If you get paid every two weeks, you’ve probably noticed extra money coming your way certain months. Maybe you even thought your company’s payroll made a mistake! But it’s no mistake. You get two magical months like this a year: when you suddenly have a third paycheck andâthe best part isâyour monthly bills stay the same. Yes, it’s appropriate to jump for joyâprovided you have a plan for that extra income.
Why does this happen in the first place? If you’re paid biweekly, you get 26 paychecks throughout the 52-week year. That means two months out of the year, you end up getting three paychecks instead of your regular two.
Those two extra paychecks can go a long way. But without a plan in mind, they can also disappear. Fast. The first budgeting trick to saving two paychecks is to find out when they will hit your account. Grab a calendar and write down your paydays for every month in a given year and highlight the two extras. Maybe even put calendar reminders in your phone so you can track when the additional funds will hit your account. The extra paychecks will fall on different days every year, so tracking them in advance is key.
Samuel Deane, a founding partner of New York City-based wealth management firm Deane Financial, says there isn’t one correct way to budget with an extra paycheck, but that it should depend on your personal situation and financial goals. You could decide to give yourself some extra room in your budget throughout the year, for example, or use the extra money for something specific.
How can I budget for an extra paycheck? Consider these 5 budgeting hacks if you’re paid biweekly:
1. Pay down (mainly) high-interest debt
Once you’re done jumping for joy at the realization of the third paycheck, consider how your budget with an extra paycheck could help you pay down debt. “The first thing I usually tell my clients is to get rid of high-rate debt, which is usually credit card debt,” Deane says.
Before paying off debt with your new budget with an extra paycheck, make a list of all of your debts organized by balance and annual percentage rate (APR). Paying off the debt with the highest APR could save you the most money because you’re paying the most to carry a balance. Paying down a few low-APR, low-balance debts can also help you gain momentum and bring other financial benefits. For instance, if you owe close to your credit limit on a credit card, the high credit utilizationâor card balance to credit limit ratioâcould negatively impact your credit score.
If your budget with an extra paycheck includes debt repayment, you’ll start to owe less and have less interest accruing each month, freeing up even more cash from subsequent paychecks.
“The first thing I usually tell my clients is to get rid of high-rate debt, which is usually credit card debt.”
2. Build an emergency fund
Paying down debt isn’t the only way to budget with an extra paycheck. “Taking a look at whether you have a sufficient emergency fund is pretty important,” says Dan Stous, director of financial planning at Flagstone Financial Management.
An emergency fund of three to six months of your regular expenses can help you weather financial setbacks, such as a lost job or medical emergency, without having to take on new debt. Keeping these funds separate from your regular checking and savings accounts can help you keep them earmarked for the unexpected (and reduce the temptation to dip into them for non-emergency expenses). Places to keep your emergency fund include a high-yield savings account, certificate of deposit or money market account.
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If creating an emergency fund or adding to an existing one is on your to-do list, a budgeting trick to save two paychecks is to automatically transfer your extra paychecks into your emergency fund account.
3. Save for a big goal
If you want to save for a goal like a new car or home, or contribute to tax-advantaged retirement accounts, contributing two full paychecks out of 26 can be a good start. “If a client is debt-free and doing well, they might be able to focus on other goals,” Deane says. If you’ve got a financial goal in mind, a budgeting hack if you’re paid biweekly is to transfer your two extra paychecks from your checking account to a savings or retirement account right away.
If you have a 401(k) through an employer and already contribute enough to get your maximum annual match, Deane says you may want to consider a Roth IRA. A Roth IRA is for retirement, but it also allows first-time homebuyers who have held their account for at least five years to withdraw up to $10,000 to buy a home, Deane says. Your budget with an extra paycheck could then go to either major goal.
Even loftier, “you could put aside money to start a business,” Deane says. If you plan on starting a business someday you could put away the paychecks annually and let those savings build as start-up capital.
4. Get ahead on bills
If you already have an emergency fund, are currently debt-free and are making good progress on your savings goals, try this budgeting hack if you’re paid biweekly and get a third paycheck: Pay certain monthly bills ahead of time.
“If you have the ability to prepay some of your bills, it can ease anxiety in the coming months,” Deane says.
Before using this budgeting hack if you’re paid biweekly, check with your providers to confirm that you will not be met with a prepayment penalty, and get up to speed on any prepayment limitations. Some providers may even offer a discount or incentive if you pay something like a car insurance bill all at once. You could also explore whether or not prepaying your bills makes sense for utilities, your cellphone or rent.
If you’re looking for budgeting hacks if you’re paid biweekly, consider that managing money isn’t only about dollars and cents. Emotions often play an important part in personal finance, and they’re often the root cause of people’s decisions. Accepting this fact could be an important part of successfully managing your money.
“From an emotional and behavioral standpoint, people should reward themselves for being responsible,” Stous says. “Basically, treat yourself.”
Perhaps you need a vacation from the daily grind, want to enrich or educate yourself or your family or simply want to get a date night at your favorite restaurant on the calendar. A budgeting trick to save two paychecks could be supplemented with some spending on yourself.
“If you have an extra paycheck and a debt reduction goal, then maybe you apply the whole thing toward that goal. On the other hand, maybe you have a goal to retire in 10 years and you’re off track. Then, it’d be wise to put that money, or at least a portion of it, toward that goal.”
There’s no one-size-fits-all budgeting trick to save two paychecks
When you’re deciding how to budget with an extra paycheck, you might find yourself going back and forth between options.
“If you have an extra paycheck and a debt-reduction goal, then maybe you apply the whole thing toward that goal,” Stous says. “On the other hand, maybe you have a goal to retire in 10 years and you’re off track. Then, it’d be wise to put that money, or at least a portion of it, toward that goal.”
Even though budgeting solutions are not the same for everyone, being disciplined and proactive about the savings opportunity of a third paycheck can help you form a strong foundation for your financial future.
The post The Magical Third Paycheck: 5 Budgeting Hacks If You’re Paid Biweekly appeared first on Discover Bank – Banking Topics Blog.
6 Signs Your Personal Finance Software Makes Life Easier
Finding personal finance software is easy, because there are countless choices in mobile apps, online programs, and finance software you can run on your home computer. But they’re certainly not equal. Personal finance software should make your life simpler, not more complicated, and it should be customizable for your particular life, goals, and needs. You know you’ve found great software when your financial life becomes easier over time. Here are 6 signs your personal finance software makes life easier.
1. You Haven’t Paid a Late Fee in Months
Does your personal finance software let you know in advance of when bills are due? It should be easy to set up automated alerts that tell you a few days before monthly, quarterly, or yearly bills are due, so you can take care of them and avoid annoying and guilt-inducing late fees. Ideally your software should notify you by text, so you’ll be sure and get the message whatever you’re doing and wherever you are.
2. Spending Categories Correspond to Your Actual Life
When personal finance software requires you to shoehorn your actual spending patterns into pre-set spending categories, the result can be confusion and frustration. Look for software that lets you create an unlimited number of spending categories you can customize. Do you buy your employees breakfast once a month? You can make a spending category for it. Are you a coffee or microbrew aficionado? You can make a spending category for it. Your budget should conform to your life, not the other way around.
3. You See How Trimming Budget Fat Affects Financial Goals
Sometimes it just doesn’t feel worth it to hold back at the grocery store after a long day or when buying Christmas presents. But when your personal finance software shows you exactly how disciplined spending helps you achieve your financial goals, like a vacation or paying off a loan, it’s easy to avoid giving in to those little temptations you face every day. When you can see how your discipline pays off, you’re more likely to stick with your good habits.
Start now: Get budgeting software from Mint to help manage your finances and make everyday life simpler byÂ clicking here.
4. You May Have Faced One or Two Painful Truths
Powerful personal finance software can tell you things like how much you spent on fast food last week, or how much you’ve paid in non-network ATM fees this month. Sometimes, getting control of your personal finances means facing some harsh truths, like how much those little extras add up to. Your software should also be able to tell you how much more quickly you can reach financial goals if you cut a certain dollar amount from various spending categories. It’s a great way to stay on track to your goals.
5. You Know Exactly How Close You Are to Meeting Financial Goals
Maybe you want to save for retirement, or build up a down payment on a home. Your personal finance software should show you exactly how close you are to your goal at any time. You should also be able to receive monthly emails that track your progress and see how your everyday spending decisions affect how much you’ll have left over at the end of the month. Don’t settle for software that doesn’t let you track your progress easily.
6. Your Personal Finance Software Goes With You Everywhere
Personal finance software that links your computer and your mobile devices empowers you to make smart spending choices anytime, anywhere. Thinking about buying an item you unexpectedly find on sale? You can check your account balances right on your phone and know instantly if you can afford it. You can also set up convenient alerts that can tell you right away such things as whether you’re approaching your credit limits on your credit cards.
Personal finance software has come a long way since the days you had to manually enter checkbook balances and draft amounts. Today’s software offers an astonishing array of features that not only help you achieve financial goals, but actually make your everyday life easier. And when it links your accounts to your computer and your mobile devices, likeÂ MintÂ does, you have all the budget tools you need, wherever you go.
Start now:Â Get budgeting software from Mint to help manage your finances and make everyday life simpler byÂ clicking here.
The post 6 Signs Your Personal Finance Software Makes Life Easier appeared first on MintLife Blog.
Could logging in to your computer from a deluxe treehouse off the coast of Belize be the future of work? Maybe. For many, the word freelance means flexibility, meaningful tasks and better work-life balance. Who doesn’t want to create their own hours, love what they do and work from wherever they want? Freelancing can provide all of thatâbut that freedom can vanish quickly if you don’t handle your expenses correctly.
“A lot of the time, you don’t know about these expenses until you are in the trenches,” says freelance copywriter Alyssa Goulet, “and that can wreak havoc on your financial situation.”
Nearly 57 million people in the U.S. freelanced, or were self-employed, in 2019, according to Upwork, a global freelancing platform. Freelancing is also increasingly becoming a long-term career choice, with the percentage of freelancers who freelance full-time increasing from 17 percent in 2014 to 28 percent in 2019, according to Upwork. But for all its virtues, the cost of being freelance can carry some serious sticker shock.
“There are many hats you have to wear and expenses you have to take on, but for that you’re gaining a lot of opportunity and flexibility in your life.”
Most people who freelance for the first time don’t realize that everythingâfrom taxes to office supplies to setting up retirement plansâis on them. So, before you can sustain yourself through self-employment, you need to answer a very important question: “Are you financially ready to freelance?”
What you’ll find is that budgeting as a freelancer can be entirely manageable if you plan for the following key costs. Let’s start with one of the most perplexingâtaxes:
1. Taxes: New rules when working on your own
First things first: Don’t try to be a hero. When determining how to budget as a freelancer and how to manage your taxes as a freelancer, you’ll want to consult with a financial adviser or tax professional for guidance. A tax expert can help you figure out what makes sense for your personal and business situation.
For instance, just like a regular employee, you will owe federal income taxes, as well as Social Security and Medicare taxes. When you’re employed at a regular job, you and your employer each pay half of these taxes from your income, according to the IRS. But when you’re self-employed (earning more than $400 a year in net income), you’re expected to file and pay these expenses yourself, the IRS says. And if you think you will owe more than $1,000 in taxes for a given year, you may need to file estimated quarterly taxes, the IRS also says.
That can feel like a heavy hit when you’re not used to planning for these costs. “If you’ve been on a salary, you don’t think about taxes really. You think about the take-home pay. With freelance, everything is take-home pay,” says Susan Lee, CFPÂ®, tax preparer and founder of FreelanceTaxation.com.
When you’re starting to budget as a freelancer and determining how often you will need to file, Lee recommends doing a “dummy return,” which is an estimation of your self-employment income and expenses for the year. You can come up with this number by looking at past assignments, industry standards and future projections for your work, which freelancer Goulet finds valuable.
“Since I don’t have a salary or a fixed number of hours worked per month, I determine the tax bracket I’m most likely to fall into by taking my projected monthly income and multiplying it by 12,” Goulet says. “If I experience a big income jump because of a new contract, I redo that calculation.”
After you estimate your income, learning how to budget as a freelancer means working to determine how much to set aside for your tax payments. Lee, for example, recommends saving about 25 percent of your income for paying your income tax and self-employment tax (which funds your Medicare and Social Security). But once you subtract your business expenses from your freelance income, you may not have to pay that entire amount, according to Lee. Deductible expenses can include the mileage you use to get from one appointment to another, office supplies and maintenance and fees for a coworking space, according to Lee. The income left over will be your taxable income.
To set aside the taxes you will need to pay, adjust your estimates often and always round up. “Let’s say in one month a freelancer determines she would owe $1,400 in tax. I’d put away $1,500,” Goulet says.
2. Business expenses: Get a handle on two big areas
The truth is, the cost of being freelance varies from person to person. Some freelancers are happy to work from their kitchen tables, while others need a dedicated workspace. Your freelance costs also change as you add new tools to your business arsenal. Here are two categories you’ll always need to account for when budgeting as a freelancer:
Joining a coworking space gets you out of the house and allows you to establish the camaraderie you may miss when you work alone. When you’re calculating the cost of being freelance, note that coworking spaces may charge membership dues ranging from $20 for a day pass to hundreds of dollars a month for a dedicated desk or private office. While coworking spaces are all the rage, you can still rent a traditional office for several hundred dollars a month or more, but this fee usually doesn’t include community aspects or other membership perks.
If you want to avoid office rent or dues as costs of being freelance but don’t want the kitchen table to pull double-duty as your workspace, you might convert another room in your home into an office. But you’ll still need to outfit the space with all of your work essentials. Freelance copywriter and content strategist Amy Hardison retrofitted part of her house into a simple office. “I got a standing desk, a keyboard, one of those adjustable stands for my computer and a squishy mat to stand on so my feet don’t hurt,” Hardison says.
Start with the absolute necessities. When Hardison first launched her freelance career, she purchased a laptop for $299. She worked out of a coworking space and used its office supplies before creating her own workspace at home.
There are a range of digital tools, including business and accounting software, that can help with the majority of your business functions. A big benefit is the time they can save you that is better spent marketing to clients or producing great work.
The software can also help you avoid financial lapses as you’re managing the costs of being freelance. Hardison’s freelance business had ramped up to a point where a manual process was costing her money, so using an invoicing software became a no-brainer. “I was sending people attached document invoices for a while and keeping track of them in a spreadsheet,” Hardison says. “And then I lost a few of them and I just thought, ‘Oh, my God, I can’t be losing things. This is my income!’”
Digital business and software tools can help manage scheduling, web hosting, accounting, audio/video conference and other functions. When you’re determining how to budget as a freelancer, note that the costs for these services depend largely on your needs. For instance, several invoicing platforms offer options for as low as $9 per month, though the cost increases the more clients you add to your account. Accounting services also scale up based on the features you want and how many clients you’re tracking, but you can find reputable platforms for as little as $5 a month.
When you sign up for a service, start with the “freemium” version, in which the first tier of service is always free, Hardison says. Once you have enough clients to warrant the expense, upgrade to the paid level with the lowest cost. Gradually adding services will keep your expenses proportionate to your income.
3. Health insurance: Harnessing an inevitable cost
Budgeting for healthcare costs can be one of the biggest hurdles to self-employment and successfully learning how to budget as a freelancer. In the first half of the 2020 open enrollment period, the average monthly premium under the Affordable Care Act (ACA) for those who do not receive federal subsidiesâor a reduced premium based on incomeâwas $456 for individuals and $1,134 for families, according to eHealth, a private online marketplace for health insurance.
“Buying insurance is really protecting against that catastrophic event that is not likely to happen. But if it does, it could throw everything else in your plan into a complete tailspin,” says Stephen Gunter, CFPÂ®, at Bridgeworth Financial.
A good place to start when budgeting as a freelancer is knowing what healthcare costs you should budget for. Your premiumâwhich is how much you pay each month to have your insuranceâis a key cost. Note that the plans with the lowest premiums aren’t always the most affordable. For instance, if you choose a high-deductible policy you may pay less in premiums, but if you have a claim, you may pay more at the time you or your covered family member’s health situation arises.
When you are budgeting as a freelancer, the ACA healthcare marketplace is one place to look for a plan. Here are a few other options:
Spouse or domestic partner’s plan: If your spouse or domestic partner has health insurance through his/her employer, you may be able to get coverage under their plan.
COBRA: If you recently left your full-time job for self-employment, you may be able to convert your employer’s group plan into an individual COBRA plan. Note that this type of plan comes with a high expense and coverage limit of 18 months.
Organizations for freelancers: Search online for organizations that promote the interests of independent workers. Depending on your specific situation, you may find options for health insurance plans that fit your needs.
Speak with an insurance adviser who can help you figure out which plans are best for your health needs and your budget. An adviser may be willing to do a free consultation, allowing you to gather important information before making a financial commitment.
4. Retirement savings: Learn to “set it and forget it”
Part of learning how to budget as a freelancer is thinking long term, which includes saving for retirement. That may seem daunting when you’re wrangling new business expenses, but Gunter says saving for the future is a big part of budgeting as a freelancer.
“It’s kind of the miracle of compound interest. The sooner we can get it invested, the sooner we can get it saving,” Gunter says.
He suggests going into autopilot and setting aside whatever you would have contributed to an employer’s 401(k) plan. One way to do this might be setting up an automatic transfer to your savings or retirement account. “So, if you would have put in 3 percent [of your income] each month, commit to saving that 3 percent on your own,” Gunter says. The Discover IRA Certificate of Deposit (IRA CD) could be a good fit for helping you enjoy guaranteed returns in retirement by contributing after-tax (Roth IRA CD) or pre-tax (traditional IRA CD) dollars from your income now.
Prioritize retirement savings every month, not just when you feel flush. “Saying, ‘I’ll save whatever is left over’ isn’t a savings plan, because whatever is left over at the end of the month is usually zero,” Gunter says.
5. Continually update your rates
One of the best things you can do for yourself in learning how to budget as a freelancer is build your costs into what you charge. “As I’ve discovered more business expenses, I definitely take those into account as I’m determining what my rates are,” Goulet says. She notes that freelancers sometimes feel guilty for building business costs into their rates, especially when they’re worried about the fees they charge to begin with. But working the costs of being freelance into your rates is essential to building a thriving freelance career. You should annually evaluate the rates you charge.
Because your expenses will change over time, it’s wise to do quarterly and yearly check-ins to assess your income and costs and see if there are processes you can automate to save time and money.
“A lot of the time, you don’t know about these expenses until you are in the trenches, and that can wreak havoc on your financial situation.”
Have confidence in your freelance career
Accounting for the various costs of being freelance makes for a more successful and sustainable freelance career. It also helps ensure that those who are self-employed achieve financial stability in their personal lives and their businesses.
“There are many hats you have to wear and expenses you have to take on,” Goulet says. “But for that, you’re gaining a lot of opportunity and flexibility in your life.”
The post Everything You Need to Know About Budgeting As a Freelancer appeared first on Discover Bank – Banking Topics Blog.
When personal finance blogger Allan Liwanag was establishing his career and living paycheck to paycheck, he often had just enough money to cover his expenses each month. He ran into an issue with an old checking account that caused him some major grief.
“I forgot to account for the $15 monthly fee that the bank would charge,” Liwanag says. “So I was short covering my rent. It was a stressful situation because I didn’t know at first if the bank would process the payment for the rent or not.” The bank ultimately covered it, but Liwanag got charged $35 for an insufficient funds feeâon top of the original monthly fee.
Liwanag, who now runs a consumer money-saving site called The Practical Saver, learned a lot from that experience. The main point being, checking accounts can rack up feesâeven for standard activity. In fact, bank fees, including those for ATM usage and overdrafts, continue to rise year-over-year, according to a 2019 Bankrate survey. As Liwanag learned, fees could eat away at the funds in your checking account, which may become problematic when it’s time to pay bills or take care of other expenses.
What you may not know is that there are no-fee checking account options without the hassle of common fees. DiscoverÂ®Cashback Debit, a no-fee checking account, for instance, doesn’t charge any account fees.1 It also offers no-fee checking without an opening deposit requirement, which is especially beneficial if you’re starting with a small balance or plan to make big withdrawals or transfers.
So you might be thinking right about now, “What are the benefits of a no-fee checking account?” To answer that question, it’s important to understand what types of fees you may be racking up and how you can make the most of a no-fee account. Let’s get to it.
Bank fees, including those for ATM usage and overdrafts, continue to rise year-over-year.
Your most common checking account fees
Checking account fees can become a trap you may not realize you’ve fallen into until it’s too late. It’s possible to be charged fees just for keeping your account open or for services or features you may have assumed came standard with the account. Being charged a fee doesn’t necessarily mean you’ve done anything wrong, but it’s a hassle you can avoid with the proper research.
Here is a list of some of the common checking account fees you could be paying:
Monthly fees to maintain or service your account
Overdraft or insufficient funds fees
Fees to order books of checks
Online bill pay fees
Stop payment fees
Replacement debit card fees
Not sure which checking account fees you’re dishing out for? Contact your bank or visit its website to get a copy of your deposit account agreement. This document usually has a list of fees related to your checking account that may apply to you.
Another good tipoff: “If you see monthly, quarterly or annual fees broken out on your monthly bank statement, you’ll know whether your account is truly no-fee,” says CPA and financial analyst Riley Adams of Young and the Invested, a site with strategies for financial independence.
It’s important to review your statements regularly to identify which fees you are being charged and to determine how that’s impacting your budget.
3 benefits of a no-fee checking account
Now that you’ve identified the many possible checking account fees you could be charged, you’ll find that the benefits of a no-fee checking account go beyond just freeing up some cash in your budget. In addition to the features you’re used to with a regular checking account, a no-fee checking account gives you a financial edge in the following ways:
More money for your financial goals. “Having a no-fee checking account can help you get ahead financially,” Adams says. “Instead of paying monthly service fees and even overdraft fees, you can apply that money toward your own financial goals.” The money you save on fees could be used to pay down debt, boost a savings account or help fund an education, business venture or vacation.
Flexibility. A benefit of a no-fee checking account is that it allows you to bank on your terms. If you’re just starting out, a no-fee checking account without an opening deposit requirement means you have the flexibility to fund the account with whatever amount makes sense for you. Need to make a big transfer from checking to savings? No problem, since you won’t have to worry about dipping below a minimum balance threshold. You can even go on your merry way using ATMs in your bank’s network without being restricted by fees, and if you accidentally overdraw, your no-fee account’s flexibility may save you the stress of a ding for insufficient funds.
No surprises. “Should I get a no-fee checking account?” was an easy decision for Liwanag because he knows exactly what to expect with one. “A plus of no-fee accounts is that you can rest assured that unaccounted-for or surprise fees will not kick you into overdraft,” Liwanag says. (Or, in other words, less s-t-r-e-s-s.)
Manage your finances with multiple no-fee accounts
There are also ways that no-fee checking accounts can help you better manage your income and expenses, in case you’re still wondering, “Should I get a no-fee checking account?”
Liwanag had no problem answering that question: âI have four,” he says, “which I use for easily tracking specific budget categories or expenses.”
As he explains, it can be easier to track expenses when money for different priorities, such as his emergency fund or that much-needed vacation, is bucketed into different no-fee checking accounts. Because he may be charged fees for excessive withdrawals from a savings account, Liwanag uses his no-fee checking accounts to manage the money he’ll need to access frequently for specific purposes.
The best part: Maintaining multiple checking accounts doesn’t cost him extra since a benefit of no-fee checking accounts means fees aren’t in the equation, he says. Some banks do have limits on how many checking accounts you can open, so be sure to consider this if you’re using a multiple account strategy like Liwanag.
Keeping your expenses organized is a pretty big motivator; so if you’ve answered “yes” to the question, “Should I get a no-fee checking account?”, the next step is knowing how to choose one.
Find the best no-fee checking account for your needs
Although the benefits of a no-fee checking account are key, don’t lose your head too much and forget to consider other checking account features that match your lifestyle. If customer service is your deal breaker, make sure the bank offers it around the clock and that it’s recognized for being top-notch. If you’re always on the go and your phone is right there with you, mobile features and mobile check deposit may be on the top of your list. If you’re regularly withdrawing cash, evaluate the bank’s network of no-fee ATMs and see if an ATM locator is offered to make tracking them down a breeze.
Why should credit cards have all the fun?
Now you can earn cash back with your debit card.
Discover Bank, Member FDIC
If the benefits of a no-fee checking account are top of mind, you may also want to consider the perks of a rewards checking account. For example, Discover’s Cashback Debit even offers 1% cash back on up to $3,000 in debit card purchases each month.2 So on top of a no-fees savings strategy to meet your goals, you could also earn up to $360 a year. (Vacation, here we come!)
Start on your path to smart checking
Clearly, the benefits of a no-fee checking account and a no-fee checking account without an opening deposit requirement are numerous. Just be sure to do your research, then compare your findings carefully. The no-fee checking account you choose should ultimately help you reach your personal financial goals. You may find that saving on fees and reducing financial stress could be just the edge you need to set your checking account on the best course.
1Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.
2ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as VenmoÂ® and PayPalÂ®, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries. Venmo and PayPal are registered trademarks of PayPal, Inc.
The post Should I Get a No-Fee Checking Account? appeared first on Discover Bank – Banking Topics Blog.
When you create a budget that works for you, you gain a sense of peace and freedom that comes with taking ownership of your finances. Although there are many approaches to budgeting, certain systems prove to be more effective than others. Zero-based budgeting is an easy and reliable method to achieve your financial goals. The concept of zero-based budgeting is simple: When you create your budget, you assign a role for every single dollar of your income.
By knowing exactly where your hard-earned cash is going, zero-based budgeting eliminates uncertainty and increases confidence in your financial decisions. Could a zero-sum approach to budgeting be the key to helping you regain your financial freedom? Weâll walk you through the specifics of this detail-oriented budgeting method so you can decide if itâs the right choice for your situation.
What Is Zero-Based Budgeting?
In short, zero-based budgeting is when you allocate every dollar you earn so that your income minus your expenses equals zero. If you earn $3,000 a month, the entirety of that $3,000 is accounted for in a zero-based budget. The goal is to avoid having extra money at the end of the month so you make wise spending choices.
Your budget should allow for spending money on monthly expenses like groceries and utilities, as well as âfun money.â Rather than waiting to see whatâs left over after taking care of bills and other essentials, a zero-based budget forces you to make financial decisions in advance. If you truly want to align your actions with your financial goals, youâll realize that every penny needs a purpose to make the most of it.
By forcing you to decide how much of your income will go towards goals like paying off debt or saving for a house before you even receive your check, zero-based budgeting encourages you to stick to your goals.
Is Zero-Based Budgeting Right For You?
Zero-based budgeting can be for everyone. A damaging myth of budgeting is that itâs only for people who lack the discipline to hold themselves accountable. No matter how much youâre struggling or thriving financially, you can benefit from taking control of your money with a zero-based budget. If youâre still skeptical about zero-based budgeting, take a look below at how it compares to the four other most popular budgeting alternatives, including the 50/30/20 method:
Zero-Based Budget: Make sure your expenses match your income each month so that your earnings minus your costs equal zero.
âPay Yourself Firstâ Budget: Dedicate money to savings and then the remainder is free to be spent how you choose.
Envelope Budget: Divide cash into physical envelopes filled with the exact amount of money you can spend on that category.
50/30/20 Budget: 50% of your income is for essentials, 30% is for personal expenses, and 20% goes towards savings.
Value-Based Budget: Calculate the monthly cost of each need based on your values, then choose how to stretch your income to meet those needs.
When you donât know exactly how you intend to divide your money each month, itâs easy to fall into spending traps. A zero-based budget using a digital budgeting tool is a great way to set yourself up for success and stick to your plan.
How to Create a Zero-Based Budget
Develop a zero-based budgeting plan by making it as simple as possible. Your main objective is ensuring your expenses match your income during the month. Donât overcomplicate the process by stressing about making the âperfectâ plan. The best part about creating a zero-based budget is that itâs easy to adjust month-over-month.
1. Record Your Monthly Income and Expenses
Write down every single monthly and seasonal expense to set yourself up for success. If you donât know where to start, you know youâll always have to factor in the cost of housing, utilities, transportation, and groceries.
Next, consider expenses youâre saving for, like a new car, a birthday or anniversary gift, etc. With a little bit of forethought, there shouldnât be any surprises. Itâs wise to set aside cash for unexpected or one-off expenses so youâre not immediately dipping into your emergency fund.
2. Adjust Your Budget Until Income Minus Expenses Equals Zero
When youâre new to zero-based budgeting, donât worry if your income and expenses donât balance each other out at first. Itâs likely that youâll have to reduce recurring costs or increase your earnings to reach a zero-sum. Canceling unnecessary subscriptions, packing your own lunch, skipping Starbucks, and starting a passive income-generating side hustle are all helpful.
Using an app with a budget categorization feature is particularly useful when youâre in the trial and error phase. Otherwise, it can be tedious and discouraging to manually re-adjust your budgeting strategy.
3. Track and Optimize Your Monthly Spending Accordingly
A zero-based budget is rarely flawless the first time around. Thankfully, you can optimize your spending by reallocating your funds as often as you need to during the month. Be sure to set yourself calendar reminders to have budget check-ins on a weekly or bi-weekly basis, especially if youâre working on budgeting as a family.
There are countless ways to increase and decrease your dollar allocations according to what makes the most sense for your circumstances. Oftentimes, three to six months are required to master zero-based budgeting. Once you get the hang of it, chances are that youâll enjoy reaping the rewards so much that youâll wonder why you didnât start sooner.
Pros and Cons of Zero-Based Budgeting
Thereâs no right or wrong answer to how you choose to manage your finances, but the key is that you need some kind of systematic approach to handling your money. Budgets are essential to help you build an emergency fund, save for retirement, pay off loans, or grow wealth through investing. If you arenât sure that zero-based budgeting is the best strategy for you, weâve outlined the pros and cons below.
Business management expert Peter Drucker is well-known for saying, âyou can’t improve what you can’t measure.â If you want to make progress towards your financial goals, you need a way to define and track where your money will go. If youâre not convinced that a zero-based budget will work for you, donât force it. You can always give it a try for a month or two and fall back on a different budgeting solution.
Zero-based budgeting is an easy and effective method to help you achieve your financial dreams. Donât miss the chance to get the most value from your money by budgeting. Weâve summed up our main points below.
Zero-based budgeting is when all of your income minus all your expenses equals zero. Every dollar of your hard-earned cash has a specific, purpose-driven role.
Having a zero-based budget allows you to make your income go further by proactively allocating your funds to different areas of spending and saving.
Using a digital budgeting tool like Mint helps to set yourself up for success and hold you accountable in your zero-based budgeting goals.
The post Zero-Based Budgeting: The Ultimate Guide appeared first on MintLife Blog.
Prepping for a new baby’s arrival might kick your nesting instinct into high gear, as you make sure everything is just right before the big day. One thing to add to your new-baby to-do list is figuring out how to financially prepare for maternity leave if you’ll be taking time away from work.
Lauren Mochizuki, a nurse and budgeting expert at personal finance blog Casa Mochi, took time off from work for the births of both her children. Because she had only partial paid leave each time, she says a budget was critical in making sure money wasn’t a source of stress.
“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time,” Mochizuki says.
But the question “How do I budget for maternity leave?” is a big one. One thing’s for sureâthe answer will be different for everyone, since not everyone’s leave or financial situation is the same. What matters most is taking action early to get a grip on your finances while there’s still time to plan.
Before you get caught up in the new-baby glow, here’s what you need to do to financially prepare for maternity leave:
1. Estimate how long you’ll need your maternity budget to last
To financially prepare for maternity leave, you need to know how long you plan to be away from work without pay.
The Family and Medical Leave Act (FMLA) allows eligible employees up to 12 weeks of job-protected, unpaid leave from work per year for certain family and medical reasons, including for the birth of a child. Some employers may also offer a period of paid leave for new parents.
When estimating how long you’ll need your maternity budget to last, Mochizuki says to consider how much unpaid leave you plan to take based on your personal needs and budget. For example, you could find you’re not able to take the full period offered by FMLA after reviewing your expenses (more on that below) and how much you have in savings.
Even if your employer does offer paid maternity leave, you may decide to extend your time at home by supplementing your paid leave with unpaid time off, Mochizuki says.
Keep in mind that despite all of your budgeting for maternity leave, your health and the health of your baby may also influence how much unpaid time off you take and how long your maternity leave budget needs to stretch.
As you’re financially preparing for maternity leave, make sure your spouse or partner is also considering what benefits may be available to them through their employer. Together you should know what benefits are available for maternity or paternity leave, either paid or unpaid, and how to apply for them as you jointly navigate the budgeting for maternity leave process. You can then decide how to coordinate the amount of time each of you should take and when that leave should begin.
Contact your HR department to learn about your company’s maternity leave policy, how to apply for leave and whether there are any conditions you need to meet to qualify for leave. Ask if you’re able to leverage sick days, vacation days or short-term disability for paid maternity leave.
2. Babyproof your budget
When budgeting for maternity leave, make sure you review your current monthly budget to assess how budgeting for a new baby fits in.
In Mochizuki’s case, she and her husband added a category to save for maternity leave within their existing budget for household expenses (e.g., mortgage, utilities, groceries).
“We treated it as another emergency fund, meaning we had a goal of how much we wanted to save and we kept working and saving until we reached that goal,” Mochizuki says.
As you financially prepare for maternity leave, consider the following questions:
What new expenses need to be added to your budget? Diapers, for instance, can cost a family around $900 per year, according to the National Diaper Bank Network. You may also be spending money on formula, bottles, wipes, clothes and toys for your new one, all of which can increase your monthly budget. And don’t forget the cost of any new products or items that mom will need along the way. Running the numbers with a first-year baby costs calculator can help you accurately estimate your new expenses and help with financial planning for new parents.
Will any of your current spending be reduced while you’re on leave? As you think about the new expenses you’ll need to add when budgeting for maternity leave, don’t forget the ones you may be able to nix. For example, your budget may dip when it comes to commuting costs if you’re not driving or using public transit to get to work every day. If you have room in your budget for meals out or entertainment expenses, those may naturally be cut if you’re eating at home more often and taking it easy with the little one.
3. Tighten up the budgetâthen tighten some more
Once you’ve evaluated your budget, consider whether you can streamline it further as you financially prepare for maternity leave. This can help ease any loss of income associated with taking time off or counter the new expenses you’ve added to your maternity leave budget.
Becky Beach, founder of Mom Beach, a personal finance blog for moms, says that to make her maternity leave budget workâwhich included three months of unpaid leaveâshe and her husband got serious about reducing unnecessary expenses.
Cut existing costs
As you budget for maternity leave, go through your existing budget by each spending category.
“The best tip is to cut costs on things you don’t need, like subscriptions, movie streaming services, new clothes, eating out, date nights, etc.,” Beach says. “That money should be earmarked for your new baby’s food, clothes and diapers.”
Cutting out those discretionary “wants” is an obvious choice, but look more closely at other ways you could save. For example, could you negotiate a better deal on your car insurance or homeowner’s insurance? Can you better plan and prep for meals to save money on food costs? How about reducing your internet service package or refinancing your debt?
Find ways to earn
Something else to consider as you budget for maternity leave is how you could add income back into your budget if all or part of your leave is unpaid and you want to try and close some of the income gap. For example, before your maternity leave starts, you could turn selling unwanted household items into a side hustle you can do while working full time to bring in some extra cash and declutter before baby arrives.
Reduce new costs
As you save for maternity leave, also think about how you could reduce expenses associated with welcoming a new baby. Rather than buying brand-new furniture or clothing, for example, you could buy those things gently used from consignment shops, friends or relatives and online marketplaces. If someone is planning to throw a baby shower on your behalf, you could create a specific wish list of items you’d prefer to receive as gifts in order to offset costs.
4. Set a savings goal and give every dollar a purpose
When Beach and her husband saved for maternity leave, they set out to save $20,000 prior to their baby’s birth. They cut their spending, used coupons and lived frugally to make it happen.
In Beach’s case, they chose $20,000 since that’s what she would have earned over her three-month maternity leave, had she been working. You might use a similar guideline to choose a savings goal. If you’re receiving paid leave, you may strive to save enough to cover your new expenses.
As you make your plan to save for maternity leave, make sure to account for your loss of income and the new expenses in your maternity leave budget. Don’t forget to factor in any savings you already have set aside and plan to use to help you financially prepare for maternity leave.
Once you’ve come up with your savings target, consider dividing your maternity savings into different buckets, or categories, to help ensure the funds last as long as you need them to. This could also make it harder to overspend in any one category.
For instance, when saving for maternity leave, you may leverage buckets like:
“The purpose of budgeting for maternity leave is to have enough money saved to replace your income for your desired leave time.”
Budgeting for maternity leaveâand beyond
Once maternity leave ends, your budget will evolve again as your income changes and new baby-related expenses are introduced. As you prepare to go back to work, review your budget again and factor in any new costs. For example, in-home childcare or daycare may be something you have to account for, along with ongoing healthcare costs for new-baby checkups.
Then, schedule a regular date going forward to review your budget and expenses as your baby grows. You can do this once at the beginning or end of the month or every payday. Take a look at your income and expenses to see what has increased or decreased and what adjustments, if any, you need to make to keep your budget running smoothly.
Budgeting for maternity leave takes a little time and planning, but it’s well worth the effort. Knowing that your finances are in order lets you relax and enjoy making memoriesâinstead of stressing over money.
The post What You Need to Know About Budgeting for Maternity Leave appeared first on Discover Bank – Banking Topics Blog.
What if you could pay for your next date night or trip to the grocery storeâwithout having to dip into your budget? If you use cash back to your advantage, these benefits could become a reality.
In the past, you had to swipe a credit card to earn cash back. But with Discover Cashback Debit, you can earn cash back by spending with your debit card (you read that right: debit card), allowing you to reach your financial goals without the risk of going into debt.
To best use this budget bonus, you might be wondering, âWhat should I do with my debit card cash back?” According to Eric Rosenberg, financial consultant and founder of the website Personal Profitability, âYou could put [your cash back] into savings or treat yourself to something from your wish list.”
Read on for things to do with cash back to help you achieve the right balance of responsibility and fun:
1. Save for a rainy day
Sometimes it seems like everything goes wrong all at once: You get a flat tire. The sink starts leaking (ugh, again!). You get a parking ticket. Since life can throw unexpected, costly curveballs your way, it’s important to have an emergency fund. Also known as a rainy day fund, an emergency fund is cash that’s set aside to cover unplanned, yet crucial, expenses.
âSo many people can’t afford the cost of an emergency from their savings,” Rosenberg says. If you don’t have this type of fund to fall back on, starting an emergency fund (or adding to an existing fund) could be a top priority when evaluating what to do with your cash back from a debit card.
When thinking about building an emergency fund as a thing to do with cash back, note that experts typically recommend putting aside at least three to six months of living expenses for this purpose. To maximize your emergency fund, you may want to consider moving these savings (and the cash back you’re putting toward this fund) to a high-yield savings account. That way, your emergency fund can steadily grow with interest until you need it. (P.S. More to come on how to automatically move your cash back into savings.)
2. Pay down your debt
If you owe, it can be tough to climb your way out of debt. Whether it’s from credit cards, student loans or a mortgage, interest is accruing and costing you money. Learning how to use your debit card cash back to offset debt can help you save on those interest payments down the road.
According to consumer money-saving expert Andrea Woroch, when you’re focusing on paying off debt, “It’s natural to cut back where you can. But you may eventually hit a wall where you can’t find ways to tackle expenses any further,” she says. That’s where learning how to use debit card cash back comes into play. Since a debit card with a cash back feature can allow you to earn for your everyday spending, those earnings can become a new source for paying down debt, Woroch adds.
3. Shore up for those special moments
You know you’d like to have more nights out, but they don’t come cheap. What to do with your cash back could include spending on special outings, Woroch says. Is there a restaurant you and your significant other have been dying to try? Is there a concert the whole family is super eager to see? There may also be larger events with family and friends to think aboutâplanning a milestone birthday or anniversary or that getaway with college buds. You can set aside your debit card cash back and earmark it for your relationships to create memories that will last a lifetime.
âYou could put [your cash back] into savings or treat yourself to something from your wish list.”
4. Support your children’s allowance
If you have kids, you’ve probably heard this one before: âMom, Dad, can I have some money?” Sometimes it can feel like you’re a walking ATM. One thing to do with cash back is to set aside an allowance for your kids. You can then use this cash to teach your children good savings habits and how to manage money on a monthly basis for the things they need and want, says Rosenberg of Personal Profitability. The best part: The money isn’t really coming out of your budget since you’re earning it for your everyday expenses and from money you’d be spending anyways. Win-win.
In thinking about what to do with your cash back, spending it on gift-giving and holiday expenses may be a good goal. “Some people go into debt during the holidays. To help avoid that circumstance, use your cash back to get ahead,” Woroch says.
And, really do think ahead if holiday spending is on your list of things to do with your cash back. The earlier you stash your cash back away for the holidays, the longer it will have time to accrue if you put it in a savings account for safekeeping. Season’s greetings may be the last thing on your mind while you’re flipping burgers on the 4th, but planning ahead could really impact your end-of-year festive spending.
How to maximize your cash back
Now that you know what to do with your cash backâwhether it’s going to work for your emergency fund or funding emergency holiday giftsâconsider steps you can take to get the most out of your extra dough. For example, find a rewards program that matches your spending style. With Discover Cashback Debit, you can earn 1% cash back on up to $3,000 in debit card purchases each month.1 That’s up to $360 a year. Not too bad for just going about your daily debit card spending.
Get 1% cashback on Debit from Discover. 1% cashback on up to $3000 in debit card purchases every month. Limitations apply. Excludes Money market accounts.Discover Bank,Member FDIC.Learn More
To make the process of saving that extra cash even easier, consider opening a Discover Online Savings Account. If you sign up for Auto Redemption to Savings, your cash back will be automatically deposited into your savings account every month.
âThe hardest part about saving for many people is remembering to make a transfer or take the cash to the bank,” Rosenberg says. “If you can automate it, you are setting yourself up for success. It’s like saving while you sleep.”
If you’re still considering how to use your debit card cash back to the fullest, Woroch suggests paying for group purchases when you’re out with family or friends. “Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment],” Woroch says. “This way you can benefit from earning more rewards.”
When it comes to how to use your debit card cash back, the key is to make sure you have enough in your account and aren’t spending too much if you offer to temporarily foot the bill. You don’t want to overextend in order to earn, as you could be hit with overdraft fees or not have enough in your account to cover bill payments, Woroch says.
“Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment]. This way you can benefit from earning more rewards.”
Get ahead with a combination of strategies
If you’re looking for things to do with cash back, using these tactics can help you improve your financial foundation and have some fun along the way. Understand your needs and goals to help you create a cash back plan, and then maximize your strategy with tools to help you automatically direct your cash back to savings to limit the temptation to spend the money elsewhere.
“We are all so busy these days, and managing money is often pushed down on the to-do list,” Woroch says. Learning how to use your debit card cash back can help you put money management front and center. Start earning!
1 ATM transactions, the purchase of money orders or other cash equivalents, cash over portions of point-of-sale transactions, Peer-to-Peer (P2P) payments (such as Apple Pay Cash), and loan payments or account funding made with your debit card are not eligible for cash back rewards. In addition, purchases made using third-party payment accounts (services such as VenmoÂ® and PayPal, who also provide P2P payments) may not be eligible for cash back rewards. Apple, the Apple logo and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries.
The post How to Use Your Debit Card Cash Back to the Fullest appeared first on Discover Bank – Banking Topics Blog.