Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Making $50,000 a Year? Here’s How Much to Invest

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Provided by Investopedia

No matter how much money you earn, the amount you invest each year should be based on your goals.

Your investment goals not only provide you with a target at which to aim, they also provide the motivation necessary to stick with your investing plan.

Your investment goals should also be based on how much you can afford to invest. With an income of $50,000, the constraints of living expenses may prevent you from investing as much as you would like initially, but if you stay focused on your goals, you should be able to increase the amount of your investments as your income increases.

By following four key financial planning steps, you can determine how much to invest in the beginning and have a plan for achieving your goals through gradual increases in the amount you invest. For purposes of illustration, this particular case involves a 30-year-old person earning $50,000 per year with an expected increase in income of 4% per year.

Set Your Goals

At age 30, you may have several goals you want to achieve, which could include starting a family, having children, providing those children with a college education and retiring on time. This is a lot to accomplish on a $50,000 income. However, it is safe to assume your income will increase over the years, so you should not let your current income constrain your goals. You just have to prioritize, and as you set up your investment plan, target each goal separately. For this example, assume the goal you want to target is to retire at age 65. After inputting some assumptions into a retirement calculator, this indicates a need for $1 million in capital. This is your target. Using a savings calculator, and assuming an average annual return of 6.5%, you need to save $500 per month starting at age 30. This is your savings goal. Your next step is to create a spending plan that allows you to meet this goal.

Create a Spending Plan

The mistake many people make when creating a personal spending plan is they determine their savings amounts around their monthly expenses, which means they save what they have left over after expenses. This invariably results in a sporadic investing plan, which could mean no money is available for investing when expenses run high in a particular month. People who are intent on achieving their goals reverse the process and determine their monthly expenses around their savings goals. If your savings goal is $500, this amount becomes your first expenditure. It is especially easy to do if you set up an automatic deduction from your paycheck for a qualified retirement plan. This forces you to manage your expenses on $500 less each month.

Lock in a Percentage of Your Income

A savings goal of $500 amounts to 10% of your income, which is considered an appropriate amount for your income level. Assuming your income increases by an average of 4% per year, this automatically increases your savings amount by 4%. In 10 years, your annual savings amount, which started out as $6,000 per year, will increase to $8,540 per year. By the time you are 55, your annual savings will increase to $16,000 per year. This is how you reach your goal of $1 million at age 65 starting out on a $50,000-per-year income.

Invest According to Your Risk Profile

This investment plan assumes an average annual rate of return of 6.5%, which is achievable based on the historical return of the stock market over the last 100 years. It assumes a moderate investment profile, investing in large-cap stocks. If you are adverse to risk or prefer to include investments that are less volatile than stocks, you will have to lower your assumed rate of return, which will require you to increase the amount you invest. At a younger age, you have a longer time horizon, which may allow you to assume a little more risk for the potential of higher returns. Then, as you get closer to your retirement target, you will probably want to reduce the volatility in your portfolio by adding more fixed-income investments. By staying focused on your benchmark of a 6.5% average annual rate of return, you should be able to construct a portfolio allocation that suits your evolving risk profile over time, which will allow you to maintain a constant monthly investment amount.

Written by Richard Best of Investopedia 

(Source: MSN)

5 Tips for Better Spending Habits

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Provided by US News & World Report

While 2016 is in full swing, if you haven’t thought about a resolution yet, don’t give up. Maybe it’s time to make one that has the potential to stick. If you’re often wondering how money slips out of your wallet, consider becoming the crash test dummy for better spending habits. Test drive some of these ideas below to develop better ones.

Be your own cheerleader.

Patting yourself on the back after following through on a behavior you want to increase goes a long way to help cement a behavior. Ginger Dean, psychotherapist and website owner of GirlsJustWannaHaveFunds.com explains the power of rewards: “When making smart money choices, celebrate them by rewarding yourself. Yes, make rewarding yourself a habit. For example, when you make it through a pay period and adhere to your spending plan, treat yourself to something nice that doesn’t break the bank.” She points out that this creates what we call positive reinforcement, which helps you connect good decisions with positive rewards.

According to research by Wendy Wood, a social psychologist and provost professor of psychology and business at the University of Southern California, a behavior only has to be rewarded initially to form a habit. So once the habit is established, you can relax and let momentum take over.

Cheat a little.

While it’s great to start the New Year off with a new idea, give yourself a lead and start with a familiar task. Repeat the task on a regular basis. Research shows you won’t have to train yourself to do the task, you just train yourself to do it repeatedly. For example, if you like drinking water when you eat at a restaurant, choose to do it more frequently. Set rules for yourself, like, “When I eat out, I will order water.” Before you know it, a small gesture will become a string of little actions that can have a big impact on how you spend. It can also do double duty for your bank account if you send the money you didn’t spend straight to savings. Once you establish one good habit, move on to another like trimming a little bit of your grocery budget every time you shop. Start with as little as five dollars and put that in savings, as well.

Keep using the Benjamins.

Let your dollars see the light of day and allow the real thing to get some exercise. Fans of carrying cash can do this more so in the New Year if it helps you control your spending. If you know you tend to do major dollar damage in just one swipe of a credit card, then this tip might work for you. Curtail the urge to go on a spending free-for-all when using a credit card as a short term loan and pay in cash whenever possible. Make using cash a habit if you find it keeps you on track. Choose a dollar amount to withdraw on a regular basis and challenge yourself to not to go beyond that amount.

Graduate from a spending spree.

Limit how much time you spend in a store. Research shows the slower you shop, the more you spend. Get what you need and go. Set a timer if you have to or have your eyes stay glued to your shopping list, then pay and skedaddle. This way you can avoid impulse buys and filling every nook and cranny of your shopping cart with items you didn’t plan to get. Side step a budget-busting aftermath and make it a habit to make short trips to stick with your spending plan.

Do a happy dance after checking out.

When you have carried out a small, smart money choice like spending less time in the store, celebrate it. As stated above, positive reinforcement can work wonders for habit formation. So if you accomplished all of your shopping in record time, celebrate your small win afterwards. So when you’re looking to applaud yourself for getting out of the store quickly, think of what Han Solo said in The Force Awakens when Finn and Rey reunited: “Escape now, hug later.”

If you originally couldn’t bear the thought of making a resolution, reconsider. Just know that people tend to stay with activities that are manageable. Consider following some of the ideas above to take a step in the right direction when it comes to spending this year. They can be beacons for long-term financial change and help you meet your goals. They can also help you shortcut your way to success by following research that gets results. Employ one of these tips to establish a money smart habit today.

Written by Karen Cordaway of U.S. News & World Report

(Source: U.S. News & World Report)

 

12 Tools and Apps to Get Your Finances on Track in 2016

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Provided by Cheapism 

Have any financial resolutions for the new year? There are plenty of online tools and apps to help consumers meet their goals. Online money management tools usually access private financial information, such as banking and credit card transactions, so do some homework before signing up. Those listed here are highly rated and have been reviewed by reputable sources. Many are free, with an option to pay for a more feature-packed deluxe, pro, or premium version.

You Need a Budget.

You Need a Budget (YNAB for short) sells budgeting software (available for a one-time $60 charge) but also offers free tutorials and online classes. The website details the four rules that make up the YNAB Method, which is designed to help consumers start saving and stop living paycheck to paycheck.

Mint.

Mint is a free service that automatically tracks income and expenses from connected banks and credit cards. It aims to make budgeting and investing simple by putting everything in one place. Mint also includes a free credit score and lets users pay bills through the site. Keep in mind that paid competitors, such as YNAB or Quicken (owned by Intuit, which also owns Mint), may have a more complete set of features.

Personal Capital.

The beginning of the year is an ideal time to evaluate (or establish) an investment portfolio. Personal Capital connects to banking and credit accounts, then provides a free evaluation and breaks down the overall allocation of assets. The site clearly displays account fees, by percentage and per year, and assesses portfolios for risk. Personal Capital also offers advisors, but they come at a cost.

LastPass.

LastPass is not a personal finance app, but it could help prevent a financially disastrous situation. With data breaches continually in the news, it makes more sense than ever to have a unique password for each online account. LastPass generates strong passwords, stores them within a secure account, and auto-fills passwords so users don’t have to remember them all.

Credit Monitoring.

There’s no reason to pay for credit monitoring when there are no-cost options available. Sites such as Quizzle and Credit Sesame let consumers check their credit reports and monitor their credit scores for free. After signing up, users can receive alerts if new financial accounts are opened in their name, which can help protect against identity theft. Some credit card issuers also give cardholders free access to credit scores, but not credit reports.

Mobile Banking.

Many banks and credit unions now offer mobile apps to account holders. Many apps allow users to make credit card or bill payments, check account balances, and transfer money from a savings to a checking account. Other useful features to look for include mobile check depositing or interactive directions to nearby ATMs.

Automatic Saving and Investing.

Two apps make it simple to save or invest automatically. Acorns rounds up debit card purchases to the nearest dollar and transfers the difference into an investment account. There is a fee of $1 a month for accounts with less than $5,000 in assets and .25 percent for accounts with more than that. Digit transfers money into a savings account instead of an investment account. Rather than simply round up purchases, the service determines an amount to transfer based on an analysis of the user’s spending patterns and account balance.

All-in-One Card.

Consumers who use several rewards credit cards know that each card can offer different percentages of cash back or rewards depending on where it is used. All-in-one devices such as Wocket and Plastc (coming April 29) let shoppers maximize the returns onrewards credit cards without having to carry a wallet full of them. They store rewards credit card information and let consumers easily switch among their payment choices. One of the cheapest options is Coin, at $99 ($107 with shipping).

RetailMeNot.

A valuable resource for online and offline shopping, RetailMeNot comprises a coupon site and iOS and Android apps that lead users to coupon codes and discounts at thousands of online and bricks-and-mortar stores. The codes are rated and ranked by users to help identify the ones most likely to work.

Barcode Scanner.

With an app such as ShopSavvy, users can scan a barcode in store to check an item’s cost against the prices other retailers are posting. If a lower price is found, consumers can shop elsewhere or ask for a price match. Some stores price match Amazon, which has its own mobile app equipped with a barcode scanner.

Unbury.us.

Unbury.us is a debt-calculating tool. Users input their loans, current balances, minimum payments, and interest rates and choose a repayment method: avalanche (pay off the debt with the highest interest rate first) or snowball (pay off the one with the lowest principal first). The results show the change in remaining principal, principal paid, total interest paid, and monthly payments over time.

Retirement Planners.

There are a variety of financial planning tools aimed specifically at helping people prepare for retirement. Consider free calculators from the AARP and Financial Mentor, check and compare 401(k) fees at FeeX, and do a background search on financial advisors at a certification organization such as the Certified Financial Planner Board.

Written by Louis DeNicola of Cheapism

(Source: Cheapism)

Investing in Your 30s: 3 Goals You Should Aim to Have

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In your 30s, your finances get real.

I remember putting money into a 401(k) in my 20s, and retirement was an abstraction: a far-away land that I would reach in another lifetime.

Now, in my 30s, I realize that I am halfway to retirement, and I only have 30 years left of my career. That starts to feel like a short amount of time.

Other things start to get real, too. If you’re like me, you may be feeling the same.

For instance, life isn’t as flexible to withstand a new career direction, or a move to a new city; you may need to build your career where you are. Living close to old friends and your parents likely becomes critical. Some might call this “putting down roots.”

I’m also getting older, physically: a late Friday night can now take all weekend to recover, not just the Saturday morning after.

Not that I have Friday nights anymore, since I had a baby—the most wonderful (yet most terrifying) thing that could happen to me. I had never worried so much about somebody’s respiratory system functioning before I had a newborn sleeping in the next room.

Having a child also brought into sharp focus the cost of college; some college calculators estimate that college can cost $600,000 for a private four-year college, and $300,000 for an in-state four-year public college.

With all of these new responsibilities, for the first time in my life I felt I absolutely required structured advice on how to handle the complex world of responsibilities in which I found myself.

My husband and I tried to talk about our looming financial obligations. I broached the topic on one weekend drive to my in-laws—one of the only reliable times we can talk because that’s when the baby sleeps. Nevertheless, it got a little touchy, as I was surprised to discover that we conceptualized our finances in very different ways.

I viewed our savings as goal-based; I have a goal for my retirement, a goal for a down payment for a house, a goal for my daughter’s college, and an emergency savings fund.

He saw our savings as one giant mass, and if we borrowed out of retirement savings to pay for the house, that was okay.

After talking with friends, it felt like nobody had a good answer on this. So I sat down with my colleague Alex Benke, a CERTIFIED FINANCIAL PLANNER™ and Director of Advice at Betterment, to get some free advice for many of us 30-somethings. I wanted to make sure I had my bases covered. The last thing I want is some unknown financial liability creeping up and crushing me.

Don’t Delay Having a Plan: Three Goals for Your 30s

Sit down and lay out your goals. If you’re cohabitating or in a committed relationship, discuss your goals with your partner.

Don’t worry, this isn’t set in stone: Life changes so you’ll update it over time. To get started, here are some typical goals for people in their 30s:

Emergency Fund

Sometimes your plan doesn’t go as planned, and having an adequate emergency fund can help ensure those hiccups don’t affect the rest of your goals.

An emergency fund (at Betterment, we call it a Safety Net Fund) should contain enough money to cover your basic expenses for a minimum of three to six months.

Even more may be required depending on how long you (or others in your line of work) are typically out of a job. Also, depending on how much risk you want to take with these funds, you may need a buffer on top of that amount. Follow this simple formula:

Monthly Expenditures x Re-Employment Period = Baseline Safety Net Amount

Retirement

You don’t want to work forever, do you? According to 2010 Census Bureau data reported by U.S. News and World Report, 30.8% of people from age 65 to 69 were still working full- or part-time jobs, which was up 9% from prior Census data.

If you think you could keep on working in your golden years, you might feel differently when you’re old with achy bones.

Major Purchases

A wedding, a house, a big trip. Each of these goals has a different amount needed, and a different time horizon. Our goal-based savings advice can help you figure out how to invest and how much to save each month to achieve them.

Understand the Impact of Your Long-Term Investments

Make sure you are saving enough to meet your goals, especially for retirement.

Use contributions to tax-advantaged accounts, like your 401(k) and IRA, to reduce the tax you owe through your lifetime. (RetireGuide also helps you figure out the most tax-efficient accounts to use for your personal situation.)

Make sure you are in a low-cost investment fund. Low fees are a critical to making sure your investments are going as far as they can.

Reduce leaks in your retirement plan: When you leave a job, it is a good idea to look into rolling your funds over to another retirement plan rather than withdrawing them; don’t just forget about them. Often, consolidating your old 401(k)s and IRAs into one account can make it easier to manage, and might even reduce your costs. You may wish to research further regarding consolidation and rollovers before you do so.

How to Cover Your Bases If You Have Kids

Life insurance. Generally you only need life insurance once someone is depending on your future income.

If you plan to have kids, you should start thinking about the situation your survivors would be in if you passed earlier than expected.

Life insurance can help pay off your mortgage or other debt, as well as provide assets for your survivors to live on. A service such as PolicyGenius helps you compare policies and determine how much you might need quickly and in a transparent way.

Estate plan. Think you’re too young? Think this doesn’t matter? Consider this: Everybody has a “default” estate plan at birth, defined by your state’s laws. When you die, your “estate” goes into a process called probate.

When someone passes away without a will, an “intestate estate”—formally known as a “Last Will and Testament”—kicks in. The probate law defines how the estate gets divided and disbursed, and is pursuant to some general rules.

For example, if you’re married, your spouse gets it all, and if your spouse isn’t around, your kids get it all. Some of these rules might be illogical depending on your situation.

And for kids, there are usually no default rules about guardians. Once I looked into the default rules for my state, I realized I wanted control over what happened to my estate when I pass away.

It is worth the awkwardness to think this through and plan. When thinking about this consider that you likely need a will, healthcare proxy, and durable power of attorney, the last of which is a legal document giving someone else the power to act on your behalf should you be unable, due to death or disability.

Dependent care deductions. Ask your HR department about these deductions. These can help pay for childcare, using pre-tax earnings.

Education. Start to save for education.

  • 529 college savings plans: You might have heard about this as a way to save tax-free for a kid’s education and maybe even get an income tax break. It’s sort of like an IRA for educational expenses. Some states let you deduct your 529 plan contributions on your state income tax return, up to your state’s limit. Contributions—from you, or grandma, or anyone else—are considered gifts, and subject to a gift tax-benefit maximum per donor. But keep in mind, if you don’t end up using that money toward your kids’ college, you could be penalized on the gains. Also, a 529 plan could affect financial aid.
  • If you don’t want restrictions on the savings for your kid’s education—and how you spend it—you might decide to just invest in a taxable goal.

Your Parents Might Become Your Responsibility One Day

As your parents get older, discuss their plans for healthcare and general care should they become infirm, before it’s too late. AARP has a decent checklist and tips for this uncomfortable but critical chat.

Knowing that I am at least thinking through these financial issues has given me some peace of mind—that’s the first step. Now to get myself over to yoga to delay physically aging to my next milestone—my 40s.

Written by Betterment

(Source: Betterment)

6 Financial Lessons from America’s Founding Fathers

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.

1. Have a Backup Plan 

1792: The first Wall Street bailout: Alexander Hamilton (1755-1804)

© Jerry Tavin/Everett Collection Alexander Hamilton (1755-1804)

Alexander Hamilton may have been the greatest financial visionary in American history. After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path. But it turned out that he was far better at managing the country’s finances than his own.

When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.

What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.

The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, and term life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.

2. Diversify Your Assets

General George Washington - portrait of the first President of the United States (1789?97). 22 February 1732 - 14 December 1799. Painted by Charles Willson Peale, American painter, 15 April 1741 - 22 February 1827.

© Mountain Vernon Collection/Photo by Culture Club/Getty Images General George Washington – portrait of the first President of the United States (1789?97). 22 February 1732 – 14 December 1799. Painted by Charles Willson Peale, American painter, 15 April 1741 – 22 February 1827.

Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.

During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”

After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.

3. Invest in What You Know

A statue of Benjamin Franklin is seen at The Franklin Institute in Philadelphia.

© Matt Rourke/AP Photo A statue of Benjamin Franklin is seen at The Franklin Institute in Philadelphia.

Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.

“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life. Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses. In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products. Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.

Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.

4. Don’t Try to Keep Up With the Joneses

Thomas Jefferson (1743 - 1826), the 3rd President of the United States of America. Born in Virginia, he drafted the Declaration of Independence, signed 4th July, 1776. Original Artwork: Engraving by A B Hall of New York

© Hulton Archive/Getty Images Thomas Jefferson (1743 – 1826), the 3rd President of the United States of America.

Born in Virginia, he drafted the Declaration of Independence, signed 4th July, 1776. Original Artwork: Engraving by A B Hall of New YorkEveryone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.

Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.

Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes. By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption. “Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”

5. Not Good With Money? Get Some Help

John Adams (1735 - 1826), second president of the United States of America.

© Stock Montage/Getty Images John Adams (1735 – 1826), second president of the United States of America.

In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.’”

She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.

As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.

Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.

6. Make A Budget And Stick To It

MONTICELLO: Aerial view of Monticello.

© Thomas Jefferson Foundation at Aerial view of Monticello.

From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.” To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.

Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.

Written by Jacob Davidson of Money

(Source: Time)

5 Steps to Save Your Financially Stressed Marriage

Do money troubles have you feeling like your marriage is circling the drain?

Don’t give up on your spouse yet!

Even financially stressed marriages can be salvaged, although it’s not always easy. Your family’s unique circumstances will determine how best to approach — and solve — money problems, but here are five steps to get you started.

Step 1: Air out your financial dirty laundry

© Jetta Productions/Getty Images

You’re upset that he spends an obscene amount with his friends each week, and he may be furious that you nit-pick every purchase he makes. Get it all out.

In my mind, this may be the most important step. You can’t move forward positively until you get rid of all the resentment and anger that linger over past mistakes.

“Bring everything to the table,” advises Anne Malec, a licensed marriage and family therapist and author of “Marriage in Modern Life.” “You need real openness and honesty to address the issue. Both sides need to be accountable.”

Well, you think, this surely sounds like a perfect recipe for a knock-down, drag-out fight. And you’re right. It can go horribly wrong, so you need to go about this carefully.

The best way is to go to a third party – a therapist, a financial planner, a pastor – who can act as a mediator for this emotional discussion.

If you believe that isn’t possible, you need to think long and hard about when and how best to bring up the subject with your spouse. Pick a low-key time and drop the accusatory tone. Use “I” statements whenever possible and take a soft approach to opening the discussion.

As in:

I feel frustrated that our bank account is always overdrawn. What can we do about that?

Not:

You need to man up, think of the family and stop spending so much!

Regardless of how nicely you put it, be prepared for them to respond with something critical about you and then seriously consider whether it has any merit. Remember you’re probably not perfect either, and you can’t make headway if you can’t admit your shortcomings.

Step 2: Have a monthly money meeting


© Bill Truslow/Getty Images

So now that you’ve cleared the air, it’s time to keep the lines of communication open. The best way to do that is to have a monthly money meeting.

“You look at how you’re doing this month compared to last month,” Malec says. “You work jointly as partners to address upcoming expenses.”

Step 3: Create a budget together

© Richard Elliott/Getty Images

If your finances are in the toilet, chances are you don’t have a budget. Or if you do have a budget, it’s one that one spouse created and then decreed the other spouse follow.

You need to identify your shared vision for what your family will look like. What are your goals? What are your priorities? Then work together to create a budget that supports those dreams.

Step 4: Give each spouse their own spending money

© Indeed/Getty Images

Your budget isn’t done until it includes a little cash for each spouse to spend freely each month.

“Each couple gets an equal amount and gets to spend it without criticism or question from the other,” Malec says.

This is so important because spending is such a huge piece of the financial happiness puzzle. Zero spending cash can make a spouse feel stifled or controlled while unbridled spending can spell bankruptcy.

According to a survey conducted by Edelman Financial Services, 56 percent of those polled said spending was the main reason for money-related divorces. So agree that each partner can spend, within reason, and remember that you don’t get to say anything about how your better half uses their cash, even if you do think it’s ridiculous to blow $50 on pizza and beer.

Step 5: Commit to being a team

© Dann Tardif/LWA/Getty Images

Did you play a team sport in school? Do you remember what that was like?

You may have had one particular teammate who didn’t do such a great job. They might make a mistake and cost the team a point, but assuming you were a good team player, you’d still pat them on the back and tell them it was OK.

You need to have that same team attitude with your spouse. Don’t think of them as an adversary or an obstacle you need to overcome. Instead, play to their strengths and be their biggest fan, even when they make mistakes.

“A person who doesn’t want to talk about [money] may feel uneducated about money, may feel anxious about money or don’t want to be held accountable,” Malec says.

You need to figure out what’s going on with your spouse and develop a game plan to address it without making them feel like a total loser. Malec adds that those who become defensive or angry over money probably didn’t see healthy financial discussions growing up and may just be modeling bad behavior they witnessed as children.

Saving a financially stressed marriage involves a lot of hard work and compromise, but for those who come out the other side in happier marriages with better finances, the sacrifices are well worth the rewards.

Written by Maryalene LaPonsie of MoneyTalksNews

(Source: MoneyTalksNews)

Here’s How You Can Be ‘The Millionaire Next Door’

© Stephanie Howard/Getty Images
© Stephanie Howard/Getty Images

The word “millionaire” used to evoke a world of extravagant wealth. But, these days, it’s nothing special, as everyone needs to save at least $1 million for retirement.

And that money shouldn’t be spent in retirement, but instead lived on through income-producing investments such as dividend stocks, bonds and real estate. What’s important is how much income you can generate with that nest egg to keep you (and your spouse or partner) living comfortably for an indefinite period.

As a result, you’ll need to begin planning early and have a realistic understanding of what it means to be financially secure.

Among several thoughtful Father’s Day presents from beloved family members was the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. The book, which I just finished, was first published in 1996, but Stanley wrote a long preface for the 2010 edition. Even though the book was written before the credit crisis, its ideas are current.

The main idea

The book defines the “millionaire next door” as someone who doesn’t look the part. He or she makes no ostentatious display of wealth. There’s no fancy car, no $5,000 watch, no McMansion. This wealthy person lives in a regular middle-class or lower-middle-class neighborhood.

According to statistics backing the book, “more than 80% [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.”

And the most important factor in building that wealth has been what’s called underconsumption.

Are you living in the most expensive home you can afford? Are you driving the nicest car you can afford? If so, even if you’re earning a lot of money, there’s a good chance you are what the authors call a UAW, or “under accumulator of wealth.” Homes and cars are two of the main items that can keep you from accumulating wealth, but there are many others, of course.

Case studies

The book cites several examples of people who were interviewed by the authors, so more insight could be gained into successful wealth-building strategies, as well as less successful strategies and non-strategies.

It’s fascinating that people at all income levels live “paycheck to paycheck.” In one case study, the authors cited cultural factors as a major reason why a successful salesman was so focused on “being a lot better off than his parents.” The man came from a lower-middle-class family and had gone to a high school with students from families with different social and economic backgrounds.

He was amazed at the fancy cars being driven by some of the students, while he had no car and his parents had an old vehicle.

So, to him, being “a lot better off” meant achieving enough career success to enable him to own “a nice home in an upscale neighborhood, fine clothes for everyone in the family, classy cars, club memberships and items purchased in the best stores.”

That’s all well and good, but those material items won’t build financial security. This man and his wife are likely to be carrying so much debt that they cannot save enough money to withstand an emergency, such as the loss of a job. A high debt load, relative to income, means they will always be living in a house of cards. They will suffer from stress, owing to insecurity. That can lead to poor health, a shaky retirement, and even the humiliating possibility that the couple will be forced to rely on their children for financial assistance when they retire.

The authors go into great detail through several positive and negative case studies, identifying many areas of risk and opportunity for people who wish to build wealth.

Taxes and deferred taxes

In one of the case studies, the authors described a woman with a high salary and a combined marginal income tax rate of 59.5%. That isn’t a very good circumstance for wealth building, so the authors discuss tax-avoidance strategies of the wealthy.

But no matter your salary level, it’s possible that you are “leaving money on the table,” while paying too much to the tax man during your working years. If you work for a company or organization with a 401(k) or similar tax-deferred retirement plan, chances are your employer makes matching contributions. For example, if the employer matches up to 5%, it means that if you contribute 5% of your pretax salary to your retirement account, the employer will also put in 5%. Boom — you just realized a 100% gain on your investment during the first year, and set aside the equivalent of 10% of your salary.

It’s not enough — 20% total savings per year is more like it — but it’s a start, and if you don’t make a contribution of at least the maximum match, you’re simply losing a lot of money. Over time, you should also work to maximize the annual 401(k) contribution. The basic limit for your own contributions is $18,000 a year (for 2015), with an additional $5,500 allowed when you reach the age of 50.

Those amounts may seem outrageously high, but if you start early and build up your contributions slowly, you can get there. Yes, it will hurt, but if it doesn’t hurt, you can be pretty sure you’ll be left high and dry some day.

Getting back to cars and houses

People let their emotions affect which cars they buy. Have you ever heard someone say they simply “just want a new car”?

I myself own a nine-year-old car with nearly 180,000 miles on it. The car has had no repairs, except for two airbag recalls. Just maintenance, including tires, front brakes and spark plugs. A salesperson from the dealer called me this week to ask if I would be interested in “updating to a new model.” I said: “You’re a victim of the manufacturer’s success in making such a good product.” So that’s it. A new car might be a better status symbol, but it would be so much more expensive than driving the old car, which is in fine condition.

I recently read an article written by Earl Stuart, who runs a Toyota dealership in Lake Park, Fla., discussing how salespeople ”flip” potential buyers into taking out a lease. According to Stuart, if you get a good price for a car and buy it, the dealer typically makes a profit of $1,000, while the salesperson makes a $200 commission. But if you go for the lease, the dealer eventually may realize a $15,000 profit, and the salesperson could earn a commission as high as $3,000.

Potential buyers scared away by high monthly loan payments may find leases attractive, because they’ll be shelling out less each month. But the problem with the lease is that at the end of the term, you give the car back to the dealer and are left with nothing. You’re starting all over again, whereas if you had suffered through a car loan, you might then drive the car for another five years, or longer, with no monthly loan payments.

Charles Passy spent two days working as a car salesman for Stuart last year and wrote about how it made him a smarter car buyer, and later followed up with 10 things car dealers won’t tell you.

With cars out of the way, what about homes? Memories can be short, but a homeowner who lived through the credit crisis of 2008 knows you can’t rely on home values to increase every year. You also can’t plan “just to live here for five years and then sell,” because it won’t be so easy if values decline.

But your choice of home could make a huge difference in your long-term financial health. If you resist the temptation of buying a “status symbol,” and go for something less expensive that you can easily afford, you will then have the option of going with a 15-year fixed-rate mortgage loan rather than a 30-year loan. Not only will pay off the loan 15 years earlier, you will save oodles of money.

The authors of “The Millionaire Next Door” didn’t focus on the ins and outs of mortgage financing, although they did dig deeply into what motivates people to overspend on homes. But comparing the costs between a 15-year and a 30-year mortgage can illustrate just how much money you might be throwing away if you either buy “too much house” or assume that you must spend 30 years paying off a home loan.

Here’s an easy example for a person who buys a $350,000 house with a 20% down payment. The borrower puts down 20%, or $70,000, and borrows $280,000. Based on on Thursday, the average rate for a 30-year fixed mortgage loan is 4.03% and the rate for a 15-year loan is 3.13%.

The monthly principal and interest payment for the 30-year loan is $1,342. The total interest paid over the life of the loan will be $202,978.

For the 15-year loan, the monthly principal and interest payment is a much higher $1,951. But the total interest paid over the life of the loan will be just $71,213, for a savings of $131,765, not to mention having the monkey off your back 15 years earlier. That’s a lot of money, and when you consider the time value of money, when it is invested, your benefit from “buying less house,” tightening your belt and going with a 15-year loan will probably be much higher.

These loan-payment examples exclude two very important items: Taxes and insurance. Depending on where you live, homeowners insurance can be very expensive, if you face special certain hazards, such as hurricanes. If the home is in a FEMA-determined special flood hazard area, the bank will also require you to carry flood insurance. In some states, if property values are rising, your property taxes may come in much higher than you expect, and higher than your real estate agent and even your lender told you to expect.

These items are usually escrowed, that is, added to the monthly loan payment, and they can make your new home unaffordable. You need to check with local insurance agents on prices before you buy, and also personally visit the county tax collector’s office to obtain a proper estimate of how high your property taxes will be. Then add all these items up and divide by 12, to see how much more you’ll be paying each month.

The purpose of the example above is to make you consider “going smaller” to save tremendously over the long term, and possibly delay your first heart attack.

Other topics covered by Stanley and Danko

The authors shared the results of numerous studies, which involved surveying participants. All sorts of psychological aspects of spending and saving are covered, as well as most aspects of personal finance, including estate planning, and various forms of employment, even factoring in gender.

Here’s a telling quote: “Are you surprised to learn that some millionaires shop at Penney’s? Perhaps even more surprising, 30.4% of the respondents who are millionaires hold J.C. Penney  credit cards.

Stanley and Danko also discussed which professions or businesses were most likely to help people become financially secure, and the philosophy of investing, rather than simply spending, or helping someone by “giving.” They also pointed out the fascinating tendency for millionaires to focus on investing in income-producing properties, while de-emphasizing stock investments.

If you have already achieved financial security, congratulations. But you certainly know someone who could benefit from the book. Give it to them as a present.

Written by Philip van Doorn of MarketWatch

(Source: MarketWatch)

30 Essential Money Habits

© Provided by GoBankingRates
© Provided by GoBankingRates

Your financial health, just like your physical health, is built on dozens of small, daily decisions that eventually form habits. And while eating better and exercising more are well-known habits that will get you fit, sometimes the money habits that lead to financial health are much less obvious — though both topics can inspire plenty of debate.

While every person’s financial situation is different, there are still habits that will nearly always have a positive impact on your money. These are the 30 essential money habits you can follow each day, week or month to get control over your money and build wealth instead letting your finances control you.

For financial health and wealth, adopt these 30 good money habits.

1. SPEND LESS THAN YOU EARN

This habit is Money 101. It’s always going to be true that you’ll never get ahead financially if you always have more money going out than coming in. The great news is there are two ways you can work on this habit: Focus both on growing your income and controlling your spending to live within your means.

2. PAY YOURSELF FIRST

When people say “pay yourself first,” they mean you should take your savings out of your paycheck as soon as it hits your checking account to make sure you save something before you spend it all on bills and other expenses. The key to saving successfully is to save first, save a lot — 10 to 20 percent is often recommended — and save often.

3. MAINTAIN AN EMERGENCY FUND

Virtually every personal finance expert agrees that an emergency fund is central to financial health. Building and maintaining an emergency fund can help you avoid debt and give you a reserve to draw from, which can also help you keep your financial goals on track even through life’s setbacks.

Start small by saving at least one month’s worth of expenses and then work your way up to saving a larger emergency fund, such as a year’s worth. Having several months’ worth of expense money saved up can protect you against financial concerns when crises like job loss or medical emergencies come up.

4. BUDGET FOR ‘EXTRA’ EXPENSES

In addition to basic living expenses and bills, you should also budget for other purchases you’re in the habit of making. Whether it’s buying a coffee twice a week, eating out on the weekends or buying gifts for friends and family, these seemingly little expenses can add up and suck your budget dry if you don’t plan for them.

Write down everything you’ve spent money on in the past month — go back farther if you can remember or look up transaction records and receipts — and categorize each expense. Rank each category by how important it is to you. Add the top three priorities as line items in your budget, such as $100 a month for date nights or $20 a month to buy supplies for your hobby. For everything else, work on dropping those spending habits or finding cheaper alternatives like brewing your coffee at home.

5. SAVE FOR THE UNEXPECTED

Extra costs can come up frequently, and whether or not they’re true emergencies, they can still set you back. Maybe your tooth filling falls out, your pet decides to eat half a rug and needs emergency medical care, you get a flat tire or your kid wants to start playing a sport. Your finances will get hit twice as hard by these unexpected expenses if you don’t have extra money saved to cover them.

Having a “buffer fund” can create a little bit of wiggle room in your accounts so you can pay for these costs without going into debt or pulling money from your emergency fund. Try socking away $1,000 for each member of your household, for example — including pets.

6. GET — AND STAY — INSURED

In addition to a buffer fund, you should also consider insurance. Insurance is an important protection that can stand between you and bankruptcy due to a major emergency. Start with the must-have: health insurance. Medical debt is one of the most common causes of financial hardship, out-of-control debt and bankruptcy, according to the Consumer Financial Protection Bureau. Half of all overdue debt listed on credit reports is medical debt, affecting 43 million Americans, reports the CFPB.

Other forms of insurance also can help protect you against major expenses. Car insurance is not only a good idea but also is required by law in nearly every state. If you’re the breadwinner with kids, you should probably get a hefty term life insurance policy and you might also consider getting disability insurance. Stay current on all policies so coverage will never lapse when you and your family need it most.

Other types of insurance that you might also benefit from having could include:

  • Homeowners’ insurance or renters’ insurance
  • Pet insurance
  • Guaranteed auto protection insurance
  • Dental insurance

7. SET FINANCIAL GOALS

To know what daily money habits to focus on and prioritize your money management the right way, you have to know what you’re trying to accomplish. Review your finances. Look specifically for the biggest drains on your money, such as overdraft fees or high-interest debt, and also spend some time thinking about what you’d like your finances to look like in the future. Then, identify specific steps required to achieve your short- and long-term money goals.

8. REVIEW YOUR PROGRESS REGULARLY

Set aside time each week to check on your financial goals. Did you make progress? Were there any setbacks? Track how you’re doing and celebrate your wins — not by splurging though — to keep yourself motivated and on course.

9. TRACK YOUR MONEY

You can’t put your money where it matters if you don’t know where it’s going. Figure out a system to keep track of your financial transactions. Whether you prefer using pen and paper to reconcile your bank accounts the old-fashioned way or using finance-tracking apps like Mint or LearnVest, you need to have a clear picture of what is happening with your money. Tracking your spending can help you quickly identify problem areas that you can improve on and see the progress you’re making.

10. CHECK FINANCIAL ACCOUNTS OFTEN

As part of keeping track of your money, you should check on all financial accounts on a regular basis. You should review spending accounts, like credit cards and checking accounts, daily in terms of checking balances and tracking expenses. Review bills such as loans when making monthly payments and updating your budget to make sure you avoid overdraft or late fees.

Savings accounts should get a once-over weekly or monthly to keep them on track. Retirement accounts and investments can be reviewed less frequently, such as monthly, quarterly or biannually.

11. CARRY ONLY THE MONEY OR CARDS YOU NEED

If your wallet is so full that you can hardly close it, consider limiting what you choose to carry to the bare necessities: one debit card, enough cash to cover a meal or ride home, and one form of identification (but not your Social Security card). You can’t spend money you don’t have with you, so leave credit cards and extra cash at home to resist the temptation to spend. Leaving credit cards at home can also limit your vulnerability to identity theft should your wallet ever be lost or stolen. Plus, charging all purchases to the same debit card and linked account will make it simpler to track your spending.

12. PAY BILLS ON TIME

Not only will paying bills on time save you money on late fees and penalties but it is also key to financial peace and health. If making payments on time is a struggle for you, review each bill you pay on a monthly basis and write down the due date. Set reminders on your calendar, alerts on your phone or sign up for reminder emails if they’re offered so that you never miss a payment.

13. AUTOMATE YOUR MONEY

Another way to avoid late payments is to automate your transactions. For payments, set up automatic transfers through your bank’s online bill pay service to send money out to pay bills at least three days ahead of the due dates.

Automation is also great for the “paying yourself first” habit. If you have a retirement account through work, set up automatic contributions. If you get regular paychecks in fixed amounts, set up automatic transfers to move money from your checking account to a savings account or retirement fund right after payday. Monitor these automatic transfers so that you never overdraft an account.

14. PRIORITIZE PAYING DOWN DEBT

Interest and debt will hold you back financially. It’s nearly impossible to get ahead and create a financially secure future when you’re always paying off yesterday’s purchases. Budget for paying down debt and consider temporarily cutting back on something, such as dining out, so that you can put more money toward getting out of debt. Pay more than the minimum due on your monthly bills when possible.

Some financial experts recommend paying off high-interest debt first whereas others suggest starting with the smallest balance first. Assess your debt and pick the method that works best for you.

15. AVOID NEW DEBT

High-interest debt like credit cards or payday loans can be extremely difficult to pay off, especially if you’re already in debt. Get spending habits under control and avoid new debt. Try leaving your credit card at home or cancel it altogether if doing so won’t hurt your efforts to improve your credit score. Having an emergency fund can help you avoid new debt by covering costs with savings instead of putting them on credit cards.

If you are considering going into debt, make sure it’s because the debt will help you work toward important goals like owning a home or getting a degree. And, of course, try to only take on short-term, low-interest loans or credit if possible.

16. BUILD YOUR CREDIT

It can be easy to get complacent about your credit score and forget to pay attention to your credit report — until you try to get a home loan or turn in a rental application and are reminded of how important they are. Check your credit reports yearly and get any issues resolved if there are errors on your them. Make sure you’re managing your credit well by paying off bills on time and keeping balances low. These habits can help you avoid high-interest costs as well as build your credit.

17. INVEST IN YOURSELF

“Invest in as much of yourself as you can,” said investing titan Warren Buffett. “You are your own biggest asset by far.”

The best place you can put your money is into improving your value and net worth. From daily habits like eating well and getting enough sleep to big life steps like finishing school or switching careers, you should adopt the mindset to always be seeking to grow and achieve goals that have long-term benefits.

18. LOOK FOR NEW EARNING OPPORTUNITIES

As much as controlling spending and saving are essential habits, earning more money can be just as important. Look for ways to increase your income. It could be something small, like babysitting once a week or walking your neighbor’s dog along with yours.

Find a way to make some money with a hobby, such as by selling crafts online or busking on the weekends. You might even consider getting a second job.

If your time is too limited for these options, look for ways to increase your pay at your day job. Find out what would be required to earn a raise and then go for it. Acquire new skills and education that can increase your earning potential.

19. GROW AND INVEST YOUR MONEY

In addition to looking for ways to earn money, financially savvy people also look for ways to grow the money they have. That can be as simple as finding a high-yield savings account for an emergency fund or as challenging as learning to manage a portfolio of investments. Compound interest is a powerful force, and if you get it to work for you, it can be your secret weapon to financial independence.

20. SAVE FOR RETIREMENT

Saving early and frequently is one of the secrets to retiring with financial security. Don’t put today’s wants ahead of tomorrow’s needs. Set up a retirement account and start adding to it each month.

Figure out how much you need to save before you retire and make a concrete plan to do it. Learn more about financial planning and investing to grow your money and keep up with inflation.

21. GET YOUR 401(K) EMPLOYER MATCH

Along with saving for retirement, make contributions to employer-sponsored retirement accounts, especially if your employer will match your contributions. Employer contributions are free money, and all you have to do is set a little money aside for retirement, which is what you should be doing anyway.

22. LEARN TO WANT (AND BUY) LESS

Resist the urge to buy this product and pay for that service to be happy, attractive, fun or anything else that marketing campaigns are designed to make you think. Practice mindfulness through diligent budgeting and possibly through habits that can help you improve how you feel, such as meditation and gratitude journaling, so that you remember to appreciate what you have. Make sure that you’re the one deciding what your money should be spent on, not marketers or your peers.

23. DO IT YOURSELF

Convenience is attractive but it also can be expensive. Some services are worth paying for so that you can free up your time — or avoid incurring more costs by botching the job — but you can save yourself potentially thousands by getting in the habit of tackling many projects, chores and problems yourself. Simple things like preparing meals at home, doing your own laundry instead of sending it out, and buying a manicure kit to maintain your own nails can add up to big savings.

24. SHOP WITH A PLAN

Shopping mindlessly leads to overspending and indulging in impulse buys. Planning ahead, especially when grocery shopping, can help you stick to buying what you actually need and avoid wasting money. Make a shopping list, stick to it and try to get in and out of the store as fast as possible.

Keep a running list of household items you’re running low on and consolidate errands into one shopping trip. Waiting to go to the grocery store, pharmacy and post office in the same trip, for example, can save you time and gas money.

25. COMPARE COSTS ON EVERYTHING

To spend money wisely, you need to be able to decide if what you are getting is a good enough value to justify the cost. Get in the habit of comparing prices of products as well as comparing prices against their value to you. Some personal finance experts suggest you start by comparing your hourly wage to the cost of the item you want to buy. For example, is that pair of shoes really worth three hours of pay? Then compare the cost of the thing you want to other things you could use the money for, such as paying off high-interest debt.

Lastly, compare the actual item to others like it. Is there a less-expensive alternative that offers the same product or service at a lower cost? If you spend a little more, can you get a better version that would last twice as long? Weighing these options can help you buy less junk, cut down on waste and lead you to choices that offer real value and higher quality.

26. USE COUPONS AND ASK FOR DISCOUNTS

Look for coupons, deals and discounts. Whenever you make plans to spend, whether it’s heading out to the bar with friends or signing up for a new internet service, check for deals and look for ways to spend less. Maybe the bar has a happy hour and you can save money by getting together earlier. The cable and internet company could be offering a special deal for new customers. Even your credit card issuer might give you a rate discount if you ask.

Only look for deals once you’ve already decided your purchase is a smart one. Don’t use discounts and coupons to justify frivolous spending.

27. LEARN FROM FINANCIAL SETBACKS

Almost as important as knowing the right things to do is knowing how to get back on track when things go wrong. Almost everyone faces financial setbacks at some point, including some major nail-biters. But even small choices, such as stopping at the drive-thru instead of waiting to eat at home, can get you offtrack. Once you start slipping, you might fall into a pattern of overspending.

Practicing the habit of facing setbacks head-on and maintaining your financial discipline even in tough times can help you prepare for bigger money crises that could come your way. And since hindsight’s 20/20, look back on past financial missteps so that you can identify what went wrong and how you can prevent those problems in the future.

28. CORRECT BAD HABITS

As you set and practice new, financially healthy habits, you can’t let yourself off the hook for those few bad habits that will inevitably stick around. As Warren Buffett put it, “The chains of habit are too light to be felt until they are too heavy to be broken.”

Maybe you avoid problems when they come up instead of quickly resolving them or you too easily justify overspending when you’re out with friends. Chances are you have a handful of habits that are tripping you up again and again, and these bad habits can potentially do more damage than good habits can fix.

Whatever the issue, don’t let yourself sabotage your efforts to build wealth. Along with building positive habits, work to get past your financial weaknesses and be honest with yourself if you’re spending to fulfill an emotional desire instead of meeting a true need.

29. EDUCATE YOURSELF ON FINANCES

If you’re serious about building financial health and wealth, then you need to educate yourself. After all, you can’t make the best financial choices if you have no idea what your options are and how each decision will impact your life and money down the road. Start small by reading some personal finance books and spending a few minutes each day reading personal finance articles (just like you are right now).

When researching options to make a decision, dive deep into the pros and cons of your choices. Whether you’re shopping for a car loan or the right mortgage or are trying to find the right financial planner or investment vehicles, you’ll be able to make decisions wisely and confidently when you have learned as much as you can about the topic

30. GIVE BACK

There are a lot of ways to get rich, but giving back is the surest and fastest way to feel rich. One study by a pair of Yale and Havard Business School graduate students found that the psychological effect of giving back is so powerful that it can actually diminish a person’s desire to overspend or engage in other poor money habits stemming from a compulsion to assert or display wealth.

Written by Elyssa Kirkham of GoBankingRates

(Source: GoBankingRates)

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