Budgeting

5 Ways Gig Economy Workers Can Save for Retirement

Emily Guy Birken — Mon, 16 Nov 2020 22:12:58 +0000

We are in the midst of a major economic shift. While workers in the past could expect to keep a stable job with a traditional employer for decades, workers of today have found they must either cobble together a career from a variety of gigs, or supplement a lackluster salary from a traditional job by doing freelance work in their spare time.

Though you can make a living (and possibly even a good one) in the gig economy, this kind of work does leave gig workers vulnerable in one very important way: retirement planning.

Without the backing of an employer-sponsored retirement account, many gig workers are not saving enough for their golden years. According to a recent report by Betterment, seven out of 10 full-time gig workers say they are unprepared to maintain their current lifestyle during retirement, while three out of 10 say they don't regularly set aside any money for retirement.

So what's a gig worker to do if they don't want to be driving for Uber and taking TaskRabbit jobs into their 70s and 80s? Here are five things you can do to save for retirement as a member of the gig economy. (See also: 15 Lucrative Side Hustles for City Dwellers)

1. Take stock of what you have

Many people don't have a clear idea of how much money they have. And it's impossible to plan your retirement if you don't know where you are today. So any retirement savings should start with a look at what you already have in the accounts in your name.

Add up how much is in your checking and savings accounts, any neglected retirement accounts you may have picked up from previous traditional jobs, cash on hand if your gig work relies on cash tips, or any other financial accounts. The sum total could add up to more than you realize if you haven't recently taken stock of where you are.

Even if you truly have nothing more than pocket lint and a couple quarters to your name, it's better to know where you are than proceed without a clear picture of your financial reality. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)

2. Open an IRA

If you don't already have a retirement account that you can contribute to, then you need to set one up ASAP. You can't save for retirement if you don't have an account to put money in.

IRAs are specifically created for individual investors and you can easily get started with one online. If you have money from a 401(k) to roll over, you have more options available to you, as some IRAs have a minimum investment amount (typically $1,000). If you have less than that to open your account, you may want to choose a Roth IRA, since those often have no minimums.

The difference between the traditional IRA and the Roth IRA is how taxes are levied. With a traditional IRA, you can fund the account with pre-tax income. In other words, every dollar you put in an IRA is a dollar you do not have to claim as income. However, you will have to pay ordinary income tax on your IRA distributions once you reach retirement. Roth IRAs are funded with money that has already been taxed, so you can take distributions tax-free in retirement.

Many gig workers choose a Roth IRA because their current tax burden is low. If you anticipate earning more over the course of your career, using a Roth IRA for retirement investments can protect you from the taxman in retirement.

Whether you choose a Roth or a traditional IRA, the contribution limit per year, as of 2018, is $5,500 for workers under 50, and $6,500 for anyone who is 50+.

3. Avoid the bite of investment fees

While no investor wants to lose portfolio growth to fees, it's especially important for gig workers to choose asset allocations that will minimize investment fees. That's because gig workers are likely to have less money to invest, so every dollar needs to be working hard for them.

Investing in index funds is one good way to make sure investment fees don't suck the life out of your retirement account. Index funds are mutual funds that are constructed to mimic a specific market index, like the S&P 500. Since there is no portfolio manager who is choosing investments, there is no management fee for index funds. (See also: How to Start Investing With Just $100)

4. Embrace automation

One of the toughest challenges of being a gig worker is the fact that your income is variable — which makes it very difficult to plan on contributing the same amount each month. This is where technology comes in.

To start, set up an automatic transfer of an amount of money you will not miss. Whether you can spare $50 per week or $5 per month, having a small amount of money quietly moving into your IRA gives you a little cushion that you don't have to think about.

From there, consider using a savings app to handle retirement savings for you. For instance, Digit will analyze your checking account's inflow and outflow, and will determine an amount that is safe to save without triggering an overdraft, and automatically move that amount into a savings account. You can then transfer your Digit savings into your retirement account.

5. Invest found money

An excellent way to make sure you're maxing out your contributions each year is to change your view of "found money." For instance, if you receive a birthday check from your grandmother, only spend half of it and put the rest in your retirement account. Similarly, if you receive a tax refund (which is a little less likely if you're a gig worker paying quarterly estimated taxes), send at least half of the refund toward your retirement.

Any gig workers who often receive cash can also make their own rules about the cash they receive. For instance, you could decide that every $5 bill you get has to go into retirement savings. That will help you change your view of the money and give you a way to boost your retirement savings.

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

5 Reasons Not to Use Debit Cards When You Shop Online

Holly Johnson — Sat, 07 Nov 2020 22:45:14 +0000

Many consumers use their debit cards for everything they buy. Using debit instead of paying with a credit card can help you avoid the potential for debt. The money is taken out of your bank account directly and immediately, so there’s little chance to spend more than you have, unlike using a credit card.

But when shopping online, there are reasons to consider using a credit card instead.

Using a debit card for online purchases can mean enduring greater losses if you're a victim of fraud. Plus, you're giving up valuable consumer protections and rewards each time you make a purchase with debit in a store or online.

Here are all the reasons you may want to stop using debit and use a credit card instead.

1. You may be putting yourself at risk for fraud

It's easy to assume you won't be liable for fraudulent purchases made with your debit card or checking account number, but this isn't the case. Where most credit cards come with zero fraud liability thanks to rules enacted in the Fair Credit Billing Act (FCBA), the same protections don't apply to transactions made with a debit card.

In fact, someone who finds your debit card number could wipe out all the money in your accounts. If you don't notice or report it in time, you won't have any way to get your money back.

According to the Federal Trade Commission (FTC), your level of liability depends on when you notice the fraud and report it. For example, if you report fraud within two business days after it's noticed, you're only liable for up to $50 in losses. If you report fraud within two to 60 days of your statement being mailed to you, you're only liable for up to $500. If you fail to report fraud once it's been 60 days from the date your statement was mailed to you, the FTC notes that you could lose "all the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account."

2. You're missing out on rewards

In addition to putting yourself at risk for fraud, there are plenty of ways you're missing out when you shop online with a debit card. For example, you could be earning cash back or travel rewards if you made the same purchases with a rewards or travel credit card. These rewards can add up quickly, making it easier to see the world or splurge on merchandise, gift cards, and more.

While you can typically earn 1% to 3% back with a rewards or travel credit card, you can also double up on rewards by shopping through a cash back, travel rewards, or airline portal. You can also shop in portals with a debit card in some cases, but you'll mostly be limited to earning airline miles or cash back. (See also: How to Use Airline Shopping Portals to Cash In On Rewards)

3. You won't earn any sign-up bonuses

Using a debit card when you shop online also means giving up on the possibility of earning big sign-up bonuses. Keep in mind that many rewards credit cards offer consumers the chance to earn bonuses worth $500 or more when they meet a minimum spending requirement within a few months.

You may think you need to pay the annual fee on a credit card to qualify for sign-up bonuses or ongoing rewards, but this is far from the truth. The reality is, there are plenty of rewards credit cards that dole out sizable bonuses, ongoing rewards, and more without charging a fee each year. (See also: Don't Make These 6 Credit Card Sign-up Bonus Mistakes)

4. You're giving up valuable consumer protections

Another reason to use credit instead of debit is the fact that you could qualify for valuable consumer protections and free insurance. This can include travel protections like trip cancellation/interruption insurance, rental car insurance, travel accident insurance, baggage delay insurance, and more.

Other protections that can apply to your online purchases include extended warranties, purchase protection, and guaranteed returns. Most of the time, you won't qualify for any of these perks if you pay for your online purchases with a debit card. (See also: How Credit Cards Protect Your Purchases from Damage or Theft)

5. You're not building credit history

The final reason you may want to stop using your debit card is the fact that you're not building credit history based on your online purchases and everyday spending. When you use credit instead of debit, on the other hand, you're making regular purchases and payments that are reported to the three credit reporting agencies — Experian, Equifax, and TransUnion.

Having your credit usage and payments reported to the credit bureaus is huge because it helps prove your creditworthiness and gives them a basis to increase your credit score over time. Using a debit card certainly won't hurt your credit score, but it won't help it, either.

Considering a credit card? Here's a warning

While using debit online can be more risky and less rewarding, it's still important to figure out if you're a candidate for credit card use. While credit cards do come with better protection against fraud, the potential for rewards, and valuable consumer protections, they can make it easier to overspend and wind up in debt.

Before you sign up for a credit card and start using it for purchases, it's important to make sure you're committed to staying on budget and spending only what you can afford. If you wind up with a mountain of debt with the high interest rates most credit cards charge, the rewards and protections you receive won't be much help.

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

16 Small Steps You Can Take Now to Improve Your Finances

Alicia Rose Hudnett — Wed, 04 Nov 2020 17:32:44 +0000

You have all kinds of financial goals you want to achieve, but where should you begin? There are so many different aspects of money management that it can be difficult to find a starting point when trying to achieve financial success. If you're feeling lost and overwhelmed, take a deep breath. Progress can be made in tiny, manageable steps. Here's are 16 small things you can do right now to improve your overall financial health. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)

1. Create a household budget

The biggest step toward effective money management is making a household budget. You first need to figure out exactly how much money comes in each month. Once you have that number, organize your budget in order of financial priorities: essential living expenses, contributions to retirement savings, repaying debt, and any entertainment or lifestyle costs. Having a clear picture of exactly how much is coming in and going out every month is key to reaching your financial goals.

2. Calculate your net worth

Simply put, your net worth is the total of your assets minus your debts and liabilities. You're left with a positive or negative number. If the number is positive, you're on the up and up. If the number is negative — which is especially common for young people just starting out — you'll need to keep chipping away at debt.

Remember that certain assets, like your home, count on both sides of the ledger. While you may have mortgage debt, it is secured by the resale value of your home. (See also: 10 Ways to Increase Your Net Worth This Year)

3. Review your credit reports

Your credit history determines your creditworthiness, including the interest rates you pay on loans and credit cards. It can also affect your employment opportunities and living options. Every 12 months, you can check your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax) for free at annualcreditreport.com. It may also be a good idea to request one report from one bureau every four months, so you can keep an eye on your credit throughout the year without paying for it.

Regularly checking your credit report will help you stay on top of every account in your name and can alert you to fraudulent activity.

4. Check your credit score

Your FICO score can range from 300-850. The higher the score, the better. Keep in mind that two of the most important factors that go into making up your credit score are your payment history, specifically negative information, and how much debt you're carrying: the type of debts, and how much available credit you have at any given time. (See also: How to Boost Your Credit Score in Just 30 Days)

5. Set a monthly savings amount

Transferring a set amount of money to a savings account at the same time you pay your other monthly bills helps ensure that you're regularly and intentionally saving money for the future. Waiting to see if you have any money left over after paying for all your other discretionary lifestyle expenses can lead to uneven amounts or no savings at all.

6. Make minimum payments on all debts

The first step to maintaining a good credit standing is to avoid making late payments. Build your minimum debt reduction payments into your budget. Then, look for any extra money you can put toward paying down debt principal. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

7. Increase your retirement saving rate by 1 percent

Your retirement savings and saving rate are the most important determinants of your overall financial success. Strive to save 15 percent of your income for most of your career for retirement, and that includes any employer match you may receive. If you're not saving that amount yet, plan ahead for ways you can reach that goal. For example, increase your saving rate every time you get a bonus or raise.

8. Open an IRA

An IRA is an easy and accessible retirement savings vehicle that anyone with earned income can access (although you can't contribute to a traditional IRA past age 70½). Unlike an employer-sponsored account, like a 401(k), an IRA gives you access to unlimited investment choices and is not attached to any particular employer. (See also: Stop Believing These 5 Myths About IRAs)

9. Update your account beneficiaries

Certain assets, like retirement accounts and insurance policies, have their own beneficiary designations and will be distributed based on who you have listed on those documents — not necessarily according to your estate planning documents. Review these every year and whenever you have a major life event, like a marriage.

10. Review your employer benefits

The monetary value of your employment includes your salary in addition to any other employer-provided benefits. Consider these extras part of your wealth-building tools and review them on a yearly basis. For example, a Flexible Spending Arrangement (FSA) can help pay for current health care expenses through your employer and a Health Savings Account (HSA) can help you pay for medical expenses now and in retirement. (See also: 8 Myths About Health Savings Accounts — Debunked!)

11. Review your W-4

The W-4 form you filled out when you first started your job dictates how much your employer withholds for taxes — and you can make changes to it. If you get a refund at tax time, adjusting your tax withholdings can be an easy way to increase your take-home pay. Also, remember to review this form when you have a major life event, like a marriage or after the birth of a child. (See also: Are You Withholding the Right Amount of Taxes from Your Paycheck?)

12. Ponder your need for life insurance

In general, if someone is dependent upon your income, then you may need a life insurance policy. When determining how much insurance you need, consider protecting assets and paying off all outstanding debts, as well as retirement and college costs. (See also: 15 Surprising Insurance Policies You Might Need)

13. Check your FDIC insurance coverage

First, make sure that the banking institutions you use are FDIC insured. For credit unions, you'll want to confirm it's a National Credit Union Administration (NCUA) federally-covered institution. Federal deposit insurance protects up to $250,000 of your deposits for each type of bank account you have. To determine your account coverage at a single bank or various banks, visit FDIC.gov.

14. Check your Social Security statements

Set up an online account at SSA.gov to confirm your work and income history and to get an idea of what types of benefits, if any, you're entitled to — including retirement and disability.

15. Set one financial goal to achieve it by the end of the year

An important part of financial success is recognizing where you need to focus your energy in terms of certain financial goals, like having a fully funded emergency account, for example.

If you're overwhelmed by trying to simultaneously work on reaching all of your goals, pick one that you can focus on and achieve it by the end of the year. Examples include paying off a credit card, contributing to an IRA, or saving $500.

16. Take a one-month spending break

Unfortunately, you can never take a break from paying your bills, but you do have complete control over how you spend your discretionary income. And that may be the only way to make some progress toward some of your savings goals. Try trimming some of your lifestyle expenses for just one month to cushion your checking or savings account. You could start by bringing your own lunch to work every day or meal-planning for the week to keep your grocery bill lower and forgo eating out. (See also: How a Simple "Do Not Buy" List Keeps Money in Your Pocket)

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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 Maximize Rewards on Everyday Spending

Holly Johnson — Tue, 03 Nov 2020 17:32:44 +0000

While many rewards enthusiasts focus on signing up for new credit cards to earn signup bonuses, not everyone has the time or desire to play the signup game. There is effort involved in tracking multiple cards, annual fees, and rewards programs, after all, and some people don't want to spend their time or mental energy this way.

If you're someone who falls into this category, you may be better off maximizing one or two cards instead of chasing rewards. Fortunately, you can earn plenty of rewards over time if you're savvy about your card's benefits and bonus categories.

The key to getting the most out of your rewards cards is understanding how they work and looking for opportunities to earn more points on your everyday spending. Here are some tips that can help.

Brainstorm every bill you could pay with a credit card

Because rewards cards offer points based on each dollar you spend, maximizing the amount you can spend on credit is the best way to boost your rewards haul. The smartest strategy to use here is figuring out how many of your monthly bills you can pay with a credit card.

While you may not be notified or aware, it's possible that bills you've been paying with a check or debit card for years can be paid with a credit card without any fees. While your bills may vary, some expenses you should try to pay with a credit card include:

Rent
Utility bills like electric or gas
Health insurance
Cable television and internet
Cell phone
Taxes
Daycare
Auto and home insurance
Subscription services
College tuition or student loans
Medical bills
Lawn care

Keep in mind that these are just some of the bills you could be paying with credit. Depending on your situation, you could have additional, uncommon expenses to cover that could be paid with credit with ease.

Also, remember that these additional bills should be paid with credit on top of your everyday expenses like groceries, dining out, gas or bus fare, and miscellaneous spending. Every time you buy something in person or online, you should strive to pay with your rewards card if you can.

Leverage your rewards card bonus categories

It's also important to leverage your favorite card bonus categories, whatever they may be. This is especially important if you have a few cards with different bonus categories since you'll want to make sure you're using the right card for bills that let you earn bonus points.

Let's say you have a travel credit card that earns 3x points on dining and travel and another card that earns 6x points at the grocery store. In that case, you would be smart to use the travel card for dining and travel purchases and your other card when you stock up on food. While the amount of rewards you earn with individual purchases may seem nominal, using the right card for the right purchase can help you earn a lot more rewards over time.

Set up auto-pay bills to be paid with credit

Most of us have bills set up to be paid automatically, whether it's our Netflix and Hulu subscriptions, gym membership, or utility bills. Make sure each bill you have set up to be paid automatically is set up to be paid with your rewards card and not a debit card. This way, you can earn rewards points on those expenses every month.

Use shopping portals and dining clubs

Many flexible rewards programs, frequent flyer programs, and hotel loyalty programs have shopping portals you can access to earn extra points. Major airlines like American, Delta, and United also have shopping portals that work similarly. (See also: How to Maximize Rewards Through Credit Card Shopping Portals)

Some programs like Southwest and Delta also offer dining clubs. These programs let you earn additional points or miles just for dining at participating restaurants in your area. It's easy and it's free to join, so you may as well earn extra miles on your spending if you're going to dine out anyway. (See also: Everything You Need to Know About Airline Dining Rewards Programs)

How much the average family can earn

If you are skeptical the average family can rack up meaningful rewards without signing up for new cards over and over again, look at how this might work in real life. For example, imagine a family of four with two rewards card-toting adults. Across the two of them, they have:

A cash back card that earns 2% back
A travel credit card that earns 3% on dining and travel
A rewards card that earns 6% cash back at the grocery store on up to $6,000 in spending each year

To figure out how much this family might earn, we used Bureau of Labor Statistics spending averages from 2017. Here's a rundown of that data for the year plus how much a family could earn in rewards over 12 months based on average expenses:

Food at home ($4,363): $261.78 in rewards at 6%
Food away from home ($3,365): $100.95 at 3%
Utilities, fuels, and public services ($3,836): $76.72 at 2%
Household operations ($1,412): $28.24 at 2%
Household supplies ($755): $45.30 at 6%
Household furnishings and equipment ($1,987): $39.74 at 2%
Apparel and services ($1,833): $36.66 at 2%
Gasoline and motor oil ($1,968): $39.36 at 2%
Other vehicle expenses ($2,842): $56.84 at 2%
Healthcare ($4,928): $98.56 at 2%
Entertainment ($3,203): $64.06 at 2%
Personal care products ($762): $45.72 at 6%
Education ($1,491): $29.82 at 2%

Total rewards: $923.75

While $900+ is a lot to earn in rewards within a year, you have the potential to earn a lot more. After all, these are just some of the expenses the average family faces and not all of them. If you could pay some additional big bills with credit each month like daycare or your rent, you could significantly add to your bottom line.

What to watch out for

While maximizing rewards cards is a smart idea if you're using them already anyway, there are always pitfalls to be aware of when you're using a credit card. Here's what to watch out for during your quest for more cash back and travel rewards.

Fees for using credit

While there are many bills you can pay with credit without a fee, some vendors, merchants, and service providers charge a fee to use a credit card as payment. Fees are especially prevalent on bills such as utilities, cable or internet, rent, and insurance. Make sure to verify you aren't being charged a fee to use credit before you proceed.

Annual fees

Don't forget that some rewards cards charge annual fees. These fees may be worth it depending on your spending and rewards haul, but you should always factor them into the equation to make sure each fee is worth paying. If you're against paying annual fees, look for rewards cards that don't charge one.

Budgeting mishaps

Using a credit card for all your expenses may simplify your financial life, but it could also cause your budget to fall out of whack. Make sure you're only spending on purchases you planned to make anyway, and that you're tracking your spending and paying off your credit cards regularly.

Debt

Never use credit cards for purchases you can't afford to repay if you're pursuing rewards. The interest you'll pay will always be much more than the rewards you earn. If you're worried using credit will cause you to rack up debt you can't afford to repay, you're better off sticking to cash or debit instead.

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

How to Make Better Financial Decisions

Barbara O’Neill — Sun, 01 Nov 2020 17:32:44 +0000

A key financial decision people struggle to make is how to allocate savings for multiple financial goals. Do you save for several goals at the same time or fund them one-by-one in a series of steps? Basically, there are two ways to approach financial goal-setting:

Concurrently: Saving for two or more financial goals at the same time.

Sequentially: Saving for one financial goal at a time in a series of steps.

Each method has its pros and cons. Here's how to decide which method is best for you.

Sequential goal-setting

Pros

You can focus intensely on one goal at a time and feel a sense of completion when each goal is achieved. It's also simpler to set up and manage single-goal savings than plans for multiple goals. You only need to set up and manage one account.

Cons

Compound interest is not retroactive. If it takes up to a decade to get around to long-term savings goals (e.g., funding a retirement savings plan), that's time that interest is not earned.

Concurrent goal-setting

Pros

Compound interest is not delayed on savings for goals that come later in life. The earlier money is set aside, the longer it can grow. Based on the Rule of 72, you can double a sum of money in nine years with an 8 percent average return. The earliest years of savings toward long-term goals are the most powerful ones.

Cons

Funding multiple financial goals is more complex than single-tasking. Income needs to be earmarked separately for each goal and often placed in different accounts. In addition, it will probably take longer to complete any one goal because savings is being placed in multiple locations.

Research findings

Working with Wise Bread to recruit respondents, I conducted a study of financial goal-setting decisions with four colleagues that was recently published in the Journal of Personal Finance. The target audience was young adults with 69 percent of the sample under age 45. Four key financial decisions were explored: financial goals, homeownership, retirement planning, and student loans.

Results indicated that many respondents were sequencing financial priorities, instead of funding them simultaneously, and delaying homeownership and retirement savings. Three-word phrases like “once I have…,", “after I [action],” and “as soon as…,” were noted frequently, indicating a hesitancy to fund certain financial goals until achieving others.

The top three financial goals reported by 1,538 respondents were saving for something, buying something, and reducing debt. About a third (32 percent) of the sample had outstanding student loan balances at the time of data collection and student loan debt had a major impact on respondents’ financial decisions. About three-quarters of the sample said loan debt affected both housing choices and retirement savings.

Actionable steps

Based on the findings from the study mentioned above, here are five ways to make better financial decisions.

1. Consider concurrent financial planning

Rethink the practice of completing financial goals one at a time. Concurrent goal-setting will maximize the awesome power of compound interest and prevent the frequently-reported survey result of having the completion date for one goal determine the start date to save for others.

2. Increase positive financial actions

Do more of anything positive that you're already doing to better your personal finances. For example, if you're saving 3 percent of your income in a SEP-IRA (if self-employed) or 401(k) or 403(b) employer retirement savings plan, decide to increase savings to 4 percent or 5 percent.

3. Decrease negative financial habits

Decide to stop (or at least reduce) costly actions that are counterproductive to building financial security. Everyone has their own culprits. Key criteria for consideration are potential cost savings, health impacts, and personal enjoyment.

4. Save something for retirement

Almost 40 percent of the respondents were saving nothing for retirement, which is sobering. The actions that people take (or do not take) today affect their future selves. Any savings is better than no savings and even modest amounts like $100 a month add up over time.

5. Run some financial calculations

Use an online calculator to set financial goals and make plans to achieve them. Planning increases people’s sense of control over their finances and motivation to save. Useful tools are available from FINRA and Practical Money Skills.

What's the best way to save money for financial goals? It depends. In the end, the most important thing is that you're taking positive action. Weigh the pros and cons of concurrent and sequential goal-setting strategies and personal preferences, and follow a regular savings strategy that works for you. Every small step matters!

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

5 Things Keeping You From a Life of Financial Independence

Toni Husbands — Sat, 10 Oct 2020 17:32:44 +0000

Financial independence can mean different things to everyone. A 2013 survey from Capital One 360 found that 44 percent of American adults feel that financial independence means not having any debt, 26 percent said it means having an emergency savings fund, and 10 percent link financial independence with being able to retire early.

I define financial independence as the time in life when my assets produce enough income to cover a comfortable lifestyle. At that point, working a day job will be optional.

But what about the rest of America? How would you define financial independence? If freedom from debt is what you're seeking, here are five areas that could be holding you back.

1. Not having clear, financial goals

If you're not planning for financial independence, chances are you won't reach it. The future is full of unknowns, but having an idea of when you'd like to achieve financial freedom should be your first step.

Do you want to retire before you turn 65? Do you want to travel the world with your spouse once you reach early retirement? Both goals will require a significant amount of cash stashed away, so it's important to start saving ASAP to make those dreams come true. (See also: 15 Secrets of People Who Retire Early)

2. Not saving enough

It's important to identify how much you're currently saving, and how much you need to save in order to retire when you want to, or reach another major financial goal. Using a calculator like Networthify can help you play with various money-saving scenarios and make realistic projections about retirement.

Another way to make saving money easier is to automate it. Setting up an automatic weekly or monthly transfer from your checking account into your savings account will take the extra task off your already full plate. Even if it's as little as $5 a week, it's enough to start building that nest egg. (See also: 5 MicroSaving Tools to Help You Start Saving Now)

3. Not paying off consumer debt

If you're carrying a credit card balance each month, financing cars, or just paying the minimum on your student loans, compound interest is working against you. Creating an aggressive plan to pay off debt quickly should be a number one priority for anyone who is serious about achieving financial independence. Otherwise, your money is working for your creditors, not you.

If you prefer to tackle credit card debt first, there are several debt management methods you can try, including the Debt Snowball Method and the Debt Avalanche Method. The Debt Snowball Method has you paying off the card with the smallest balance first, working your way up to the card with the largest balance. The Debt Avalanche Method is similar, but here you would pay more than the monthly minimum on the card with the highest interest rate first, working towards paying off the card with the lowest interest rate. Both are highly effective methods, and choosing one really just depends on your preference.

4. Giving into lifestyle creep

A high income does not automatically make you wealthy. As you move up in your career, the temptation to upgrade your lifestyle to match your income will be ever-present. After all, you work hard, so why not reward yourself with the latest gadgets and toys?

However, if you continue to spend and live modestly, you can put more money away for travel or retirement with every pay raise you earn. Financial freedom will be just around the corner if you resist that temptation to upgrade your home, car, and electronics to match your income bracket. (See also: 9 Ways to Reverse Lifestyle Creep)

5. Being driven by FOMO

Fear Of Missing Out, aka FOMO, is the modern version of keeping up with the Joneses. Except now you have access to the Joneses' social media platforms, and they go on all kinds of fun adventures. Social media is a great tool for keeping in touch, but it can also make you want to spend all your money on lavish vacations, clothes, spa treatments, and other extravagent things. Resist that urge. And block the Joneses on social media if needed. (See also: Are You Letting FOMO Ruin Your Finances?)

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

5 Money Moves to Make Before You Turn 40

Holly Johnson — Thu, 01 Oct 2020 17:32:44 +0000

Turning the big 4-0 is a perfect time to reflect on how far you've come in life, the milestones you've surpassed, and the relationships you've built. But for some people — especially those who don't have their financial ducks in a row — it's a time when panic sets in.

After all, turning 40 can make you painfully aware that time is running out to fix any financial mistakes you've made in the past. At the same time, you need to get serious about your money if you want to enjoy your golden years without financial stress. That's why financial advisers suggest a handful of money moves everyone should make before their 40th birthday.

1. Deal with consumer debt

Ryan Inman, a financial planner for doctors, says it's crucial to create a plan to deal with consumer debt well before your 40th birthday. That's especially true when it comes to high interest credit card debt. With the average credit card interest rate now over 17%, this type of debt can be difficult to pay off — and a big drain on your budget each month.

If your goal is paying off debt, there are multiple approaches to consider. You can attack it the old-fashioned way and pay as much as you can each month, or even try the debt snowball or debt avalanche methods. You can even apply for a balance transfer credit card that lets you secure 0% APR for up to 21 months.

Ideally, you should strive to have no debt other than your mortgage at this point in your life, says Inman.

While this may seem like a lofty goal, not having to make interest payments toward consumer debt will make it a lot easier to save more for retirement and play catch up on your investments if you're already behind.

2. Maximize your retirement savings

It's easy to think maxing out your retirement savings isn't necessary when you're young, but when your 40s hit, you become keenly aware of just how much more your nest egg needs to grow.

Financial planner Benjamin Brandt, who hosts a retirement podcast called Retirement Starts Today Radio, says he suggests anyone approaching 40 start maxing out their retirement savings. Remember that you'll set your contributions up through payroll out of your pre-tax income, so it's not as costly as it may seem. Also note that contributing the max to retirement will reduce your taxable income, which could mean a smaller income tax bill this year.

If you can't contribute the max, Brandt says to try to contribute more than you are now and inch your goal up slightly every year until you get there.

Brandon Renfro, an assistant professor of finance and financial planner in Hallsville, Texas, says that, at the very least, you should make sure you're getting the full employer match on your retirement plan. An employer match is the amount of money your employer might match when you save for retirement yourself. For example, your employer might agree to contribute up to 6% of your income each year as a match, but you have to contribute 6% to get the full amount.

Remember that your employer match is free money for the taking, and you should take advantage of any help you can get toward retirement savings as you approach your 40s.

3. Automate your finances

Certified Public Accountant Riley Adams, who also writes at Young and the Invested, says that your 40s are a good time to try to automate your investments if you haven't already. With more automation and money moving on its own, you're less likely to spend money on stuff you don't need or end up in a situation where you're inflating your lifestyle as your income grows.

"To protect yourself from yourself, learn to establish automated financial transactions to handle your money moves each paycheck," he says. "Doing so takes the hassle out of your hands and also puts your money to better use."

For example, you could set up an automatic bank transfer so a specific amount of money is transferred to a high-yield savings account every month. Or, you can set up automatic deposits into a brokerage account. Boosting your retirement savings in a workplace account can also be considered automation since the money is taken out of your paycheck automatically and invested on your behalf. (See also: 5 Ways to Automate Your Finances)

4. Purchase insurance based on your future finances

Financial planner Brenton Harrison of Henderson Financial Group says that, by your 40th birthday, you should also have your insurance needs squared away. However, you should strive to think of your insurance needs in future tense.

"It's tempting to determine your needs based on your current income and net worth," he says. "But for many people, their 40s are their peak earning years, meaning that the insurance needs you have before 40 might not be enough as your career progresses."

Harrison suggests sitting down and thinking about where you'd like to go in your career and where you plan to be financially in 10 years. From there, buy insurance based on that financial picture.

"If you know you can and will achieve a certain level of success, don't wait until you've reached it to start planning," he says.

While the types of insurance you'll need vary depending on your situation, think beyond the basics like homeowner's and auto insurance. For example, you may want to buy an umbrella insurance policy that extends your coverage limits in certain cases.

Also, make sure to get proper life insurance coverage," says financial planner Luis Rosa.

"If you have a family or are planning on having one in the near future, it is crucial to make sure that they are protected," he says. And you're much more likely to qualify for the coverage you need at a price you can afford when you're in your 40s (or before) and still relatively healthy.

5. Build an emergency fund

If you've struggled with your finances over the years and dealt with credit card debt multiple times, chances are good it's because you don't have an emergency fund. While any amount saved is better than nothing, most experts suggest keeping a separate fund for emergency expenses or job loss that's stocked with three to six months of expenses or more.

You never know what kind of roadblocks life will throw your way, but you'll be prepared for almost anything if you have savings set aside. And if you can't save six months of expenses, it's still best to start somewhere — even if you can only squirrel away a few thousand dollars.

Put your savings in an interest-bearing account and keep adding to it, and you'll eventually get there.

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

5 Smart Strategies to Rack Up More Credit Card Rewards

Holly Johnson — Thu, 30 Jan 2020 17:19:14 +0000

Where it can take months, or even years, to earn significant sums of rewards through regular credit card spending, credit card sign-up bonuses make it easy to earn $300 or more in cash back, or enough miles for a round-trip flight within a matter of months. All that's required to qualify is signing up for a rewards credit card and getting approved, then meeting a minimum spending requirement (usually in the $1,000 to $4,000 range) within a specific length of time (usually three months).

However, there are plenty of scenarios where earning a new credit card sign-up bonus just isn't in the cards. Maybe you're planning on buying a home in the near future and want to keep new hard inquiries off your credit report, or perhaps your credit score recently took a dip and you can't get approved for the top rewards credit cards.

Whatever the reason you can't earn a sign-up bonus right now, there are plenty of ways to rack up rewards using the cards you already have, as well as other methods.

1. Use the right card for different types of purchases

If you have a handful of rewards credit cards with different earning structures, it's crucial to make sure you're using the optimal card for each purchase you make.

Different cards might offer bonus points for certain types of purchases. One card might offer extra points on dining, while another offers bonus points for groceries. The key to maximizing rewards is ensuring you're using the card that offers the most points on everything you buy. (See also: 3 Ways Your Credit Card Rewards Can Make You Rich)

2. Find more expenses you can cover with a credit card

Make sure to go over your monthly spending and bills to ensure every purchase you can make with plastic is being paid with a credit card.

While it's easy to use credit for groceries, gas, and miscellaneous purchases you make, take a few minutes to think outside the box on the biggest expenses you have each month. Could you pay for daycare with a credit card? How about quarterly tax payments? Health insurance premiums? Your monthly utility bills?

The more expenses you can cover with a credit card each month, the more rewards you'll rack up over time. Just make sure you're not paying a fee to pay bills with a credit card. Otherwise, the rewards you earn may not be worth it.

3. Take advantage of shopping portals and dining programs

Airline shopping portals through programs like American AAdvantage, Delta SkyMiles, and Southwest Rapid Rewards let you earn additional airline miles for each dollar you spend, and all you have to do is "click through" your favorite portal before you shop. You'll usually earn an extra 1-3 miles for each dollar you spend at participating stores in these portals, but it is possible to earn an additional 10 miles or more per $1 spent in obscure specialty stores, or when stores are having bonus promotions.

Many airline loyalty programs also offer dining programs that let you earn additional rewards when you dine at participating restaurants in your area. Some even offer initial sign-up bonuses when you dine out at least three times within 30 days.

4. Use Amex Offers or Chase Offers

Both American Express and Chase have their own "offers" that let you earn additional rewards or cash back when you make a specific purchase within a predetermined length of time. You do need to log into your account and add these offers to your card before you make a purchase to qualify, and you'll have to meet all terms and conditions they stipulate as well.

Note that not all Amex Offers and Chase Offers reward you for shopping, per se. Some give you cash back when you spend a certain amount of money with a hotel chain, or when you spend a specific amount of cash on airfare with a certain airline. You might also earn rewards for buying a new mattress, hiring a dog sitter, or signing up for identity theft protection.

Also, remember that both Chase Offers and Amex Offers feature a benefit on top of the rewards you receive. You can score a discount with an offer, but you'll also earn applicable rewards for each dollar you spend with your credit card.

5. Sign up for free loyalty programs

Finally, don't forget that most loyalty programs let you join for free, and that there are plenty of ways to rack up certain types of rewards without a credit card. For example, you can join airline loyalty programs and earn airline miles each time you fly, regardless of how you pay for your airfare. The same is true with hotel programs like Marriott Bonvoy and Hilton Honors, since you earn hotel points for each dollar you spend with these brands.

If you don't travel a lot, also keep in mind that some cash back programs are available for regular purchases you buy. The Rakuten portal, for example, lets you earn up to 40% off purchases made at participating stores like Amazon, Macy's.com, and Walmart.com.

Like other shopping portals, cash back portals also set you up to double up on rewards. You can get cash back through a portal like Rakuten or Dosh for purchases you make, but you'll also earn rewards if you use a point-earning credit card to pay.

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

How to Decide If Pet Insurance Is Worth the Cost

Emily Guy Birken — Wed, 22 Jan 2020 18:11:28 +0000

Last fall, our greyhound Tivo refused his breakfast on a Friday morning. He didn't eat or drink water all day, and we were worried. That night, we took him to the 24-hour emergency veterinarian and Tivo was diagnosed with a bacterial stomach bug and dehydration. We went home with antibiotics, a saline IV, and a $200 vet bill.

Thankfully, we could afford this bill for unexpected emergency care for Tivo. But if he were diagnosed with a chronic condition or needed a very costly intervention, we might find ourselves facing some heartbreaking financial decisions.

Pet insurance is often touted as a solution to these worries. With pet insurance covering some costs of veterinary care, you're never forced to choose between your beloved pet and your finances. However, does this kind of coverage make sense for most pet-owners?

Here's what you need to know about pet insurance so you can keep your fur babies bright-eyed and bushy-tailed for years to come.

Premium costs

As with human health insurance, pet insurance charges you a monthly premium for your pet's coverage. According to Value Penguin, the average monthly cost for canine pet insurance is $47.20, and the average for feline insurance is $29.54 for accident and illness coverage.

Of course, this doesn't tell the whole story of what to expect from premium costs. Many pet insurers increase premiums with the age of your pet. Which means the $47 per month you pay to keep your 4-year-old pup healthy could rise with his/her age, making the premiums harder to keep up with just as they're more likely to need age-related medical intervention. In addition, different breeds can have different premium prices, since there are some hereditary conditions that various breeds may be more prone to.

However, even with these potential issues, there are some methods to keep premiums manageable. For instance, some tried and true insurance reduction strategies work just as well for your pet's health insurance as they do for your own. These include increasing your deductible, reducing the percentage that the insurance reimburses, or limiting the annual payout rather than choosing unlimited coverage.

These strategies can keep your premiums affordable while still helping with big veterinary bills. But you need to be prepared to pay anything above and beyond the coverage limits you set up. (See also: 8 Ways to Lower Your Vet Bills)

Coverage

It's also important to note that pet insurance does not necessarily cover every kind of health cost for your pets. To start, unlike (some) human health insurance, most pet insurance will not cover preventive care and annual exams. So you will need to plan for these costs on top of your premiums.

Pet insurance policies generally come in two varieties: accident and illness policies, and accident-only policies. In general, accident-only policies do not raise their premiums as your pet ages, making this kind of insurance more affordable long-term. However, accident-only policies tend to be cheaper because your pet is less likely to get injured than fall ill. If you decide to invest in pet insurance, getting both accident and illness protection will likely offer you more protection.

That said, each insurer gets to decide which illnesses, conditions, and services it covers, and not all ailments are covered. Many insurers also do not cover the diagnostic exam for a particular illness, even if the treatments are covered. Make sure you pay attention to the details of what your potential insurer will cover before signing up for coverage.

As with many types of human health insurance, most pet insurance policies exclude preexisting conditions. Unfortunately, some insurers consider health problems to be "preexisting" if they crop up within a year of the purchase of your policy. Insuring your pet when they're young is the best way to avert the preexisting condition coverage gap.

Finally, pet insurance coverage is usually handled via reimbursement. That means you'll be on the hook to pay the vet bill at the time of service, and you'll submit your receipts to your insurer to receive reimbursement. (See also: 7 Things You Need to Know About Pet Insurance)

Should you buy pet insurance?

With all the caveats, coverage gaps, and reimbursement requirements, pet insurance is not necessarily a slam dunk for everyone. In fact, many consumer advocates recommend that pet owners put aside an amount equal to the annual premium into a savings account each year. This will give you the same peace of mind that you can cover any potential health care needs for your pet while also allowing you to keep the money if you never need to use it.

However, if you struggle with financial discipline, this strategy will leave you in a difficult situation if your furry friend needs an expensive procedure. Pet insurance can provide you with the protection your pet needs even if you struggle with money.

Show your love with an emergency fund

Whether or not you decide to purchase pet insurance, remember that you'll have to pay upfront for any veterinary procedures. With insurance, you will get reimbursed for covered care, but you will still need to have access to funds to pay for Mittens' kidney stone removal or Rex's arthritis care at the time of care.

This means that one of the best ways you can protect your furry friends and avoid heartbreaking financial choices is to have an emergency fund. With or without pet insurance, set some money aside for the unexpected so you can enjoy your four-legged family members for years to come. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

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

What to Do With a Windfall

Emily Guy Birken — Mon, 13 Jan 2020 18:46:41 +0000

Theoretically, a sudden windfall should reduce your financial worries. Who doesn't appreciate getting suddenly richer?

However, making good decisions with a large infusion of cash can feel overwhelming, especially if your windfall comes about because of something negative. For instance, when I received a life insurance payout after my father passed away in 2013, the money was both emotionally charged and stress-inducing, and I was terrified of making a misstep.

If you've received a windfall, taking your time and making intentional decisions about the money will serve you better in the long run. Here's how you can do that.

Take a break before making any decisions

No matter how you received your newfound wealth, you're likely to have a number of strong emotions associated with the event. And we all know that emotions and rational decisions can struggle to coexist. That's why it's a good idea to take a little time before you make any decisions whatsoever with your new money.

If the money came to you because of a negative situation, such as a death in the family, the end of a lawsuit, or the sale of a beloved business, your emotions will inevitably color your view of the money. I personally found that I wanted Dad's insurance money to no longer be in my hands, because having it was a reminder of my loss.

Even if you have positive associations with the money (after a lucky weekend in Vegas or a surprise profit-sharing bonus from work), those fuzzy feelings may prompt you to make risky decisions to keep the good vibes coming. Letting some time pass between receiving your windfall and deciding what to do with it can help you view the money more dispassionately so you can make the best possible decisions with it.

So how long should you pause before deciding what to do? Depending on the size of the windfall, you might want to wait as long as six months (or longer) before making any decisions. This will give you time to process your emotions so that you're psychologically ready to make these big choices. (See also: Don't Make These 6 Dumb Mistakes With Your Financial Windfall)

Put it someplace safe

What you do with your money while you wait to make the big decisions depends partially on where your windfall came from. Life insurance benefits and other inheritance money can sometimes stay safely in the same account you'll be paid from. In these cases, it's common that your money will even earn some interest while it stays put. Simply keeping the money in place can be a good way to give yourself the emotional breathing room you need without worrying about making a preliminary decision.

Other types of windfalls, such as lottery winnings or an inherited retirement account, may give you the option of taking a lump sum or annual payouts. Choosing annual payouts (when available) will give you the opportunity to make lots of smaller decisions over several years, rather than overwhelming yourself with the need to make several big decisions at once.

For when you have no choice but to take your entire windfall into your hot little hands, stashing it in a money market account or high-yield savings account can be a good way to keep it safe. (See also: Interest Rates Are Rising: Here's Where to Keep Your Cash)

Consult a tax professional

The tax implications of your windfall could be a major deciding factor in how you choose to use it. Some types of windfalls, like life insurance benefits, can pass to you tax-free. However, for most types of windfalls, you can assume that Uncle Sam will want his cut.

For instance, the killing you made at the blackjack table is considered normal income to the IRS, which means you may have shifted into a higher tax bracket when you walked off with a cool $40,000. If you don't plan for this shift in your income taxes, you may find yourself staring down a nasty surprise come tax time. Your CPA can help you figure out the best way to navigate your sudden bump in income. For instance, they might suggest that you maximize your tax-deferred retirement contribution this year to help offset your windfall.

If you sold a business, inherited taxable property or accounts, or even got a major bonus at work, a tax professional can help you determine the most tax-efficient way to access and enjoy your new wealth so that you're not stuck holding the bag when the taxman comes calling. (See also: 14 Reasons Why an Accountant Is Worth the Money)

Get your financial house in order

Before you start making it rain, it's important to look at your current financial situation and see how your new money can make it better.

If you're carrying high-interest or revolving debt, using your windfall to pay it off (or at least pay it down) may not seem like a sexy use of the money. But reducing or eliminating your debt burden will give you more peace of mind and more financial freedom in the future. That money will turn into what feels like little windfalls every month when you don't have to send most of your paycheck towards your debt.

Similarly, if you haven't prioritized saving for retirement, your windfall can give you a great opportunity to improve your financial future. Maximize your 401(k) or IRA contribution this year (and enjoy the tax benefit), and use it as a springboard to send more money to your retirement every year thereafter.

Finally, keep some of your windfall as an emergency cushion. Knowing that you'll be covered the next time a financial emergency strikes is a great gift to your future self.

Have some fun

It does feel good to receive a large amount of money, and having a little fun with it is a great way to enjoy it.

No matter how a windfall comes into your life, splurging on something that you couldn't or wouldn't otherwise have can be a great way to enjoy your good fortune. Deciding to use a set amount of money however you please is a life-affirming way to mark the occasion of your windfall.

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

7 Important Money Moves to Make in the New Year, According to Financial Advisors

Holly Johnson — Tue, 07 Jan 2020 18:37:34 +0000

It's easy to think you'll get your finances together "next year" or when you finally get the promotion you've been after. Unfortunately, time keeps on ticking away, making it easy to spend years dreaming of financial security without making progress toward your goals.

Now that 2020 has arrived, it may be the perfect time to stop making excuses and start making moves. After all, it's more than a new year — we're in a brand-new decade.

But which moves have the potential for the most impact? We interviewed several financial advisors to find out which steps they think nearly everyone could benefit from in 2020 and beyond, and here's what they said.

1. Increase your contributions to tax-advantaged retirement accounts

According to financial advisor Benjamin Brandt, who is the host of retirement podcast Retirement Starts Today, the beginning of the year is an excellent time to reevaluate how much you're putting away for retirement. Fortunately, the Internal Revenue Service (IRS) increased the maximum you can contribute to a 401(k) account in 2020, bringing up your total maximum contribution amount to $19,500.

"Could you save a little more for the future version of yourself?" he asks. "Calculate what a 1% increase in your savings rate might be, and commit to that increase."

You might not even notice the money missing from your budget when savings is increased in such small increments, but you'll never know unless you try. (See also: 5 Money Moves to Make Before You Turn 40)

2. Take stock of changes in your life that took place over the last year

Financial planner Luis F. Rosa, who is also the host of the On My Way to Wealth podcast, says that pretty much everyone should sit down and analyze any big life changes they've endured over the last year or two, including marriage, divorce, or the birth of a new child.

You should also review your beneficiary designations on your 401K, life insurance, and other accounts to make sure they are up to date as per your wishes, he says. (See also: 5 Money Moves Every Single Parent Should Make)

3. Learn to live within your means

Most people manage their money in the most backwards way possible, meaning they buy what they want and try to save anything that's left. Financial advisor Christopher Clepp of Strategic Financial Group says people need to "reverse their thinking" if they hope to reverse this trend in their lives.

Instead of buying what you want and worrying about savings as an afterthought, Clepp says to "invest for the lifestyle you want and spend what is left over."

You don't need to keep track of every expenditure if you're saving enough to begin with, he says. "If you need to save 20% per month, then save that first and the other 80% spend as you see fit as long as you don't exceed that number or run up credit card debt."

4. Pay off credit card debt

Credit card debt may not be overly problematic for many people in the short-term, but this type of debt doesn't really help anyone in life. Credit cards carry an average APR of over 17%, after all, so they're a poor option when you need to borrow money. And since you can use them to keep spending, they can easily be used as a crutch to build a lifestyle you can't really afford.

Clepp says everyone should make 2020 the year they pay off credit card debt once and for all. He points out that, if you carry an average of $5,000 in credit card debt with an average APR from ages 35 to 65, that debt will cost you close to $20,000 in interest payments. That's a ridiculous amount of money, and I'm sure you can think of plenty of ways you'd want to spend that much cash.

5. Assess your insurance needs

Clepp also says that people need to look over their insurance needs every year, even if they think they're up to date.

"All the careful future planning can be undone by an unexpected accident," he says. First and foremost, you should review your home insurance, auto insurance, and any umbrella insurance coverage you have each year.

Find someone who will educate you about the policies. "Cheaper isn't always better, but you may be able to find comparable coverage for a better price," he says.

Also, make sure to review your life insurance needs if you're married or have dependents. From there, review your disability insurance to make sure you're adequately protected.

6. Start using a budget

Financial planner Brandon Renfro, Ph.D. says everyone should give budgeting their income a try, and everyone should take the time to review their budget in the new year — even if it's working well so far.

"You may find that there are smaller budget items you can eliminate," he says. "The key here is a lot of times the smaller items go unnoticed, precisely because they are small."

By going over your budget and spending for the year, you may find you're splurging in areas that don't matter to you, which could easily be reduced for more savings. You may also find you're not really using things you're paying for, such as subscription services. In that case, you could cancel unused services and funnel that money elsewhere in your budget, such as savings or debt repayment.

Renfro says that, on top of reviewing your budget, you should also review any progress you're making toward your financial goals.

"This goes a little farther than simply confirming that you took the specific actions you had planned to," he says. "Here, you are confirming that the actions you took actually got you closer to accomplishing what you hoped to accomplish."

For example, maybe you planned to pay an extra $100 each month on your car loan or credit card. If you did, see how much closer you are to getting it paid off. If you achieved your goal, that's great, and you may just want to stay the course. If not, you should be asking yourself why not and taking steps to get back on track. (See also: 5 Steps to Successful Budgeting)

7. Improve your credit score

Financial planner R.J. Weiss of The Ways to Wealth says another area of people's lives they should focus on is their credit score, although few people keep an eye on this component of their financial health.

"This goal often gets prioritized when a large purchase is up ahead, such as a home," he says. "Yet, it's something that you should monitor and improve as there are many benefits to having a great score."

Specifically, he suggests consumers work on decreasing their total credit utilization. This is the amount of revolving credit you use compared to the amount of available credit you have. If you have total credit limits of $10,000 and $5,000 in credit card debt, for example, your total utilization is 50%.

"A great target to aim for is a ratio below 30%," he says. "Keep in mind, you can do this by paying off your debt, as well as increasing the total amount you have available."

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

How to Pay Off Holiday Debt: A Step-by-Step Guide

Holly Johnson — Thu, 26 Dec 2019 15:31:00 +0000

Holiday debt is easy to rack up, but paying it off can wreak havoc on your budget for years. Still, Americans seem more than willing to pile it on no matter what. A 2019 study conducted by CreditCards.com and YouGov Plc showed that more than half of consumers with credit card debt said the holidays are a good reason to borrow money. Even 26% of consumers with no debt at all said they might be willing to rack up debt over the 2019 holiday season.

Once those bills start pouring in and the monthly payments start siphoning your paycheck, you could easily regret it. By that point, however, it's too late.

If you're in debt from the holidays and want to pay it off, you should consider consolidating and creating a plan to get out of debt once and for all. Here's how to do it:

Step 1: Assess the damage and add up your debts

The first step to get out of holiday debt may be the hardest since you have to see your spending in black and white. Take the time to add up all your credit card balances and other debts from the holidays to see how much you owe.

Crafting a plan for debt repayment will be a lot easier if you write down each of your debts along with the interest rate and the current balance all in one place. Here's a good example of how your list might look:

Step 2: Choose a debt consolidation method

Once you know exactly how much debt you owe, you need to figure out the optimal way to consolidate your balances and pay them off. While there are a few other options to consider, the most popular products for debt consolidation include 0% APR credit cards and personal loans.

Balance transfer credit cards

Balance transfer credit cards let you secure 0% APR on balances transferred from other cards for anywhere from nine to 21 months. Some charge a balance transfer fee that is usually equal to 3% or 5% of your balance upfront, but the interest savings can be worth paying the fee if you get serious about your debt and knock it out quickly at 0% APR.

Because balance transfer credit cards only let you save on interest for a short amount of time, this option works best for someone who can pay off their holiday debt on an expedited timeline. That's because once your introductory APR period is over, the interest rate on your credit card will reset to a much higher variable rate.

Personal loans

Personal loans let you consolidate debt with a low fixed interest rate, a fixed monthly payment, and a fixed repayment period. This means you'll pay interest on your consolidated debt while you pay it off, but personal loans have low rates for consumers with good credit — even as low as 4.99% APR. That's much lower than you'll pay with a credit card since the average credit card APR is currently over 17%.

Personal loans typically offer terms ranging from 12 months to 60 months, so they can be a better option for consumers who have a lot of debt and need plenty of time to pay it off. (See also: 7 Fastest Ways to Recover From Holiday Overspending)

Step 3: Pick the best repayment plan

The right debt consolidation method for you depends on a few factors — how much debt you have, how much you can afford to pay each month, and how long your debt will take to pay off. A good debt repayment calculator can help you determine your next best steps and which debt consolidation to go with, but you can also do some basic math to figure it out on your own.

If you had $2,394 in debt to consolidate, here's how your strategy might look with a balance transfer credit card:

For example, let's say you signed up for a card that gives you 0% APR on purchases and balance transfers for 15 months, followed by a variable APR of 14.49% to 25.49%. This card doesn't charge any balance transfer fees for balances transferred in the first 60 days, so you could make a fee-free transfer of your debts right away upon approval.

With 15 months to repay your holiday debt at 0% APR, you would need to pay $159.60 per month to become debt-free without interest within that time frame.

If you couldn't pay that much each month toward your debts, you might want to go with a personal loan that offers a low fixed rate for several years. If you took out a personal loan that charged just 4.99% APR and let you pay off your debt over 36 months, you would only need to pay $72 per month to become debt-free over the course of three years. During that time, you would wind up paying $189 in interest on your loan.

Step 4: Stay the course

Whatever debt consolidation option you wind up with, make sure you decide on a concrete plan and stick with it. If you don't, you won't pay off as much debt as you want and you'll prolong the financial problems debt brings into your life.

If you're worried about paying as much as you can toward your debts, it can also help to cut your spending for a while. Eat more of your meals at home, enact a temporary spending freeze, and stay in on the weekends for a few months instead of going out. With enough small cuts in your spending, you may be able to free up some extra cash to pay toward debt or start building a savings buffer.

Also make sure that, while you're in debt repayment mode, you're not using credit or loans to rack up more debt. You'll never pay off holiday debt if you keep digging throughout the year, so stop using plastic and switch to cash or debit instead.

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Why It Pays to Be a Patient Shopper

Emily Guy Birken — Fri, 06 Dec 2019 03:35:46 +0000

Ever since I learned that consumers who do less research tend to be happier with their purchases, I've been proud of my "good enough" method of shopping. Unlike my husband, who does weeks (or months) of research, seeking out expert opinions, investigating the pros and cons of various options, and weighing his preferences compared to costs, I tend to figure out the minimum I need to be happy and buy the first item I come across that fits my needs and price range.

According to Barry Schwartz, author of the book The Paradox of Choice, my method of decision-making is called "satisficing," while my husband engages in "maximizing." Maximizers believe that there's an ideal version of whatever they're looking for, and make it their mission to find it. But maximizers will sometimes agonize about their purchase even after they've made it, because they're afraid there is a better version out there. Satisficers, on the other hand, focus on what will be good enough to meet their minimum criteria, which means satisficers are generally happier with their decisions.

While I've long felt a little smug about the fact that science has proven my way is better, I recently realized that there are some problems with making good enough decisions that maximizers don't. Here's why satisficing can sometimes lead you astray in decision-making.

Satisficing can be expensive

I recently purchased a new desk chair for myself. I work from home, and wanted to have a chair that offered more lumbar support and some padding. So I went to an office supply store and picked out an office chair that felt comfortable, looked cute, and was within my price range.

I was happy with my purchase for about six weeks, until the day I put just a little weight on the back of the chair, and it broke. Turned out that the chair's back was made of particle board under the padding, and it was only a matter of time before some kind of pressure broke the board around the screws that held it in place. My "good enough" chair was only usable for six weeks, and now I have to buy a new one. It would have been less expensive if I had spent more time researching which chairs are highly rated, even if I had ended up with a pricier chair.

And this is not the first time my willingness to settle for "good enough" has cost me money. From furniture to cookware, I've found that buying something that fits my minimum criteria sometimes results in a purchase that doesn't work for the long-term. Which means I have to spend more money to buy a replacement.

Maximizers, on the other hand, may not be able to make a quick decision, but their commitment to researching their purchases means they're unlikely to be stuck with a busted desk chair only six weeks in. (See also: How to Use Financial Anchors to Make Better Money Decisions)

Satisficing and satisfaction are not the same

While I am very much a satisficer, there are a few purchases that bring out the maximizer in me. One of them is blank notebooks and journals. I love buying these, and I want the journal I purchase to precisely fit the project I have in mind.

For instance, I recently spent nearly an hour and a half looking through the blank notebooks on display at our local indie bookstore to find the perfect one for an upcoming creative project. While I could certainly use any blank book to scribble notes and draw pictures, the one I found embodied the exact aesthetic I was looking for and had gorgeous, creamy, unlined paper inside — just like I wanted.

Finding the exact thing you want to buy after doing diligent research offers a much higher level of personal satisfaction than settling for good enough ever will. While I'm always glad to be able to make a purchase and move on with my day, I admit that my satisficing ways can sometimes cheat me out of the satisfaction of finding exactly what I want.

Satisficing can prompt careless decisions

Ultimately, satisficers like me prefer not to waste time on making a choice. We often go for the good enough option because we'd rather get the decision made and over with than spend any extra time on it.

This preference for getting it done (as opposed to the maximizer preference for doing it right) can sometimes put unnecessary time pressure on the satisficer. Even though there's no particular urgency for a decision, a satisficer may feel as though they need to just make any decision so they can cross it off their list.

This has happened to me on multiple occasions when I just wanted to move onto the next thing. For instance, when I needed to change a flight because of a family emergency, I chose the first flight the airline offered to me, so I could take care of the next thing that would help my family. But that flight was at an inconvenient time and would cause more stress to my family. My desire to make a decision and move on quickly meant I had to call the airline back and ask again if they would change my flight.

I made that mistake because my satisficing tendencies prioritized getting things done quickly, rather than getting them done right. (See also: How Projection Bias Could Be Destroying Your Finances)

Learning to maximize and satisfice

While I will probably always lean more toward the satisficing end of the decision-making spectrum, I know that adopting some maximizing ways can help me make better decisions. Making sure that I raise my standards, embrace the enjoyment of finding the right choice for me, and slow myself down when making decisions will all help me to enjoy the best of both worlds.

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

The 6 Absolute Worst Ways to Cash In Your Travel Points

Holly Johnson — Wed, 27 Nov 2019 09:00:10 +0000

Travel credit cards make it easy to earn all kinds of rewards ranging from airline miles to hotel points and flexible travel credit. While the value of the points you earn will vary depending on how you redeem them, it's not unheard of to receive 2 cents per mile or point in value from airline miles or hotel points for certain, high-value redemptions.

On the flipside, you can also redeem your rewards for some pretty awful items, and even ones that let you get half a cent in value or less. That doesn't make these redemptions "wrong" per se, but it does mean you're effectively leaving money on the table when compared to other options.

If you have a travel credit card, a hotel rewards card, or a flexible travel credit card that lets you redeem points for airfare, hotels, and more, here are the redemption options you should avoid.

1. Merchandise

Many rewards currencies let you cash in your points for merchandise. With some rewards portals, for example, you can redeem points for purchases made through Amazon.com or at Apple stores.

While this isn't the worst option in the world, redeeming points for electronics, small household appliances, and other types of merchandise will typically get you one cent per point in value, and often a lot less.

Delta SkyMiles offers some of the worst merchandise redemptions you can find. For example, they want 141,880 miles for a 10.5-inch iPad Air with Wi-Fi. This same model currently costs only $649 at Apple.com, so you'd be getting significantly less than half a cent per point.

While it may seem tempting to use points for merchandise (free is free, right?), if you can bank enough points for something of higher value, it’ll be worth the wait.

2. Low value transfers to airlines

Most travel rewards enthusiasts know that transferring points to airlines can help you get more bang for your buck, but you have to remember this isn't always the case. High value airline transfers can be a good deal, but not all programs are created equal.

For example, it's common to transfer your points to the card issuer's airline partners and receive at least 2 cents per point in value when you go to redeem. That's because your points will typically transfer 1:1, with the exception of certain airlines.

But some programs offer paltry transfer ratios. For example, the IHG Rewards program lets you transfer points to airline programs like Air France/Flying Blue and Alaska Airlines, but you'll only get 2,000 airline miles for every 10,000 hotel points you transfer.

Takeaway: not all points transfers are equal. Sometimes it makes sense to lose points in the transfer just to be able to use the points, but when you’re sacrificing thousands of points just for the privilege of transferring, you’re better off finding a different travel partner to use the points for.

3. Trading airline miles for hotel stays

If you have a bunch of airline miles you can't seem to use, it might be tempting to cash them in for hotel stays through the airline's portal. This isn't the end of the world, and redeeming miles for hotels is better than letting them expire. Still, you won't get very much value in return if you choose this option.

Take the American AAdvantage program, for example. You can use miles to book free hotel stays, but redemption values are not great. For random dates I chose this year, they wanted 188,500 miles for a free stay at the Ritz-Carlton Bal Harbour in Miami at the same time a paid stay would set you back $1,185 per night. That means you would get a lot less than 1 cent per point in value, which is a significantly lower value than you'd receive if you cashed in your miles for flights.

Don’t be in so much of a hurry to book your entire trip on points when saving them for your next trip will give you much more value. (See also: How Travel Rewards Cards Can Help You Score Luxury Travel Perks)

4. Gift cards

Almost every rewards program lets you cash in your points or miles for gift cards, and this can be a decent value if you don't have the option to redeem for travel. However, you may receive less than one cent per mile in value if you cash in airline miles from an airline loyalty program for gift cards, and even flexible programs might only give you 1 cent in value per point with this option.

Cashing in travel rewards for gift cards should really only be your last resort if you find you absolutely cannot travel or your miles are about to expire.

5. Magazine subscriptions

Please don't ever cash in your miles for magazine subscriptions, even though several programs including Delta SkyMiles advertise this option. With Delta's "MagsforMiles" program, for example, you can get six to 228 issues of various magazines like People and The Wall Street Journal in exchange for your miles.

The value you'll get in return may not be that bad, but this is a poor way to use airline miles no matter what.

6. Using miles for cheap flights

Finally, don't forget to check the cash value of any flight you plan to book with miles before you pull the trigger on an award redemption. You should always strive to get at least one cent per point in value when you redeem airline miles for flights, and you should consider paying in cash if you aren't hitting that threshold. Some experts would even say you should push to get 1.5 cents per mile in value, or close to 2 cents per mile.

When flights are cheaper than normal, paying in cash or flexible travel credit makes more sense. (See also: 9 Hidden Expenses to Plan for When You Redeem Travel Rewards)

The bottom line

Just because you can redeem your travel rewards in a number of different ways doesn't mean you should. For the most part, you'll be a lot better off if you redeem travel rewards, airline miles, and hotel points for the redemptions they were intended for.

If you do want to redeem rewards for statement credits, gift cards, or merchandise, you should consider picking up a cash back credit card that offers these standard redemptions. Your rewards are yours and you can spend them however you want, but travel rewards are worth more when you use them for travel instead of stuff.

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

5 Ways to Make the Holidays More Affordable — Without Taking Out a Holiday Loan

Holly Johnson — Thu, 14 Nov 2019 08:00:07 +0000

Holiday loans are advertised as a solution to holiday budgeting shortfalls, but they could cause more problems than they solve. That's because holiday loans are really just personal loans marketed specifically for holiday shoppers. The reality is, these loans come with APRs ranging from 5.99% to 35% APR, and monthly payments that can last for years.

Not having the cash you need for holiday gifts is a downer for sure, but paying a high APR on holiday debt for years to come sounds a whole lot worse. For that reason, you should probably steer clear of holiday loans if you can figure out a way to avoid them. Here are some alternatives you can consider. (See also: Here Are the Right Ways (And the Wrong Ways) to Use a Personal Loan)

1. See if you can trim your holiday budget

Taking the time to figure out who you really need to buy for can solve a lot of problems if you're short on cash this year. It's possible you could cut out gifts for co-workers or distant friends, and it may be time to drop any gift exchanges you typically participate in.

Also, figure out if you can spend a little less on everyone who does make your list. If you can lower per-person spending to $20 from $30 for 10 people, for example, you'd see a savings of $100 right away.

The holiday season isn't about gifts anyway — it's about faith and family. Your family and friends may not notice if you spend a little less this year, and they probably wouldn't take it personally if they did. (See also: 6 Steps to Avoiding Credit Card Debt Over the Holidays)

2. Sell your unwanted items

If you really need more money to spend this holiday season, taking stock of items you own and no longer want could help you bridge the gap. Find some stuff you can sell and you could be well on your way to covering everyone on your shopping list.

The internet makes it easy to market and sell stuff you no longer want — items like clothing, exercise gear, electronics, and home decor. Try selling items on eBay, Facebook marketplace groups, or even Craigslist. If you have extremely nice clothing and accessories to sell, you can also try ThredUp and Poshmark — both of which make it easy to sell used clothing, shoes, and more to buyers nationwide.

3. Hustle on the side

While finding part-time or temporary work isn't possible for everyone, finding a way to hustle on the side for a few weeks can help you get more cash for the holidays. If you're able to pick up more hours or shifts at work, that's a good place to start. If not, you'll want to look for easy ways to earn money on the side.

Consider walking dogs or pet-sitting with Rover.com, completing simple tasks with TaskRabbit, or even driving for Uber or Lyft. You could shop for groceries with Instacart or Shipt, or you could take online surveys from home to earn gift cards, Paypal cash, and more. (See also: 15 Lucrative Side Hustles for City Dwellers)

4. Cash in any rewards you have

If you have any rewards built up on a cash back credit card or rewards credit card, now may be the perfect time to cash them in. Many cash back cards let you redeem points for merchandise through a portal, creating the perfect way to shop for free. You can also cash in rewards from many cards for gift cards you could give as gifts or for holiday shopping.

Keep in mind that you should try not to use rewards or cash back cards for holiday gifts unless you have the cash to pay your balance in full. Where personal loan rates start around 5.99% APR, the average credit card interest rate is well over 17%. That makes carrying a balance on your credit card an expensive burden and one you should avoid.

5. Consider a 0% APR credit card instead

There's one exception where it might make sense to use a credit card for holiday shopping instead of a personal loan or other options on this list. Some balance transfer credit cards, also called 0% APR credit cards, let you access a line of credit without interest for a limited time. For this strategy to work, however, you would need to find a 0% APR card that lets you avoid interest on purchases and not just balance transfers.

There are a lot of risks that come with this strategy, and it all starts with the fact that these offers only last for a limited time. Most 0% APR credit cards let you avoid interest for up to 15 months, although a few have longer offers. Either way, your interest rate will reset to the card's regular rate after the introductory offer ends, and those rates tend to be high.

The best cards that offer 0% APR on purchases come with the longest introductory offer possible and no annual fee. Some even offer rewards and a sign-up bonus you can earn within the first few months.

Just remember that you'll wind up paying off debt at a high interest rate if you don't pay your balance in full before your offer ends. To avoid long-term debt, only charge holiday purchases you know you can pay off before your card's offer ends.

The bottom line

The holidays are supposed to be about family and friends, but the holiday shopping season can make feeling hopeful and happy an impossible feat. And when you're short on cash, it's easy to feel guilt over not being able to afford many gifts.

Ideally you'll be able to find some middle ground that lets you be generous to those you love without going into debt. Spending less this year can go a long way toward making the holidays more bearable, but hopefully you can find a way to earn more, too. If you can do both, it's possible you'll get through the holiday season without ruining your finances.

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