Money may not be the most romantic topic of conversation for couples sampling wedding cake and planning honeymoon adventures, but the way a couple approaches it can be a strong predictor of a marriage’s long-term success. Several studies have actually found that money is a top cause of stress in relationships.
But finances don’t have to cause friction for you and your soon-to-be spouse. A survey conducted by MONEY Magazine found that individuals who trust their partner with finances reported feeling more secure and having fewer arguments. Learning how to talk about money before you get married can be key to developing that financial confidence in your own relationship.
How do I talk about money before getting married, you ask? As you prepare to tie the knot, consider these five money questions to ask before marriage:
1. Do we understand our debt, assets and expenses?
One helpful way to talk about money before marriage is to sit down as a couple and take inventory of all the debt and assets you’re each bringing into your long-term commitment. This includes everything from student loans and mortgages to savings and retirement accounts. You may also want to get into the nitty gritty of your salaries and monthly expenses. Putting all of the details into a spreadsheet or an app that helps you manage your money can allow you to see your full financial picture.
While using this exercise as a way to talk about money before marriage may feel like a lot of work, it will come in handy when it’s time to make financial decisions, such as deciding what percentage of your joint income should go toward building an emergency fund, saving for retirement and paying down debt, explains financial expert Ginita Wall, co-founder of the nonprofit Women’s Institute for Financial Education.
“If one person in the relationship is maxing out her 401(k) contributions but eventually learns her husband is putting nothing toward retirement, it could become an issue,” she says. “An open dialogue that ensures that there will be no surprises about money, or any other topics for that matter, is important for a great relationship.”
2. Will we have joint or separate bank accounts?
Another way to talk about money before marriage is to consider whether you want to combine bank accounts, keep them separate or do a combination of both. The decision depends on each person’s preferences and the needs of the couple.
Dr. Bonnie Eaker Weil, a relationship therapist based in New York City, believes that having one joint account, but also guilt-free separate accounts for spending, can be helpful for many couples.
Keeping a joint account, she says, can provide a clear window into a family’s complete financial situation so the couple can make financial decisions accordingly. “This demonstrates that the couple is working together toward long-term financial goals,” she says.
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The guilt-free separate accounts, on the other hand, give both individuals “freedom to make small purchases as needed,” Weil adds.
As you’re addressing this money question to ask before marriage, know that in some cases, couples could benefit from keeping their investments separate.
“If two people have wildly different investment styles,” Wall says, “they just might decide to invest their money in their own ways.”
3. How has money impacted our upbringing?
When deciding how to talk about money before you get married, consider having an open discussion about how your parents handled moneyâincluding what you think they did well and what they could have done betterâand how this has influenced your financial expectations and goals, Weil says. This is a valuable, but often overlooked, component of how to talk about money before you get married.
In many cases, an adult’s upbringing shapes his or her financial goals.
“If you grew up vacationing at the shore, chances are you might aspire to own a shore house as an adult,” Weil says. “This can become problematic if your spouse would much rather have a mountain house. Talk about where your goals originate from and then work toward making compromises.”
Individuals who trust their partner with finances reported feeling more secure and having fewer arguments.
4. How could our financial dynamic shift over time?
Your financial situation today may be significantly different from your financial situation tomorrow. While it’s impossible to predict exactly what the future holds for your finances and lifestyle, there are ways to talk about money before marriage to lay the groundwork for decisions you may ultimately face. If you plan to have children, for example, you may want to discuss how career and financial priorities may shift. Will both spouses maintain their working arrangements? Will someone pick up more work or scale back?
Weil says other money questions to ask before marriage that could impact your long-term financial plans include:
Will you save for your children’s college education?
Do you plan to take care of aging parents?
How will you respond to family members who ask for financial support?
What measures do you want to put in place for disability and life insurance?
If there are children from a previous relationship, who will be responsible for their college or wedding expenses?
While the answers to these types of questions are personal and will vary from couple to couple, Weil says the most important rule is ensuring couples address them early on so there’s a clear understanding of how to handle each situation when it arises.
5. When will we sit down to regularly talk finances?
While determining how to talk about money before you get married is an important milestone, ongoing communication is necessary. Weil believes it’s constructive to have a weekly money dialogue, while other experts, like Wall, say sitting down for a casual money meeting once a month is a good rule of thumb.
Choose a meeting frequency that works for you and stay committed to your schedule. This signals to your partner that your finances are important and that you’re willing to set aside the time to talk about joint objectives, Wall says.
When it’s time to meet, run through any financial concerns that may have popped up since your last conversation, as well as any financial goals or factors that could have an impact on financial planning for young families.
When differences arise during these talks, Weil suggests trying to walk in the other person’s shoes to understand his or her perspective. Being mindful and polite, as well as listening, are among the best ways to talk about money before marriage and beyond.
“An open dialogue that ensures that there will be no surprises about money, or any other topics for that matter, is important for a great relationship.”
Why talk money before saying ‘I do’
Money can carry a lot of emotions, and Wall says that a lot of financial arguments aren’t actually about money.
“It’s often about equality, being respected, being listened to or being loved,” she says.
If the same types of arguments seem to resurface, it could indicate underlying issues about power and cooperation that couples should handle together, Wall explains.
While every marriage is bound to have some financial conflict now and then, starting a partnership off with these money questions to ask before marriage could help you get off on the right foot. Learning how to talk about money before you get married can also help align your financial hopes and dreams for your happily ever after.
The post 5 Money Questions to Ask Before Marriage appeared first on Discover Bank – Banking Topics Blog.
Financial Eduation is important for everybody regardless of their demographic, and yet it is frequently overlooked by both the young and those who are just trying to get get by.
Tiffany Aliche is passionate about financial planning, and shares that passion, as well as a lifetime of information and practice, on her blog, The Budgetnista.
Tiffany took a moment to tell us about The Budgetnista, how anyone can benefit from sound financial education, and how that education can enrich your life.
Can you briefly describe The Budgetnista for people who aren’t familiar with the site? How did you get started? What differentiates you from the other financial blogs out there?
The Budgetnista is an award-winning financial education firm established in 2008. We specialize in the delivery of financial literacy through seminars, workshops, curricula and trainings. The Budgetnista has been a brand ambassador and spokesperson for a number of organizations, and has served as the personal finance education expert for City National Bank.
I’m happy to say that I’m quickly becoming America’s favorite financial educator. I authored the #1 Amazon bestseller, The One Week Budget and created the LIVE RICHER Challenge.
My love for financial education began at at home. I grew up in a financially-literate household, receiving weekly financial lessons from my CFO father. These lessons paired with my fun personality helped me create a fun, financial blog that resonates with thousands of women.
Who is your regular audience? What are some specific challenges they face, and how do they inform the things that you write about?
The Budgetnista’s audience is women aged 25-45. Their biggest financial issues are debt management, credit, and budgeting. When writing my blog, I focus on offering step-by-step guidance for these specific financial issues. In addition to women needing assistance, they also need encouragement. I try to not only be a source of information, but a source of inspiration as well.
What are some of the financial services The Budgetnista offers? Who is likely to utilize your services?
The financial services offered by The Budgetnista are keynotes, workshops and seminars on the following personal finance topics: money mindset, budgeting, savings, debt and credit. Many colleges, non-profits, and corporate entities utilize these services.
Each year, The Budgetnista also offers the LIVE RICHER Challenge; a FREE, online financial challenge created by The Budgetnista to help 10,000 women achieve seven specific financial goals in 36 days.
Your motto is “Live richer. To create a measurable lifestyle shift, through financial education.” First of all, can you briefly define financial education, and relate why it is so important? Secondly, how much of a noticeable shift has there been in your own lifestyle since you implemented this education?
Financial education through The Budgetnista provides participants with the tools they need to make sound financial decisions. It is essential because it grants people the power of choice, not just with their finances, but in other aspects of their lives as well.
In my own life, I’ve seen the power of financial education first hand. After a devastating job loss during the recession, I was able to create a business (The Budgetnista) and design the life I always dreamed of.
In the long version of your bio, you’ve written, “By beginning to educate yourself, you’ve taken the first step towards financial empowerment.” How does that information translate into daily life? If this is the first step, what’s the next?
Education is the first step on your financial journey. The next step is to take action. Once you know how to manage your money – budget, save, reduce debt, and fix credit – you can use these skills to navigate your daily life.
One of the goals of The Budgetnista is to give someone a clearer understanding of how to more skillfully manage their money. What are a few basic tips people can use to get started?
Here are The Budgetnista’s top 3 tips to get started on managing your money.
3) Open a Bills Account: This is a FREE checking account (if possible), where you allocate your bill money each month. Separating your funds will help you to avoid “accidentally” spending money designated for bills.
2) Give and get an allowance: I bet you never thought you’d get one again. After creating your budget, decide which items you can pay for with cash each month and add the amounts up; then divide the total by four. That’s how much your new weekly allowance is. If you take weekly cash allowances, it will help to curb your spending. Also, give yourself a CASH allowance when shopping and leave the cards at home. This way when the cash is done, so are you.
1) Automate: By taking out the “flawed” human element (aka you), you’re more likely to stick to your budget. I’ve automated EVERYTHING; payments, bills, saving, investing, even giving to charity.
You recently wrote a blog post about how to start planning for retirement now. First of all, why is this important? Secondly, does it seem like this is something that young adults are neglecting?
Retirement is critical for anyone who wants to maintain their lifestyle after they stop working. Many young adults neglect this because there is a disconnect between their present self and their future self.
You also recently wrote about a budget trip to Jamaica you get to take. What are some fun things that you’ve gotten to do simply by getting your finances in order?
My favorite thing to do, as a result of getting my finances in order, is travel. In the past few years, I’ve been to 16 different countries. Learning to master my money has given me the freedom to actively design and live my life.
You’ve talked about how to make a budget for people who don’t have a regular paycheck. What were some of the basics of that article, and do you feel this is a reflection of the changing economy we’re living in, and if so, how?
Budgeting on an irregular income can be difficult. Here are some tricks to help you.
Calculate your Financial Baseline: Your financial baseline is how much your life costs you each month without the bells and whistles.
Be Like the Squirrel: Squirrels are super-smart savers. When acorns are plentiful, they work their hardest and gather as many as possible. Squirrel away your money when times are good, and live off of your stash when things aren’t.
Pay Yourself: Once you identify how much you spend each month, pay it to yourself from your business/savings account. Your clients/income provider should “pay” your savings account, then you pay yourself a regular income from the money that sits in that account.
Live by Percentages: Those that receive a regular paycheck can live by exact amounts; but for those of us with irregular incomes, we have to live by percentages. Allocate a percentage of your income to different categories: bills, savings, investing, spending, etc.
Separate to See: The best way to gauge how close you are to achieving your financial goals is to house your money in different bank accounts.
Systemize: Automate everything: transfers, bills, saving, giving and investing.
You’ve also offered some travel tips for traveling on a budget. What are some ways people can save while they’re traveling? How possible is it to have fun on the cheap?
My top 3 Budgetnista travel tips are:
Be flexible: Sometimes travel deals spring up on sites. The more flexible you are about your travel destination and timeframe, the more likely you’ll be able to take advantage of those deals.
The right sites: My favorite deal sites are: theflightdeal.com, jetradar.com, europeandestinations.com and airfarwatchdog.com
When to book: The best day to book a domestic flight is Tuesday at 3pm (this is when the sales hit). The cheapest day to fly domestically is Wednesday.
Financial education is not a one-off event; it is an ongoing process that requires practice to perfect. For more education and inspiration, like The Budgetnista on Facebook , connect on LinkedIn, follow her on Twitter, and subscribe to The Budgetnista YouTube Channel.
The post Expert Interview with Tiffany Aliche of The Budgetnista on Financial Planning appeared first on MintLife Blog.
Could logging in to your computer from a deluxe treehouse off the coast of Belize be the future of work? Maybe. For many, the word freelance means flexibility, meaningful tasks and better work-life balance. Who doesn’t want to create their own hours, love what they do and work from wherever they want? Freelancing can provide all of thatâbut that freedom can vanish quickly if you don’t handle your expenses correctly.
“A lot of the time, you don’t know about these expenses until you are in the trenches,” says freelance copywriter Alyssa Goulet, “and that can wreak havoc on your financial situation.”
Nearly 57 million people in the U.S. freelanced, or were self-employed, in 2019, according to Upwork, a global freelancing platform. Freelancing is also increasingly becoming a long-term career choice, with the percentage of freelancers who freelance full-time increasing from 17 percent in 2014 to 28 percent in 2019, according to Upwork. But for all its virtues, the cost of being freelance can carry some serious sticker shock.
“There are many hats you have to wear and expenses you have to take on, but for that you’re gaining a lot of opportunity and flexibility in your life.”
Most people who freelance for the first time don’t realize that everythingâfrom taxes to office supplies to setting up retirement plansâis on them. So, before you can sustain yourself through self-employment, you need to answer a very important question: “Are you financially ready to freelance?”
What you’ll find is that budgeting as a freelancer can be entirely manageable if you plan for the following key costs. Let’s start with one of the most perplexingâtaxes:
1. Taxes: New rules when working on your own
First things first: Don’t try to be a hero. When determining how to budget as a freelancer and how to manage your taxes as a freelancer, you’ll want to consult with a financial adviser or tax professional for guidance. A tax expert can help you figure out what makes sense for your personal and business situation.
For instance, just like a regular employee, you will owe federal income taxes, as well as Social Security and Medicare taxes. When you’re employed at a regular job, you and your employer each pay half of these taxes from your income, according to the IRS. But when you’re self-employed (earning more than $400 a year in net income), you’re expected to file and pay these expenses yourself, the IRS says. And if you think you will owe more than $1,000 in taxes for a given year, you may need to file estimated quarterly taxes, the IRS also says.
That can feel like a heavy hit when you’re not used to planning for these costs. “If you’ve been on a salary, you don’t think about taxes really. You think about the take-home pay. With freelance, everything is take-home pay,” says Susan Lee, CFP®, tax preparer and founder of FreelanceTaxation.com.
When you’re starting to budget as a freelancer and determining how often you will need to file, Lee recommends doing a “dummy return,” which is an estimation of your self-employment income and expenses for the year. You can come up with this number by looking at past assignments, industry standards and future projections for your work, which freelancer Goulet finds valuable.
“Since I don’t have a salary or a fixed number of hours worked per month, I determine the tax bracket I’m most likely to fall into by taking my projected monthly income and multiplying it by 12,” Goulet says. “If I experience a big income jump because of a new contract, I redo that calculation.”
After you estimate your income, learning how to budget as a freelancer means working to determine how much to set aside for your tax payments. Lee, for example, recommends saving about 25 percent of your income for paying your income tax and self-employment tax (which funds your Medicare and Social Security). But once you subtract your business expenses from your freelance income, you may not have to pay that entire amount, according to Lee. Deductible expenses can include the mileage you use to get from one appointment to another, office supplies and maintenance and fees for a coworking space, according to Lee. The income left over will be your taxable income.
Pro Tip:
To set aside the taxes you will need to pay, adjust your estimates often and always round up. “Let’s say in one month a freelancer determines she would owe $1,400 in tax. I’d put away $1,500,” Goulet says.
2. Business expenses: Get a handle on two big areas
The truth is, the cost of being freelance varies from person to person. Some freelancers are happy to work from their kitchen tables, while others need a dedicated workspace. Your freelance costs also change as you add new tools to your business arsenal. Here are two categories you’ll always need to account for when budgeting as a freelancer:
Your workspace
Joining a coworking space gets you out of the house and allows you to establish the camaraderie you may miss when you work alone. When you’re calculating the cost of being freelance, note that coworking spaces may charge membership dues ranging from $20 for a day pass to hundreds of dollars a month for a dedicated desk or private office. While coworking spaces are all the rage, you can still rent a traditional office for several hundred dollars a month or more, but this fee usually doesn’t include community aspects or other membership perks.
If you want to avoid office rent or dues as costs of being freelance but don’t want the kitchen table to pull double-duty as your workspace, you might convert another room in your home into an office. But you’ll still need to outfit the space with all of your work essentials. Freelance copywriter and content strategist Amy Hardison retrofitted part of her house into a simple office. “I got a standing desk, a keyboard, one of those adjustable stands for my computer and a squishy mat to stand on so my feet don’t hurt,” Hardison says.
Pro Tip:
Start with the absolute necessities. When Hardison first launched her freelance career, she purchased a laptop for $299. She worked out of a coworking space and used its office supplies before creating her own workspace at home.
Digital tools
There are a range of digital tools, including business and accounting software, that can help with the majority of your business functions. A big benefit is the time they can save you that is better spent marketing to clients or producing great work.
The software can also help you avoid financial lapses as you’re managing the costs of being freelance. Hardison’s freelance business had ramped up to a point where a manual process was costing her money, so using an invoicing software became a no-brainer. “I was sending people attached document invoices for a while and keeping track of them in a spreadsheet,” Hardison says. “And then I lost a few of them and I just thought, ‘Oh, my God, I can’t be losing things. This is my income!’”
Digital business and software tools can help manage scheduling, web hosting, accounting, audio/video conference and other functions. When you’re determining how to budget as a freelancer, note that the costs for these services depend largely on your needs. For instance, several invoicing platforms offer options for as low as $9 per month, though the cost increases the more clients you add to your account. Accounting services also scale up based on the features you want and how many clients you’re tracking, but you can find reputable platforms for as little as $5 a month.
Pro Tip:
When you sign up for a service, start with the “freemium” version, in which the first tier of service is always free, Hardison says. Once you have enough clients to warrant the expense, upgrade to the paid level with the lowest cost. Gradually adding services will keep your expenses proportionate to your income.
3. Health insurance: Harnessing an inevitable cost
Budgeting for healthcare costs can be one of the biggest hurdles to self-employment and successfully learning how to budget as a freelancer. In the first half of the 2020 open enrollment period, the average monthly premium under the Affordable Care Act (ACA) for those who do not receive federal subsidiesâor a reduced premium based on incomeâwas $456 for individuals and $1,134 for families, according to eHealth, a private online marketplace for health insurance.
“Buying insurance is really protecting against that catastrophic event that is not likely to happen. But if it does, it could throw everything else in your plan into a complete tailspin,” says Stephen Gunter, CFP®, at Bridgeworth Financial.
A good place to start when budgeting as a freelancer is knowing what healthcare costs you should budget for. Your premiumâwhich is how much you pay each month to have your insuranceâis a key cost. Note that the plans with the lowest premiums aren’t always the most affordable. For instance, if you choose a high-deductible policy you may pay less in premiums, but if you have a claim, you may pay more at the time you or your covered family member’s health situation arises.
When you are budgeting as a freelancer, the ACA healthcare marketplace is one place to look for a plan. Here are a few other options:
Spouse or domestic partner’s plan: If your spouse or domestic partner has health insurance through his/her employer, you may be able to get coverage under their plan.
COBRA: If you recently left your full-time job for self-employment, you may be able to convert your employer’s group plan into an individual COBRA plan. Note that this type of plan comes with a high expense and coverage limit of 18 months.
Organizations for freelancers: Search online for organizations that promote the interests of independent workers. Depending on your specific situation, you may find options for health insurance plans that fit your needs.
Pro Tip:
Speak with an insurance adviser who can help you figure out which plans are best for your health needs and your budget. An adviser may be willing to do a free consultation, allowing you to gather important information before making a financial commitment.
4. Retirement savings: Learn to “set it and forget it”
Part of learning how to budget as a freelancer is thinking long term, which includes saving for retirement. That may seem daunting when you’re wrangling new business expenses, but Gunter says saving for the future is a big part of budgeting as a freelancer.
“It’s kind of the miracle of compound interest. The sooner we can get it invested, the sooner we can get it saving,” Gunter says.
He suggests going into autopilot and setting aside whatever you would have contributed to an employer’s 401(k) plan. One way to do this might be setting up an automatic transfer to your savings or retirement account. “So, if you would have put in 3 percent [of your income] each month, commit to saving that 3 percent on your own,” Gunter says. The Discover IRA Certificate of Deposit (IRA CD) could be a good fit for helping you enjoy guaranteed returns in retirement by contributing after-tax (Roth IRA CD) or pre-tax (traditional IRA CD) dollars from your income now.
Pro Tip:
Prioritize retirement savings every month, not just when you feel flush. “Saying, ‘I’ll save whatever is left over’ isn’t a savings plan, because whatever is left over at the end of the month is usually zero,” Gunter says.
5. Continually update your rates
One of the best things you can do for yourself in learning how to budget as a freelancer is build your costs into what you charge. “As I’ve discovered more business expenses, I definitely take those into account as I’m determining what my rates are,” Goulet says. She notes that freelancers sometimes feel guilty for building business costs into their rates, especially when they’re worried about the fees they charge to begin with. But working the costs of being freelance into your rates is essential to building a thriving freelance career. You should annually evaluate the rates you charge.
Because your expenses will change over time, it’s wise to do quarterly and yearly check-ins to assess your income and costs and see if there are processes you can automate to save time and money.
“A lot of the time, you don’t know about these expenses until you are in the trenches, and that can wreak havoc on your financial situation.”
Have confidence in your freelance career
Accounting for the various costs of being freelance makes for a more successful and sustainable freelance career. It also helps ensure that those who are self-employed achieve financial stability in their personal lives and their businesses.
“There are many hats you have to wear and expenses you have to take on,” Goulet says. “But for that, you’re gaining a lot of opportunity and flexibility in your life.”
The post Everything You Need to Know About Budgeting As a Freelancer appeared first on Discover Bank – Banking Topics Blog.
Have you ever wondered about the uses of a credit card vs. a debit card? It’s likely you have both types of cards in your wallet at this very moment, and you’re given the option to choose one of themâsometimes in a matter of secondsâevery time you make a purchase. Still, you have lingering uncertainty about whether you’re making the best choice… and that same question pops into the back of your mind every time you buy something: “Should I use a credit card or debit card?”
Being uncertain about the difference between a credit card and debit card or the best time to use either is a common dilemma. The better you understand the benefits of eachâbeyond the fact they offer a way to access money without having to carry cash or a checkbook aroundâthe savvier a spender you’ll become.
Managing revolving credit vs. a bank account balance
Credit cards and debit cards both offer a convenient way to pay for things, but they work quite differently behind the scenes. As a result, they each appeal to different types of consumers, says Lou Haverty, financial analyst and founder of Financial Analyst Insider.
A credit card is a form of revolving credit. When you spend with your credit card you are borrowing, and you pay interest if you carry a balance, Haverty says. A debit card, by contrast, is linked to a bank accountâusually a checking accountâand the money is withdrawn as soon as you make the transaction, typically using a PIN.
A difference between credit cards and debit cards is that with a credit card, the exact amount you can spend depends on your credit limit and the balance you are currently carrying on the card, Haverty explains. If you have a $1,000 credit limit and a $600 balance from previous purchases, you can continue to charge an additional $400. If you’ve reached your credit limit, you won’t be able to use the card for more purchases until you pay off at least part of the balance. You owe a minimum payment each month.
When considering credit card vs. debit card, know that most credit cards carry an interest rate, expressed as an annual percentage rate (APR), which is essentially what you pay to borrow. You’ll have to pay interest on that $600 balance mentioned above if you carry the balance from month to month. âCredit cards require a responsible approach to your personal finances because you have the ability to spend beyond what you might have as cash in your bank account,” Haverty says.
A difference between credit cards and debit cards is that with a debit card, funds are pulled directly from the balance you have in the checking account to which the card is linked. In a traditional account setup, you can’t spend more than what you have in the account, which helps reduce the chance of racking up debt. If your account offers overdraft protection, you may be able to spend more than your account balance by leveraging funds from a different, linked bank account.
âCredit cards require a responsible approach to your personal finances because you have the ability to spend beyond what you might have as cash in your bank account.”
Knowing the requirements for each card
Another key difference between a credit card and a debit card is the criteria you’ll need to meet for each. âGetting approved for a credit card is usually dependent on your personal credit score. The higher your credit score, the more likely you are to be approved,” Haverty says. âIf you have a lower credit score, you may still get approved, but you might have a lower credit limit.”
Patricia Stallworth, certified financial planner and money coach, says that in addition to your credit history, factors such as your employment status could play a role in credit card approval.
When analyzing credit cards vs. debit cards, consider that a debit card is typically issued automatically when you open a checking account. This process usually requires some personal information, such as a Social Security number, driver’s license, employment information and valid email address. A deposit may also be needed to fund the account and complete the application. Then stay tuned for your debit card in the mail!
When should I use credit vs. debit?
While it’s easy to have credit card vs. debit card on the mind, there are some scenarios in which using either a debit card or a credit card could fit the bill, depending on your financial needs and goals. Use the outline below as a guide for when the question of “When should I use credit vs. debit?” comes up:
You’re new to using a card to make purchases. Until you know you have the discipline to control your spending with a card, a debit card could be the way to go, as it’s a great tool for ensuring you don’t charge more than you can afford. âDebit cards are great for everyday purchases that you have budgeted for because the money comes directly out of your account,” Stallworth says.
You want cash back without the fees. If your debit card is linked to a checking account that offers rewards, Stallworth says you may have rewards-earning potential without the hassle of fees. âWhile there is generally no cost to participate in debit card rewards programs, the costs and fees may be higher with some credit card programs,” she adds. For instance, Discover Cashback Debit charges no fees1 and allows you to earn 1% cash back on up to $3,000 in debit card purchases each month.2
Why should credit cards have all the fun?
Now you can earn cash back with your debit card.
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You have debt you can’t pay off. When should I use credit vs. debit? âIf you’re struggling to manage or get out of debt, a debit card should be your ‘go-to card,’” Stallworth says. “You can’t get out of debt if you keep charging.”
You want cash at the register. If you still like to have cash in your wallet, consider this difference between credit cards and debit cards: Most retail stores will allow you to get cash at the register when you pay with your debit card. âA credit card will most likely charge you a cash advance fee if that feature is available,” Haverty says.
“Debit cards are great for everyday purchases that you have budgeted for because the money comes directly out of your account.”
Use your credit card if…
You want product coverage. Some credit cards come with purchase protection, which makes them a great option for online and large purchases, Stallworth says. “If I have a dispute with a merchant, I have more leverage with a large credit card company behind me.”
You’re trying to build (or rebuild) your credit. âYou will need a single credit card with a small limit that you pay off in full each month to build a credit history,” Haverty says. A key difference between credit cards and debit cards is that debit card usage can’t help you build a credit history. A debit card can help you build strong budgeting skills so you’re better prepared to transition to a credit card.
You want to earn travel rewards. If you’re debating credit card vs. debit card and are focused on travel, consider that credit card rewards programs may offer robust rewards in a specific category, like travel, Stallworth says. While it’s always important to read the fine print (so you’re not paying more than you intend in fees or interest rate charges just to get rewards), you could find a credit card that offers opportunities to earn free flights and pay less for checked baggageâjust for using the card regularly.
How to use both cards to maximize your finances
Now that you understand which circumstances might be best to use a credit card vs. debit card, you can make the point-of-purchase decision of “When should I use credit vs. debit?” a little easier. It really depends on the goals you have laid out for your personal finances.
Get comfortable using both financial tools for their respective features. But be sure to stick to your budget, and don’t accidentally overspend from your bank account or charge more than you can afford to pay in full by your credit card’s monthly due date. When you learn to confidently use both of these cards to your advantage, you can enjoy all the various perks and protectionsâtimes two!
1 Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.
2 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as Venmo® and PayPal, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
The post The Difference Between Credit Cards and Debit Cards: Explainedâââ appeared first on Discover Bank – Banking Topics Blog.
So youâre at the point in your life where buying a home is not a question of if, but when. Youâre scrimping. Youâre saving. Youâre dreaming of walking through the front door of your very own home.
But as the decision draws near, you start questioning everything. Is now a good time to buy a house? Or is this the worst time? Is it more financially responsible to buy a house right now or wait? And what if you mistime the market, buying too soon or too late, and miss out on lower home prices?
Ultimately, the experts say the answer is less about economies, markets and pandemics and more about you.
So, how do you think through this decision? Youâll want to take time to thoroughly review your personal financial situation and life goals. At the same time, youâll need to gain some understanding of the market dynamics that impact home costs.
This process will take some time, but itâs well worth the effort. With a firm grasp on your personal situation and some context on the housing market, youâll be able to confidently go forth knowing youâre making a fiscally informed decision about whether to buy a house right now.
Honestly assess these aspects of your finances
Financial security is always important if youâre trying to determine when youâre ready to buy a home. To decide if now is a good time to buy a house, ask yourself the following questions about your finances:
How secure is your income?
Job or income stability is an important factor if you are buying a home in a rocky economy, such as the one triggered by the coronavirus pandemic, says real estate economist Gay Cororaton. Even in a robust economy, your income security should be top of mind when youâre thinking of buying a house right now.
If you have any inkling that your position may be eliminated or that youâll be making a career change, you may want to delay buying a home. Even a recent break in employment that caused you to draw down some of your savings may raise a red flag with lenders, says Kate Ziegler, a real estate agent with Arborview Realty in the Boston area.
If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home.
Do you have enough money saved?
After income stability, savings is the next-most-important financial factor youâll want to consider to determine if now is a good time to buy a house, Ziegler says. The old rule of thumb was to save 20% of the price of the home for your down payment. While that is ideal, itâs not necessaryâfar from it, Ziegler says. In fact, it has become more common for first-time buyers to put down much less than 20%.
How much house can you afford?
The down payment is one side of the affordability coin. Your monthly mortgage payment is the other side. You need to know how much you can spend on both to determine if you can afford to buy a house right now, says Jeff Tucker, a senior economist at Zillow. Aim for a monthly mortgage payment that doesnât stretch you too thinâexperts typically put this at around 28% of your monthly gross income, according to Bankrate.
With those guidelines, you can determine what you can afford. For example, if you make $4,000 a month, you should typically spend no more than $1,120 on your monthly mortgage payment in total.
How much house that buys you depends on multiple factors: mortgage rates, property tax rates, homeowners insurance andâif you donât have the savings to put down 20%âprimary mortgage insurance, or PMI. To get a rough estimate, plug your income details into an online calculator. For a more specific figure, talk to a local lender and get pre-approved for a mortgage, Ziegler says.
Once you know your price range, you can determine how much savings you need in the bank to buy a house right now. Youâll also need to have money saved for closing costs, which vary but typically run 2% to 5% of the loan amount, according to Bankrate.
Again, Ziegler recommends talking to a lender to really understand what your individual down payment and closing costs would be. Finally, be sure to add a line item in your budget for home maintenance that will inevitably pop up after you move in. Whether itâs a dishwasher on the fritz or a leaky roof, you donât want to be caught off guard, so be sure to save money for emergency home repairs.
How is your credit?
Your credit profile is also important to lenders, and it will likely be a factor in what interest rate youâre offered. Given that, you should be checking your credit report and know your credit score before investing in a home. If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home, Tucker says.
What is your debt-to-income ratio?
Another factor lenders check is your debt-to-income ratio, or DTI, Tucker says. This is the percentage of your gross monthly income that goes to paying monthly debt payments, plus your new mortgage. Lenders typically require this ratio to be 45% or less but prefer it even lowerâin the 33% to 36% range.
Another financial consideration when deciding if now is a good time to buy a house is the opportunity cost of delaying a home purchase, Ziegler says. If youâre renting in a market where the rent is higher than your would-be monthly mortgage payment, you may be spending a lot more money each month than if you were to purchase a home. And of course, with a mortgage, your monthly payment increases your equity.
After taking a clear-eyed look at your income, savings and these other financial factors, you will have a better sense of when youâre ready to buy a home and whether nowâs the time for you to dip into the market.
Consider key market factors
Next, take a look at factors that are outside of your control, but still influence your purchase: prices, interest rates and national employment trends.
Where are housing prices?
As youâre looking at the market, one of the biggest considerations when you are ready to buy a home will be housing prices and availability. Research your local market by talking to real estate agents who work specifically in the area where you want to buy and asking them about market trends, Ziegler says.
Track current listings and recently sold prices to get a sense of how prices look today. Generally, the tighter the inventoryâmeaning the fewer houses availableâthe higher prices will be, Tucker says.
Whatâs going on with interest rates?
When youâre ready to buy a home could also depend on another major economic factor: interest rates. When interest rates are low, your housing budget is effectively supercharged, Tucker says, and you can afford a more expensive house because youâre spending less on interest. When they are high, the opposite is true.
This is what compels people to buy when interest rates are lowâyou get more for your money. If you get a 30- or 15-year fixed-rate mortgage, you lock in that rate for the entire life of the loan, which could save you money now and into the future, Tucker says.
How does employment look nationally?
Finally, if you want to get a general idea of where the housing market may be headedâif prices will drop or rise soonâcheck out the national employment trends, Cororaton says. Low unemployment means prices will generally trend upward because more people can afford houses, boosting competition and prices, she says.
But if unemployment is inching up, then people are losing jobs and will be more likely to remain in their current homes. As a result, there tends to be less competition for them, lowering prices.
You donât need to be an expert in the market to determine if now is a good time to buy a house, but a baseline understanding of these big-picture forces can give you the confidence you need to embark on your home-buying journey.
Think about your future plans
After reviewing your savings and income and assessing the market conditions, take a step back and think about your life plans over the next few years. Your lifestyle and goals will help determine whether now is a good time to buy a house.
âFor buyers who are not certain whether they will still be living in the same place in three or five years, I would caution against locking themselves into a certain location,â Ziegler says. âIf theyâre just not sure what the future holds, it may be better to have that flexibility.â
Itâs unlikely in many markets that you will see substantial financial gain from homeownership if you move within five years, Ziegler says. Your equity gains will likely be offset by the transaction costs of buying and selling your home.
That goes for remote workers, too. Are you working from a home office these days? While widespread remote work may allow buyers to consider homes farther from their offices, ask yourself: Is my company going to permanently allow employees to work from home? Do I think there will be other remote opportunities in the future?
While youâre thinking about the next three to five years of your career, also consider the next three to five years of your personal life. Will you have a family? Will that family grow?
These can be weighty topics, so be sure to think them through on your own schedule. Buying a house is a big decision, and itâs not one to be rushed. By taking the time to assess your life, from your job security to your financial health to your lifestyle, and considering the impact of market factors, youâll have a clearer sense of when you are ready to buy a home.
If youâve decided that buying a house right now is the best decision for you, itâs time to learn more about how it will impact your budget. Get started by reading up on these eight unexpected expenses when buying a home.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post Is Now a Good Time to Buy a House? appeared first on Discover Bank – Banking Topics Blog.
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.
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.
The post The No-Cash Envelope System That Works appeared first on Penny Pinchin' Mom.
I am a strong believer in the cash envelope system. It works great for our family. But I also know that is not the case for everyone. You may not want to use cash but love the envelope system concept. Fortunately, there is a program you can use that marries your desire to use plastic with the discipline of a cash envelope budget.
When it comes to managing your money, spending and trying to get out of debt, there are many programs and apps out there. But, not all of them can do everything. That means one app for your budget, another for trying to get out of debt and then yet another for managing your spending.
ProActive does it all. You can manage your money, spending, budgeting, and debt payoff – all from one simple to manage app! But, before you jump in and download it, make sure you read this honest review. That way, you’ll know what to expect!
What is ProActive?
ProActive combines the beauty of shopping with plastic and the discipline of cash envelopes. The system ensures that you never overspend – ever! Just like with cash, when the envelope is empty, you are done shopping!
What is the cash envelope budget?
A cash envelope budget is what it sounds like. Rather than using plastic to shop you get cash and place the budgeted amounts into envelopes. For example, if your budget for food is $200 a paycheck, then you get cash and place $200 in an envelope earmarked for groceries.
When you grocery shop, you use only the cash in the envelope. That is all you have available to spend. It is impossible to overspend. If there is only $20 left then that means you can’t spend $22. There is not enough money there.
It is a system that works very well for people who want to better manage and control spending.
How does it work?
Once you sign up and create your account, you will get a ProActive branded debit card. When you are ready to spend, you use the ProActive card. But, before you can swipe, you have to let the app know which envelope the money needs to come from. That way, you always stay on budget and don’t spend more than you should.
Add funds to your account
When you get paid, review your budget. Pay the bills that are due. What you have left over is what you have left to spend on everything else on your budget. It will include items such as clothing, household items, personal care and beauty, groceries, entertainment, dues, etc.
You will go into the app and click the “+” icon. That starts the transfer from your bank account to your ProActive debit card.
Allocate the money to your virtual envelopes
Once the funds are deposited, you have to assign an amount to each category (a.k.a. envelope). Review the budget to see what you have available to spend.
Shop as usual (but pay with the ProActive card)
You can’t swipe your card until you have told the card which category (or envelope) the money should come from. Simply open the app and click the spend category. Then you can swipe.
If there is not enough money left in the category to cover your purchase, it will be declined. That makes it impossible to overspend.
The smart way to use ProActive
As parents, we teach our kids. They need to know how to take care of themselves, cook, clean and do other things around the house. But, it seems that financial responsibility is one that gets overlooked.
One thing that ProActive allows is for you to add your kids and teach them how to manage their own money. You can put funds on their account and they too can set up categories. And, just like mom and dad, they have to select the category before they spend so they are not spending more than they should either.
ProActive not only teaches your kids how to use a debit card, but also the financial responsibilities that go along with it. And, it is in an environment that both mom and dad can see (and control).
Who is ProActive a fit for?
Just like with every other app or budget system there is never a one-size-fits-all system. That means this may not work for you. If you love your credit card for the rewards then this will not work for you. You can’t attach a credit card and use this program.
But, if you struggle to try to manage your money and spending then you really need to get this app. It makes it impossible to overspend and helps you learn how to think about every purchase you make. You may not need to use it forever as you will become disciplined.
What does it cost?
When you sign up, ProActive will give you a 15-day trial. They want to make sure it is a fit for you before they make you pay. Then, if you love it, you continue at $5.75 a month (paid annually, so $69). You can add a second user for $29 a year and even add your kids for just $24 each.
What happens if I forget my phone?
It happens. We leave our phones behind. In that case, it is important that you always have an alternative payment method handy, such as your bank debit card, credit card or cash.
If your goal is to get out of debt, you have to first start with your budget and spending. If you don’t do that, you will never achieve your goals. ProActive is one tool that helps you every step of the way.
The post The No-Cash Envelope System That Works appeared first on Penny Pinchin' Mom.
If youâre looking to repair your credit, you may have come across websites that advertise a credit privacy number, credit protection number or CPN. These numbers are nine digits like a Social Security number (SSN), and sellers claim that you can use them instead of your SSN. However, these CPNs are often actual SSNs lifted from real people, reportedly children, prison inmates and the deceased â and you can never legally buy a new SSN. In other words, a CPN is no solution to your credit rating problem. Under no circumstances should you try to buy a CPN.
Why a CPN is No Credit Fix
Websites have sprung up all over the internet, offering CPNs to people with bad credit or low credit scores. They advertise that this number can serve as a âget out of jail freeâ card for your bad credit. In theory, you can use a CPN instead of your SSN on credit applications to hide the poor credit associated with your personal SSN. If you have bad credit but still need a credit card or loan, this can seem like the solution, assuming you can pay anywhere from hundreds to thousands of dollars.
That price might seem worth it for a chance to wipe the slate clean. However, these offers are essentially a big scam. The CPNs you can buy online are not legally assigned credit protection numbers. Instead, they are usually stolen Social Security numbers, taken from children, the deceased or inmates.
Also, using a purchased CPN puts you in some hot water, too. Credit agencies can easily spot discrepancies if you try to use a CPN on an application instead of your SSN. Not only will this fail to help your credit, but itâs also committing fraud which is punishable by jail time.
How to Avoid CPN Scams
If youâre dealing with some bad credit, donât turn to a CPN. Only scammers sell CPNs, and they in turn may cheat you out of your personal information as well as hundreds or thousands of dollars. Using a purchased CPN can also put you in jail, even if you didnât know the number was fraudulent. This is why itâs important to be aware of this popular scam.
If you really need a CPN or new SSN, it will be free. The process will go through the Social Security Administration Office, since a new number would be tied to your old SSN. That said, it is very hard to qualify to receive a new number. Having bad credit is never a qualifying reason.
How to Get a Legal CPN
With so many fraudulent websites and companies trying to sell you a way to reset your credit, itâs hard to know how to get a legal CPN. Unfortunately, thereâs a lot of misinformation out there. Some experts say that you can speak with an attorney to obtain a legal CPN. The attorney can then contact the Social Security Administration Office on your behalf. However, others maintain that all CPNs are illegal.
Generally, it seems that you cannot get a legal CPN unless you actually need one. These situations include celebrities, government officials and people under witness protection. You can also apply in other specific instances, like if youâre a victim of abuse, stalking or identity theft. A real CPN would be attached to your SSN, so itâs still not an escape from the credit tied to your SSN.
You may also stumble upon offers to obtain an EIN, or Employer Identification Number. The IRS does issue EINs, but only businesses can use them for business costs. This means that you cannot legally obtain an EIN as an individual looking to improve your credit. You also cannot make up a home business, apply for an EIN and use that new number for a credit reset. It is a federal crime to obtain an EIN under false pretenses. In any case, the credit profile for your EIN is still tied to your SSN.
Bottom Line
You shouldnât ever, under any circumstances, try to purchase a CPN. These offers are fraudulent and donât provide any credit repair or relief. At the very least, buying a CPN wastes money you should put towards repaying your loans in the first place. At worst, you could go to jail for fraud. There are better, more constructive ways to repair your credit. If youâre truly in a situation that calls for a CPN, contact your lawyer for assistance.
Tips on Rebuilding Your Credit
Of course, the best way to legally clean up your credit is to pay back your debts and improve your credit practices. A good place to start is to pay off your credit card debt with the highest interest.
Sometimes youâll just have to wait for your bad history to fall off your record. Generally, negative info stays on your credit report for seven years. If you canât get a debt collection removed from your credit report, for example, itâll stay there for seven years. However, as time goes on, the toll it takes on your report lessens.
Donât go it alone. If you have a good income, but youâre just bad at managing your money, a financial advisor can help. With guidance, you can make smarter choices â and even start growing your wealth. To find an advisor, use our free, no-obligation matching tool. It will connect you with up to three advisors in your area.
Maybe you want to lose those stubborn 10 pounds, score a big promotion or run your first marathon. Whatever your priority, it all starts with setting a goal.
Financial priorities are no different. Whether you want to save for your child’s college education or get yourself out of debt, budgeting to help reach your financial goals allows you to determine what’s most important to you, make a plan to attain those goals and hold yourself accountable for success.
Still, when it comes to managing your money, knowing how to set financial goals and sticking to them can feel like opposite sides of the same coin. You might even find yourself asking, “How do I create a simple budget to reach my financial goals?” If you follow these three steps, you could be crossing the finish line in record time:
1. Pick a day to get started
Sometimes the hardest part of tackling a new project is simply getting started, especially if your to-do list feels like it’s never ending. There’s always tomorrow, or the day after that… right? To create a simple budget to help you reach your financial goals, pick a day and time to get started. Consider picking a time when you do your best thinking, are most focused and least likely to get interrupted. Maybe it’s Sunday morning over breakfast and coffee before kicking off a day of chores or on a weeknight after the kids go to bed.
Once you’ve landed on the best time to sit down and create a simple budget, add it to the calendar and schedule reminders on your computer or phone to hold yourself accountable.
2. Create a simple budget, however complex your finances
Chances are your finances are pretty complicated, with lots of moving parts. Things seem to be moving along nicely with your regular expenses like rent, groceries, transportation and entertainment… and then your carburetor goes kaput in your car and you must replace it right away. Or that toothache has become unbearable and requires a root canalâand you’ll have to cover some of the expense out of pocket. Just when you’re finally making a dent in paying down your debt and getting your finances on track, life throws you some curveballs. But that doesn’t mean you can’t create a simple budget.
One of the easiest ways to create a simple budget and stay on track is to follow the 50-20-30 rule:
50 percent of your income should address your needs, such as housing, utilities, healthcare and transportation;
20 percent should be put toward your financial goals, like building your savings and paying off debt;
30 percent should cover your wants or discretionary expenses, like shopping, entertainment and dining out.
Managing your finances with the 50-20-30 is a good first step when you’re first learning how to create a budget, but trying to deal with multiple financial goals within that 20 percent bucket can be overwhelming. When it comes to budgeting to help reach your financial goals, certified financial planner Jim White suggests taking your financial goals one step at a time.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt,” White suggests. “A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward,” White adds.
Similar to how you picked a day to begin the budgeting process, make a habit out of managing your finances by picking one day of the week and checking in with yourself at a scheduled time. After about two months, budgeting to help reach your financial goals can become habit forming. “When you focus on your goals on the same day every week, you are creating a habit, and a pattern, to follow,” says Karen Ford, financial coach and motivational speaker.
Budgeting to help reach your financial goals becomes even more effective when you’re reviewing your priorities every seven days and making adjustments to your spending and saving as needed.
“Make a simple plan to tackle debtâor maybe just one debtâthen when that goal is accomplished, work on a simple plan for the next debt. A bunch of small victories goes a long way to changing your financial discipline and gives you a boost to keep moving forward.”
3. Automate your financial plan
Now that you know how to set financial goalsâwhether it’s paying down debt, saving up for a car or putting money away for retirementâwhat’s next? Time to get moving! One way to do that is to automate your finances. By setting up automatic bill pay and account transfers, it will be easier to stick to your plan for paying monthly expenses and contributing to savings.
When it comes to paying your bills and learning how to set financial goals, consider automating the bills that you pay regularly, especially those that fall within the 50 percent budget category that covers your living essentials. To gain momentum with your savings progress, set up automatic transfers from your checking account to your savings account for the amount you wish to save each month. If your financial goal is retirement, you could even set up automatic transfers to an individual retirement account (IRA) so you’re consistently making progress. You could also arrange to have a portion of your paycheck automatically go into savingsâbefore you even have time to miss it.
By making automatic contributions to your savings accounts, you are “subscribing to the idea of paying yourself first,” says Riley Adams, CPA and blogger for Young and the Invested, a professional’s guide to financial independence. “By doing this, it removes the temptation to spend and takes any lack of discipline out of the picture,” Adams says.
Keep in mind that any time you automate your finances as part of creating a simple budget, you should monitor your accounts regularly. Check in to make sure your automated settings are up to date, that you always have the funds available in your accounts to cover your expenses and transfers and that your savings are growing according to your plan.
How to set financial goals in 3 steps
Once you find time to focus on your finances, create a simple budget and automate your payments and transfers, budgeting to help reach your financial goals is one habit that is sure to stick. By following these three rules and keeping yourself on track, you’ll be ready to build a solid foundation for your financial future.
The post How to Set Financial Goalsâand Crush Them appeared first on Discover Bank – Banking Topics Blog.
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Financial Eduation is important for everybody regardless of their demographic, and yet it is frequently overlooked by both the young and those who are just trying to get get by.
, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
