Budgeting Tips for the Sandwich Generation: How to Care for Kids and Parents

Everyone knows that raising kids can put a serious squeeze on your budget. Beyond covering day-to-day living expenses, there are all of those extras to consider—sports, after-school activities, braces, a first car. Oh, and don’t forget about college.

Add caring for elderly parents to the mix, and balancing your financial and family obligations could become even more difficult.

“It can be an emotional and financial roller coaster, being pushed and pulled in multiple directions at the same time,” says financial life planner and author Michael F. Kay.

The “sandwich generation”—which describes people that are raising children and taking care of aging parents—is growing as Baby Boomers continue to age.

According to the Center for Retirement Research at Boston College, 17 percent of adult children serve as caregivers for their parents at some point in their lives. Aside from a time commitment, you may also be committing part of your budget to caregiving expenses like food, medications and doctor’s appointments.

Budgeting tips for the sandwich generation include communicating with parents.

When you’re caught in the caregiving crunch, you might be wondering: How do I take care of my parents and kids without going broke?

The answer lies in how you approach budgeting and saving. These money strategies for the sandwich generation and budgeting tips for the sandwich generation can help you balance your financial and family priorities:

Communicate with parents

Quentara Costa, a certified financial planner and founder of investment advisory service POWWOW, LLC, served as caregiver for her father, who was diagnosed with Alzheimer’s disease, while also managing a career and starting a family. That experience taught her two very important budgeting tips for the sandwich generation.

First, communication is key, and a money strategy for the sandwich generation is to talk with your parents about what they need in terms of care. “It should all start with a frank discussion and plan, preferably prior to any significant health crisis,” Costa says.

Second, run the numbers so you have a realistic understanding of caregiving costs, including how much parents will cover financially and what you can afford to contribute.

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17 percent of adult children serve as caregivers for their parents at some point in their lives.

– The Center for Retirement Research at Boston College

Involve kids in financial discussions

While you’re talking over expectations with your parents, take time to do the same with your kids. Caregiving for your parents may be part of the discussion, but these talks can also be an opportunity for you and your children to talk about your family’s bigger financial picture.

With younger kids, for example, that might involve talking about how an allowance can be earned and used. You could teach kids about money using a savings account and discuss the difference between needs and wants. These lessons can help lay a solid money foundation as they as move into their tween and teen years when discussions might become more complex.

When figuring out how to budget for the sandwich generation, try including your kids in financial decisions.

If your teen is on the verge of getting their driver’s license, for example, their expectation might be that you’ll help them buy a car or help with insurance and registration costs. Communicating about who will be contributing to these types of large expenses is a good money strategy for the sandwich generation.

The same goes for college, which can easily be one of the biggest expenses for parents and important when learning how to budget for the sandwich generation. If your budget as a caregiver can’t also accommodate full college tuition, your kids need to know that early on to help with their educational choices.

Talking over expectations—yours and theirs—can help you determine which schools are within reach financially, what scholarship or grant options may be available and whether your student is able to contribute to their education costs through work-study or a part-time job.

Consider the impact of caregiving on your income

When thinking about how to budget for the sandwich generation, consider that caring for aging parents can directly affect your earning potential if you have to cut back on the number of hours you work. The impact to your income will be more significant if you are the primary caregiver and not leveraging other care options, such as an in-home nurse, senior care facility or help from another adult child.

Costa says taking time away from work can be difficult if you’re the primary breadwinner or if your family is dual-income dependent. Losing some or all of your income, even temporarily, could make it challenging to meet your everyday expenses.

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“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement.”

– Quentara Costa, certified financial planner

When you’re facing a reduced income, how to budget for the sandwich generation is really about getting clear on needs versus wants. Start with a thorough spending review.

Are there expenses you might be able to reduce or eliminate while you’re providing care? How much do you need to earn each month to maintain your family’s standard of living? Keeping your family’s needs in focus and shaping your budget around them is a money strategy for the sandwich generation that can keep you from overextending yourself financially.

“Protect your capital from poor decisions made from emotions,” financial life planner Kay says. “It’s too easy when you’re stretched beyond reason to make in-the-heat-of-the-moment decisions that ultimately are not in anyone’s best interest.”

Keep saving in sight

One of the most important money strategies for the sandwich generation is continuing to save for short- and long-term financial goals.

“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement,” financial planner Costa says. “While the intention to put others before ourselves is noble, you may actually be pulling the next generation backwards due to your lack of self-planning.”

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Making regular contributions to your 401(k), an individual retirement account or an IRA CD should still be a priority. Adding to your emergency savings each month—even if you have to reduce the amount you normally save to fit new caregiving expenses into your budget—can help prepare you for unexpected expenses or the occasional cash flow shortfall. Contributing to a 529 college savings plan or a Coverdell ESA is a budgeting tip for the sandwich generation that can help you build a cushion for your children once they’re ready for college life.

When you are learning how to budget for the sandwich generation, don’t forget about your children’s savings goals. If there’s something specific they want to save for, help them figure out how much they need to save and a timeline for reaching their goal.

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Ask for help if you need it

A big part of learning how to budget for the sandwich generation is finding resources you can leverage to help balance your family commitments. In the case of aging parents, there may be state or federal programs that can help with the cost of care.

Remember to also loop in your siblings or other family members when researching budgeting tips for the sandwich generation. If you have siblings or relatives, engage them in an open discussion about what they can contribute, financially or in terms of caregiving assistance, to your parents. Getting them involved and asking them to share some of the load can help you balance caregiving for parents while still making sure that you and your family’s financial outlook remains bright.

The post Budgeting Tips for the Sandwich Generation: How to Care for Kids and Parents appeared first on Discover Bank – Banking Topics Blog.

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Guide to Managing Finances for Deploying Service Members

Life in the military offers some distinct experiences compared to civilian life, and that includes your budget and finances. The pre-deployment process can feel overwhelming, especially when you’re organizing your money and bills. 

It’s important you provide your family with everything they need to keep you and any dependents comfortable and stable. This means gathering paperwork, making phone calls to service providers, creating new budgets, and organizing your estate. The more you prepare ahead of time, the less you have to worry about the state of your investments and finances when you return home. 

To help make the process easier, we’ve gathered everything you need to know for deployment finances. Read on or jump to a specific category below:

Pre-Deployment Needs

  • Review Your Estate
  • Reassign Financial Responsibilities
  • Update Your Services
  • Build a Budget
  • Prepare a Deployment Binder

Deployment Needs

  • Protect Yourself From Fraud
  • Adjust Your Savings
  • Financial Assistance

Post-Deployment Needs

  • Update Your Budget
  • Pay Off Debt
  • Review Legal Documents

Before Your Deployment

There’s a lot of paperwork and emotions involved in preparing for deployment. Make sure you take plenty of time for yourself and your loved ones, then schedule time to organize your finances for some peace of mind. 
investments, and dependents. It’s an important conversation to have with your partner and establishes:

  • Power of attorney
  • Living will
  • Last will and testament
  • Long-term care
  • Life insurance
  • Survivor benefits
  • Funeral arrangements

Anyone with property, wealth, or dependents should have some estate planning basics secured. These documents will protect your wishes and your family in the event you suffer serious injury. There are several military resources to help you prepare your estate:

  • Defense Finance And Accounting Services’ Survivor Benefit Plan and Reserve Component Survivor Benefit Plan
  • Department Of Defense’s Military Funeral Honors Pre-arrangement 
  • Service Member’s Group Life Insurance
  • Veterans Affairs Survivor’s Benefits
  • The Importance Of Estate Planning In The Military
  • Survivor Benefits Calculator

Servicemembers Civil Relief Act (SCRA) allows you to cancel a housing or auto lease, cancel your phone service, and avoid foreclosure on a home you own without penalties. Additionally, you can reduce your debt interest rates while you’re deployed, giving you a leg up on debt repayment or savings goals. Learn more about the SCRA benefits below:

  • Terminating Your Lease For Deployment
  • SCRA Interest Rate Limits
  • SCRA Benefits And Legal Guidance

 

Build a Deployment Budget

Your pay may change during and after deployment, which means it’s time to update your budget. Use a deployment calculator to estimate how your pay will change to get a foundation for your budget. 

Typically, we recommend you put 50 percent of your pay towards needs, like rent and groceries. If you don’t have anyone relying on your income, then you should consider splitting this chunk of change between your savings accounts and debt. 

Make sure you continue to deposit at least 20 percent of your pay into savings, too. Send some of this towards an emergency fund, while the rest can go towards your larger savings goals, like buying a house and retirement. 

Use these resources to help calculate your goals and budgets, as well as planning for your taxes:

  • My Army Benefits Deployment Calculator
  • My Army Benefits Retirement Calculator
  • Mint Budget Calculator
  • IRS Deployed Veteran Tax Extension
  • IRS Military Tax Resources
  • Combat Zone Tax Exclusions

 

Prepare a Deployment Binder

Mockup of someone completing the deployment checklist.

Illustrated button to download our printable depployment binder checklist.

It’s best to organize and arrange all of your documents, information, and needs into a deployment binder for your family. This will hold copies of your estate planning documents, budget information, and additional contacts and documents. 

Make copies of your personal documents, like birth certificates, contracts, bank information, and more. You also want to list important contacts like family doctors, your pet’s veterinarian, household contacts, and your power of attorney. 

Once you have your book ready, give it to your most trusted friend or family member. Again, this point of contact will have a lot of information about you that needs to stay secure. Finish it off with any instructions or to-dos for while you’re gone, and your finances should be secure for your leave. 

While You’re Deployed

Though most of your needs are taken care of before you deploy, there are a few things to settle while you’re away from home. 
Romance and identity scams are especially popular and can cost you thousands. 

  • Social Media Scams To Watch For
  • Romance Scam Red Flags
  • Military Scam Warning Signs

 

Adjust Your Savings 

Since you won’t be responsible for as many bills, and you may have reduced debt interest rates, deployment is the perfect time to build your savings.

While you’re deployed, you may be eligible for the Department of Defense’s Savings Deposit Program (SDP), which offers up to 10 percent interest. This is available to service members deployed to designated combat zones and those receiving hostile fire pay.

Military and federal government employees are also eligible for the Thrift Savings Plan. This is a supplementary retirement savings to your Civil Service Retirement System plan.

  • Savings Deposit Program
  • Thrift Savings Plan Calculator
  • Civil Service Retirement System
  • Military Saves Resources

 

Additional Resources for Financial Assistance

Deployment can be a financially and emotionally difficult time for families of service members. Make sure you and your family have easy access to financial aid in case they find themselves in need. 

Each individual branch of the military offers its own family and financial resources. You can find additional care through local support systems and national organizations, like Military OneSource and the American Legion. 

  • Family Readiness System
  • Navy-marine Corps Relief Society
  • Air Force Aid Society
  • Army Emergency Relief
  • Coast Guard Mutual Assistance
  • Military Onesource’s Financial Live Chat
  • Find Your Military And Family Support Center
  • Emergency Loans Through Military Heroes Fund Foundation Programs
  • The American Legion Family Support Network

After You Return Home

Coming home after deployment may be a rush of emotions. Relief, exhaustion, excitement, and lots of celebration are sure to come with it. There’s a lot to consider with reintegration after deployment, and that includes taking another look at your finances. 

 

Update Your Budget

Just like before deployment, you should update your budget to account for your new spending needs and pay. It’s time to reinstate your car insurance, find housing, and plan your monthly grocery budget. 

After a boost in savings while deployed, you may want to treat yourself to something nice — which is totally okay! The key is to decide what you want for yourself or your family, figure if it’s reasonable while maintaining other savings goals, like your rainy day fund, and limit other frivolous purchases. Now is not the time to go on a spending spree — it’s best to invest this money into education savings, retirement, and other long-term plans.

In addition to your savings goals, make sure you’re prepared to take care of yours and your family’s health. Prioritize your mental health after deployment and speak with a counselor, join support groups, and prepare for reintegration. Your family and children may also have a hard time adjusting, so consider their needs and seek out resources as well. 
FTC | NFCC 

The post Guide to Managing Finances for Deploying Service Members appeared first on MintLife Blog.

Source: mint.intuit.com

A Guide to Estate Planning for Second Marriages

Couple getting married for the second timeGetting married for a second time following a divorce or the death of your first spouse can feel like a fresh start. But it’s important to consider how joining your life with someone else’s may impact your financial plan, including how you manage your estate. What is fair in a second marriage and estate planning? It can be a difficult question to answer, especially when you or your new spouse are bringing children into the marriage or you plan to have children together at some point. Understanding some of the key financial issues surrounding a second marriage can help with reshaping your estate plan. So can consulting a financial advisor, especially one experienced in estate planning for second marriages.

Key Estate Planning Considerations for Second Marriages

Remarriage can bring up a number of important questions for estate planning. Both spouses should be aware of what the central issues are when updating individual estate plans or creating a new joint one.

Here are some of the most important questions to ask for estate planning in a second marriage:

  • What assets will be left to each of your children?
  • Do you plan to have additional children together and if so, what assets will be preserved for them?
  • Which assets will you each continue to hold individually?
  • Are there any assets that will be retitled in both of your names, such as a first home, vacation home or bank accounts?
  • Are either of you bringing any debts into the marriage or will you incur new debts after the marriage?
  • Do each of you have a will in place that needs to be updated?
  • Or will you establish a new joint will?
  • Besides a will, what other estate planning tools may be necessary, i.e. a trust, advance healthcare directive or power of attorney?
  • Will you continue working with your current financial advisors or choose a new advisor to help you manage your financial plan together?

Asking these kinds of questions can help you each get a sense of the other’s perspective on estate planning. Ideally, you should be having these types of discussions before the marriage takes place to minimize potential conflicts later. This can also help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. But if you’ve already remarried, it may be a good idea to have this discussion sooner, rather than later.

At the same time, it can also help to complete an inventory of your assets and liabilities so you both know what you’re bringing into the marriage. This can help with managing the distribution side of your estate plan later as well as planning for how any debts may need to be handled should one of you pass away.

Estate Planning for Second Marriages With Children

Having kids can add a wrinkle to your estate planning efforts when you’re getting remarried. For example, you may wish to leave certain assets to your children while your new spouse may want your assets to be equally distributed among his or her children as well as yours. Or there may be questions over who would assume control over assets on behalf of minor children should one of you die.

When there are children in the picture, it’s important to consider any provisions you’ve already made for them in a will or trust and how that might affect any assets your spouse stands to inherit. You may need to update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your children’s inheritance. Provisions may also need to be made for any children you plan to have if you’re still relatively young when a second marriage occurs.

It’s important to consider the age of your children when deciding what is fair in a second marriage and estate planning. If you have adult children, for example, it could make sense to gift some of their inheritance to them during your lifetime. But if you have minor children, you and your new spouse would need to decide who should be in charge of managing their inheritance on their behalf if one of you dies prematurely.

Check Beneficiary Designations

Estate planning documentsAssets that already have a named beneficiary may need to be updated if you’re remarrying. For example, if you named your previous spouse as beneficiary to your 401(k), individual retirement account or life insurance policy, you’d likely want to change the beneficiary to your new spouse or to a trust you’ve set up so that your former spouse can’t collect on those assets.

You should also consider other assets, such as bank accounts or real estate, should be titled. Adding your new spouse to your home as a joint tenant with right of survivorship may seem like the right move for keeping things simple in your estate plan. But doing so means that if something happens to you, your spouse will automatically assume full ownership of the home. They could then do with it as they wish, regardless of what you might have specified in a will or trust.

Look for Gaps in Your Estate Plan

When deciding what is fair in a second marriage and estate planning, consider where the gaps might exist that could leave your assets in jeopardy. Not having a will, for example, could be problematic if you pass away. Without a will, your state’s inheritance laws would be applied – not your wishes. That means your assets may not go to your children or other heirs as you’d like them to.

A trust can also be a useful tool in estate planning for passing on assets to your spouse or children as well as managing estate and inheritance taxes. If either of you are bringing considerable assets into a second marriage or you want to minimize the potential for conflicts over asset distribution later, setting up one or more trusts could be a good idea. Talking to an estate planning attorney can help you decide whether a trust is necessary and if so, which type of trust to set up.

Also, consider whether you have sufficient life insurance coverage to provide for the surviving spouse and any children associated with the marriage. Both spouses in a second marriage may need to have life insurance coverage, particularly if one person is the primary breadwinner while the other is the primary caregiver for children. Checking your existing life insurance policies and talking to your insurance agent can help you determine whether what you have is enough or if more coverage is necessary.

Finally, think about what you may need in terms of end-of-life planning. Long-term care insurance, for instance, can help pay for nursing home costs so that your spouse or either of your children aren’t left in the lurch financially. An advance healthcare directive and a power of attorney can ensure that your wishes are carried out in end-of-life situations where you’re unable to make financial or medical care decisions on your own behalf.

The Bottom Line

Wedding decorationsDeciding what’s fair in a second marriage and estate planning can be tricky and it’s important to get the conversation started early. Understanding what the biggest challenges of estate planning in a second marriage are can help you work together to shape a plan that you can both be satisfied with. And if you have adult children, it’s important to keep them in the loop so they understand how a second marriage may impact their inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the implications of a second marriage and what it might mean for your portfolio. You and your spouse may choose to maintain your current advisors or find a new advisor to work with together. In either case, finding the right professional to work with doesn’t have to be hard. SmartAsset’s financial advisor matching tool can offer personalized recommendations for professional advisors in your local area, in just minutes. If you’re ready, get started now.
  • Trusts can be a useful estate planning tool for couples, including those who are getting married for a second time. A marital trust, for example, goes into effect when the first spouse dies. This can be helpful for passing assets on to a surviving spouse while minimizing estate taxes. You may want to create this type of trust, along with a second living trust set up specifically for your children, to manage assets more efficiently while also protecting them from creditors.

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The post A Guide to Estate Planning for Second Marriages appeared first on SmartAsset Blog.

Source: smartasset.com

50 Ideas To Help You Get Out of Debt!

The post 50 Ideas To Help You Get Out of Debt! appeared first on Penny Pinchin' Mom.

When it comes to trying to get out of debt, I’ve seen and heard it all.  From the person who gets three jobs to the guy who sold his dream car – just to make it all happen.  It got me to thinking – what are some of the craziest ideas out there to help you find your way out of debt?

find money to pay off debt

I decided to make a fun post about the craziest ideas people have tried just to try to get their debts paid off.  The funniest thing is that these really do work!  Who knows?  Maybe one of these will inspire you too!

If you are struggling  with paying off your debt, these folks may be able to help:
Call 866-948-5666.

50 IDEAS TO HELP YOU GET OUT OF DEBT

SELL ITEMS

Things are that – just things.  They don’t define us, and they don’t always make us completely happy.  My husband and I sold so many items when we were trying to get out of debt that we were able to raise more than $1,000.  The thing is – I can’t even remember what we sold (which proves that they were things we obviously did not really need).  Here are some unconventional ideas of things you can sell:

1. Hair.  This may sound bizarre, but people will pay for long hair!  Crafters often use it for making dolls, so they will pay to buy it.  You will need to have at least 10″ or more to sell, and the price will vary greatly. You can visit eBay to learn more and get started.

2. Toilet paper / paper towel rolls.  Have you been on Pinterest and seen the number of craft projects which require a paper towel or toilet paper tubes?  They are all over the place!

You can get onto local sites such as Wallapop, Craigslist or even visit eBay and list your products for sale.  It may sound crazy, but it actually can work.

3. Gift cards.  If you get a gift card for any reason, be it a return or even a gift, you can turn around and sell the card.  You won’t get quite face value for it, but you also can at least get paid cold hard cash.

They don’t have even to have the full value on them.  For instance, if you had a $100 gift card to your favorite sporting goods store, but you only have used $26.48, you can still sell your card, and another person can use the remaining balance.

Visit Raise.com to learn more about placing your gift cards up for sale.

4. Daily Deal vouchers.  Did you buy a deal on LivingSocial and haven’t yet redeemed the voucher, you can sell it.

5.  Sell things you don’t need.  Use eBay, Craigslist or LetGo to sell the stuff you do not need anymore.  Go through your home and decide what you need and what you could sell to raise some quick funds to pay off your debt!

 

SIMPLE IDEAS

These are things that just make sense and most people think about…but you may not have thought of every one of them!

6.  Budget.  Of course, it seems this should go without saying, but it is not always obvious. If you don’t have a budget, you have no control of your money.  Learn How to Create a Budget.

7. Coupons.  Start using coupons to save as much as you possibly can at the grocery store.  Then, use the amount you save to pay towards your debt! Read more about How to Use Coupons.

8. Change where you shop.  If you live near an Aldi, start to buy groceries there.  Skip the clothing store and find consignment stores to find gently used clothes.  Read more about How to Shop at Aldi.

9. No more dinners out.  This is a tough one, but it works.  Best of all, its not something you will have to give up forever!  Just think, if you spend $100 or more a month dining out that is more than $1,000 to pay towards your debt in just one year!

If you do have dinner out, skip the soft drinks and go for water instead, which is free!  Make sure you also pass on the appetizers and consider splitting a larger entree to pay less.

10. Give up your hobbies.  If you are an avid golfer, you might give that up for some time and use the monthly dues to pay towards debt.

11. Menu plan.  By planning your meals, you not only know what you will have for dinner, but it also helps you plan your shopping trip.  That ensures you have all you need on hand when you get ready to cook all of your meals – saving you from running to the store for that “one item,” which often leads to more.  Read more about How to Create a Menu Plan.

12. Ask for rate reductions.  Contact your creditors to see if they would lower your interest rate at all. This is not always something that works, but it is definitely worth a few calls to see if it won’t work for you. Learn the tricks to asking for a rate reduction.

13. Avoid paying monthly fees.  If your bank charges monthly fees, ask them to waive them.  If they will not, consider moving to another one which offers free banking.  Even $5 a month is $60 a year that you are giving to them, just to have your account.

14. Keep the change.  I always use cash.  I don’t even pay with change.  If the total is $6.42, I hand over $7 and keep the change.  I roll all of this once a year and usually have quite a nice amount saved up.  Best of all – I never miss it!

15.  Overbudget.  This is a fun way to get extra money.  We may budget $300 for groceries every two weeks, but I will do what I can to keep my shopping way under this amount.  Then, I take anything left over at the end of that two weeks and save it (you could use it towards your debt). It’s a fun way to challenge yourself to see how little you can spend!

16.  Change insurance.  Make some calls to find out of you can get a better rate on your auto and home (renter’s) insurance.  You can sometimes find a better deal by bundling or even by increasing your deductibles a bit.

17.  Skip the evening movies.  If you love to visit the movies try the matinee instead!  You can usually pay less by catching the afternoon show. Make sure you pass on the snacks too, as those can add up quickly!

18.  Don’t buy books.  Instead of buying books, visit the library or get free Kindle books.  No need to buy them at all, when there are ways you can get them for free!  Find out more ways to get free books.

 

EXTREME IDEAS

These are ideas which do not work for everyone, but have worked to help others get out of debt very quickly!

19. Stop retirement contributions.  If you are in debt, you might want to take that 15% you were saving for retirement and throw it all towards your debt.  As soon as you are debt free, you can start that contribution again (and maybe even do more than that to other accounts).

20. Cancel cable completely. If you really want to go drastic, you need to take all steps necessary to do so.  Cable can run more than $100 (or even more than $150) per month.  If you can cut out cable entirely, you might quickly free up $100 or more every single month!

21. Sell your car.  If you are leasing a vehicle, that is a simple way to throw money away, as you will never own it.  Turn in the vehicle and then take out a loan to purchase a much older car, where you will pay less per month.  Best of all, you will own it in a few short years!

If you have an expensive vehicle, you can also sell that and then purchase an older car, which will reduce your monthly overhead (and possibly taxes and insurance).

22. Move.  If you are renting or even if you own your home, consider downsizing to pay less each month.  I know many people have opted to sell their home and use any income to pay towards debt, and then they rent until they are debt free.  Then, they save to get the house of their dreams, which they can purchase debt free!

23.  Turn off your home phone.  This can run $30 or more a month.  Just use your cell phone and cancel your home service.

24. Downgrade your cell phone.  Try to reduce the data you use to see if you can’t lower your monthly payment on your cell phone.  Stick with your home internet for most of your data usage, and you can use your phone less and less and rack up the savings.

25.  Swap services.  Instead of paying for babysitting, exchange time with another couple.  You watch their kids for free, and they can do the same for you.  You might be able to swap your tutoring for haircuts or your lawn mowing for handyman repairs.

26.  Make gifts.  Instead of buying people gifts for birthdays and holidays, consider making them yourself.  You could even offer a “service” gift where you will babysit once a month for a year, etc.  Find a way to give from the heart instead.

27.  Budget bill your utilities.  If you can, arrange for budget billing with your services.  This can make it easier to include your budget and will avoid those swings in the summer or the winter when certain utilities may be more expensive.

28.  Drop the gym or country club.  If you have a membership of any sort, just cancel it.  If you work out at the gym, try to find free videos you can follow at home or create your own workout plan. If you like to golf, go with a friend instead of paying for your membership.

29.  No more coffee trips.  Make your coffee at home each morning and cancel that run through the drive-thru.

30.   Take your lunch.  It is great to go out to lunch every day, but pack your lunch, and you’ll ensure you eat up leftovers.  Not only will you waste less food, but you’ll also save a nice chunk of money every month.

31.  Carpool.  Take turns driving to work and save money on fuel and also wear and tear on your vehicle.

32.   Set up no spend months.  This is a tough one, but see if you can go a few weeks without spending anything more than you need to survive.  That means no dining out.  No entertainment.  No clothes.  Just food and fuel and that’s it!

 

MAKE MONEY

This is a bit different than working from home.  These ideas help you make a bit more money just doing things you might already do – like search the internet, shop, etc.  These sites will pay you money to do just that.  Then, turn around and apply anything you make towards your savings.

33. Swagbucks. Use this site to get paid for doing searches and other things you normally do online!  Click HERE to learn more about Swagbucks.

34. Sell crafts on Etsy. If you are good at crocheting, woodworking or anything at all, look at selling your wares on Etsy. It is a simple platform and the costs are very low, which allows you to keep most of what you make from each sale.

35. Rent a room in your home.  If you have a walk-out basement, consider renting out the space to make more money.  Just check with your local laws and homeowner’s association to ensure this is allowed before you jump in to start this one.

36. Sell stocks.  If you have investments, considering selling them and using the proceeds to pay towards your debt.

37. Give music lessons.  If you know an instrument or you can sing, consider selling your time to help teach others.

38. Tutor.  Find your expertise and teach others.  You never know who you might be able to help!

39. Start a blog.  You may not get rich with your blog, but it can turn into a nice stream of income!  Learn more about How to Start a Blog.

40.  Visit garage sales and upcycle.  Find items very inexpensive at a yard or garage sales.  Put in some elbow grease, paint and creativity and turn them into something you can sell for a profit.  Check out flea markets and farmer’s markets for larger items and for places where you can sell your items.

41.  Find holiday work.  When the holidays roll around, many stores hire employees for a short 6 – 8 week period.  Sign up and put in some extra time after your regular job and make some extra cash you can use to pay down your debt.

42.  Become a mystery shopper.  This is a great way to get some things for free.  This is not a way to get rich but is an excellent way to get some of the things you need for free (which allows you more money to pay towards your debt).

43. Become an eBay master.  Purchase items on clearance or at deep discounts and then sell them for a profit on eBay.   You can still offer prices which are less than in the store, but more than you paid.

44.  Ask for a raise.  Don’t be afraid to ask for one.  Make sure you share the additional work or responsibilities you’ve taken on as a reason why.  Or, if it has been a while since you last had a raise, you can mention that too.  It never hurts to try.

45.  Sell an eBook.  If you are an expert in any field, or if you love to write, create a book you can sell on Amazon!

 

MENTAL

While there are things that you can physically do to save or to make money, you need to get your brain into the right mindset too.

46.  Make your goal visible.  If you want to get out of debt so you can afford to save for a vacation, tape a photo of the destination where you see it each day.  It could be on your office wall, bathroom mirror or the refrigerator.

47.  Learn to be happy with less.  Sure, a new TV might be fun to own. It could be enjoyable to go out to dinner.  However, do you need those things?  Probably not.  Find a way to be happy spending time at home spending no money at all, and you’ll realize how much those things don’t matter.

48.  Learn to say no.  You may need to tell friends you can’t go out to dinner.  It may mean telling the kids that they can’t get that treat at the grocery store. You may need to say to yourself that you do not need to grab that afternoon latte.  Learning to say no can easily keep more money in your pocket.

49.  Give more.  This may seem crazy, but it actually works.  When you give more of yourself to others, you feel better.  Best of all, giving is not always financial. It can mean your time or even your prayers.

50. Surround yourself with the right people. If your friends encourage you to spend money, then you might want to distance yourself from them (at least until you can get better control over your finances and self-control).  Find other people who think like you do so that they can encourage and build you up.

There you’ve got it.  Fifty ways to help get you out of debt!  Which are you getting ready to try?

ideas to help find money to pay off debt

The post 50 Ideas To Help You Get Out of Debt! appeared first on Penny Pinchin' Mom.

Source: pennypinchinmom.com

Accredited Asset Management Specialist (AAMS)

What is the AAMS certification?New financial advisors need something to help them stand out. Consequently, the AAMS does just that. Designed for newcomers to the financial advice business, the AAMS trains advisors to identify investment opportunities as well as help clients with other financial goals. It also gives more experienced advisors a fast and simple way to learn more about asset management and improve their credentials. Here’s how it works.

AAMS Defined

An Accredited Asset Management Specialist (AAMS) can advise clients on college savings, taxes, and retirement savings. The course and tests for this certification are designed to ensure advisors can assist clients with their complete financial needs. It emphasizes evaluating the client’s assets and making appropriate recommendations.

The AAMS certification is granted by the College for Financial Planning, a unit of the Kaplan Company. The college oversees a large number of financial certification programs, including the Certified Financial Planner designation, one of the most valued certifications in the field.

AAMS Certification Requirements

What is the AAMS certification?

To receive an AAMS, students first have to complete a 10-module education program provided by the College for Financial Planning. Then they have to pass an examination. Finally, they must agree to abide by a code of ethics and promise to continue their education.

The courses are online and can be delivered in self-study or instructor-led formats. Courses are open-enrollment, therefore students can begin at any time without waiting for the next session.  The 10 modules cover the following material:

1.:The Asset Management Process

2. Risk, Return & Investment Performance

3. Asset Allocation & Selection

4. Investment Strategies

5. Taxation of Investments

6. Investing for Retirement

7. Deferred Compensation and Other Benefit Plans

8. Insurance Products for Investment Clients

9. Estate Planning for Investment Clients

10. Fiduciary, Ethical, and Regulatory Issues for Advisors

The College of Financial Planning provides everything necessary to study for and complete the modules and take the test. Students have access to the study materials and tests through an online portal.

Streaming video lectures, audio files, and interactive quizzes also can be found through the college’s site. Meanwhile, students can access live classes online and contact professors with questions and issues.

The AAMS Test

To get the AAMS certification, students have to pass just one test. However, they have to make their first attempt at the test within six months of enrollment and pass it within a year.

The fee for the first attempt at taking the test is included in the course tuition. There are no prerequisites for signing up to take the AAMS course.

Time and Money Requirement

Tuition for the AAMS courses is $1,300. This includes the fee for the first attempt at passing the certification exam. It also includes all needed course materials. Each additional attempt costs $100.

Students employed with certain financial services firms may be able to get tuition discounts. The college may also provide scholarships.

The College for Financial Planning recommends students plan to spend 80 hours to 100 hours on the course. Since the course is self-study, this amount of time is flexible.

To maintain AAMS certification students have to commit to completing 16 continuing education credits every two years. Also, continuing education has to cover one or more of the topics covered in the AAMS coursework.

AAMS certificate holders also have to agree to follow a professional standard of conduct. As a result, they have to maintain integrity, objectivity, competency, confidentiality and professionalism in providing financial services.

AAMS Certificate Holder Jobs

AAMS certificates are generally earned by entry-level workers in the financial advice business. Consequently, AAMS holders are typically trainees. In some cases, they may provide support services to more experienced and highly credentialed advisors.

The AAMS designation does not confer any special powers or privileges. Instead, it’s an optional credential that students may obtain to advance their careers and enhance their knowledge of financial advice.

Comparable Certifications

What is the AAMS certification?

In addition to the AAMS, the College for Financial Planning offers an Accredited Wealth Manager Advisor (AWMA) certificate. This is a somewhat more advanced designation. As a result, it requires a course equivalent to three graduate level college credits and requires 90 hours to 135 hours to complete.

Chartered Mutual Fund Counselor (CMFC) is sponsored by the Investment Company Institute along with the College of Financial Planning. It is similar to the AAMS certificate except it focuses on mutual fund assets.

Accredited Financial Counselor (AFC) is a general personal finance advice certificate from the Association for Financial Counseling and Planning Education. First, it requires 1,000 hours of financial counseling experience. Secondly, it demands three letters of reference. Finally, applicants must both complete coursework and pass an exam.

Bottom Line

The AAMS designation is usually for newly minted financial advisors, but even experienced pros can use it to bulk up their credentials. The courses and tests associated with the AAMS teach advisors how to evaluate assets and make recommendations.

While this certification doesn’t give an advisor any real powers, it’s a sign that they can identify investment opportunities specific to their clients. Above all else, it can be a great relief to a client who has a child going to college or a retirement house on their wish list. As a result of obtaining an AAMS, and advisor can point them toward the right investments for their goals.

Investing Tips

  • If you’re looking to identify investment opportunities, consider using an AAMS as your advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • An AAMS can help you with college savings, taxes, and retirement savings if you know what your goals are. However, if you are unsure how much you want to invest, what your risk tolerance is, or how inflation and capital gains tax will affect your investment, SmartAsset’s investing guide can help you take the first steps.

Photo credit: ©iStock.com/SARINYAPINNGAM, ©iStock.com/fizkes, ©iStock.com/Suwanmanee99

The post Accredited Asset Management Specialist (AAMS) appeared first on SmartAsset Blog.

Source: smartasset.com

As Markets Wobble, Will We See a Wave of Reverse Mortgages?

Reverse Mortgages -- Are we Seeing a Boom?Kameleon007/Getty Images

Over the past three months, the stock market has been on a roller coaster. Investment portfolios have followed suit, which could be particularly concerning for those who are counting on those funds for retirement.

For those close to retirement, a lack of savings may mean monthly expenses go unpaid. As a result, retirees may be considering a reverse mortgage to bring in much-needed cash.

“Retirement accounts have been suffering under the macroeconomic conditions that we see out there today. People are looking at the use of home equity to absorb some of those shocks in their retirement plans,” says Steve Irwin, president of the National Reverse Mortgage Lenders Association.

Because there’s a long lead time for a reverse mortgage, Irwin says it’s too early to tell if the numbers are up. However, a leading indicator shows we might be on the edge of a wave of reverse mortgages.

NRMLA data shows an uptick in consumers who’ve taken the initial step and completed the financial counseling needed to proceed with a reverse mortgage. Irwin says counseling sessions in the month of March were up 25% compared with the year before.

Before homeowners can apply for a reverse mortgage or complete a final application, they must complete independent third-party counseling, he notes, adding that those counseling sessions are up significantly in the first quarter.

Historically, those counseling sessions had to be done in-person, but because of the COVID-19 pandemic, some states have allowed online sessions.

Reverse mortgage basics

Since the first reverse mortgage in 1990, over a million have been issued and currently about 550,000 are outstanding, according to the NRMLA. Unlike a forward mortgage, in which you pay down a loan to live in your home, a reverse mortgage draws from the equity you’ve built up in your home.

To qualify for a reverse mortgage you must meet the following criteria:

  • Be aged 62 or older
  • Own your property outright or owe a small amount on a traditional mortgage
  • Live in the home as your primary residence
  • Not be delinquent on any federal debt
  • Meet with an approved counselor

Most reverse mortgages are backed by the Federal Housing Administration as part of the Home Equity Conversion Mortgage program. Once approved, a borrower can withdraw funds as a lump sum, a fixed monthly amount, a line of credit, or a combination of these options. The loan comes due when the borrower either moves out or dies.

And although the instant hit of cash may be a welcome development, the homeowner is still responsible for other monthly payments.

“Keep in mind with reverse mortgages … you still have to have the financial resources to live in the house,” says Mary Bell Carlson, the accredited financial counselor behind the Chief Financial Mom. “You’re going to be living in the house, you still owe the property taxes, you still owe the insurance, the HOA, and all the maintenance on the home while you’re living there.”

One other note: As with a traditional mortgage, there are fees and upfront costs.

Is now a good time for a reverse mortgage?

Keep in mind, a reverse mortgage will hand you money, but the lender uses the equity in your home to give you that money.

“The amount of funds available through a reverse mortgage are calculated based on the age of the borrower, or in the case of a couple, the youngest person’s age, the home’s value, and the interest rates in effect at the time,” Irwin explains. “The lower the interest rate, the greater percentage of equity that can be made available.”

Currently, interest rates are at historic lows.

“We understand a lot of people have been looking at the reverse mortgage and just haven’t decided whether or not to move forward. But they understand that responsible use of home equity can absorb different shocks to people’s income streams,” Irwin says.

Another pandemic-related factor in play? Nursing homes and assisted-care facilities aren’t exactly an appealing option in the current climate. This may partly be why some seniors are opting to stay put in their own homes.

“We know that people want to age in place, and I think many senior homeowners who may have been considering moving or moving to a care facility are almost hesitant and reluctant to go anywhere right now,” says Irwin.

Before contemplating a reverse mortgage in the current environment, you must consider if you can still pay the expenses that come with owning a home. Lower interest rates will mean more cash in your hand, but if you don’t have funds set aside to cover needed repairs, maintenance, and other expenses of homeownership, pause for a moment to suss out your best option.

“A [reverse mortgage] doesn’t mean that [borrowers] just live scot-free in the home. They still have to have some kind of cash flow to keep up the home, and they can’t let the home fall into complete disrepair. That is a violation of the contract, and they could lose the house for that,” Carlson says.

Irwin says the answer depends on each homeowner’s situation.

“This is an individual case-by-case decision, and we want to ensure that it is a decision that’s carefully considered and discussed with trusted advisers and family members. But from strictly the available amount of proceeds given the current interest rate, yes, it is a good time.”

The future of reverse mortgages

Irwin says he expects more seniors to look at reverse mortgages as the pandemic-fueled financial crisis continues.

“It’s a needs-based transaction. They need to augment their financial stability,” Irwin explains. “They need to augment whatever retirement funding they have in place, or they need to relieve themselves of the burden of monthly principal and interest payments of a regular mortgage. I think that we will see more and more the use of the reverse mortgage as part of a more comprehensive financial plan in retirement.”

The post As Markets Wobble, Will We See a Wave of Reverse Mortgages? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

What Is “Accessible Income” on a Credit Card Application?

If you’re applying for a credit card, you might stumble upon this term “accessible income.” In fact, that’s the only situation in which you will come across the term: on a credit card application. So, you need to know what it is.

Accessible income is not just income you earn from your regular job. Rather, it includes much more than that. It includes income from a wide variety of sources, like retirement savings accounts, social security payments, trust funds, just to name a few.

Accessible income can work in your favor because not only you can list income from your job, but also all types of other money you receive in a given year. This in turn will increase your chance of getting approved for the credit card, simply because you can list a higher income.

It also can get you approved for a higher credit limit, which in turn can help your credit score and allow you more spending freedom. In this article, I will explain what accessible income is and the types of income you need to include in your credit card application. Before you start applying for too many credit cards, consult with a financial advisor who can help you develop a plan.

What is accessible income?

Accessible income means all of the money that you have accessed to if you are 21 years old or older. According to the Credit Card Accountability Responsibility and Disclosure Act, lenders are required to offer you credit if you are able to pay your bill. If you do not make enough money and do not receive enough income from other sources and cannot make payments, they can reject your application. That is why they ask for your accessible income.

If you are between the age of 18 and 20, your accessible income is limited to income for your job, scholarships, grants and money from your parents or other people.

However, if you are 21 and older, your accessible income involves way more than that. It includes income from the following sources:

  • Income paychecks
  • Tips
  • Bank checking accounts
  • Savings accounts
  • Income of a spouse
  • Grants, scholarships, and other forms of financial aid
  • Investments income
  • Retirement funds
  • Trust funds
  • Passive income
  • Checks from child support and spousal maintenance
  • Allowances from your parents or grandparents
  • Social security payments or SSI Disability payments

To report that accessible income, just add them all up to arrive at a total and submit it. The credit card companies will not ask you to provide the specific source of each income

What does not count as accessible income

Loans including personal loans, mortgage, auto loans do not count as accessible income simply because they are borrowed money. So, do not list them when submitting your credit card application.

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Accessible income on the credit card application

Accessible income is only associated with credit card applications. In other words, you’re only asked that when you’re applying for credit cards. When applying for a credit card, you should take advantage of all sources of income and not just the income from your job.

So, you should make sure to gather all of the money you have accessed to that year. Not doing so means that you’re leaving other income that is just as important. As mentioned above, you should not include loans or any borrowed money.

When reporting your accessible income, be as accurate and truthful as possible. While some credit card companies may take your word for it, others may ask you to verify your income. In that case, you will need to provide hard proof like pay stubs, bank statements, statement from your investments accounts, etc…

Why providing accessible income important?

Your credit score is the most important factor credit card companies rely on to decide whether to offer you a credit card. However, your income is also important. The higher your income, the better.

A high income means that you’re able to cover debt that you may accumulate on your credit card. And the higher your chance is that they will approve you. The opposite is true. If you have a low income, some credit card companies may not approve you even if you have a good credit score. So, in order to increase your chance, you should take advantage of accessible income.

The bottom line

The only situation where you will find “accessible income” is on a credit card application. Accessible income is all income you have access to in any given year. That includes much more than your paychecks from your regular jobs.

But it also includes all types of money including checks from child support or alimony, allowances from your parents or grandparents, money in your retirement and investment accounts, etc. So, you should take advantage of it when applying for a credit card.

Speak with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post What Is “Accessible Income” on a Credit Card Application? appeared first on GrowthRapidly.

Source: growthrapidly.com

Dear Penny: Will Social Security Be Broke by the Time I Retire?

Dear Penny,

I’m a 34-year-old man who just started saving for retirement last year after getting married. My husband is 39 and has been saving for some time. My question is about Social Security. Should someone in our age group expect to receive it at all? I’m always hearing about how Social Security is going broke. 

We’re both somewhat behind on where we should be on retirement. If we can’t rely on getting Social Security checks when we’re older, how much more should we be saving? We don’t want to live on rice and beans in retirement, but we also want to have enough money to enjoy life now.

-R.

Dear R.,

Of all the things that keep me up at night, Social Security’s solvency isn’t one of them. At 37, I’m just a tad older than you. I expect to get benefits someday, and you and your husband should, too.

There’s a kernel of truth to the stories you hear about Social Security running dry. It’s starting to pay out more than it takes in, thanks mostly to people living longer and having fewer children who eventually pay in. Widespread job losses due to the pandemic probably accelerated things a bit.

But we’re still funding Social Security with our payroll taxes. It’s just that if Social Security’s reserves were completely depleted, our payroll taxes would only fund about 79% of obligations through 2090. That’s in the event that Congress takes zero action to shore up more money, which is highly unlikely given that Social Security is the most sacred of all social programs.

My bigger worry for young-ish workers like us is that our benefits won’t go very far. Even for our parents and grandparents who currently receive benefits, Social Security by itself makes for a meager retirement. The average retiree benefit in January 2021 is just $1,543 per month, or $18,516 annually. Social Security estimates that current benefits cover about 40% of an average worker’s pre-retirement income.

Those benefits buy less and less every year. Health care costs, which eat up a huge chunk of retirees’ budgets, rise way faster than Social Security benefits.

The 2021 cost-of-living adjustment was just 1.3%. Ask any retiree whether that’s adequate to cover their rising living costs. The younger you are, the less of your income you should expect your benefits to replace.

So while I think you should expect to receive Social Security someday, I don’t think it should factor into how much you save today. Knowing nothing about your budget or spending, I’ll give you the standard recommendation: Aim to save 15% of your pre-tax income for retirement. If you get an employer 401(k) match, make sure you contribute to enough to get your company’s full contribution. Once you’ve done that, make sure you have at least three months’ worth of emergency savings before you invest more for retirement. That protects your retirement funds so you don’t have to tap them when times are tough.

If you can comfortably save more, great. If 15% isn’t doable right now, figure out what’s manageable and work your way up. For example, you could commit to putting half of your next raise toward your retirement account.

Unfortunately, there’s no level of savings that guarantees you won’t have a rice and beans retirement. The younger you are, the more guesswork goes into retirement planning.

My life plans, at least as told to my Roth IRA brokerage, are as follows: work until age 67, delay Social Security until 70, die at 92. If everything goes as planned, I’ll die with millions. But really all of the above is just wishful thinking on my part. The picture changes drastically if I’m forced to retire early, take Social Security sooner and stretch my savings over more years than I expected. Or if a prolonged bear market hits right as I’m starting to withdraw my retirement money.

All that certainly supports the argument that you should save as much as you can muster as early as possible. But too often in personal finance, we only focus on the retirement years, assuming that they’re guaranteed. The truth is, life can be snatched from us at any moment. So I also want you to have enough room to spend so that you can enjoy life now.

That doesn’t mean you get free rein to spend. But if you focus on what really matters to you, I think you can strike that balance.

You’re 34. You don’t have to figure out your entire retirement plan right now. Focus on making saving a regular habit, and you can figure out the specific pieces as retirement gets closer.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How I Invest

One of the most common questions I receive from readers like you—especially since Grow (Acorns + CNBC) published my story last week—asks me how I invest.

All this theoretical investing information is fine, Jesse. But can you please just tell me what you do with your money.

That’s what I’ll do today. Here’s a complete breakdown of how I invest, how the numbers line up, and why I make the choices I make.

Disclaimer

Of course, please take my advice with a grain of salt. Why?

My strategy is based upon my financial situation. It is not intended to be prescriptive of your financial situation.

I’ve hesitated writing this before because it feels one step removed from “How I Vote” and “How I Pray.” It’s personal. I don’t want to lead you down a path that’s wrong for you. And I don’t want to “show off” my own choices.

I’m an engineer and a writer, not a Wall Street professional. And even if I was a Wall Street pro, I hope my prior articles on stock picking and luck vs. skill in the stock market have convinced you that they aren’t as skilled as you might think.

All I can promise you today is transparency. I’ll be clear with you. I’ll answer any follow-up questions you have. And then you can decide for yourself what to do with that information.

Mitte Mystery Clearing For Dual Address Shop - Eatler

Are we clear? Let’s get to the good stuff.

How I Invest, and In What Accounts…?

In this section, I’ll detail how much I save for investing. Then the next two sections will describe why I use the investing accounts I use (e.g. 401(k), Roth IRA) and which investment choices I make (e.g. stocks, bonds).

Stock Market Forecasters See Modest Gains at Best This Fall | Barron's

How much I save, and in what accounts:

  • 401(k)—The U.S. government has placed a limit of $19,500 on employee-deferred contributions in 2020 (for my age group). I aim to hit the full $19,500 limit.
  • 401(k) matching—My employer will match 100% of my 401(k) contributions until they’ve contributed 6% of my total salary. For the sake of round numbers, that equates to about $6,000.
  • Roth IRA—The U.S. government has placed a limit of $6,000 on Roth IRA contributions (for my earnings range) in 2020. I am aiming to hit the full $6,000 limit.
  • Health Savings Account—The U.S. government gives tremendous tax benefits for saving in Health Savings Accounts. And if you don’t use that money for medical reasons, you can use it like an investment account later in life. I aim to hit the full $3,500 limit in 2020.
  • Taxable brokerage account—After I achieved my emergency fund goal (about 6 months’ of living expenses saved in a high-yield savings account), I started putting some extra money towards my taxable brokerage account. My goal is to set aside about $500 per month in that brokerage account.

That’s $41,000 of investing per year. But a lot of that money is actually “free.” I’ll explain that below.

Why Those Accounts?

The 401(k) Account

First, let’s talk about why and how I invest using a 401(k) account. There are three huge reasons.

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First, I pay less tax—and so can you. Based on federal tax brackets and state tax brackets, my marginal tax rate is about 30%. For each additional dollar I earn, about 30 cents go directly to various government bodies. But by contributing to my 401(k), I get to save those dollars before taxes are removed. So I save about 30% of $19,500 = $5,850 off my tax bill.

Editor’s Note: The original version of this article incorrectly stated that 401(k) contributions are taken out prior to OASDI (a.k.a. social security) taxes. That claim was incorrect. 401(k) contributions occur only after OASDI taxes are assessed.

Many thanks to regular reader Nick for catching that error.

Second, the 401(k) contributions are removed before I ever see them. I’m never tempted to spend that money because I never see it in my bank account. This simple psychological trick makes saving easy to adhere to.

Third, I get 401(k) matching. This is free money from my employer. As I mentioned above, this equates to about $6,000 of free money for me.

Roth Individual Retirement Account (IRA)

Why do I also use a Roth IRA?

Unlike a 401(k), a Roth IRA is funded using post-tax dollars. I’ve already paid my 30% plus OASDI taxes, and then I put money into my Roth. But the Roth money grows tax-free.

Let’s fast-forward 30 years to when I want to access those Roth IRA savings and profits. I won’t pay any income tax (~30%) on any dividends. I won’t pay capital gains tax (~15%) if I sell the investments at a profit.

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I’m hoping my 30-year investment might grow by 8x (that’s based on historical market returns). That would grow this year’s $6000 contribution up to $48000—or about $42000 in profit. And what’s ~15% of $42000? About $6,300 in future tax savings.

Health Savings Account (H.S.A.)

The H.S.A. account has tax-breaks on the front (36.7%, for me) and on the back (15%, for me). I’m netting about $1300 up-front via an H.S.A, and $4,200 in the future (similar logic to the Roth IRA).

Taxable Brokerage Account

And finally, there’s the brokerage account, or taxable account. This is a “normal” investing account (mine is with Fidelity). There are no tax incentives, no matching funds from my employer. I pay normal taxes up front, and I’ll pay taxes on all the profits way out in the future. But I’d rather have money grow and be taxed than not grow at all.

Summary of How I Invest—Money Invested = Money Saved

In summary, I use 401(k) plus employer matching, Roth IRA, and H.S.A. accounts to save:

  • About $7,100 in tax dollars today
  • About $6,000 of free money today
  • And about $10,500 in future tax dollars, using reasonable investment growth assumptions

Don’t forget, I still get to access the investing principal of $41,000 and whatever returns those investments produce! That’s on top of the roughly $25,000 of savings mentioned above.

I choose to invest a lot today because I know it saves me money both today and tomorrow. That’s a high-level thought-process behind how I invest.

How I Invest: Which Investment Choices Do I Make?

We’ve now discussed 401(k) accounts, Roth IRAs, H.S.A. accounts, and taxable brokerage accounts. These accounts differ in their tax rules and withdrawal rules.

But within any of these accounts, one usually has different choices of investment assets. Typical assets include:

  • Stocks, like shares of Apple or General Electric.
  • Bonds, which are where someone else borrows your money and you earn interest on their debt. Common bonds give you access to Federal debt, state or municipality debt, or corporate debt.
  • Real estate, typically via real estate investment trusts (REITs)
  • Commodities, like gold, beef, oil or orange juice
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Here are the asset choices that I have access to in my various accounts:

  • 401(k)—my employer works with Fidelity to provide me with about 20 different mutual funds and index funds to invest in.
  • Roth IRA—this account is something that I set up. I can invest in just about anything I want to. Individual stocks, index funds, pork belly futures etc.
  • H.S.A.—this is through my employer, too. As such, I have limited options. But thankfully I have low-cost index fund options.
  • Taxable brokerage account—I set this account up. As such, I can invest in just about any asset I want to.

My Choice—Diversity2

How I invest and my personal choices involve two layers of diversification. A diverse investing portfolio aims to decrease risk while maintaining long-term investing profits.

The first level of diversification is that I utilize index funds. Regular readers will be intimately familiar with my feelings for index funds (here 28 unique articles where I’ve mentioned them).

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By nature, an index fund reduces the investor’s exposure to “too many eggs in one basket.” For example, my S&P 500 index fund invests in all S&P 500 companies, whether they have been performing well or not. One stellar or terrible company won’t have a drastic impact on my portfolio.

But, investing only in an S&P 500 index fund still carries risk. Namely, it’s the risk that that S&P 500 is full of “large” companies’ stocks—and history has proven that “large” companies tend to rise and fall together. They’re correlated to one another. That’s not diverse!

Lazy Portfolio

To battle this anti-diversity, how I invest is to choose a few different index funds. Specifically, my investments are split between:

  • Large U.S. stock index fund—about 40% of my portfolio
  • Mid and small U.S. stock index fund—about 20% of my portfolio
  • Bond index fund—about 20%
  • International stocks fund—about 20%

This is my “lazy portfolio.” I spread my money around four different asset class index funds, and let the economy take care of the rest.

Each year will likely see some asset classes doing great. Others doing poorly. Overall, the goal is to create a steady net increase.

Updating My Favorite Performance Chart For 2019
An asset class “quilt” chart from 2010-2019, showing how various asset classes perform each year.

Twice a year, I “re-balance” my portfolio. I adjust my assets’ percentages back to 40/20/20/20. This negates the potential for one “egg” in my basket growing too large. Re-balancing also acts as a natural mechanism to “sell high” and “buy low,” since I sell some of my “hottest” asset classes in order to purchase some of the “coldest” asset classes.

Any Other Investments?

In June 2019, I wrote a quick piece with some thoughts on cryptocurrency. As I stated then, I hold about $1000 worth of cryptocurrency, as a holdover from some—ahem—experimentation in 2016. I don’t include this in my long-term investing plans.

I am paying off a mortgage on my house. But I don’t consider my house to be an investment. I didn’t buy it to make money and won’t sell it in order to retire.

On the side, I own about $2000 worth of collectible cards. I am not planning my retirement around this. I do not include it in my portfolio. In my opinion, it’s like owning a classic car, old coins, or stamps. It’s fun. I like it. And if I can sell them in the future for profit, that’s just gravy on top.

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Enter full nerd mode!

Summary of How I Invest

Let’s summarize some of the numbers from above.

Each year, I aim to save and invest about $41,000. But of that $41K, about $15K is completely free—that’s due to tax benefits and employer matching. And using reasonable investment growth, I think these investments can save me $15,000 per year in future tax dollars.

Plus, I eventually get access to the $41K itself and any investment profits that accrue.

I take that money and invest in index funds, via the following allocations:

  • 40% into a large-cap U.S. stock index fund
  • 20% into a medium- and small-cap U.S. stock index fund
  • 20% into an international stock index fund
  • And 20% into a bond index fund

The goal is to achieve long-term growth while spreading my eggs across a few different baskets.

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And that’s it! That’s how I invest. If you have any questions, please leave a comment below or drop me an email.

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This article—just like every other—is supported by readers like you.

Source: bestinterest.blog

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