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How to Set Financial Goals: A Simple, Step-By-Step Guide

Saving money is all well and good in theory.

It’s pretty hard to argue against having more money in the bank.

But what are you saving for? If you don’t have solid financial goals, all those hoarded pennies might end up in limbo when they could be put to good use.

Figuring out where your money should go might seem daunting, but it’s actually a lot of fun.

You get to analyze your own priorities and decide exactly what to do with your hard-earned cash.

But to make the most of your money, follow a few best practices while setting your goals.

After all, even if something seems like exactly what you want right now, it might not be in future-you’s best interest. And you’re playing the long game… that’s why they’re called goals!

What to Do Before You Start Writing Your Financial Goals

To help keep you from financial goals like “buy the coolest toys and cars,” which could easily get you deeply into debt while you watch your credit score plummet, we’ve compiled this guide.

It’ll help you set goals and create smart priorities for your money. That way, however you decide to spend your truly discretionary income, you won’t leave the 10-years-from-now version of you in the lurch.

First Thing’s First: How Much Money Do You Have?

You can’t decide on your short- or long-term financial goals if you don’t know how much money you have or where it’s going.

And if you’re operating without a budget, it can be easy to run out of money well before you run out of expenses — even if you know exactly how much is in your paycheck.

So sit down and take a good, hard look at all of your financial info.

A ton of great digital apps can help you do this — here are our favorite budgeting apps — but it can be as simple as a spreadsheet or even a good, old-fashioned piece of paper. It just takes two steps:

  1. Figure out how much money you have. It might be in checking or savings accounts, including long-term accounts like IRAs. Or, it might be wrapped up in investments or physical assets, like your paid-off car.
  2. Assess any debts you have. Do you keep a revolving credit card balance? Do you pay a mortgage each month? Are your student loans still hanging around?

Take the full amount of money you owe and subtract it from the total amount you have, which you discovered in step one. The difference between the two is your net worth. That’s the total amount of money you have to your name.

If it seems like a lot, cool. Hang tight and don’t let it burn a hole in your pocket. We’re not done yet.

If it seems like… not a lot, well, you can fix that. Keep reading.

A woman creates a monthly budget while sitting on her bed. The sheets are white with a floral pattern on them. This story is about how to set up financial goals.

Create a Budget

Once you’ve learned your net worth, you need to start thinking about a working budget.

This will essentially be a document with your total monthly income at the top and a list of all the expenses you need to pay for every month.

And I do mean all of the expenses — even that $4.99 recurring monthly payment for your student-discounted Spotify account definitely counts.

Your expenses probably include rent, electricity, cable or internet, a cell phone plan, various insurance policies, groceries, gas and transportation. It also includes categories like charitable giving, entertainment and travel.

Pro Tip

Print out the last two or three months of statements from your credit and debit cards and categorize every expense. You can often find ways to save by discovering patterns in your spending habits.

It’ll depend on your individual case — for instance, I totally have “wine” as a budget line item.

See? It’s all about priorities.

Need to go back to basics? Here’s our guide on how to budget.

Start by listing how much you actually spent in each category last month. Subtract your total expenses from your total income. The difference should be equal to the amount of money left sitting in your bank account at month’s end.

It’s also the money you can use toward your long-term financial goals.

Want the number to be bigger? Go back through your budget and figure out where you can afford to make cuts. Maybe you can ditch the cable bill and decide between Netflix or Hulu, or replace a takeout lunch with a packed one.

You don’t need to abandon the idea of having a life (and enjoying it), but there are ways to make budgetary adjustments that work for you.

Set the numbers you’re willing to spend in each category, and stick to them.

Congratulations. You’re in control of your money.

Now you can figure out exactly what you want to do with it.

Setting Financial Goals

Before you run off to the cool-expensive-stuff store, hold on a second.

Your financial goals should be (mostly) in this order:

  1. Build an emergency fund.
  2. Pay down debt.
  3. Plan for retirement.
  4. Set short-term and long-term financial goals.

We say “mostly” because it’s ultimately up to you to decide in which order you want to accomplish them.

Many experts suggest making sure you have an emergency fund in place before aggressively going after your debt.

But if you’re hemorrhaging money on sky-high interest charges, you might not have much expendable cash to put toward savings.

That means you’ll pay the interest for a lot longer — and pay a lot more of it — if you wait to pay it down until you have a solid emergency fund saved up.

1. Build an Emergency Fund

Finding money to sock away each month can be tough, but just starting with $10 or $25 of each paycheck can help.

You can make the process a lot easier by automating your savings. Or you can have money from each paycheck automatically sent to a separate account you won’t touch.

You also get to decide the size of your emergency fund, but a good rule of thumb is to accumulate three to six times the total of your monthly living expenses. Good thing your budget is already set up so you know exactly what that number is, right?

You might try to get away with a smaller emergency fund — even $1,000 is a better cushion than nothing. But if you lose your job, you still need to be able to eat and make rent.

2. Pay Down Debt

Now, let’s move on to repaying debt. Why’s it so important, anyway?

Because you’re wasting money on interest charges you could be applying toward your goals instead.

So even though becoming debt-free seems like a big sacrifice right now, you’re doing yourself a huge financial favor in the long run.

There’s lots of great information out there about how to pay off debt, but it’s really a pretty simple operation: You need to put every single penny you can spare toward your debts until they disappear.

One method is known as the debt avalanche method, which involves paying off debt with the highest interest rates first, thereby reducing the overall amount you’ll shell out for interest.

For example, if you have a $1,500 revolving balance on a credit card with a 20% APR, it gets priority over your $14,000, 5%-interest car loan — even though the second number is so much bigger.

Pro Tip

If you’re motivated by quick wins, the debt snowball method may be a good fit for you. It involves paying off one loan balance at a time, starting with the smallest balance first.

Make a list of your debts and (ideally) don’t spend any of your spare money on anything but paying them off until the number after every account reads “$0.” Trust me, the day when you become debt-free will be well worth the effort.

As a bonus, if your credit score could be better, repaying revolving debt will also help you repair it — just in case some of your goals (like buying a home) depend upon your credit report not sucking.

A retired woman floats in a circular floating device in a swimming pool.

3. Plan for Retirement

All right, you’re all set in case of an emergency and you’re living debt-free.

Congratulations! We’re almost done with the hard part, I promise.

But there’s one more very important long-term financial goal you most definitely want to keep in mind: retirement.

Did you know almost half of Americans have absolutely nothing saved so they can one day clock out for the very last time?

And the trouble isn’t brand-new: We’ve been bad enough at saving for retirement over the past few decades that millions of today’s seniors can’t afford to retire.

If you ever want to stop working, you need to save up the money you’ll use for your living expenses.

And you need to start now, while compound interest is still on your side. The younger you are, the more time you have to watch those pennies grow, but don’t fret if you got a late start — here’s how to save for retirement in your 20s, 30s, 40s and 50s.

If your job offers a 401(k) plan, take advantage of it — especially if your employer will match your contributions! Trust me, the sting of losing a percentage of your paycheck will hurt way less than having to work into your golden years.

Ideally, you’ll want to find other ways to save for retirement, too. Look into individual retirement arrangements (IRAs) and figure out how much you need to contribute to meet your retirement goals.

Future you will thank you. Heartily. From a hammock.

FROM THE BUDGETING FORUM
Starting a budget
S
A reminder NOT to spend.
Jobelle Collie
Grocery Shopping – How far away is your usual store?
F
Budgeting 101
Ashley Allen
See more in Budgeting or ask a money question

4. Set Short-Term and Long-Term Financial Goals (the Fun Part!)

Is everything in order? Amazing!

You’re in awesome financial shape — and you’ve made it to the fun part of this post.

Consider the funds you have left — and those you’ll continue to earn — after taking care of all the financial goals above. Now think: What do you want to do with your money?

What experiences or things can your money buy to significantly increase your quality of life and happiness?

You might plan to travel more, take time off work to spend with family or drive the hottest new Porsche.

Maybe you want to have a six-course meal at the finest restaurant in the world or work your way through an extensive list of exotic and expensive wines. (OK, I’ll stop projecting.)

No matter your goals, it’s helpful to categorize them by how long they’ll take to save for.

Make a list of the goals you want to achieve with your money and which category they fall into. Then you can figure out how to prioritize your savings for each objective.

For example, some of my goals have included:

  • Short-term financial goal: Save spending money for a trip overseas.
  • Medium-term financial goal: Pay off my car within a year, or sell it — and its onerous loan — and buy an older car I can own free and clear.
  • Long-term financial goal: Buy a house I can use as a home base and increase my income by renting it out while I travel. This will probably take me through the rest of my 20s.

By writing down my short- and long-term financial goals and approximately how long I expect it will take to achieve each, I can figure out what to research and how aggressively I need to plan for each goal.

It also offers me the opportunity to see what I prioritize — and to revise those priorities if I see fit.

Jamie Cattanach (@jamiecattanach) is a contributor to The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Save for a House in 8 Steps

When you buy a home, you’re making an investment in yourself and your future. You’re building financial stability, equity, and experience. You have a place to call your own and you can customize the space just how you want. Yet, you might be wondering how to get to that point — this is why saving up is so important.

There are some upfront costs to owning a home — primarily a down payment. Find out how much you should budget using a home loan affordability calculator and figure out how to save the amount you need. After all, the best way to save for a house is to formulate a budget that helps you work towards your house saving goals step by step. Soon enough, you’ll be turning the key and stepping into a home you love.

How to save for a house

Step 1: Calculate Your Down Payment and Timeline

When figuring out how to save for a house, you may already have a savings goal and deadline in mind. For instance, you may want to save 20 percent of your home loan cost by the end of the year. If you haven’t given this much thought, sit down and crunch the numbers. Ask yourself the following questions:

  • What is your ideal home cost?
  • What percentage would you like to contribute as a down payment?
  • What are your ideal monthly payments?
  • When would you like to purchase your home?
  • How long would you like your term mortgage to be?

Asking yourself these questions will reveal a realistic budget, timeline, and savings goal to work towards. For instance, say you want to buy a $250,000 house with a 20 percent down payment at a 30-year loan term length. You would need to save $50,000 as a down payment; at a 3.5 percent interest rate, your monthly payments would come out to be $898.

Step 2: Budget for the Extra Expenses

Just like a new rental, your home will have fees, taxes, and utilities that need to be budgeted for. Homeowners insurance, closing costs, and property taxes are a few examples of cash expenses. Not to mention, the cost of utilities, repairs, renovation work, and furniture. Here are a few more expenses you may have to save for:

  • Appraisal costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere from $312 to $405 for a single-family home.
  • Home inspection: A home inspection typically costs $279 to $399 for a single-family home. Prices vary depending on what you need inspected and how thorough you want the report to be. For instance, if you want an expert to look at your foundation, there will likely be an additional cost.
  • Realtor fees: In some states, the realtor fee is 5.45 percent of the home’s purchase price. Depending on the market, the seller might pay for your realtor fee. In other places, it might be more common to contract a lawyer to look over your purchase agreement, which is usually cheaper than a realtor.
  • Appraisal and closing costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere between $300 and $400 for a single-family home.

Step 3: Maximize Your Savings Contributions

Saving for a new home is easier said than done. To stay on track, first create a savings account that has a high yield if possible. Then, check in on your monthly savings goal to set up automatic contributions. By setting up automatic savings payments, you may treat this payment as a regular monthly expense.

In addition to saving more, spend less. Evaluate your budget to see what areas you could cut down or live without. For instance, creating your own workout studio at home could save you $200 a month on a gym class membership.

Step 4: Work Hard for a Raise

One of the best ways to boost your savings is to increase your earnings. If you already have a job you love, put in the extra time and effort to earn a raise. Learning new skills by attending in-person or virtual training seminars or learning a new language could increase your earning potential. Not only could you land a raise, but you could add these skills to your resume.

Sometimes, putting in the extra effort doesn’t always land you a raise, and that’s okay! When getting a raise is out of the question, consider looking at other opportunities. Figure out which industry suits you and your skillset and start applying. You may end up finding your dream job, along with your desired pay.

Step 5: Create More Streams of Income

Establishing different income streams could help your house savings budget. If one source of income unexpectedly goes dry, having other sources to cut the slack is helpful. You won’t have to worry about the sudden income change when paying your monthly mortgage.

For example, creating an online course as a passive income project may earn you only $5 this month. As traffic picks up, your monthly earnings could surpass your monthly income. To create an abundant financial portfolio, there are a few different ways to do so:

  • Create an online course: Write about something you’re passionate about and share your skills online. Sell your digital products on Etsy or Shopify to earn supplemental income.
  • Grow a YouTube channel: Start a YouTube channel and share your skills to help others within your industry of expertise. For instance, “How to start a YouTube channel” could be its own hit.
  • Invest in low-risk investments: From CD’s to money market funds, there are a few types of investments that could grow your cash with low risk.

Paying down debt

Step 6: Pay Off Your Biggest Debts

Before taking on more debt like a mortgage, it’s important to free up your credit usage. Credit utilization is the percentage of available credit you have open compared to what you have used. If you have $200 in debt, but $1,000 available on your credit card, you’re only using 20 percent of your credit utilization. A higher credit utilization could potentially hinder your credit score over time. Not only can paying off debts feel satisfying, but it could also increase your credit score and prepare you for this next big purchase.

To pay off your debts, create an action plan. Write out all your debt accounts, how much you still owe, and their payment due dates. From there, start increasing your payments on your smallest debt. Once you pay off your smallest debt in full, you may feel more motivated to pay off your next debt account. Keep up with these good habits as you take on your mortgage account.

Step 7: Don’t Be Afraid to Ask For Help

Whether your touring homes or want help adjusting your budget, don’t hesitate to ask for help. If you’re trying to figure out what your budget should look like, research budgeting apps like Mint to build a successful financial plan.

If you’re curious about additional mortgage expenses, your budget, or investment opportunities, reach out to a trusted professional or utilize government resources. Not only are they able to help you prepare for your next big step, but they could also help you and your finances in the long term.

Step 8: Store Your Savings in a High Yield Saving Account

While you may have a perfect budget and a home savings goal, it’s time to make every dollar count. Before you add to your account, research different savings accounts and their monthly yields. The higher the yield, the more your savings could grow as long as your account is open.

In September of 2020, the national average interest rate on savings accounts was capped at 0.8 percent. If you were to deposit only $100 into a high yield savings account with an APY of 0.8 percent, you could earn $80 off your investment over the year. This helps you save extra money by just putting your money into a savings account.

In Summary

  • First, set a savings goal to match your estimated down payment and mortgage monthly payments. Then add your contributions to a high yield savings account to grow your money overtime.
  • Don’t forget to budget for extra mortgage expenses like appraisal costs, home inspections, realtor fees, or closing costs. Keep in mind, your monthly utilities and fees may also be more expensive than your current living situation.
  • Prepare for the additional costs by increasing your earning potential and optimizing additional income stream opportunities.
  • Free up your credit utilization by paying off as much debt as possible before buying a house. Keep up these good habits throughout the length of your mortgage term.

When you purchase a home, you’re building a piggy bank for your future. Every month you pay your mortgage, you pay part of it to yourself because you own the home. Instead of paying rent to someone else, you reap your own investment when you sell. Most importantly, though, you’ll have a place that’s truly your own.

Sources: Interest

The post How to Save for a House in 8 Steps appeared first on MintLife Blog.

Source: mint.intuit.com

8 Upfront Costs of Buying a House

Looking to buy a home soon? There will be upfront costs of buying a house.

You may have found a house that you like. You may have been approved for a mortgage loan, and have your down payment ready to make an offer. If you think that, at that point, all of the hard work is over, well think again.

In addition to the down payment, which can be significant depending on the price of the property, there are plenty of upfront costs of buying a home. As a first time home buyer, this may come to you as a surprise. So, be ready to have enough cash to cover these costs. In no particular order, here are 8 common upfront costs of buying a house.

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

What is an upfront cost?

An upfront cost, as the name suggests and in terms of buying a house, is out of pocket money that you pay after you have made an offer on a property. They are also referred to as closing costs and cover fees such as inspection fees, taxes, appraisal, mortgage lender fees, etc. As a home buyer, these upfront costs should not come to you as a surprise.

What are the upfront costs of buying a house?

Upfront cost # 1: Private mortgage insurance cost.

If your down payment is less than 20% of the home purchase price, then your mortgage lender will charge you a PMI (private mortgage insurance). A PMI is an extra fee to your monthly mortgage payment that really protects the lender in case you default on your loan. Again, depending on the size of the loan, a PMI can be significant. So if you know you won’t have 20% or more down payment, be ready pay an extra fee in addition to your monthly mortgage payments.


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Upfront cost #2: inspection costs.

Before you finalize on a house, it’s always a good idea to inspect the house for defects. In fact, in some states, it is mandatory. Lenders will simply not offer you a mortgage loan unless they see an inspection report. Even if it is not mandatory in your state, it’s always a good idea to inspect the home. The inspection cost is well worth any potential defects or damages you might encounter.

Inspection fee can cost you anywhere from $300-$500. And it is usually paid during the inspection. So consider this upfront cost into your budget.

Upfront cost # 3: loan application fees.

Some lenders may charge you a fee for applying for/processing a loan. This fee typically covers things like credit check for your credit score or appraisal.

Upfront cost # 4: repair costs.

Unless the house is perfect from the very first time you occupy it, you will need to do some repair. Depending on the condition of the house, repair or renovating costs can be quite significant. So consider saving up some money to cover some of these costs.

Upfront cost # 5: moving costs.

Depending on how far you’re moving and/or how much stuff you have, you may be up for some moving costs. Moving costs may include utilities connections, cleaning, moving

Upfront cost # 6: Appraisal costs.

Appraisal costs can be anywhere from $300-$500. Again that range depends on the location and price of the house. You usually pay that upfront cost after the inspection or before closing.

Upfront cost # 7: Earnest Money Costs

After you reach a mutual acceptance for the home, in some states, you may be required to pay an earnest money deposit. This upfront costs is usually 1% to 3% of the home purchase price. The amount you pay in earnest money, however, will be subtracted from your closing costs.

Upfront cost # 8: Home Associations Dues

If you’re buying a condo, you may have to pay homeowners association dues. Homeowners association dues cover operation and maintenance fees. And you will pay one month’s dues upfront at closing.

In conclusion, when it comes to buying a house, there are several upfront costs you will need to consider. Above are some of the most common upfront costs of buying a house.

Click here to compare mortgage rates through LendingTree. It’s completely FREE.

MORE ARTICLES ON BUYING A HOUSE:

10 First Time Home Buyer Mistakes to Avoid

How Much House Can I afford

5 Signs You’re Better Off Renting

7 Signs You’re Ready to Buy a House

How to Save for a House


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The post 8 Upfront Costs of Buying a House appeared first on GrowthRapidly.

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Budgeting for Beginners: These 5 Steps Will Help You Get Started

Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

Budgeting for Beginners in 5 Painless Steps

Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

Step 1: Set a Financial Goal

First thing’s first: Why do you want a budget?

Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

Step 2: Log Your Income, Expenses and Savings

You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

Tally Your Monthly Income

Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Make a List of Your Mandatory Monthly Expenses

Start with:

  1. Rent or mortgage payment.
  2. Living expenses like utilities (electric, gas and water bills), internet and phone.
  3. Car payment and transportation costs.
  4. Insurance (car, life, health).
  5. Child care.
  6. Groceries.
  7. Debt repayments for things like credit cards, student loans, medical debt, etc.

Anything that will result in a late fee for not paying goes in this category.

List Non-Essential Monthly and Irregular Expenses

Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

Pro Tip

Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

A woman with a dog reviews financial docements spread out on the floor.

Don’t Forget Your Savings

Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

Step 3: Adjust Your Expenses to Match Your Income

Now, what does your monthly budget look like so far?

Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

How to Cut Your Expenses

If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

Here are some ways you can save money each month:

Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

Start small and see how big of a wave it makes.

Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

A couple organize tax-related paperwork.

What to Do With Your Extra Cash

If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

When you do dip into that emergency fund, immediately start building it up again.

Otherwise, you can use any extra money outside your expenses to reach your financial goals.

Here are four questions to ask yourself before dipping into your emergency fund..

Step 4: Choose a Budgeting Method

You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

  • The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because you’re forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic. 
  • The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, it’s typically not a good fit for those living paycheck to paycheck.
  • The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. It’s a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
  • The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. It’s also beneficial for those living to paycheck to paycheck.
A hand writes financial-related labels on envelopes.

Budgeting Apps

Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

FROM THE BUDGETING FORUM
Starting a budget
S
A reminder NOT to spend.
Jobelle Collie
Grocery Shopping – How far away is your usual store?
F
Budgeting 101
Ashley Allen
See more in Budgeting or ask a money question

Step 5: Follow Through

Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

Related: How to Budget: The Ultimate Guide

Stephanie Bolling is a former staff writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

16 Small Steps You Can Take Now to Improve Your Finances

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

1. Create a household budget

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

2. Calculate your net worth

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

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

3. Review your credit reports

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

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

4. Check your credit score

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

5. Set a monthly savings amount

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

6. Make minimum payments on all debts

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

7. Increase your retirement saving rate by 1 percent

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

8. Open an IRA

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

9. Update your account beneficiaries

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

10. Review your employer benefits

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

11. Review your W-4

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

12. Ponder your need for life insurance

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

13. Check your FDIC insurance coverage

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

14. Check your Social Security statements

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

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

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

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

16. Take a one-month spending break

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

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With the new year here, it’s time to take control of your financial goals. From creating a household budget, to calculating your net worth, or setting a monthly savings amount, we’ve got 16 small steps you can take to improve your finances. | #personalfinance #moneymatters #budgeting


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How to Negotiate Your Medical Debt

Let’s face it: The worst thing about having to go to the hospital to receive medical treatment is being slammed with a huge bill afterwards. Sometimes, these medical bills are so expensive that you simply don’t have the means to pull it off right away, especially without health insurance. While we may find it easier in the short term to pretend that our unpaid medical bills don’t exist, avoiding the problem could only make it worse. Many medical providers are aware of this, which is why there are ways that you can negotiate your medical debt when you are unable to pay in full. In this article, we will discuss the different ways you can go about taking care of those medical expenses so that they don’t stack up later and wreak havoc on your credit.

Negotiate for insurance rates

Without health insurance, you’ll most likely be charged a much steeper price. If you want to negotiate your medical bills, one thing you can do is research what the fair market value is for whatever treatments you received. Usually, this is the price that insurance companies have to pay medical providers, and most of the time, it’s a lot cheaper.

Once you’ve found the dollar amount you’d like to ask for, you will need to get in touch with the billing department. If the person on the phone turns you down, ask to speak to their supervisor. It’s important to remain calm and polite while doing this but be persistent. Continue to ask to speak to a higher ranking individual until you reach someone who agrees to make a deal with you.

Pay it in cash

Cash payments are hard to turn down in most cases. if you want to negotiate a lower price on medical bills, you can offer to make a cash payment. Call your medical provider or the billing department and ask them if they would be willing to knock down the price of your bills if you were to pay in cash. Explain to them that if they can’t offer you any other sort of financial assistance, then this is another route you can take.

Not only will this save them money on credit card fees and hours worked by office employees, but it will also save time spent on processing paperwork. This is a smart offer to make, as instant cash payments as opposed to electronic payments are a lot harder to say no to for any business or institution.

Ask for a payment plan

There’s a good chance that even after you’ve asked for a lower price and offered to pay in cash, your medical provider will be unwilling to give you a deal. When this happens, there is still one more thing you can try. Before readily handing over your credit card, ask them if you can make payments on your bill. Most companies will allow you to do this and are used to working with people who are unable to pay their bills in full. Be honest about how much you are able to pay at a time.

It’s likely that they will try to negotiate a higher payment amount, but politely tell them that it’s not feasible for you. Most of the time, they will be understanding and take whatever payment they can get. If you’re struggling financially, making small payments on your medical bills is the best way to go to keep your credit score in tact. As long as you are making payments on your bills, the companies will not report you to the credit bureaus.

Take precautionary measures

A lot of medical providers and medical facilities have programs that offer financial assistance, but you are going to have to ask them for it. Be transparent at the time of or even before your medical treatment occurs. If the treatment you are seeking is not a medical emergency, ask ahead of time if there is a cheaper option or if you can get a discount. If you don’t have health insurance, this needs to be explained as early on as possible. Let your doctor know if you are living off of low income or if you are in the midst of some other type of financial hardship that is keeping you from being able to pay for service.

If you are successful in negotiating your medical bills, you might want to get it in writing so that you have proof. In some cases, you may even want to make your request in writing so that you have it on record in case anything goes wrong later. Once a deal has been agreed upon by both you and the medical provider or billing department, type up a summary of the conversation including key details of who you spoke to and the prices that were negotiated.

Other options for paying bills

There is no one-size-fits-all way of clearing your medical bills once and for all.  Some people have insurance, some can afford to pay in full, and some are going to have to negotiate a lower price. If you have already tried negotiating medical bills and were unsuccessful, there are other options to explore. Here are some other ways you can go about paying your medical bills:

  • Medical credit cards: There’s no guarantee that your medical provider will accept a payment plan. However, most of the time, they will accept payment with the use of a medical credit card. If you have no other choice, ask your doctor’s office about how you can apply for a medical credit card. Usually, you are able to apply at the office right then and there. Most medical credit cards offer zero interest for up to 12 months. If you can manage to pay off the medical debt within that timeframe, then perhaps a medical credit card is a good choice for you. Be wary of this if you already have poor credit.
  • Personal loan: If you’ve already been through all of your other options and were unable to make something work, it might be time to look at taking out a type of unsecured credit, such as a personal loan. If you have a significant amount of medical debt looming over your head, this might be a good idea as you can usually take out anywhere from $1,000 to $100,000. Once again, if you don’t have a good history with using credit, seriously consider the pros and cons of doing this.
  • Interest free credit card: If you don’t end up qualifying for a payment plan or a medical credit card, you can use a 0% interest credit card to pay the tab as long as you have good or outstanding credit.
  • Hire a medical bill advocate: If you feel overwhelmed by the task of reading through your medical bills and looking for errors, you can hire a professional to do it for you. Medical bill advocates are familiar with common procedures and the prices of treatments. If you have been wrongfully charged or overcharged, a medical bill advocate will be able to find this right away. Aside from pinpointing any errors, experts in medical bills will also do the negotiating for you.

Final Thoughts

If you are feeling overwhelmed by a large medical bill, remember that you have several options for taking care of it. It might be tempting to ignore the bill altogether but doing this could really damage your credit. Being honest with your medical provider from the beginning can prevent you from having to deal with extra costs. However, sometimes medical bills are ineveitable and we have to pay them. Consider payment plans or a medical credit card, but whatever you do, don’t let your unpaid medical bills be a show stopper!

How to Negotiate Your Medical Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How Much Should You Spend on an Engagement Ring?

How Much Should You Spend on an Engagement Ring?

There’s nothing like falling in love and finding the person you want to spend the rest of your life with. But when it’s time to shop for rings, it’s easy to get discouraged by the price tags. Just how much should you spend on an engagement ring? We’ll dive into the topic and discuss ways to save on the big purchase.

Find out not: How much do I need to save for retirement?

What the Average Engagement Ring Costs

Maybe you can’t buy love. But if you’re in the market for an engagement ring, you’ll quickly realize that it won’t be cheap. According to the Knot’s 2016 Real Weddings Study, Americans spent an average of $6,163 on engagement rings, up from $5,871 in 2015. Wedding bands for the bride and engagement rings combined cost between $5,968 and $6,258.

If you want your wedding to happen sooner rather than later, keep in mind that on average, couples spend more than $30,000 to tie the knot. That’s roughly how much you can expect to pay for everything from your wedding reception and DJ to your cake and your photographer. Location matters when it comes to weddings, however, so you might be able to save some money by choosing a more affordable place to host your ceremony.

How Much Should I Spend?

How Much Should You Spend on an Engagement Ring?

Conventional wisdom says that anyone planning to propose to their partner should prepare to spend at least two or three months of their salary on an engagement ring. But spending too much isn’t a good idea for various reasons.

A recent study conducted by Emory University connected pricey rings to divorce rates. Men who spent more money on rings for their fiancees were more likely to end their marriages. That’s a possible long-term consequence of overspending on an engagement ring. In the short term, using a large percentage of your money to buy a ring might prevent you from using those funds to pay bills or stay on top of your debt, which can hurt your credit score.

If the marriage doesn’t work out and your ex-spouse decides to sell their diamond engagement ring, its value won’t be nearly as high as it was when it was first purchased. That’s why diamond rings can be such bad investments.

So exactly how much should you spend on an engagement ring? It’s a good idea to make sure that the price you pay doesn’t prevent you or your partner from accomplishing whatever you’re planning to achieve in the future, whether that’s buying a house or having a child. Rather than following an old-school societal notion that says you should spend x amount of money on a ring, it’s best to spend an amount that won’t compromise your financial goals or jeopardize the status of your relationship.

How to Save on the Ring

If you don’t want the engagement ring you’re buying to break the bank, it’s a good idea to learn as much as you can about the rings and what makes some more expensive than others. Diamonds are the gems most commonly used in engagement rings, and if you’re buying one for your significant other, it’s important to familiarize yourself with what jewelers refer to as the four C’s: clarity, cut, color and carat weight.

In terms of clarity, the best diamonds are flawless, meaning that they don’t have any blemishes when viewed under a microscope with 10 power magnification. Since no one’s eyesight is that powerful, you can get away with choosing a diamond with a lower clarity grade that costs less. Getting a diamond that has fewer carats (meaning that it weighs less) or getting one that isn’t completely colorless can also lower its overall price.

Or don’t get a diamond at all. Your partner might be just as happy with a simple band, a white sapphire or an emerald ring and it probably won’t cost as much as a diamond engagement ring. Shopping for your ring at a vintage store, looking for one online rather than in-person and getting a ring with a series of smaller stones surrounding the center stone (also known as a halo ring) are a few additional ways to save when buying a ring.

Final Word

How Much Should You Spend on an Engagement Ring?

There’s no need to spend a fortune on an engagement ring. And you don’t have to feel guilty about cutting corners in order to find one that you can afford to buy.

Like any other major purchase, it’s a good idea to take time to save up for a ring. If you have to take on more credit card debt or a personal loan in order to buy an engagement ring, it’s a good idea to find out how long it’ll take to pay off your debt. It isn’t wise to begin a marriage by digging yourself (and your partner) into a deep financial hole.

Tips for Getting Financially Ready for Marriage

  • If you haven’t already, start talking about money. It’s important to establish an open dialogue and make sure you understand and respect each other’s money values.
  • You might also consider sit down with a financial advisor before the big day. A financial advisor can help you identify your financial goals and come up with a financial plan for your life as a married couple. A matching tool (like ours) can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: ©iStock.com/sergey_b_a, ©iStock.com/svetikd, ©iStock.com/adamkaz

The post How Much Should You Spend on an Engagement Ring? appeared first on SmartAsset Blog.

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Does Paying the Minimum Hurt Your Credit Score

Credit card bills can be confusing. If everything was straightforward and clear, credit card debt wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers. 

One of the most confusing aspects is the minimum payment, with few consumers understanding how this works, how much damage (if any) it does to their credit score, and why it’s important to pay more than the minimum.

We’ll address all of those things and more in this guide, looking at how minimum credit card payments can impact your FICO score and your credit report.

What is a Credit Card Minimum Payment?

The minimum payment is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of your total balance and includes fees and interest.  

If you fail to make this minimum payment, you may be hit with late fees and if you still haven’t paid after 30 days, your creditor will report your activity to the major credit bureaus and your credit score will take a hit.

When this happens, you could lose up to 100 points and gain a derogatory mark that remains on your credit report for up to 7 years. Making minimum payments will not result in a derogatory mark, but it can indirectly affect your credit score and we’ll discuss that a little later.

Firstly, it’s important to understand why you’re being asked to pay a minimum amount and how you can avoid it.

How Much is a Minimum Credit Card Payment?

Prior to 2004, monthly payments could be as low as 2% of the balance. This caused all kinds of problems as most of your monthly payment is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back. 

Regulators forced a change when they realized that some users were being locked into a cycle of credit card debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.

These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only the minimum payment is met.

Do I Need to Make the Minimum Payment?

If you have a rolling balance, you need to make the minimum monthly payment to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.

However, you can avoid the minimum payment by clearing your balance in full.

Let’s assume that you have a brand-new credit card and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered a minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.

If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal the minimum payment cleared) and your problems.

This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and that minimum payment begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.

To avoid falling into this trap, try the following tips:

  • Only Spend What You Have: A credit card should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and the credit card balance rolls over.
  • Get an Introductory Interest Rate: Many credit card issuers offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear the full balance before the intro period ends.
  • Use a Balance Transfer: If you’re in too deep and the intro rate is coming to an end, consider a balance transfer credit card. These cards allow you to move your full balance from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
  • Pay the Minimum: If you can’t pay the balance in full, make sure you at least pay the minimum. A missed payment or late payment can incur fees and may hurt your credit score. 

Why Pay More Than the Minimum?

You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle of credit card debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?

Your interest and fees are covered by your minimum payment and account for a sizeable percentage of that minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.

What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day. 

This continues every single day, and the larger your balance is, the more interest will compound and the greater the amount will be due over the term. By paying more than your minimum payment when you can, you’re reducing the balance and slowing things down.

Does Paying the Minimum Hurt My Credit Score?

Paying the minimum amount every month ensures you are doing the bare minimum to avoid hurting your credit history or accumulating fees. However, it can indirectly reduce your score via your credit utilization ratio.

Your credit utilization ratio is a score that compares the credit limit of all available credit cards to the total debt on those cards. It accounts for 30% of your credit score and is, therefore, a very important aspect of the credit scoring process.

The more credit card debt you accumulate, the lower your credit utilization rate will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing the payment amount, however, you can bring that ratio down and improve your credit score.

You can calculate your credit utilization score by adding together the total amount of credit limits and debts and then comparing the latter to the former. A combined credit limit of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.

Can Credit Card Fees Hurt My Credit Score?

As with interest charges, credit card fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with many credit card companies (including Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.

What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products. 

Along with foreign transaction fees and penalty fees, these can increase your balance and your minimum payment, making it harder to make on time payments and thus increasing the risk of a late payment.

Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.

Source: pocketyourdollars.com