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How to Prepare Your Money for the Coming Economic Slowdown

Denise Hill — Tue, 23 Oct 2018 08:00:11 +0000

Predicting an economic downturn can seem as mystical and convoluted as reading tea leaves. However, the economic tea-leaf readers — financial experts — are warning that the economic winds are changing.

Even though unemployment is still low, there are other economic indicators causing financial analysts to predict lean financial seasons. First, economic growth has all but stalled. The rate of wage increase has stagnated. The Constant Maturity Treasury (CMT) rates, which are used to measure and predict future interest rates, economic growth, and output, are near flatlining — and threatening inversion. This means that as the economy continues to slow down, consumer interest rates will rise and investment earnings will lose momentum, possibly even losing money.

Preparing for a recession is similar to preparing for a tropical storm: There's no way to predict just how bad things will get, but burying your head in the sand and hoping for the best is a horrible idea. Here are a few things you can do to stormproof your finances against the coming economic slow down.

Beef up your emergency fund

The first thing you do when prepping for a storm is prepare your home for the onslaught. People in coastal areas board up windows and surround their homes with sandbags. An emergency fund does the same thing financially. It's the added installation and protection that can assist you when the economy dips. It can't stop the winds, or prevent the rain, and it may not stave off all damage, but it does provide an added layer of protection. And it provides you a fighting chance to preserve what you've worked so hard to build.

The traditional emergency fund is anywhere from three to six months' worth of daily living expenses — and even larger for people with high expenses, large salaries, or a job that would be difficult to replace. During lean economic times, you want to save more than the standard recommended amount.

Under normal circumstances, the average bout of unemployment lasts roughly three to six months. However, experts believe that number is slowly creeping up and could double in a sluggish economy. It has been suggested that you plan to be unemployed at least one month per every $10,000 you earn. So if you earn $70,000 a year, you should plan for an unemployment that lasts at least seven months. This formula is a great gauge in helping you determine how much you need in your emergency fund. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Adjust your budget and pay down debt

Another thing people do during an impending natural disaster is purchase supplies and nonperishable food items. This ensures that they will have something to eat during a major power outage and food shortage. Adjusting your budget by reducing expenses in preparation for a financial disaster follows the same principal. Even though during a disaster you can't eat steak and lobster, you do still eat. The same is true when money is tight.

Your vacation and home improvement plans may have to wait. You may have to forgo expensive advanced educational programs and even take your kids out of private school. The key is to prioritize your expenses, see what extras you can cut, and be prepared to lower the ax when the time comes. It's also imperative that you stop living on overtime, bonuses, and side-gig money. You should divert that money into your emergency fund or other liquid savings. (See also: 5 Budget Overhaul Tricks for the Recently Unemployed)

You should also focus on aggressively paying down debt. If you can get rid of some of your smaller debts quickly, do it. The less people you owe, the better. And paying off debt acts as a type of de facto savings account, too. Sure, the money isn't in an account and available for you to access — but if you eliminate debt, you owe less and have more money at your disposal. You'll also save on the amount of interest you'll pay over time. Paying down debt is always a fantastic idea; however, it can be your saving grace during a recession. (See also: 5-Day Debt Reduction Plan: Pay It Off)

Strengthen career skills

One nonfinancial thing you want to do when you feel the economic winds of change blowing is evaluate your career skill set. You have a primary job that you do. But you also have a bunch of little ancillary functions you perform. These things translate into job opportunities, or — at the very least — bullets on your resume.

Take time now while you are calm and things are going well to refresh your resume and sharpen or add to your skill set (just ensure you do it without adding debt). Most companies offer training of some sort, and many will also pay all or a portion of training you receive elsewhere. Some companies even have tuition assistance or reimbursement programs. Take advantage of those opportunities now, but be sure you read the fine print and understand the guidelines before you sign on the dotted line. (See also: These 17 Companies Will Help You Repay Your Student Loan)

Re-evaluate your investment portfolio

The stock market usually tanks — or at the very least, becomes extremely volatile — during an economic downturn. Financial experts always advise you not to pull your money out of an investment in a moment of panic. Fear should never drive your decisions.

Go ahead and look at your investment portfolio now and see if there are any changes you'd like to make. Risky funds will probably lose money during a slowdown, but they also rebound quickly during economic recovery. And safer investments may not lose much, but you won't make much, either. They cancel each other out.

One system or investment style isn't preferable over another. They all have pros and cons and respond to the highs and lows differently. The key is to assess yourself. Will one heavy loss give you a heart attack? If so, go with something less risky. But if you're confident you can ride the wave and stand the turbulence of a risky investment, stay put. Be sure you consult a financial fiduciary and get solid financial advice before you decide. Knee-jerk reactions are the quickest way to lose big when it comes to investing. (See also: 8 Ways to Prepare for a Stock Market Dive)

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

This Is How Free Money Management Apps Make Money

Tim Lemke — Tue, 09 Oct 2018 08:00:13 +0000

There are many smartphone apps designed to help make our financial lives easier. It’s now possible to manage nearly all aspects of our money — from budgeting, to investing, to sending money and making payments — through an app. And since many of these apps are free to use, it prompts the question as to how the operators make any money.

The business model for apps varies, but there are a variety of revenue streams ranging from advertising and referrals to subscription premium services. Let’s take a quick look at a half dozen of the most common financial app categories and their business models.

1. Money transfer apps

Do you need to pay someone, but don’t have cash and don’t want to bother with a check or money order? You can use money transfer apps to make payments and transfer cash instantly. In most cases, the app links to a bank account or credit card.

Some of the more popular money transfer apps include PayPal, Venmo, Cash App, and Dwolla, though there are many others. They are usually free to use, and they make money by charging a percentage of every transaction involving a credit card. Some apps, such as Venmo, also have a social feed component that could eventually lead to advertising revenue. (See also: The 5 Millennial Money Apps Everyone Should Use)

2. Account aggregators

These apps, which often also have desktop versions, allow users to link all of their financial accounts in order to see their full monetary situation in one view. This allows for easier tracking of spending and income, and there are some handy budgeting tools. Mint and Personal Capital are two of the more popular account aggregators.

Mint makes its money from a number of different sources, including advertising, product referrals (including credit cards), and from selling users’ aggregated financial data. Personal Capital, meanwhile, gets its revenue from the management fees tied to its separate robo-advising service. It collects 0.89 percent of the size of each portfolio under $1,000,000, and less as accounts grow larger. (See also: These 5 Apps Will Help You Finally Organize Your Money)

3. Investment apps

There are a number of new apps designed to make it easier for people to invest, including some that allow users to invest with small quantities of money. Acorns, for example, will round the cost of your purchases up to the nearest dollar and invest the difference. Acorns and its competitor Stash charge $1 per month until you have $5,000 in a portfolio (and in Stash's case, $2 a month for IRA balances under $5,000). After that, both services charge 0.25 percent of your account balance. (See also: How to Start Investing With Just $100)

4. Credit score checkers

There are a number of apps that allow users to learn their credit score and get alerts for any unusual activity on their credit report. Credit Karma, Credit Sesame, and WalletHub are popular apps that are free to use, but make money from targeted advertising, loan management, and referral partnerships with credit card providers. (See also: I Checked My Credit Score in 11 Places — Here's What I Learned)

5. Billing, invoicing, and time tracking

This group includes apps such as Harvest, which allows for time-sheet tracking, billing, online invoicing, and other services. Harvest is free for one person and two projects, but $12 per month, per person for unlimited projects. Similar apps have similar charges, but also make money if you use their payment processing features or pay for other upgrades. (See also: 5 Free Accounting Tools for Freelancers)

6. Bill paying

These apps can be similar to account aggregators, but allow users to make payments. Doxo is one app that allows for bill paying and offers a “digital filing cabinet.” Bill paying is often free, but users may be charged a fee if the provider is not part of the app’s network, or you pay using a credit card. (In the case of Doxo, this could be as much as 3.5 percent.)

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

9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out

Tim Lemke — Fri, 06 Jul 2018 09:00:10 +0000

Your child is on the verge of moving out and living on their own. Are they prepared?

Arming them with the right personal finance knowledge will give them a strong foundation to go and achieve many of their life goals. If their understanding of personal finance is lacking, they could begin their independent life on the wrong foot (and they may even come back home).

Consider these ways that you can help your child build a base of financial knowledge before they move out.

1. Show them how to budget

Perhaps the most important personal finance skill is consistently spending less than you earn. There are a million different ways to budget, and whatever works for you may not work for your child. But encourage them to develop a system to track and categorize spending and then compare those expenses to their income. Of course they'll need to account for housing, food, and utilities but also let them know it's OK to include "fun money" in their budget. It will help them stay motivated to stick to their budget. (See also: How to Help Your Kid Build Their First Budget)

2. Teach them how retirement plans work

If your child is moving out, they likely have some earned income. That means they can start contributing to a Roth individual retirement account. They may scoff at the notion of saving for retirement so early, but if you help them open a Roth IRA and demonstrate how much money they can accrue over time, they'll get on board. Urge them to save as much as they can each month, invest in simple things like index funds, and simply watch their account balance grow over time through compounding.

If they have a 401(k) plan through an employer, take time to review the plan document with them and encourage them to contribute as much as they can. Be sure to explain the advantages of getting a company match on contributions, if one is offered. (See also: 11 Basic Questions About Retirement Saving Everyone Should Ask)

3. Explain bank interest rates

Chances are, your child already has a savings account. But it's still helpful to explain that they don't necessarily need to put their money in the first bank they see. Show them how interest rates can vary, and that it's OK to shop around for the best rates so they can earn a little extra money. Explain terms like APR and APY, and the factors that impact whether rates go up or down.

Also outline the pros and cons of placing money in certificates of deposit. These days, it's also helpful to explain that while interest rates are rising, they're still quite low, and that it might make sense to invest some funds in ways that generate a higher return than savings account interest. (See also: 12 Places to Keep Your Money Safe — And Growing)

4. Tell them about bank fees

Once your child understands how bank interest rates work, they'll need to know about the tendency banks have to charge fees to account holders. These fees could be for anything from low balances to the use of paper checks. Tell your child how they can avoid these fees by researching the best bank accounts and reading the fine print. Let your kids know that if a bank is charging too many fees, it's OK to switch to another bank that doesn't. (See also: Are You Paying These 6 Unfair Banking Fees?)

5. Teach them the pros and cons of credit cards

Credit cards can help a person establish credit, and that's important when you are starting out. And some credit cards offer nice benefits, such as cash back on purchases or travel rewards miles.

You can help your kid apply for a card, but it should come with a series of warnings. Young people must know that credit card balances should be paid off in full each month whenever possible. Show your child that credit card interest rates can be exorbitant, and that high balances can lead to a debt spiral from which they may never escape. (See also: How to Get Your First Credit Card and Build Credit)

6. Outline the pain of debt

Arguably the most important lesson you can teach your children before they leave the nest is that debt is not a good thing. Take time to explain the basics of borrowing so they understand how expenses can continue to increase if debt is not paid off. Show them calculations with interest rates for credit cards, auto loans, student loans, personal loans, and mortgages. Give them an understanding of debt-to-income ratios, and what that means in the context of their financial well-being. (See also: 8 Common Causes of Debt — And How to Avoid Them)

7. Explain the concept of net worth

When your child leaves home, they may be focused on finding a job that pays a high income. That's fine, but it's important for them to understand that income alone is not what generates financial security. It's more crucial to acquire assets that increase in value, while eschewing things that will decrease in value or be a drain on your finances.

This means saving money and investing it. It means avoiding debt. It means purchasing a home instead of renting, if possible. Your net worth — that is, the total value of your assets minus your debts — is the true indicator of your financial well-being. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

8. Urge them to shop for value

Saving money isn't always about spending as little as possible. It's also about spending your money wisely and getting the most bang for your buck. For example, if your child needs to purchase a refrigerator for their apartment, convey to them that they should seek out the best quality model at a price that fits their budget.

Shopping for value involves understanding quality and longevity of products, and knowing what features matter and which don't. It also involves doing extensive research of products and prices before you buy. Shopping for value is a skill that can be learned, and one that could save your child a considerable amount of money over time. (See also: How to Shop With Purpose — And Save More Money)

9. Teach them basic car maintenance

You don't need to teach your child how to replace a catalytic converter, but it helps if they have a decent foundation of car knowledge. Teach them how to put air in a tire and change the tire. Demonstrate how to swap out a headlight bulb and replace a hubcap. Urge them to read the car's manual and learn what all of those warning lights mean. Get them in the habit of changing the oil every few thousand miles.

Finally, teach them how to research the cost of car repairs, so they don't get ripped off at the mechanic. Your child won't be able to avoid car repair expenses, but they'll know enough to avoid getting stranded on the side of the road. Moreover, these basic maintenance efforts could help prevent the need for a major repair later. (See also: Bookmark This: Save Money With an Easy to Follow Car Maintenance Checklist)

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

8 Ways to Preserve Your Net Worth in Retirement

Tim Lemke — Thu, 21 Jun 2018 08:01:16 +0000

We all know the key to a comfortable retirement is amassing enough wealth to last your entire post-work life. But if you truly want to ensure financial security, you should work to maintain or even build upon your net worth as you age. This requires an aggressive level of saving when you are young, and a lot of discipline along the way — but it can be done.

Let's examine some ways you cannot only make your retirement savings last, but also protect all of your net worth throughout your lifetime.

1. Budget and plan wisely

Retirees generally see their expenses decline as they age. The kids are out of the house, college is paid off, homes are owned free and clear. Don't get too cocky, though; you still need to ensure your expenses don't outpace your income. Continue working hard to live within your means. Keep budgets for most expenses, and develop savings plans for any big-ticket purchases. If you want to maintain your net worth, you can't allow your day-to-day cost of living to get out of hand.

2. Downsize

Do you need to live in such a large house? Do you really need two cars? You can reduce your day-to-day expenses and make your retirement funds last longer by simply scaling down your possessions. Considering selling some of your material items and converting them to cash for living expenses or for investing. Or, just donate them to charity and potentially get a tax break on donations.

Even though the footprint of your life may be getting smaller, your net worth can actually increase under these circumstances because you may be converting physical assets (house, car, etc.) to investments that can rise in value and generate new income. (See also: 7 Reasons You Need to Downsize)

3. Never spend your principal

In an ideal world, you are spending your retirement living off the gains and interest from your savings, not the savings itself. If you amass enough savings, that sum can by itself generate its own income in the form of interest, dividends, and capital gains, and it may be possible to live on that income alone. You need a lot of money saved to make this happen, but it's a wonderful feeling to know you are living comfortably without ever tapping into the bulk of your savings.

4. Avoid taking on new debt

You may be tempted in retirement to finally buy that beach house, that luxury car, or that set of his-and-hers personal watercraft. This is fine if these are things you saved for, but you can't let yourself go overboard. The last thing you want is to take on new debt that will add to your expenses at a time when your income is drastically reduced.

Borrowing can lead to interest payments, which can lead to more debt, and then you're seeing your nest egg and net worth drop faster than you ever intended. Avoid debt — especially new debt — and you will be in much better shape financially as you age. (See also: What to Do If You're Retiring With Debt)

5. File for Social Security as late as possible

Anyone can begin accepting Social Security benefits starting at age 62, but if you can wait until you're 67 (what the Social Security Administration considers full retirement age), you'll get 100 percent of your benefits. Accepting benefits before your full retirement age means you'll receive lower monthly payments, costing yourself thousands of dollars annually. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

6. Continue to invest

It may seem counterintuitive to consider investing when you're looking to protect the income you have. But there is a growing body of evidence to suggest that it's OK to invest in stocks even as you get older. Why? Because people are living longer and are more likely to outlast their savings.

Continuing to invest smartly in stocks can help you increase your savings and make it last longer. It's certainly wise to move most of your money into safer things like bonds and cash, but setting aside a certain portion for stocks could mean the difference between seeing your net worth shrink and watching it grow.

7. Pay as little tax as you can

Hopefully, you've used tax-advantaged accounts such as a 401(k) and Roth IRA to build your retirement savings. When you retire, you no longer have those vehicles at your disposal. But there are some things you can do to keep the government from taking too much. First, you can work to ensure that any income you have is taxed at as low a rate as possible. This means taking advantage of stock dividends and long-term capital gains, which are taxed at lower rates than normal income. It means purchasing tax-free municipal bonds. It means claiming as many deductions as you can on your taxes. Taxes are necessary to keep our society upright, but there's no reason to pay more than required.

8. Avoid bailing out relatives

This is not an argument against helping out your children or other loved ones with financial expenses. But it's important to be thoughtful about how you help and the impact it may have on your finances. Is the money you are giving to your adult child simply throwing good money after bad?

If you are helping to take care of the grandkids, are you being reimbursed for the child care expenses (food, clothes, etc.) you are taking on? Remember that in order to make your retirement funds last, you can't be giving away your savings carelessly. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

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

5 Money Moves to Make Before You Move in Together

Emily Guy Birken — Tue, 05 Jun 2018 08:30:31 +0000

Moving in with your significant other is an important moment in your relationship, and it can feel awkward to worry about anything so concrete as finances when you both have stars in your eyes. But money has a way of causing tension in even the closest relationships if you don't spell out expectations before you've signed a lease or a mortgage contract together.

In addition to the potential strain money can put on your relationship, it's also important to remember that cohabiting couples can have an even greater need to protect themselves financially than married couples do, since there is less legal protection available for unmarried couples who split up after living together.

Though it may seem unromantic, make sure you and your soon-to-be live-in boo follow these money moves before you call the moving trucks.

1. Talk about finances

You may assume that you and your partner each make about the same amount of money and have similar attitudes toward finance. But until you are living together and your joint household depends on each of your finances, you can't really know for sure.

That's why the first and most important step in making sure your new living situation is blissful rather than stressful is to talk openly about your finances together. Discuss how much money you each make; how much each of you are used to spending for housing, utilities, and other living expenses; and how much you spend each month on individual expenses, like student loans, car loans, gifts to family, work-related expenses, and the like.

This may sound like the world's most awkward conversation (just ahead of when your parents gave you "the talk"), but a little discomfort now will save you a great deal of relationship strife in the future. That's because you can discuss fundamental disagreements about how to spend money when you're not in the midst of a financial issue or problem.

For instance, if you know ahead of time that your sweetheart sends $400 per month to help her younger brother in college, it will not come as a nasty surprise when that is the reason she gives for not being able to afford half the cost of a new dryer to replace the broken old one. You will know just how strongly she values giving financial help to family, and you can talk about how that will affect your financial choices as a live-in couple before it becomes a reality. (See also: 5 Money Conversations Every Couple Should Have)

2. Set a budget you can both afford

Beyond the initial conversation about your income, expectations, and financial philosophy, it's important to work together to set a budget that's affordable for you both. This is especially vital if there is a big income disparity between you, since the higher-earning partner may assume they can afford a more expensive place than the lower-earner is comfortable with.

Couples with an income imbalance may be tempted to simply let the higher earner pick up the financial slack, but there are two big problems with this plan. First, it can come with a big helping of resentment to have the income imbalance reflected in housing costs, since the higher earner may resent paying more while the lower earner may feel beholden.

In addition, nothing is guaranteed, including employment. Setting a budget that is completely outside the means of the lower earning partner could turn a potential job loss into a huge financial crisis. (See also: 4 Ways an Income Gap Can Strain Your Relationship)

When you are setting your joint budget, talk about how much rent or mortgage you can each afford, as well as how you will split up the cost of utilities so that you can each easily afford your portion of the housing costs. While it's perfectly OK not to split everything 50/50, it's a good idea to draw up a budget that either partner could handle for at least a month or two in a pinch. (See also: 3 Simple Ways to Split Bills With Your Spouse)

3. Put both your names on the lease

If either partner is not represented on the formal housing document, that opens you up to some big potential problems.

For instance, let's say Brian and Jeff move in together to an apartment just in Jeff's name. If they were to break up, Jeff would have a better claim on staying in the apartment they have both called home because his name is on the lease.

Alternatively, if Brian decides to pack up and leave, Jeff is left holding the bag (and paying the rent solo), and he will have no legal recourse. With Brian's name on the lease, they are both responsible for continuing to pay rent.

4. Put your arrangement in writing

A running gag on The Big Bang Theory is the overly-complex roommate agreement that the socially inept Sheldon drew up with Leonard before they moved in together. While most of Sheldon's quirks should not be attempted at home, this is one that bears imitation, though it doesn't need to be as complicated as Sheldon made it. Writing out the specific financial expectations of each partner can protect you both.

What should you include in the agreement? It should detail how much you will each pay for rent, which partner will pay for which household expenses, when bills will be paid, and any other arrangements for sharing your space.

A written agreement is especially important if one partner owns a house that the other partner is moving into. Without both names on the title, the non-homeowning partner is vulnerable should the relationship go south, or if the homeowner were to pass away. In either case, that partner could be evicted at another's whim because there was only one name on the title. Alternatively, if the homeowner is unable to pay the mortgage because of job loss or disability, the other partner would have no obligation to pay it.

A legal, written agreement between partners can make sure that you both have financial protection in regards to your joint home.

5. Keep separate emergency funds

Having a financial cushion available to leave a bad situation is an important part of financial health. Knowing you have the money to leave an abusive job, a dangerously maintained apartment, or a toxic relationship gives you the freedom to set important emotional boundaries and keep yourself from being walked all over.

When you're talking about moving in with your significant other, you may feel like this relationship could never become a bad situation — but there's a reason why it's called an "emergency" fund. Relationships can sour and people can wait to show their true colors, so it's always prudent to make sure you each have the funds to take care of yourself if you have a relationship emergency. (See also: 5-Minute Finance: Start an Emergency Fund)

Spelling out expectations is the path to happy cohabitation

It's easy to get caught up in the fun part of planning out your move with your beloved. After all, talking about money, leases, legal agreements, and the like is not exactly romantic. But talking to each other about your financial expectations before you are unpacking boxes means you are walking into your new living situation with eyes open, and you will not get stuck in a situation that makes you uncomfortable.

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

5 Money Moves to Make Before Applying For a Credit Card

Dan Rafter — Mon, 04 Jun 2018 09:00:16 +0000

You're ready to apply for your first credit card. Or, maybe you simply want to add another card to the rotating deck of plastic in your wallet. Whatever the case, there are certain money moves you must make before filling out an application.

Adding a credit card to your name might seem like a small thing, but a credit card carries tremendous weight. It can be either a useful tool for building credit — or, if misused, it can lead you straight toward high-interest debt. It all depends on how you use that card and if you're financially prepared for it.

To get yourself off on the right foot, here are some important money moves smart consumers must make before applying for a credit card — whether it's their first or their fifth.

1. Do some budgeting

Don't have a household budget? It's time to make one. Have one? It's time to review it to make sure that it accurately reflects the money you are earning each month and the dollars you are spending.

Getting a new credit card could tempt you to make purchases that you can't afford to pay off in full each month. This will lead to you carrying a balance on your cards from month to month. With interest rates on credit cards being so high, this balance can grow out of control quickly.

Make a household budget listing the income you earn each month and the expenses you face. Expenses should include fixed costs that never change, such as your car bill, mortgage payment, and student loan costs. It should also include estimates for expenses that aren't the same each month, such as your utility bill or grocery bills. And don't forget to budget for discretionary expenses such as restaurant meals and entertainment.

If you have a budget, study it to make sure that it accurately reflects how much you spend and earn each month. If you rarely meet your budget, adjust it. Once you have an accurate budget in place, you'll know how much you can charge on a new card and still be able to pay it off each billing cycle. (See also: Build Your First Budget in 5 Easy Steps)

2. Check your credit reports

If you want to qualify for the best cards — with generous rewards programs and low interest rates — you'll need a solid credit score. Before you apply for a new card, do some research on your credit. (See also: Best Credit Cards for Excellent Credit)

You are entitled to one free copy of your three credit reports — one each maintained by Experian, Equifax, and TransUnion — every year. You can order these reports at AnnualCreditReport.com. Once you've done this, review them carefully. They will list how much you already owe on your credit card accounts, car loans, student loans, mortgage loans, and other forms of revolving credit.

They'll also list any late or missed payments up to seven years old. Other financial missteps, such as bankruptcy filings or foreclosures, will also be listed on your reports if they are not older than seven or 10 years.

If there are mistakes on your reports, contact the credit bureaus to let them know. And if your credit report is filled with late payments and high balances, you might want to take some time to pay down your other debts and build a history of on-time payments before applying for a new credit card. (See also: How to Read a Credit Report)

3. Order your credit score

Your credit score is another important number to know when applying for a credit card. This number gives financial institutions an instant look at how you've handled your credit in the past. A low score indicates that you have missed payments or other negatives on your record. A high score indicates that you have a history of paying your bills on time and keeping your debt under control.

You can order your credit score from any of the national credit bureaus. Expect to pay about $15 or so for your score. You might even have a credit card that shows your credit score in your monthly statement.

If your score comes in low, it again might be a good idea to pause your search for a new credit card. Build that score up by making on-time payments and paying off your existing credit card debt. This will boost your odds of qualifying for the best credit cards. (See also: I Checked My Credit Score in 11 Places — Here's What I Learned)

4. Pay off your existing credit card debt

You shouldn't be adding a credit card to your collection simply because you're running out of available credit on your other cards. This will only tempt you to make more purchases that you can't afford and lead you deeper into a cycle of debt.

Instead, work on paying off the credit card debt you already have. Don't apply for a new card until you've gotten your existing credit card debt under control. (See also: The 7 Best Credit Card Debt Elimination Strategies)

5. Build your savings

Financial experts recommend that everyone have an emergency fund of cash to help them pay for life's unexpected expenses — everything from a furnace on the fritz to a car that needs a new transmission. If you don't have an emergency fund, you might find yourself needing to turn to credit cards to pay for such emergencies. And that will only make your debt grow.

Before you apply for a new credit card, build an emergency fund. That way, you'll be less tempted to use your new card to pay for urgent big-ticket items such as a new water heater or an emergency brake repair for your car.

How much should you have in this emergency fund? It's generally recommended that you have enough to cover six months' to a year's worth of daily living expenses, though you may need more or less depending on your unique circumstances. (See also: 5-Minute Finance: Start an Emergency Fund)

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

5 Obstacles You Can Expect on Your Journey to Financial Freedom

Denise Hill — Fri, 01 Jun 2018 09:00:29 +0000

The road to financial freedom is paved with good intentions — and littered with skid marks from those who started out, but opted for an easier path. It can be a lonely, winding road that has potholes, roadblocks, and detours. The best way to ensure any journey is successful is to properly prepare.

Here are a few pitfalls you can expect to run into on your way to financial freedom, and what you can do to cope.

1. You'll get tired

Living a life of frugality can be exhausting. Always pinching pennies, weighing options, tracking expenses, and telling yourself "no" can get old quick. Your ability to remain on the financial straight and narrow is directly proportional to your level of tolerance.

Some people can go months without new clothes, drive the same hoopty for years, take one vacation every decade, and be perfectly happy. Others cannot. Find a pace and intensity that fits your personality and level of discipline. Give yourself the wiggle room you need to succeed.

A great way to combat the fatigue that will pop up along your journey is to take breaks. Allow yourself the opportunity to relax and enjoy the view from time to time. Set financial goals that secure your future, but also keep you happy. Plan to take a vacation, save up for a mini shopping spree, and blow a little cash every once in a while just hanging with friends. The key is to pace yourself. This journey is a marathon. (See also: Yes, You Need "Fun Money" in Your Budget)

2. You'll feel lonely

Forging a path toward financial freedom goes against the grain of our current society. You are bombarded with messages that tell you that you deserve the best no matter the cost. You are worth it. And you only live once, so you might as well live it up now. You are encouraged to indulge yourself.

Living a lifestyle contrary to the popular consensus can be extremely lonely. It can be hard to find people who support your money management value system. And not having someone you can talk to and who understands the dilemmas that come with financial freedom can leave you feeling isolated. You may even find yourself tempted to abort your mission and follow the crowd.

Before you give up and join the ranks of the financially irresponsible, consider this — you are not alone. There are others like you out there. If you're surrounded by those who do not share your passion for financial independence, you must look for those who do.

There are countless online forums, social media groups, and communities of people who are committed to living a financially responsible life. Join a few. And don't be afraid to strike up a conversation about finances with your friends, family members, and colleagues. You'd be surprised how many people you can recruit to the frugal side. (See also: 5 Friend Types That Can Hurt Your Finances)

3. You'll have setbacks

The number one thing to absolutely count on during your quest for financial freedom is setbacks. They will come. Sometimes they come in packs. The important thing is knowing that they will happen and how to recover when the wagon crashes and the wheels fall off.

As soon as you have painstakingly saved and set aside $500 in your emergency fund, you will have a $700 emergency. These kinds of setbacks can be demoralizing and can quickly deplete your energy and drive. However, setbacks — even the ones you cause — don't have to completely derail you and end your journey.

You have to go into your journey fully aware that you will encounter unexpected surprises, unplanned emergencies, and occasionally fall victim to good ol' lack of discipline. Instead of trying to avoid them, you should work on becoming adept at contingency planning. Not falling down is an impractical goal. Getting up quickly is where your focus should lie.

Planning spending fasts, aggressive saving bouts, and ferociously attacking debt for a while are all ways to strategically plan for the unexpected. When the $700 emergency depletes your emergency fund, immediately launch a spending ban and throw every extra dollar you have at your emergency fund until you've caught back up. Every time you fall, get back on your feet. (See also: 4 Reasons to Cut Yourself Some Slack Following a Financial Setback)

4. You'll hear conflicting information

Another incredibly frustrating pothole you'll encounter is that of conflicting financial information. The longer you are on the journey, the hungrier for information you become. You begin to have questions and want to ensure that all your efforts are properly focused. This is a good thing.

The issue you'll find yourself running into quite frequently is that often, financial experts don't agree. Some tell you to pay off your mortgage as soon as possible, while others say it's financial suicide. And the topic of investing can be particularly convoluted and confusing. Who do you believe? How do you discern practical advice from hoopla?

As a rule of thumb, when it comes to financial advice, KISS — keep it super simple. If you don't understand it, don't do it. If it sounds too good to be true, run. You don't have to be a financial Einstein to achieve financial freedom. If you understand basic addition, subtraction, and can operate a calculator, you are good to go.

Get rid of your debt. Have an emergency fund. Set aside money in a basic retirement account. Stick to financial experts you trust and who are easy to understand. Trying to be overly sophisticated will keep you broke. (See also: The Ten Commandments of Reaching Financial Freedom)

5. You'll want to do it all at once

One of the hardest things to do once you get going is to remain patient. Financial freedom is a slow walk. It takes regular baby steps in lieu of random leaps in order to be successful long-term. Consistency is the key. You have to do the same things over and over again to make progress.

It's hard — nearly impossible — to pay off debt, establish an emergency fund, save for retirement, and put away money to purchase a new car with cash all at the same time. You have to work on things slowly and you have to make tough choices. The trick is to do what you can while you can, and everything will work out in the end.

Stay the course and trust the process. It is a slow grind. But a funny thing happens as you chip away at your goal: Your progress picks up speed the longer you stick with it. The more money you save, the more interest it earns, and the faster it grows. Financial freedom takes patience and fortitude. Hang in there. You can do this. (See also: 5 Ways to Boost Your Financial Resilience)

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

5 Things That Could Wreck an Early Retirement

Denise Hill — Wed, 30 May 2018 09:00:24 +0000

The Financial Independence/Retire Early (FIRE) movement is hot right now. People working toward FIRE are hoping to retire in their 40s and, in some cases, even their 30s. And while the focus of FIRE is to produce financial freedom and not ascribe to a strict definition of the term "retired," it is a tantalizing goal many find worth chasing.

However, if not properly planned, early retirement can be more of a burden than freedom. The earlier you retire, the longer your money has to last. Your life mitigation plan also has to be more solid and thorough than those who retire at the standard age. Below are some things that could derail your finances if you retire early. (See also: 8 Things Millennials Can Do Right Now for an Early Retirement)

1. Health crisis

Proper diet, adequate amounts of exercise, and regular doctor visits are the trifecta of good health. However, genetics and fate are the dynamic duo that can override your diligent efforts of maintaining good health. Failing to properly plan for a health crisis leaves the door gaping open for financial hardship during early retirement.

According to a Fidelity analysis, the average couple retiring at traditional retirement age (65) can expect to spend $275,000 on health care during their retirement years. If you retire at 45, you have an additional 20 years' worth of potential expenses for which to plan. You have to factor this additional cost into your overall retirement number.

Financial experts strongly advise that you keep health insurance coverage during retirement to help offset the cost of a serious illness or injury. There are coverage options available through private companies — which can be pricey. You should also explore Affordable Care Act (ACA) special coverage options. The ACA provides income-based premium subsidies which are based on your modified adjusted gross income during retirement. In addition to keeping health insurance, you must also ensure that you've adequately accounted for out of pocket health costs when determining how much you need during retirement.

2. Failing to live on a budget

One of the biggest myths many retirees fall prey to is the notion that you'll spend less money during retirement. The truth is it is rare that your cost of living will decrease as dramatically as you think it might. This is why living by a strict budget is financial life or death for the early retiree. (See also: 9 Unexpected Expenses for Retirees — And How to Manage Them)

Getting older also comes with hidden expenses. You spend more time engaging in leisurely activities — which usually comes with a cost. You outsource chores as you age. And of course, health care expenses increase with age. Budgeting and tracking expenses isn't just for working folks. Living frugally, budgeting, and strategic spending are habits that should follow you to your grave.

If you find that you are burning through your retirement funds quicker than expected, make sure you readjust immediately. This means you may have to scale back or even cancel some of the leisure activities and find ways to cut day-to-day spending. If an unexpected expense arises which consumes a large chunk of your funds, you may have to consider getting a side gig, working part-time, or rejoining the work force for a few years to replace the loss. You must proactively budget and track your funds to ensure they last. (See also: How Much Can You Afford to Spend in Retirement?)

3. Inflation

Piggybacking on point two is failure to properly plan for and adjust for inflation. As you age, your dollar loses its elasticity. Your fixed cost of living expenses are slowly going to creep up over time. Retiring early means you have to deal with that creep a lot longer.

Your retirement budget and planning should include a yearly (or at least every two years) cost of living increase. Think about the things you do regularly and plan to spend more on those things as time goes on. Your medication, transportation, food, and clothing are going to cost more and failing to adjust your budget to accommodate the increase can prove to be a costly mistake long-term. (See also: 4 Ways to Protect Your Retirement From Inflation)

4. Becoming a caregiver

Boomerang children, caring for the grands, and providing for aging parents are some of the unexpected ways you can find yourself burning through your retirement funds. One of the primary purposes for chasing financial freedom — at least for me — is to be in a position to help others. Helping becomes a problem when a person's need exceeds your capacity.

This is even more true for those retiring early. You really have to be careful to ensure that your money lasts past your life span. If you have children and grandchildren, try to plan for things you know you want to assist with. Do you want to give your children a down payment on their first home? Pay for the grandkids to attend private school or even college? Provide long term-care for aging parents? Whatever you think you may want to do, set money aside for that purpose and don't touch it.

It is strongly advisable that you establish a "friends and family fund." This is money that you set aside specifically to help a loved one out of a financial jam. It can pay for health care, funeral expenses, the added cost of caring for your kids, grandkids, parents, or all of them. Most importantly, it can help offset the heightened cost of living that occurs when loved ones come to live with you for an extended period of time. It's better to live on less in order to set money aside for "just in case" in lieu of trying to adjust when life happens. (See also: How to Save for Retirement While Caring for Kids and Parents)

5. Incurring debt after retiring

One of the biggest mistakes you can make is to carry debt into retirement. Retiring with no debt can be a bit tougher when you retire early, but it should be your goal. You don't want to waste your precious resources making years of interest payments. You should aggressively work to eliminate all debt before retiring. You could even opt for a partial retirement and work part-time or get a side gig just to pay off your debt. (See also: 6 Great Retirement Jobs)

It's also ill-advised to incur new debt while retired. If you need to make home improvements, buy another car, or make another major purchase, try to do it with cash — and even then, proceed with caution. If you must use credit for any reason, make a deal with yourself to find some other means to finance the purchase. That may mean going back to work temporarily until the debt is paid.

You also should avoid taking on debt to help friends and family. Steer clear of co-signing — always — but especially during retirement when funds are limited. Helping friends and family members is one thing, but using debt to do it is a bad idea. If you can't afford to give it, you can't afford to lend it. In other words, if you need to be paid back, you really can't afford to loan the money. Consider gifting a portion of the money to the asker in lieu of lending them the whole amount. That way, they are not indebted to you, you haven't financially endangered yourself, and you provide assistance while simultaneously preserving the relationship. (See also: What to Do If You're Retiring With Debt)

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

How a New Marriage Can Survive Student Loan Debt

Matt Bell — Tue, 29 May 2018 08:30:47 +0000

It's a very common scenario. Girl meets boy, they fall in love, and decide to get married. They're excited about starting their new life together, but they're also weighed down by student loan debt — a lot of student loan debt. As they drag that heavy ball and chain into the future, what steps can they take to tilt the odds of marital and financial success in their favor? If that's your situation, read on.

1. Understand the details

Good communication is essential to the success of any relationship, and while money can be a tough topic, you'll get your marriage off to a great start by getting accustomed to talking about your finances. You might as well dive right in and start with your debt.

No matter which one of you is bringing debt into the marriage, both of you should know exactly how much debt. You should also be clear about the interest rate, the monthly payment amount, and how long those payments will continue.

That will help you to both manage your expectations about when you might be able to buy a house, how much you can spend on vacations, and all the rest. (See also: The 7 Worst Money Mistakes Married People Make)

2. Be one in debt

Marriage is about oneness, unity, and teamwork. You're not becoming roommates; you're becoming husband and wife. So, if one of you was wealthy and the other was not before getting married, after you get married, both of you will be wealthy. By the same token, before marriage, if one of you had debt and the other did not, once you're married, both of you will have debt.

When my friends Scott and Karen Coy got married, Karen had more than $50,000 of nonmortgage debt. Scott jokingly referred to it as "a reverse dowry." After getting married, Karen often expressed how bad she felt about "my debt." But from day one, Scott would correct her, saying it was "our debt."

It took them six-and-a-half years to become debt-free. All that time, they rented even though they would have preferred to buy a house. It took great patience and perseverance.

Karen says she will always remember the day they made their last payment. It was as if a huge weight had been lifted from their shoulders. And looking back, she says the way they navigated the journey — together — created an inseparable bond in their marriage.

3. Consider being two in taxes

If you were using an income-based repayment plan before getting married, how you file your taxes after you get married will matter greatly. If you file jointly, your payment amount may go up. That's because income-based repayment plans require you to "recertify" each year by submitting your income tax returns to your loan servicer, who will now make decisions based on your joint income. So, you may want to consider filing separately, in which case most student loan plans will use just the borrower's income as the basis for recertification.

However, filing separately may make you ineligible for certain tax credits, so proceed with caution. It would be best to consult with an accountant or run some what-if scenarios with tax-planning software.

4. Figure out the implications for your budget

Before deciding where you'll live after you get married, create a post-marriage cash flow plan. What works best is to fill in your financial commitments first. How much of your joint income will you save and invest? How much will you give to charity? And how much will you need to devote to debt repayment?

Then you can see how much you can afford for rent or a mortgage. I usually recommend committing no more than 25 percent of monthly gross income to the combination of your mortgage, property taxes, and homeowners' insurance. If you rent, devote no more than 25 percent to your rent and renters' insurance.

A student loan payment, however, changes the math. I recommend that the combination of your housing and your student loans together make up no more than 25 percent of your monthly gross income. So, you should figure out what percentage of your monthly gross income your loan payment amounts to and subtract that from 25 percent. The answer is the percentage of gross income you could devote to housing while you have student loans.

If your student loans amount to an especially large percentage of your gross income, that may end up being overly restrictive. So, you'll have to adjust other spending categories downward, such as entertainment, clothing, or vacations. (See also: 3 Simple Ways to Split Bills With Your Spouse)

5. Prioritize early payoff

The early years of your marriage present a great opportunity to speed up the process of getting out of debt. If you want to have kids one day, your pre-kid days will be the most financially flexible time you may ever experience. Make the most of it by making extra payments on your loans.

Debt can be a roadblock in the pursuit of financial goals such as buying a home, and it can be a hindrance to a happy marriage. So, consider building your lifestyle on just one income and putting most of the other paycheck toward your student loans. By living an especially frugal life in the early years of your marriage, you'll be setting yourselves up for long-term success. (See also: 7 Ways Paying Off Student Loans Early Can Boost Your Finances)

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

5 Money Moves to Make Before Adopting a Dog

Kat Tretina — Wed, 23 May 2018 08:00:28 +0000

There's nothing better than coming home to a wiggling dog. Their soft fur, wet noses, and boundless enthusiasm can brighten even the dreariest of days.

However, bringing home a furry friend can be expensive. The ASPCA estimates that owning a small dog costs over $1,400 in just the first year, while large dog owners are looking at a figure above $2,000. And those amounts only cover the basics. Extras like emergency vet bills or specialized training can cause your costs to skyrocket.

Because of the serious expense of owning a dog, it's important to not bring a pet home impulsively. Preparing for a new pet means you need to spend some time getting ready for his arrival. And that includes some important first steps. (See also: 5 Pet Costs You Don't See Coming)

1. Build an emergency fund

Unfortunately, dogs can be prone to accidents and illnesses. If they gobble a sock — which is oddly common — or eat something they shouldn't, you could end up with a four-figure vet bill. In fact, PetPlan, a pet insurance company, reported in 2017 that unexpected veterinary care typically costs between $750 and $1,600, though higher bills are also common.

If you're not prepared for an unexpected vet bill this high, you might be faced with a tough decision if something bad happens. To prevent that from occurring, start building an emergency fund for your pet's care before you even bring them home. That way, if there is an accident, you'll be able to handle it. (See also: How to Prep Your Finances for an Emergency Vet Visit)

2. Create a budget for the necessities

When you think about what it costs to own a dog, you probably think of basics like food and flea and tick prevention. But there are many other expenses to keep in mind, including:

Spaying or neutering: Spaying or neutering prevents overpopulation and can even help with your dog's behavior.
Dog crate or bed: When your dog is new to your home, a designated crate or bed can help soothe him and be useful during housebreaking.
Leash and collar: You'll need a strong leash and collar to walk your dog safely.
County dog license and tags: Some areas require you to get a license for your dog. Usually, the dog has to wear the license at all times.
Food and water bowls: Designated bowls make it easier to keep your home clean.
Routine shots and exams: At a minimum, your dog will need rabies, parvovirus, and distemper vaccines.
Grooming: Grooming is more important than just making your dog pretty. It also keeps their skin in good condition, and can help you catch illnesses and problems before they get worse.
Treats and toys: Treats and toys are essential to teach your dog and to help him burn off energy.
Training: If you're not an experienced dog owner, dog training can be invaluable. Ensuring your dog will obey you and develop good manners is an important part of pet ownership.

Some of these items can cost a lot more than you expect, especially if you plan to get a larger dog. For example, spaying or neutering your dog could cost as much as $600. By knowing how much money you'll need ahead of time, you can better manage your paycheck and budget accordingly. (See also: 6 Pet Expenses You Should Never Skip)

3. Buy secondhand where possible

When making your budget, you'll likely look at the prices for new items. However, you can save a lot of money by shopping for secondhand stuff. Especially if you're getting a young dog who will outgrow things quickly, buying used items or asking friends and family for their old things can help you save big.

For example, a new hard-sided crate can cost over $100 at big-name pet stores. But if you shop on Craigslist or find someone who is getting rid of one, you could spend as little as $10, and they're often as good as new. Just be sure to wash and disinfect any secondhand items thoroughly, and make sure there are no cracks or damage.

4. Research pet insurance

Pet insurance can be a smart investment. If your dog has a serious injury or illness, it can be a literal lifesaver. It's a good idea to shop around while your dog is still young since puppies and young dogs typically qualify for lower premiums than older ones. Premiums can vary, but most pet owners can expect to pay between $30 and $50 per month. If you're not sure where to start, check out the Canine Journal for reviews of the top pet insurers. (See also: 7 Things You Need to Know About Pet Insurance)

5. Identify discount pet supply stores

When it comes to dog food, treats, and toys, you might think your only option is the local pet store. However, you can often get better deals at farm supply stores or online discount retailers. Sites like Chewy even often discounts if you sign up for automatic shipments, helping you save on food and other supplies. Plus, you get the added benefit of not having to lug heavy bags of dog food home from the store. (See also: 5 Unexpected Dog Costs You Should Prepare for Now)

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4 Smart Things You Should Do With Your First Real Paycheck

Denise Hill — Tue, 22 May 2018 08:00:37 +0000

You've finally landed your first real job. And with that, comes your first real paycheck. This is a monumental occasion and should be celebrated. But what should you do? Should you blow all of your funds on an expensive and wild weekend? Should you buy a new wardrobe? Or should you just pay your bills and save the rest?

The answer to this question depends on your overall financial plan, your budget, and your surplus once you've met all of your obligations. An important thing to do once you receive that first check (preferably before) is to establish a plan. It's OK to splurge a little and celebrate the fact that you are officially a taxpaying, adulting member of society. However, it's critical that you use this first paycheck to jump-start your journey to financial independence.

Here are some important money moves you should make with your first real paycheck.

Let your money breathe

This sounds ridiculous, I know. But one of the biggest challenges people with newfound wealth face is getting used to having money.

One of the most important things to remember is that your thoughts, beliefs, and attitudes about money directly influence how you spend it. When you're not used to having it, it's easy to spend a small windfall immediately. And often, you overspend. You have to give yourself time to acclimate to having money. Paradigm shifts take time. Allowing your checking and savings account to remain full can be difficult.

If possible, allow the money to sit for a while. Pay your bills and let what's left breathe. Buy only what you absolutely need, at least at first. You don't have to go out to eat, buy new clothes, or cop a new ride just because you're earning steady money. Begin conditioning your mind to enjoy seeing a positive checking and savings balance. And vow to keep the trend going.

Create a budget

The most important thing to do with that first paycheck is to create a budget before you spend a dime. Once you see exactly what you're working with, establish a spending and savings plan by creating a zero-based-budget. You want to give every dollar a purpose. There's no such thing as leftover money or a surplus. Every dollar is accounted for, and if you do find a way to save a buck, that buck goes to savings.

Creating a budget is a great way to set a good financial habit moving forward. It's like establishing a healthy diet, but with finances. It helps you determine correct portion sizes and helps you guard against overextending yourself and becoming house poor. It allows you to see where every dollar is going. It also helps you to better track your spending and find ways to save during lean times. (See also: How to Budget When You're No Longer Broke)

When you receive your first paycheck, make a list of all of your regular monthly bills, debts, and necessary expenses along with the due dates, in order of importance. This not only helps you see what needs to be paid and when, but it also helps you establish payment priorities in case there ever is a shortfall.

There are multiple budgeting, bill pay, and tracking apps that can help you streamline your finances. But the most important thing is getting it all written down — in some form — and having a plan. Taking the time to organize your finances and create a budget with your first paycheck sets you on the path to good financial stewardship. (See also: These 5 Apps Will Help You Finally Organize Your Money)

Establish a solid savings plan

After you've listed and prioritized your bills and expenses, it's important that you add savings to the budget and move it to the top of the list. It should be ahead of everything. Your budget shows you how much you owe and how much you have left after the necessities are paid — which allows you to determine how much you should save each month. The old financial advice, "Pay yourself first" is still very true and should begin with your first paycheck.

Start by establishing how much you can afford to save and lock in that number. If possible, set up an automatic transfer so that as soon as your paycheck is deposited into your bank account, your savings amount is automatically transferred to another dedicated savings account. That way you never see the funds. You won't miss what you never see.

Part of savings involves establishing your retirement and emergency fund. Traditionally, an emergency fund is three to six months' worth of daily living expenses, but can be more or less depending on your particular circumstances. This fund should only be used in real emergencies, like an urgent medical bill or a job loss. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

If you work for a company that offers a workplace retirement plan, use your first paycheck to establish how much you'd like to contribute. You should contribute something, even if it's a small amount at first. If you are self-employed, freelancing, or work for a startup that doesn't have a workplace retirement plan option, look into setting up an IRA through your banking institution or other reputable financial management firm. You may need to save up a minimum amount to open an IRA, but you can use a portion of your paycheck as the first step toward saving that amount. (See also: 11 Basic Questions About Retirement Saving Everyone Should Ask)

Set financial goals

After you've gotten your budget in place and saving money is at the top of the list, it's time to set some financial goals. Setting financial goals is important for a variety of reasons. It helps you stick to a realistic budget. It puts something concrete out in front of you and challenges you to go get it. It gives you a purpose for earning, saving, and spending money. Even if you don't reach your goal, you still make progress and move forward. Setting financial goals allows you to view money as a tool that will help you live an independent life.

Financial goal setting is pivotal to becoming and remaining financially independent. You should set immediate, short-term goals (less than six months), some intermediate goals (up to three years), and some long-term goals. Write down legitimate things you want to do with your money and determine the steps you need to take to reach each goal. Make sure your goals fit the SMART frame work (Specific, Measurable, Achieveable, Realistic, and Time-bound) and fit your lifestyle and unique situation. (See also: 5-Minute Finance: Create Financial Goals)

Your first few goals should be to live by your budget, maintain a healthy emergency fund, and kickoff your retirement savings. From there, make other goals that will help keep you on track, such as eliminating debt or paying cash for your next car or vacation.

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How to Become a Minimalist With Your Money

Rachel Slifka — Thu, 17 May 2018 08:00:48 +0000

Minimalism is a way of living that centers on finding contentment with less. Becoming a minimalist can benefit many aspects of your life, including your finances. You may be inspired to purchase less stuff, consider quality over quantity, and declutter to create systems that keep you organized.

If you are interested in taking on a minimalist approach with your money, here are a few tips to get you started.

Establish your personal and financial priorities

Everyone has different values. What is important to one person might not be important to you. Your values should drive your spending. If you are working to become more of a minimalist, you'll need to be very specific about what is valuable to you and cut out everything else.

Often, people spend money on things that are of little to no value to them. This is partly because of the world around you, which can influence your money decisions if you aren't careful. Aggressive marketing on television, social media, and other platforms is constantly trying to convince you to purchase something. Unfortunately, many people fall into this trap and end up spending money on things that add no real value to their lives.

What's truly important to you and your finances? For instance, some common financial priorities include paying off debt, saving for retirement, or putting 20 percent of your income aside for savings. By setting your priorities, you can better determine how you should be spending your money.

Simplify your budget

Now that you have a better understanding of your financial priorities, the next step is to take a hard look at your budget. Where is your money going?

Carefully observe your spending patterns. Do all of your purchases align with your financial priorities?

After analyzing your expenses, you are likely to find you are spending money on material things that you don't really need or for experiences that aren't adding value to your life. For instance, is shopping or eating out every week really bringing you joy? Would you be just as happy if you cut back on some of your spending in these areas?

Don't forget to consider the value of your typical expenses. When you are billed for something every month, it is easy to accept that it is a bill you will always have. All too frequently, people find themselves paying regular monthly fees for things that are not truly important to them. Maybe you're paying for a membership to a club you no longer participate in, or you're paying for subscription cable that you don't watch. Take the time to cancel those subscriptions now to help simplify your financial picture. (See also: Build Your First Budget in 5 Easy Steps)

Limit shopping trips and consider every purchase

One tactic to avoid overspending on needless purchases is to limit how often you go to the store. By doing this, you can better plan for what you actually need and remove a lot of the temptation to spend altogether. It can also help you save time, which is always a welcome benefit. (See also: How to Shop for Food Once a Month and Save Big)

If shopping is your weakness, try limiting your visits to the grocery store to once a week and your trips to the mall to once a month. Purchase everything you need in one trip. Any time you want to buy an item, ask yourself if it is really worth it. It is an absolute necessity? Will it add value to your life? Is it useful? Do you really love it?

Often, when you take the time to honestly think about each purchase, you'll find the answer to these questions is no.

If you forget something during your planned shopping trip, wait until the next planned trip to make the purchase. By then, you may discover that you can live without it. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

Clean out your home

What's the best way to become a minimalist in all areas of your life? Start by cleaning out your home. Sort through all of your drawers, closets, and cupboards. Sell or donate anything you don't like or that you don't use anymore.

You'll likely find that you can live with much less stuff than what you've been holding on to. This step is important because clearing out your home will also help you to better evaluate future purchases. In order to prevent cluttering your home again, you're more likely to evaluate an item before buying it to decide if it's something you really need.

Push your savings goals

One simple way to spend less is to encourage yourself to save more money. By creating lofty savings goals, you may find that you are more likely to consider the opportunity cost of a potential expense. When you are thinking about buying something new, you'll not only have to consider if you truly need it and how much you'll use it, but you'll also need to think about whether or not the purchase is worth putting less into your savings account.

Automate your bills

Bills piling up on the counter do nothing but contribute to the disorganization of your home and your money. If you're constantly losing bills, missing payments, and racking up fees and penalties, take some time to set up e-statements and autopay for all of your accounts. When the statement comes due, the money will come straight out of your bank account without you having to think about it. This doesn't mean you shouldn't check to make sure everything looks correct, but autopay can be a huge help in a minimalist approach to money management. (See also: 5 Ways to Automate Your Finances)

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

5 Signs You Aren't Ready for a Credit Card

Dan Rafter — Tue, 15 May 2018 08:00:19 +0000

There are plenty of smart reasons to apply for a credit card. Having a credit card can give you financial flexibility, provide a way to build or boost your credit, and offer a range of valuable rewards, cash back, and perks. But having plastic at your disposal is not all fun and games.

Having a credit card can cause problems if you're not quite ready for one. How do you know if you're not ready for a credit card? Here are a few surefire signs.

1. You don't follow a budget

The key to using a credit card properly is knowing how much you can afford to charge each billing cycle. The goal is to make charges during the month and pay off your balance in full every time your payment due date rolls around. This way, you'll steadily build your credit history along with a strong credit score. But if you don't have a budget, you won't know how much you can afford to charge each month.

Before applying for any credit card, make sure you've drafted a budget that includes your monthly expenses — including those that change each month and those that are discretionary, such as entertainment and eating out — and your monthly income. This will provide a guide for how much you can afford to put on your credit card without running a balance from month to month.

Running a balance is a huge financial mistake. Credit card debt comes with high interest rates, and if you don't pay off your balance in full each month, that debt can quickly grow out of control. (See also: Stop Using These 5 Excuses Not to Budget)

2. You're often late on other payments

Do you struggle to pay your landlord on time each month? Do you often pay your cellphone bill a week or two late? Then you aren't ready for a credit card.

Credit card payments are reported to the three national credit bureaus (Experian, Equifax, and TransUnion). On-time payments will boost your score and strengthen your credit profile. If you pay your credit card bill late — 30 days or more past due is considered officially late — your credit will take the blow. A single late payment can cause your credit score to fall by 100 points or more. That late payment will also stay on your credit reports for seven years.

If you struggle to pay your other bills on time, there's no indication you'd be any better at paying your credit card bill every month. Hold off on applying for a credit card until you change your habits. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

3. You can't build up your savings

Before taking on the financial responsibility of a credit card, you should have already built up some savings. This is a sign of financial maturity and stability — the type of maturity and stability you'll need to handle a credit card.

If your bank account falls to zero (or near it) before every payday, you probably aren't ready for the responsibility of managing a credit card and the monthly payments that come with it. (See also: 8 Factors That Could Keep You Broke Forever)

4. You can't stop borrowing money from your parents

Do you frequently turn to your parents for help when the rent is due? Are you constantly asking them for extra cash when you want to go out for dinner or to a concert?

This is another huge warning sign of financial immaturity, and evidence that you are not ready for a credit card. If you can't handle your monthly living expenses without cash infusions from Mom and Dad, you'll be tempted to use your credit card to make those extra purchases. And that's a surefire formula for running up debt that you won't be able to pay off. (See also: 4 Things You Should Make Your Adult Child Pay For)

5. You don't have a reliable income stream

You need a steady stream of income coming in every month if you want a credit card. It's imperative that you're able to pay off your credit card bill in full at the end of each billing cycle. Otherwise, you risk sending yourself into a cycle of high-interest debt.

If you don't have a steady job, or if you're constantly struggling to find enough money to pay your bills each month, avoid the temptation of applying for a credit card. Instead, focus on increasing your income and building up some emergency savings before sending in a credit card application. (See also: 5-Minute Finance: Start an Emergency Fund)

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

5 Personal Finance Tasks That Aren't as Hard as You Think

Dan Rafter — Thu, 10 May 2018 09:00:11 +0000

The thought of making a budget or preparing your own taxes makes you want to collapse on the couch and binge watch your favorite TV show. It's understandable: Most people don't consider personal finance to be a fun way to pass an afternoon.

But the truth is, most personal finance tasks aren't nearly as difficult or time-consuming as you think they are. And if you muster up the courage to finally take them on, you can generate a nice financial boost for yourself.

These personal finance tasks aren't as tricky as you think. Give them a go. You'll feel a lot less guilty when you waste three hours streaming old episodes of Battlestar Galactica.

1. Writing a household budget

Drafting a budget is the first step toward making good financial choices. The problem? Making a budget sounds dull and difficult.

The good news, though, is that it doesn't take nearly as much time or effort as many people assume it does. Simply list your monthly expenses that never change — everything from your mortgage or rent payment, to your car payment and insurance costs. Next, list those costs that change each month — such as your utility bill, transportation costs, and grocery spending. Put down an estimate for how much you think you'll spend on these items every month.

From there, list the expenses that are more discretionary, such as eating out or going to the movies. Create a maximum spend for these items each month.

Finally, list the money that comes into your household from salaries, overtime, bonuses, settlements, investments, and any other source that pays out each month. Compare your expenses to your income. Now you know how much leeway you have in your monthly budget and how much you can devote to savings. Best of all? Doing this doesn't have to take more than an hour. (See also: Build Your First Budget in 5 Easy Steps)

2. Building an emergency fund

Financial experts recommend that you have six months' to a year's worth of daily living expenses saved in an emergency fund. That way, if you face an unexpected financial emergency — anything from a $1,000 car repair bill to a job loss — you'll have money set aside and won't have to resort to credit cards.

Building such a large emergency fund sounds intimidating. But if you take it in small steps, you'll find that building this fund isn't nearly as hard as you think.

Start with whatever you can spare each month. If you can only devote $100 a month to your emergency fund, start with that. After a year, you'll have $1,200 saved. If you can save $200 a month, you'll have $2,400 at the end of a year.

The key is to continue depositing whatever you can in your emergency fund. If you do, you'll be surprised at how quickly it grows. (See also: 5-Minute Finance: Start an Emergency Fund)

3. Making a will

Drafting a will not only sounds complicated, it's also not much fun to think about. No one wants to consider their own death. But if you own property and assets, you absolutely need a will to make sure those assets are passed on to your loved ones according to your wishes after you die.

How to do it? Start by titling a blank document with the words "Last will and testament." Then, state your name and write that you are of sound mind and legal age (this is usually 18).

Name the executor of your will — the person who will carry out what your will states after you die — and name a legal guardian to take care of your children if you should pass away.

Your will should include the names of any beneficiaries, the people whom you want to inherit your assets. Usually, this will be your children or spouse. But you can also name friends, charities, other relatives, or organizations.

Finally, list your assets and whom they should go to. This can include your home, your savings, your car, or any other possessions.

Sign the will in front of at least two witnesses. Check with your state; in some, your witnesses can't be beneficiaries. Write down these witnesses' names and addresses. Make sure they sign your will, too. (See also: Here's What Happens If You Don't Leave a Will)

4. Paying your taxes

It can be tempting to hire an accountant or tax pro to do your taxes for you. The truth, though, is that most of us can do our taxes on our own.

Taxes for most people aren't overly complicated. Things only get messy if you rely heavily on freelance income, write off part of your home as an office, or have plenty of deductions that you want to claim. Most taxpayers don't fall into that category. They can file their taxes on their own, especially with the help of easy-to-follow tax preparation software.

So before you spend $600, $700, or more on a professional tax filer, consider doing this on your own. It'll usually take you less than an afternoon. (See also: 12 Things You Should Know About the New Tax Law)

5. Changing your bank

Your bank just closed the only ATM and branch near you. Its online banking function is sluggish and frequently offline. You're ready to make a change — but you don't want the hassle of closing accounts and opening new ones. Here's the good news: Changing your bank doesn't have to be a hassle.

You will have to do the research, of course. You'll have to find a new bank that has branches and ATMs close by. You might even decide to go with an online-only bank. Once you've analyzed your choices and selected a new bank, it's time to open an account. You might be able to do this online, but some banks require you to visit their office in-person. You'll usually need to make a deposit to start your new account.

Once your account is open, you can transfer money from your old bank — hopefully you can do this online — into your new account. But don't close your old account too early: You want to make sure that any checks you've written recently have been cashed before you close that account.

You'll also want to change all your automatic payments before closing your old bank account so that the payments are withdrawn from your new account. Many people have everything from their mortgage payments to their auto loan payments set up as automatic deductions from their checking accounts. Make sure you've switched all of these before closing your old account. And if your paychecks are direct-deposited to your old bank account, you'll have to make that switch, too.

Finally, if you rely on online payment systems such as PayPal, be sure to connect these services to your new bank. If you're lucky, you should be able to set up a new bank account, make these switches, and close your old account mostly from your computer. (See also: Switch to a Better Bank in 5 Easy Steps)

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

6 Ways to Boost Your Partner's Bad Credit Without Risking Your Own

Mikey Rox — Tue, 08 May 2018 09:00:13 +0000

You can't help with whom you fall in love — and that's never more annoying than when the object of your affection has royally effed up their credit. Nobody's calling it quits over a few past financial mistakes, but the situation will need to improve if you two are planning a future together that includes buying a home, starting a business, or other major money-based life decisions.

Since you're now in this together, you have a responsibility to do what you can to make sure you start your joint life on the right foot credit-wise. Here's how.

1. Help your partner review their credit report to flag and report errors

If your partner has terrible credit, it's likely that they don't know how to pull their credit report, flag errors, and report them to the appropriate authority to have them removed or updated. That's where your expertise (or even elementary knowledge) of how credit reports work comes in. Flagging and reporting credit errors is the first step in getting their situation back on track and under control. Once that's squared away, you can move on to the bigger issues. (See also: How to Read a Credit Report)

2. Provide positive reinforcement instead of bailing them out

It's easy to throw money at a problem to make it go away — especially if you have extra cash to spare and the person you love will benefit immensely from your generosity (at least in the short term). But I urge you to avoid opening your wallet to deal with your partner's bad credit. Instead, provide encouragement that they can manage their debt on their own.

They created this situation, after all, and the only acceptable solution is that they work it out without your financial assistance. Help them in other areas, like navigating their credit report, but don't shill out dough to dig them out. The only thing they'll take away from that scenario is that you'll always be the sucker who pays for their poor judgment.

3. Establish a cash allowance that you'll both adhere to

You can't take your adult partner's credit cards from them (even though you might like to), so an easier-to-swallow solution is to jointly stop using credit and instead switch over to an all-cash budget. If they feel like you're both in this together, they'll be more willing to comply. You might have to make a few sacrifices along the way with your cards not available, sure. But if it helps condition your partner to spend and save smarter, forgoing the treat-yo'-self impulse buys you're used to will be worth it. (See also: How to Put Your Spouse on a Budget Without Ruining Your Marriage)

4. Brainstorm actionable ways they can start chipping away at their debt

Sit down together and come up with ideas about how your partner can start paying down their debt faster. That may involve asking for a raise at work; picking up a part-time job; working a few side gigs, like driving for a ride-sharing service and pet sitting; selling off unwanted or unused valuables; downsizing their lifestyle (maybe it's time to move in together so both of you can save?); and canceling all frivolous monthly expenses, like subscription services and memberships. (See also: 5-Day Debt Reduction Plan: Pay It Off)

5. Schedule autopays on pay days

Help your partner set up auto-payments that coincide with their paydays so the money goes straight from their checking account to their debt accounts, leaving them little time to start a spending spree before handling their financial responsibilities. (See also: 5 Ways to Automate Your Finances)

If your partner doesn't like the idea of auto-paying bills, maybe they could get on board with a regular money meeting where you both sit down each week or month to discuss your budget and bills and make payments in each other's presence. It's a way to keep each other accountable, build trust, and establish good money behaviors. Either of these options will make sure the bills are getting paid on time.

6. Discuss secured credit card options

If your partner's credit score is weak, you can help improve it by encouraging them to open a secured credit card. Secured cards are fairly easy for anyone to get because the risk to the bank is low. That's because the cardholder puts down a deposit that's typically the same size as the credit limit (which will be low to begin with). If the cardholder defaults on the payments, the bank keeps their deposit.

Secured cards are great for building credit because your payment activity is reported to the credit bureaus, just like any other credit card. "After demonstrating consistent payment history, your credit score will steadily improve," says certified financial adviser Lou Haverty. "You could consider applying for a regular credit card when your score is in the high 600 to low 700 range."

I took my boyfriend to the bank to get a secured card after he moved in with me because I wanted him to start rebuilding his weak (but not necessarily bad) credit. This was an important step for us to take early on because I want him to have decent credit if we decide to buy a house together a few years down the road. Sometimes that's how long it takes, so there's no time like the present to start working the system. (See also: The Best Secured Cards)

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