emergency fund

How to Pay Off These 4 Types of Debt

Denise Hill — Tue, 08 Sep 2020 17:32:44 +0000

Getting and staying out of debt is tough. Many people try and fail, or they succeed only to become ensnared the vicious cycle over and over again. Eliminating debt takes lots of grit and determination, and strategically attacking your debt will save you time, energy, and money.

Before you get started, you should know that each type of debt requires a slightly different strategy. Here's how to tackle different types of debt, and get rid of it once and for all.

Credit card debt

The best way to attack credit card debt is by using the debt snowball. With this method, you begin by attacking the smallest debt while paying the minimum on everything else. Once one debt is paid, you take all the money you were paying on the first card and apply it to the second biggest balance. Rinse and repeat.

You may be tempted to attack them based on interest rate, which is also known as the debt avalanche. And that will work. However, you must keep in mind that debt is more mental than it is logical. You probably didn't use a ton of logic to get into debt. And logic won't inspire you to get out of debt. The debt snowball approach allows you to get quick wins by conquering smaller debts before taking on the larger ones, which require more time and patience. Winning becomes a contagious habit that helps you build momentum.

You also may want to contact your credit card companies and request that they lower your interest rate. Some will and some won't, but it doesn't hurt to ask. (See also: 2-Minute Guide: How to Use Balance Transfers to Pay Off Credit Card Debt)

Car and personal loans

Auto and personal loans are a little different from credit card debt. However, they follow the same principle for repayment. First, make sure you understand the repayment terms and then contact the lender and ask them to reduce your interest rate.

In addition to using the debt snowball, a great repayment strategy for this type of debt is to call the lending agency and set up bi-weekly payments instead of paying monthly. The minimum payment doesn't change, you just make 26 payments a year versus 12. This lowers the total amount of interest you will pay over the life of the loan. When you pay more than the minimum payment, you'll slash months — even years — off the total repayment time.

Student loans

Despite how it may feel, paying off student loans is possible. You just need some discipline, patience, and a plan. For most folks, student loan debt is one of the most significant debts owed — second only to a mortgage.

The first thing you want to do is determine the total amount owed. You can do this by visiting the National Student Loan Data System or contacting your lender. From there, visit the Federal Student Loan Website to see if your loans can be consolidated, if your interest rate can be lowered, and if you qualify for any loan forgiveness programs. The Department of Education offers eight different repayment plans that may be able to assist you if you're considered low income or have special circumstances. They also provide repayment calculators and a host of other information and resources that can assist you in repaying your loans quicker.

Once you know the total amount owed, and have found a repayment plan that works for you, it's time to get busy. You want to throw ever extra dollar you have at this debt and make multiple payments a month, if possible.

Mortgage

The term "mortgage," translated from old French, literally means "death pledge." How fitting. There are several schools of thought on whether you should pay off your home early. For some people paying it off early makes sense, for others it doesn't. If you do want to knock the mortgage off your debt list, there are a few things you can do to expedite repayment.

Make bi-weekly payments

By simply splitting your monthly mortgage payment into equal parts where it's paid every two weeks, you can shave years of payments off a 30-year mortgage. If you pay more than the minimum, you expedite the process even more. You'll have to make arrangements with the lending institution to set up a bi-weekly payment plan and ensure that the extra money is applied directly to the principal.

Making one additional mortgage payment a year

This impacts the mortgage the same way making bi-weekly payments does. It's just done in one lump sum instead of over the course of a year. When you make the extra payment, you must specify that you would like it applied directly to the principal.

Make lump sum payments periodically

If you don't feel you have the ability to make bi-weekly payments or make one large additional mortgage payment, you can still pay extra on the mortgage as you are able. Paying an extra hundred dollars a few times a year will drastically speed up the repayment process. Every little bit helps.

Refinance from a 30-year fixed to a 15-year fixed

This may not make sense for everyone, but it is worth considering. By the time you're ready to begin aggressively paying off your home, you will have eliminated all other debt. You can afford to pay more. And your credit score will have gotten better and will allow you to refinance at a much lower interest rate. This strategy can cut the repayment time down by more than half.

But first, create an emergency fund

The quickest way to derail your debt repayment efforts is to have an unexpected expense. And you will have plenty. Establishing an emergency fund before you begin paying down debt is one of the keys to success. Having a few thousand dollars set aside just for emergencies will keep you on track, keep you from incurring new debt and do wonders for your psyche.

If you do have an emergency and have to use some of the money, you simply pause your debt repayment plan to replace what you spent. Use the extra funds you were applying to your debt to replenish your emergency fund. Once it's restocked, you go back to attacking the debt. (See also: Where to Find Emergency Funds When You Don't Have an Emergency Fund)

Like this article? Pin it!

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

How to Protect Your Finances in Case of a Recession

Emily Guy Birken — Tue, 12 Nov 2019 08:00:07 +0000

According to the financial news sector, it seems probable that we're headed toward a recession. Grim-faced economists think our current historic economic expansion is headed for a fall, and the news of a looming recession couldn't feel scarier.

There's good news and bad news about these opinions. The good news is that no one has a crystal ball, which means even the savviest of economic forecasters can't possibly know what our economy will do in the future. However, we do know that certain financial trends cannot go on indefinitely. (Remember in 2007 when we all thought housing prices could only ever go up? We learned the hard way in 2008 that nothing keeps growing forever.)

So how can you prepare for a recession that may or may not happen in a time frame you can't predict? Thankfully, there are a number of actions you can take today to protect yourself, and your finances.

Bolster your emergency fund

Financial experts recommend that everyone build an emergency fund that could cover three to six months' worth of expenses. Your emergency fund can get you through a period of unemployment until you land your next job.

However, losing your job during a recession could be a little more dire than losing it at any other time. When the economy as a whole has taken a hit, it can be much more difficult to find another employer who is hiring. This is why the median unemployment length during the recession was more than 25 weeks (nearly six months), whereas the current median length of unemployment is just over 9 weeks.

Now is an excellent time to add to your emergency fund. Start an automatic transfer to your savings account with every paycheck, and look for other ways to beef up that fund.

If you don't have an emergency fund that could handle a lengthy unemployment, there's no need to panic. Remember: anything you can put away will be helpful if you do find yourself with a pink slip. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Create your Plan B budget

Another proactive step to take is to map out what would change about your spending habits if you were to lose your job or take a pay cut. Going through your current budget and identifying the items you could cut can help reassure you that your emergency fund will weather a loss of income.

You could even challenge yourself to make some small cuts now and see if you miss your former expenditures. That can free up some extra money (more for the emergency fund!) and help you feel more in control of your spending now and in the future.

Attack your credit card debt

If you're carrying a balance on your credit cards, now is a good time to get aggressive with your payoff plan. Carrying debt into a recession could make for an overwhelming burden if you experience a pay cut or a layoff. You'd hate to find yourself unable to pay your credit card bills — and have to deal with debt collectors — when you're already feeling financially stressed. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

Go to the doctor

The cost of health care can be prohibitively expensive, even for Americans with health insurance. According to a recent Bank of America Workplace Benefits Report, 53 percent of American employees have skipped a medical appointment, a test or procedure, or purchasing medication in order to save money.

This is why it's a good idea to schedule a checkup with your doctor now. Health care is expensive even when you have insurance, but it's even more expensive if you're uninsured. Getting a checkup while you have employer-sponsored coverage in place may head off any potential health (and financial) problems.

Resist the urge to tinker with your investments

Watching your retirement portfolio take a dive during a recession can be heartburn-inducing. It's easy to listen to that voice inside that's screaming at you to take your money out of the market or lose it all. But liquidating your investment accounts means you've turned your temporary, on-paper losses into permanent losses.

If we do go into a recession, plan on only looking at your portfolio quarterly — or even less often. This is one situation where putting your head in the sand will help your sanity and your bottom line.

If you're close to retirement, make sure you have cash

The only caveat to leaving your investments alone is if you're on the verge of retirement. Retiring during a recession can take a serious bite out of your retirement portfolio if you're still entirely invested for the long term. In that situation, you may find yourself retiring, but unable to access your retirement income because it has taken a recessionary hit.

If, in the next few years, you'll need to live off the money that's currently invested, then make sure you transfer some of your investments into cash equivalents. These will remain stable and available for you even if a recession hits just as you're ending your career. (See also: 9 Creative Ways to Boost Your Retirement Savings)

Be prepared

While there's no way of knowing exactly what's around the corner, we can all improve our financial lives by taking simple precautions. Whether we're on the brink of a recession or the reports of the economic demise have been greatly exaggerated, you'll be glad you took these steps to protect your money.

Like this article? Pin it!

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:

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

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

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

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

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

1. What is your net worth?

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

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

2. What are you invested in?

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

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

3. How big is your emergency fund?

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

4. Are you on track to retire comfortably?

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

5. Are you properly insured?

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

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

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

7. What is your credit score?

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

8. Are there errors on your credit report?

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

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

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

Like this article? Pin it!

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

How to Revamp Your Budget for Retirement

Alicia Rose Hudnett — Mon, 25 Jun 2018 08:00:29 +0000

Retirement is a major life adjustment for most people. From figuring out how to spend your days, to determining the best way to manage your personal finances, there are many choices to make.

Once you leave the world of paychecks and the daily 9-to-5 behind you, you may also think you're done with budgeting. At this point in your life, you may believe you've got a good handle on your spending and saving habits, and there's no point to budgeting anymore. But that couldn't be further from the truth. Here's a primer on all the ways your post-work budget needs to change.

Pay yourself and the IRS

The first step of building any household budget is figuring out total income. You now have the task of recreating a paycheck for yourself based on your available income sources. In retirement, that may mean a combination of Social Security benefits, a pension, distributions from IRAs and 401(k)s, and personal savings. You'll simultaneously need to cover your monthly living expenses and continually monitor the total balance of your portfolio.

Your Social Security check will be a set amount each month, and any pensions or annuities you have may also be. Once you've established how much money you'll need on top of those benefits, you can determine how much to take out of your tax-advantaged retirement accounts.

Then there are taxes to consider. You may have the option to have federal income taxes withheld from these payments, and while it's not required that you do so, it will save you the hassle of having to file quarterly estimated taxes. In any case, you'll need to factor taxes into your ongoing budget. (See also: Here's How You Should Budget Your Social Security Checks)

Stop saving for retirement

You've spent your entire pre-retirement life saving and accumulating assets so that one day you'd be able to live comfortably without having to work. Now that you're finally in the decumulation phase, you no longer have to save a portion of your monthly income for long-term goals. Monthly retirement contributions are one line item you can remove from your budget.

Increase your emergency fund

During your working and saving years, it's important that you have enough cash saved to cover a large unexpected bill or a job loss in order to prevent having to take early withdrawals from retirement accounts or take on debt.

In retirement, your need for cash savings may be even greater, but for different reasons. You may not have to worry about something like a job loss, but emergencies can still happen. As your home and vehicle age, you may find yourself needing to make major repairs or replacements. A health care crisis could devastate your finances. If you aren't prepared for major unexpected expenses, you risk wiping out a portion of the nest egg you're meant to be living on for the next few decades.

Remember, unlike your pre-retirement years, the majority of your savings may now be in tax-deferred retirement accounts. As you build your yearly income stream, you'll also be considering your income tax liability, taking into account your portfolio balance and your expected withdrawal rate. What happens to those numbers if you have a large emergency expense one year? Having to take distributions from your retirement accounts during those times may permanently affect the long-term viability of your nest egg, which is why a cash reserve can help support your overall retirement plan.

Standard financial advice recommends that working people build an emergency fund that can cover at least six months' worth of essential living expenses. In retirement, you should strive to save between 12 and 18 months' worth of those living expenses, including annual insurance premiums. (See also: Yes, You Still Need an Emergency Fund in Retirement)

Assess your changing housing costs

Housing is usually the largest household expense in everyone's budget, regardless of whether you rent or own. But after raising families and possibly paying a mortgage for 30 or more years, you may be in a position to either downsize, eliminate your mortgage payment, move to a new location, or a combination of all of these options — which can all meaningfully affect your budget.

As you prepare for retirement and rethink your income and budget needs, carefully calculate what your new housing and associated costs will be. For example, you may think about moving into a smaller apartment or condo in a trendy part of town, but a more expensive location can unexpectedly increase your other everyday living expenses.

Prepare for a possible increase in medical expenses

If you're used to having employer-sponsored health insurance, be prepared to do your homework on Medicare before you retire. Many people are surprised to learn that Medicare does not cover all health care expenses, such as routine vision or dental care. Nor does it cover some assisted living expenses, which may create a huge financial strain if you didn't purchase a long-term care policy when you were younger. And if you're traveling outside of the United States, Medicare typically won't cover any health care related costs you may incur.

Between purchasing various Medicare coverages, like Part D for prescriptions, and perhaps obtaining a supplemental plan to close the Medicare coverage gaps, you may wind up spending significantly more on making sure all of your health needs are properly insured. Crunch the numbers and make sure your new budget takes all of this into account. (See also: How to Make Sense of the Different Parts of Medicare)

Eliminate work-related expenses

Throughout your entire working career, you've probably spent lots of money on various professional and daily work-related expenses. When you exit the workforce, much of that will change as your lifestyle will be different. Things like business attire and dry cleaning, daily transportation and parking costs, or business certifications and professional dues can all be crossed off your budget.

Adjust for an increase in leisure expenditures

When your schedule is completely free and you no longer have a daily commitment to be at work, every day feels like a Saturday. You may find yourself spending money on things you used to do only on the weekends or when you had some time off. Whether it's spending more time eating out, traveling, or participating in hobbies, you may need to adjust your budget for your increased free time.

Consider your gifting choices

If you have children and grandchildren, you may have started thinking about including financial support for them in your retirement budget. In addition to more substantial gifting opportunities that involve legal documents (like a trust), there are other ways to support your family members. Each year, you are able to gift anyone up to the annual gift exclusion, which is $15,000 for 2018, without having to file a gift tax return. A married couple can gift a total of $30,000 to one individual in one year.

And if you are interested in helping to save for a family member's education, you can open and fund a 529 account, which is a tax-favored education savings plan. The same yearly gifting rules apply, but with a 529 account, you are allowed to front-load five years' worth of the 2018 $15,000 yearly amount for a total of $75,000 in one year. Once again, that is doubled for a married couple. (See also: 4 Things You Need to Know About Gift Tax)

Like this article? Pin it!

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:

Best Money Tips: How to Jumpstart Your Emergency Fund This Month

Amy Lu — Tue, 22 May 2018 08:00:42 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found articles on ways to jump-start your emergency fund, surprising uses for Fels Naptha soap, and important steps to take if you’re fired.

6 Parts Every Successful Budget Needs

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

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

1. Emergency fund

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

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

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

2. Debt repayment

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

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

3. Retirement fund

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

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

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

4. Fun money

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

5. Funds for irregular expenses

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

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

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

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

6. Regular review

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

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

Like this article? Pin it!

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

5 Money Goals You Can Achieve This Summer

Rachel Slifka — Fri, 27 Apr 2018 08:00:17 +0000

With summer right around the corner, you might be thinking about travel plans, backyard barbecues, and spending time with friends and family. Summer feels like the vacation we've all earned after enduring colder, drearier months — and that can lead to us slacking off in a very important area: money.

It's time to change your thinking. Summer can be the perfect time to tackle some of your financial goals. Here are some to consider working toward over the next few months.

1. Start an emergency fund

When disaster strikes, an emergency fund can protect you, your family, and your finances. This is money set aside for an unexpected but major expense like a job loss, medical bill, or costly car repair.

How much money should you have in your emergency fund? It can depend on a few factors, such as your lifestyle and income, but a good goal to strive for is typically three to six months' worth of daily living expenses — or a year's worth if you're single or in a high-paying job.

You may not be able to build this entire fund overnight, but you can make some serious progress this summer. Set up automatic contributions from your paycheck into a savings account — a few hundred dollars a month is a great start. You'll thank yourself if there's ever a catastrophic financial emergency. (See also: 5-Minute Finance: Start an Emergency Fund)

2. Boost your bottom line

Most of us could use a little extra cash during the summer. Longer days and warmer weather may have you spending more time (and money) hosting cookouts, taking road trips, and hitting the town. Not to mention with the kids home from school for the next three months, the blow to your budget is imminent. How can you combat this inevitable cash crunch? Get a side hustle.

There are hundreds of ways you can earn money through a side gig. You could pick up a part-time shift at a restaurant, offer to baby-sit or pet sit, or even start your own blog or small business. Your options are endless.

Side hustle income can improve every single area of your finances. It can help you to pay off debt faster, save more, and give you a little extra room in your budget every month. (See also: 14 Best Side Jobs For Fast Cash)

3. Start saving more for retirement

While you're lounging in the backyard hammock, take the moment of downtime as a perfect reminder of a major financial concern — retirement. Are you on the path to being able to retire when you are hoping to?

Set a goal this summer to catch up on your retirement contributions. Even contributing just one more percent of your income into your 401(k) will boost your savings goals with very little effort on your part. (See also: 7 Retirement Planning Steps Late Starters Must Make)

4. Track your spending

Everyone knows that budgeting can help people reach their financial goals, but many people still don't bother to track their spending every month. Tracking your spending has traditionally been an arduous task, but with technology, it's become much easier. Now you can use free apps, like Mint, that will automatically track your spending for you. You can set your budget for each category, and the app will tell you where you have overspent.

Take the time this summer to find a way to track your spending. Whether you like the tech route or you're an old school Excel spreadsheet lover, it's all about finding what works for you and sticking to it. (See also: Stop Using These 5 Excuses Not to Budget)

5. Pay off debt

While you might not be able to become entirely debt-free this summer, you can set a realistic goal of how much debt you would like to pay off.

Give yourself a starting day and a deadline. Take the total amount of your goal and divide it by three months to calculate how much you need to pay off per month. Then, take a look at your budget and figure out where you can come up with the additional cash. Do you need to cut some line items out entirely? When you set a goal and stick to it, you might be amazed at what you can accomplish this summer. (See also: 7 Easy First Steps to Paying Off Debt)

Like this article? Pin it!

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

9 Smart Moves to Make After Getting a Raise or Promotion

Dan Rafter — Thu, 26 Apr 2018 08:00:13 +0000

You've worked hard, and you've impressed the boss: You've been rewarded with a raise, promotion, or both. That's great news.

The worst mistake you could make right now is to use this time as an excuse to slack off at work or spend more money. Your new challenge is to figure out how to handle your new responsibilities and your new money in a way that will help you continue to succeed.

Here are some smart career and money moves to make after your employer rewards you with a raise or promotion.

After a promotion

Getting a promotion is a sign that you've been a hardworking, valuable employee. You should pat yourself on the back for your achievement.

But, promotions can also prove stressful. You may be managing people for the first time, or maybe you'll be taking on more responsibilities. Regardless, there are a few key things you should do immediately following a promotion. (See also: 9 Signs You're Making All the Right Career Moves)

1. Be confident, but humble

There's a reason you earned that promotion. There's something that your employer values about you, your decision-making, and your leadership. It's great to feel confident, but don't let this make you cocky.

You still have a lot to learn after a promotion. You'll be taking on new duties. Your job description might have swelled. You might even be overseeing others for the first time. Remain humble, grateful, and don't alienate your peers. It's harder to reach your new goals if your co-workers don't like you.

2. Ask plenty of questions

Questions are your friend after a promotion. You want to make sure that you understand all that is required of you in your new position. If you have any doubts or confusion on this matter, get concrete expectations and instructions from your superiors.

You also want to come up with as many good ideas for improving your company's performance as you can get. Ask your co-workers — even if you are now managing them — for their input on what steps the company can take to improve morale, boost productivity, and compete more successfully in the marketplace.

3. Get ready to work hard

You'll want to reassure your boss that they made the right decision when they promoted you, so put in the hours necessary to show them how dedicated you are to your company. Now is not the time to take extra days off or leave the office early. Instead, work even harder than you did before you earned your promotion.

Take the initiative at the next company meeting. Research what new skills would help you thrive in your role, and make a plan to learn them. Not only will this impress your boss, it will help you catch up more quickly with your new duties and responsibilities.

4. Start churning out the ideas

Does worker productivity at your office slump after lunch? Is employee morale low? Is a big project behind schedule? Come up with potential solutions to these problems. Crafting new ideas to solve important problems is the best way to show your supervisors that they were right in giving you that promotion.

After getting a raise

A promotion doesn't always come with a big pay boost, but if it does, it's the perfect reason to give your finances a makeover. (See also: 8 Money Moves to Make the Moment You Get a Promotion)

5. Calculate exactly how much more you'll be getting each month

It's tempting to start spending your raise before it even shows up in your paycheck, but be careful: Taxes and other withholdings will eat up a portion of your raise before it even hits your bank account. Getting a $3,000 raise does not mean there will be exactly $3,000 extra dollars in your pocket at the end of the year. Wait until your salary increase is reflected in one of your paychecks before changing your saving or spending patterns. That extra chunk of change might not be as large you originally expected. (See also: Are You Withholding the Right Amount of Taxes from Your Paycheck?)

6. Rework your household budget

Once you know exactly how much extra money you'll get with each paycheck, it's time to tweak your household budget. Your expenses should remain the same — lifestyle creep is a dangerous thing — but your monthly income, obviously, will change. What should also change? How much money you contribute each month to retirement and savings. Rework that budget to help you determine your new savings goals. (See also: How to Budget When You're No Longer Broke)

7. Boost your retirement savings

It's fun to imagine using your new funds to buy a high-end laptop, flat-screen TV, or shiny new car. While no one can stop you from buying those things, make sure to first use your extra funds to boost your retirement savings. Building a retirement nest egg should be your ultimate goal starting your very first day of work. That might not seem like a whole lot fun now, but you'll be thankful for the foresight as retirement grows closer. (See also: 6 Ways Meeting the 2018 401(k) Contribution Limits Will Brighten Your Future)

8. Build your emergency fund

You should always have an emergency fund of savings that you can tap to cover unexpected expenses — whether it's a big vet bill for your dog or a blown gasket in your car. Having such a fund makes it less likely that you'll need to turn to credit cards to pay for an emergency.

Financial experts recommend that your emergency fund have enough dollars in it to cover your daily living expenses for six to 12 months. If your fund isn't stocked to this level, use the extra money from your raise to hit that target. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

9. Continue to live frugally

Too often, people boost their monthly spending as their income rises. They spend more on cars, clothing, entertainment, and meals. The problem is this lifestyle creep can quickly erase any added savings that come with a larger paycheck.

Resist the temptation to overspend after earning a raise. Instead, focus on the less fun but more important task of building your savings, emergency fund, and retirement accounts. After getting a raise, don't spend more. Save more. (See also: How One Nice Thing Can Ruin Your Whole Budget)

Like this article? Pin it!

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

7 Easy Money Moves to Make on a Rainy Day

Rachel Slifka — Mon, 23 Apr 2018 08:00:07 +0000

Rainy day keeping you stuck inside the house? Take advantage of the down time by being productive with your finances. Start with these easy money moves.

1. Start an emergency fund

If you don't have an emergency fund, a rainy day is the perfect time to start one.

An emergency fund is money set aside for a major unexpected and urgent expense, such as a car repair, medical bill, or job loss. One rule of thumb is to save between three and six months' worth of daily living expenses. If you have a lot of daily living expenses, or a job that would be hard to replace, you should aim to save closer to a year's worth.

A bigger emergency fund will always offer more protection for your finances, but you can start an emergency fund today even if you can only contribute a few dollars. Start by creating a new savings account specifically for your emergency cash. By keeping it in a separate account, you are less likely to use the money for non-urgent needs. (See also: 5-Minute Finance: Start an Emergency Fund)

2. Up your retirement contributions

Have five minutes to spare? Log in to your retirement account and increase the percentage of your paycheck you are having withheld for your 401(k). By increasing it by even just one percent, you are ensuring you have more cash for retirement. It's likely you won't even miss that cash in your paycheck.

3. Fine tune your budget

When's the last time you gave your budget a tune up? Use a rainy day as an excuse to give it a makeover. Are you spending your money like you planned? Do you need to make any adjustments?

If you don't have a budget at all, now is a great time to make one. You can get started by listing your income, expenses, and savings goals for the month. Add information as time goes on and you become more familiar with your spending and money habits. (See also: 5-Minute Finance: Track Your Spending)

4. Sell items around the house

If you're stuck inside, take inventory of the clothes, electronics, dishes, and more you have lying around your home that you no longer use. Don't just throw everything out; you may be able to sell your stuff for cold, hard cash.

You can post your items for sale on an app like OfferUp or LetGo, or upload a listing on Craigslist or eBay. And as an added bonus, you can use the cash you earn from selling household items to jump start your emergency fund. (See also: 5 Things You Can Resell on eBay That Make the Most Money)

5. Create a filing system

What does your desk look like? If you tend to leave bills and financial documents piled up, it's probably a good idea to take some time to create an easy organizational system. You may as well get started on a rainy day.

To cut back on an influx of paper bills, you might find it beneficial to sign up for autopay so you don't have to worry about papers cluttering your space or getting lost. You'll want to be sure to store important and confidential files away in a locked drawer or safe.

6. Cut a bill

Once you've taken a look at your budget, you may have noticed a bill or two that is higher than usual. Or, maybe you realize you are still paying for a service you no longer use. Whatever the reason, take advantage of a rainy day by calling your providers to see if they can lower or cancel the service.

Since most bills are a regular monthly expense, lowering or eliminating them entirely can save you hundreds of dollars, if not more, every single year.

7. Read or listen to financial resources

There are a ton of free financial resources available at your disposal. If you need an excuse to take it easy on a rainy day, why not learn something while you relax? Try kicking back with a personal finance book, magazine, blog, or podcast. (See also: These 10 Money Podcasts Will Help You Save Tons)

Like this article? Pin it!

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

6 Personal Finance Rules to Live By in Your 40s

Dan Rafter — Thu, 22 Mar 2018 10:00:06 +0000

Your 40s can be a stressful time. Your children might be moving on to college, changing the dynamics of your household. Your own parents are aging and might need to move into a nursing home or assisted living facility. And you might be feeling extra pressure at work to move up to higher-paying positions as a way to maximize your earning potential.

But your 40s can also be a time to secure your financial health and pave the way toward a brighter retirement. You can increase your odds of achieving this goal by following the personal finance rules below.

1. Focus on building your retirement savings

The main goal in your 40s should be to boost your retirement savings as much as possible. Retirement might still seem a long way away, but it's closer than you think.

If you are saving money in your company's 401(k) plan, be sure to maximize your regular contributions and take advantage of any company match. Do the same with any investments you make in a traditional IRA or Roth IRA. The more you save today, the brighter your retirement years will be. (See also: 7 Retirement Planning Steps Late Starters Must Make)

2. Don't let college costs derail your retirement savings

You want to help your kids pay for their college educations. That's understandable, but don't let your desire to help your children derail your retirement savings.

If you spend too much money helping your kids pay for college, you'll struggle to build your retirement savings. In your 40s, saving for retirement should be your top priority, outweighing even your goals of chipping in to pay for your children's college education.

Remember, your children have options for paying for college. They can borrow money. They can choose less expensive schools. They can seek out scholarships or attend a community college for two years. You don't have nearly as many options when it comes to your retirement savings. (See also: How to Keep Student Loans From Wrecking Your Retirement)

3. Reduce your debts

Nothing ruins your plans to save money quicker than debt. And no other is as costly as credit card debt. Do everything you can in your 40s to eliminate it.

Some debt is better than others. Auto loans and mortgages, for instance, generally come with lower interest rates. And you are receiving a benefit — a house to live in, a car to drive — while making those monthly payments. But credit card debt is another story. This debt comes with sky-high interest rates that can snowball by hundreds of dollars every month. That's why it's so important to pay it off as quickly as possible. (See also: The Fastest Method to Eliminate Credit Card Debt)

Remember that your primary goal in your 40s is to build your retirement savings. Think of how many additional dollars you could save if you weren't sending so much money each month to your credit card providers.

4. Grow your emergency fund

Another thing that can quickly derail your efforts to save for retirement is an unexpected emergency. Say your roof springs a leak or your furnace conks out in the middle of January. You must fix these problems, and that won't be cheap.

That's where an emergency fund comes in. As the name suggests, this type of fund is filled with dollars that you only tap when an unexpected financial emergency pops up. By having a well-stocked emergency fund, you won't have to resort to credit cards to pay for unexpected home or auto repairs, or even a surprise medical bill.

Financial experts recommend that you have enough in your emergency fund to cover at least six months' to a year's worth of daily living expenses. That might seem daunting, but even starting an emergency fund with small payments every month can build up. Say you deposit $200 every month in an emergency fund. After a year, it will grow to $2,400. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

5. Avoid the co-signing temptation

When you're in your 40s, your children might be ready to apply for auto loans or credit cards of their own. It can be challenging for young adults with limited credit histories to earn approval for these loans. It's not unusual for them to ask their parents to co-sign on an application.

While it might be tempting to want to help your kid, be careful: If your son or daughter makes their payments late, your credit score will take a fall, too. That's because when you co-sign, you become equally responsible for a debt. If your children default on a loan, you're on the hook for making those missed payments — putting you in a dangerous financial predicament that could completely derail your retirement savings.

Don't co-sign unless you're positive your children won't miss any payments. Even then, it's probably not in your best interest to be a co-signer. (See also: Should You Co-sign Your Teenager's Credit Card Application?)

6. Make sure you have enough life insurance

What would happen to your children or spouse if you suddenly died? Would your spouse be able to pay the monthly mortgage? Would your family have to move to a new, less expensive home?

Life insurance can prevent financial stress for your family if you should die unexpectedly. Make sure that you have enough life insurance coverage to protect your loved ones. Your 40s is a good time to review your life insurance coverage and make changes if necessary. (See also: Why Your Group Life Insurance Is Not Enough)

Like this article? Pin it!

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

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

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

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

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

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

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

How to fight back

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

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

2. Your monthly debt payments are ripping off your budget

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

How to fight back

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

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

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

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

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

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

How to fight back

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

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

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

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

4. Your retirement fund is MIA

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

How to fight back

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

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

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

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

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

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

How to fight back

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

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

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

Like this article? Pin it!

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

The 5 Biggest Dangers of Credit Card Debt

Dan Rafter — Tue, 09 Jan 2018 09:30:10 +0000

Worried that your credit card debt is rising too quickly? Wondering how you'll ever pay off your plastic? You're far from alone. Many Americans who carry balances on their credit cards struggle to pay it off.

According to a 2017 household debt survey by NerdWallet, American households that have credit card debt owe an average $15,654 on their cards. Carrying balances that large can put a huge strain on your finances. And because it's credit card debt, it tends to have even higher interest costs than other types of debt.

Here are the five biggest dangers of carrying credit card debt, and why paying it down is so important. (See also: 6 Scary Facts About Credit Card Debt)

1. It grows too fast

The biggest problem with credit card debt? The high interest rates. It's not unusual for credit card companies to charge interest rates of 20 percent or more. Then, if you don't pay off your balances in full each month, they grow too quickly to keep up with.

Many consumers make the mistake of only making their minimum required payment each month. When you have thousands of dollars of credit card debt, though, doing this means that you might never chip away at enough principal to pay off your balance.

Here's an example: Say your credit card balance is $8,000 and your interest rate is 18 percent. If you make only your minimum required payment each month, it would take you 320 months — or more than 26 years — to pay off your debt. And during this time, you'd pay more than $11,420 in interest. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

2. It will damage your credit score

Having too much credit card debt will lower your credit score. According to myFICO.com, 30 percent of your credit score is based on your credit utilization ratio. That's how much revolving debt you have — including what you owe on your credit cards — compared to how much available credit you have. The higher your credit utilization ratio, the more likely it is that your overall credit score will suffer. And if your score is too low, you'll struggle to qualify for new credit and loans.

3. Missed credit card payments are even tougher on your credit score

Missed payments have a disastrous effect on your credit score. One late payment — which is noted on your credit reports once it's 30 days past due — can send your score tumbling by 100 points or more.

Even worse, late payments remain on your three credit reports (maintained by TransUnion, Experian, and Equifax) for seven years. Every time you apply for a new loan or credit, lenders and banks will see that missed payment, which might make them leery of loaning you money.

4. Your wages can be garnished

You can't go to jail for not paying your credit card debt: The United States does not have debtor's prison. But that doesn't mean that defaulting on your credit cards won't come with financial pain. Your creditors can sue if you don't pay your debt. And if your creditors win, they can garnish your wages to force you to pay back what you owe.

5. It can keep you from building a financial safety net

Building an emergency fund is a key step in protecting yourself from unexpected expenses. If a major, necessary cost suddenly pops up — say your hot water heater breaks, or your car needs a new transmission — you can pay for it with cash. Ideally, you should have from six to 12 months' worth of expenses saved up in your emergency fund. If you need $3,000 a month to live, you should have between $18,000 and $36,000 in your emergency fund.

It can be tough saving up this kind of money. If you're paying off thousands of dollars of credit card debt at the same time, it's even more challenging. It's difficult to put $300 or more into an emergency fund every month when you also need to devote hundreds of dollars to your credit cards. And because credit card debt comes with such high interest, you really should focus on paying that debt off first. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Like this article? Pin it!

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

The U.S. Savings Rate Has Tanked — Here's Why That Matters

Dan Rafter — Tue, 21 Nov 2017 09:30:10 +0000

Are you stashing away fewer dollars in your retirement or savings accounts? You're not alone.

The U.S. Bureau of Economic Analysis reported that Americans are saving less money today than they have at anytime since 2007. The bureau reported that the U.S. savings rate fell to 3.1 percent in September 2017. That's the lowest it's been since this rate fell to 3 percent in December of 2007.

If you recall, 2007 wasn't a great economic time for the United States. It was the beginning stages of the housing crash and the Great Recession. This prompts the question: Is the low savings rate a warning sign that the national economy might be in line for a slowdown? And why are people saving less?

A lower savings rate could mean a few things

The lower savings rate might mean that consumers are more confident in the economy. Instead of putting their dollars in traditional savings vehicles, people are investing more in the stock market and other assets. That happens when the economy is strong and investors think they can realize stronger returns.

At the same time, consumers were spending more. The same report from the Bureau of Economic Analysis found that consumer spending rose 1 percent in September. That jump is the biggest since 2009.

Again, this could be an indicator that consumers are more confident in the national economy. But, it could also be a worrisome trend. The drop in the savings rate at the same time that spending is up might be a sign that Americans aren't necessarily earning more, but are spending more at the expense of their savings. This trend is a dangerous one, as it can put more people in financial trouble down the line.

Keeping your savings up to speed

Of course, you can't worry about what people across the country are doing. You can, though, take a look at your own finances to determine if you are saving enough money. Exactly how much should you be saving? That's a complicated question, but a few rules of thumb can guide you in the right direction.

Emergency fund

You should have an emergency fund in a low-risk savings account that you can use to pay for unexpected repairs or financial emergencies. Financial experts recommend that you have at least six to 12 months' worth of daily living expenses saved in an emergency fund. That figure might sound intimidating, but if you start saving just a bit now, your emergency fund can grow quickly. If you save $100 a month, for instance, you'll have $1,200 saved after a year. Boost that figure to $300 a month, and you'll have a financial cushion with $3,600 in it by the end of a year. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Retirement savings

How much you need for retirement varies depending on a host of factors; everything from what kind of retirement you want — one that involves a lot of traveling will cost more than one in which you spend most of your time golfing or fishing — and how much income you'll be earning each month.

As a general rule, financial experts recommend that you save 10 to 15 percent of your income each year for retirement starting in your 20s. If you hit this goal every year, you should be able to build a solid nest egg for your post-work years.

The challenge, though, is that this is such a general approach to retirement savings. It doesn't take into account the vagaries of your own financial situation. You might not have to save as much if you have royalty income, you plan to work part-time after leaving your full-time job, or you have inheritance money to rely on.

The best advice is to max out contributions to an IRA and/or 401(k) account. Then meet with a certified financial planner who can study your current financial situation to determine if you are on pace to meet your retirement goals. (See also: 10 Signs You Aren't Saving Enough for Retirement)

And about that national savings rate? Just because some Americans are spending more and saving less doesn't mean you have to follow the trend. Stick to your savings goals if you want to enjoy a lower-stress financial life.

Like this article? Pin it!

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

The 4 Smartest Things to Do With an Inheritance

Alaina Tweddale — Tue, 24 Oct 2017 08:30:11 +0000

Have you ever wondered what you'd do if you found yourself with an unexpected financial windfall, such as an inheritance? Chances are, you didn't say what most Americans actually do — which is, basically, to blow it all.

That's right. According to recent research cited by the National Endowment for Financial Education, an estimated seven in 10 people who suddenly receive a large sum of money will lose it all within just a few years. It's not just a couple of bucks we're talking about, either — $30 trillion is expected to transfer between baby boomers and their heirs during the next 30 to 40 years, according to a recent report released by consulting giant Accenture. That's some serious cash.

For many Americans, a modest inheritance of even $5,000 has the potential to change life for the better, so long as the inheritor knows what to do with the cash. Sadly, many of us don't. That's why I turned to financial planners from around the country and asked them outright: What exactly should an heir do with a newfound inheritance? Here's what they had to say.

Take time to grieve

An unexpected financial windfall — particularly if it was bestowed upon you following the death of a loved one — can often be accompanied by unexpected feelings of guilt. Many inheritors would much rather have more time with a beloved uncle than a bank account filled with his riches.

Still, Matt Adams, financial adviser and partner at registered investment advisory firm Money Methods, suggests inheritors honor the memory of the giver by being a good steward of those newly acquired funds. "It took sacrifice for the inheritor to acquire those assets," he says. "Have a heart of gratitude and don't blow the money."

Of course, that's often easier said than done, particularly if we don't have experience managing money or if friends or loved ones have designs on your newfound wealth.

Keep mum about your newfound riches

Your true friends will be there to help you grieve, but it may be in your best interest to keep the details about your newly inherited wealth to yourself. Many inheritors are surprised by how quickly their circle of friends and family seems to grow once word gets out about their newfound riches. Particularly during a time of grief, when many of us can fall prey to poorly made decisions, you'll want to know that your loved ones are there because they want to support you — not because they're hoping for financial gain.

Sadly, that warning doesn't just apply to your besties.

"As a former banker, I can tell you that as soon as your deposit hits your account, bells and whistles will go off, informing everyone from the teller to the branch manager," says Jude Wilson, chief financial strategist at Wilson Group Financial. "They will all have opinions of what you should do with your money." And, if you don't choose your advisers carefully, those opinions could very well be at odds with what is in your best interest.

Seek out sound expert advice

Many inheritors don't know how to manage a large influx of funds and, without the necessary financial know-how, it's easy to make money mistakes. You may intend to take good care of your benefactor's wealth, but "it can be stressful to figure out how," says Wilson, who suggests new inheritors put together what he calls a "dream team" of advisers. This includes:

A financial planner who can help you develop a money plan that works best for you and your individual situation.
A tax planner who can help you work through and perhaps even minimize the tax implications of your newfound wealth.
An attorney who can help you navigate any potential probate issues.

If you find the idea of finding and hiring three new experts overwhelming, start with the financial planner. A good financial planner can help you identify any other experts you may need on your team. (See also: Ask These 5 Questions Before Deciding on a Financial Adviser)

If you just want someone to help you get started but don't want to pay for ongoing support, you can get a financial plan written up for a one-time fee from a fee-only certified financial planner. "The cost can be anywhere between $1,000 and $5,000 depending on the scope of work and the experience of the planner," says Taylor Schulte, financial planner and owner of Stay Wealthy San Diego.

Ultimately, though, make sure that you or the pro you're working with understands what type of money you're inheriting and how it should be treated. "It could be a major misstep to liquidate and spend qualified money from an IRA [or other retirement account], which would be taxed at ordinary income rates," says Mitchell Bloom, financial planner, author, public speaker, and president of Bloom Financial.

Develop your money plan

Most of the planners I spoke with generally agree upon the steps new inheritors should take toward using their newfound wealth to build a financial base. Those include:

Pay off your high-interest debts. This is particularly true if you hold high-interest credit cards or other consumer debt, like loans issued by furniture stores or used car dealerships. Student loans and new car debt also falls within this category.
Create an emergency fund. This should amount to somewhere between three and six months' worth of expenses and, ultimately, should be able to tide you over in the event of an unexpected financial catastrophe like a job loss or illness.
Boost your retirement savings. A financial boon can help fill the gap between falling short and being retirement ready.

In short, it's far from easy to manage an inheritance. Make the most of the money your loved one left. That means using the funds to create a better life for yourself in the long run, no matter how much was passed down. It's what your benefactor would want.

Like this article? Pin it!

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

6 Money Moves to Make After Buying Your First House

Christa Avampato — Thu, 28 Sep 2017 08:01:06 +0000

You bought your first home. This is an exciting conclusion to what was likely a long and winding road. As you are unpacking your boxes, settling in, and decorating your new digs, there are some smart money moves you should make immediately to keep the good times rolling.

1. Adjust your last will and testament

Now that you have a new home, you need to update your will. In this time of excitement, updating a will might feel like putting a damper on the fun, but it's critically important. You need to be responsible for protecting the future of your loved ones and your home. (See also: Don't Make These 5 Common Mistakes When Writing a Will)

2. Get rid of PMI as fast as you can

Private mortgage insurance (PMI) is a necessary fee for most people who buy a home with less than a 20 percent down payment. This can be a significant expense, sometimes costing thousands of dollars each year. Do whatever you can to get to that 20 percent equity mark so that you can drop the PMI payments.

3. Make a plan to pay a little extra every month

At the beginning of a mortgage, you are mostly paying interest and very little principal with every monthly payment. That ratio of interest to principal will decrease eventually, but it will take a few years.

To more quickly pay down your mortgage, set aside a little extra every month for your mortgage payment. Why? Anything you pay above your monthly payment goes directly against the principal. (Just be sure those extra payments are going to principal; check with your mortgage lender.) The faster you reduce your principal, the faster you will pay off your home. A lower principal will also make it easier to refinance the mortgage down the line if you choose to do that in the future. (See also: What's Faster for Mortgage Payoff: $100/Month Extra or 1 Payment/Year Extra?)

4. Replenish your emergency funds

Many people use a substantial part of their cash savings, if not all of it, when they buy their first home. It’s crucial that you begin to rebuild this emergency fund as soon as you can.

An emergency fund is necessary if you lose your job for any reason, have unexpected bills, or if you need to do emergency repairs on your home. Experts in the consumer finance field have varying opinions when it comes to how much to set aside in an emergency fund, but many suggest having three to six month's worth of expenses saved. Some more conservative advisers even suggest saving up enough to cover one year of expenses. Consider your lifestyle and personal risk profile to find the best target amount for you.

5. Reconsider your life insurance policy

Now that you have this beautiful new home, you will need to make sure the mortgage can be covered by your life insurance. You don’t want your heirs to struggle to figure out what to do in the event that an unforeseen circumstance occurs.

How much insurance do you need? Generally, the guideline for life insurance is 10 times your annual income plus any large debts like a home mortgage. Talk to your insurance company and/or financial adviser to get their perspective, and make any necessary adjustments. (See also: 5 Reasons Why Life Insurance Isn't Just for Old People)

6. Change your locks and install deadbolts

Safety is a huge part of homeownership, and it has financial implications. As soon as you have the keys in your hand, contact a locksmith to get all of the locks on your doors and windows changed, and install deadbolts on doors where you currently don’t have them. The previous owners likely gave copies of their keys to neighbors, friends, family members, the dog walker, or people who did work on the home. You don’t want those people to have access to what is now your house. You may also want to consider a home security system.

All of these safety measures may provide a financial deduction on your homeowners insurance. Contact your insurance company to find out if you qualify for a reduction in your rate. (See also: 7 Times to Update Your Homeowners Insurance)

There is a desire to rest on our laurels after completing the purchase of a home. You should definitely bask in the glow of new homeownership, but this is also a time to remain financially vigilant. Remember that when it comes to your personal finances, remaining responsible and forward-thinking is the key to lasting success.

Like this article? Pin it!

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

emergency fund

How to Pay Off These 4 Types of Debt

Credit card debt

Car and personal loans

Student loans

Mortgage

Make bi-weekly payments

Making one additional mortgage payment a year

Make lump sum payments periodically

Refinance from a 30-year fixed to a 15-year fixed

But first, create an emergency fund

Like this article? Pin it!

How to Protect Your Finances in Case of a Recession

Bolster your emergency fund

Create your Plan B budget

Attack your credit card debt

Go to the doctor

Resist the urge to tinker with your investments

If you're close to retirement, make sure you have cash

Be prepared

Like this article? Pin it!

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

1. What is your net worth?

2. What are you invested in?

3. How big is your emergency fund?

4. Are you on track to retire comfortably?

5. Are you properly insured?

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

7. What is your credit score?

8. Are there errors on your credit report?

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

Like this article? Pin it!

How to Revamp Your Budget for Retirement

Pay yourself and the IRS

Stop saving for retirement

Increase your emergency fund

Assess your changing housing costs

Prepare for a possible increase in medical expenses

Eliminate work-related expenses

Adjust for an increase in leisure expenditures

Consider your gifting choices

Like this article? Pin it!

Best Money Tips: How to Jumpstart Your Emergency Fund This Month

Top 5 Articles

Other Essential Reading

6 Parts Every Successful Budget Needs

1. Emergency fund

2. Debt repayment

3. Retirement fund

4. Fun money

5. Funds for irregular expenses

6. Regular review

Like this article? Pin it!

5 Money Goals You Can Achieve This Summer

1. Start an emergency fund

2. Boost your bottom line

3. Start saving more for retirement

4. Track your spending

5. Pay off debt

Like this article? Pin it!

9 Smart Moves to Make After Getting a Raise or Promotion

After a promotion

1. Be confident, but humble

2. Ask plenty of questions

3. Get ready to work hard

4. Start churning out the ideas

After getting a raise

5. Calculate exactly how much more you'll be getting each month

6. Rework your household budget

7. Boost your retirement savings

8. Build your emergency fund

9. Continue to live frugally

Like this article? Pin it!

7 Easy Money Moves to Make on a Rainy Day

1. Start an emergency fund

2. Up your retirement contributions

3. Fine tune your budget

4. Sell items around the house

5. Create a filing system

6. Cut a bill