financial advice

How a Credit Card Can Actually Help You Get Out of Debt

Holly Johnson — Thu, 08 Oct 2020 17:32:44 +0000

If you have high-interest credit card debt, you may believe another credit card is the last thing you need. Another card would only leave you with more open credit after all, and that just means more temptation to spend and rack up even more debt.

But a certain type of credit card debt could help your situation — if you use it the right way. This type of card is a balance transfer card.

How balance transfer cards work

Each balance transfer credit card has its own unique introductory offer you can use to your advantage. Most offer 0% APR from 12 to 21 months, meaning you won't pay interest on transferred balances during that time. However, some balance transfer cards charge a balance transfer fee that typically works out to 3% or 5% of the balance you transfer over.

To illustrate, let's imagine for a moment that you have $10,000 in credit card debt at 19% APR and you're currently making a payment of 5% of your balance, or $500 per month. At this rate, it would take 25 months to pay off your debt, and you would fork over $2,120 in interest over that time.

Now, let's say you apply for a balance transfer card that gives you 0% APR for 21 months in exchange for a 5% balance transfer fee. Once you transferred your entire balance over and added in the fee, you would start repayment owing $10,500 ($10,000 plus a $500 balance transfer fee).

However, the fact that you're not paying interest means you could continue paying $500 per month and pay off your entire balance with zero interest in 21 months. In other words, your balance transfer card could shave four months off your repayment timeline and save you $2,120 in interest. (See also: Here's What a Balance Transfer Does to Your Credit)

Tips for a successful balance transfer

The example above shows why balance transfer cards are so popular. Sure, some of them charge balance transfer fees, but having 0% APR for anywhere from 12 to 21 months can help you get out of debt faster, and lead to thousands of dollars in savings.

According to estimates from Experian, Americans conduct $35 to $40 billion in balance transfer activity each year. This is good news for consumers who are taking advantage, but it's also troublesome since many people get stuck in a situation where they're transferring the same debts to new balance transfer cards every few years.

If your goal is using a balance transfer credit card to get out of debt and stay out of debt, you'll want to set yourself up for success. Here's how you can do that.

Compare offers

Because balance transfer cards each have their own introductory offers, you need to check out more than one. Ideally, you'll settle on a balance transfer credit card that grants you 0% APR for as long as you need to pay down all (or most) of your debt.

Other factors to consider with balance transfer cards include any fees they charge, consumer perks and protections, and rewards programs. However, beware of signing up for balance transfer cards with rewards programs if you worry they'll entice you to spend. The goal with a balance transfer card is paying down debt — not racking up more.

Look for cards that don't charge a balance transfer fee

Keep your eye out for balance transfer cards that don't charge a fee. While most charge a fee to transfer balances upfront, there are several that skip over this fee for balances transferred in the first 60 days. Avoiding this fee will normally save you 3% to 5% of your balance amount, which can help you start paying down your balances right away.

Stop using credit cards

No matter what you do, stop using credit cards once you've transferred your balances to a card that offers zero interest for a limited time. You won't want to use your new balance transfer card for purchases since the goal is paying off your debt, but you should also steer clear of using other credit cards since you could easily rack up more debt and eliminate any progress you've made.

While you're in debt-repayment mode, you should stick to a cash budget or use your debit card instead of credit. That way, you won't "accidentally" rack up new credit card balances you can't afford to repay.

Create a debt repayment plan

Finally, don't forget to create some sort of debt payoff plan for how you'll pay down debt during your card's introductory offer. You should estimate how much you can afford to pay each month and figure out how much debt you'll ultimately pay off if you stay on track. If you can manage to pay off your entire debt over your card's 0% APR offer with a specific payment amount, you should determine if that figure is possible with your monthly income and expenses. And using a good debt repayment calculator can help a lot.

You may also want to look for ways to cut your spending and bills so you can throw more money toward your credit card's balance each month. Start with the low-hanging fruit in your budget — things like grocery spending and dining out, entertainment spending, or regular trips to your favorite department store. Also consider uninstalling any apps on your phone that regularly cause you to spend money, whether it's Instacart, DoorDash, or Amazon. Make spending money more difficult and you're more likely to save over time. And those savings can be allocated toward your debts until they're paid off.

The bottom line

Another credit card may seem like the last thing you could possibly need if you're in debt, but a balance transfer card could help you save money with the right mindset. Consider a 0% Intro APR credit card to pay down debt faster, but don't forget that you'll have to change your spending if you want to get out — and stay out — of debt.

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

Ask the Readers: Where Do You Go for Financial Advice?

Ashley Jacobs — Tue, 25 Sep 2018 08:30:11 +0000

Editor's Note: Congratulations to Hendrik, Jennifer, and Connie for winning this week's contest!

There are many places where you can get financial advice, such as books, apps, your parents, your neighbor Joe who's really good at keeping a budget and, of course, financial advisers who dole out money wisdom for a living.

Where do you go for financial advice? How do you assess whether a piece of advice is right for you? Have you ever gotten any truly terrible advice?

Tell us where you go for financial advice and we'll enter you in a drawing to win a $20 Amazon Gift Card!

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Good Luck!

Tell us where you go for financial advice and we'll enter you in a drawing to win a $20 Amazon Gift Card!

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

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

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

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

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

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

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

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

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

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

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

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

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

3. It will help you reach big financial goals

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

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

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

4. It will help you protect your loved ones

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

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

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

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

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

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

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

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

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

Creating a plan

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

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

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

8 Critical 401(k) Questions You Need to Ask Your Employer

Damian Davila — Tue, 12 Dec 2017 09:30:15 +0000

The 401(k) plan is one of the most popular ways for workers to build up their nest eggs for retirement. As of June 2017, 55 million Americans held an estimated $5.1 trillion in assets in 401(k) plans. Whether you're already enrolled or planning to enroll in your employer-sponsored retirement plan, there are several details that you should find out to make the most of it. Let's review some key 401(k) questions you need to ask your employer. (See also: 5 Dumb 401(k) Mistakes Smart People Make)

1. When am I eligible to make contributions?

Different plans have different rules. You shouldn't assume that the same rules from your previous workplace retirement savings plan will apply to that of your current job. Some plans may require you to wait at least six to 12 months before you can contribute to your account, while others may allow you to do so right away. In a review of 4.4 million 401(k) plans in 2016, Vanguard found 67 percent of plans offered immediate eligibility for employee contributions.

2. Do you offer a company match?

America is experiencing very low unemployment levels. In October 2017, the Bureau of Labor Statistics reported the national unemployment rate stood at 4.1 percent, with some states reaching even lower rates (North Dakota and Colorado recorded 2.5 percent and 2.7 percent, respectively, that same month). Looking to retain and attract talent, more and more employers match employee contributions to their retirement accounts. In Vanguard's How America Saves 2017 report, 94 percent of employers offered matching 401(k) contributions in 2016, up from 91 percent in 2013. After you find out how much of a match your workplace offers, be sure to contribute at least up to that amount. If you don't, you'll be leaving free money on the table.

3. What type of formula do you use for matching contributions?

In 2016, there were over 200 different ways in which employers matched their employee contributions, according to Vanguard. By far the most common formula (70 percent of plans) is 50 cents for every dollar up to 6 percent of your pay. Assuming that you make $50,000, this would mean that your employer would contribute up to $1,500 if you were to contribute $3,000 to your 401(k).

Here are the next two most common types of matching formulas found in the study:

$1.00 per dollar on first 3 percent of pay, then $0.50 per dollar on next 2 percent of pay (22 percent of plans).
A dollar cap, often set at $2,000 (5 percent of plans).

It's important to find out the matching formula used by your employer so that you know how much you need to contribute to your plan to maximize that match. In 2016, 44 percent of surveyed plans required a 6 to 6.99 percent employee contribution for a maximum employer match.

4. When do employer contributions become fully vested?

While all of your 401(k) contributions become fully vested immediately, funds contributed by your employer may take longer to actually become yours. Knowing the applicable vesting schedule is essential to know how much of your 401(k) you'd keep if you were to separate from your employer at any point in time.

Depending on your employer, matching contributions may be immediately yours (cliff vesting) or gradually over a period of time (graded vesting). In the Vanguard study, 47 percent of plans granted immediate ownership of employer contributions, 30 percent of plans gradually granted ownership over a five- to six-year period, and 10 percent had a three-year cliff vesting waiting period. (See also: How to Tell if Your 401(k) Is a Good or a Bad One)

5. Can I take hardship withdrawals?

In a perfect world, you would leave your 401(k) funds alone until retirement. However, life happens and it may throw you a curve ball leaving you in a major cash crunch. Some plans offer holders the ability to withdraw money early without the 10 percent IRS penalty due to hardship exemptions, such as certain medical expenses, avoiding foreclosure, and funeral and burial expenses.

Some plans may even allow you to take hardship withdrawals for less gloomy situations, such as buying your first home and paying for college expenses for yourself, your spouse, or your children. Eighty-four percent of plans offered hardship withdrawals in the Vanguard study.

6. What are my investment options?

In 2016, 96 percent of surveyed 401(k) plans designated a target-date fund as the default investment option. There are many reasons, including high expense ratios and variable return rates, why you should look beyond target-date funds and consider all funds available in your 401(k).

On average, 401(k) plans offered 17.9 funds to plan holders in 2016. Over recent years, more and more plans are offering a suite of low-cost index funds covering domestic equities, foreign equities, U.S. taxable bonds, and cash. In 2016, 57 percent of plans offered such an index "core" of funds covering at least these four asset types. Take a good look at what your 401(k) has to offer so that you can select the best funds for your unique financial goals. (See also: Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments)

7. Do you offer financial advice?

Plans may offer a wide variety of financial advice, ranging from access to a financial adviser a few times out of the year to fully-fledged management of your investments. These perks often come at a cost ranging from 0.25 to 1 percent of your account balance. Still, depending on your financial situation, getting professional advice may be worth every penny to maximize your nest egg or handle tricky tax scenarios.

Besides checking for a human financial adviser, inquire about whether or not your plan offers you robo-advisers. Often charging much lower fees than human advisers, robo-advisers can offer valuable services, including automatic portfolio rebalancing and tax-loss harvesting (selling securities that have experienced a loss to offset taxes on both gains and income). (See also: 9 Questions You Should Ask Before Hiring a Robo-Adviser)

8. Can I make Roth contributions?

If you are just starting your career, have a large upside income potential, or are expecting a big salary bump in the next few years, having the ability to make after-tax contributions to your nest egg is important. Under these scenarios, taking the tax hit early in your retirement account would make sense because you would be at a much lower tax rate now than in the future. This is why 65 percent of Vanguard 401(k) plans offered Roth 401(k) contributions in 2016. For some plan holders, a Roth 401(k) is a great way to grow contributions tax-free forever.

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

How to Tell You've Become a Financial Grownup

Emily Guy Birken — Mon, 26 Jun 2017 08:00:10 +0000

When I was 22 years old, I thought I had it all figured out. I had landed a job, leased an apartment, and even opened a savings account, all while living 400 miles away from my parents.

Of course, feeling like I had achieved financial adulthood did not stop me from some immature money moves — like asking my parents for money when I couldn't pay my bills, carrying credit card debt, and neglecting to save for retirement. Just because I felt like a financial grownup did not mean I had actually become one.

It can be hard to tell if you have reached financial maturity. But financial grownups all tend to do the following five things.

Understand that the time to save is now

We all fall into the trap of believing that it will be easier to save money tomorrow. By then, the credit card will be paid off, that raise will finally come, and it will be much easier to find money to funnel into savings or a retirement fund.

It takes a certain level of maturity to recognize that the "right time" to save money will never come, and that you need to be putting money away right now. Waiting for a perfect moment to start saving is a good way to never save at all.

You've reached financial adulthood if you make saving an important part of your monthly money management, without telling yourself you'll do it "later."

Know how much money is coming in and going out each month

Budgeting tends to be a four-letter word among most Americans, which helps explain why only one in three Americans actually prepares a detailed household budget, according to a 2013 Gallup poll.

But just because you don't have a formal budget doesn't mean you're not doing the necessary work. All any budget does is keep track of how much money you have coming in, and how much of (and where) your money is flowing out. Whether you maintain a color-coded spreadsheet tracking the progress of every penny, or you have found a productive way to manage your money without creating a formal budget, you are doing the necessary work of budgeting as a financial grownup.

Because no matter how you accomplish the tracking of your income and outflow, the important thing is knowing where you stand financially so you can live beneath your means — which is the entire point of crafting and adhering to a budget.

Know exactly how to pay for an emergency

Before you've reached financial adulthood, money emergencies feel overwhelming and nearly impossible to deal with. If you are lucky enough to have parents who can help out, you might make a withdrawal from the Bank of Mom and Dad to pay for your emergency. Otherwise, you might find yourself using credit to solve the problem, selling or pawning something to raise money, or even visiting a payday lender to get out of your financial pickle.

An important part of being a financial grownup is recognizing that emergencies are an inevitable part of your financial life, and so is planning ahead for them. In most cases, that means you've set aside money in an emergency fund. However, there are other ways to prepare for an emergency — such as knowing exactly what you can trim from your budget, what items you could sell quickly to raise money, or what side hustles you could take on to raise funds.

Even if you are not currently in a financial position to have a comfortable emergency fund, you can still prove your financial grownup bona fides by having an actionable and responsible plan in place for a financial emergency. (See also: A Step-by-Step Guide to Creating Your Emergency Fund)

Understand the difference between wants and needs

Distinguishing between something you truly need and something you merely want can be remarkably difficult. This is especially true when something you need (like transportation or clothing) could be nicer, more comfortable, newer than the most basic level. In that case, it's possible to convince yourself that you "need" the nicer version. For instance, the old beater car that will reliably get you to work may be all you actually need, but it's very easy to tell yourself that you "need" a nice car in order to do well in your career.

The first step toward financial maturity is simply recognizing the difference between wants and needs and curbing the impulse to buy things just because you want them. True financial grownups are also able to determine when they are imposing their wants onto their needs. They will recognize that meeting their needs is not an opportunity to indulge their wants. They know that needing new professional clothes does not mean they "need" those clothes to follow the latest fashion trends.

Know the buck stops with you for financial decisions

It takes a level of money maturity to recognize when you need to consult with a financial professional. Understanding when you need advice from a pro — whether that's a financial planner, a mortgage broker, an accountant, or an insurance professional — is a big step in reaching financial maturity.

But there is a further step that you must take to become a full financial grownup — keeping your own counsel.

Asking for advice from a financial professional is a good idea, but blindly following that advice is not. To begin with, the professional's agenda may not be good for your bottom line. For instance, your mortgage broker may tell you that you can "afford" much more house than you plan on buying, because a bank's definition of affordable is the highest possible loan payments you could possibly pay, based on your income, assets, and debt, rather than the amount you can responsibly afford.

In addition, no matter how good an expert may be, he or she does not have to live with your money decisions. You have the ultimate responsibility to understand and decide what is happening with your money, and embracing that responsibility is one of the hallmarks of financial maturity.

Welcome to adulthood!

Despite what we might have thought when we were kids, being a financial grownup is not about being able to order pizza for dinner every night and buying whatever you want. The true mark of financial adulthood is accepting that you will be the one dealing with the consequences of your money choices, and making the best choices for your own future financial stability.

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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:

Best Money Tips: Times to Ignore Traditional Financial Advice

Amy Lu — Fri, 11 Dec 2015 20:00:04 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found articles on when you should ignore traditional financial advice, things you can’t return to Amazon, and hacks to help you stay focused at work.

Should You Trust Your Money With These 4 Popular Financial Robo-Advisers?

Brittany Lyte — Wed, 28 Jan 2015 14:00:08 +0000

Getting good investment advice is no longer a privilege of the filthy rich. The Internet has made readily available the kind of expert, personally tailored investment guidance that was once enjoyed exclusively by the likes of movie stars, monied inheritors, and CEOs. Many of these "robo-advisors" will not only design a personalized portfolio for your specific needs, but they'll even make the trades for you, suggest ways to minimize your taxes, and rebalance your accounts.

But with so many web brands peddling low-cost financial advice, it can be hard to figure out where to turn. So we've done the homework for you. Read on for our pick of the top automated investment advisors on the Internet. You can thank us when those big returns start coming in.

1. Betterment

Dubbed "the easiest investment site you'll ever use" by Slate, Betterment clients receive better returns on average than a typical DIY investor. CEO Jon Stein said that's why the robo-advising brand has hooked more than 50,000 clients. As Stein told Fox Business, "People come to us and they tell us about their goals and then based on those goals and the time horizon, we create portfolios for them and then manage those portfolios for tax efficiency, we rebalance them automatically, and we do everything that a smart investor should do by using technology."

What sets Betterment apart from other online advisors is something that will appeal to investment newbies: You can open an account with Betterment even if you have no money. The 0.25% annual fee for balances over $20,000, comes out to approximately $2.50 a year for every $1,000. Balances under $20,000 pay just $4 per month.

2. Wealthfront

Wealthfront was built on the principle that you don't need a lot of money to reap big benefits from the world of investment. Free for accounts totaling $10,000 or less, this automated investment service is one of the largest, claiming over $1.5 billion in client assets.

Aside from its free-of-charge service offer for smaller accounts (accounts larger than $10,000 are billed an annual fee of .25%), what sets Wealthfront apart from other online advisors is its stable of world-class financial experts. Working under the leadership of Burton Malkiel, a renowned economist who helped trail-blaze the low-cost investing revolution, the folks at Wealthfront excel at making small money grow big. All you need to do is meet the $5,000 account balance minimum and answer a few questions about your investment goals. Wealthfront takes care of the rest.

3. AssetBuilder

AssetBuilder only accepts accounts of $50,000 or greater, which means it's best suited for the more dedicated investor. The company, co-founded by widely read personal finance writer Scott Burns, uses funds inclined to earn a smidgen more than normal index funds from a firm called Dimensional Fund Advisors. These D.F.A. funds are typically off-limits to individual investors, making AssetBuilder's portfolio offerings all the more attractive to folks who otherwise wouldn't hire a financial advisor. Choose from a menu of conservative, moderate, or aggressive portfolios designed to match your money with the kind of growth potential and risk tolerance you're seeking. Claiming more than $600 million in assets, AssetBuilder charges between .45% and .20% in annual fees, depending on how much is invested.

4. FutureAdvisor

FutureAdvisor specializes in retirement planning. All of its investment recommendations are made with the goal of setting you up for the most comfortable retirement years possible.

With FutureAdvisor, you can get your 401(k), IRA, and other accounts analyzed, plus receive recommendations on how to improve your existing investments — absolutely free of charge. Then, if you're impressed with the results and want to hire FutureAdvisor as your investment manager, there's a monthly fee of either $9 or $19, depending on the value of your assets. Another perk is the ability to automatically sync your account into FutureAdvisor's recommended asset allocation. FutureAdvisor will perform all the trades for you — all you have to do is grant it the green light to do so. And unlike Wealthfront and Betterment, FutureAdvisor works off your existing portfolio. You never have to transfer your assets into their firms.

Have you used a robo-advisor? Which one and why?

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

5 Voices to Tune Out When Managing Your Finances

Tara Struyk — Tue, 07 Oct 2014 13:00:03 +0000

Having trouble managing your money?

Be careful where you turn for advice. Most of us are inclined to take at least some advice seriously, but who should you trust? And just as importantly, who shouldn't you trust? (See also: Investment Advice You Never Want to Hear From a Financial Advisor)

Here are a few people's voices you should tune out rather than turn up.

1. Your Family

I'm sure your family members are terrific people, but you have to be very careful about taking their financial advice. Why? Well, family members can be pretty compelling. We trust them. We love them. Most of them have our best interest in mind. And that can make us take their advice a little too seriously.

Maybe your mom thinks you should be buying a house (even though she doesn't know about the credit card debt you racked up in college). Maybe grandpa thinks you should be investing in bonds (even though he doesn't know your investment risk profile, or goals, or strategy). Maybe your cousin thinks you should live in the moment and spend your life savings on travel (because that's what he's doing).

These tidbits of advice aren't all junk. The problem is that no one can give you high-quality, accurate financial advice without knowing just about everything about your personal finances. Plus, just because certain investments or strategies or life choices worked for others doesn't mean they'll work for you. Don't let the love and respect that you have for the people in your family dictate how heavily you weigh their advice.

2. The Buy-It-Now Pundit

The media is filled with opinionated stock pundits. You know, the guys who write investment columns, or pen subscription newsletters for investors, or dole out advice on TV. Many of these famous analysts are famous for a reason; at some time or another, they've had great track records. In other word, most of these guys know their stuff, and their opinions are a great way to learn more about the market, what sorts of factors affect individual stocks, and what clues to look for when it comes to buying and selling investments.

However, when one of these experts tells you to buy, it's time to tune them out. Buying a stock isn't the only piece of the puzzle. If you have no good reason other than a stranger's advice to buy it, how are going to know when it's time to sell? This is why you should never, ever buy or sell a stock based on what someone says unless that person is your own personal, trusted financial advisor. Even then, it's best to do your own research. Just remember who will pay the price if the stock turns out to be a loser.

3. The Misery-Loves-Company Friend

Everyone has a friend who tells them how they should be spending their money. Maybe yours says you should should really take more vacations. Or get a bigger TV. Or buy a boat. This friend is not really concerned for your financial well-being... and yet, this person can often be quite compelling. Perhaps you envy the things they have. Or maybe this person's brash personality just makes it hard to admit that you can't afford to roll that way. More than likely, this person just wants you to corroborate his or her poor financial decisions. So, don't let them get to you — or convince you that the lifestyle you've chosen — isn't good enough. (See also: The 5 Worst Pieces of Financial Advice Your Friends Give You)

4. The Guy Who Works at the Bank

This can be hard for many people to understand, but just because someone works at a bank doesn't mean they're money experts. In fact, many of the people working at your local branch have pretty limited training in financial management. What that means is that while they're qualified to sell investments, they may not have all the tools required to help you determine which ones are truly right for you. If you know your stuff, do your research beforehand so that you can go in knowing what you want. If you aren't up to that, find a skilled, certified financial advisor who can help you.

5. Yourself

When it comes to how to manage your money, there are probably a few competing voices in your head. There's only one you should listen to, and it probably isn't the loudest one. You know that sick, sinking feeling you get when you pull out your credit card for the umpteenth time? That's your gut talking. That's the voice that pipes up when you're doing something stupid. Something you'll regret later. It may not speak loudly, but that's the voice you should be listening to. As for the voice that tells you to buy more, do more, and worry later? It can be pretty compelling voice, but it's also the one you should learn to tune right out.

Who Are You Listening To?

While taking someone's advice at face value may seem like an easy bet to make, virtually no one knows as much about your personal financial situation as you do. This means that very few people are qualified to give you sound advice about it. Remember this the next time someone else offers their opinion. You don't have to ignore it or toss it aside. What you can do, however, is assess it, compare it to your financial situation, and determine whether it's really a good fit for you. In most cases, it won't be. After all, the world is full of opinions. Good financial advice is much harder to come by.

Where do you get money advice? Please share some advice on advice in comments!

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

The 5 Worst Pieces of Financial Advice Your Friends Give You

Jacob McMillen — Tue, 13 May 2014 08:12:24 +0000

We all love our friends. That's why we keep them around. It's always good to have other voices and perspectives in our lives, letting us know when we're doing well, walking a fine line, or just plain wrong.

Sometimes, our friends are a valuable source of wisdom in our life. But let's be honest. Sometimes our friends give bad advice. And I mean really bad advice — like horrendous, usher-in-the-apocalypse type stuff.

If your friends are the opinionated type, you can even expect a never-ending barrage of article quotes and obscure, unverifiable facts backing up their awful counsel. In fact, baseless articles, regurgitated through your friends, are probably the source of the worst financial advice you've ever received. (See also: 11 Ways Your Friends Can Save You Money)

Let's take a look at this poor guidance — the worst pieces of financial advice your friends give you.

1. You Can Afford It

At some point in our lives, each of us is tempted to keep up with the Joneses. Much of our society operates on a mentality that says, "If I can buy it, I can afford it."

The trouble with this mentality is that it's a poverty mentality. It's like a farmer eating all of his wheat instead of planting enough for next year's crop. Just because you can afford that new car your neighbor bought doesn't mean you should buy it. In 20 years, you won't care about what model vehicle you drove this year. You will care about whether that $20k turned into $0 or $75k.

2. You Need to Take a Long Vacation

Somehow, we've fallen into this mentality where a two-week family vacations are a mandatory part of a every year. Just considering a departure from this trend will illicit correction from our friends and coworkers. "No vacation!?" "Inconceivable!" "You should really put your family first."

Life-work balance is important, but no system works perfectly for everyone. For your family, a week-long vacation might the most stressful week of the year. Why waste all your disposable income to meet a quota? If a few weekend getaways with the spouse and a monthly day-trip with the family make more sense, go with that. (See also: 14 Affordable Weekend Getaways)

3. School Is Worth the Debt

Education is definitely important, and numerous studies have confirmed that degree-holders make more money in the long run. That being said, there are plenty of low-cost options for acquiring a college degree.

Unless you have some sort of highly lucrative job opportunity secured pending graduation from a specific university, taking out $50k+ in student loans makes little sense. There are hundreds of affordable college options. No degree is worth spending the entirety of your twenties in financial shackles.

4. You Need to Save More Money

As Wise Bread readers know, aggressive saving is important to long-term financial wellbeing. Saving tips are a staple on any website dealing with personal finance, and virtually everyone these days has their own personal collection of wallet-sparing tricks.

The problem, however, is that saving money doesn't increase wealth. Investment increases wealth, and a simple "You should save more money!" approach will sink your chances at living the life you desire.

If you have cut frivolous expenses from your spending habits, the next step is not to find more joys to cut out, but rather, to find positive investments to place that income in. If a tight budget isn't enough to get by, you should be looking at alternative income sources, not attempting to squash all remaining pleasures out of your life. (See also: 30 Great Side Jobs)

5. Invest in "Can't Miss Super Opportunity, Inc"

As noted above, investment is the key to financial success. If your friends are all millionaires, this article doesn't apply to you, and you're pretty much set for life anyway.

For everyone else, just realize your friends would be making ridiculous amounts of money if their investment ideas were worth the time they wasted telling you. Three out of four venture capital backed startups fail within the first four years. And it's even worse for bootstrapping startups that don't secure venture capital. Investing in Can't Miss Super Opportunity, Inc based on a random friend's suggestion is essentially gambling... with the additional risk that a loss could cost you a friendship, too.

What's the worst financial advice you've ever heard from one of your friends? Please share in comments!

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

The 6 Personal Finance Rules Everyone Must Follow

Kentin Waits — Fri, 31 Jan 2014 10:36:11 +0000

If you're plugged into the topic of personal finance, you're no doubt inundated daily with tips, tricks, and advice on how to make money, save more, and retire rich. But in this sea of information, how do we crystalize the most the important lessons that — no matter what condition the market is in, or what finance guru happens to be leading the pack — tend to work every time for everyone? If you're ready to have someone just bottom-line the most important advice for financial success, read on. Here are the six personal finance rules you must follow. (See also: Success Secrets You Should've Learned in High School)

1. Start Saving Early

For the majority of people, financial success is built on two complementary forces: capital and time. Each is important in its own way, and together, they're the two most critical gears in your wealth-building machine.

When you begin saving early in life, you broaden the time that your money has to accumulate and to benefit from compounding interest and dollar-cost averaging (buying assets on a regular schedule to level out market highs and lows, but capture the upward trend). Likewise, starting early gives you more time to make (and recover from) those inevitable mistakes that can derail late-blooming savers. Particularly for those focused on building a healthy retirement nest egg, saving early can make all the difference in the world. (See also: How to Boost Your Retirement Savings Fast)

2. Live Below Your Means

If there's one primary lifestyle quality that mark those who have built wealth over time, this is it. Living below your means is all about paying yourself first, knowing the difference between wants and needs, and making conscious, long-range choices about spending and saving. Together, these actions become the quiet power play that can tilt the odds of financial success in your favor. (See also: 4 Quirky Ways to Spend Less)

If you're wondering where to start on your road to financial security, consider this the glowing green arrow that will lead you in the right direction. Spending less than you earn leaves you with a surplus, and that surplus is the foundation on which long-term wealth is built. Without it, you've either got to be pretty confident in your lottery number-picking skills or be surrounded by rich-but-infirm relatives who think you're the cat's pajamas.

3. Build and Maintain a Healthy Emergency Fund

Emergency funds help us cope with financial challenges that result from job loss, medical emergencies, or other unforeseen circumstances. Though the size of a healthy emergency fund may vary based on personal debt levels and spending habits, a good rule of thumb is to have roughly six to eight months' worth of net income socked away. Your emergency fund can shield you from relying on credit cards to fill in financial gaps — and the usurious interest rates that can often lead to financial disaster.

4. Only Use Credit Strategically

Used surgically and strategically, credit can be a wealth-building tool. But far too often unsecured consumer debt is used to buy everything from pizzas to plasma TVs. Leveraged wisely, credit can help you take advantage of a real estate opportunities, make a calculated investment in your education or professional training, or support other financial maneuvers that are likely to add to your security or provide increasing value over time. The key is to be judicious in how you use credit, understand explicitly the repayment terms, and be utterly confident that you can afford the principal and interest payments each month, even if your fortunes may change slightly. (See also: Credit Card Tricks That'll Save You Money)

5. Know the Difference Between Spending and Investing

It's a finer point that gets lost on many young savers — not all spending is created equal. Generally speaking, buying an amazing leather sofa is spending money; buying a good used car that you'll use to commute to work is making an investment.

An easy way to determine the difference between spending and investing is to simply ask yourself, "Will this purchase help me make money, support my financial goals in a direct way way, or appreciate in value over time? Or, is this item something that will serve a finite purpose and likely lose value in a relatively short period?" If you answered yes to the former, your purchase is probably an investment; if you answered yes to the latter, it's probably not.

Of course, not everything we spend our money on needs to qualify as a investment, but it's essential to know the difference and gauge our spending priorities accordingly.

6. Take Advantage of Retirement Saving Vehicles

We all know that the onus of retirement planning is now firmly on the individual, rather than on employers. Pensions are a dying breed, and even 401(k) plans with generous matching programs are getting rarer and rarer.

With this reality in mind, it's crucial to understand the range of retirement saving choices out there. Today, savers need to know the important differences between traditional and Roth IRAs, be familiar with 401(k) plan rules and regulations, know the best ways to manage personal savings, determine their risk tolerance, and be able to access their online Social Security estimates when planning for retirement. Amassing the right information is the first step to investing tactically and gradually building wealth during key income-producing years. (See also: Retirement Planning if You're Under 30)

While this list is by no means comprehensive (that list would be much longer and subject to broader debate), it may help young savers navigate the often choppy waters of personal finance and serve as a refresher for older investors who need some wind in their sails.

What's the most important piece of financial advice you've ever received? How did following it, or not following it, affect your life?

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:

Investment Advice You Should Never Hear From Your Financial Advisor

Emily Guy Birken — Thu, 05 Sep 2013 10:36:30 +0000

I am the daughter of a financial planner, which means I grew up imbibing financial wisdom with my applesauce. (See also: Increasing Your Financial Literacy)

But despite my strong background in finance, I still felt incredibly intimidated the first time I met with a financial advisor who was not my father. No matter how much you may already know before you set foot in an advisor's office, you will still probably encounter unfamiliar financial jargon and advice whose soundness you feel like you have no way of judging.

The best way to arm yourself against bad (or even just inappropriate) financial advice is to ask lots of questions. Trusting an advisor with your finances is no time to pretend you have knowledge that you don't.

However, there are also some pieces of investment advice that should send you running for the door. Here are four examples of "red flag" advice that will allow you to separate the trustworthy and legitimate advisors from the shysters:

1. "You can assume an X% return on your investment."

You may recall the brouhaha over financial guru Dave Ramsey's claim that investors can expect a 12% return on their investment over time. While many have (rightly) criticized the math (or lack thereof) that Ramsey uses to make such a claim, the bigger problem with this kind of advice is the fact that it's making assumptions that no one can guarantee. As every financial advisor worth his salt will tell you, past performance does not guarantee future results.

The advisor you want to work with will give you several projections for your investment, based on different potential rates of return. At no point should you ever hear your advisor tell you to expect a certain rate of return, because unless he's also running the world's most accurate fortune telling business, there is no way he could know.

2. "Don't worry about the cost of this product! You pay nothing."

One of the reasons why new investors can be intimidated by the process of finding an advisor is because of the many different types of professionals who may all legally call themselves a financial planner or advisor. On one end of the spectrum, you have registered investment advisors, who have a fiduciary duty to give you ongoing advice that is in your best interests — and on the other, you have insurance salesmen who are paid by commission and are therefore very motivated to sell you products.

There is nothing wrong with working with a planner or advisor who is commission-based — but every client needs to know how their planner is getting paid. If all you hear from your advisor is that you don't need to worry your pretty little head about payment, then it's time to head off into the sunset. Because generally the only reason your advisor will harp on the fact that you pay nothing out-of-pocket is because they want to conceal their sales incentives. There truly is no such thing as a free lunch, and not knowing exactly how your advisor gets paid means you may end up paying through the nose. (See also: 7 Common Investing Mistakes)

3. "I can customize a stock portfolio for you."

There are two major problems with this piece of advice.

First, it is based upon the assumption that picking stocks is something your average financial planner is capable of doing. While mutual funds employ managers whose job it is to pick stocks for their funds, according to Investopedia, "there is…evidence to suggest that passive investing in index funds can beat over half of active managers in many years." In other words, simply investing passively in index funds will be better for your money 50% of the time compared to investing in mutual funds that are managed by stock pickers. (See also: 3 Steps to Getting Started in the Stock Market With Index Funds)

Basically, stock picking is not an exact science, and even the people who do it (and nothing else) for a living are wrong about half the time. If your advisor tells you she can do this for you, then prepare for disappointment.

The other major issue with this advice is the customization aspect of it. Does the advisor provide such a level of service to all her clients, or only to the big rollers? If customization is only available for certain investors, that brings up a big ethical problem: Why doesn't your financial planner want to help all her clients equally? And if your advisor claims to do this for every client, how could she afford to stay in business considering the amount of time she'd have to devote to each one?

You should instead be looking for an advisor who will customize your asset allocation strategy and help you determine the best investments within that strategy.

4. "There is no risk!" or "You really need to act now."

I put both of these together, because both pieces of "advice" are hallmarks of a hard sell, rather than legitimate advice you could expect to hear from a financial advisor.

Saying that any particular investment strategy is completely risk-free is an out-and-out lie. All investing involves some risk, and a good advisor will help you to figure out your level of risk tolerance and customize your investment strategy based on what risk you are willing to accept. To say that something has no risk means either your principal is protected but you will lose money due to inflation, or that the product being sold is either a scam or at least somewhat shady. (See also: 5 Signs of an Investment Scam)

Similarly, having an advisor tell you that you absolutely must jump on something now is a good indication that you're dealing with a salesperson rather than an investment advisor. There is no investment that cannot wait for you to take the time to weigh your options. Putting an artificial deadline on a product is one of the oldest sales tricks in the book, and it is not ever something you want to hear from an advisor.

When you come right down to it, if your advisor utters a phrase you most recently heard on a late-night infomercial, then it's time to find a new advisor.

Don't Relinquish Your Financial Control

The reason why "advisors" like Bernie Madoff were able to scam so many people for so many years is because most of us simply do not like to think about our finances. We would all like to find someone else who can do the worrying for us — and if they promise that we can see impossible returns, all the better.

But the truth is that no one can care about your finances as much as you do. So even when you do find a financial advisor whom you trust, you still need to look at your relationship as a partnership, rather than an opportunity to forget about your finances. Making sure you understand exactly what you're getting into with an advisor is the first step in remaining in control of your finances and your life.

What's the best "worst financial advice" you've ever received?

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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:

3 Reasons to Hire a Tax Professional (Even If You Don't Mind the Work)

David Ning — Tue, 20 Mar 2012 09:36:56 +0000

The final stretch of tax season is here, and the question of whether you should hire a tax professional is becoming an increasingly stressful matter for those who still haven't touched their tax returns. There are certainly many reasons to pursue the DIY route, especially for people who qualify for free tax filing. But on the flip side, a tax professional may be able to help you more than you think. Here are a few reasons why you should hire a tax professional this year. (See also: How to Find the Right Accountant for You)

You Can Focus on Saving More Money

Many people are surprised by the amount of time it takes to work with a certified public accountant (CPA), because it may seem like it requires even more time to work with someone than to file everything yourself.

In reality, though, most clients are getting more value out of the extra time they spend with a third party. When you are spending time filing your own taxes, most of the time is spent on paperwork and administration like gathering documents, adding up numbers, and figuring out which forms to fill out. You might also be spending quite a bit of time researching tax rules that may or may not apply to your case. When you work with a CPA, your time is usually spent making sure she is thinking about every deduction that applies to your situation.

It's difficult to promise that your tax return will take advantage of every legal deduction that applies to you even if you work with the most diligent pro, but you will likely find more deductions than if you were just filing your own 1040.

You Can Get Advice If You Are Audited

I always recommend working with a tax professional who is willing to represent you in case of a tax audit, because that also implies that she will stand by the work that is being performed. But even if you are told you will be on your own if you get audited, your accountant will almost certainly give you advice if the day comes. After all, she was the person who did your tax return in the first place and will need to make sure you understand the reasons behind all those numbers.

You Have Another Point of Contact for Your Financial Needs

As you work your way up the career ladder, you will eventually have assets to manage. When that day comes, you'll want to talk to as many people as you can about how best to manage those assets. Since many accountants work with small business owners, they may know good estate planners, responsible financial advisers, and even private health insurance providers. Take the advice with a grain of salt, because it's up to you to figure out whether the referral is worth the cost, but having the additional option for advice is always good.

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

How to Find the Right Accountant for You

Thursday Bram — Tue, 07 Feb 2012 11:00:34 +0000

Finding the right accountant can make a world of difference when it comes to managing your money, but it can be easier said than done. There are a few ways that you can make the process go much easier, though.

Why Do You Need an Accountant?

The first question you need to think about when looking for an accountant is why do you need help with your finances — and what sort of help do you need? Not every individual really needs an accountant. There are a number of services out there that can help you with your taxes, if that's your only concern. An accountant usually works with individuals or organizations with slightly more complicated finances, ranging from managing a business' finances to helping an individual keep investments straight. (See also: 6 Mistakes to Avoid With a Financial Adviser)

You could just start calling accountants based on who is closest to you, but most accountants have specialties. You're not going to get exactly the help you need from just any accountant.

When we talk about accountants, we can actually be referring to one of several different kinds of financial expert. There are quite a few different designations for accountants, from the common "certified public accountant" to a certified management accountant or an accredited business accountant. It's most likely that you're looking for a CPA if you're generally looking for an accountant in the U.S. (other designations are used in other countries). A CPA will help set up the books for a new business, prepare tax returns, and handle a wide variety of other accounting tasks — unless you have a sizable business and need specialized help with your accounting, a CPA is usually the place to start.

It's still important to narrow the field down even further, though. Many CPAs work with specific types of clients. For instance, the CPA who helps me with my business focuses on small businesses that don't need much in the way of payroll but do need advice on business operations from time to time. He works with a lot of freelancers and small business owners, though he does take on other clients. Ask right off the bat about whether an accountant you're considering working with handles your type of situation — most are very clear about what types of clients they want to work with. You should also ask about specifics like price and who will actually do any work, like preparing a tax return.

Make a note of what sort of help you need. The price you'll pay for an accountant's help can definitely depend on exactly what you need done. Most CPAs work on an hourly basis, often starting at a price of $150 and going up from there. But for common situations, like needing a tax return prepared, you can expect prices to start closer to $90 — provided you are employed and don't have particularly complicated finances.

It's All About the Referral

Because an accountant may wind up knowing every last thing about your financial situation, it's important to find someone you're personally comfortable working with. Starting with a referral is often the best way to do so. Ask around to find out whom your peers use and whether they recommend their current accountants. If you're having a hard time getting a recommendation, many review-based sites, such as Yelp, do list accountants and other financial professionals. However, you'll want to dig a little deeper than just a review online — while it's fine for choosing a restaurant for dinner, you'll want more information when you're putting all your financial information in someone's hands.

If you operate a business, it may be worth going to your professional associations (such as the local Chamber of Commerce, if you are a member) and getting referrals there. You can get good leads on reliable accountants quickly.

Of course, you'll do the necessary due diligence to make sure that you're working with a reliable accountant. But because of that "certified" part of the job title, it's relatively easy to make sure that anyone you choose to work with has the necessary credentials to handle any accounting quandary you may face. Individual state boards are responsible for issuing certifications, and most will now allow you to verify an accountant's credentials online. A quick online search can also confirm that you've chosen the right person to work with. Many CPAs (including the one I work with) now have websites, Twitter accounts, and even blogs to help you make the right decisions.

An Ongoing Relationship

Even if you only visit your accountant for a yearly tax planning session, it's important to have an ongoing relationship. The best accountants will go out of their way to update you on new legislation, as well as anything else that might impact your finances. You may not anticipate needing help, but already having a great working relationship with your accountant can put you ahead of the game in the event of an audit or other financial situation.

Depending on how you expect your finances to change in the future, you may want to ask about some of the options that an accountant might offer before making your final decision. If you know you need to start planning for retirement or a child's education, you should ask about what sort of financial consulting or planning services a particular CPA offers.

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

5 Money Lessons From Millionaires

Erin C. O'Neil — Fri, 12 Aug 2011 10:24:14 +0000

There's an aura of intrigue about people with money. Millionaires seem above and beyond the normal problems of electric bills, consumer debt, and budgeting. But are they really?

While the jet set lifestyle may conjure up images of chartered planes, multiple residences, and a lot of Hermes, the people who afford these luxuries work just as hard to keep their money as they (or a family member) did to earn it. "More money, more problems" sounds like a cliché, but more money at least equates to a lot more work to stay wealthy.

Being rich sounds like a cakewalk until you witness a simple monthly investment meeting turn into a three ring circus with no fewer than eight legal, tax, and financial advisors, all offering financial planning advice to the client. There are worse hardships, but it does make you think twice about just how millionaires hang on to their wealth through marriages, divorces, and last but not least, children. (See also: How to Build Wealth in a Depressed Economy)

In a past life, I worked closely with high net worth families and investors. (In investment terms, this translates to liquid assets in the eight-digit range and above.) True, millionaires have culinary-institute-sized kitchens, nice cars, and take amazing vacations. But when it comes to managing their money, millionaire tactics tend to contain a surprising amount of common sense and frugality versus impulse spending. Here are a few consistent tactics millionaires use to hang on to wealth for several generations (and in many cases, increase it).

Preserve

The ultra-wealthy aren't out to just make double-digit returns or sitting on a pile of gold coins cackling and twiddling their hands. Multi-millionaire clients aim to preserve accumulated wealth while still earning a healthy rate of return. That means slow and steady growth versus trying to get rich quick. While risk can be a good thing, in financial terms it's best to avoid it. And if there's one thing worse than missing out on the next big thing, it's losing money.

Mind the Gap

Be realistic about budgeting and only buy what you can afford. If a hot private equity deal comes along but you're a few hundred thousand short from last month's trip to Biarritz, that's a gap in a millionaire's budget. On the non-millionaire side, maybe you inadvertently realize you've spent a grand total of $550 at Target in the past 30 days on things you don't recall actually needing. Big, big gap. Either way — don't buy what you can't afford. Don't make big purchases without planning ahead. Be proactive about expenses and keep track of how much you spend versus what you earn. Hey, even trust fund babies have a spending limit.

Have Cash on Hand

Billionaires and trust fund babies refer to this as "liquidity." The rest of us can refer to it as "make sure you don't end up living in a cardboard box." Even the most aggressive high net worth investors I've worked with kept a large chunk of liquid assets ("cash") on hand for emergencies. It seems like a no-brainer, but having an emergency fund is one lesson millionaires and the rest of us should always heed.

Avoid Fees...Even Small Ones

A client with a portfolio well past the multi-million dollar mark once remarked that despite the fact that $25 to him roughly equated to what a nickel is to me, small bank fees were the bane of his existence. As it turns out, bank fees annoy the heck out of millionaires just as much as those of us who sweat and toil for a living. Even if it's a nickel. (Good luck finding that on a bank fee sheet.) You work hard to earn a paycheck, so watch for fees like a hawk. If the charge seems exorbitant or isn't justified, ask politely for a reversal or reduction.

Consider the Source

There's no shortage of people willing to offer their opinions regarding personal finance. Millionaires and their sizable liquid assets tend to get a lot of unsolicited financial advice that they mostly meet with a polite smile or a curt nod. That's not to say information from these sources is necessarily bad, but take it with a grain of salt. News organizations often sensationalize the stock market and data to enhance ratings and entice viewers. Millionaires are cautious investors. They remain incredibly skeptical about anything that sounds too good to be true or claims not to carry any risk. Follow suit, so to speak, and compare financial products before jumping in.

This article is from Erin C. O'Neil of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Living the Savvy Life: A Review

Sarah Winfrey — Fri, 11 Feb 2011 13:00:16 +0000

Living the Savvy Life isn’t strictly a personal finance book, though it includes tips for spending less, saving more, and achieving your financial goals. The focus of the book is on helping readers overhaul their lifestyle based on their personal goals and values (this is what the authors call “the savvy life”). If there are things you’ve always wanted to achieve but haven’t found the time and money to get started, this book can give you both the kick and the tips you need to begin today.

Frugality with a Purpose

The authors of Living the Savvy Life, Melissa Tosetti and Kevin Gibbons, don’t advocate spending less for it’s own sake, but so that you can do the things you really want to do and achieve goals that are meaningful to you. For instance, many people say they want to travel but also say that they don’t have the money or the time to do it. Tosetti gives real-life examples of how she and her husband cut specific expenses and used the money they saved to pay for trips all over the world. (See also: How to Save Without Goals)

The authors don’t just propound this principle, but show you how you can apply it throughout your life. They discuss it in terms of finances, and in terms of time and possessions, too. And once they’ve talked about their ideas, they give you tips for actually cutting back. They offer strategies for getting rid of clutter so you can highlight the possessions you truly value, and they talk about choosing clothes that flatter you and will continue to be in style, and choosing items that complement the wardrobe you already have.

Even if you’re not quite sure what you’d like to spend your time and money doing, Tosetti and Gibbons have something to offer. In addition to their money and time-management tips, they have resources to help you determine where you want to focus your energies. By answering some simple questions, they help you decide what you’re passionate about and what doesn’t matter so much.

With its helpful-but-unassuming tone, Living the Savvy Life isn’t a book that you’ll hate, even if you’ve somehow heard everything it says before. In fact, you may find yourself wanting to befriend the authors simply because they seem like warm, interesting people. This lends itself to the book’s overall usefulness, because no one likes to feel preached to. It’s much easier to hear some of the things Tosetti and Gibbons have to say from people you’d invite into your living room for a chat.

A Renewed Focus on My Goals

Since it’s easy to get derailed when you’re living a savvy life in a culture that wants you to spend, spend, spend, they also offer some insights on staying motivated, focusing on your own goals, and getting back on track when things fall apart. They even offer tips on how to evaluate purchases when you’re standing in the middle of the store, unsure about the items you’ve brought to the checkout stand.

As someone who knows a lot about how to save money and who practices frugality as a matter of habit, I didn’t expect too much from yet another book about personal finance. However, Living the Savvy Life surprised me. It articulated many of the principles I’ve always lived by (saving in one area to spend in another), and it helped me put words to some of the things that I want to focus on. All of this has provided me with motivation that I didn’t have before, so I feel renewed in my efforts to be deliberate about where I choose to spend my time and money in order to focus my efforts and achieve my goals.

Who Should Read Living the Savvy Life?

It’s not too often that I find a book I would recommend to almost anyone, but Living the Savvy Life seems like one that nearly everyone I know could benefit from reading in one capacity or another. For the people who have already discovered most of the practical savings tips it contains, it offers motivation for pursuing financial and personal goals that are meaningful. Even for those with a lot of self-knowledge about what they value and why, it offers the chance to articulate these things again, perhaps in a new way, and to recommit to focusing on the things that matter.

P.S. If you haven’t heard of TheSavvyLife.com, you should check it out, too. The site offers articles and resources that aren’t in the book, but that will help you move towards the goals the book puts forth.

Disclosure: I received a free copy of Living the Savvy Life for review.

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