Tag: Financial Education

 

How Freelancers Can Balance Business and Personal Finances

Handling and organizing money is essential to your survival and growth as a freelancer. Many people will talk to you about how to increase your freelance rates, or where to look for more work. But how to actually handle the money you’re bringing in? No one really talks about that.

How you organize the money that you earn, and how you use it to live your life outside of work is probably the most important skill that you can have. Here’s how freelancers can balance business and personal finances.

Set Up a Business Account

The first step for any freelancers, no matter the type of work they’re doing, is to set up a business bank account for themselves. It’s very easy; simply apply for an EIN for free, and then use that to open a bank account for your business income.

Keeping your business and personal finances separate will help you organized from the start. It’s only getting more common to get paid online– having a business account offers some privacy and protection for your personal funds.

Know Your Tax Burden

Taxes have to be paid no matter what. That’s why understanding how much you owe for quarterly taxes and for your annual tax burden throughout the year. It’s very painful to have to pull money out of your personal finances to pay your business tax debt.

You can estimate your quarterly taxes here, and should always make payments. Your freelance business is not a hobby- if you can’t pay for it from the profits of your work you need to reassess how you’re doing business.

Save a percentage of each paycheck for taxes. That way, you’ll keep up with your tax obligation as the year progresses and hopefully never get behind.

Create a Business Plan

When you freelance it’s all too easy to treat it like a hobby and not like a full time job. But this IS your job. Creating a business plan- that is, a plan for how you’ll make money throughout the year- will help guide you through the months.

For example you can say that in 2018 you want to start off with 6 design clients a month for January-June, and then take June and July to focus on collaborations on social media. From August-December you plan to grow your website revenue and social media followings to generate cash from sponsored content.

Write all this down and be as specific as possible. Freelancing comes with feast and famine months. Your business plan will guide you in the famine months.

Your personal finances and business finances should live in different worlds. Focus on making your business profitable and keep it organized, and you’ll see that your personal finances do well.


This article originally appeared on Due.com

 

Biggest Financial Regrets Across America

For three years in a row, American adults have the same top financial regret. A May 2018 survey from Bankrate looks at the top financial regrets among Americans and how they deal with those financial regrets. By looking at the most common regrets, we know where we can best focus our future efforts on our investments, bank accounts, and beyond.

The top financial regrets of Americans

The number one financial regret among Americans is not saving for retirement early enough. This financial regret claims the top spot for the third year in a row in Bankrate’s annual Financial Security Index survey. This answer was number one for 18% of respondents.

Number two on the list is not saving enough for emergency expenses, with 14% of respondents most regretful about this. For workers in any profession, an emergency fund is an important part of maintaining financial stability. For freelancers and entrepreneurs, it is best to save at least six to 12 months of expenses in emergency savings.

The third most common regret is taking on too much credit card debt, with 10% of responses marking this as number one. This is no surprise, as Americans have over $1 trillion in credit card debt. The average household holds $8,600 in credit card debt.

Number four on the list is taking on too much student loan debt, a top regret for 8% of respondents. Americans have nearly $1.5 trillion in student loan debt. 44.2 million Americans have student loans, according to Student Loan Hero data.

The fifth most common financial regret is not saving enough for a child’s education, coming in with 7%. Both number four and five on this list share a commonality: they relate to a high cost of college. Number one and number five also have a big common trait: they both involve savings. These two topics are an important part of Americans’ biggest financial struggles.

Last on the top financial regrets list is buying more house than you can afford, with two percent of respondents choosing this answer. Like college, housing costs generally go up, up, up over time. In some areas, buying even a modest home takes up a huge portion of take-home pay.

Here is the full results care of Bankrate:

Biggest financial regrets
via Bankrate

How Americans respond to financial regrets

The list of common financial regrets does not yield many surprises to those who follow economic news, but how people respond to their biggest regrets is a bit more interesting. A full 25% have no plans to deal with their biggest financial regret and continue to go on living with it.

Dealing with financial regrets
via Bankrate

A nice relief, however, comes from the 49% who are already working on addressing their biggest financial regret. Whether it is debt, savings, or something else, a good budget and focus on finances can help overcome most money challenges.

While better than the quarter of Americans with no plans to address financial regrets, 19% plan to start work on their money problems within a year while six percent plan to do so later on in the future.

Only with a long-term focus on your finances can you rise above the statistics and go forward with no money regrets. While most of us would want to be wealthy someday, it takes a real effort to turn that dream into a reality.

Avoiding the biggest financial regrets

The best way to avoid many common financial regrets is simple: avoid going into debt. While it may not seem like a big deal swiping a credit card for a TV or choosing the expensive out-of-state school, credit card debt and student loan debt payments are a very real.

The next major focus to avoid a big regret is to save. Start with even $1 per week. No amount is too small. You can always increase it later. But if you don’t start saving, you will never build up savings to pay for a home, education, or retirement.

Thanks to the time value of money, the sooner you save, the better. Compound interest and compound investment values help your money grow over time. If your money has more time to grow, the impact of that growth is exponentially helpful.

Live a life free of financial regrets

Recovering from financial regrets is very difficult. Rather than turn around a difficult situation, avoid it from the start. That is one of the best paths to lifestyle satisfaction and a life free of financial strain and worry.


This article originally appeared on Due.com.

 

Over 60% of Americans Don’t Know What They Need to Retire

A recent study found that 61% of Americans don’t know how much money they need to retire. This concerning statistic highlights a major problem with retirement savings in the United States. A huge number of Americans have little to no retirement savings despite advice to stash away cash for a comfortable future. Let’s look at some important retirement savings rules to make sure you are not part of this scary statistic.

Americans don’t know how much money they need for retirement

A new study from Bankrate found that six in ten Americans do not know how much money they need to retire. With a large wave of Baby Boomers reaching their golden years and preparing to leave the workforce, millions of Americans may be in for a big surprise when the regular paychecks stop flowing in.

While Social Security or an increasingly rare pension plan can offer a safety net to aging Americans, most of us need much more than we will get from the government to maintain the same standard of living in retirement.

The study went beyond asking what people need to retire. Older Americans fared slightly better than Millennials in the survey and fewer than 2 in 5 non-retirees indicated that they feel their retirement savings are not on track.

Using the 15% rule to save for retirement

To avoid a ramen diet in retirement, you should follow best practices for retirement savings today. That may include contributing the maximum allowed amount to an IRA or Roth IRA in addition to participating in an employer-sponsored retirement plan like a 401(k).

One quick and easy option to meet your retirement needs is to save at minimum 10% to 15% of your gross income (that’s your income before taxes and deductions). This is easy to do automatically in most employer retirement plans.

To reach the maximum $5,500 per year in an Individual Retirement Account (IRA) or Roth IRA, you should save $211 per pay period if paid every other week to reach the target savings rate at the end of each calendar year.

If you make $50,000 per year, that means you should save $7,500 per year, or $625 per month, at the very least to maintain the same quality of life in retirement. But remember that this is just a minimum. You can save far more for retirement if you choose!

Calculate your actual retirement needs

While saving 15% or more for retirement is a good estimate on how much to save, you should do better and estimate your actual financial need in retirement. This is a tricky thing to calculate with a ton of accuracy, as you have to estimate your retirement date, how long you will live, and how much you need per month to get your total number.

Lucky for you, a Ph.D. is not necessary to calculate your retirement need. There are a handful of useful tools that make it easy and quick to estimate your financial requirements for retirement.

This in-depth calculator from AARP gives you detailed results on your retirement readiness. The Kiplinger calculator gives you a quicker result in estimating your retirement needs, but with a little less detail.

You control your retirement destiny

If you are behind on saving for retirement, there is no one to blame but yourself. But don’t dwell on the past and savings that have yet to take place. Instead, focus on the future and boosting your retirement savings starting today. That is the only way you will get on track to reach your retirement goals.

It may seem like a long way off, but your retirement is just around the corner in the scheme of things. Take the steps you need now so you don’t end up in a difficult situation in retirement. Many older Americans find themselves stuck working in retirement or skimping at home to make ends meet. Even if you can’t start by saving a full 15% of your income, you can start with something. Some retirement savings apps let you start with as little as $1 or $5!

Start saving and get yourself on track for your dream retirement. Your future self will thank you.


This article originally appeared on Due.com.

 

5 Things I Wish I Had Known Before Buying My First House

When my wife and I bought our first home in September 2017, we made our fair share of mistakes. In hindsight, we should have done some things differently.

The good news: I won’t make the same mistakes again and am grateful that we did make the right choices in some instances. To help you learn from my mistakes as well as my smart money moves, here are 5 things I wish I had known before I started house hunting.

1. A mortgage broker won’t necessarily get you the lowest rate

A mortgage broker acts as a middleman between you and lenders. These brokers compare loan deals with several lenders to find you the best package. They charge a small fee for their efforts.

Since we were new to the game and didn’t feel comfortable doing everything on our own, we found a mortgage broker. He came highly recommended, and we were excited to work with him. Yet, when we were under contract for a house, I wasn’t impressed by the interest rate the broker was offering from one lender. I figured that this was a result of our low down payment —  just three percent at the time.

But when that deal fell through, we decided to build a house and had time to build up a 10% down payment in our savings account. Even better: the home builder told us that if we got our mortgage through one of their partner lenders, the builder would pay our closing costs. When we told our broker about the offer, he told us that was a common tactic by home builders and that we’d end up with a higher interest rate.

Not the case. In fact, the builder’s partner lender offered us a better interest rate than the broker. We gave the broker an opportunity to match or beat the rate, but he was unable to do so.

The bottom line: a mortgage broker won’t always get you the best interest rate. Do your research and explore all options before settling upon a mortgage.

2. Your emotions can work against your best interests

Once we signed an initial contract on the first home we fell in love with, we hired a home inspector to see if there were any major problems with the house.

The results of the inspection were overwhelming:

  • We would need to replace half of the roof.
  • We needed a new water heater.
  • The water pipes were cracking and the entire system needed to be replaced.
  • There was water damage in one of the bedrooms from a window leak.

To fix all of the issues, we were looking at $20,000 out of pocket, and the seller offered just $500. Yet, I loved the house and I wanted to make the repairs. I had to step back and detach emotionally. From that point, I realized this house was looking like a money pit.

The bottom line: don’t let your emotions rule as you may end up regretting your choice. Luckily, we got out before it was too late.

3. Your monthly payment is a lot more than your mortgage

Your monthly housing payment is a lot higher than your mortgage payment alone. Here are the main elements of a monthly housing payment:

  • Principal and interest: This amount goes toward paying off the mortgage loan.
  • Private mortgage insurance: You will pay this if your down payment is less than 20% on a conventional loan. You can, however, request to have it removed once your loan amount is 80% of the value of the house.
  • Homeowners insurance: This coverage protects you against damage and theft. We pay monthly into an escrow account, and the lender makes our premium payment for us annually.
  • Property taxes: These are due annually, but your lender may require you to pay a monthly portion into an escrow account.
  • Maintenance and repairs: Our home is only nine months old, and we’ve already spent money out of pocket for maintenance and repairs. To avoid any nasty surprises, real estate experts recommend saving between one percent and three percent of the home’s value each year. This way, you’ll be able to pay for those unexpected home repairs. .

When we received the final disclosure that broke down our monthly payment, it was higher than I anticipated. Yet, if we knew what the house would cost us each month from the beginning, we may have lowered our house budget even more to make more room for other things in our budget.

The bottom line: make sure you factor in the total monthly cost of owning that house. This will give you a true sense of what you can afford.

4. Your first home is never going to be perfect

After months of checking out existing homes, my wife and I were disappointed that we couldn’t find one without problems. Ultimately, we decided to build a new home.

Brand new homes, however, are not perfect and you may still have to pay for repairs or deal with issues – even in your first year in the house. For example, the insulation subcontractor didn’t blow any insulation above my kids’ rooms in the attic, and the builder made some major blunders with the landscaping that took months to fix.

Because we thought we were avoiding all of these problems by building a home from scratch, it’s been a frustrating experience.

The bottom line: be realistic and save your pennies. No house is problem-free.

5. Get everything in writing

During the building process, the construction manager for our home promised us some things that he didn’t deliver on. When we tried to get the builder to make good on the promises, he refused.

The bottom line: get everything in writing, even minor things. This will help keep the builder, seller and others accountable. After all, buying your first home is likely the biggest financial decision you’ll ever make, so take as much control of the process as you can.

The final word

While we made some mistakes buying our first home, we also learned from our experience.

When it comes time for you to buy a house, make sure you take the time to set realistic expectations and budget wisely. This will help you enjoy your new home without second-guessing yourself at every turn.

 

Behavioral Hacks and the Gig Economy: 4 Tactics for Financial Wellness

When it comes to finances, freelancers and other gig economy workers have it tough. Not only do we struggle with unpredictable cash flow, but we also have to deal with our own benefits and insurance.

Yet, while it may be stressful at times, there are things you can do to modify your money habits and boost your financial wellness.

Behavioral science, or the study of why humans and animals do what they do, can help us better understand our behaviors and how they play into our money matters. Take a look at Common Cents. A financial research lab at Duke University, Common Cents conducts in-depth studies to help low- and moderate-income households in the U.S. achieve financial wellness. From their research, they’ve garnered some insights into behavioral science and financial health. For instance, you can use a money-saving app to meet your financial goals.

Here are 4 other ways you can change your behaviors to help you slay your money woes.

1. Label Your Savings Accounts

This may seem like a minor thing, but behavioral research reveals that simply labeling a savings account increased total deposits in Ghana by 31.2 percent – after only nine months.

Why not try this? Just coming up with simple labels for your savings accounts can help boost your savings. For example, I have labels for my specific accounts for self-employed taxes and emergency savings. I also have a gift fund, “fun” fund, art fund (to buy and make art stuff), retirement fund, and more recently, a house fund. This helps me stay motivated.

Here’s another tip: you can have fun with your labels to remind you of saving for things that matter to you. When I was younger, I used silly labels for my savings accounts, like ‘Buddha Statue Fund” and “Guinea Pig Fun House” fund. That bit of silliness made saving money more enjoyable.

2. Match Payment Dates with Paychecks

Research suggests that most people pay their bills when the paychecks roll in. Then, they spend the rest of their money right up until the next payday. Yet, this isn’t so easy when you’re a gig economy worker. Why? If you’re in this boat, you likely get paid different amounts at different times from various clients. (Cue #facepalm.)

To help you pay your rent and bills on time, try assigning paychecks to specific bills. For instance, you can earmark money from your biggest retainer client toward your rent, student debt and credit card bill. The smaller amounts that you receive at random times? This can go toward your savings and discretionary spending. Or, if you’re a Chime Member and enrolled in direct deposit, you can get paid up to two days early. Score!

If you’re a part-time gigger, use the money from your main 9-to-5 job toward rent and bills. And try putting the essentials on autopay. The Common Cents report found that millennials were about 10 percent more satisfied with recurring transactions than non-recurring ones.

3. Add Friction in the Right Places

From a consumer psychology standpoint, friction is anything that makes it harder for someone to spend money. That’s why retailers do all they can to make shopping – both in stores and online – as painless and quick as possible. To get you to spend more, retailers remove these points of friction. For instance, a point of friction while shopping in a store is having trouble locating an item. After scouring the aisles, you may get frustrated and leave without buying anything. So, retailers do all they can to make it easy for you to locate things and drop them in your shopping cart.

To make it hard for you to spend those hard-earned dollars, try adding in your own friction. Want to keep a healthy reserve for your emergency fund? Sock it away in a separate account. Out of sight, out of mind. And, if you’re wary about spending too much on happy hour and meals out, try setting aside a certain amount each week toward discretionary spending. Then, spend only this amount on your dining out.

4. Automate, Automate, Automate

While you should squirrel away some of your income, doing so can be mentally taxing. Add to that deciding how much to save and this can induce anxiety. Once you finally settle upon the amount to save, you’ll then have to figure out how to transfer money between accounts. We’ve all been there.

Auto-save to the rescue.

Automating your savings is one of the most painless ways to save money. Why? Well, for starters, the weight of decision-making doesn’t fall in your hands. And, because it’s all done automatically, you’re much more likely to actually save.

According to the 2017 Common Cents Lab Annual Report, automatic savings aren’t mentally accounted for as earnings. “Automatic withdrawal for savings has such a powerful effect that people can forget that the money was even earned. As a result, they don’t mentally account for this money as part of their paycheck,” stated the report. Plus, when the “opt-in” is the default, versus the “opt-out”, people tend to save more.

The bottom line: if you can automate your savings, you should do it. Even if you don’t have a lot of extra cash on hand, start with just a few bucks each week. Chances are that you won’t even miss it. I remember starting out by saving $20 every week. That’s five coffees or two lunches during the week. While I didn’t miss spending that dough on everyday expenditures, after a year I was $1,040 richer. That’s a thousand bucks I could use toward a fun vacay, getting a tech upgrade, or holiday spending.

Small Changes Lead to Big Wins

Indeed, insights from the eye-opening field of behavioral economics can help you boost your financial health. And, if you’re a freelancer working in the gig economy, you can start improving your own financial habits by adopting the 4 steps here. Before long, you’ll be hitting your money goals and bulking up your savings account!

 

How to Sound Like a Pro When Buying a House

Here’s the truth. The process of buying a home includes a lot of unfamiliar words that you’ll probably never need to know again. But as you go through the steps of purchasing a home, this new vocabulary is crucial.

Besides, you’ve already taken steps to improve your finances to put you in a position to buy a house. You’ve automated your savings, built a fund for your down payment and started researching neighborhoods in your city. It’s only fitting that you now learn the lingo so that you are prepared to be a homeowner.

Here’s everything you need to know to sound like a pro and make an informed home buying decision. The best part? We’ve translated this terminology from “finance speak” to plain English.

#1: What is a mortgage?

7-word summary: Legal agreement between you and the lender

Your mortgage is an agreement between you and your mortgage lender. It’s a legally binding way of shaking hands and agreeing to the terms. Lenders are often banks or credit unions, but can also be mortgage brokers or other types of lenders. The mortgage agreement basically states that you are obligated to pay the lender the full amount of the mortgage (plus interest) through a payment schedule.

Your house is collateral for the mortgage. This means that your house serves as a guarantee that you will pay back the lender. If you don’t make your payments, the lender has a claim on the house and will have a way to recoup the cost of the loan. This helps to reduce the risk for the lender.

Mortgages are typically large amounts of money—upwards of $100,000 and often 20 percent of the price of the home.

#2: What is a fixed-rate mortgage?

7-word summary: Same interest rate throughout the mortgage term

Fixed-rate mortgages tend to be the most popular because the interest rate doesn’t change throughout the length of mortgage, which is typically 15 or 30 years.

This means that a fixed-rate loan may be a great option if you want a stable, reliable monthly payment that won’t fluctuate. It feels a bit like renting—you have a set monthly payment and pay the same amount every month until the lease expires.

#3: What is an adjustable mortgage rate?

7-word summary: Fluctuating interest rate throughout the mortgage term

If you don’t have a fixed mortgage rate, then there’s a good chance you have an adjustable mortgage rate, or AMR. These mortgage rates typically have a short-term fixed rate period and then transition into adjustable rates.

An adjustable mortgage rate loan means that the interest rate can fluctuate – some months may be higher than others. This doesn’t mean that you’ll get a daily email with a new rate. Instead, it means that there are preset intervals during which the rate may change for a period of time. As a result, your monthly mortgage payment may change too.

#4: What is private mortgage insurance?

7-word summary: Insurance that provides additional protection for lenders

Also known as PMI, private mortgage insurance is a type of mortgage insurance that not everyone has to pay. PMI is another way that lenders protect themselves from losing money. You’ll typically be required to pay PMI if you have a conventional loan and have less than 20 percent of equity in the home.

Some buyers avoid PMI altogether by making a downpayment that is 20 percent or more of the purchase price. For example, if you buy a home that is $500,000, you’ll need to pay PMI until you have at least $100,000 of equity. You can avoid PMI in this situation with a down payment of $100,000 or more.

#5: What is an appraisal?

7-word summary: Expert opinion about the value of property

An appraisal is basically written evidence that the value of the property is based on fact (and not just what the seller wishes it is worth). Here’s the deal—you’ll probably want to know how much a potential home is worth and lenders definitely want to know what the home is worth.

Sellers list homes for an asking price, but this may or may not be the actual value of the home. There are a lot of factors at play when it comes to determining the value of a property and lenders often require buyers to get potential properties appraised by a professional.

#6: What is closing costs?

7-word summary: Fees and payments for purchasing a home

You probably already know that buying a home is expensive and you might have even heard the words “closing costs” thrown around a few times. Even though this sounds mysterious, closing costs are actually just the fees and payments associated with buying a home.

Here’s what is often included:

  1. Appraisal fees
  2. Government taxes
  3. Title insurance
  4. Tax service provider fees
  5. Prepaid expenses like property taxes or homeowners’ association fees

It’s okay if you’re not an expert

As you’ll probably only buy a handful of properties throughout the course of your entire life, it’s okay if you’re not a full-fledged expert on the topic. But even though you may never be an expert, it’s always a good idea to know the basics and feel confident in your decisions. And, keep in mind: the sooner you start preparing to buy a house, the better off you’ll be when the time comes to make an offer.

 

The 21 Best Financial Habits to Develop at Every Age

Your financial health and potential for building wealth are dependent on your habits. Short of winning the lottery or receiving a massive inheritance, the best financial habits involve those little decisions you make every day and every week.

Developing these habits all at once is problematic. First, there is a steep learning curve. Second, not all strategies are equally effective at every age. The best approach is to gradually master your financial habits as you grow older. There are good money habits to build at every stage of your life.

In General: The Earlier, the Better

For the most part, the earlier you learn these financial habits, the better. If you’re able to develop habits ahead of your age, you’ll stand to benefit. There are three reasons for this:

  • Habit acquisition. It’s easier to learn new things and build good habits when you’re young. If you establish good money practices early enough, it will be nearly impossible to break those habits.
  • Mistake adjustment. If you employ a habit but make a mistake in its execution, it can destabilize your financial track. Making that mistake early gives you ample time to recover from that mistake and learn from it. That way, you never repeat it again.
  • There’s also the power of compound interest to consider. Investing money early allows compound interest to grow that money exponentially over decades. It also prevents compound interest from working against you. A good example is in the case of debt.

In Your Teens

Your teenage years won’t come with much responsibility or many opportunities to make a significant income. Accordingly, there aren’t many financial habits you’ll need to focus on. These three are a good start:

  1. Saving money. Saving money is one of the best habits to learn early. In your teens, you’ll be tempted to spend every cent of your incoming paychecks. However, learning to squirrel away at least a portion of your earnings will always be beneficial.
  2. Tracking your spending. This is also the best time to start habitually tracking your spending. Instead of buying what you feel like, when you feel like it, write down how much you spend in each of several categories. Then, compare expenditures with income. This will provide you with the budgeting skills necessary to last a lifetime.
  3. Opening and using. You probably don’t “need” a credit card in your teens. However, it’s useful to have as an emergency option. Plus, it’s ideal for starting to build credit, which you’ll need in the future. Consider opening a savings, checking, and credit card account in your name. Then, focus on managing them responsibly.

In Your 20s

In your 20s, you’ll be out of school and ready to start your career so you need these financial habits:

  1. Checking your credit score. Checking your credit score is free.  Therefore, it’s good to get in the habit of checking it regularly. Knowing your credit score is valuable for making big-ticket financial decisions. It can direct you to weaknesses in your credit report to work on improving them.
  2. Contributing to a 401(k) or similar program. If your company offers a 401(k) or a similar investment program with a company match, take advantage of it. Company matches are essentially free money.
  3. Mastering your student loans. The average college student graduates with $30,000 in debt. If you don’t start addressing it now, the power of compound interest will make that debt even harder to manage. You don’t have to pay your debt down right away. However, you should have a solid long-term plan in place.
  4. Minimizing your credit card balances. Have one or two credit cards you regularly use. But, it’s important to get in the habit of keeping those balances low. If you accumulate too much debt, it could take over your life.
  5. Living below your means. This is the best way to generate more savings over the long term. Since you’ll be spending far less than you make, you’ll naturally end up with more money to save or invest every month. Opt for less expensive housing and save money on fees and subscriptions.
  6. Setting short-term and long-term goals. Get in the habit of setting and following both short-term goals (like saving up for a home down payment) and long-term goals (like investing $5,000 a year). With good goal planning and execution, all your other financial efforts will become easier.

In Your 30s

Once you’re in your 30s, you’ll have established career momentum to do these:

  1. Establishing a comprehensive emergency fund. You should have an emergency fund in your 20s.  However, by your 30s, that fund should be comprehensive. That means big enough to cover several months of expenses in case you lose your job or face some other catastrophe.
  2. Setting a course for retirement. This is when you’ll need to start thinking about your retirement goals. When do you want to retire? What accounts will you rely on to do it?
  3. Taking advantage of your credit. You’ve built and checked on your credit for the past decade or two. Now’s the time to start taking advantage of it. Buy a house you can afford or open new lines of credit to finance your business idea.
  4. Learning the value of insurance. Understand the value of insurance and take advantage of it for your financial interests. For example, you’ll want a good policy to cover your health, home, car, and other important assets. Plus, you may want to choose a different deductible or coverage policy that best suits your needs.
  5. Renting or buying (as appropriate). Know the advantages of renting versus buying in your area. There may not be a need to rush into buying a home or you may miss out on significant equity by renting. Every location is different.
  6. Navigating marriage and children. Consider the financial implications of marriage (if you’re planning to get married) and the expenses associated with raising children. Planning a family responsibly can mean the difference between affording a comfortable lifestyle and succumbing to debt.
  7. Planning for your children’s futures. If you’re planning to send your kids to college, start thinking about college savings(or a similar savings strategy for your children). For example, you may choose to open a 529 college savings plan and contribute regularly to it.
  8. Investing as a monthly expense. Think about investments and retirement savings as a monthly expense. These become necessary, regular expenditures for the sake of your future. Don’t let your other living or entertainment expenses distract you.

In Your 40s

In your 40s, you’ll have mastered the vast majority of important financial habits, but there are still a few to learn:

  1. Rebalancing your portfolio. Now, you should be in the habit of routinely rebalancing your portfolio. This includes adjusting your assets to favor the current market conditions or to help gradually reduce risk as you prepare for retirement. Slowly move toward a bond-heavy distribution of assets in your investment portfolio.
  2. Prepping for divorce. No matter how happy you are currently, there’s a significant possibility that your marriage will end in divorce. This event can be financially devastating to one or both parties. It’s imperative that you plan how to handle those expenses.
  3. Intelligently managing your assets. If you’ve had good financial habits for the past few decades, you should have significant assets to manage. These include properties, vehicles, and other investments. Make sure you’re managing them intelligently and improving their resale costs. Also, cite them properly on your taxes and sell them when appropriate.
  4. Splurging when appropriate. Retirement isn’t everything. By now, you should know the difference between a healthy splurge and reckless spending. However, don’t be afraid to pamper yourself every once in a while. Start doing more things that make you happy.

Beyond Your 40s

At this point in your life, your efforts should focus on maintaining the status quo and learning from your past mistakes. Additionally, it’s about concentrating your savings and investments on retirement prep. By the time you hit 50, all these financial habits should have prepared you for a stable future. There should be enough resources and experiences to help you achieve long-term goals.

Don’t regret your financial decisions. Take the time to learn and master these money habits as early as possible. And, be grateful for the discipline you exercised.


This article originally appeared on Due.com.

 

The History of Overdraft Fees

Overdraft fees are a wolf in sheep’s clothing. While a bank often markets overdraft protection as a way to help you out when you make an occasional budgeting error, it’s really just an expensive form of credit.

Think about it: in 2014, the Consumer Financial Protection Bureau (CFPB) found that the majority of overdraft fees were charged on transactions of $24 or less. With a median fee of $34 at the time, the same type of charge on a loan for a similar three day period would result in an annual percentage rate (APR) of 17,000%.

How did we get to this point? And what can you do about overdraft fees? Read on to learn more.

A short history of overdraft protection

An overdraft occurs when you’ve written a check, taken a cash withdrawal or used your debit card in an amount that exceeds your available funds. Most banks and credit unions offer overdraft protection, and this covers your shortfall in exchange for a fee.

The first overdraft authorization happened in 1728, according to the Royal Bank of Scotland. An Edinburgh-based merchant named William Hog received permission from his bank to temporarily withdraw more money from his account than he had available. This cash credit, as it was termed, was the forerunner of the modern overdraft. At one point, 18th-century philosopher David Hume called the cash credit idea “one of the most ingenious ideas that has been executed in commerce.”

But, let’s now think about this in terms of modern times. In 2017 alone, consumers paid $34.3 billion in overdraft fees, according to PYMTS.com. So, it’s possible that if Hume knew what would become of the cash credit idea, he may have changed his tune.

The modern overdraft

It’s unclear exactly when banks started charging overdraft fees. But according to Moebs Services, a research firm that focuses on financial institutions, these fees have steadily increased over time.

In 2000, for instance, the median overdraft fee was $20 among banks and $15 at credit unions. In 2017, those fees increased to $30 and $29, respectively. That said, some of the biggest banks in the U.S. charge between $34 and $36. While there are still some institutions that don’t charge fees on overdrafts of less than five dollars, this is not a universal feature. Also, some institutions charge extended overdraft protection, which adds more fees if you don’t bring your balance back to zero within a certain period. These time periods can range from one day to a week.

What you can do to avoid overdraft fees

While overdraft fees are ubiquitous, it’s possible that you’ll never have to deal with them. For starters, you can budget your money in a way that you never overdraw your account. And, if you make a mistake, you can also get your account back in the black before the end of the business day.

There are also three things you can do to boost your chances of never paying an overdraft fee. Take a look:

1. Opt out of overdraft protection

In 2009, the Federal Reserve Board announced a new rule prohibiting financial institutions from charging overdraft fees on ATM and one-time debit card transactions unless the customer opts in for overdraft protection on these transactions. The rule, which was made under Regulation E, went into effect in July 2010.

Yet, according to a 2017 study by The Pew Charitable Trusts, nearly three-quarters of people who overdraft don’t know they have the right to opt out. Guess what? You can opt out! By doing so, any transaction that overdraws your account will simply be declined.

This may not be ideal in some situations. For example, a credit card company may charge you a returned payment fee if a payment doesn’t go through due to an insufficient balance. For other transaction types, however, the only negative impact from a declined payment may be an embarrassment.

2. Get an account with a bank that offers alternatives

Rather than charging a flat fee every time you overdraw your account, some banks offer less punitive forms of overdraft protection. For example, some banks set up automatic withdrawals from a savings account to cover overdrafts.

Let’s say you overdraw your account on a Monday morning and your account is still negative at midnight. Instead of charging you an overdraft fee, the bank will transfer cash from your savings account to cover the negative amount.

Another option is an overdraft line of credit. Again, instead of charging you a flat fee, the bank charges you interest — say 18% — on the negative balance. While this might seem high, if you overdraw $24 and bring your account back to positive within a few days, the accrued interest amounts to pennies.

3. Get an account with a bank that doesn’t charge overdraft fees at all

With the rise of challenger banks, many new institutions have addressed some of the major issues with the traditional banking system, including the problem of overdraft fees.

If you open an account with Chime, for example, you’ll never pay overdraft fees. Period. This means you don’t have to find some other way to avoid the problem because there’s no problem to begin with.

The bottom line

Overdrafts have been around for a long time, but the penalties keep getting worse. The good news is that there are plenty of ways to avoid overdraft fees, and some financial institutions don’t charge them at all.

If you’ve paid an overdraft fee recently, it may be a good time to look into alternatives at your bank or switch banks altogether.

 

Without the Fiduciary Rule, Can You Still Find an Honest Retirement Planner?

Earlier this year, the U.S. Court of Appeals for the 5th Circuit effectively repealed a rule from the Department of Labor requiring financial advisers to meet some of the same legal requirements to which real estate agents, attorneys and other professionals must adhere serving their clients. While the so-called “fiduciary rule” isn’t exactly dead yet, it probably isn’t going to be enforced either. So what does that mean for investors looking for a new financial adviser?

In all honesty, not a lot. The new rule went into effect in part last year, so it’s a bit of a return to the status quo. Here’s what happened: The new rule was met with a lot of criticism from a number of groups, financial advisers in particular. It was intended to ensure brokers and other financial planners and advisers make investment recommendations in the best interest of their clients. For example, if your adviser were to choose one investment for your portfolio over another because it paid them a higher fee but had a lower rate of return for you, the fiduciary rule would have smacked them.

The 5th Circuit’s ruling has essentially repealed the Department of Labor’s enforcement of the rule. It technically remains in effect, but it has been rendered virtually meaningless.

How to choose a good financial adviser

This means investors should do their due diligence in choosing any kind of financial adviser. Here are five things you can do to ensure you get an adviser who acts in your best interest:

1. Choose a certified financial planner

Certified financial planners are trained and held to a code of ethics. They also take mandatory classes to maintain their licenses. This helps ensure they are aware of the latest industry standards and that someone is keeping an eye on their work.

2. Ask how they get paid.

If the planner you’re considering gets paid a commission instead of a flat, hourly rate, they have an incentive to choose investments that are in their own best interest. Members of the National Association of Personal Financial Advisors are fee-only and accept no commissions for their work.

3. Do they follow a code of ethics?

Ask if they follow a code of ethics and make sure you read it. If you see “fiduciary” in the language, your planner has agreed to put your best interests first.

4. Are they working for someone you know and trust?

Getting a recommendation from a friend or family member is a great way to find an adviser, but you should still do your due diligence as outlined in steps one through three.

5. Run a background check.

This may sound complicated, but it’s pretty simple. Start by asking your potential adviser if they’ve ever been convicted of a crime. Also ask if they’ve ever been investigated by a regulatory agency or industry group, and, if so, if they were found guilty or responsible of any wrongdoing. It’s also a good idea to Google them. Finally, ask for references of current clients.

Can’t I just do it myself?

If your investments are solely through an employer plan like a 401(k) and you’ve only just begun to invest, a self-directed program may be all you need for now. But as your investments grow and become more complicated, choosing an adviser can be a wise decision. Just like you’d go to a professional to extract your teeth or install your septic system, turning over your investments to a professional also typically results in better outcomes.

Another benefit to hiring an adviser is that they help keep you disciplined when it comes to your short- and long-term investment strategies. They frequently also can help with reviewing employment and other contracts, insurance policies and other legal vehicles.

Worried about your retirement nest egg? Here are five fast ways to start saving more.


This article originally appeared on Policygenius.

 

A Guide to ChexSystems

Imagine going to a new bank and waiting in line to open an account. You chat with the friendly bank teller, giving him the information he needs to open an account, along with your ID.

Maybe you’ve had a few overdraft charges in your past, but who hasn’t? Besides, your act is together now, and when you need a late-night pizza, you know you have the money in the bank for it. After a few minutes, his face turns grim. “I’m sorry,” he says. “At this time, we can’t offer you a bank account with us.”

What gives? If you haven’t experienced this embarrassing event yourself, count yourself lucky. It happens every day, and it might just happen to you someday too. It may have to do with one consumer reporting agency: ChexSystems.

Read on to learn more about ChexSystems and what you can do if you want to open a bank account with no ChexSystems. 

What is ChexSystems, anyway?

ChexSystems is a consumer reporting agency (CRA), and it operates like the credit agencies Equifax, Experian, and TransUnion. Except, in this case, ChexSystems collects data about how you’ve used your past bank accounts, rather than how you’ve paid off your debts. Another key difference between ChexSystems and the debt-related CRAs is that ChexSystems generally only lists negative information on your report. So, even if you’ve only had one overdraft charge, it’s possible that it’s the only thing listed on your ChexSystems report (even if you are an otherwise perfect banking customer.)

There are a few other agencies that do the same job as ChexSystems, but according to the National Consumer Law Center, ChexSystems is one of the most widely-used CRAs. In fact, over 80% of financial institutions use CRAs like ChexSystems and its rival, Early Warning Services, to determine whether to grant someone a bank account. Information on your ChexSystems report stays there for a full five years. This means that your mistakes from yesteryear can still impact you today.

Why ChexSystems is Unfair

The reason banks use CRAs like ChexSystems is to make sure you’re not going to open a fraudulent account or rack up a bunch of unpaid bank fees. It makes sense, right?

In reality, however, using ChexSystems is an unfair business practice that can harm consumers like you, according to the National Consumer Law Center. Currently, 17 million Americans — about five percent of the entire U.S. population — don’t have a bank account. And, out of those in this group who have had bank accounts in the past, about 15.5% of them can’t get a bank account now, likely due to a negative CRA report.

Lest you think this is a problem just for poverty-stricken people, think again. On average, about 25% of banks will automatically deny you right off the bat if you have any negative information on your account at all, even if you’re a millionaire. A further 50% of banks will need to call in a branch manager to make a decision on your case (how embarrassing).

Couple this with the fact that many big banks have unfair or unclear overdraft policies, making it even harder to avoid negative marks on your ChexSystems report.

What are my rights for dealing with my ChexSystems report?

Luckily, ChexSystems is governed by the Fair Credit Reporting Act just like TransUnion and the other CRAs. This means that when it comes to how your information is reported and used, you do have rights.

You can get a free copy of your ChexSystems report once per year, just like with your credit report. It’s a good idea to check your report periodically to make sure there’s no fraud or errors listed on it, especially if you plan to open a new account.

If you do apply for a bank account and are denied based on what the bank saw in your ChexSystems report, you can also get another copy for free to make sure it’s accurate. Sadly, even if you’ve paid all of your bank charges, negative information still stays on your report – if it was actually your fault. Yet, if you spot an error, you can resolve it by contacting your bank and ChexSystems to file a dispute. The bank and ChexSystems have to investigate your dispute, but — surprise — it doesn’t always go in your favor, even if you’re in the right. If you think both of them made a mistake and they’re not clearing it up to your satisfaction, you can also file a report with the Consumer Financial Protection Bureau and the Federal Trade Commission.

What if I’m still denied a bank account based on my ChexSystems report?

If you’ve checked your report and it accurately reports negative information, we hate to be the bearer of bad news. Many banks won’t offer you a bank account.

However, you’re not out of options just yet. There are many bank accounts — like Chime Bank — that don’t use the ChexSystems reports. If you open a bank account with Chime Bank, you won’t even be charged pesky overdraft fees, which may have led to the negative information in in the first place.

Having a negative ChexSystems report is certainly an inconvenience, but it’s not the end of the world. Chime has your back, even if no other banks do.

Banking Services provided by The Bancorp Bank, Member FDIC. The Chime Visa® Debit Card is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. Chime and The Bancorp Bank, neither endorse nor guarantee any of the information, recommendations, optional programs, products, or services advertised, offered by, or made available through the external website ("Products and Services") and disclaim any liability for any failure of the Products and Services.