retirement

9 Money Questions You Should Be Able to Answer by Age 30

Tim Lemke — Wed, 03 Oct 2018 08:00:12 +0000

If you are exiting your 20s, you may be gallantly resisting the urge to "adult" and actually pay attention to your finances. But it's time to get serious, people.

You don't need to obsess over every detail of your money just because you are entering your fourth decade of life, but there are some key things you should have a handle on if you want to achieve financial freedom and retire on time.

Let's examine these questions you should be able to answer by the time you turn 30.

1. What is your net worth?

Your net worth is the total sum of your assets minus your debts. By age 30, you should be focused on building that net worth to a healthy sum. This means boosting your income, investing well, and keeping debt to a low level.

It means knowing how much you're putting into your 401(k) and other retirement accounts. It means knowing how much you owe. There's no magic number for what your net worth should be at this stage, but it should definitely be in positive territory. If you have a negative net worth, work to reduce your debt load and start saving money more aggressively. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

2. What are you invested in?

By age 30, you should be investing as much money you can in stocks, with the intention of watching that money grow for the next three decades or more until you retire. Starting at age 30 will give you plenty of time to build a sizable nest egg, if you invest well.

At this stage, you may be throwing your money into whatever investments are offered by your employer's retirement plan. But you should take time to know precisely how your money is being invested. Are your holdings comprised of low-cost investments with a track record of growth? Are you paying high fees or commissions? And when was the last time you rebalanced your portfolio? These are the questions you should be asking yourself now, and you ought to have good answers. (See also: 8 Steps to Starting a Retirement Plan in Your 30s)

3. How big is your emergency fund?

If you're around 30 years old, you may feel like nothing seriously bad could happen to you. But life can come at anyone, and fast. At this point in your life, you should be putting some money aside for a rainy day. An emergency fund can help you absorb an unexpected expense, such as a medical emergency, big car repair, or a busted appliance. Opinions vary on how big an emergency fund should be, but you should ideally have at least three to six months' worth of daily living expenses saved in cash to endure a big life event. (See also: 5-Minute Finance: Start an Emergency Fund)

4. Are you on track to retire comfortably?

Retirement may be decades off, but it's still crucial to get a sense of whether you're saving enough now to ultimately retire when you want to. It's been said that by age 30, you should have half your income saved. This may seem like a steep total in an era of high housing costs and student loans, but it's achievable if you maintain good savings discipline. Calculate how much you'll have saved by age 50, then 55, then 60. If you're behind your target, it may be important to bump up your current rate of saving. (See also: 8 Things Millennials Can Do Right Now for an Early Retirement)

5. Are you properly insured?

Building your net worth isn't just about making money, but also protecting it. Insurance is perhaps the one thing you will pay for that you hope to never use. You may have health insurance, but have you taken time to review your policy and understand how much you'll end up paying out of pocket if you get sick? What about homeowners or renters insurance to protect your belongings? And what about life insurance? It's hard at age 30 to think about illness or accidents happening, but there's a fine line between living a carefree life and facing a financial disaster by being horribly unprepared. (See also: 15 Surprising Insurance Policies You Might Need)

6. Is your savings account the right one for you?

You've probably been putting money in a savings account since you were a teenager. But have you ever given any thought to how much interest your money is earning? Are you aware of what fees you're paying? By age 30, you should be mindful of where you're putting your money and should take time to shop around for the bank that treats you best. There are many banks out there, and you don't have to settle for the one right around the corner. (See also: 6 Important Things to Look for in a Savings Account)

7. What is your credit score?

Your credit score is like your financial report card. A high number means you've been responsible with your money, and you can be rewarded with lower interest rates from lenders. By this stage of your life, you should know what your credit score is. In fact, many credit cards now tell you your score each month. Ideally, you should shoot to get your score over 800, but 700 usually means you're in decent shape. Anything lower means you may want to take time to pay down debt, take care of any outstanding late charges, and start borrowing more responsibly. (See also: 5 Things to Do Right Now to Boost Your 600 Credit Score)

8. Are there errors on your credit report?

In addition to knowing your credit score, by age 30 you should be in the habit of checking your credit report every year. You're legally allowed to review the credit reports from each of the major credit bureaus (Experian, TransUnion, and Equifax) once yearly, and this periodic review can be helpful in keeping your finances on track. Your credit reports may contain errors, like incorrect names and addresses, and even references to debts that aren't yours. If you find mistakes, contact the credit bureaus to get the reports fixed ASAP. (See also: How to Read a Credit Report)

9. What is your debt-to-income ratio?

At this point in your life, you may be considering buying a home. When you seek to get a mortgage loan, lenders will want to know the ratio of your debts versus your income. A ratio that is above 43 percent is considered too high by some lenders, and you may find it difficult or even impossible to get a reasonable loan. If your debt-to-income ratio is nearing this level, it's time to start paying off whatever loans and credit card bills you have. (See also: 5-Day Debt Reduction Plan: Pay It Off)

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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:

How Student Loan Debt Can Derail Your Future

Carrie Kirby — Wed, 25 Jul 2018 08:00:10 +0000

Mike Meru thought he was making a good investment when he borrowed $600,000 to train as an orthodontist. But at age 37, he now owes $1 million — and despite making regular payments, he owes more every single month. In 25 years, his debt will total $2 million.

While seven-figure student debts are still not something you see every day (in a story about Meru, The Wall Street Journal reported that about 100 people are in this boat nationwide), hefty loans are more and more common. Five percent of student loan borrowers now owe more than $100,000, and 170,000 students nationwide owe more than a quarter million in federal loans alone, according to The Brookings Institution.

Student loan consultant Travis Hornsby, whose average client owes $280,000, says he has worked with several grads with debts around the million-dollar mark — almost exclusively specialist doctors and dentists.

"They make a lot of money, but not enough to cover that level of debt service," Hornsby wrote in an article for Business Insider.

If you are contemplating borrowing heavily for college, keep in mind these cautionary tales of how student loan debt can totally derail your life. (See also: 6 Questions to Ask Before Taking Out Student Loans)

1. You may not have the freedom to follow your passion

After getting her bachelor's degree and spending a year teaching English abroad, Amber Williamson was applying to graduate schools. At 24, she hadn't yet decided on a career, but she knew her $60,000 in student loan debt limited her choices to only fields that could offer adequate income to make the payments.

"I'm doing everything right, but still being penalized for something I've been told to do," she told MarketWatch.

Williamson is not alone. American Student Assistance found that 53 percent of survey respondents named student loan debt as a top factor in their career choices. Borrowers are often left with little choice but to pursue careers they have no real interest in, purely in search of a paycheck that can help offset their student loan payments. (See also: 15 Ways to Pay Back Student Loans Faster)

2. You may have to move back in with your parents

More than one in three millennials live with Mom and Dad, a phenomenon that's increased markedly in recent years. The Federal Reserve found that 30 percent of that increase was due to the changing debt loads of young adults, including student loan debt. (See also: 6 Money Moves to Make When You Move Back Home With Your Parents)

3. If you hate your career, you might not be able to escape

Natalie Bacon and Liz Stapleton don't know each other, but they have one big thing in common: They borrowed buckets of money to get law degrees, only to find out that they hated practicing law. After graduation, Bacon was shocked to realize that interest accruing while she was in school had already ballooned her debt to $200,000.

"I was really irritated and frustrated with the amount of debt I had. I felt like someone should've told me what it really meant, or I should've had a class on it, or something," she wrote on her blog.

Stapleton found herself in a similar boat. According to her blog, Less Debt More Wine, Stapleton currently owes $258,000.

Both women took the bold step of quitting their law careers, managing, perhaps ironically, to build careers instead in financial advising and writing about managing their debt. But many other lawyers and doctors remain trapped by their debt in careers that they hate.

4. You will end up paying much more than what you borrowed

During her undergraduate and graduate studies, Becca of Surviving Student Loans knew she was going to have at least $90,000 in debt — but she didn't think through how the constantly accruing interest would affect that total. For the first three years after graduate school, she made her minimum payments every month. Now, she owes $124,000; about a quarter of that is interest.

"In my head, the debt I took out was going to be my total debt. Boy was I wrong," she wrote on her blog.

Looking back, Becca doesn't regret getting her degrees, but she does regret that she lost paid credits several times when she transferred schools. She also wishes she'd put some of the money she'd earned working part-time in school toward her debt, even though it wasn't required. She's currently budgeting aggressively and trying to earn money on the side so she can put as much of her $50,000 salary toward debt repayment as possible. (See also: This Is How Student Loan Interest Works)

5. You might not be able to buy a home

Federal Reserve researchers noticed that as homeownership in the United States declined during the financial crisis, young people were especially impacted.

"... Increases in student loan debt might be a key factor pushing homeownership rates down in recent years through effects on borrowers' ability to qualify for a mortgage and their desire to take on more debt. Corroborating this claim, recent surveys have found that many young individuals view student loan debt as a major impediment to home buying," the researchers wrote.

They crunched the numbers and found that there is something to this: Every 10 percent increase in student loan debt is correlated with a 1 to 2 percentage point drop in homeownership in the first five years after school.

A joint study by American Student Assistance and the National Association of Realtors found that 83 percent of millennials who don't own homes blame student debt for their inability to buy. These millennials expected their debt to delay their first home purchase by an average of seven years.

6. It could prevent you from getting married or starting a family

One in five former students puts off marriage due to student loan debt, and nearly one in three postpones starting a family for that reason, American Student Assistance reports.

Some who go ahead and marry a person with a huge student debt load later admit regretting it. One respondent to a BuzzFeed query complained that his wife's student loan debt was ruining their lives. (See also: How a New Marriage Can Survive Student Loan Debt)

7. It might delay your retirement

Another American Student Assistance survey found that 62 percent of respondents put off saving for retirement due to student loan debt. Worse, the same report says that the number of people over age 65 who have student debt — some for their children's education, but mostly for their own — increased by a whopping 977 percent between 2005 and 2015.

One scary thing about owing student loan debt in retirement years: It can lead you to lose your Social Security check. According to the ASA report, more than 173,000 Social Security recipients had their Social Security payments garnished in 2015 for this reason. (See also: How to Keep Student Loans From Wrecking Your Retirement)

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

9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out

Tim Lemke — Fri, 06 Jul 2018 09:00:10 +0000

Your child is on the verge of moving out and living on their own. Are they prepared?

Arming them with the right personal finance knowledge will give them a strong foundation to go and achieve many of their life goals. If their understanding of personal finance is lacking, they could begin their independent life on the wrong foot (and they may even come back home).

Consider these ways that you can help your child build a base of financial knowledge before they move out.

1. Show them how to budget

Perhaps the most important personal finance skill is consistently spending less than you earn. There are a million different ways to budget, and whatever works for you may not work for your child. But encourage them to develop a system to track and categorize spending and then compare those expenses to their income. Of course they'll need to account for housing, food, and utilities but also let them know it's OK to include "fun money" in their budget. It will help them stay motivated to stick to their budget. (See also: How to Help Your Kid Build Their First Budget)

2. Teach them how retirement plans work

If your child is moving out, they likely have some earned income. That means they can start contributing to a Roth individual retirement account. They may scoff at the notion of saving for retirement so early, but if you help them open a Roth IRA and demonstrate how much money they can accrue over time, they'll get on board. Urge them to save as much as they can each month, invest in simple things like index funds, and simply watch their account balance grow over time through compounding.

If they have a 401(k) plan through an employer, take time to review the plan document with them and encourage them to contribute as much as they can. Be sure to explain the advantages of getting a company match on contributions, if one is offered. (See also: 11 Basic Questions About Retirement Saving Everyone Should Ask)

3. Explain bank interest rates

Chances are, your child already has a savings account. But it's still helpful to explain that they don't necessarily need to put their money in the first bank they see. Show them how interest rates can vary, and that it's OK to shop around for the best rates so they can earn a little extra money. Explain terms like APR and APY, and the factors that impact whether rates go up or down.

Also outline the pros and cons of placing money in certificates of deposit. These days, it's also helpful to explain that while interest rates are rising, they're still quite low, and that it might make sense to invest some funds in ways that generate a higher return than savings account interest. (See also: 12 Places to Keep Your Money Safe — And Growing)

4. Tell them about bank fees

Once your child understands how bank interest rates work, they'll need to know about the tendency banks have to charge fees to account holders. These fees could be for anything from low balances to the use of paper checks. Tell your child how they can avoid these fees by researching the best bank accounts and reading the fine print. Let your kids know that if a bank is charging too many fees, it's OK to switch to another bank that doesn't. (See also: Are You Paying These 6 Unfair Banking Fees?)

5. Teach them the pros and cons of credit cards

Credit cards can help a person establish credit, and that's important when you are starting out. And some credit cards offer nice benefits, such as cash back on purchases or travel rewards miles.

You can help your kid apply for a card, but it should come with a series of warnings. Young people must know that credit card balances should be paid off in full each month whenever possible. Show your child that credit card interest rates can be exorbitant, and that high balances can lead to a debt spiral from which they may never escape. (See also: How to Get Your First Credit Card and Build Credit)

6. Outline the pain of debt

Arguably the most important lesson you can teach your children before they leave the nest is that debt is not a good thing. Take time to explain the basics of borrowing so they understand how expenses can continue to increase if debt is not paid off. Show them calculations with interest rates for credit cards, auto loans, student loans, personal loans, and mortgages. Give them an understanding of debt-to-income ratios, and what that means in the context of their financial well-being. (See also: 8 Common Causes of Debt — And How to Avoid Them)

7. Explain the concept of net worth

When your child leaves home, they may be focused on finding a job that pays a high income. That's fine, but it's important for them to understand that income alone is not what generates financial security. It's more crucial to acquire assets that increase in value, while eschewing things that will decrease in value or be a drain on your finances.

This means saving money and investing it. It means avoiding debt. It means purchasing a home instead of renting, if possible. Your net worth — that is, the total value of your assets minus your debts — is the true indicator of your financial well-being. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

8. Urge them to shop for value

Saving money isn't always about spending as little as possible. It's also about spending your money wisely and getting the most bang for your buck. For example, if your child needs to purchase a refrigerator for their apartment, convey to them that they should seek out the best quality model at a price that fits their budget.

Shopping for value involves understanding quality and longevity of products, and knowing what features matter and which don't. It also involves doing extensive research of products and prices before you buy. Shopping for value is a skill that can be learned, and one that could save your child a considerable amount of money over time. (See also: How to Shop With Purpose — And Save More Money)

9. Teach them basic car maintenance

You don't need to teach your child how to replace a catalytic converter, but it helps if they have a decent foundation of car knowledge. Teach them how to put air in a tire and change the tire. Demonstrate how to swap out a headlight bulb and replace a hubcap. Urge them to read the car's manual and learn what all of those warning lights mean. Get them in the habit of changing the oil every few thousand miles.

Finally, teach them how to research the cost of car repairs, so they don't get ripped off at the mechanic. Your child won't be able to avoid car repair expenses, but they'll know enough to avoid getting stranded on the side of the road. Moreover, these basic maintenance efforts could help prevent the need for a major repair later. (See also: Bookmark This: Save Money With an Easy to Follow Car Maintenance Checklist)

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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:

The 5 Worst Money Mistakes New Grads Make

Alicia Rose Hudnett — Wed, 27 Jun 2018 08:00:11 +0000

It's no secret that personal finance education is lacking at every level throughout our school system. And this is nowhere more evident than when you graduate from college and are thrown into a new reality you've spent little to no time preparing for. In fact, you've probably spent years taking classes on just about everything but how to manage your money.

Now, you're tasked with making decisions that can affect the rest of your life. How do you know what to avoid? Here are a few of the most common financial mistakes new grads make, and how they can steer clear of them.

1. Ignoring your personal finances altogether

Your life is dictated by your financial situation. The sooner you realize that, the better. The first step is recognizing that you need to take an active role in learning about money management. You need to begin building a financial plan. Understanding financial concepts and forming strong financial habits now will have lifelong benefits.

Your financial plan is flexible and can change often, especially early on in your career and life. But now is the time to begin thinking about short-term, medium-term, and long-term financial obligations and goals. Take time to learn about important financial building blocks, like starting an emergency fund, beginning retirement contributions, and paying back student loans.

Make personal finance part of your everyday life now, and do one thing every month to increase your financial knowledge. (See also: The Financial Basics Every New Grad Should Know)

2. Overspending on your current lifestyle

Most likely, you'll be earning more money at your first post-college job than you ever have before. And it's OK to adjust your lifestyle from college student status to adult. But be realistic about the lifestyle you can really afford.

When you get your first paycheck, look it over to understand exactly what taxes you're paying and how much you have deducted for benefits like health insurance and retirement savings. Next, build a budget to cover your essential monthly expenses, savings, and debt repayment. Consider how much you have left in your budget to allocate toward your lifestyle expenses. If you'd like more money in this area, either cut back on your living expenses, perhaps by looking for a cheaper place to live, or find a way to bring in more income.

As you'll soon learn, every year you get older, your financial priorities will increase — often significantly. Time is one component of your financial plan that you can't get more of, so take advantage of these early years to focus on saving as much as you can. (See also: 4 Smart Things You Should Do With Your First Real Paycheck)

3. Delaying saving for your retirement

Besides paying for your current lifestyle, the number-one priority of your working years is saving for a time when you'll no longer be working. You are never too young to start saving for retirement — but at some point, you may be too old. Oddly, we're never taught in school about what retirement means or about how to save for it.

The biggest determinant of retirement security is your personal savings. Whether you contribute to a workplace retirement plan like a 401(k), your own IRA, or both, make a contribution count for every single year beginning with your first job. (See also: 5 Retirement Accounts You Don't Need a Ton of Money to Open)

When you first start out, it's OK to set small savings goals and work on them throughout your career. For example, use every increase in salary as a time to increase your saving rate by at least half of your salary raise. And every time you change jobs, never decrease your saving rate — either stay at the same rate or take the opportunity to increase it. It's not unrealistic to think that you may spend 30 years or more in retirement — and it can take you just as long to save up for that goal. (See also: 5 Biggest Ways Millennials Risk Their Retirements)

4. Neglecting your student loans

If you're a recent college graduate, there's a good chance your loans make up part of the $1.5 trillion student loan debt owed in this country. While you may be tempted to ignore your loans until repayment is set to begin, or because you're overwhelmed by how much you owe, you need to take an active role in understanding everything you can about your loans.

First, determine what type of loans you have: federal or private. Next, if your payments haven't already begun, find out when you will need to start repaying. You'll also want to know the total amount owed and the interest rate on each of your loans. Then, begin researching different payment and consolidation options. (See also: What's the Difference Between Student Loan Refinancing and Consolidation?)

Finally, build your loan payment into your budget early on and take strides to pay it off as quickly as you can, perhaps even using bonuses and tax refunds to pay down your principal balance. Gone are the days of thinking of your student loans as "good debt" and letting them hang over your head for your entire career. Many people are now finding out what a burden they are in retirement. (See also: How to Keep Student Loans From Wrecking Your Retirement)

5. Taking on credit card debt

A good credit history is an important part of your overall financial health. And credit card use is a viable way to establish that history and demonstrate your credit worthiness to lenders. But responsible credit use is charging only what you know you can pay off at the end of every month — not buying items that you can't afford in the first place and financing them at very high interest rates over several years. (See also: The Millennials Guide to Avoiding Credit Card Debt)

Entering the world of adult finances is tricky. Between learning about your budget and cash flow, building your emergency savings and retirement accounts, and figuring out how to manage your loans and debt, consider the above advice Personal Finance 101 — a mandatory course for everyone.

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

How to Start Investing With Just $100

Kat Tretina — Wed, 20 Jun 2018 08:30:29 +0000

When you're on a tight budget, investing often feels like something only wealthy people can afford to do. If you have just a few dollars left over every month, you might think it's out of reach for someone in your shoes.

This is particularly true among young people. A 2016 Stash survey reported that 41 percent of millennials feel that they don't have enough money to invest in the stock market — and 70 percent feel they need at least $100 to get started. That mentality can be a costly mistake. If you don't invest, you greatly risk underfunding your retirement savings.

The thinking that you have to be wealthy to invest is false. There are ways you can get started in investing without having tons of cash on hand. Below, find out more about some low-cost ways to enter the stock market. (See also: You Can Start Investing With a Lot Less Money Than You Think)

5 ways to invest with little money

Many traditional brokers have high minimum investments. For example, Vanguard has a $1,000 minimum if you want to open a Roth IRA and $3,000 for some other accounts. When you have just a few dollars to invest, opening an account with a traditional broker can be impractical, if not impossible.

Plus, they can be confusing. They throw a lot of jargon at you — mutual funds, index funds, exchange-traded funds (ETFs) — and it can be overwhelming to a new investor. However, investing doesn't have to be overwhelming or expensive. Here's how you can get started. (See also: Investments Worth Making With $50 or Less)

1. Invest your spare change

If your budget is tight and finding even $50 a month to invest is impossible for you, spare change investment apps like Acorns might be a smart option.

With Acorns, you connect your credit and debit cards to your account. Any purchase you make — including routine things like groceries or gas — is rounded up to the next dollar amount and the extra change is invested. For example, if you bought lunch and it cost $6.50, the app would round it up to $7, depositing the extra 50 cents into your investment fund.

Once your change totals $5, the app invests that money into a portfolio of your choice. Acorns offers five versions based on your comfort with risk, and costs between $1 and $3 per month to use. (See also: Everyone's Using Spare Change Apps — Are They Really Worth It?)

2. Engage in micro-investing

If you have some extra money in your budget, you can go a step further than just investing your spare change. Micro-investing — where you invest small amounts — can help you build a portfolio. Robinhood is a no-fee micro-investing app you can use to buy stocks and ETFs. All you need to get started is enough money to buy one share. Depending on the company or ETF you choose, that could be as little as $25. (See also: With Micro-Investing, Your Smartphone Pays YOU)

3. Set up a recurring transfer with a robo-adviser

As your income grows and your financial situation improves, investing spare change and micro-investing might not be as effective as it should be. Your investments with those apps might only add up to $15 to $20 per month. That's a good start, but you'll get better results by investing larger amounts.

You can set up a recurring transfer with sites like Betterment to take your investments to the next level. Betterment is a robo-adviser service, which can be helpful if you don't know much about the stock market and you want guidance on what kind of stocks and funds to choose. Betterment charges a .25 percent annual fee for accounts under $100,000. (See also: 9 Questions You Should Ask Before Hiring a Robo-Adviser)

That recurring $100 per month transfer can pay off in the long run. If you are 25 and make a one-time $100 investment, that $100 would turn into $2,172 by the time you're 65 (assuming an annual return of 8 percent).

Continue to contribute month after month, and you can see even more significant returns. If you set up recurring $100 contributions and stuck to that schedule until you were 65, you would have invested $48,000 of your own money. But, thanks to the stock market, your balance would grow to a whopping $337,909. (See also: 7 Reasons Millennials Should Stop Being Afraid of the Stock Market)

4. Set up a CD

If you're not ready to enter the stock market, there's another way to invest: Setting up a certificate of deposit (CD). With a CD, you essentially loan money to a bank, and they pay interest to you on the loan. The returns are higher than that of a regular savings account, however, they still won't be nearly as high as if you'd invested in the markets. You also can't touch that money for a set period of time; usually 12 months or more. (See also: The Best Ways to Invest $50, $500, or $5,000)

5. Start investing in a 401(k)

If your employer offers a 401(k) plan, you can start investing right away; there's no minimum to open an account. You can set up regular deductions from your paycheck, so the money is invested automatically every single month. You likely won't even notice it.

You can start investing small amounts, if that's all you can afford at first. For example, you can set your 401(k) contributions to as little as $25 each pay period. Over time, compound interest can turn those small investments into big returns.

As you earn more money, you can increase your monthly contributions. Your employer may even offer a company match on those contributions, which is free money you should never turn down. (See also: 8 Critical 401(k) Questions You Need to Ask Your Employer)

Finding money to invest

You really can't afford to avoid the stock market if you plan on having a stable retirement. Without the muscle of annual returns, you run the very real risk of coming up short.

If you're already stretched thin and can't find any extra money to invest, focus on boosting your income and using that extra cash to get started. You can consider asking for a raise, taking on a side gig, or selling some hot-ticket items around the house. (See also: 4 Best Ways to Invest Your First $1,000)

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

Best Money Tips: 10 Big Ways Retirement Will Be Different in 2030

Amy Lu — Fri, 15 Jun 2018 08:30:29 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found articles on ways retirement will be different in 2030, awesome travel site to find the cheapest flight, and how solar panels can save you a fortune.

5 Money Moves Every Single Parent Should Make

Alicia Rose Hudnett — Thu, 14 Jun 2018 09:00:31 +0000

Parenting comes with a deep sense of responsibility for your children and a lifetime of having to make difficult decisions. Raising kids in a two-parent household can be stressful enough; being a single parent can be downright overwhelming.

When it comes to managing household finances, being a single parent isn't necessarily different from any other household with children. Instead, there just may not be a lot of financial flexibility — so there's more pressure to get things right early on. Take a breath and work toward reaching these financial markers to give you peace of mind.

1. Prepare your estate planning documents

People tend to procrastinate about getting their estate paperwork in place, but it's a smart idea for everyone to make it a priority. Experiencing a major life event, like having a child, should prompt you to either update your old documents or establish an estate plan.

Unless you're comfortable leaving your personal and financial decisions up to state officials, it makes sense to sit with an attorney to discuss your wishes should you pass away or become incapacitated and unable to make financial and health decisions for yourself. Since minor children cannot take control of inheritance money or make legal decisions, listing them as direct beneficiaries on your accounts and assuming that will accomplish your goals may not be the case. Every parent should also have guardianship papers in place, especially if they are raising children alone. (See also: Here's What Happens If You Don't Leave a Will)

2. Purchase life insurance

Generally, if someone is dependent on your income, you probably need life insurance. While you'll want to sit with a financial adviser or life insurance agent to discuss how much insurance you need, some factors to consider are how much it will cost to raise your children and send them to college, as well as to protect certain assets and pay off debt. You'll also want to consult an attorney or financial professional about properly selecting a policy beneficiary. While there are various types of life insurance, a term life insurance policy can be an affordable and efficient way to protect your family. (See also: Term vs Whole Life Insurance: Here's How to Choose)

3. Fund an emergency savings account

Having a fully funded cash reserve on hand is a critical component of everyone's personal financial health. In a one-income household with children, it's recommended to work toward having at least six months' worth of monthly bills and expenses saved and set aside. Once you reach six months' worth, aim for a year's worth. In a two-parent household, one adult may be able to cut back on essentials in the case of a job loss, but when children are financially dependent on you and only you for everything, that can be difficult to manage without a padding of emergency cash. (See also: 5-Minute Finance: Start an Emergency Fund)

4. Contribute to a retirement account

After fortifying your financial house with savings and the proper risk management documents in place, you should focus on saving for your own retirement. As a parent, you naturally put your children's needs and wants before your own, and there is nothing wrong with that. But it's also important to recognize that your early working years are critical to your retirement savings goals. There are no do-overs when it comes to saving for retirement, and every year you don't save is a year lost.

If you have access to a retirement plan at work such as a 401(k), strive to save 15 percent of your total income. If money is tight and your employer offers a match, start by contributing just enough to earn the full match. Over time, you can gradually increase your own contributions. If you don't have access to a workplace retirement plan (or in addition to one), you should open an IRA, which you can do at a discount brokerage firm or bank. For 2018, anyone with earned income under the age of 50 can contribute the lesser of $5,500 or their total yearly income. Make this a priority and make this a habit. (See also: 7 Retirement Planning Steps Late Starters Must Make)

5. Open a 529 account

A 529 plan is a tax-favored education savings account that allows individuals to save for future qualified education costs. Contributions are made on an after-tax basis, and the money grows tax-free. Distributions for qualified education expenses are also tax-free. Once you set up an account, anyone can make contributions to it; for example, grandparents could contribute on behalf of a grandchild. Even if you don't have enough money in your current budget to make regular contributions, saving your child's birthday, holiday, or other gift money they receive throughout the year can be a helpful way to see your funds grow.

Covering the entire cost of your child's (or children's) college education is a difficult task for any set of parents, so don't feel guilty about what you may or may not be able to accomplish with this account. Every little bit helps. (See also: The 9 Best State 529 College Savings Plans)

Being a single parent can sometimes make you feel as if you need to overcompensate in certain areas when it comes to raising your children, but it's important to not lose sight of building a strong financial foundation for your family and also for your own future.

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

How to Talk to Mom and Dad About Their Money

Ashley Eneriz — Tue, 05 Jun 2018 08:00:29 +0000

Good ol' Mom and Dad. Many of us can remember our parents complaining that money didn't grow on trees and grumbling over wasted money every time we left a light on or took too long in the shower. As our parents get older, however, roles and responsibilities start to switch. Eventually, a time comes when we have to have the talk about money with our parents.

Sharing financial advice with your parents can be challenging and uncomfortable, but it is an essential talk to have. Here's how you can go about discussing money with your aging parents in both a respectful and productive way.

Set up a meeting

It can be hard to talk seriously when kids are running around or when the family is supposed to be enjoying a fun night together. Don't put a damper on a family get together by blindsiding your parents with bank statements. Instead, arrange to talk over coffee or breakfast, or even agree to meet with a financial adviser or estate planner if you think that will make the meeting go smoother. (See also: How to Talk to Friends and Family About Money (Without Making Everyone Mad))

Don't point fingers

If you start a conversation with your parents saying something like, "You don't have enough saved for retirement — what are you going to do?" they are going to be quick to put up a wall. From your perspective, it might seem like your parents have been careless with finances, but there is a chance that you don't know the whole story. Instead, approach them on mutual grounds.

Instead of being accusatory, invite discussion. Start off the conversation with something like, "I would love to discuss what you would you want me to do if there comes a time that I need to be your full-time caregiver," or, "I know you mentioned that you wanted to set aside money for your grandkids' education, and I would love to know more about it so that it is done in a way that the kids aren't penalized if they need to apply for financial aid later on."

Offer help

Ask Mom and Dad if there is anything you can do to help lighten their load. They might need someone to teach them how to access their bank info online, do their taxes, or help them prepare a will. Sometimes parents feel embarrassed about asking their kids to take over financially, and may not be ready to hand over the reins right away. You can still extend the invitation by saying something like, "If there ever comes a time where you don't want to deal with budgeting/paying bills/etc., let me know and I will gladly help out as much as possible."

Ask for access to their important financial information

There are no guarantees in life. You never know when your parents will pass away or become fully dependent on you. It is important to have a list of their financial information so that you can access it when the time comes. Here are some important things to know:

Social Security numbers.
Financial information for each bank, investment, retirement, and debt account.
All insurance information, including health, long-term care, and life insurance.
Estate planning documents such as will, trust, and power of attorney.
Real estate papers, such as deed and title.
Contact information for all financial advisers, accountants, lawyers, etc.

Create a future plan

According to AARP, 30 million households care for an adult over 50, and that number is expected to double in 25 years. Share that statistic with your parents and explain to them that while you don't like imagining them getting older, that is going to happen regardless — and you want their guidance and advice before that time comes. Ask them what living arrangements they want when they can't care for themselves and how they want their finances, assets, and property dealt with after passing. (See also: 6 Financial Steps to Take When Your Aging Parents Move In)

Make sure everything is up to date

Ask your parents if their important financial and legal documents are up to date. Does their will and power of attorney for health and finances reflect what they want it to reflect? If not, encourage them to update these legal documents as soon as possible. (See also: 6 Things You'll Encounter When Taking Over a Loved One's Finances)

Have patience and get the family involved

Don't expect to conquer your parents' financial future in one go. Depending on how complicated their finances are, it might take several talks and several prompts of encouragement to get things on the right track. If possible, have other siblings get involved in these financial conversations. Show siblings that if they keep borrowing money from Mom and Dad, they will drain them of essential money needed to pay for health care and living expenses down the road.

Talking about money is already an uncomfortable and unpopular topic. Add your parents to the mix, and things can get hairy and emotional quick. Remember to go slow and come from a place of love. (See also: 6 Ways the Sandwich Generation Can Get Ahead)

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Why Your IRA Shouldn't Double as an Education Savings Plan

Tim Lemke — Wed, 30 May 2018 08:30:24 +0000

College and other education expenses can be some of the most burdensome costs you will ever face. Families may find themselves shelling out tens or even hundreds of thousands of dollars to universities, and many will spend even more on private elementary and secondary schools.

Saving for these education expenses is increasingly crucial, with some people even turning to their individual retirement accounts to help. IRAs have nice tax advantages and have long been used as a possible vehicle for college savings. But is it a smart idea to use an IRA to pay for college?

Using a retirement account for this purpose could be helpful, but has a number of drawbacks. Consider these reasons to avoid using an IRA for education expenses, if possible.

You can't borrow for retirement

Ideally, you want to save for both retirement and your child's education. But you should try to avoid letting education savings cannibalize your retirement savings. The last thing you want is to aggressively fund education accounts, only to find yourself unable to retire when you want to.

Any money you spend on education now won't be available when you are older, and you are costing yourself potentially tens of thousands of dollars in future savings. Remember that your kids can always get loans to help pay for college, if necessary. But there's no way to borrow your way to a comfortable retirement. This is especially important these days when people have been known to live 20, 30, or even 40 years past retirement age. (See also: How to Keep Student Loans From Wrecking Your Retirement)

Retirement and college funds should be kept separate

You can save for retirement or you can save for college. But it's a bad idea to try and save for both in the same account. That's because you are operating with different time horizons in mind. If you are saving for your child's college tuition, you will likely need that money in about 18 years, at most. Retirement, on the other hand, might be 30 or 40 years away.

This difference in timelines means that you will ideally be invested in different things. The college savings plan should contain more conservative investments than a retirement plan because you will likely need the money sooner.

There are other mechanisms to save for college

Using an IRA to save for college would be more acceptable if there weren't better options. Most states offer 529 college savings plans, which are designed to specifically save for education costs, and offer some great tax benefits to account holders.

These plans allow you to place money in mutual funds and other investments, and money grows tax-free as long as it's used for educational purposes. In many cases, the contributions are also tax-deductible. Many states also offer the ability to lock in current college tuition costs today if you are willing to commit to specific universities. (See also: 5 Smart Places to Stash Your Kid's College Savings)

It's harder to get help from family and friends

With an IRA, the only person who can contribute to the account is you. But a 529 plan allows any person to open an account and name virtually anyone as the beneficiary. This means that grandparents can set up 529 plans for their grandchildren. Individuals can set up plans for the children of close friends. You can even set up a plan and name a complete stranger as a beneficiary. Using a 529 plan instead of an IRA allows a broader set of people to help out with a young person's education expenses if they choose to.

IRA distributions count as income for financial aid purposes

If you choose to make withdrawals from an IRA to pay for college, that money will be counted as income for financial aid purposes. This is not the case for 529 plans. Money in a 529 plan is generally considered an asset (but only about 5.6 percent of the total account balance), and assets don't count as much as income.

Withdrawals from 529 plans are not recorded in the Free Application for Student Aid (FAFSA), so having money in these plans won't severely hurt your beneficiary's chance of receiving financial aid. Using an IRA to pay for college, however, could reduce the amount of financial aid your child receives.

Earnings from an IRA can't be withdrawn tax-free

Yes, you can withdraw money from an IRA to pay for qualified educational expenses. But it's only the contributions, not the gains, that can be taken out without being taxed before age 59½.

For example, let's say you have placed $40,000 into a Roth IRA, and that money has grown to $100,000 over time. Only $40,000 can be removed without paying taxes. Any additional funds will be taxed as normal income.

With 529 plans, there are no taxes on any withdrawals as long as funds are used to pay for education expenses.

IRAs have contribution limits

You are permitted to contribute $5,500 per year into an IRA, or $6,500 if you are over age 50. But 529 plans have no real contribution limit. At a certain point, you may have to report federal gift taxes if your contribution tops $15,000 in a year (and which will count against the giver's lifetime estate tax exclusion of $11.2 million). But you can avoid this by contributing up to $75,000 in a single year and spreading out the contributions over five years on your disclosure forms. (Many grandparents find this to be a great way to avoid estate taxes.)

Some 529 plans do have limits on the total amount you can have in an account at one time. Read the fine print of each plan to determine how that might impact you.

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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:

6 Parts Every Successful Budget Needs

Rachel Slifka — Wed, 16 May 2018 09:00:26 +0000

Budgets aren't perfect. No matter how much you plan, it's impossible to predict every single expense, which can make it challenging to stick to your plan. Fortunately, you can weather any financial storm by making sure your budget has these at least these components.

1. Emergency fund

A car repair, medical expense, or sudden job loss can all wreak havoc on your normal monthly budget. Instead of panicking and going into debt after an emergency, you can give yourself peace of mind by starting an emergency fund.

How much money should you keep in an emergency fund? Well, the answer depends on many things, including the cost of your daily expenses, how hard your job would be to replace, and any other unique circumstances. One savings guideline is to save at least three to six months' worth of daily living expenses, though some people may need more. That way, if you ever suffer a job loss, you would be covered for a few months until you found another job.

To prevent yourself from using the money you are saving for a rainy day, it's a good idea to stash your cash in a separate savings account. You can start building your emergency fund by having money automatically deposited from every paycheck. (See also: 5-Minute Finance: Start an Emergency Fund)

2. Debt repayment

Debt can add up quickly and become overwhelming if you do not have a repayment plan in place. Whether you have a mortgage, car loan, student debt, or a credit card balance, it's your responsibility to manage your debt.

You can take away the burden of debt repayment by tallying up the payments you owe and putting them into your monthly budget. This will keep you on track, accountable, and working to hit your repayment goals. To make more progress, aim to free up extra dollars every month and put that toward your debt. (See also: 7 Easy First Steps to Paying Off Debt)

3. Retirement fund

Do you have a plan to take care of your future? If not, it's time to start a retirement savings plan.

Retirement might seem like a long ways away, but failing to save now can have dire consequences later. The more you save while you're still young, the longer you'll have to earn compound interest on your investments. The longer you wait to save, the harder it will be to catch up. Retirement savings needs to be a line item in your budget every single month.

If you work for a traditional employer, you likely have a company 401(k) or IRA plan you are eligible to participate in. Most employers can set up paycheck deductions, making it incredibly easy to start contributing to the account ASAP. In addition, check with your employer to see if they offer any company match. As part of your benefits package, many employers will match a percentage of what you contribute to your retirement account. Failing to at least meet the requirements for a match is leaving free money on the table, so make sure you take advantage of it. (See also: 7 Retirement Planning Steps Late Starters Must Make)

4. Fun money

You can't have all work and no play. Allow yourself a break and start putting money into a vacation or fun fund. Whether you prefer to take a trip, play a round of golf, or spend the day at the spa, you can treat yourself guilt-free by budgeting for it in advance. (See also: Yes, You Need "Fun Money" in Your Budget)

5. Funds for irregular expenses

Not every expense is billed monthly. Most people find they have at least a few quarterly or even annual expenses, such as HOA fees, insurance premiums, club membership dues, and more.

Since they aren't regular bills, it can be easy to forget that they are coming due. Don't panic — you can still budget for them and ensure you always have the cash for odd expenses.

An easy way to handle these types of bills is to create an irregular expense savings account. Calculate what you owe in total irregular expenses for the year and divide it by 12. That's how much you should save every month to cover irregular expenses. Just remember to start saving before your first bill is due so you can ensure you have enough to cover what you owe.

It may also be helpful to keep a financial calendar. You can mark when each bill is due throughout the year, so no quarterly or annual bill will come as a surprise.

6. Regular review

Circumstances change, and your budget should change accordingly. By regularly reviewing your budget, you can see what's working and what isn't. Are there areas where you are constantly going over the amount you budgeted for? Areas where you are spending less? Has your income changed? Do you need to set aside more for savings?

Review your budget at least once a month. If you have a significant other, sit down together and discuss your financial goals. By making small tweaks as you go, you will discover how to use your money most effectively.

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9 Money Moves You're Never Too Old to Make

Tim Lemke — Wed, 09 May 2018 09:00:13 +0000

We often assume as we get older that money matters become more simple, and in many cases, this is true. You may be done worrying about saving for the future, and may be free of many of the expenses you had when you were younger. But this doesn't mean you're too old to make financial decisions that will still benefit you.

There are many money moves that you made when you were younger that still apply. Not all of these actions below will make sense for everyone. But age, by itself, shouldn't rule them out.

1. Buying a home

You may think that by a certain age, it makes no sense to purchase a home because you may not live long enough to pay it off in full. But there are some great financial advantages to homeownership, even for older people.

For one thing, if you want your retirement nest egg to last, you are better off putting money into something that builds equity and may increase in value. That's money that can be used in the future for your long-term care, or passed on to your heirs. Some older citizens even fund their retirement using a reverse mortgage, which allows you to draw equity from your home to pay expenses.

Additionally, when you own a home, you can make adjustments to the design and features to accommodate any health needs. For example, you could install a chairlift or add a bedroom on a lower floor so you won't have to go up steps. These are things you may not be able to do if you live in a rental property. (See also: 5 Benefits of Carrying a Mortgage Into Retirement)

2. Getting life insurance

Many older people don't bother with life insurance past a certain age, because the premiums do get more costly. But there are many cases where it makes sense.

If you are still working and your spouse relies on that income, term life insurance can come in handy. You may also have some debt — mortgage debt, for example — and want to ensure there is enough money to pay it off if you pass away. Guaranteed Universal Life policies can be good for seniors who want to ensure there's money to pay for final expenses or estate taxes.

There are many different insurance products; be sure to closely examine the costs and benefits of each to see if they make sense for your situation. (See also: 5 Kinds of Insurance Every Retiree Should Consider)

3. Shopping for health insurance

We assume that older Americans are simply covered by Medicare and that there's nothing more they need to know. But the reality is that Medicare doesn't cover everything, and it's often important to get supplemental insurance to protect yourself.

You are never too old to shop around to find the lowest premiums and out-of-pocket expenses. No matter your age, it's smart to re-evaluate your insurance periodically to ensure you have the right coverage at the right cost. This is especially true if your health situation changes. (See also: How to Make Sense of the Different Parts of Medicare)

4. Investing

If you are retired, you may be of the mindset that you already have all the money you need to live comfortably. But are you sure this is true? People are living longer these days, and you can spend as much time in retirement as you did working. Thus, it may be necessary to continue to accumulate money as you get older.

Even if you think stocks are not right for you at this stage of your life, continuing to buy bonds, real estate, and other investments can help bolster your nest egg and ensure that you can cover all of your life expenses as you age. (See also: 7 Reasons to Invest in Stocks Past Age 50)

5. Rebalancing your portfolio

At a certain age, you may feel like your investments don't need much baby-sitting. If you've shifted to a lot of fixed-income investments, it may be true that your portfolio doesn't need much maintenance. But that doesn't mean you should ignore it.

Even the oldest investors need to check in to see if they are on track to hit their savings goals. All investment portfolios can get out of whack if they are not monitored properly. An older investor may find, for example, that stocks make up too much of a percentage of their portfolio and represent a risk if the market goes down. (See also: Think Outside the Index When You Rebalance Your Investment Portfolio)

6. Building an emergency fund

You may have accumulated enough money to retire on, but did you take into account the cost of a new roof for your home? Did you count on thousands of dollars in unreimbursed medical expenses? It helps to have a separate account to cover these types of expenses, separate from the money you use to cover everyday costs.

If you are no longer working, you may still be able to fund your emergency account through income from stock dividends, interest, or capital gains. Just be sure you're not tapping into money you may need in the future for living expenses. (See also: Yes, You Still Need an Emergency Fund in Retirement)

7. Crafting a will

You are certainly never too old to outline your final wishes. If you haven't done this yet, don't delay. A will offers family members guidance on how you want to spend your last days, freeing them from making difficult choices. You can assign an executor to help carry out your wishes, and a clearly written will can help avoid fights over how to divide your assets. Many families have been broken apart due to spats regarding their inheritance.

It helps to have a will in place while you are still relatively young, but it's never too late to change a will as long as you are of sound mind. If you have a will already, it may be worth reviewing it periodically to make sure the information is accurate and up to date. (See also: 6 Times You Need to Update Your Will)

8. Saving for college

You can go back to school at any age. But you can also save money for your children, grandchildren, or anyone else who you'd like to see get a degree.

Most states offer college investment plans, known as 529 plans, that allow you to invest money for the purposes of education. You can designate a beneficiary of the funds and that money can be withdrawn tax-free as long as the money is used for qualifying education expenses. Depending on where you live, your contributions may also be tax deductible. The new tax law allows these funds to be used for K-12 schooling as well. (See also: The 9 Best State 529 College Savings Plans)

9. Starting a business

If you have skills and knowledge built up over a long life, why not make it work for you? Who says retirement has to involve sitting at home and doing crossword puzzles? Maybe you can start a quilting business. Perhaps you can launch a new career investing in real estate. Heck, you can build your own tech startup. At this point in your life you probably have the money, time, and experience to give it a go.

If you have your wits about you, you're never too old to start a new venture. Obviously, you need to be realistic about how much time and energy you want to devote to a new company, and you should avoid putting your retirement savings at risk. It's also important to have a clear succession plan in place to ensure the organization will keep running after you are gone. (See also: 5 Questions Retirees Should Ask Before Starting a Small Business)

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25 Money-Saving Strategies That Are Actually Hurting You

Dr Penny Pincher — Tue, 08 May 2018 08:00:18 +0000

Taking action to save money can be a great way to get your finances on track. But some of the ways we try to cut costs are actually harmful to our financial well-being. Here are all the money-saving strategies that can backfire on us.

1. Skipping college

College is expensive, so you may think the best plan of action is to skip it and save the money. That's the smarter move, right? Maybe not. Depending on your chosen career field, a degree can mean the difference of more than $1 million in income over the lifetime of your career. So while college is expensive, you'll also probably earn a lot more with a college degree, even considering the salary you miss out on during the years you are in school. (See also: My Kid Got Accepted to an Expensive Private College — Now What?)

2. Not participating in your 401(k) plan

Your paycheck is already hit with taxes, Social Security, FICA, and other expenses before you get your money. Your natural reaction may be to try to keep your paycheck as fat as possible by not contributing to your employer-sponsored retirement plan. In the long run, this move is almost guaranteed to backfire. Not only are you hurting your own financial future, but 401(k) contributions are tax-advantaged, and if you keep the money in your paycheck, you are more likely to spend it. (See also: 5 Dumb 401(k) Mistakes Smart People Make)

3. Buying food in bulk

Food waste is a big problem, and this can be exacerbated when you buy food in bulk. It can seem smart to load up with bulk food at low cost-per-pound prices, but how many pounds of oats are you really going to eat before they go stale?

4. Not investing in yourself

Reducing expenses is important to stay within your budget and move forward in your financial goals. But obsessing over saving money can result in missing out on opportunities to better your life or invest in yourself. For example, you might skip out on spending $400 for a new suit or $1,000 for career training that would help you land job that pays $20,000 more per year.

5. Deferring expenses

Sometimes getting by cheaply now results in big expenses down the road. For example, you could buy a cheap house with lots of serious issues and benefit now from lower payments, but you may end up pouring money into it later to keep it livable or to get the house in a condition so you can sell it. (See also: 23 Hidden Costs of Buying an Old House)

6. Buying minimal car insurance

You can save money on insurance payments every month by purchasing minimal car insurance. But if you have an accident that results in major damage or injury, minimal insurance could leave you with big bills and cost you more in the long run.

7. Saving to spend

It feels good to save up some money and watch your savings account grow. But if you are saving up a big pot of money with the sole intention of spending it, having funds in a savings account can actually result in spending more money, not less. Examples of this include saving up for expensive items that don't retain value such as a recreational vehicle or new car.

8. Doing-it-yourself

You can save a lot of money doing projects yourself instead of hiring a professional, but DIY projects still cost a lot of money for materials, not to mention time and effort. And if you do something wrong, you may need to hire a professional anyway to fix your mistake. Before you take on a project, make sure it is worth doing. (See also: How to Keep DIY Projects From Ruining Your Life)

9. Buying items on sale that you don't need

Buying things on sale can be a good way to save money, but this only works if you need the items in the first place and will actually use them within a reasonable period of time. If you buy stuff you don't need just because it's on sale — no matter how cheap it is — you are wasting money.

10. Skipping meals

Skipping meals occasionally can save you money on food. However, this savings can be offset by reduced productivity and by the potential for making poor spending and financial decisions while hungry.

11. Eating cheap food

Eating junk food such as soda, chips, and fast food will provide your daily caloric requirements for a minimal amount of money, but you are likely to end up overweight and miss out on key vitamins and minerals that you need to stay healthy. If you want to find affordable healthy food, check out this list of cheap foods that are packed with nutrition.

12. Using coupons

How did using coupons end up on a list of money-saving strategies that can hurt you? Stores give out coupons for a reason. They know that coupons can lead you to buy stuff you normally wouldn't buy, and that results in more profit for the store. Using coupons for items you would buy anyway makes sense, but resist buying extra items only because you have a coupon. (See also: The 6 Shopping Mistakes Keeping You From a Great Deal)

13. Ignoring home maintenance

Sometimes you need to take on home repairs right away to avoid expensive damage. If you notice water leaking from a roof, or a leaky pipe, you might think that ignoring the problem costs no money while calling in someone to make a repair could cost hundreds of dollars. While it is true that repairs can be expensive, ignoring routine maintenance can be even more expensive down the road if more extensive repairs are needed for cumulative damage.

14. Supersizing

Why not pay 49 cents extra to upgrade from a medium size drink and fries to a large? This "deal" feeds into temptation and poor impulse control, and again, paying extra for something you don't need or didn't originally want is not a way to save money. This strategy can hurt your waistline as well as your wallet. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

15. Leasing a car

The monthly payments for leasing a car are often lower than for purchasing a car, so it might seem like you can save money by leasing instead of buying. The problem with leasing is that you make all of the payments on the vehicle during the time when it depreciates the most, but you don't end up owning the car at the end of the lease. You end up with nothing! If you purchase a car, you can pay it off and go for years without making payments after you own the vehicle. (See also: What You Need to Know Before Leasing a Car)

16. Making minimum payments on credit cards

When is it good to pay more than you are charged? When your credit card bill comes. Making minimum payments on a credit card seems like a way to spend the least amount possible, but interest charges pile up and it can take decades to pay off a credit card by making minimum payments. (See also: All the Ways Minimum Payments Are Evil)

17. Repairing old appliances and vehicles

You can often repair an old appliance or vehicle for less than the cost of replacing it, which can seem like a good strategy to save money. But if the repair cost exceeds the value of the item, you might come out ahead by replacing it, even if it costs more in the short term. Instead of sinking money into an older item that has a limited life expectancy and will likely need additional repairs soon, you can apply the money toward buying a newer item that should be trouble-free for many years.

18. Hanging on to unneeded things because they are paid for

After you buy something, its value typically declines over time. This means that you will never be able to get your full money back by selling your things. So, you might decide to hang on to everything that you have paid for instead of selling it at a loss. This strategy may make financial sense, but you can end up with lots of clutter from things you don't use, and some items require costly maintenance. Even if it's paid for, if you don't use it, get rid of it.

19. Not boosting your productivity

For years, I used an old laptop that was barely functional. It took hours to accomplish things that should have taken a few minutes due to laggy performance and system crashes. I finally bought a refurbished laptop to replace my aging computer, and I was able to pay for it within a couple months due to increased productivity. (See also: How to Buy a New Computer Without Breaking Your Budget)

20. Skipping a worthwhile project to save money

Although it may seem like the best money strategy is to minimize expenses, sometimes you have to spend money to make money. For example, you could decide to skip the expense of seed packets, tools, and fertilizer to plant a garden. But a garden can pay for itself many times over with its produce. Plus you can reuse many garden tools and supplies for years after the initial purchase.

21. Skipping vehicle maintenance

You can try to save money by not getting regular oil changes and other routine maintenance on your vehicle, but this strategy will cost more than it saves. Keeping up with maintenance on your vehicle will extend its life, lower the likelihood of an expensive breakdown, and can make your vehicle run more efficiently so you reduce fuel costs. (See also: Bookmark This: Save Money With an Easy to Follow Car Maintenance Checklist)

22. Skipping vet appointments

Vet bills for routine vaccinations and checkups can be expensive, but skipping these appointments can be even more costly. Not taking pets to the vet regularly can result in more expensive treatments down the road, plus your pet's health can suffer. (See also: 8 Ways to Lower Your Vet Bills)

23. Wearing cheap shoes

A good pair of shoes is expensive, so why not save some money by getting cheap shoes instead? A good pair of shoes can last for years, while a cheap pair of shoes may only last a few months before wearing out. Buying a good pair of shoes can be less expensive in the long run, and you can walk all you want in comfort without getting sore feet or back pain.

24. Not having a comfortable bed

You can avoid some expenses for bedding through long-term couch surfing or by using a mattress forever even after it is worn out and no longer comfortable. But not getting a good night's sleep will lower your productivity and you are more likely to make poor spending and financial decisions when you have not gotten enough sleep.

25. Skipping medical and dental appointments

Visits to the doctor or dentist can be unpleasant and expensive, but you are better off taking care of your health the way you are supposed to. Failing to go for routine health screenings and teeth cleanings can lead to more expensive problems down the line. (See also: 8 Expenses You Should Never Cut)

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

5 Money Accomplishments You Should Be Proud Of

Ashley Eneriz — Mon, 07 May 2018 08:00:18 +0000

Feeling overwhelmed by how much progress you need to make on your financial goals? It may be time to focus on how far you have come already rather than how far you have left to go.

Here are some major financial accomplishments that you should be proud of. And even if you aren't quite hitting those accomplishments just yet, we've got tips to help get you there.

1. Paying off debt

Don't wait until all of your debt is paid off to celebrate. Even paying off one credit card or loan is a huge accomplishment that can motivate you to keep going. You may be encouraged to pay off the rest of your debt faster, or put more money aside in your savings account.

If you feel like your debt repayment plan is not going anywhere, you might need to change up your approach to see real results. First off, commit to never making only minimum monthly payments and stop using your credit cards. If you still aren't seeing progress, consider doing a balance transfer to a promotional 0% APR credit card so that you can tackle the debt more intentionally without drowning in high interest rates. Just make sure to pay off the debt before the promotional 0% APR window closes. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

2. Making retirement contributions

If a portion of your income is directed to your retirement account before it hits your bank account, give yourself a huge pat on the back. Not only are you successfully building up your 401(k), but you are also decreasing your tax burden for the year. If your company offers a match on contributions, it's even better to contribute enough to at least secure the company match. You don't want to leave any free money on the table.

Not making retirement contributions yet or only contributing a small percentage? The least painful way to up your contribution rate is to have your contribution percentage automatically increased by one to two percent every year. If you make $60,000 a year, contributing 3 percent comes out to around $75 per biweekly paycheck. You probably won't miss that money, especially if you aim to get a small raise or promotion each year.

Don't fall into the trap of thinking that your efforts are too small. It might not seem like your contributions are growing at first, but after a decade, you will start seeing the power of compounding take effect. (See also: 7 Easiest Ways to Catch Up on Retirement Savings Later in Life)

3. Getting a raise

Whether you automatically got a pay bump, or you had the gumption to ask for a raise, congratulations; you should be proud! To stay ahead of the game, make sure you don't increase your cost of living along with your bigger paycheck. Instead, live as if you never received the raise at all. If you want to treat yourself, you can put a little bit of money aside each month to reward yourself at the end of the year with something fun — so long as it doesn't negate your extra earnings.

Are you working hard but feel underpaid? There's a good chance you will never receive a raise if you don't ask for one. If your current employer won't increase your salary, start applying for positions that will grant you a higher paycheck. (See also: How to Negotiate a Raise Out of the Blue)

4. Increasing your credit score

Boosting your credit score is a great feat, especially if you've had to bounce back from a low score, bankruptcy, or an account going to collections. It takes time and dedication to increase your credit score and fix negative marks against your report, but once you are in a good credit range, you can change many other areas of your finances. You can refinance to a lower interest rate for an existing mortgage or car loan, or get a better credit card with a higher limit and better rewards. A higher credit score can also lead you to buying the home of your dreams if you've been stuck with only rentals.

Still wishing for a better credit score? It doesn't come through sheer hope. Monitoring your credit score health through free resources like Credit Sesame can help you identify the areas that are hurting your score the most, such as inconsistent payments or too much debt. One thing to note is that free credit reporting sites often use a different credit scoring metric (the VantageScore) than what lenders use when they approve you for financing. If you want a more accurate look into your credit score, you can order your actual FICO score from myFICO. Ordering your credit score from one of the three credit bureaus (Experian, Equifax, or TransUnion) will run you about $19. (See also: Is It Worth Paying for Your Credit Score?)

5. Living frugally

Here's a financial accomplishment that anyone can be proud of, no matter the size of their paycheck. Living frugally can cover a wide range of areas, from ditching meat twice a week for beans and rice, to stashing $20 a week in a savings account, to buying a used kitchen table and saving yourself $400. Any time you opt for the less expensive choice or choose to save money rather than spend, be proud of yourself.

Being more frugal in your everyday living doesn't have to be complicated. Simply packing your lunch with leftovers or pantry staples instead of purchasing a $7 meal every day of the workweek will save you $35. Similarly, inviting friends over for a game night and snacks can save you $20–$50 over seeing a movie or hanging out at the bar.

The best way to get started with living frugally is to look at your budget and identify where you spend the most money. Then come up with creative ways to decrease these costs and try them out. Take it a step further and devote the money you saved toward debt repayment or a savings account. It will add up. (See also: The Only 6 Rules of Frugal Living You Need to Know)

Stop giving yourself a hard time about not being exactly where you want to be money wise and realize just how far you have come. Do you have more money saved this year than you did last year? Do you have less debt? Are you making more money? Feel proud of the growth you have made, and work on being even more financially fit next year.

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

7 Life Choices That Are Actually Financial Decisions

Tim Lemke — Fri, 04 May 2018 08:00:11 +0000

Life is filled with decisions, some of which can seem very consequential. You will make choices about your career, living situation, relationships, education, and your family. Emotion will be a big driver of your decision making in these cases. But these big life choices should also be viewed with a financial lens.

Whether we realize it or not, some of the key moments of our lives are actually financial decisions in disguise. Let's take a look at the major life choices that can impact your finances.

1. Choosing a college

In an ideal world, we'd pick our college based on the quality of its education, the beauty of its campus, and other factors having nothing to do with money. But most of us also look at the expense. College is costly and is not getting cheaper. It's possible for a family to drop more than a quarter of a million dollars for a four-year degree, potentially saddling a student with loans that will take years to pay off. Thus, the college choice is increasingly one that involves financial considerations.

What is the cost of tuition and housing? Is it better to attend school in-state or out of state? Should I attend a public or private university? Do I qualify for grants or scholarships? Will I be able to get a part-time job and attend school at the same time? These are the questions that often trump all others. (See also: How Much Is Too Much to Pay for College?)

2. Choosing a college major and career

So you've decided to pursue your passion and study to become a marine biologist. This can be a noble and satisfying profession. But have you examined what a marine biologist earns? Are jobs plentiful and stable? Do you know whether you'll need to remain in school for years to get an advanced degree?

It's fine to go after a career that you think will bring you happiness, but it's sensible to also take financial matters into account. There has been renewed talk about the "return on investment" for various college degrees. Like it or not, a business major is more likely to earn a high salary than someone who majored in English Lit. The potential earnings for a college major are especially relevant for those who expect to have heavy student loan debt upon graduation. (See also: 5 Jobs That Pay Over $50K and Don't Require a Bachelor's Degree)

3. Where to live

When I first started out in my career, I had dreams of grabbing my own apartment and living it up in the city. Then I got my first measly paycheck and realized that I had to think differently about my living situation.

When you think about the area of the country or the community you wish to live in, you may consider the weather, the cultural attractions, and the proximity to friends and family. But there's also a good chance that you're examining the job market, the cost of housing, and the educational system. And those are financial considerations. You may like the idea of moving to the mountains of Wyoming, but change your mind when you realize there aren't many jobs in your field of choice. You may be drawn to the lifestyle of the San Francisco Bay Area, but may reconsider when you look at the cost of living. (See also: Here's How Much Life in the Big City Will Cost You)

4. Getting married

Yes, marriage is about love. But it's also about combining each others' assets and debt. It's about setting up a joint bank account. It's about filing taxes jointly and taking advantage of tax breaks. It's about creating wills and buying life insurance. It's about being on the same page in terms of spending and budgeting and deciding whether to lend money (again) to your spouse's deadbeat cousin. It seems unromantic, but getting married is as much a monetary decision as an emotional one. (See also: 9 Surprising Ways Marriage Can Make You Richer)

5. Having children

It costs about $13,000 a year to raise a child, according to the U.S. Department of Agriculture. That means you'll shell out nearly a quarter-million dollars before a son or daughter turns 18. The expenses are seemingly endless. Food. Clothes. Education. Activities. Stuff. Children will add joy to your life, but remove money from your bank account. If you are considering having a child, have you taken the financial realities into account? (See also: 7 Signs You're Financially Ready to Start a Family)

6. Caring for elderly parents

We want what is best for our parents as they age. We want to ensure they get the best quality care and are happy in their environment. If our parents can no longer live on their own, it may be time to examine assisted living centers, in-home nursing, or other options that can vary widely in cost. You may also choose to have a parent move in with you, which can drastically change your own household budget.

Decisions about elder care can also impact your career. What if you have to take time off work to care for an elderly parent? What if you are forced to leave a job because it does not offer the flexibility you need to be there for Mom or Dad? These aren't just emotional decisions, they're huge financial ones. (See also: 6 Financial Steps to Take When Your Aging Parents Move In)

7. Retiring

We all want to reach a certain age and simply say, "OK, I'm done working." It'd be great to hit age 63 and simply walk off into a life of travel and leisure. But the ability to do that must come with the knowledge that you can afford it.

Retiring requires long-term planning to accumulate enough wealth so you can stop working. It may also involve a review of Social Security benefits to determine whether it's more financially advantageous to retire later. The key here is to think of retirement as a financial decision from the get-go. Set a target age for retirement and develop a smart and comprehensive financial plan to get there. With proper financial planning, you can retire when your heart and mind tell you to. (See also: 4 False Assumptions That Could Threaten Your Retirement Years)

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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:

retirement

9 Money Questions You Should Be Able to Answer by Age 30

1. What is your net worth?

2. What are you invested in?

3. How big is your emergency fund?

4. Are you on track to retire comfortably?

5. Are you properly insured?

6. Is your savings account the right one for you?

7. What is your credit score?

8. Are there errors on your credit report?

9. What is your debt-to-income ratio?

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How Student Loan Debt Can Derail Your Future

1. You may not have the freedom to follow your passion

2. You may have to move back in with your parents

3. If you hate your career, you might not be able to escape

4. You will end up paying much more than what you borrowed

5. You might not be able to buy a home

6. It could prevent you from getting married or starting a family

7. It might delay your retirement

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9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out

1. Show them how to budget

2. Teach them how retirement plans work

3. Explain bank interest rates

4. Tell them about bank fees

5. Teach them the pros and cons of credit cards

6. Outline the pain of debt

7. Explain the concept of net worth

8. Urge them to shop for value

9. Teach them basic car maintenance

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The 5 Worst Money Mistakes New Grads Make

1. Ignoring your personal finances altogether

2. Overspending on your current lifestyle

3. Delaying saving for your retirement

4. Neglecting your student loans

5. Taking on credit card debt

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How to Start Investing With Just $100

5 ways to invest with little money

1. Invest your spare change

2. Engage in micro-investing

3. Set up a recurring transfer with a robo-adviser

4. Set up a CD

5. Start investing in a 401(k)

Finding money to invest

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Best Money Tips: 10 Big Ways Retirement Will Be Different in 2030

Top 5 Articles

Other Essential Reading

5 Money Moves Every Single Parent Should Make

1. Prepare your estate planning documents

2. Purchase life insurance

3. Fund an emergency savings account

4. Contribute to a retirement account

5. Open a 529 account

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How to Talk to Mom and Dad About Their Money

Set up a meeting

Don't point fingers

Offer help

Ask for access to their important financial information

Create a future plan

Make sure everything is up to date

Have patience and get the family involved

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Why Your IRA Shouldn't Double as an Education Savings Plan

You can't borrow for retirement

Retirement and college funds should be kept separate

There are other mechanisms to save for college

It's harder to get help from family and friends

IRA distributions count as income for financial aid purposes

Earnings from an IRA can't be withdrawn tax-free

IRAs have contribution limits

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4 Smart Things You Should Do With Your First Real Paycheck

Let your money breathe

Create a budget

Establish a solid savings plan