Having health insurance makes it possible to receive medical care while only paying a fraction of that careâs true cost. Insurance doesnât cover everything, however. Some of the cost of your care is still up to you to pay, and that cost comes in two primary forms: copays and coinsurance.
What Is a Copay?
A copay is a flat amount of money that youâre responsible for paying for a health care service. Copays typically apply for things like a doctorâs appointment, prescription drug or medical test. The amount of your copay is dependent on your specific health insurance plan.
You can typically expect to pay your copay when you check in for your service, be it an annual physical, dental cleaning or blood test. Copays are typically lower amounts ranging from $10 for something like a generic drug prescription to around $65 for a visit to a medical specialist.
Depending on your insurance plan, copays may not take effect until after you reach your deductible. Your deductible is the amount of money you must pay out-of-pocket before your insurance provider starts to pitch in. Deductibles reset at the beginning of every year.
When you are reviewing your plan information and you see the phrase âafter deductibleâ or âdeductible appliesâ in reference to your copays, thatâs an indication that the copay is only in place once you meet your deductible. On the other hand, if you see âdeductible waived,â thatâs a sign that your copay is in place from the beginning. It may go without saying, but the latter situation is vastly preferable to you.
What Is Coinsurance?
Coinsurance is another method of splitting the cost of medical coverage with your insurance plan. A coinsurance is a percentage of the cost of services. You pay the percentage, and your insurance company foots the rest of the bill. So, if you have a $8,000 medical bill and a 20% coinsurance, you would be on the hook for $1,600.
Coinsurance typically only comes into play after you hit your deductible. Further, you may have differing coinsurance percentages for the same services depending on your provider network. If you have a preferred provider organization (PPO) plan, your coinsurance could be a higher percentage for providers outside your network than it is for providers in your network.
Similarly, your coinsurance may not apply to providers outside your network if you have a health maintenance organization (HMO) plan or an exclusive provider organization (EPO) plan. Thatâs because these plans typically donât provide any out-of-network coverage.
Copay vs. Coinsurance
Copay and coinsurance are very similar terms. They both have to do with portions of the cost of your health care thatâs under your responsibility. Because of that, and their similar names, itâs easy to confuse the two. There are a couple of important distinctions to keep in mind, however.
The most notable difference between copays and coinsurance is that copays are always a flat amount and coinsurance is always a percentage of the cost of the service. Another difference is that some copays can be in place before you hit your deductible, depending on the specifics of your plan. With coinsurance, you have to hit your deductible first.
Bottom Line
If youâre choosing between health insurance plans, make sure to examine the provided copays and coinsurance for each option. While they may not be the most important factor to consider, a high copay can be quite a pain, especially over the course of years of appointments and procedures.
Tips for Staying on Top of Medical Expenses
One of the best ways to stay ahead of surprise medical expenses is to have an emergency fund in place for just such a situation. If you can manage it, have three to six months worth of expenses stashed away in a high-yield savings account. That way, if youâre dealing with medical bills or have to step away from work, youâll have a bit of a cushion.
If youâre not sure how an unexpected medical expenses would fit into your finances, consider working with a financial advisor to develop a financial plan. Finding the right financial advisor that fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in 5 minutes. If youâre ready to be matched with local advisors that will help you achieve your financial goals, get started now.
Itâs pretty hard to argue against having more money in the bank.
But what are you saving for? If you donât 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 itâs 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-youâs best interest. And youâre playing the long game⦠thatâs why theyâre called goals!
What to Do Before You Start Writing Your Financial Goals
To help keep you from financial goals like âbuy the coolest toys and cars,â which could easily get you deeply into debt while you watch your credit score plummet, weâve compiled this guide.
Itâll help you set goals and create smart priorities for your money. That way, however you decide to spend your truly discretionary income, you wonât leave the 10-years-from-now version of you in the lurch.
First Thingâs First: How Much Money Do You Have?
You canât decide on your short- or long-term financial goals if you donât know how much money you have or where itâs going.
And if youâre operating without a budget, it can be easy to run out of money well before you run out of expenses â 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 â here are our favorite budgeting apps â but it can be as simple as a spreadsheet or even a good, old-fashioned piece of paper. It just takes two steps:
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.
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. Thatâs the total amount of money you have to your name.
If it seems like a lot, cool. Hang tight and donât let it burn a hole in your pocket. Weâre not done yet.
If it seems like⦠not a lot, well, you can fix that. Keep reading.
Create a Budget
Once youâve 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 â 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.
Itâll depend on your individual case â for instance, I totally have âwineâ as a budget line item.
See? Itâs all about priorities.
Need to go back to basics? Hereâs 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 monthâs end.
Itâs 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 donât 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 youâre willing to spend in each category, and stick to them.
Congratulations. Youâre 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:
Build an emergency fund.
Pay down debt.
Plan for retirement.
Set short-term and long-term financial goals.
We say âmostlyâ because itâs 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 youâre hemorrhaging money on sky-high interest charges, you might not have much expendable cash to put toward savings.
That means youâll pay the interest for a lot longer â and pay a lot more of it â 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 wonât 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 â 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, letâs move on to repaying debt. Whyâs it so important, anyway?
Because youâre 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, youâre doing yourself a huge financial favor in the long run.
Thereâs lots of great information out there about how to pay off debt, but itâs 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 youâll 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 â even though the second number is so much bigger.
Pro Tip
If youâre 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) donât spend any of your spare money on anything but paying them off until the number after every account reads â$0.â 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 â just in case some of your goals (like buying a home) depend upon your credit report not sucking.
3. Plan for Retirement
All right, youâre all set in case of an emergency and youâre living debt-free.
Congratulations! Weâre almost done with the hard part, I promise.
But thereâs 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 isnât brand-new: Weâve been bad enough at saving for retirement over the past few decades that millions of todayâs seniors canât afford to retire.
If you ever want to stop working, you need to save up the money youâll 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 donât fret if you got a late start â hereâs how to save for retirement in your 20s, 30s, 40s and 50s.
If your job offers a 401(k) plan, take advantage of it â 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, youâll 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
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A reminder NOT to spend.
Grocery Shopping – How far away is your usual store?
F
Budgeting 101
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!
Youâre in awesome financial shape â and youâve made it to the fun part of this post.
Consider the funds you have left â and those youâll continue to earn â 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, Iâll stop projecting.)
No matter your goals, itâs helpful to categorize them by how long theyâll 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 â and its onerous loan â 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 â 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.
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 youâre serious about your money. Maybe you even have some financial goals in mind.
The end result will bring you peace of mind. But if youâre creating a budget for the first time, remember that budgets will vary by individual and family. Itâs important to set up a budget thatâs 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 thingâs 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 shouldnât stop there. Once youâve 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
Youâll 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:
Rent or mortgage payment.
Living expenses like utilities (electric, gas and water bills), internet and phone.
Car payment and transportation costs.
Insurance (car, life, health).
Child care.
Groceries.
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.
Donât forget to account for expenses you donât 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 donât miss periodic expenses like quarterly insurance premiums.
Donât 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 â 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, itâs time to make some adjustments to meet your goals.
How to Cut Your Expenses
If you are overspending each month, donât 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. Youâll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see whatâs 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 youâre 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 youâll 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 youâve 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 donât forget to remind yourself of your financial goal when youâre craving Starbucks at 3 p.m. But remember that itâs OK to treat yourself â occasionally.
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 donât 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 wonât 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 doesnât mean you canât 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 youâre 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.Â
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, itâs 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. Itâs 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. Itâs also beneficial for those living to paycheck to paycheck.
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.
Grocery Shopping – How far away is your usual store?
F
Budgeting 101
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 canât 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 youâre 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.
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)
If you’re a busy individual and have no time for the day-to-day management of your money, you may need to consult a financial consultant.
Beyond being busy, however, there are major turning points in your life where working with a financial consultant is absolutely necessary.
For instance, if you’re approaching retirement, you’ll have to figure out how much money you need to live during your non-working years.
So what is a financial consultant? And what do financial consultants do? In this article, we’ll run you through situations where financial consulting makes sense.
We’ll show you where you can get a financial consultant that is ethical and who will act in your best interest, etc.
Of note, hiring a financial consultant is not cheap. A fee-only financial advisor can charge you anywhere from $75 to $300 per hour. If your situation is simple, you may not need to hire one.
However, hiring a financial consultant in the situations discussed below is worth the cost.
Related: 5 Mistakes People Make When Hiring A Financial Advisor
What is a financial consultant?
A financial consultant is another name for financial advisor. They can advise you on a variety of money subjects.
They can help you make informed decisions about managing your investments and help you navigate complex money situations.
Moreover, a financial consultant can help you come up with financial goals such as saving for retirement, property investing and help you achieve those goals.
To get you started, here’s how to choose a financial advisor.
5 Reasons You Need To Hire A Financial Consultant:
1. You have a lot of credit card debt.
Having a lot of credit card debt not only can cause you severe emotional distress, it can also negatively impact your ability to get a loan (personal loan or home loan).
For instance, if you see 50 percent of your income is going towards paying your credit card debt, then you need professional help to manage debt. Your best option is to find a financial consultant.
Luckily, the SmartAsset’s matching tool is free and it helps you find a financial consultant in your area in just under 5 minutes. Get started now.
2. You are on the verge of bankruptcy.
If you have way too much debt and can’t seem to pay it off within a reasonable time, another option for you is to file for bankruptcy.
Although bankruptcy will free you from most of your debts, avoid that option if you can.
One reason is because it can have a long, negative impact on your credit file. Once you go bankrupt, the bankruptcy will be on your credit report for a long time.
Working with a financial consultant can help you come up with different strategies. They may advise you to consider debt consolidation, which can significantly lower interest rates.
Speak with the Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals. Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
3. You’re ready to invest in the stock market.
If you’re thinking about investing in the stock market, then the need for a financial consultant is greater. Investing in the stock market has the potential of making you wealthy.
But with great returns come great risks. The stock market is volatile. The price of stock can be $55 today, and drops to $5 the next day.
So, investing in the stock market can be very intimidating. And if you’re a beginner investor and unsure about the process, it is wise to chat with a financial advisor to see if they can benefit you.
A financial consultant can help build an investment portfolio and help manage your investments.
4. You’re starting a family.
If you’re just got married seeking a financial consultant is very important. A financial advisor can help you figure out whether you should combine your finances, file taxes jointly or separately.
You also need to think about life insurance as well, in case of death of one spouse. And if you’re thinking of having kids, you need to think about saving for college to ensure the kids’ future.
Turning the job over to a financial consultant can save you a lot of money in the long wrong and is worth the cost.
Related: Do I Need A Financial Advisor?
5. You’re just irresponsible with money.
If you make emotionally based financial decisions all of the time, you’re buying things without planning for them, you may be irresponsible financially and therefore need professional advice.
If you’re spending money on expensive items when you could be planning and saving for retirement, then you may need a financial consultant.
You may find yourself having trouble saving money. Then it may make sense to speak with a financial advisor.
Speak with the Right Financial Advisor For You
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post 5 Reasons You Need To Hire A Financial Consultant appeared first on GrowthRapidly.
You just learned of the passing of a loved one. During this stressful and emotionally taxing time, you also find out that you’re receiving an inheritance. While you’re grateful for the unexpected windfall, knowing what to do with an inheritance can bring its own share of stress.
While the amounts vary greatly, the Federal Reserve Board’s Survey of Consumer Finances reports that an average of roughly 1.7 million households receive an inheritance each year. First words of wisdomâresist the urge to spend it all at once. According to a study funded by the Bureau of Labor Statistics, one-third of people who receive an inheritance spend all of itâand even dip into other savingsâin the first two years.
Not me, you say? Still, you might be asking, “What should I do with my inheritance money?” Follow these four steps to help you make smart decisions with your newfound wealth:
1. Take time to grieve your loss
Deciding what to do with an inheritance can bring with it mixed emotions: a sense of reprieve for this unexpected financial gain and sadness for the loss of a loved one, says Robert Pagliarini, certified financial planner and president of Pacifica Wealth Advisors.
During this time, you might feel confused, upset and overwhelmed. âA large inheritance that pushes you out of your financial comfort zone can create anxiety about how to best manage the money,” Pagliarini says. As an inheritor, Pagliarini adds that you may feel the need to be extra careful with the funds; even though you know it is your money, it could feel borrowed.
The last thing you want to do when deciding what to do with an inheritance is make financial decisions under an emotional haze. Avoid making any drastic moves right away, such as quitting your job or selling your home. Some experts suggest giving yourself a six-month buffer before using any of your inheritance, using the time instead to develop a financial plan. While you are thinking about things to do with an inheritance, you can park any funds in a high-yield savings account or certificate of deposit.
âA large inheritance that pushes you out of your financial comfort zone can create anxiety about how to best manage the money.â
2. Know what you’re inheriting
Before you determine the things to do with an inheritance, you need to know what you’re getting. Certified financial planner and wealth manager Alex Caswell says how you use your inheritance will largely depend on its source. Typically, Caswell says an inheritance will come in the form of assets from one of three places:
Real estate, such as a house or property. As Caswell explains, if you receive assets from real estate, you will transfer them into your name. As the inheritor, you can choose what to do with the assetsâtypically sell, rent or live in them.
A trust account, a legal arrangement through which funds are held by a third party (the trustee) for the benefit of another party (the beneficiary), which may be an individual or a group. The creator of the trust is known as a grantor. âIf someone inherits assets through a trust, the trust documents will stipulate how these assets will be distributed and who ultimately decides how they are to be invested,” Caswell says. In some cases, the assets get distributed outright to you; in other instances, the trust stays intact and you get paid in installments.
A retirement account, such as an IRA, Roth IRA or 401(k). These accounts can be distributed in one lump sum, however, there may be requirements related to the amount of a distribution and the cadence of distributions.
When considering things to do with an inheritance, know that inherited assets can be designated as Transfer on Death (TOD) or beneficiary deeds (in the case of real estate), which means the assets can be transferred to beneficiaries without the often lengthy probate process. An individual may also bequeath cash or valuables, like jewelry or family heirlooms, as well as life insurance or stock certificates.
Caswell says if your inheritance comes in the form of investment assets, such as stocks or mutual funds, you’ll want to think of them as part of your own financial picture. âAll too often, we see individuals end up treating inherited assets as a living extension of their passed relative,” Caswell says. Consider how the investments can be used to support your financial goals when thinking about things to do when you get an inheritance.
An average of roughly 1.7 million households receive an inheritance each year.
3. Plan what to do with your financial gain
Just like doing your household budgeting, it’s important to “assign” your inheritance to specific purposes or goals, says Pacifica Wealth Advisors’ Pagliarini. Depending on your financial situation, the simple concepts of save, spend and give may be a good place to start when deciding on things to do when you get an inheritance:
SAVE:
Bolster your emergency fund: You should have at least three to six months of living expenses saved up to avoid unexpected financial shocks, such as job loss, car repairs or medical expenses. If you don’t and you’re deciding what things to do with an inheritance, consider parking some cash in this bucket.
Save for big goals: Now could be a good time to boost your long-term savings goals and pay it forward. Things to do when you get an inheritance could include putting money toward a child’s college fund or getting your retirement savings on track.
SPEND:
Tackle debt: If you’re evaluating what to do with an inheritance, high-interest debt is something you could consider paying off. Spending on debt repayment can help you save on hefty interest charges.
Reduce or pay off your mortgage: Getting closer to paying off your homeâor paying it off entirelyâcan also save you in interest and significantly lower your monthly expenses. Allocating cash here is a win-win.
Enjoy a little bit of it: It’s okay to use a portion of your inheritance on something you enjoy or find rewarding. Planning a vacation, investing in more education or paying for a big purchase could be good moves.
GIVE:
Donate funds to charity: Thinking about your loved one’s causes or your own can continue legacy goals and provide tax benefits.
4. Don’t get tripped up on taxes
When deciding what to do with an inheritance, taxes will need to be considered. “It is extremely important to be aware of all tax ramifications of any decision around inherited assets,” Caswell says. You could be required to pay a capital gains tax if you sell the gift (like property) that was passed down to you, for example. Also, depending on where you live, your inherited money could be taxed. In addition to federal estate taxes, several U.S. states impose an inheritance tax and/or an estate tax.
Since every situation is unique and tax laws can change, when considering things to do with an inheritance, consult a financial advisor or tax professional for guidance.
Make your windfall count
Receiving an inheritance has the potential to change your financial picture for good. When thinking about the things to do when you get an inheritance, be sure to give yourself ample time to grieve and to understand all of your options. Don’t be afraid to lean on the experts to get up to speed on any tax and legal implications you need to consider.
Planning can go a long way toward making the right decisions concerning your newfound wealth. Being responsible with your inheritance not only helps ensure your financial future, but will also honor your loved one’s legacy.
The post 4 Smart Things to Do When You Get an Inheritance appeared first on Discover Bank – Banking Topics Blog.
Thereâs nothing like falling in love and finding the person you want to spend the rest of your life with. But when itâs time to shop for rings, itâs easy to get discouraged by the price tags. Just how much should you spend on an engagement ring? Weâll 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 canât buy love. But if youâre in the market for an engagement ring, youâll quickly realize that it wonât be cheap. According to the Knotâs 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. Thatâs 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?
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 isnât 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. Thatâs 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 doesnât work out and your ex-spouse decides to sell their diamond engagement ring, its value wonât be nearly as high as it was when it was first purchased. Thatâs why diamond rings can be such bad investments.
So exactly how much should you spend on an engagement ring? Itâs a good idea to make sure that the price you pay doesnât prevent you or your partner from accomplishing whatever youâre planning to achieve in the future, whether thatâs 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, itâs best to spend an amount that wonât compromise your financial goals or jeopardize the status of your relationship.
How to Save on the Ring
If you donât want the engagement ring youâre buying to break the bank, itâs 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 youâre buying one for your significant other, itâs important to familiarize yourself with what jewelers refer to as the four Câs: clarity, cut, color and carat weight.
In terms of clarity, the best diamonds are flawless, meaning that they donât have any blemishes when viewed under a microscope with 10 power magnification. Since no oneâs 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 isnât completely colorless can also lower its overall price.
Or donât 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 wonât 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
Thereâs no need to spend a fortune on an engagement ring. And you donât have to feel guilty about cutting corners in order to find one that you can afford to buy.
Like any other major purchase, itâs 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, itâs a good idea to find out how long itâll take to pay off your debt. It isnât 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 havenât already, start talking about money. Itâs important to establish an open dialogue and make sure you understand and respect each otherâs 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 youâll 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.
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Take a moment. Think about being your best self â living your best life.
What do you really want to do with your life? Raise a happy family? Travel the world? Buy a nice house? Start your own business?
Reality check: To accomplish any of those things, youâre going to need to know how to save money.
Unfortunately, Americans are bad at saving money, and weâre getting worse. Thanks to rising costs, stagnant salaries and student loan debt, weâre saving less than ever.
Table of ContentsÂ
Step 1: Develop Savings Goals and Strategies
Step 2: Pick Budgeting and Debt Repayment Methods
Step 3: Choose a Financial Institution and Accounts
Step 4: Automate Your Finances
Step 5: Establish a Budget-Conscious Lifestyle
Step 6: Make More Money
Here Are Our Best Tips to Save Money
Are you ready to actually start saving money? What youâre reading is a step-by-step guide on how to do it â how to come up with savings strategies, choose a budgeting method, pick the right financial institution, automate your finances and live a budget-conscious lifestyle.
Pour yourself a cup of coffee and buckle up. Itâs time to get serious about this.
Step 1: Develop Savings Goals and Strategies
Youâre probably asking yourself, âHow much should I save?â
Your first move is to set specific savings goals for yourself â emphasis on specific. Naming your goals will make them more real to you. Itâll help you resist the temptation to spend your money on other stuff.
Think Long Term and Short Term
What exactly do you want to save money for? How much will you need to save? And what do you need to save for first? Think short- and long-term:
Short-term: Save for a real vacation or nice holiday gifts. But first, save enough to have a decent emergency fund â three to six monthsâ worth of living expenses, in case you run into an unexpected car-repair bill or lose your job, for example.
Long-term: This involves big-picture thinking. Here, youâre saving money for things like your childrenâs college fund or for your retirement plan.
Analyze Your Income
How much can you realistically save for these goals, now that youâre making them a priority?
Write down your income and expenses â all of your expenses, from utility bills to your Netflix subscription. There are probably more ways to save money than you realize. Donât forget your student loans or credit card debt. Make sure you know what youâre spending in every budget category. Pay special attention to what youâre spending on non-essentials, such as eating out.
An easy way to automate this process is to use Trim, a little bot thatâll keep track of all your transactions.
Connect your checking account, credit card and savings account for a big-picture look at your spending habits. Then, take a closer look by checking out each of your transactions. Set alerts thatâll let you know when bills are due, when youâve hit a spending cap or when youâve (hopefully not) overdrafted. This will help you stick with your savings plan.
Check in on Your Credit
Do your own credit check. Keeping tabs on your credit score and your credit reports can help guide you to a financially healthier life â especially if you use a free credit-monitoring service like Credit Sesame. It gives you personalized suggestions for improving your credit.
The better your credit, the better off youâll be when youâre getting a home or car loan. Credit Sesame can estimate how big a mortgage you might qualify for, for example.
Hereâs our ultimate guide to using Credit Sesame.
Step 2: Pick Budgeting and Debt Repayment Methods
Itâs time to start making a monthly budget and sticking to it â especially if you have debt.
This way, you can put savings right into your budget. Itâs never an afterthought.
Here are five different budgeting methods. We canât tell you which one to choose. Be honest with yourself, and choose the one you think is most likely to work for you. This is how to save money on a tight budget.
The 50/30/20 Rule
This one was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her business-executive daughter Amelia Warren Tyagi.
Split your income into three spending categories: 50% goes to essential bills and monthly expenses, 20% toward financial goals and 30% to personal spending (all the stuff you like to spend money on but donât really need). Put the money earmarked for your financial goals into a separate savings account.
Good for: People who worry they wonât have a life if theyâre on a budget. Hereâs our complete guide to 50/30/20 budgeting.
Envelope Budgeting
So-called envelope budgeting is traditionally a cash-only budget. Every month, you use cash for different categories of spending, and you keep that cash for each category in separate envelopes â labeled for groceries, housing, phone, etc.
Prefer plastic? Hereâs our review of Mvelopes, an app that lets you digitize this method.
Good for: People who know they need help with self-control. If thereâs nothing left in one envelope toward the end of the month, thereâs no more money to spend on that category, period.
Zero-Based Budget
Hereâs how you draw up this budget: Your income minus your expenses (including savings) equals zero. This way, you have to justify every expense.
Good for: People who need a simple, straightforward method that accounts for every dollar. Hereâs our guide to the zero-based budget.
Debt Avalanche
This debt-repayment method helps you budget when you have debt. Pay off your debts with the highest interest rates first â most likely your credit cards. Doing that can save you a lot of money over time.
Good for: People with a lot of credit card debt. Credit cards generally charge you higher interest than other lenders do. Learn more about the debt avalanche method here.
Debt Snowball
Money management guru Dave Ramsey champions the debt snowball method of debt repayment. Pay off your debts with the smallest balances first. This allows you to eliminate debts from your list faster, which can motivate you to keep going.
Good for: People who owe a lot of different kinds of debts â credit cards, student loans, etc. â and who need motivation. Hereâs how to use the debt snowball method to eliminate debt.
FROM THE DEBT FORUM
Eviction on credit report
Helping Covid-19 Victims
Struggling to pay debt or going bankrupt
Can’t afford car loan
See more in Debt or ask a money question
Step 3: Choose a Financial Institution and Accounts
You might be thinking, I already have a bank. And of course you do. If youâre like most of us, youâve had the same bank for years.
Most people donât give this a second thought. They figure itâs too inconvenient to switch. But itâs worth shopping around for a better option, because where you bank can make a real difference in how much you save.
What to Look for in a Bank Account
Does your checking account pay you interest? What are the fees like? What other perks does it offer?
Did you know the biggest U.S. banks are collecting more than $6 billion a year in overdraft and ATM fees?
Maybe itâs time to try another financial institution. Weâve found some great online bank accounts to help you avoid fees and get features you wonât find with the brick-and-mortar banks.
Hereâs one example: Thereâs a mobile baking app called Varo Money.
The FDIC reports that the average savings account pays a paltry .08% APY*, but when you open an online checking and savings account with Varo, it will pay you more than 20 times that amount on your savings account.Â
We know opening a new bank account isnât exactly everyoneâs idea of fun, but Varo makes it easy. You can open an account with just a penny, and more than 750,000 people have already signed up.
Oh, and there are no monthly fees.Â
Want more options? Hereâs our ultimate guide to help you choose the right account.
To free up more money for savings, try to spend less paying interest on your debts â especially if you have high-interest credit card debt.
These days, credit card interest rates often climb north of 20%. How can you avoid paying all that interest? Your best bet is to cut back on your expenses and pay off your balance as soon as you realistically can.
Start by using the right credit card for you, based on your situation and needs. Would you prefer a card that gives you cash back or travel incentives, a balance-transfer card, or a card thatâll help you build credit?
Also consider paying off your high-interest debt with a low-interest personal loan. Itâs easier than you might think. Go window-shopping at an online marketplace for personal loans. Here are some weâve test-driven for you:
AmOne allows you to compare rates side-by-side from multiple lenders who are competing against each other for your business. Itâs best for borrowers who have good credit scores and just want to consolidate their debt.
Fiona is also a marketplace but allows you to borrow more money and borrow it for a longer period of time â if thatâs what you want to do.
Upstart tends to be helpful for recent grads, who have a young credit history and a mound of student debt. It can help you find a loan without relying on only your conventional credit score.
Step 4: Automate Your Finances
Thatâs right. Weâre deep into the 21st century, here, so make technology do the work for you.
The best ways to save include automation. Youâll save time, and time is money. Here are a few money-management steps you can take today to ensure you wonât have to think about money for more than a few minutes every month.Â
Automate Bill Pay
Most bills are paid online now, reports the Credit Union Times. But you can take it a step further. Set it up so youâll receive and pay all of your bills online through your bank. That simplifies things so youâll never miss a payment.
Hereâs how: Go to your bankâs online bill-pay feature. Enter all the companies that bill you, and the account numbers for each. Arrange to receive e-bills from whichever billers will do that.
You can also have your bank send digital payments to individuals (like a landlord).
Automate Savings
Whatever you need done financially, thereâs an app for that. Weâve put several to the test.
Digit is an automated savings platform that calculates how much money you can save. Hereâs our review of Digit.
Long Game Savings combines online games and saving money.
Also, see whether your bank offers automatic savings transfers that will move money from your checking account to your savings account each month.
Automate Investing
You donât have to be Warren Buffett to be an investor. You donât even have to follow the stock market, read The Wall Street Journal or watch CNBC.
You can take advantage of these apps offering easy, automatic ways to start investing â the âset it and forget itâ method. Theyâre useful for tricking your brain into saving more. Youâll do it without even realizing youâre doing it.
Stash lets you start investing with as little as $5 and for just a $1 monthly fee for balances under $5,000. Bonus: Penny Hoarders get $5 just for signing up!
Acorns connects to your checking account, credit and debit cards to save your digital change. It automatically rounds up purchases with your connected cards and invests the digital change into your chosen portfolio. Bonus: Penny Hoarders get $5 just for signing up! Read our full review of Acorns here.
Blooom is a company that offers a free âhealth check-upâ for your 401(k). Then, for only $10 a month (Penny Hoarders get the first month free!), itâll optimize and manage your retirement savings for you. See how Blooom helped one Penny Hoarder make the most of her 401(k).
Automate Budgeting
You can automate your budget, too. Thereâs an app for that. Actually, weâve found several.
Charlie is a money-saving penguin who lives in your SMS text messages or Facebook Messenger (your choice, though Charlie is more fun and reliable on Messenger). He helps you save money through things like making sure youâre getting the best deals around (ahem, overpaying $24 a month on that cell phone bill?).
Mint lets you see all your accounts, cards, bills and investments in one place.
Medean for iOS ranks your finances based on how they stack up to those of people of similar age, income, location and gender. It calls itself a âhealth index for your finances,â and helps assess your situation and find ways to save money.
MoneyLion offers rewards to help you develop healthy financial habits and will literally pay you for logging onto the app. You can earn points in the rewards program by paying bills on time, connecting your bank account or downloading the mobile app.
Step 5: Establish a Budget-Conscious Lifestyle
Hereâs the harsh reality: To save more money, youâll need to spend less money. (Or make more money, but weâll get to that next.)
That doesnât mean you have to live like a monk. Nor do you have to survive on ramen noodles and the dollar menu, wear scuffed shoes and patchy clothes, or cut your own hair with hedge clippers.
You just have to be smart and strategic. Here are some of our best tips to help you spend less:
Save Money Around the House
Your home is your castle. But castles are so, like, expensive. Fortunately, there are lots of ways to save money around the house.
Your priciest purchases â like appliances and furniture â are a natural place to look for savings. Try repairing your appliances instead of replacing them. And hereâs a good list of other tricks for saving on furniture and appliances.
The cost of cooling, heating and lighting your home is massive. Try installing thermal curtains and a programmable thermostat. Or check out these creative, energy-saving ways to slash your utility bills.
Find Free Entertainment
Entertainment can cost an arm and a leg. But hey, we have to live, right? So do it for free! Next time youâre planning a night out, take advantage of one of these free date nights or group outings.
If youâre going to stay in, cut the cord. More and more people are doing this, because their cable bill has gotten so expensive.
If youâre thinking of switching to an online streaming service and youâre wondering which would be best, weâve got you covered with our comparison of Netflix, Prime Video and Hulu. We compared costs, type of content, number of available titles and more.
You also should reconsider that gym membership if youâre not really using it.
Cut Your Food Budget
Groceries are a huge part of everyoneâs budget, so theyâre a big target for savings. Next time youâre putting together your shopping list, make sure to check out our favorite tricks to save money at the grocery store:
Look for free printable coupons.
Compare your local grocery prices using this worksheet.
Ibotta pays you cash back on purchases if you take pictures of your grocery store receipts. Plus, youâll get a $10 bonus for signing up!
Scan grocery storesâ websites for deals and hit more than one store.
Not loving the supermarket? Nearly 70% of us say we spend too much on take-out or going out to eat. Hereâs how to save money at restaurants, too.
Find out If Youâre Wasting Money on Insurance
Buying insurance can be confusing and overwhelming, because there are so many options.
Hereâs how to find affordable insurance:
For Your Car: Auto Insurance
Here are the blunt facts about how to get lower car insurance premiums: Have fewer accidents, get fewer traffic tickets and boost your credit score.
Automotive experts also gave us the following tips:
Buy a used car.
Participate in your insurerâs safe-driving program.
Shop around for better rates. One easy way is The Zebra, a car insurance search engine that compares your options from more than 200 providers in less than 60 seconds. Hereâs how one guy is saving $360 this year on car insurance because of The Zebra.
For Yourself: Health Insurance
Letâs face it: Health insurance can be confusing and intimidating.
If youâre buying insurance for yourself, start with the federal health insurance marketplace at Healthcare.gov to see whether you qualify for any discounts or assistance.
Finding affordable health care coverage is a huge challenge for freelancers. Hereâs how to get covered if youâre self-employed.
For Your Family: Life Insurance
Life insurance pays your dependents a set amount of money if you die. Whether to buy it is a judgment call.
Life insurance is considered more important if youâre married or have children. You might also want a basic policy that would pay off your funeral, mortgage or other debt.
Youâll probably be asked to choose between two options: term or universal life insurance. If youâre like most of us, youâll choose term â the simplest, cheapest and most popular kind of life insurance policy.
To help you save money and navigate this complicated industry, modern companies are updating the old model:
Policygenius is an online-only platform that offers instant quotes from top carriers to help you make a quicker decision. Once you choose a life insurance company, you can apply right online, and a Policygenius rep will give you a quick call to ask a few follow-up questions.
Haven Life can insure you quickly based just on the health information you provide online.
Ethos can get you term life insurance in less than 10 minutes â with no medical exam â for coverage up to $1 million. Ethos offers a digital application, and customer service is available if you have questions.
Step 6: Make More Money
How can you increase your income? Itâs easier to save money if youâre bringing in more money to begin with.
Here are a couple of simple ways to make extra cash at home:
Share Your Opinion
You wonât get rich taking surveys, but if youâre just vegging out on the couch, why not click a couple buttons and earn a few bucks? Weâve tried a lot of paid survey sites, and two of the best weâve found are My Points and InboxDollars.
Clear Your Closets
Sell your old stuff! Use the Decluttr app to get paid for your old DVDs, Blu-Rays, CDs, video games, gaming consoles and phones.
You can also sell nearly anything through the Letgo app. Just snap a photo of your item and set up a listing in about 30 seconds. If you have more free time, try selling items on Craigslist or eBay.
Find a Side Gig
For our best ideas to boost your bottom line, check out the following:
Unique ways to make money at home.
How to make extra money online.
How to earn passive income.
The Penny Hoarderâs continually updated page on open work-from-home jobs.
Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. Heâs slowly getting better about saving money.
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.
When you create a budget that works for you, you gain a sense of peace and freedom that comes with taking ownership of your finances. Although there are many approaches to budgeting, certain systems prove to be more effective than others. Zero-based budgeting is an easy and reliable method to achieve your financial goals. The concept of zero-based budgeting is simple: When you create your budget, you assign a role for every single dollar of your income.
By knowing exactly where your hard-earned cash is going, zero-based budgeting eliminates uncertainty and increases confidence in your financial decisions. Could a zero-sum approach to budgeting be the key to helping you regain your financial freedom? Weâll walk you through the specifics of this detail-oriented budgeting method so you can decide if itâs the right choice for your situation.
What Is Zero-Based Budgeting?
In short, zero-based budgeting is when you allocate every dollar you earn so that your income minus your expenses equals zero. If you earn $3,000 a month, the entirety of that $3,000 is accounted for in a zero-based budget. The goal is to avoid having extra money at the end of the month so you make wise spending choices.
Your budget should allow for spending money on monthly expenses like groceries and utilities, as well as âfun money.â Rather than waiting to see whatâs left over after taking care of bills and other essentials, a zero-based budget forces you to make financial decisions in advance. If you truly want to align your actions with your financial goals, youâll realize that every penny needs a purpose to make the most of it.
By forcing you to decide how much of your income will go towards goals like paying off debt or saving for a house before you even receive your check, zero-based budgeting encourages you to stick to your goals.
Is Zero-Based Budgeting Right For You?
Zero-based budgeting can be for everyone. A damaging myth of budgeting is that itâs only for people who lack the discipline to hold themselves accountable. No matter how much youâre struggling or thriving financially, you can benefit from taking control of your money with a zero-based budget. If youâre still skeptical about zero-based budgeting, take a look below at how it compares to the four other most popular budgeting alternatives, including the 50/30/20 method:
Zero-Based Budget: Make sure your expenses match your income each month so that your earnings minus your costs equal zero.
âPay Yourself Firstâ Budget: Dedicate money to savings and then the remainder is free to be spent how you choose.
Envelope Budget: Divide cash into physical envelopes filled with the exact amount of money you can spend on that category.
50/30/20 Budget: 50% of your income is for essentials, 30% is for personal expenses, and 20% goes towards savings.
Value-Based Budget: Calculate the monthly cost of each need based on your values, then choose how to stretch your income to meet those needs.
When you donât know exactly how you intend to divide your money each month, itâs easy to fall into spending traps. A zero-based budget using a digital budgeting tool is a great way to set yourself up for success and stick to your plan.
How to Create a Zero-Based Budget
Develop a zero-based budgeting plan by making it as simple as possible. Your main objective is ensuring your expenses match your income during the month. Donât overcomplicate the process by stressing about making the âperfectâ plan. The best part about creating a zero-based budget is that itâs easy to adjust month-over-month.
1. Record Your Monthly Income and Expenses
Write down every single monthly and seasonal expense to set yourself up for success. If you donât know where to start, you know youâll always have to factor in the cost of housing, utilities, transportation, and groceries.
Next, consider expenses youâre saving for, like a new car, a birthday or anniversary gift, etc. With a little bit of forethought, there shouldnât be any surprises. Itâs wise to set aside cash for unexpected or one-off expenses so youâre not immediately dipping into your emergency fund.
2. Adjust Your Budget Until Income Minus Expenses Equals Zero
When youâre new to zero-based budgeting, donât worry if your income and expenses donât balance each other out at first. Itâs likely that youâll have to reduce recurring costs or increase your earnings to reach a zero-sum. Canceling unnecessary subscriptions, packing your own lunch, skipping Starbucks, and starting a passive income-generating side hustle are all helpful.
Using an app with a budget categorization feature is particularly useful when youâre in the trial and error phase. Otherwise, it can be tedious and discouraging to manually re-adjust your budgeting strategy.
3. Track and Optimize Your Monthly Spending Accordingly
A zero-based budget is rarely flawless the first time around. Thankfully, you can optimize your spending by reallocating your funds as often as you need to during the month. Be sure to set yourself calendar reminders to have budget check-ins on a weekly or bi-weekly basis, especially if youâre working on budgeting as a family.
There are countless ways to increase and decrease your dollar allocations according to what makes the most sense for your circumstances. Oftentimes, three to six months are required to master zero-based budgeting. Once you get the hang of it, chances are that youâll enjoy reaping the rewards so much that youâll wonder why you didnât start sooner.
Pros and Cons of Zero-Based Budgeting
Thereâs no right or wrong answer to how you choose to manage your finances, but the key is that you need some kind of systematic approach to handling your money. Budgets are essential to help you build an emergency fund, save for retirement, pay off loans, or grow wealth through investing. If you arenât sure that zero-based budgeting is the best strategy for you, weâve outlined the pros and cons below.
Business management expert Peter Drucker is well-known for saying, âyou can’t improve what you can’t measure.â If you want to make progress towards your financial goals, you need a way to define and track where your money will go. If youâre not convinced that a zero-based budget will work for you, donât force it. You can always give it a try for a month or two and fall back on a different budgeting solution.
In Summary…
Zero-based budgeting is an easy and effective method to help you achieve your financial dreams. Donât miss the chance to get the most value from your money by budgeting. Weâve summed up our main points below.
Zero-based budgeting is when all of your income minus all your expenses equals zero. Every dollar of your hard-earned cash has a specific, purpose-driven role.
Having a zero-based budget allows you to make your income go further by proactively allocating your funds to different areas of spending and saving.
Using a digital budgeting tool like Mint helps to set yourself up for success and hold you accountable in your zero-based budgeting goals.
The post Zero-Based Budgeting: The Ultimate Guide appeared first on MintLife Blog.
A pay cut, whether big or small, can catch you off guardâand throw your finances into disarray. While a salary cut is different than a layoff, it can leave you feeling just as uncertain.
How do you deal with a pay cut and deal with this uncertainty?
There are strategies to help you navigate both the emotional and financial challenges of this situation. One key element? A budget. Whether you need to create a budget from scratch or adjust the budget you already have, doing so can help you get back on your feet and set yourself up for success.
Hereâs a rundown of budgeting tips to survive a pay cut to keep your finances intact:
Ask your employer for the parameters of the income reduction or salary cut
First, keep in mind that a pay cut typically isnât personal. According to Scott Bishop, an executive vice president of financial planning at a wealth management firm, businesses often cut salaries to preserve their cash reserves while they stabilize their cash flow or weather some larger economic impact, like the coronavirus pandemic.
Secondly, make sure you understand the full scope of the salary cut. Bishop suggests you ask your employer questions like:
What is the amount of pay being cut?
Why is pay being cut?
When will the reduction begin, and how long will it last?
Will any of the following be affected?
401(k) match
Healthcare or insurance costs
Employer-sponsored training or continuing education opportunities
Hours or job responsibilities
What are the long-term plans to improve the companyâs financial situation?
Once youâve painted the full scope of what and why, you can determine how to handle the pay cut.
âFor some people who are big savers, it might not be a big deal,â Bishop says. âBut for some people who live paycheck to paycheck, itâs going to be significant.â
Settle any anxieties that might come with a salary cut
If you are dealing with financial stress, try settling your mind and emotions so you can make decisions with a clear head.
âThe emotional and mental toll can be one of the hardest parts,â says Lindsay Dell Cook, president and founder of Budget Babble LLC, which provides personal finance and small business financial counseling. âIt gets even harder if there are others depending on your income who are also financially stressed.â
When sharing the news with family members who may also be impacted, Cook suggests the following:
Find the right time. Pick a time of day during which everyone will have the highest mental capacity for the conversation. âFor instance, I am a morning person, so if my husband told me at bedtime about a pay cut, I would have a much harder time processing that information,â Cook says.
Frame it as a brainstorming session. Bring ideas of what you can do to handle the pay cut, such as a list of expenses you can cut or a plan for how you can make extra income.
Empathize with the other person. âReduced income is not easy for anyone. Everyone responds to financial anxiety differently,â Cook says.
“If youâre unable to maintain your previous level of saving after a pay cut, try to save at a smaller scale for goals like retirement and your emergency fund.”
Create or adjust your budget to handle a pay cut
Once you understand the salary cut and have informed your family or roommates, itâs time to crunch the numbers. Thatâs the first step to figuring out how to save money after a pay cut.
If you donât have a budget, find a budgeting system that fits your needs. Learning how to effectively budget takes time and practice, so be patient with yourself if youâre new to this. Cook suggests reading up on how to create a budget.
One system to consider is the 50-20-30 budget rule, which has you break your spending into three simple categories. If you prefer the aid of technology when determining how to handle a pay cut, there are many budgeting and spending apps that can help you manage your money.
Whether youâre handling a pay cut by creating a new plan or modifying an existing budget, Bishop suggests taking the following steps:
Add up your income. Combine your new salary with your partnerâs pay, and factor in any additional income streams like from dividends or savings account interest. Tally up the total.
List your expenses. Be sure to include essential expenses (e.g., housing, food, clothing, transportation) and nonessential expenses (e.g., entertainment, takeout, hobbies).
Look through your bank statement online and your past receipts so all expenses are included.
Account for infrequent expenses such as gifts, car maintenance or home repairs.
Track the amount you save. Note any regular savings contributions you make, such as to an emergency fund or retirement account.
Get your partnerâs buy-in. What needs do they have, and what is nonnegotiable in the budget for each of you?
Cut expenses with budgeting tips to survive a pay cut
If youâve crunched the numbers and found that your expenses add up to more than your new income, youâll need to find ways to cut back. Here are some tips on trimming your spending to survive a salary cut:
Cut back on takeout meals and stick to a strict grocery list or food budget, Cook suggests.
Avoid large discretionary purchases like a car during the duration of your pay cut, Bishop says.
Negotiate with your utility companies or ask if theyâre providing forbearance options, Bankrate suggests. You can also ask your car insurance provider if it has additional savings for customers who are driving less, according to Bankrate.
If you think you might fall behind on rent or mortgage payments as youâre handling a pay cut, both Cook and Bishop agree that early, proactive communication is key. Be honest with your landlord or mortgage company. âDonât wait until youâre past due,â Bishop says.
The same applies for other financial obligations, such as your credit card bill. Youâll likely find those companies are willing to work with you through the rough patch.
Cook also suggests you look into municipal assistance programs as a budgeting tip to survive a pay cut. âMany cities have established rental assistance funds to help taxpayers meet their obligations during the pandemic,â she says.
Continue to save money after a pay cut
As you consider how to cut costs, take time to think about your long-term savings goals and how to save money after a pay cut. By cutting discretionary spending through your new budgetâwhat Bishop calls âcutting the fatââyou may have freed up income to maintain your good saving habits during this time. He says itâs important to do that before slowing down on savings.
If youâre unable to maintain your previous level of saving after a pay cut, Bishop suggests you try to save at a smaller scale for goals like retirement and your emergency fund.
As you work to save money after a pay cut, Cook recommends setting up automatic transfers to your savings account every payday based on the amount youâre able to put towards savings in your new budget.
âIf your savings account is at the same bank as your checking account, you can transfer those funds fairly easily,â she says. âSo the worst-case scenario is that you put too much money in savings and have to bring some back to checking. The hope, however, is that some or all of those funds transferred to savings remain there since that money is no longer in your checking account just waiting to be spent.â
Seek extra income sources after a salary cut
You should explore additional sources of income if you need more cash to cover essential expenses or if youâre looking for ways to save money after a pay cut.
Determine if youâre eligible for benefits based on the reason for your pay cut. Cook recommends applying for unemployment if you think you may qualify. For example, some workers who experienced pay cuts due to the coronavirus pandemic were eligible for unemployment benefits. The details vary by state, so visit your stateâs unemployment insurance program website to learn what benefits may apply to you.
If you or your partner have some extra time on your hands, you can consider bringing in income through a side hustle to help you handle your pay cut. Bishop suggests using free or low-cost online video tutorials to boost your existing skills to make your side hustle more effective.
Cook also recommends getting creative. âAre there things you could sell to make some extra cash?â she says.
If you are unable to find additional sources of income, but you have an emergency fund, consider whether you should dip into that. “Your savings are there for a reason, and sometimes you need to use it,” Cook says. “That is okay.”
Stick to your updated budget to navigate how to handle a pay cut
Making your budget part of your daily routine is a budgeting tip to survive a pay cut, and it will help you save money after a pay cut.
âBuild rewards into your budget, such as ordering out every other week if you successfully saved money after your pay cut.â
âIf youâre checking it daily, there are no surprises,â Cook says. You can do this by logging into your bank account and making sure your spending and expenses align with your digital or written budget document.
âIf you see that your spending is high, your mind will typically start thinking through [future] transactions more thoroughly to vet if those expenses are really necessary,â Cook says.
Donât forget the fun side of accountability: rewards for meeting your goals. Build rewards into your budget, Bishop says, such as ordering out every other week if you successfully saved money after your pay cut.
Lastly, donât try to go it alone. Enlist others in your budgeting journey, Cook suggests. Make up a monthly challenge to cut spending from a specific category in your new budget and ask your partner or a friend to do it with you. For example, see if you and the other participants can go a full month without buying clothes or ordering takeout. Compare notes at the end of the month and see how much youâve saved.
Another idea? Try connecting with a budget-minded community on social media to get inspired.
Take these steps after the salary cut is over
Once youâve handled the pay cut and your regular pay is restored, donât give up on your newfound budgeting discipline. Instead, focus on building up emergency savings before you go back to your normal spending.
Bishop recommends starting with enough savings to cover three to six months of expenses. âIf you spend $3,000 a month, that means you need to have $9,000 to $18,000 saved.â
This might also be the time to revisit your budget and build a more extensive financial plan with a CPA or financial advisor to account for all of your future goals. Bishop says that these can include a target retirement date and lifestyle; your estate planning, such as a will, trust and power of attorney; saving for a childâs college; and purchasing a home.
Bishop says reminding yourself why youâre budgeting and focusing on your financial goals can be similar to motivating yourself to stay physically fit. Goal-based motivation can keep you accountable.
Remember: You can survive a salary cut
Handling a pay cut is never easy, but you can get through this time. While youâre in the thick of it, focus on budgeting tips to survive a pay cut and staying positive. Seek help from others and follow up with your employer to make sure you are aware of any changing details regarding the pay cut.
Most of all, try to keep a long-term outlook. âRemember that it will not always be this way,â Cook says.
If youâre considering whether or not to tap into your savings to handle a pay cut, read on to determine when to use your emergency fund.
The post How to Handle a Pay Cut: Budgeting in Uncertain Times appeared first on Discover Bank – Banking Topics Blog.
