while the proverbial iron seems hot.

For instance, I just purchased several packs of Calvin Klein undies as a Christmas gift for my boo because I received an email for 25 percent off, plus I had an additional 15 percent off coupon with free shipping. Will there be steeper discounts in the near future? I can't be sure, but I had enough savings stacked up to feel like I made a smart choice, and now I can check one more gift off my list.

2. Max out retirement plan contributions

If you haven't already — and your budget can tolerate it — try to max out your 401(k) and 403(b) contributions at work. The employee contribution limit for 2017 is $18,000, and if you haven't reached that, it's time to come as close as you can. Those over age 50 can contribute an additional $6,000 as a catch-up contribution. If your employer offers matching funds, this should be a top financial priority, lest you fail to claim thousands of dollars in free money.

3. Take advantage of layaway

Layaway has had its up and downs over the years. What was once a common practice during the Great Depression started to fall out of favor by the 1980s thanks to the rising popularity of credit cards. Walmart all but left the service for dead in 2006 when it announced it would stop offering it, but by 2012, many retailers were back on the layaway bandwagon to make buying easier on customers in a tumultuous economy. (See also: Is Layaway Still Worth It?)

Personally, I loved layaway in my early 20s when I was on a shoestring budget. It allowed me to plan ahead and make scheduled payments so everything would be ready to go by Christmas. It's certainly a helpful buying tactic to look into if your finances are tight but you still want to participate in gift giving.

3. Use or lose flexible spending dollars

If you're lucky enough to have a flexible spending account through your employer, your FSA may need to be spent by year's end. Try to use up the balance so you're not losing cash. In doing so, you'll free up funds elsewhere that you don't have to use on medical needs.

"Since 2013, your employer may offer one of two carry-over options," says Ryan McPherson, founder of the financial planning firm Intelligent Worth in Atlanta, Georgia. "One — roll up to $500 of unused funds into the following year or two, offer a two-and-a-half month grace period during which you may use your unspent FSA balance. Check with your employer, because offering one of these options is not a requirement. If you don't have either of these carry-over options and expect to have money left in your FSA, try to move appointments and medical/dental-related purchases (i.e., eye glasses or contacts) into 2017."

If you're unsure where your FSA funds apply, IRS publication 502 offers guidance on what counts as a "qualified medical expense." (See also: 8 Ways to Spend Your Last-Minute Health Care FSA Funds)

4. Make a gift list and check it twice

I use to get in this mindset — especially when I started making a little more money — that everybody needed a gift. That logic is false. Everybody doesn't need a gift for the sake of giving them a gift. Now, I make a list of the usual suspects with whom I exchange — immediate family, boyfriend, a few friends — but even then I give it a second glance to see where I can make cuts. Will I see this aunt or that buddy this year? If the answer is no, decide whether a gift is necessary at all to put some more money back in your pocket. (See also: 9 Gifts That Won't Become Clutter)

5. Revise your winter budget

Everything about winter costs more than other times of the year, and you should prepare by revising your budget to make sure all bases are covered.

"In addition to holiday expenses, as the weather gets colder, heating costs also increase," says Roslyn Lash, an accredited financial counselor. "It's imperative that you also set some money aside for inclement weather expenses. Unfortunately, when ice/snow is the forecast, schools typically close, and this could mean paying someone to baby-sit the kiddos. It could also prevent you from going to work, which means lost revenue." (See also: 5 Big Winter Expenses That Could Freeze Your Budget)

6. Determine what's necessary for the holidays and cut back from there

I love all things holiday — the decorations, the parties, the gifts, the endless array of baked goods — and if I'm not participating in someone else's festivities, I'm hosting my own. Of course that can get expensive, so I take a one-year-on, one-year-off approach to the latter part of that equation. Two years ago I hosted a holiday party in my home, but last year I didn't. I bought more holiday decorations for the house last year, but this year I won't. This practice not only helps me save money, but it also lets me cycle through things that I need to get rid of in a timely manner (like half-full bottles of liquor, for instance) and cut down on overall holiday clutter. (See also: Avoid These 5 Common Holiday Budget Pitfalls)

7. Get into a cash back state of mind

Upfront coupons and savings are great, but there's plenty more to be had on the back end if you know where to look. Apps like Ibotta and Fetch Rewards provide cash back on purchases made on preset items or at selected retailers. Last month I scored more than $50 cash back (which was on top of other savings I received on the front end) by shopping through Ibotta.

If you're responsible at managing credit, now's also a great time to take advantage of a cash back credit card on your day to day purchases. By using a cash back card on necessities like groceries or gas, you'll earn cash to bolster your budget. Just be sure to pay off your balance in full every month, or else this method isn't worth it. (See also: 11 Ways Your Credit Card Will Save You Money While Holiday Shopping)

8. Rebid your insurance policies

You may be able to shave some money off your bills this fall by reviewing your insurance coverage.

Michael Landsberg, CFP and founder of Landsberg Bennett Private Wealth Management in Punta Gorda, Florida, recommends rebidding your auto and home insurance policies to at least three independent agents (but not the online ones that are all owned by the same companies).

"Often times, this rebidding process puts hundreds if not thousands back in people's pockets right before the holidays," he explains. "It's very easy. Just take your current policy declaration page and send that to an independent agent and let them do the work. The worst that can happen is you find out you've got a good program in place already."

9. Book travel before demand pricing kicks in

If you're traveling this fall or holiday season, book your mode of transportation and accommodations as soon as possible so you're not looking at ultra expensive rates at the last minute. Hotels and rental cars in particular go fast, and they're subject to on-demand pricing, which means your wallet could end up getting walloped if you're not shut out altogether. (See also: Do These 9 Things Now to Make Holiday Air Travel Easier)

10. Investigate a balance transfer

If you're carrying a high balance on a credit card, now is a great time to give yourself a credit card checkup.

"Explore what's out there," advises Han Chang, co-founder of InvestmentZen. "Many lenders are beginning to offer deals now to get a jump on the holidays. Consolidating credit card debt via a balance transfer can be pretty enticing, especially with those 0 percent introductory APR offers, which usually last for six to 12 months. If you can find a good offer, you could potentially pay down a significant amount of debt before November and December."

But nothing is ever free; offers like this often come with a one-time balance transfer fee ranging from 3 percent to 10 percent of the total balance transfer. That can really add up and, if you're not careful, completely negate any savings that 0 percent APR offers. Be sure to make your payments on time. (See also: Is a Balance Transfer Offer a Good Deal?)

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Money Moves Every New College Student Should Make

Emily Guy Birken — Tue, 29 Aug 2017 09:00:05 +0000

College is about more than just getting a degree. For many new college students, starting this phase of education is also a time to learn any number of important life skills, from proper laundry care to time management.

However, many college students often overlook one important life skill: money management. As a college student, you might assume that money management isn't important, since you've got so little money to manage.

Unfortunately, neglecting your money skills in college could have lasting negative repercussions throughout your adult life. Rather than assuming you'll sort out the money stuff "later," get off on the right financial foot by following these money moves when you start your college career.

1. Open a student checking account

Your brand-new university ID makes you eligible for student checking accounts. This gives you a good home for your money while you're in school, and helps you develop good banking habits.

Student checking accounts often have low or no minimum opening deposits, and they also generally do not require you to carry a minimum balance each month. In addition, some student accounts offer perks like a limited number of free out-of-network ATM transactions per month, free checks, and some overdraft forgiveness.

2. Start automating your bills

Once you have a checking account in place, you can take advantage of your bank's online bill paying services to set up automatic payments of your regular expenses. Automatic bill payment allows you to keep your focus on your studies, where it belongs.

Of course, the caveat is that you need to periodically make sure your account has enough money to cover your automatically paid bills. One good way to do this is to set up a weekly reminder to check your finances. This will help you establish the habit of keeping an eye on your finances even as they are taken care of automatically.

3. Create a spending plan for your financial aid

Receiving a big chunk of money from your university's financial aid office can be pretty exciting — whether you're receiving loans you'll have to pay back, or grants that you won't. It's tempting to live it up when you receive your financial aid, but that's a good way to run out of money before the semester is over.

Instead, take the time to create a spending plan for your financial aid disbursement before the money hits your bank account. Determine how much of your financial aid will need to go toward tuition, textbooks, lab fees, and living expenses. Having such a plan in place will help you keep your spending in check when you feel the urge to splurge some of your aid money.

5. Keep track of your student loans

Many college students — including yours truly! — make the mistake of paying no attention to their student loans until they have graduated. In general, the amount of money you are borrowing can seem unreal, so it's very easy to just ignore the problem until you reach your student loan exit interview just before graduation.

However, knowing early how much you owe and how much it will cost you to pay it off is both good for your financial health and can help you remain motivated in your studies. It's much easier to get up for that 8 a.m. chemistry lab when you understand just how much you're paying for the privilege of going to it.

If you have federal student loans, you can keep track of how much you have borrowed and what your repayment options will be through the National Student Loan Data System. Just select "Financial Aid Review," log in, and you can view all of your federal student loans in one place. If you have any private student loans, you will need to contact your lender for information regarding your loans.

6. Build up an emergency fund

When I was in college, a classmate's financial aid package was re-evaluated at the end of her first year. The school's financial aid office decided that she could count on an additional $1,500 from her family for her second year, even though she knew that it would be impossible to ask for that additional money. By working some serious overtime that summer and living off tuna fish and ramen, my classmate was able to scrape together the additional money. But this situation could have potentially meant the difference between her returning to school and her dropping out.

An emergency fund can make this kind of unanticipated financial change much less stressful than it was for my classmate, especially when you are already living on a shoestring.

Building an emergency fund might feel impossible when you're in college, but don't forget that small amounts can add up to something really helpful. Start with an automatic transfer of $5 —$10 per week into a savings account. Add in whatever excess money you come across — including the cash you get for selling back textbooks or some of the birthday money Nana sends every year.

Though your fund will grow slowly, working steadily on it will ensure that a financial aid (or other emergency) does not jeopardize your education.

7. Learn from your financial fumbles

Every time you make a financial decision as a college student, you have the opportunity to learn from your choices. The trick to learning from financial mistakes rather than repeating them, is to look back on the choices you made with curiosity and compassion for yourself. You're a college student, after all, and learning is the entire job description.

Take each moment of money regret as an opportunity to figure out where your financial weaknesses are. You'll finish college with a much better understand of yourself and your money temptations, as well as potential solutions for avoiding those temptations.

Learn about finances before you enter the real world

It may feel like adding financial responsibility on top of your educational requirements will be too much to handle, but college is actually a great time to work on your money management skills. Taking good care of your finances as you are engaging in higher learning sets you up for financial success after graduation.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Build a Secure Future Starting With Your Next Paycheck

Mikey Rox — Mon, 21 Aug 2017 08:00:06 +0000

If you've been putting off the inevitable with your money — finally getting your finances in order — now's your chance. Take advantage of that next paycheck coming in, and make these smart money moves.

1. Increase your savings and debt repayment, even by a little

Ideally you've been portioning out your paychecks to cover your monthly expenses, throw a little into savings, and pay down whatever consumer debt you've racked up. On your next payday, it's a smart move to increase (even by a small amount) the percentage you allocate toward savings and debt repayment. Every little bit will help provide you with more of a rainy-day cushion and chip away at nagging debt.

If you have credit card debt, focus on your highest-interest card first, and go from there. This strategy, also known as the avalanche method, will save you the most money in the long run on interest payments. (See also: The Fastest Method to Eliminate Credit Card Debt)

You may have to cut a discretionary item from your budget — like a night out with your pals — to afford this responsible increase. You're an adult, and it's time to start managing your money like one.

2. Investigate your life insurance options

There are plenty of cases to make for taking out a life insurance policy, but the most important one is so your spouse and children can get through the first few years after your untimely death. This is not a fun subject to think about, but it's a necessity. If you should suddenly pass away, you will want to leave your family as well taken care of as possible.

If you're single without a mortgage, life insurance probably doesn't need to be a priority when you can put your money somewhere more useful — like a 401(k). But heads of households absolutely need to have this money move on their radar, if not at the top of their list. (See also: 5 Reasons Why Life Insurance Isn't Just for Old People)

3. Set up new accounts for automated savings

In all likelihood, you have a single savings account — but if you have a hard time managing your money, perhaps one isn't enough. In fact, Kevin, creator of Financial Panther, goes so far as to suggest multiple accounts to which you can automate your savings. By putting this concept into practice, he was able to pay off $87,000 of student loan debt in two and a half years.

"If people have a matching 401(k) for work, they should try to put as much as they can into that right off the bat, and try to increase it little by little each paycheck," Kevin says. "From there, I like to set up multiple accounts where I can send my money to. I have accounts for short-term savings goals, long-term, and a Roth IRA, which I contribute money to since I max out my 401(k) each year. I also have micro-savings apps working for me, which take out extra money from my checking account based on algorithms they have … and stores that money in a separate account."

The money Kevin is left with is what he considers his "true" income. His multiple savings account method creates barriers for him to access his money, in turn making it harder to spend on frivolous things. (See also: Build Savings Faster With a Multiple Account Strategy)

4. Invest in self-improvement

Fact: You can earn more money in your career when you have more relevant skills. Thus, investing in yourself is just as important as saving or paying off debt. The return on investment can be exponential if what you're learning is valuable and you put it to work for you. This can be as simple as brushing up on networking, or taking continuing education courses at your local community college. (See also: 11 Ways a Professional Association Can Boost Your Career)

5. Get that emergency fund back on track

Maybe you've recently had a crisis and you needed to pull money from your emergency fund. Or, maybe you've just had more important and costly bills to pay in the meantime that have disrupted your savings. Whatever the case, start building this fund again, even if it's just small contributions here and there. You owe it to yourself to be prepared for the unexpected, and you don't want to have to reach for a high-interest credit card to bail yourself out of a problem. (See also: 6 Fast Ways to Restock an Emergency Fund After an Emergency)

6. Switch banks if yours isn't the best place for your money

One of the worst financial habits is sticking with the same bank, even if it's not the best choice for your money. If you've been contemplating switching institutions recently, use your next paycheck to give the move serious thought. Maybe your savings can earn more elsewhere, and if you're lucky, you can find a high-yield checking account and other incentives — like a couple hundred dollars in free money — just for making the move. (See also: How to Switch Banks)

7. Make a move to get ahead

If you're lamenting on a regular basis that you never have enough money for this or that, sit down next payday and consider your options. How can you increase your income? How can you bump up your savings and retirement contributions? If this isn't possible with your current take-home pay, it's probably time to weigh your options.

Should you start looking for a new, higher-paying job? Should you go back to school to learn a new skill? Do you have time to add a side-gig to your schedule, like driving for Uber or Lyft, or pet sitting via Rover.com? These are all options you have; you just have to want them bad enough. (See also: 14 Best Side Jobs for Fast Cash)

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: