The post 5 Common Mistakes You’ll Make When Getting Out of Debt appeared first on Penny Pinchin' Mom.
You’ve made the decision that you want to get out of debt. Â Good for you. Â You’ve got your budget and your debt pay down plan ready to go. Â You are ready toÂ attack your plan.
Before you start I want you to do one thing. Â Stop right there. Â Don’t do another thing to get out of debt. Â Not until you read this.
When people are trying to get out of debt, they are willing to do and try just about anything to get those bills paid down. Â This results in many mistakes. Â Things that can actually cost you in the long run.
Before you go on with your own debt plan, do what you can to avoid making these mistakes.
- How to Get Out of Debt (Even on a Lower Income)
- How to Pay off Credit Card Debt
- How to Really Pay off Your Debt
Â MISTAKE YOU’LL MAKE GETTING OUT OF DEBT
JUMPING IN WITHOUT A PLAN (or budget)
Picture this. Â You want to go on vacation to the destination of your dreams. Â You pack and get in the vehicle, but then what. Â How will you get there? Â Did you create a plan on how to arrive? Â If not, then you are going nowhere – and nowhere fast.
The same is true with your debt. Â If you try to get out of debt without having a plan of action, you will just end up spinning your wheels and make no progress.
Make sure you have your budget and debt pay down plan in order before you start to work on paying down any debts. Â You have to understand where you can make adjustments in your spending in order to free up more income to pay off your debts.
Read More: Â Create A Debt Pay Down Plan
NOT CHANGING YOUR ATTITUDE
Change is tough. Â If you are eliminating your luxuries from your budget such as the morning coffee, the gym or even dinner out, it can really be a tough pill to swallow.
Before you can allow change to happen, you have to be open to it. If you find that you are not ready to totally look at your spending in a different way, make changes to your spending and really get your debt paid off, then you need to stop right now.
There is no way you can be successful if you are not willing to make the change and put in the hard work needed to reach your goal.
Read More: Â Change Your Attitude to Change Your Finances
TRYING TOO HARD
One way to get out of debt is to make changes to your spending. Â However, you can take this too far and make it too difficult to maintain.
Look at it as you would if you were on a diet. Â If you suddenly force yourself to eat nothing but salad, you are bound to go to extremes. Â Before you know it, you’ve consumed the entire bag of potato chips, thereby undoing all you’ve been working to change.
The same is true with changing your spending to try to get out of debt. Â While it is important to scale back on your spending, make sure you allow yourself an occasional fun way to spend be it dining out, picking up a new pair of shoes or a day out with the kids.
Read More: Â Why You Keep Overspending
If you want to get out of debt, then that has to be your one and only financial goal. Â Nothing else should get in the way. Â You can’t get the new car. Â You can’t upgrade your cell phone.
Nope. Â That all has to wait.
Your priority has to be to get out of debt. Â You need to develop tunnel vision when it comes to this goal.
Once you have started to pay off those debts and are on the road to financial freedom (meaning, you are debt free), you will have income freed up and then, and only then, should other financial purchases even come into the picture.
FORGETTING TO SAVE FOR RETIREMENT
This is actually a grey area as some experts will say you need to continue saving for retirement, while others will recommend that you suspend contributions. Â There is actually a middle ground you can strive for.
If your company offers any sort of a matching contribution, make sure you continue to contribute the amount needed to maximize your contributions. Â For instance, if they match you 25% of what you contribute, up to 4% of your income, make sure you are putting away the 4%. Â The reason is that you are passing up 1% of your income going right into your account for retirement – and it costs you nothing!
Even just scaling back on the amount you save can make enough of a difference in your take-home pay to free up money to pay off your debts, still while continuing to grow your retirement savings account.
Read More: Â Seven Different Types of Retirement Accounts
The post 5 Common Mistakes You’ll Make When Getting Out of Debt appeared first on Penny Pinchin' Mom.
Saving money is all well and good in theory.
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 gameâ¦ 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 likeâ¦ 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.
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.
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.
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.
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.
This story originally appeared on NewRetirement. Saving for retirement is hard. When you are still working, creating a retirement investment plan can seem relatively straightforward. The goal is to simply grow the money. But as you approach retirement and start looking into the details, your investment goals become more layered, and possibly downright complicated. You still want your money to grow…
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:
- 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.
- 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.
- 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.