overspending

8 Money Mistakes at 20 That Will Land You in Debt by 30

Kentin Waits — Mon, 14 May 2018 08:01:14 +0000

Few mistakes are more difficult to erase than money mistakes. The errors of youth have a way of haunting us long after we've changed our ways and become models of responsible personal finance. If you're in your 20s, look ahead and make life easier for your 30-something self. Here are eight money mistakes at 20 that will land you in debt by 30.

1. Amassing huge student loans

According to Student Loan Hero, today's average student loan borrower will graduate owing $37,172. What makes student loan debt particularly dangerous? First, most loans have variable interest rates. When rates increase, so do your payments (try budgeting around that). Second, student loan debt can't be discharged in bankruptcy. If you default, the government can garnish your wages, take your tax refund, and even dip into your Social Security payments in retirement. (See also: What Really Happens When You Don't Pay Your Student Loans)

2. Carrying credit card debt

With high interest rates, late payment penalties, and other fees, a modest credit card balance can quickly become a major problem. People who overspend in their 20s can easily rack up huge debt loads by their 30s — a situation that forces many to delay homeownership, toil away at jobs they dislike, and live with constant financial stress. Avoid the drama of consumer debt. Adopt a strict policy of paying off your credit balances in full each month. (See also: The Fastest Method to Eliminate Credit Card Debt)

3. Ignoring your credit score

Your FICO score is your GPA of adulthood. That magic number affects everything from loan eligibility and interest rates to employment opportunities. Since rebuilding a low credit score can take years, you can't afford to ignore it. Just imagine getting stuck with a higher mortgage rate at 35 because you were late with a few car payments at 27. Not good. (See also: How to Rebuild Your Credit in 8 Simple Steps)

4. Splurging on a new car

Countless 20-somethings are tempted to buy a new car as soon as they land their first real job. But with steep prices, rapid depreciation, and higher insurance premiums, buying new is seldom a smart financial move. This single bad investment can strain your budget for years and leave little money to establish an emergency fund or aggressively pay down student debt. (See also: 3 Reasons Why You Should Never Buy a New Car)

5. Not talking finances with your significant other

Ready for an important love lesson? Talking about money won't kill your romance, but the stress of overwhelming debt just might. Before you commit, share your full financial picture (warts and all). Talk about income, debt, bad money habits you're trying to overcome, and your personal financial goals. It'll not only bring you closer as a couple, it'll empower you to work as a team. (See also: 5 Money Conversations Every Couple Should Have)

6. Overspending for your wedding

According to a study conducted by The Knot, the average cost of a wedding in the United States hit a whopping $35,329 in 2016. And while new unions are always a cause for celebration, the price tag for these elaborate events often forces young couples to assume more debt at a time when paying off student loans, saving for a home, and funding retirement accounts should be top priorities. With interest, wedding bills can easily become money monsters that devour budgets for years. (See also: 3 Reasons Taking a Loan For Your Wedding Is a Bad Idea)

7. Not building an emergency fund

Ah, the optimism of youth! Twenty-somethings often don't realize that a layoff, uninsured medical expense, or unexpected home repair can spell financial disaster. Without an emergency fund to cover at least six months' worth of living expenses, they risk being forced into high-interest credit card debt — a decision that can launch a long-term cycle of debt. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

8. Going without health insurance

We all feel invincible when we're in our 20s, but accidents and unexpected health issues can throw our lives off course at any moment. Without insurance, medical bills can quickly reach staggering amounts (in fact, medical expenses are the most common cause of personal bankruptcy in the United States). Protect your most important asset — yourself. (See also: The One Question You Need to Answer to Choose the Best Health Care Plan)

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This article is from Kentin Waits 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 Stop Overspending With Friends

Amy Lu — Tue, 08 May 2018 08:00:21 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found articles on how to stop overspending with friends, what you need to know about crowdfunded real estate, and ways to set a realistic budget for your household.

3 Mistakes That Make a Bad Credit Situation Worse

Toni Husbands — Tue, 09 Jan 2018 09:00:07 +0000

While bad credit isn't an indictment of a person's character, it can certainly be a struggle in today's economy. Those with bad credit know that financial life becomes more challenging and can be more expensive in general.

Your credit is officially bad if you're one of 68 million Americans with a FICO score that hovers near 600 or below. The good news is there are practical steps people can take to improve their credit scores. Paying your bills on time and working diligently to pay off debts are good ways to start.

But people with bad credit need to, above all else, be patient. Falling into the lure of quick fixes can lead to the following mistakes and compound your problem of poor credit. (See also: 5 Ways to Improve Your Credit Score Fast)

1. Falling for debt relief or credit repair scams

The Federal Trade Commission released a survey in 2013 showing that of the 25 million people victimized by fraud, an estimated 1.5 million and 1.7 million Americans were scammed by debt relief or credit repair scams, respectively.

Often the disreputable agencies behind these scams prey on people in dire financial circumstances by promising overnight fixes and charging large sums of money upfront before any work has been completed — both of which are illegal.

The FTC warns consumers to avoid working with any debt relief or credit repair agency that sets off red flags. Notable warning signs include a company that:

Insists you pay money upfront to do any work on your behalf.
Requires that you don't contact the credit reporting companies directly.
Suggests you dispute accurate information on your credit report.
Tells you to falsify any information on your applications for credit or a loan.
Will not explain your legal rights when explaining their services.

Cleaning up your credit will be the result of improved financial habits like paying your monthly bills in a timely manner and making more than the minimum payments. These improved habits will need to be consistent over a period of time. Knowing this will help those with poor credit resist the temptation to seek quick fixes and be taken advantage of by predators. (See also: How to Spot a Credit Repair Scam)

2. Not learning how to use credit responsibly

It's understandable that 68 million Americans fall into the poor credit bucket. But, your story doesn't need to stop there. Those with poor credit must take the initiative to educate themselves about the benefits of good credit and to learn what concrete steps are needed to fix their credit.

The largest factors that make up your credit score are payment history (35 percent) and how much you owe (30 percent). Again, paying on time and paying down your balances is the best thing you can do to improve your credit score.

If you prefer to work with a professional, opt for nonprofit credit counselors. To ensure you are working with a reputable agency:

Locate a local service from associations like the National Foundation for Credit Counseling.
Check with your state's attorney general and the FTC to ensure there are no complaints or pending regulatory action against the agency. While a complaint doesn't necessarily signify a fraudulent agency, do your own research.
Make sure you understand what services the counselor performs and know your rights as a consumer before you sign any agreements. (See also: 5 Signs It's Time to See a Credit Counselor)

3. Avoiding the problem and hoping that things will get better

This by far is the worst action someone with poor credit can take. Problems neglected will only get progressively worse and cost more time and energy to address in the future — when avoiding them is no longer an option. Whether you face a lawsuit, a wage garnishment, or are eventually forced to file bankruptcy, financial issues that have resulted in poor credit will eventually bubble up to the top of your must-do list.

It's best to contact your creditors directly if you have trouble paying. Set up a payment arrangement or request a change in the terms of your payment agreement. Changing the due date and requesting an interest rate reduction are simple requests that can often be addressed by customer service representatives. (See also: 4 Ways to Negotiate Credit Card Debt)

Know that burying your head in the sand will not help and is an unproductive mistake that people with bad credit make. Work with the creditor involved or a reputable credit counselor to arrange a workable solution. (See also: How to Rebuild Your Credit in 8 Simple Steps)

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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:

7 Fastest Ways to Recover From Holiday Overspending

Dan Rafter — Tue, 02 Jan 2018 10:00:06 +0000

Consumers said they planned to spend an average $967 during the 2017 holiday season, according to research from the National Retail Federation and Prosper Insights & Analytics.

That's a lot of money, and you can bet that plenty of holiday shoppers blew their budgets in the process. But here's some good news: Even if you were overly generous this season, you can take steps to recover financially from all that holiday overspending. (See also: 8 Secrets to a Debt-Free Holiday Season)

1. Return what you don't want

If you were generous with others this holiday season, they might have been equally generous with you. This means you might have plenty of holiday gifts sitting around — maybe some gifts you don't even want or need.

If you have the receipts, by all means, return them. Hopefully, you can get cash in exchange. But even if you can't, you'll probably be able to turn your unwanted gifts into store credit. You can then shop at that store on someone else's dime without dipping into your own wallet.

Don't worry about hurting someone's feelings here. The main point is to get back on your feet financially, and every little bit helps. (Besides, you don't have to tell Aunt Julia that you aren't going to wear that sweater.)

2. Use those gift cards

The odds are high that you received gift cards this year. The National Retail Federation estimated that 2017 holiday shoppers each planned to purchase around four gift cards with an average value of $45 per card.

Too many people throw them in a drawer or tuck them in a wallet and then forget about them. If you got gift cards, use them. Again, these handy cards will let you purchase clothing, electronics, or restaurant meals without you having to spend your own cash. Then, send the dollars you're saving on those splurges toward paying down credit card or other high-interest debt. (See also: How to Turn Unwanted Gift Cards Into Cash)

3. Pay more than the minimum on your credit cards

You might not want to think about credit card debt right after the holidays, but it's important to not ignore it. Whatever you do, don't only make the minimum required payment. If you do, it can take you years, and cost loads of interest, to pay off that debt.

Say you owe $7,000 on a credit card with an interest rate of 18 percent. If you make the 4 percent minimum required payment each month, it will take you 147 months — or more than 12 years — to pay off that debt. You'll also pay a total of more than $11,000 on the card. And that assumes you don't make any additional purchases with it.

Your goal is to pay off more than the minimum every month. Otherwise, you'll be paying off those holiday mittens and scarves for years. (See also: Dealing With Post-Holiday Credit Card Debt)

4. Stop adding to your debt

Of course, you'll struggle to ever pay off your holiday debt if you don't first stop adding to it. Make a resolution to stop using your credit cards to pay for items. Instead, use your debit cards or cash for your purchases.

This will require planning, and maybe a bit of sacrifice. You might have to wait to buy that new laptop until you've saved up enough to pay for it in cash. But you'll be thankful as you watch that credit card debt steadily disappear.

5. Start an emergency fund

If you've resolved to pay down your holiday debt, you'll need savings. What if your water heater bursts or your car conks out? If you don't have any money saved up, you'll have to put those repairs on your credit cards, adding more to your debt levels.

A better move is to start creating an emergency fund. As the name suggests, an emergency fund is a stash of cash that you stow in a safe place, like a savings account. You withdraw from the fund to cover any unexpected emergencies.

You'll eventually want an emergency fund that has from six months' to a year's worth of daily living expenses in it. That may sound intimidating, but you can start slowly. By investing at least $200 a month in an emergency fund, you'll have $2,400 by the time a year passes. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

6. Make some sacrifices

The more money you have to devote to your holiday debt, the better. Start the new year by cutting back on unnecessary expenses. All those trips to restaurants and the movies add up. If you cut down on your discretionary spending, you might have $200 or more extra each month to put toward reducing your holiday debt.

7. Get in selling mode

Maybe you received plenty of stuff during the holiday season — you might even have too much stuff. If so, sell some of it off, either online or through a yard sale. The extra money you make by selling a Crock-Pot or tablet that you no longer need can bring in some much-needed extra cash that you can use to pay down that mountain of debt.

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

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.

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

How a Surprise Credit Limit Increase Can Harm You

Dan Rafter — Thu, 16 Nov 2017 10:00:06 +0000

The email can catch you by surprise: You get a message from a bank telling you that your credit limit has increased. Banks routinely check the financial health of their credit card customers. When these customers have a good credit score and a history of paying their bills on time, they might decide to raise their credit limit by $5,000, $10,000, or more.

You might welcome a surprise boost in your credit limit, but you should also be wary of this: An increase in your credit limit can cause problems if you're not careful.

Don't add to your debt

Do you spend more with your credit cards than you can technically afford? Are you unable to pay off your balance in full each month? If so, an increase in your credit limit has potential to make things worse.

Credit card debt is some of the worst debt to carry because it comes with such high interest rates — sometimes as high as 20 percent or more. If you carry a balance on such cards from month to month, the amount you owe can soar solely because of this interest.

Here's an example: Say you are carrying a balance of $8,000 on your credit card at an interest rate of 17 percent. Now, say that your minimum monthly payment is 4 percent of that balance. If you only make this minimum payment each month, it will take you over 12 years to pay off your balance. The total interest you will pay during this time is a bit more than $4,272 — and that assumes that you won't be using that credit card to make any additional purchases.

If a credit limit increase inspires you to spend even further beyond what you can't pay off each month, you'll simply be increasing the time it takes to pay off your credit card debt. The smart move after receiving a limit increase is to set your own personal charging limit. Even if your card's credit limit is $20,000, resolve not to charge more than $500 a month if that's all you can afford to pay off when your card's payment date arrives. Don't add to the mountain of high-interest credit card debt you're already struggling to pay off. (See also: How to Pay Less Interest on Your Credit Card Debt)

Monitor your credit utilization ratio

If a higher credit limit encourages you to spend more, you might also be hurting your credit score, even if you pay your credit card bill on time each month. This has to do with your credit utilization ratio. Your credit score will fall if you use up too much of the credit available to you. It will rise if you are using less of it.

Getting a credit limit increase would seem to help your credit utilization ratio. After all, if you have more credit available to you, you will automatically be using less of it the day that credit limit increase kicks in. But if that credit limit increase inspires to you to go on a charging binge, you could quickly use up your credit increase in new purchases. That, in turn, will hurt your credit utilization ratio and your credit score.

Again, the key is to set personal limits and stick to them. Determine a reasonable amount of money you can charge each month and don't charge more than that.

Don't cancel that card

If you're worried that you can't handle a credit limit increase, don't cancel your credit card. This will automatically increase your credit utilization ratio and damage your credit score. Once you close a card, the amount of credit available to you will automatically drop without you even charging another cent.

You can call your credit card issuer to request that your credit limit be reduced, but that might be a risky strategy. Remember, having a higher credit limit is good for your credit score, as long as you don't swallow it up by charging too much. By removing that increase, you won't get the credit score boost that can come with higher credit limit.

Instead, stick to that personal charging limit you've set, no matter how much available credit you have. Maxing out your credit cards is a bad financial strategy, no matter how high your credit limits.

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

5 Excuses We Need to Stop Making About Overspending

Emily Guy Birken — Tue, 14 Nov 2017 09:00:06 +0000

Being able to rationalize something that we know we shouldn't do is one of the things that humans are best at. Specifically, we do a fantastic job of coming up with reasons to explain away or excuse our overspending. (See also: 5 Types of Overspenders — Which One Are You?)

But no matter how clever you are in coming up with a great reason for maxing out your credit card, emptying your savings account, or otherwise living large on money you don't have, your overspending will catch up with you. That's why it's time to stop relying on these excuses for spending more than you can afford. (See also: The 10 Biggest Lies We Tell Ourselves About Money)

1. "I deserve it"

After a long day at the office, you decide to swing by your favorite store, telling yourself you deserve a retail pick-me-up after all your hard work — even though you can't afford it. Or after finishing a major project, you go on a lavish vacation, courtesy of your credit card, because you deserve some time to unwind. Or when your old clunker finally gives out on you, you decide to lease a much more expensive car that will turn heads as you zoom past, because you deserve to have a ride that matches how fabulous you are.

Buying something you can't afford may provide a temporary thrill that feels like a reward in the moment. But the debt associated with your splurge will soon begin to feel like a burden. Where's the reward in that?

End the excuse

If you think that you deserve things that you can't afford to buy, you've got it all backward. What you deserve is feeling less stress and more happiness. There are plenty of ways to reward yourself for hard work that don't involve spending money. Take time out from your routine to go for a walk with a friend, indulge in a favorite TV show, or simply count your blessings.

Anytime you are struggling with the sense that you deserve something you don't have, take a moment to write a list of things you are grateful that you do have. This can help put the "I deserve it" excuse in context.

2. "It's on sale"

The fact that an item is cheaper than it could be is often an excellent excuse for buying it — at least according to our irrational brains. Unfortunately, retailers are onto this quirk of our thinking, and so they play any number of shenanigans with prices to make products seem like a good deal. This includes everything from artificially jacking up prices in order to be able to offer the items "on sale," to offering unbeatable discounts that are delivered directly to your email inbox. (See also: 5 Times Coupons Trick You Into Spending More Money)

End the excuse

There are two ways to deal with this excuse. The first is to simply avoid sales situations that will tempt you to overspend because of the low prices. According to a 2013 study in the Journal of Personality, the key to saying no to temptations is to avoid them. Maia Szalavitz reported on this study for TIME, writing "[the highly self-disciplined] tended to avoid creating situations in which their goals would conflict, and reported fewer instances of having to choose between short-term pleasure and long-term pain."

For those individuals who still struggle to avoid sales, there is another way to let go of this excuse for overspending. Ask yourself the following three questions about any sale item that tempts you to spend:

Do I need this item?
Would I buy this item if it weren't on sale?
Can I afford to buy this item?

Unless the answer to all three questions is an unqualified yes, put the item down and walk away.

3. "I was going to buy it anyway"

What if you do answer that you need an item on sale, even though you simply don't have the money for it right now? At that point, you can often rationalize purchasing the item because you're going to have to buy it anyway, so you might as well do so now.

Unfortunately, we are very good at lying to ourselves about whether or not we truly did plan to buy something at some point in the future. I can recall a pair of adorable rain boots that I bought on a bright sunny day because I convinced myself that I was going to need them at some point soon anyway. But I had no immediate need for the boots, and I could have gone quite some time without them. I told myself I needed the boots simply because I wanted to buy them. (See also: 5 Mental Biases That Are Keeping You Poor)

End the excuse

This excuse is a way of pretending that something you want is something you need. To help you navigate the difference between wants and needs, institute a waiting period for any unplanned purchases. When you see something that you are convinced you will buy anyway, commit to waiting at least 24 hours before you make the purchase. This will help you to separate the "Wow, I want this now" chaff from the "OK, I'll need to come back for this later" wheat.

4. "I was good last month, so I can afford to splurge now"

You've been depriving yourself by taking the bus instead of Ubering, choking down the office coffee instead of getting your morning latte, and even saying no to a pub crawl with friends — so now it's time to enjoy the fruits of your labors. You reason that you're allowed to go a little nuts, since you've already been so good for so long.

The problem is that this mentality is similar to the excuses that dieters and exercisers use when they fall off the wagon. This excuse makes it clear that you see your underspending month (or month of dieting or jogging) as a kind of deprivation. If you think of underspending as good behavior that you can perform in order to get back to your usual program of overspending, you'll never be able to get ahead financially. (See also: 6 Ways to Resist a Splurge)

End the excuse

It's important for everyone to find a budget or spending plan that they can live with for the long term — one that does not feel like deprivation, but does allow you to live within your means. You can completely foil this excuse for overspending if you create a budget that still allows you to spend money on the things you care about most, while cutting the items that don't matter as much to you.

When you have a financial life that you feel good about committing to long term, you will be able to end the thought process that encourages you to overspend after doing a great job of living within your means.

5. "It's the holidays"

It feels great to spend money to celebrate the holidays and give gifts to family and friends. And our brains can keep that great feeling going by convincing us that spending money on these things is a selfless act. After all, we just want to provide our loved ones with a memorable and happy holiday, which means we can put it all on a credit card and worry about the bill later. We're spreading holiday cheer, for heaven's sake!

But there are real consequences to overspending for the holidays. Your loved ones would hate to see you feel overwhelmed by credit card debt or unable to save for the future because of the money you spent on showering them with gifts. (See also: Dealing With Post-Holiday Credit Card Debt)

End the excuse

The best way to end this excuse is to recognize just what you are getting out of spending money on gifts, decorations, food, or other traditions. While you do want to create a lovely holiday memory for your family, you probably also love being known as the Christmas hostess with the extravagant brunch menu or the uncle who always has the best presents.

Once you admit that you get something out of overspending on gifts or the holiday, you can start coming up with ways to get that same feeling without overspending. When you recognize that your spending isn't entirely selfless, it's much easier to come up with creative ways to evoke the magic of the season without giving your credit card a daily workout.

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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:

How to Turn Your Buyer's Remorse Into Better Financial Habits

Dan Rafter — Mon, 13 Nov 2017 08:00:05 +0000

You race home with a new flat-screen TV, or you excitedly drive off the dealer's lot with a pricey new car. You think it'll bring you joy, but it doesn't; you get home and buyer's remorse sets in.

We're all familiar with that sinking feeling that comes when we spend money on something we probably shouldn't have. But what if there was a way to spin buyer's remorse into a learning opportunity? What if that feeling could actually inspire you to develop better financial habits?

The good news is it can.

Why you get buyer's remorse

Before you learn how to harness buyer's remorse for good, it's important to realize why you get it in the first place.

The most obvious answer, of course, is that you get this feeling because you've spent money on an item that doesn't give you the happiness you expected it to provide. The amount of money doesn't always matter. You can experience buyer's remorse from a huge purchase, such as a home, or from something as small as a latte on the way to work. (See also: Why Do We Feel Buyer's Remorse, Anyway?)

Using that sinking feeling for good

If you've made a purchase you now regret, don't fall into too deep of a funk. Instead, use that feeling of buyer's remorse to change your spending habits for the better.

Before heading out to any store, make a list of what you want to buy and only buy the items on that list. As you stare at the magazines, candies, and individual-sized bottles of soda near the cash register, keep looking at the list. Did you buy everything on it? Yes? Then you're done shopping.

If you're ready to make a big purchase, such as a house or car, doing the proper research beforehand can help you avoid buyer's remorse. Reading online reviews, talking with friends, and comparison shopping can all help. And if you think this is simply too much work, take a look at the most recent item you purchased that gave you buyer's remorse. Does that item give you any pleasure today? If not, remember that lousy feeling. A little research is a lot less painful than a bout of buyer's remorse.

You can also use the feeling of buyer's remorse for a bit of self-examination. Sometimes we get buyer's remorse not because we bought the wrong item, but because we overspend as a way to make ourselves feel better. Problem is, this rarely works and often leaves us in debt.

Look at the things that give you pleasure that don't involve buying anything. Maybe you feel good when you take your kids to the park. Maybe a daily bike ride boosts your spirits. You might feel joy from playing cards with friends or sitting on the front porch and chatting with your neighbors. Spend more time doing these activities — ones that don't cost you any money — instead of relying on making new purchases. You'll experience a lot less buyer's remorse. (See also: 6 Ways to Avoid Buyer's Remorse)

Confirmation bias and the decoy effect

Finally, use your buyer's remorse to recognize two key retail strategies that often lead consumers to overspend in the first place: confirmation bias and the decoy effect.

Confirmation bias is a condition in which you are apt to believe information that conforms to your prior beliefs. You ignore everything else. Marketers know about this bias, and aren't afraid to take advantage of it. Maybe you rent an apartment. That apartment might fit nicely in your budget, but deep down you want to own your own home.

You are then more likely to believe the ads from local real estate agents telling you that owning a home is part of the American dream and a good way to build wealth over time. At the same time, you might ignore any marketing promoting the benefits of renting, because you would rather believe the information you're seeing about homeownership.

You're more likely to experience buyer's remorse if you immediately buy an item — even something as big as a new home — based on this advertising. Resist the urge to purchase something just because the company behind it, or the person selling it, tells you it's the best choice. Instead, try to look objectively at your choices and your finances, and keep an open mind to find the best option for you.

The decoy effect is a bit simpler, but still effective. This is when retailers place a lower-priced item next to one that is higher-priced. You see this and you automatically assume that the lower-priced item is a good deal. Unfortunately, this isn't always true. That lower-priced item might still be priced too high, and it might not provide you with any pleasure when you get it home.

Do your research before entering a store, or stick to your list of items to buy, and you'll lessen your odds of falling victim to the decoy effect. Even better, your risk of buyer's remorse will also drop. (See also: 5 Mental Biases That Are Keeping You Poor)

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

Boost Your Savings With This Easy Budgeting System

Tim Lemke — Fri, 27 Oct 2017 09:00:06 +0000

When it comes to saving and investing, it helps to have a system. My family has developed our own system of saving money that has allowed us to reduce our spending and direct more of our money toward long-term goals.

In a sense, this system is similar to the famed "snowball" debt-reduction approach in that it focuses a person's attention on small, achievable goals. But while the snowball method is geared toward paying down small debts before large ones, our method is more focused on saving money in small increments, and hoping that small gains eventually turn into large ones.

My system does require some discipline and it can be challenging. But the challenge is part of what can make the system fun. (See also: 7 Smart Money Challenges You Can Totally Do)

1. Track your spending

We use credit cards and debit cards for most purchases, allowing us to have a real-time record of what we're spending. Our credit card company does a good job of placing our expenditures into categories such as "restaurants," "automotive," "grocery," and "entertainment." Account aggregation websites such as Mint and Personal Capital can help with this as well. (See also: These 5 Apps Will Help You Finally Organize Your Money)

2. Find monthly averages

Once your spending is tracked and categorized, it's time to do some math. Your goal should be to determine what you spend in each category each month, on average. I like to find the average over the previous 12 months, but a six-month average is also OK. Once you determine those averages, save them into a spreadsheet. Each of those numbers is now your starting monthly budget for those categories.

For example: Let's say that you have spent $1,000 eating out at restaurants over the last 12 months. That averages to about $83 per month. Your goal for the upcoming month should be to keep your restaurant spending under $83.

It's important to also include monthly averages for large, but irregular expenses. Perhaps you spent nothing on auto repairs during 11 months out of the year, but spent $2,400 in July. In this system, it's prudent to budget $200 per month for auto repairs so that you have money saved if you encounter a similar expense.

3. Beat and lower your averages

We all know it's not good enough to be average. You want to be better than average, right? So your goal each month should be to spend less — significantly less, if possible — than your monthly average. You may not be able to beat your average in every spending category, but you'll likely spend less in some places and hopefully lower your spending overall.

If you spend less than your average in a given month, the next step is a crucial one: It's imperative that you lower your goal based on your new average. In other words, if your goal was to beat your average $50 in fast food expenses during the month, and you find that you've spent $40, it's time to recalculate your average and make that the new goal. Embrace the challenge!

4. Try to beat your best

If you really want to challenge yourself to save money, adjust your monthly budgets even lower to have them in line with your best month, not your average. We all have that one month where we impress ourselves with our financial discipline. Maybe you went an entire month only going out to eat once. Perhaps you had one month where you were super about saving energy. Find that month, and make that the new budget baseline. If you can beat that number on a consistent basis, you're doing awesome.

5. Savor the small victories

One of the reasons I like this system is that it allows you to zero in on specific parts of your finances without getting overwhelmed by the big picture. It can be demoralizing to look at your total lump sum of expenses and debt and feel like you're not getting ahead. But if you are focused on reducing spending in various categories, you have many opportunities for small wins. Even if your overall spending didn't decline much during a month, you can feel good that you spent less on groceries, or found ways to reduce your electric bill. That good feeling can be contagious, and before you know it, you'll find that you are spending less overall.

6. Treat saving like an expense

My family makes a point of putting away a set amount of money each month into a variety of separate savings and investment accounts. There is money directed toward Roth IRA accounts, some funds placed in 529 College Savings plans, and another amount put into an online savings account with a higher interest rate. We also set aside money for big ticket items, such as a new car. When we track our spending, we treat these like expenses. Only in this case, we are treating these costs in the opposite way we treat our day-to-day expenses. Rather than reduce this number, we want to increase it if possible. So if you're putting $100 a month into an IRA, try to bump that up to $110 or $125. This may require you to reduce your spending budgets in other areas, but that's the whole point, right? (See also: 5 Retirement Accounts You Don't Need a Ton of Money to Open)

7. Pay down debt or add to savings

This system is all about saving money, so if you reduce your spending in one area, it's a bad idea to go and increase spending somewhere else. If you find that you have spent less in one category in a given month, use that money to pay down debt faster or increase your savings investments. Let's say you spend $25 less on groceries this month. Well, think of that as $25 more to pay off your auto loan, place into your IRA, or fund your college savings account. (See also: 5-Day Debt Reduction Plan: Pay It Off)

8. Keep an eye on new expenses

No matter how maniacal you are about saving, there will be times when you are forced to increase spending in some areas. If you have a child, rest assured you will be spending more on food, clothing, and a host of other things. If you have an older car, you may find yourself paying more for repairs. You may get a new job that adds income but also commuting costs. It's fine to make appropriate adjustments to your budgets as you go, as long as you eventually settle into a practice of trying to reduce spending and boost savings whenever possible.

9. Throw new income into savings

This system is all about reducing spending and finding ways to shift your money from costs to savings and investments. Income is not irrelevant, because you need to know how much you have to work with. But you should try to avoid making grand changes to your budgets if you get a boost in pay. Any new money you have should be used to increase savings, pay down debt, or invest. It should not be used to increase your individual budgets. If you got by spending $200 on groceries before your pay raise, you can get by on that same amount now. (See also: How to Budget When You're No Longer Broke)

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

What to Do When You've Blown Your Budget for the Month

Sarah Winfrey — Thu, 27 Jul 2017 08:00:05 +0000

You're a week into a new month, and you take a look at your bank account — only to find it dangerously low. You've spent way more than you had budgeted for way too early.

Overspending happens. Sometimes it's planned (like for a vacation), but other times things get out of control, emergencies occur, or you end up in situations where spending money legitimately seems like the best way out.

No matter the reason for your blown up budget, there are steps you can take to limit and mitigate the damage.

Assess the situation

Start by being completely honest with yourself about the situation. Determine what caused it, how much responsibility you bear, and whether it's going to be ongoing. For instance, a medical emergency could be over after a couple of days, or it could be something that you're going to need to budget for into the future.

If the budget blowout is your fault, admit your mistake. It helps to tell someone, whether it's your spouse, a good friend, or someone else you're close to. This makes it real, and it also means you'll have someone to keep you accountable.

If the issue was beyond your control, let yourself off the hook for any guilt. Emergencies happen. Simply focus on trying to bounce back and don't stew over the situation.

You also need to determine how you will be affected financially for the rest of the month. Do you have the money to cover your bills and expenses, or is this going to leave you totally strapped for cash? You can't bounce back until you know exactly where you stand.

Tap your emergency fund

While it's best to save an emergency fund for a true emergency, like a medical crisis or an essential car repair, you may need to use it to bail yourself out of a tough financial spot.

The key to using an emergency fund, though, is to replenish it afterward. If you overspent and it saved you, you need to start putting money back into it the following month. As long as you make sure you are doing this regularly, you will be more likely to have that financial cushion again when you need it.

Cut your losses

Stop spending wherever you can. No matter your situation, there are things you can do to spend less. Cut out restaurant and takeout meals and prep your own food at home. Pack a lunch to work. See if you can walk, bike, or even carpool to the office or out on errands. Don't spend money on anything that isn't an absolute necessity.

If you are in a budget hole of your own doing, this is the time to get strict with yourself. Maybe you need to spend a week of evenings at home instead of out with friends. Maybe you can invite them over instead of going out. Or, maybe you need to face your shopping addiction, and learn to cope with negative feelings in other ways.

No matter where you are and what is going on, the first thing you need to do is stem the outflow of money.

Make a plan

Once you know how you're going to stop the bleeding, it's time to make a plan for how you're going to cover your expenses and pay off any debt that has accrued.

If you're in the middle of a crisis, this may not be something you're able to do until later. If you can sit down and assess your finances, though, you will probably be better off. Grief and pain can be overwhelming, however, so if the best you can do is put things on a low-interest credit card until you can deal with them later, that's an acceptable temporary move. Just be sure to make paying off that credit card balance a priority once you're back on your feet.

Note that you may need to revamp your budget for a while to accommodate extra credit card payments or reestablish your emergency fund. You may even have to cut your spending for a few months into the future. Knowing this ahead of time can make those months less of a financial struggle.

This is also the time to look beyond the surface at what caused this crisis and determine whether you can do anything to keep it from happening again. Do you need a larger emergency fund? Do you need to cultivate more discipline with money? Do you need to talk to a therapist about how you feel when you spend? Make a plan not only to cover the amount you spent, but to keep yourself from similar situations in the future.

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

5 Types of Overspenders — Which One Are You?

Dan Rafter — Tue, 27 Jun 2017 09:00:11 +0000

Plenty of us overspend each month. Some of us overspend so much and so regularly that we end up with overwhelming credit card bills, missed loan payments, and black marks on our credit reports.

One of the keys to gaining control over unhealthy spending habits is to recognize why you spend too much. There are different types of overspenders, and they break their budgets each month for different reasons. Recognizing those reasons can be the first step in fighting back against your bad financial habits.

A growing problem

The numbers from Northwestern Mutual's 2017 Planning and Progress Study show that many U.S. residents have a spending problem. According to the survey, nearly three-quarters of U.S. consumers are struggling with debt, owing an average $37,000 — not counting their mortgage payments. (See also: 6 Old School Tools to Help You Stay on Budget)

The survey found that, after paying for necessities such as housing, food, and transportation, Americans spend about 40 percent of what’s left every month on discretionary expenses like travel, hobbies, and entertainment; they spend only an average 33 percent on paying off debt.

What type of overspender are you? The odds are that you’ll recognize yourself as one of the following.

1. The compulsive spender

Do you find yourself buying a new fitness tracker just because you've had a bad day at work? Does an argument with your spouse send you fleeing to the clothing store? You might be a compulsive shopper, one who overspends as a way to tamp down unwanted negative feelings. You might not even use the items you buy — just spending money on them is enough to provide you with temporary emotional relief.

2. The deal shopper

Do you find it impossible to turn away from a deal, even if you don't need the items that are on sale? Then you might be a compulsive bargain hunter. There's nothing wrong with looking for deals when you are shopping. But you shouldn't buy items if you don't need them, no matter how low their prices are.

3. Keeping up with the Joneses (or anyone else)

Did you buy that expensive car not because you needed it, but because you thought it would look good in your driveway? Then you might be obsessed with "keeping up with" your neighbors, family members, or friends. For you, spending too much is all about maintaining the right image. You want everyone else to know how well you are doing. Unfortunately, it's expensive to keep up with everyone else. Spending too much just to bolster your image can leave you with loads of debt.

4. The secret shopper

Maybe you’ve taken out a new credit card without telling your spouse. Or maybe you purchase expensive gadgets and electronics and hide them in the back of your closet. This type of overspending can result in serious trust issues in your relationships, and could ruin friendships or marriages. (See also: 4 Ways to Stop Your Spouse From Overspending)

5. The extravagant gift giver

Do you think buying your friends or family members new toys, expensive restaurant meals, and high-end wines will make them like you more? Do you routinely overspend just so you can give the best presents each holiday season? Then you might be overspending as a way to get others to like you. This, of course, doesn’t work: People won’t like you any more or less no matter how much you spend on them.

Breaking the cycle

How do you beat your overspending habits? The first step is to create a household budget listing how much money you earn each month, and how much you can afford to spend. Once you’ve done this, you’ll at least know when you are overspending on individual budget items.

Next, it’s important to recognize why you overspend. Does it make you feel powerful and in control? Does it make you feel wealthier than you are? Does it make up for a day of headaches and stress at work?

Once you know what triggers your overspending, you can watch for those familiar urges. Instead of mindlessly overspending, you can replace the temptation to use shopping as a de-stressor by adopting other coping mechanisms, such as exercise, meditation, or other relaxation techniques that won’t break the bank.

You might even seek professional help — not just from a financial adviser, but from a therapist who can help you identify and control the triggers that lead to your overspending.

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

Are Your Emotions Costing You Money? Take This Quiz

Tim Lemke — Wed, 21 Jun 2017 08:00:16 +0000

Building a strong financial foundation for you and your family requires discipline. It requires patience. It requires a steady mindset. But even the best of us have found ourselves spending and making financial decisions based on emotions, whether that's retail therapy, or holding off on investing due to fear of the markets. We've made decisions based on joy or comfort in the short term instead of satisfaction in the long run.

Are you letting your emotions control your finances? Answer these questions to find out.

Do you spend money when you feel sad, happy, or stressed?

You had a bad day at work, so you go on a shopping spree for new shoes. You got a promotion, so you celebrate by taking friends out to eat at a fancy restaurant. You spend money as a reaction or antidote to whatever feelings you have at a given moment, and this makes it hard to save money at a healthy rate. You don't need to treat yourself to a costly reward every time you're happy or sad. This is an easy way to fall into a dangerous emotional spending cycle. (See also: The High Cost of the "Treat Yourself" Mindset)

Have you held off on investing because you are afraid?

Fear is one of the most powerful emotions we have, and many people have never gotten started with retirement planning and investing because they are intimidated. They may find the whole process of investing to be overwhelming, or they may have a fear of asking a dumb question. Additionally, they may fear that their investments will lose money. In reality, it's best to channel fear into investing more, because not having enough money saved for retirement is a truly scary thought. (See also: 3 Steps to Getting Started in the Stock Market With Index Funds)

Have you sold investments when you realized they lost value?

We've probably all found ourselves frustrated with certain investments that have tanked, and sold them at a loss. Of course, then we've kicked ourselves when we've seen those same investments rebound in short order. It's not a good practice to be emotional when investing; the most successful investors practice discipline, patience, and steadfastness over the course of many years.

Have you ever bought something out of jealousy?

One of your closest friends just bought a big house in a nice neighborhood. Another just bought a fancy car. It can seem like other people are making out better than you, but this is no excuse to spend irresponsibly. Keeping up with the joneses is a path to financial hardship if you spend simply because you feel left out or jealous.

Do you get excited about getting a tax return?

It's an often ignored fact that if you are getting a tax refund, you've been lending money to the government interest-free all year. Remember: This was your money that you should have had all along. And yet, most people get a rush of excitement from getting a tax return. What's worse, people often treat their tax return like an unexpected windfall, and spend it frivolously. The sound, unemotional approach to taxes is to adjust your withholding so that you don't get a return at all. In fact, even owing a small amount to the IRS is OK as long as you don't pay a penalty. (See also: 10 Smart Ways I'm Spending My Tax Refund)

Have you ever sought a refund anticipation loan or payday loan?

The same psychology that governs the love of tax returns also applies to those who seek money before it's due to them. If you are seeking cash early, you may end up paying exorbitant fees or interest rates. A typical payday loan might have an annual interest rate of 400 percent, according to the Consumer Financial Protection Bureau. (See also: Six Horrible Financial Products You Should Avoid)

Are you a habitual gambler?

Let's face it: Gambling can be exciting. It's a rush when you place a bet on some ponies and see your horse cross the finish line first. It's a thrill to see your ball land on your number. But gambling is ultimately an emotion-driven experience, and the excitement of winning can be addicting. Betting on a few hands of blackjack or the occasional football game won't kill you, but it's important to not let your emotions guide your betting habits. There's a long list of fine people who have ruined their financial lives through gambling.

Do you give a lot of money to children and other family members?

There's nothing wrong with being generous to those people who you care about most. But it's important to not let people take advantage of that generosity. Often, the decision to support a family member or friend is done not out of basic selflessness, but a feeling of obligation or guilt. It's important to not let your feeling of obligation to others outweigh your obligation to yourself.

Have you lost a job due to your temper?

Jobs can be frustrating. But if you've ever flown off the handle at work, you may be threatening your income and job security. While it's true that hiring managers look for workers with specific skill sets, they also want to make sure employees are able to get along with their colleagues. Workers who don't interact well with their peers, or respond poorly to criticism, often don't last long.

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:

Boost Your Savings by Making Your Money Harder to Spend

Emily Guy Birken — Mon, 19 Jun 2017 08:00:09 +0000

When I left for my freshman year of college, I brought the graduation gift money I'd received with me. It was about $1,000, and I was carrying it in cash, intending to open a checking account. The cash never made it to the bank, however.

It wasn't stolen, nor did I lose it. In fact, I tucked the envelope of twenties away in a secure location in my dorm room — but I neglected to protect the money from myself.

From trips to the coffee shop to late night pizza delivery, I let that money flow through my fingers without paying any attention to where it was going or how quickly I was spending it. By the time I finally decided to open an account, there was less than $100 left.

My experience is hardly unique. Most people have a similar story of squandering money because it was too easy to access the cash.

The trick to being more careful with money is finding ways to make it harder to spend. If I had placed that cash in a checking account as soon as I got to campus, I would have had to walk to the ATM to make my unnecessary purchases — which would have been more than enough to prevent most of my spending.

These days, simply depositing cash in the bank is not enough to make money harder to spend. The availability of mobile banking, debit and credit cards, and one-click online shopping makes money even easier to spend than it was when I was a first-year college student. That's why it is so important to productively reduce access to your money. Here are five ways you can protect your money from your own worst spending impulses. (See also: 7 Bizarre Ways to Stay on Budget (That Actually Work))

1. Stop carrying credit or debit cards

Going out sans credit or debit card can feel weirder than going about your day naked, but it can be a very effective way to curb your spending. On most days, you probably don't actually need to have a card with you — it's just there in case you need it. Unfortunately, we then often "need" to stop for lunch, or in a favorite store, or meet everyone after work for happy hour rather than save the card for a legitimate need.

To make sure you are covered in case you need to fill up your tank on the way to work, or you encounter another true spending need, get in the habit of carrying $20 or so while leaving your plastic at home. This helps limit your ability to buy things while still giving you access to a little money in case you need it.

2. Move your savings to another bank

Trying to build an emergency fund or reach another savings goal can be difficult if access to your money is too easy. Having a savings account linked to your checking account in the same bank can often be too much of a temptation. It's so easy to dip into that savings account whenever your checking account is running dry or there is an incredible sale.

For many people, just making it slightly more difficult to access savings can be enough to stop this behavior. For instance, you can move your savings account to a different bank and establish a link between the two banks. While it's possible to move money between accounts in different banks, it generally takes two to three business days for the money to transfer, which can be inconvenient enough to foil your spending impulses.

3. Put your money in a restrictive savings vehicle

For some people, the inconvenience of separate banking institutions is not quite enough to stop them from accessing their savings when they shouldn't. Restrictive savings vehicles — accounts or assets that penalize you for early access — can be a great way to protect your money from yourself in that case.

Depending on your time frame, there are a couple of different types of savings vehicles you might choose.

Certificate of deposit (CD)

This is a savings vehicle that requires you to commit to keeping your money in the account for a set period of time. If you withdraw the funds earlier, then you will be penalized. You can generally expect to pay three-to-six months' worth of accrued interest if you access the money early, although some CDs also take a percentage of the principal.

Traditional individual retirement accounts (IRAs)

Traditional IRAs offer tax advantages, which means there are penalties for dipping into them before you reach age 59 ½. Specifically, you will have to pay taxes on both the distribution, as well as 10 percent of the amount of the distribution, to Uncle Sam.

4. Enlist an accountability partner

While it's pretty easy to break a promise to yourself, it's harder to break one you have made to another person. One method of making your money harder to spend is to enlist a friend or loved one as your accountability partner, to whom you will set up a credit card or bank statement alert. Many banks offer automated alert systems that will email or text you when your available credit dips below a certain amount or when a large transaction clears.

This information is useful to the cardholder, but it can be a great way to keep you from spending money if you send that information to your accountability partner. Knowing that your partner will immediately know that you have broken your promise can be enough to keep you from whipping out your wallet.

5. Remove your payment information from online retailers

It is far too easy to buy something without really thinking about it when online retailers "helpfully" store our credit card or bank information for us. The minor inconvenience of having to get up and find your wallet is generally enough time for you to reconsider your purchase.

When you can go from not knowing an item exists, to coveting it, to buying it in under 30 seconds, having just a little bit of time for a gut check on whether or not you need this purchase is crucial. Because if you want to buy something, but getting up to find your wallet doesn't feel worth it, then it's probably not a great use of your money.

Save your money from yourself

You are not the same person at every hour of the day. You contain multitudes, and often your goals and your impulses cause you to contradict yourself. Making your money harder to spend will ensure that the high-roller part of yourself doesn't bankrupt the saver part of yourself. You'll thank yourself later. (See also: 9 Simple Ways to Stop Impulse Buying)

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:

How Single Parents Can Juggle Retirement Savings, Too

Dan Rafter — Fri, 28 Apr 2017 18:43:15 +0000

Being a single parent is hard work. It's also expensive, with the U.S. Department of Agriculture recently reporting that the estimated cost of raising a child from birth through age 17 is $233,610. That comes out to nearly $14,000 a year.

If you're a single parent with one income, paying for your children's clothing, food, education, and activities might not only be consuming most of your money, but most of your time, too. At the end of another long day, you might think that it's simply too difficult to plan or save for your own retirement.

Fortunately, this isn't true. Yes, saving for retirement will be more challenging for single parents. But it can be done, and the steps to start saving and investing for retirement aren't overly difficult.

Here are five moves single parents should make today to prepare for their future retirement.

1. Make a budget

Nothing is more important than creating a household budget, and making one is simpler than you think. Once you have a budget, you'll be able to figure out how much money you can allocate to retirement savings each month.

First, write down how much money you bring into your household every month. Next, list how much you spend. Start with your fixed expenses, which includes everything from your monthly mortgage payment to your insurance costs. Then, calculate an average cost for expenses that fluctuate. These can include utility bills, transportation, clothing, groceries, and entertainment. Don't forget to include intermittent expenses, such as haircuts and car maintenance bills, which you might think of in annual terms — find the average so you can estimate a monthly amount. Once you have these figures, you'll know how much wiggle room is left each month to put toward your retirement.

Compiling a budget can also help you make positive changes to your overall spending habits. Maybe you'll find that you're spending more money than you're bringing in. You might then make a few small adjustments — such as eating out less, cutting the cable cord, or dropping a gym membership — that will free up money each month.

2. Start small and build an emergency fund

After making a budget, set aside at least some of your leftover money in the month to build an emergency fund. You'll use this fund to pay for any unexpected financial emergencies (such as a broken water heater) with cash instead of charging repairs to a credit card. The key to saving for retirement as a single parent is to avoid building debt, and nothing can derail your savings goals faster than high interest credit card debt. By having that emergency fund, you'll be far less likely to add big bills to your credit cards.

You might not have much money to devote to an emergency fund. That's OK. Even if you can only save $50 a month, do it. By the end of a year, you'll have $600. That may not be a huge amount, but it's a start. Your ultimate goal should be to build an emergency fund that can cover daily living expenses for three to six months. (See also: Change Jars and 8 Other Clever Ways to Build an Emergency Fund)

3. Save in tax-advantaged investment vehicles

As a single parent, it's important to keep as many of your dollars in your household as possible. Tax-advantaged savings vehicles can help you do this.

If your employer offers a 401(k) plan, take advantage of it. Contributions to your 401(k) are made with pretax dollars from each paycheck. This means that when you file your taxes for the year, the IRS will treat your income as smaller than it actually was. This will help lower your tax burden each year while simultaneously growing your retirement.

You can also invest in a traditional IRA if you don't have access to a 401(k). Contributions to a traditional IRA are also made with pretax dollars, which again, will lower your taxable income.

4. Prioritize retirement over college savings

Like most parents, you probably want to give your child as much financial help as you can to get them into a good college. But too many parents save for their children's education while skimping on building their own retirement fund. This is a mistake.

Remember, your kids have options when it comes to their education. They can attend a community college or less-expensive university, seek financial aid, or work their way through school. They might not be able to attend their dream school, but that doesn't mean they can't get a solid college education.

You won't have as many options when it's time to leave the working world. You certainly don't want a retirement in which you're struggling to pay your bills, so you need to avoid the impulse to prioritize your child's college fund over your own retirement savings. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

5. Resist the temptation to overspend

As a single parent, it can be tempting to overspend on gifts and expensive vacations in an effort to make up for whatever challenges you and your children face. The problem is, this kind of emotional overspending can wreck your monthly budget. And when money gets tight, it's your retirement savings that often suffers.

It's OK to treat your children, of course. But make sure these little rewards don't come at the expense of building a retirement fund.

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

8 Real Life Calamities That Can Drain Your Finances (Plus How to Defend Against Them)

Mikey Rox — Tue, 25 Apr 2017 20:00:09 +0000

We all work hard for our money, but if we're not careful, it can be ripped right out from under us. From getting scammed on the internet, to medical emergencies, here are eight situations that can make you broke in an instant — plus a few ways to protect yourself.

1. Getting scammed

Maybe you're smarter than the average scammer, but loads of people are too trusting and naive. In fact, someone claiming to be from eBay scammed my own mom out of a few hundred dollars via email once. She thought the email was legit because at the time she was selling items on the auction site, and she assumed the request for her banking information was not only sanctioned, but part of the company's protocol.

"Scammers target seniors because they're considered wealthy, trusting, and typically unwilling to report scams," says Roger Cowen, owner of Cowen Tax Advisory Group in Hartford, Connecticut. "Common scams include callers pretending to represent Medicare or the IRS to get your personal information, and fake charity workers asking for donations."

How to protect yourself

The best way to stave off online and phone scammers is to verify that you're dealing with a reputable organization before providing any financial information. Many institutions never send emails requesting such information, and it's a policy you should adopt for yourself — never provide bank account, Social Security, or credit card numbers over email.

If you've received a phone call asking you to verify any financial information, double check the source before handing it over to the person on the line. Jot down their name and tell them you'll call the company back at the verified number you have in your records. Beware of fake websites as well (these links are usually embedded in scam emails) by checking the domain name to make sure it's correctly spelled. Look for https:// to precede any domain that has your financial information. The "s" means the site is security-fortified and usually legitimate. (See also: What to Do When You Suspect a Scam)

2. Tax penalties

Getting a bill for back taxes can be devastating. You'll not only owe whatever taxes you avoided in the past — which may be substantial if you've filed inaccurate returns for years — you may owe interest and penalties as well.

This can happen not only to filers who outright lie in an effort to buck the system, but also to well-intentioned filers who make errors on their returns.

In either case, you'll be required to pay up in a short period of time — or go to jail. Being broke or behind bars could be your only options.

How to protect yourself

If your taxes are complicated, hire a reputable accountant, report your income and deductions accurately, accept your tax liability, and pay it. If it's a large sum, you may qualify for a payment plan. Moving forward, ask your accountant for estimated tax vouchers so you can pay ahead of time to lessen the burden when you receive the actual numbers in April. Otherwise, if you know you're looking at a sizable tax bill, save as much as you can so you can settle up with the IRS as soon as possible. (See also: The Easiest Way to Avoid a Tax Audit)

3. Divorce

Sometimes divorce is amicable, but for many people it isn't — and that usually means somebody has to pay up. This is primarily the case when one spouse earns more than the other, or if one partner is unemployed.

How to protect yourself

If you're getting married and one of you has a noticeably higher net worth, get a prenup. Do not walk down that aisle without it. It's not the most romantic piece of paper you'll ever sign, but you'd be a fool not to. Don't let your future spouse guilt you out of the idea, either. Love is grand, but sometimes it'll take you for everything you're worth. (See also: 5 Money Moves to Make the Moment You Decide to Get Divorced)

4. Death

No, not your death. If you're not adequately prepared for the death of a partner, child, or parent, you could end up in a sticky financial situation. There may be medical expenses leading up to the death, and afterward you'll need to cover funeral expenses and settle debts on behalf of the estate.

How to protect yourself

Life insurance is the best way to protect yourself in the event that your spouse, parent, or child dies. If you're the beneficiary, you'll receive your policy payout, which creditors typically cannot come after, to cover expenses and any debts for which you may also be on the hook, like a mortgage. Use this money to satisfy loans that the deceased may have had, especially if you've co-signed for them. If it's your spouse that has passed away, you may be losing half your household income — maybe even more than that — so it's important to use the policy money wisely. (See also: 5 Reasons Why Life Insurance Is for Everyone)

5. Market crash

Many people have improved their lot in life by taking financial risks. But if you're an investor at any level, you worry about going bust. Any number of things can happen that will affect your bottom line, depending on how deep your investments go. The stock market can crash, taking your life savings with it. The real estate bubble can burst, leaving you on the hook for houses you can't sell. The worst part is there are often no warning signs. One day you're swimming in cash like Scrooge McDuck, and the next day you're looking under couch cushions for loose change.

How to protect yourself

Don't put all your eggs in one basket, don't overextend your credit, don't take on more expense than you can afford, and, above all, don't get cocky with your money. Devise a plan to weather a financial crisis so you'll be prepared well ahead of time. (See also: Ways to Prepare for a Stock Market Dive)

6. Natural disaster

While we can sort of predict the weather, we can't predict the outcome. Any number of things can happen to you, your home, or your personal property during a bad storm or natural disaster that may leave you strapped for cash or even facing a total rebuild.

How to protect yourself

If you live in an area where certain calamities are possible, purchase the proper insurance. Your homeowners insurance may cover certain events, but you may require special policies for others, like floods, earthquakes, and hurricanes. Consider what you're at risk for and put a policy in place. (See also: 9 Surprising Things Your Homeowners Insurance Doesn't Cover)

7. Spending more than you make

Sometimes, your biggest financial enemy is yourself. We like our things in America, and many of us will go to great lengths to get those things — including spending more money than we have. According to NerdWallet, the average household has $134,643 in debt. Households that carry credit card debt pay about $1,300 a year in interest alone on balances that average $16,748. These statistics represent an 11 percent debt increase over the past decade. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

How to protect yourself

Find ways to make more money or live on less (or both). There are many ways you can introduce a second source of income to your household, like renting out your extra space, driving for ride-sharing operations, or pet sitting. But if you don't want to work constantly, consider cutting back on your overall expenses. You don't need everything you see, and the faster you recognize that the better off your bank account will be. Plus, you might even be happier as a result.

8. Medical emergency

American health care is in flux right now, which means that you have to be extra vigilant in making sure you're covered. Just one trip to the hospital can set you back financially for years if you're not prepared, perhaps even more if you require long-term care.

How to protect yourself

Cover yourself. You may have to bite the bullet on the premium, but at least you're insured. You can go to the doctor or hospital when you need to, and your care will (hopefully) be covered to an affordable extent. Not having insurance, on the other hand, may very well be a death sentence — or at least you'll wish it were when you get the bill in full.

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

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