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7 Things You Should Know Before You Rent Out Your Home

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The single-family rental industry is booming. So many homeowners are choosing to rent out their homes these days that annual home sales dipped 5 percent in 2017, translating to about 270,000 fewer homes sold that year, according to a study by Zillow.

Contrary to popular belief, big-time real estate investors aren’t driving that growth. On the contrary, a recent report by the Urban Institute found nearly half — 45 percent — of single-family rentals are owned by investors who own just one unit.

Cindy Kluger, 50, of Rancho Santa Margarita, Calif., became an unexpected landlord in 2017.

In January, Kluger, a single mother of two — a 16-year-old son and 13-year-old daughter — inherited her aunt’s home in the popular Larchmont district of Los Angeles.

“I was sort of excited about it from the beginning simply because it's the house where I spent all of my holidays growing up,” Kluger told MagnifyMoney. “I get the honor of caring for this house that meant so much to all of us growing up.”

The home was built in the 1920s and had been in the family for nearly half a century, mostly serving as a destination for family holiday gatherings. Because her extended family was emotionally attached to the home, Kluger knew she didn’t want to live in it or sell the property, but there were taxes and maintenance fees to cover. As an alternative, she decided to rent the entire house out.

For any first-time landlord, navigating the ins and outs of renting out a property can be challenging.

“Being an effective single-family home landlord requires discipline first and foremost,” said Brian Davis, co-founder of SparkRental.com. “Being a landlord is not an emotional business, it’s a business of operating systematically.”

Here are some practical tips for anyone planning to rent out their single-family home for the first time.

Any home improvements needed at the property

203k loan

Before you put your home on the rental market, you should make sure it has been properly inspected and that any underlying structural issues are repaired first.

“I think all homes should have an inspection, even new construction,” said Greenville, S.C.- based real estate consultant Sunny Lake. “To protect you and your investment, it's always a good idea to have experts working for you to give you an opinion of value and condition.”.

Specifically, look for what needs to be fixed to make sure the property is both legally habitable and aesthetically marketable for prospective tenants.

Because Kluger had inherited a home that had been in her family for decades, she soon realized how many issues had been fixed with DIY repairs.

“For the past 20 years [my aunt] had put bandaids on what was broken,” she said. “I realized that everything had to be examined.”

To bring the home into the modern era, Kluger had to completely redo the home’s foundation, electricity, and plumbing, in addition to ripping out the wall-to-wall carpeting in favor of hardwood and repainting the walls.

“I think it’s super important to think about these things that you may not be aware of because you are not living in the house,” she said. “You don't want to bring renters into that environment.”

Your property management style

One of the most important things you will need to figure out is who will be responsible for managing the property. Most crucial, you’ll need to decide who handles any general maintenance and whom the tenants will contact if something breaks.

If you take on that responsibility yourself, you may be on call 24/7 to fix a broken pipe (or call someone who can go to the property to fix it). This is the approach Kluger plans to take.

“The fact that I sort of enjoyed all of the maintenance things came as sort of a surprise,” said Kluger. As she set about renovating her home, Kluger says made several contacts with vendors in the area whom she can call if tenants report anything broken and trust they will promptly handle the request.

Lake says you can do it yourself if you are a hands-on person with a network of service providers. But, not all landlords want to take the hands-on approach.

“Landlords should hire a property manager if [they don’t live near the property], or if they don’t have the discipline to manage their properties effectively,” added Davis.

If you plan to hire a property management firm, be prepared to pay between 8 to 10 percent of the monthly rent as a fee, says Lake, although that fee will vary by location.

With that fee comes some valuable bonuses, including peace of mind knowing that the major snafus will be handled by someone else.

Having a property management company might also attract higher-quality tenants, assuming the company provides a higher level of service than you would be able to offer as a single property manager.

Property management companies may also have more experience dealing with tenant issues. If the tenants don’t pay rent, for example, the management company may have a process and a legal team already in place to help resolve the issue.

“It all depends on your accessibility, and how much contact you want to have with the tenants,” said Lake. “Lots of investors feel like the fee is worth it to not have to deal with the potential hassles of late rent, walk-throughs, property maintenance, etc.”

What you expect your tenants to maintain

Some property managers handle all of the property maintenance, while others only manage a portion and expect the tenant to do some of the work involved in keeping the property clean and looking nice.

In the case of a single-family property, tenants might be asked to keep up with lawn maintenance, pay for a garbage collection service, or even homeowners’ association fees, if applicable. And that information should be included in the lease that the tenant signs.

If you won’t allow the tenant to do any landscaping or lawn maintenance because you plan to hire a company to come handle that kind of stuff on a periodic basis, for example, that needs to be stated in writing in the lease. If the tenant is expected to cover HOA fees, the details about how you’ll collect the fee needs to be in the lease, too.

In addition, the lease would need to outline what kinds of modifications the renter is allowed to make to the property. Are they allowed to paint the outside of the home? What about the walls on the inside?

Can they install a fence to keep their dogs in the backyard? If you don’t want your tenants to make any drastic changes to the property, that needs to be clearly stated in writing.

How you’ll find reliable tenants

It’s your property, so you’ll need to decide how you’ll choose a tenant for your property. It’s easy enough to post an ad on Craigslist or Facebook, but that’s just the first step. Once you receive applications, you want to make sure you have a way to choose a tenant you can trust to pay rent in full and on time. That may involve some level of underwriting — like like pulling a credit report and running criminal background check — to check a tenant’s creditworthiness.

“Tenant screening is an art and science in itself” said Davis. He offers the following tips to simplify the process:

  1. Always run full credit, criminal, and eviction reports.
  2. Always verify income and employment.
  3. Verify housing history as best you can with not just the current landlord but a prior landlord.
  4. Consider inspecting the applicant’s current home to see if they maintain it well.

Davis recommends making the inspection of the applicant’s current home a condition of lease acceptance.

“Applicants don’t have to agree, and the landlord doesn’t have to lease to them,” he says. “But, because it’s the most labor-intensive part of screening, it should be left for last, and only done for applicants who otherwise will be accepted."

In Kluger's case, she decided to get the help of a real estate agent to find her first tenant. The agent will find and screen tenants on behalf of Kluger and her father, this time.

“Once she helps us with that process my intention is to educate myself and learn what needs to be done to properly screen renters,” said Kluger.

Regardless of the agent’s opinion, the landlord gets the last word.

“One of the things my dad had me ask the real estate agent is that after she screens the person and thinks she has found a good candidate that we get last say. That we get to meet them and sign off,” said Kluger.

Even if you have a real estate agent taking applications, as in Kluger’s case, Lake recommends hiring an agency to run background checks on any applicants, as they have more access to financial, criminal, and other personal history.

If you don’t have the budget to hire an agent and agency, you may be able to handle the process on your own.

There are several websites that offer tenant screening services, for a fee. A couple of examples include Spark RentalCozy, and MyRental. Cozy, for example, charges $39.99 for both a background check and credit report, but the fee is assessed to the applicant, not the landlord. MyRental reports even include a ‘tenant score’ — a three-digit number that predicts the likelihood of lease default and lets you see if other landlords in your area accepted or declined applicants with that score for around $35.

How much you’ll charge for rent

To set your number, Lake says you’ll need to know the current market value of your property, which will vary based on the location and vacancy rates. She recommends calling up experts in your market for help in determining the rent amount if you're not a seasoned agent or investor.

“You don't want to overprice the property and have it sit empty,” she said. “But you don't want to underprice it and leave money on the table.”

Beware: There may be restrictions on how much you are allowed to raise rent each year. Rent control laws are passed by cities, so you should check the municipal code to see if any rent control laws apply to the area you live in.

You can find your home’s estimated value on mortgage websites like Zillow or Trulia. You can also pay to have an appraiser come and check out your property in person for a more accurate estimate.

“Appraisals are required for financing, but landlords should learn to assess market rents for themselves,” advised Davis.

You should also decide how much of a security deposit, if any, you will request. The deposit acts as security for you in case the tenant is unable to pay rent for a period of time, or to fix any damages left by the tenant when he or she eventually moves out.

The rules surrounding security deposits vary from state to state. For example, New York has no law limiting the amount a landlord can charge for a security deposit, but, if the apartment is in the rent-controlled jurisdiction of New York City, the landlord is limited to collecting up to one month’s rent for a security deposit. Meanwhile, Alabama state law limits landlords to taking only one month’s rent.

State laws may also regulate where you are allowed to keep security deposit funds, if you must first do a walk-through of the residence to collect a deposit, when you are allowed to keep the deposit, and within what amount of time you are required to return the deposit. Check landlord tenant laws in your state to figure out what rules apply to you. Here are a few resources on NoloAmerican Apartment Owners Association and Landlord.com to get started.

Outside of the law, the amount you require is up to you to decide, but will likely depend on how confident you are about the applicant’s creditworthiness. For example, if the applicant is self-employed and that causes you to be less confident in their ability to make the rent payments, you may require a larger security deposit, or ask them to pay upfront a few months worth of rent before they are permitted to move in.

How the cash flows work

If you’re looking to rent a single-family home as an investment property, you should understand the money going in and out of your investment, and how much it will cost you to make money on your rental. In other words, you should understand your cash flows.

For example, you may run yourself into the red if the rent you charge is only enough to cover your monthly mortgage payment and doesn't take into consideration all of the other costs you’ll incur renting the property like your property tax, utilities, or what you pay to a property manager or other facility managers.

To get an idea of your cash flows, consider your maintenance costs on the property. In addition to property taxes, community fees, and general maintenance costs, you want to factor in cushion for the unexpected, like any potential lapses in tenancy during which you may not be able to receive rent, too.

“You need to have some risk tolerance to be an investor,” says Lake. “If the rental market is soft in your area, you need to have enough other cash flow to maintain your property even if it's vacant.”

Lay out the cash flow — what you’ll be paid versus the amount of money you plan to put into the investment — and see if the number you estimate you’ll have after all is said and done makes good financial sense for you to rent the property.

What your insurance policy covers

If you’re renting out a home that’s still under a mortgage, you will likely need to purchase a landlord insurance policy to have the proper protections in place, according to Davis. The protection is similar to a homeowner’s insurance policy, but it doesn't cover belongings.

Some homeowners insurance policies will cover short-term rentals, but most don’t cover long-term rentals like you would need to rent a home. Landlord policies generally cost about 25 percent more than a standard homeowners policy, according to the III, but you’ll get more protections in exchange for the increase.

Landlord insurance typically provides:

  • Property insurance coverage — This covers any physical damages to the structure of the home caused by nature.
  • Coverage for your personal items — If a lawnmower you keep on-site for lawn maintenance burns in a wildfire, for example, landlord insurance would pay for the loss.
  • Liability coverage — Legal and medical expenses may be covered if a tenant or one of their guests gets hurt while on the property.
  • Coverage for loss of rental income — If for some reason you are not able to rent the property — maybe it's being repaired or rebuilt after damage from a covered loss — the insurance company should pay you the lost rental income for a specific period of time.

Since landlord insurance won’t cover your tenant’s stuff, you may also want to state in your lease whether or not you will require a tenant to keep renters insurance. When your tenant has renters insurance, that saves you, the landlord, from liability if something happens (think: fire, flood) and the tenant’s items are damaged.

How you’ll cover a bad tenant or an emergency

As a landlord, you’ll want to have an emergency fund or other fast borrowing option in place in case you need to make an unexpected major repair, or cover your mortgage for a few months in case your tenant can no longer afford to pay rent.

“Landlords absolutely, positively need a cash cushion,” said Davis.“As a rule of thumb, I like to keep around two months' worth of rent on hand for each property, plus a source of available funds if needed.”

The fund exists to cover the occasional bad tenant or extended vacancy, and to keep up with the general maintenance of the home — in case, for example, a water heater breaks and you suddenly need $1,800 to replace it.

Lake, on the other hand, recommends landlords keep six months worth of rent in an emergency fund, but says that amount also depends on what other cash flow options you have at your disposal.

“It can be challenging for people to have that kind of cash along with a personal emergency fund,” said Lake. She recommends working with a financial advisor or property manager as a starting point.

Consider setting up an emergency fund, and contributing to it monthly. At the very least, you should have access to emergency money via quick borrowing options such as a credit card, home equity line of credit or home equity loan.

How much money you’ll need to cover a bad tenant or emergency may fluctuate depending on your property and the average amount of time it takes to evict someone, as it may vary depending on your state’s laws. You also want to consider the average time it may take to get another tenant in who will pay the rent. Check online or with a real estate lawyer in your area to calculate what the worst-case scenario may be for your situation.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Ranked: The Best Finalists for Amazon’s Newest Headquarters

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Pittsburgh topped our rankings for the best city for Amazon's next headquarters, tying Raleigh, N.C. for first place.

Amazon finally narrowed the list of candidates to host its second headquarters down to 20 on Thursday.

The 20 finalists were picked from 238 cities from across the United States, Canada and Mexico to host what Amazon calls HQ2, a new facility that it expects to create 50,000 jobs. On top of that, the company estimates it will invest more than $5 billion in the city it ultimately chooses.

Amazon has been transparent about what it’s looking for in a potential headquarters — focusing on factors like the area’s proximity to airports, major highways and the city’s population center.

But which of the 20 cities is really going to offer those 50,000 employees the best quality of life?

MagnifyMoney researchers decided to do an analysis of the cities on Amazon’s HQ short list to determine which cities are the best to live in. We not only wanted to see which of these 20 cities offered a decent cost of living and relatively affordable housing, but also key quality of life factors like weather and the average commute time, and whether the housing stock has slack to support an influx of jobs.

The cities were rated on a scale of 100, based on these seven factors. Those rankings were summed and divided by seven for a highest possible score of 100 and a lowest possible score of zero.

  • Average commute time (in minutes)
  • Median monthly housing costs
  • Cost of living index (non-housing)
  • Temperate climate, as measured by the difference between the highest and lowest average temperatures across twelve months (a lower range ranked higher)
  • Marginal income tax rate for a single filer earning $100,000 in taxable income (state, federal and city)
  • Vacancy rate of rental homes
  • Vacancy rate of owner-occupied homes

“We trust that Amazon is doing a great job of evaluating (and negotiating) the core criteria and key preferences they deem essential to their business operations,” said study author Kali McFadden, an analyst at LendingTree, the parent company of MagnifyMoney. “We wanted to take a closer look at which each of these cities can offer their rank and file employees, both local and transferred.”

The best possible Amazon HQs: Pittsburgh and Raleigh

Let's start with the top three. MagnifyMoney gives Pittsburgh and Raleigh a tie for first place, both scoring 78 points.

Pittsburgh topped our rankings for the best city for Amazon's next headquarters, tying Raleigh, N.C. for first place.

Overall score: 78 

Pittsburgh combines a low cost of living with a decent commute time of just 26 minutes. Bring a jacket. The weather is on the chilly side.

  • Monthly median housing cost: $791
  • Avg. commute time: 26 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 46 degrees

Raleigh Skyline. North Carolina. USA

Overall score: 78

  • Monthly median housing cost: $1,051
  • Avg. commute time: 26 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 38 degrees.

Dallas came in at no. 3.

Overall score: 69

  • Monthly median housing cost: $1,096
  • Avg. commute time: 28 minutes
  • Climate: Between the hottest and coldest day, there was a difference of 39 degrees.

The worst of the top 20 contenders

New York City is the lowest-ranking finalist on the MagnifyMoney list, scoring poorly at 22. The Big Apple fell to the bottom of the pack for three key reasons: it has the highest living costs, highest marginal tax rates and longest commute time.

Northern Virginia and Montgomery County share the second-to-last place with a score of 29.

Interestingly, the current Amazon headquarters Seattle, only earned a score of 41 points, but we didn’t include it in the official rankings. Seattle would have been ranked in the 14th place if we had.

Full rankings:

Methodology

The data was gathered on the Metropolitan Statistical or Combined Statistical area for a city, except in the cases of Northern Virginia; Montgomery County, Md.; and Washington, D.C., as these finalists are, at least partly, part of the same statistical area.

County data was used for commute times and median monthly housing costs (county data was not available for the other factors). Similarly, county data was used for Newark, N.J., where available, because it is part of the New York City (another finalist) statistical area.

The U.S. Census American Community Survey (2016) was used for commute times and median housing costs, while the Census Housing Vacancy and Ownership data was used for vacancy metrics. Statistics Canada was used for Toronto data. Federal and local tax authority rate tables were used to derive marginal income tax rates for $100,000 in income.  Weather data was derived from USClimateData.com and The Weather Network, while cost of living index data was sourced from Numbeo.com.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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10 Money Rules to Break in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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When it comes to personal finance, you’ve probably heard all types of “rules of thumb” to follow. Yet the painful truth is that there is no one-size-fits-all rulebook for financial success.

These rules are good places to start. However, blindly following them won’t lead to satisfying results. The future is unknown and every individual's goals and circumstances are unique.

What you can do is use the rules as general guidance. Assess your goals and needs regularly, and adjust your strategies for saving, investing, spending and debt payment accordingly.

We’ve summarized 10 common personal finance rules that you can refer to but can feel free to pick and choose based on your own situation:

1. “Save 10% for retirement.”

If you are comfortable enough to start saving, a common rule of thumb is to save 10% of each paycheck for retirement.

Catherine Hawley, a San Francisco-based financial planner, told MagnifyMoney that 10% may too low a bar for many workers, especially those whose incomes may fluctuate.

“[This rule] might be better thought of as a starting place one builds on,” Hawley said. “If you have a high income but anticipate switching careers or if that income is not stable, such as some sales jobs, your long-term savings rate may need to be closer to 50% to keep you on track for retirement.”

By saving more now, you’re allowing yourself a cushion of protection if you were to see a major reduction income.

Another reason the 10% rule isn’t so great is that some people simply can’t afford to go there just yet. In that case, it’s much better to start with 4% or 5% and work your way up than let this rule dissuade you from saving at all.

Instead: If you are earning a lot, don’t let the rule stop you from saving more. If you are early in your career, you don’t have to get up to 10% all at once. At the very least, contribute enough to your company-sponsored retirement plan to capture the full company match, if you are offered one. From there, consider increasing your contribution based on your other financial goals.

2. “Whatever you do, max out your 401(k).”

Financial planners can’t emphasize enough the importance of saving for retirement: The earlier you start saving and the more you contribute, the better. But maxing out your 401(k) isn’t necessarily a good idea for everyone.

The legal maximum amount you can save in your 401(k) is $18,500 in 2018 ($24,500 if you are 50 or over). If you were starting from scratch, you would have to tuck away more than $1,500 a month to max it out by the year’s end.

If you are a high-wage earner, it’s great if you can max it out without much effort. But if you make $50,000 a year, you would have to stash nearly 40% of your salary for retirement. Remember, this is money that, if contributed to a traditional 401(k), can’t be withdrawn until age 59 1/2 without incurring penalties (with some exceptions).

Planning for retirement from an early age is wonderful, but there may be other goals you want to achieve when you are young and need money in the near future. For example, you might want to prioritize paying off high-interest debts like credit cards or auto debt before throwing a good chunk of your paycheck into your retirement fund. And you should definitely save up at least a few months’ worth of income in your savings account so you have money set aside in case of emergencies.

It’s not wise to sacrifice your current life goals if maxing out your 401(k) is a tough task.

Instead: Although there are multiple benefits to saving for retirement, you may want to take a holistic view of your financial situation and review your near-term financial goals before deciding whether or not to max out your 401(k). Read our guidelines on things you should consider before hitting that maximum.

3. “Save at least three to six months’ worth of expenses.”

One common financial planner mantra is that you should have an emergency fund to cover three to six months of expenses.

Clearly, not many people can achieve that goal. The Federal Reserve reported that in 2016, 44% of Americans could not come up with $400 in cash to cover emergencies.

Depending on circumstances, some people probably can make do with a smaller cash reserve, but others may need a bigger one.

Hawley suggested for those who have consumer debt, they may be better off having a smaller emergency fund while prioritizing paying off one’s deficit.

A person who has an unstable income or several mouths to feed may find that three to six months’ worth of expenses may not be nearly enough. For example, if you’re a freelancer or a seasonal worker, you may want to double your savings goal so you can cover any dry spells.

“If you are very conservative or in a volatile industry where you periodically get laid off you may be more comfortable with more cash on hand,” Hawley added.

Instead: An emergency fund is an account you can use to cover necessary expenses in case you lose a job, your car breaks down or you get hit by an unexpected hospital bill. Your non-routine costs like a vacation or a kitchen renovation should not be part of the calculation. Don’t be afraid to go below or beyond the three-to-six-month rule considering your needs and debt situation. In general, the less steady your job is and the more dependents you have, the larger your emergency fund should be.

4. “Subtract your age from 100 to get your perfect investment allocation.”

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One of the most basic rules for asset allocation is to subtract your age from 100 to calculate the percentage of your portfolio that you should keep in stocks.

Under this rule, at age 25, for instance, you should keep 75% of your portfolio in stocks and the rest in bonds and other relatively safer securities. At age 75, you invest 25% of your assets in stocks. The idea is to gradually reduce investment risk as you age, because older people don’t have as much time to wait for a market bounce-back following a dip.

Much research has been done about asset allocation adjustment for retirement. Experts have different conclusions based on different models. David Blanchett, head of retirement research for Morningstar Investment Management, concluded in an 2015 article that declining shares in equity as people grow older is best for retirement planning in an environment of low bond yields and decent market performance.

This 100-minus-age rule is a good place to get people started in allocating their investments, but it has its flaws.

Americans are living longer and retiring later. The average life expectancy was 79 in 2015, five years longer than 1980, according to the World Bank. Retirement savings strategies should be adjusted as people need a bigger nest egg, can potentially grow the money more and recover from a market downturn.

At the same time, the yield on a 10-year Treasury Bill is roughly 2.5%, down from a peak of nearly 16% in the 1980s. But the stock market keeps soaring — the Dow Jones Industrial Average shot up 24% last year and hit 26,000 for the first time the third week of January. It may not make as much sense today to dump a large portion of money into fixed income when you could potentially reap greater gains.

Instead: Rebalance your investment portfolio each year, considering your target retirement age, plans on using the funds at retirement, your risk tolerance and market performance. If you’re feeling more comfortable with risk, use 110 (or even 120) as a starting point to calculate your stock exposure.

Maria Bruno, senior investment analyst at the Vanguard Investment Group, told MagnifyMoney that stocks should be a significant part of a young worker’s portfolio — 80-100% in equity is very reasonable. For people in retirement, it’s better to be more conservative but still not too afraid to take some risks. A ratio of 60:40 stocks to bonds is considered a balanced allocation for them, Bruno said.

“Equities still do play a role for somebody at retirement because they could be looking at a 30- to 35-year time horizon,” Bruno said. “Individuals may think that they are playing it safe by staying out of the market, but actually what they are doing is they are overexposing themselves to inflation risk, because the portofolio can’t grow in real terms.”

5. “Withdraw 4% of your savings in retirement.”

Here is another retirement savings regimen: You start withdrawing 4% from your portfolio in your first year of retirement, increasing your withdrawal each year enough to cover inflation.

If you have $1 million in your retirement account, for instance, you take out $40,000 for the first year. If the annual inflation rate is 2%, then you withdraw $40,800 the following year ($40,000 plus 2%). And you continue on the path for the next 30 years. This rule was created based on historical data by financial advisor William Bengen in 1994.

But this is not how life works; it hardly goes as planned. Your spending in retirement may vary year by year. This rigid rule doesn’t take into consideration of your investment performance, your retirement time horizon nor the current market and economic conditions. It assumes retirees have a portfolio split between stocks and bonds. Bengen later revised the rule himself to 4.5%, using a more diversified portfolio.

Instead: Be flexible. Revise your spending rate annually based on needs, portfolio performance and taxes. If you have a personal financial advisor, discuss with your planner to determine the withdrawal rates that best suit your personal situation.

For early retirees or someone who’s invested much more conservatively and may have a smaller nest egg, they would probably need to withdraw a little under 4% to make sure their lifestyle remains sustainable, Bruno said. On the other end, she said someone with a shorter horizon — in other words, someone who doesn’t think they’ll have much time to enjoy their savings —  or who’s late in retirement shouldn’t feel tied to that 4% rule; instead, they could stand to spend a little bit more.

6. “Spend no more than 30% of your income on housing.”

The 30% rule is a common budget benchmark for housing costs. The idea is to cap your rent or mortgage at under 30% of your monthly income.

This idea stems from housing regulations from the late ’60s. A U.S. Census Bureau study said the Brooke Amendment (1969) to the 1968 Housing and Urban Development Act established the rent threshold of 25% of family income in response to rising renting costs. The rent standard later rose to 30% in 1981, which has since remained unchanged, according to the study.

But the standard crafted almost four decades ago may not be realistic for many today. A Harvard University study shows that in 2015, nearly 21 million renters — that’s nearly half of the country’s renters — spent more than 30% of their income on housing across the country.

Instead: Think of affordability instead of the 30% rule. Depending on how much you earn, how much debt you bear and where you live, rent could be more or less than 30% of your paycheck. Hawley said she encourages people to work on earning more when rent eats away a huge chunk of income, which may be easier than relocating to reduce rent. If you live in a relatively affordable area compared with California or New York, housing doesn’t have to fill 30% of the budget, she said. In that case, you may have wiggle room to save more.

7. “Buy in bulk.”

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Price per unit may be cheaper at club warehouses like Costco than a local grocery store, and buying in bulk saves money for tens of thousands of American families. But bulk-buying won’t necessarily save money if you buy more than what you can consume. Indeed, many shoppers confessed they have always bought more than they needed just because they couldn’t avoid the temptation of “super deals” at those clubs.

In addition, wholesale markets are not a paradise for every family. If it’s a family of two, the quantities of groceries you stocked up from a major trip to a wholesale market are so large that it may take weeks or even months to consume. You are basically paying upfront a lot more for saving money later. Worse yet, jumbo-sized products may go rotten or expire before you remember that they are even there.

A 2014 University of Arizona study found that families trying to buy all their groceries in one major trip, stocking up on discounted items and purchasing in bulk often buy things that end up unused.

Instead: Buy what you need and how much you need now.

8. “Borrow as much student debt as your expected salary.”

Many college students find themselves saddled with an enormous student loan debt today.

When determining how much students should borrow for higher education, a rule of thumb is that you should cap your total student loan debt below your expected first-year annual salary.

But wait a minute, private schools charge far more than public universities. In some industries, wage growth has been in Stagnantville for decades. Graduates may see big wage increases as their careers advance if they are in finance or law. But if they are government workers, their pay raises may not come as often and substantial.

In a MagnifyMoney survey of the 2017 graduate class, 40% of the 1,000 surveyed recent graduates with student loans anticipated that they’d need more than 10 years to repay their student loans.

Aside from the projected initial annual salary, many other factors, including time expected to repay the loan, the school you attend, the industry you may end up entering, should go into the borrowing calculation.

Instead: Figure out how much you actually need to borrow by evaluating the potential costs, including tuitions, fees and living expenses. Adjust your lifestyle and cut down unnecessary expenses. Remember, you want to borrow as little as possible. Finding a loan that works for your future lifestyle. Refinance student loans to a lower interest rate can help you save money.

[9 Options to Refinance Student Loans]

9. “Pay off your mortgage before saving for retirement.”

You may be advised to pay off your mortgage as early as possible because debt is a liability. It may feel great to be completely debt-free, but slowly paying off your mortgage early isn’t always the best move, especially if you are not living in your home for the long run.

“If you can pay off the house you plan to stay in for five years or more after the debt is retired, great,” said Kristin C. Sullivan, a Denver, Co.-based financial planner. “If not, keep that money for yourself and invest more in your 401(k) or other assets that have the possibility for growth.”

Homeowners who purchased their homes after Dec. 15, 2017 can deduct mortgage interest paid on up to $750,000 in mortgage debt from their taxes under the new tax law. For those living in expensive housing markets who will itemize their taxes, that’s all the more reason to invest that money elsewhere.

Instead: Before adding extra monthly mortgage payment, you should pay off other high-interest debt first, such as credit card balance. Prioritize your financial goals, for example, ask yourself whether paying off the mortgage or investing for retirement is more important for you, or if you want to save for your children’s education. If you can enjoy the tax benefits or plan to move in the next five years, that money can be well used in other ways.

10. “Credit cards are bad.”

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Many people shy away from credit cards, being fearful that they will spend money they don't have and later be trapped in debt over their heads. Those people are more likely to rely on debit cards or cash.

But credit cards are not that bad at all if they are used wisely. A cardholder will stay out of trouble if he/she can pay off the balance on time and in full to avoid a high-interest charge.

By steering clear of credit cards, consumers not only miss the opportunity to build credit, but lose rewards, which can come in forms of travel points or cash, that credit card companies give to incentivize cardholders to spend.

Instead: Stick to your budget and spend within your means. Focus on your card balance — not your credit limit. Set auto payment to pay off your credit debt in full, not just the minimum balance, every month. Check our latest review of best credit card offers and how to choose a card that suits your needs.

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Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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15 Ways to Save More, Owe Less and Boost Your Net Worth in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Maybe this is the year you finally want to save enough money to go to Paris with your significant other. Perhaps you just had children, and thoughts are looming about saving for their future college education. Or maybe you’ve simply decided that you’d like to have enough money to live lavishly once retirement comes.

Whatever the case may be, there are tangible steps you can take to boost your income and improve your overall net worth this year.

The first step is simply calculating your net worth. Understanding your net worth is arguably one of the most important ways to get a clear picture of where you stand financially after hypothetically ridding yourself of liabilities with your assets.

And it’s simple to calculate: “Subtract what you owe from what you own,” said Tiffany Aliche, a financial educator and founder of the Live Richer Challenge. This January, Aliche, also known as the “Budgetnista,” sponsored a multi-week challenge with hundreds of thousands of participants to educate them on the power of boosting their net worth.

Once you know your net worth and determine whether that figure puts you in the red, the next step is a bit more challenging: finding ways to increase it over time.

Get started with these tips to boost your net worth with any or all of the strategies below.

Earn More 

Ask for that raise. This is the initial move to take toward increasing your annual earnings. “Start by establishing where you are,” said Stefanie O’Connell, author of “The Broke and Beautiful Life.”

“Do your research to figure out what the current pay range is for your position by talking to recruiters, speaking to friends and colleagues in similar positions, or by using a website with salary information like Glassdoor or PayScale,” she said.

Consider the cost of living in your city when you negotiate, too. An accountant in Charlotte, N.C. might be paid much differently than an accountant in San Francisco, where costs are much higher, for example.

“Establish where you want to go,” O’Connell said. “What are the going rates in your field, and where do you fall in that pay range? Given your competency and the value you add to your workplace, where do you think you should fall within that pay range?”

If no raise is possible, ask for something else in its place. In you’re denied a raise, don’t be afraid to ask for something else, suggests O’Connell. For example, you could ask for equity in your company if it’s available to employees. Once that equity is vested (meaning, it’s totally available to you to use), you can leverage it in a number of ways and potentially grow it over time if invested properly. That will no doubt boost your net worth.

Other soft perks to consider include a more flexible schedule, more paid time off, access to educational programs, an expense account, a club membership, a bigger office or a new job title.

These may not have a concrete impact on your financial bottom line, but they could definitely add value to your quality of life and make you a more productive worker.

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Turn your hobby into a real business. During Aliche’s Live Richer Challenge online workshop, she encouraged people to look into starting a side business to bring in additional income.

“I had people create a mind map of what they’re good at, what they’re passionate about, and [had them] ask their family and friends: Looking at this, what do you think I could start or open?” Aliche said. “Something that’s going to increase your income so you can increase how much money you have saved.”

Thanks to the gig economy, options for side hustles are endless. If none of the obvious outlets appeal to you (Uber, Favor, Amazon Flex) don’t worry. From designing T-shirts and selling them on Etsy to being a remote personal assistant, there are myriad side gig options out there. 

“I suggest people do side hustles that are related to what they went to school for or what they’re currently doing,” Aliche said. “When I was a schoolteacher, I side hustled by tutoring and babysitting. You get paid more because you’re already doing it, and there’s no learning curve.”

Look for unexpected income sources. If your skills have lead to additional side income, look for ways to lock in lucrative business contracts.

Aliche says it snowed in her city recently, and she discovered the city had a contract for $210,000 for snow cleanup. You didn’t need a snow plow or even experience to secure the contract. All you needed was a license to drive the vehicle.

In addition, her city’s zoo had a $25,000 face-painting budget, and her friend secured the contract because she was the only one who applied. “You have the ability to lock down good money for doing something you’re already doing,” Aliche said. You need an LLC to secure a contract, but they’re typically only around $125, according to Aliche.

Put your tax refund to work. “Most taxpayers who use the standard deduction will get a tax cut this year,” said Jane Bryant Quinn, author of “How to Make Your Money Last: The Indispensable Retirement Guide.”

“Instead of changing your withholding schedule, consider leaving it alone and collecting the tax cut as a refund in 2019, and save the refund.” 

Figure out your hourly rate. You can figure out exactly what your time is worth using this Norwegian website  by FINN.no AS, an online classified advertising marketplace. This tool is good not only for figuring out what you should charge for freelance or contract work, but also for determining which things you should do, and which you should outsource.

For example, it might be worth your time to hire someone to clean your apartment once a week, or you might find it’s easier to do your taxes yourself rather than hiring an accountant.

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Invest wisely in your 401(k). If you’ve already invested a significant amount in your 401(k) and you’re younger, Quinn suggests taking more risks. “If you’re under 40, don’t be afraid of investing 100 percent of your 401(k) or other savings into stock-owning mutual funds,” she said. The stock market will fall from time to time, but it tends to rebound in time, and you may be better off riding the rough patches if you’re investing for long-term growth.

Start an Individual Retirement Account (IRA). If you don’t have a company 401(k), or you’ve maxed out your contribution for the year, don’t worry. “Start an IRA at a low-fee purveyor of mutual funds such as the Vanguard Group or Schwab,” Quinn said. “Buy an index fund that follows the U.S. market as a whole or the total U.S. and global markets as a whole.”

Look into automatic advising companies like Acorns. If you’re interested in investing but aren’t sure where to start, Aliche suggests dipping your toes into robo-advising, or services like Acorns, Betterment and Wealthfront. “A lot of people don’t know where to begin investing, and that’s truly the only way to grow wealth,” Aliche said. “You have to invest.”

Delay receiving Social Security. “For older people, delaying Social Security collection for even six months can have a big impact on lifetime net worth,” said Teresa Ghilarducci, professor of economics at the New School for Social Research in New York City and author of “How to Retire with Enough Money.” For example, if you delay until age 67, you’ll receive 108% of the monthly benefit and if you delay until age 70, you’ll get 132% of the monthly benefit.

Reduce expenses

Keep a record of your expenses. This might seem basic, but if you’re not doing it yet, you should be. “Keep a record of expenses and review every month,” said Ghilarducci. “This one low-energy, low-cost habit can help people identify where they are being overcharged and where they spend money without much pleasure.”

Attack your debt head-on. One half of the equation when it comes to increasing net worth is paying off debt. Aliche suggests an automated plan, like Dave Ramsey’s well-known debt-snowball method, in which you pay off debts from smallest to largest. 

Ghilarducci also emphasizes the importance of paying off debt, especially high-interest debt like credit cards. “If people can pay off all their debts, they earn a guaranteed rate of interest far above what they can earn risk-free in the stock market or anywhere else,” she says.

That being said, you should also try to keep saving as you pay down your debts. If you don’t have an emergency fund set up for the unexpected expenses, you might find yourself only digging deeper into debt.

Also, consider how much that debt is costing you versus how much you could gain by saving. It might make sense to throw every last penny at that 22% APR credit card. But it might make less sense to forfeit your 401(k) savings in favor of paying off a low-interest mortgage or auto loan more quickly. 

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Maintain good health. “An overlooked way of saving money is not getting sick,” Ghilarducci said. “Everyone over 20 should pretend they have diabetes and eat a diabetic diet. It’s good insurance against the rising cost of health care, insurance premiums and copays.”

In a less dramatic fashion, you could simply strive to stay on top of your health and preventative treatments that could stave off illness down the road. Maintain your annual checkups and don’t let minor health issues spiral out of control.

Find ways to trim expenses. Whether you grab takeout way too many nights a week or have a penchant for Whole Foods, groceries and eating out are a perfect area to cut back. Try shopping at a cheaper grocery store, or making a goal to cook four nights a week. You might even try becoming a vegetarian, temporarily. “Vegetarianism has lots of pluses – it’s cheaper and healthier,” Ghilarducci said. “A good diet is a good way to raise your lifetime net worth.”

Sell unused items in a Facebook Buy/Sell/Trade group. Groups for selling anything and everything abound on Facebook. If you’re addicted to shopping at Anthropologie or love rare Nikes, there’s a group for you. Some extremely popular groups—such as Lululemon Buy, Sell and Trade — have over 50,000 members.

Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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Why It’s More Important Than Ever to File Your Taxes Early This Year

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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You may have April 17 marked on your calendar, but this year consider setting a new target date as Tax Day: Jan. 29.

The IRS will begin taking returns that day.

Tax professionals say it’s a mistake to wait to file until the April deadline — even though Americans have two more days than usual this year — because of concerns including the prevalence of tax return fraud in the wake of the Equifax data breach.

“Tax ID theft is a huge problem,” said Steve Weisman, a law professor at Bentley University and expert on scams.

The good news is filing taxes can be easier and more automated than ever before. More than 127 million people filed their taxes electronically during last tax season, choosing to send the information in an instant, rather than stand in line at the post office.

In total, the IRS expects about 155 million individual tax returns to be filed in 2018.

Here are five reasons to file as soon as possible.

1. Protect your refund from scammers.

The average refund was $2,782, up $32 from the year before, according to the IRS. The majority of the 108 million people who qualified for a tax refund in 2017 — an estimated 80 percent — opted to have that money directly deposited into a bank account.

When someone files a fraudulent return with your Social Security number, you’ll get your refund eventually, but it may take months. You can avoid that headache by filing first.

“The one thing that will work and keep you from being victimized is filing early,” Weisman said. “File early and use a secure Wi-Fi.”

Since 2015, the IRS has been punching back hard against refund fraud, including identity theft. The IRS flagged 4.8 million suspicious returns that year and over the year stopped $8 billion in false returns filed with stolen identities.

In 2016, the IRS stopped 883,000 confirmed identity theft returns, while financial firms caught another 124,000 cases.

In the first eight months of 2017, the IRS stopped 443,000 confirmed identity theft returns, a 30-percent decline from same time last year. Still, nearly 700,000 people had their identity stolen for tax filing in 2015 and 376,000 in 2016.

2. Thwart would-be fraudsters.

Keeping your own money safe is vital, but filing early can make fraud more difficult for crooks, which benefits all taxpayers.

“We know a lot about these criminals,” Weisman said. “[....] Gangs are getting into fraud. They work out of hotel rooms where they use Social Security numbers that they sometimes steal, sometimes buy. The government loses billions of dollars a year.”

Cybercriminals are stockpiling the names and Social Security numbers they have collected, said IRS Commissioner John Koskinen in a statement.

“We know that cybercriminals are planning for the 2018 tax season just as we are,” he says in a statement. “They try to leverage that data to gather even more personal information.”

3. You probably don’t have to deal with the new law yet.

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A survey by Liberty Tax finds that 78 percent of 1,000 people polled were at least a little concerned about how the new tax law would affect the taxes they owe in April. Perhaps their worries may lead them to procrastinate filing their taxes.

But the vast majority of tax reform changes won’t apply to the returns filed for 2017, meaning the 50 percent of people who told Liberty they are concerned that the new law means they’ll owe more in April 2018 are worrying unnecessarily.

4. Know earlier what you may owe.

While it may seem easier to ignore bad news, ignorance doesn’t make reality disappear.

The IRS estimated 13 million people filed extensions last year, but that’s just an extension to file the paperwork. You must make an estimated payment of what you owe by April 17, and any late payments are subject to interest charges.

“If you are going to owe money, it’s better to know that sooner, rather than later,” said Melissa Labant, director of tax policy and advocacy for the American Institute of Certified Professional Accountants. “Surprises aren’t good.”

5. Avoid making bad decisions for next tax year.

Though tax reform rules won’t impact you this year, nearly one-third of 2018 will be gone before the tax deadline on April 17.

“Make an appointment (with an accountant) as early as you can. Particularly this year, there are significant changes. A lot of the decisions that you make during this year will affect your return next year and the next,” said Labant.

Diligent record-keepers who have itemized their spending for years may find that that approach isn’t useful under the new tax rule. People who pay high state and local taxes may not be able to count all those payments as deductions. And small business owners may be eligible to deduct a portion of their income.

Each situation is different, Labant says.

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Allison Floyd
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Allison Floyd is a writer at MagnifyMoney. You can email Allison here

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Report: IRS Debt Collection Program Cost Taxpayers Millions

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

tax debt collection by the irs
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In its first year in operation, a new IRS program that was meant to outsource federal tax debt collection efforts ultimately cost U.S. taxpayers three times more than it actually recovered.

The findings were published in a Jan. 10 report by the National Taxpayer Advocate (NTA), an independent consumer advocacy arm of the IRS.

In 2015, federal lawmakers enacted legislation that required the IRS to outsource its tax debt collection efforts to private collection agencies. The agency hired four agencies to do the job and spent a total of $20 million to cover program operations. The agencies were charged with collecting $920 million in unpaid debt but, ultimately, they managed to recoup a mere fraction of that amount — $6.7 million in recovered tax debts, according to the report.

Read more: Tax Reform 2018 Explained

After its first year, the current attempt has resulted in a net loss of $13.3 million with less than 1 percent of unpaid tax debt collected.

Consumer advocacy groups like the National Consumer Law Center (NCLC) were quick to cry foul, saying the report’s findings show that the program needlessly wasted money and abused taxpayer rights.

“The IRS private debt collector program is the epitome of waste and abuse in government programs,” said Chi Chi Wu, a staff attorney at the NCLC in a statement.

It’s not the first time the U.S. government has outsourced debt collection efforts to private firms. The NCLC notes that an effort in the mid-1990s lost $17 million and was cut after a year. Another attempt to outsource debt collection in 2006 lasted three years and lost $4.5 million.

Among the taxpayers who were most impacted by this latest private collection program are families hovering just above the poverty line, those beneath it, and retirees who are on Social Security or receive disability benefits.

The report found:

  • 4,905 taxpayers were assigned to private collection firms, and of those, 4,141 filed recent returns by Sept. 28, 2017.
  • 44 percent of those taxpayers had incomes below 250 percent of the federal poverty line ($24,600 for a family of four).
  • 28 percent had an annual income of less than $20,000
  • 19 percent had a median annual income of $6,386
  • 5 percent received Social Security or disability and had a median income of $14,365

report finds IRS private tax debt collection cost more than recouped
Source: Taxpayer Advocate Service

When you owe a tax debt to the IRS, the IRS typically calculates payment plans so that a family can keep up necessary living expenses like housing, transportation, utilities, food, and out-of-pocket health care after making their tax debt payment. However, NTA states that the data shows that these taxpayers were still pressured by the private collection firms hired by the IRS to enter into payment plans they couldn’t afford.

“Forcing the IRS to use private debt collectors to put the squeeze on vulnerable low-income families simply lines the pockets of these private collectors while jeopardizing the economic well-being of families,” said Wu.

Further insight into the problem is difficult to obtain, the NTA says, because the IRS refuses to let representatives of the organization listen to calls between private debt collectors and taxpayers.

Where do the recovered tax debts go?

Under this program, the IRS would send a 10-day notice to taxpayers letting them know a private debt collector will be assigned to them. Of the $6.7 million collected by PCA’s in 2017, $1.2 million, or 18 percent, was recovered as a result of those letters.

Private firms are not supposed to receive a commission off of collected debts. But the NTA study states that the private debt collectors are receiving commission for work done by the IRS and the agency “has no plans to change its procedures to attempt to identify payments that were clearly not attributable to PCA action.”

The IRS is authorized to keep 25 percent of the amount collected by the private agencies and the agencies themselves receive 20 percent in commission. Of the unpaid taxes collected by PCAs, $3 million is the minimum amount left that goes to the Treasury.

What do I do if debt collectors call?

If you’re called by a debt collector, there are several things to know. First, that you have rights, and second, that you need to know more.

The Consumer Financial Protection Bureau (CFPB) states certain laws related to debt collection are put in place to protect taxpayers’ privacy and security. For example, they can’t call before 8 a.m. or after 9 p.m. and they can’t harass or threaten you. In addition, if you have an attorney,  the debt collector will need to contact them instead of you.

You also should check with your state attorney general's office to see if it offers any additional protection or help for dealing with debt collectors.

Keeping track of your documents is also important. Any communication between you and the debt collector, including letters you may have sent, should be kept in a file that starts when the collector calls, the CFPB suggests.

Identifying the debt collector can save you from taking on a debt that isn't yours or entering into a less-than ideal payment plan. The CFPB suggests that you don’t give any information, personal or financial, until you’ve verified the collector’s name, address, phone number, and all information about the debt, such as whether it’s yours or not, any dates associated with it, and the total amount including any fees.

What happens if I owe a tax debt?

If you owe a tax debt, you should act sooner rather than later. Unpaid tax debts can not only result in extensive penalties and fees but it could result in:

Reduced Social Security benefits

  • Garnished wages
  • Seized property
  • Passport revocation

Interest is compounded daily on past due taxes (the rate fluctuates, but is 3% more than the federal short-term rate) and late payment penalties are charged separately and can go as high as 25% of the owed amount.

If you owe a tax debt, you still have to file your taxes on time.

If you can’t pay, the worst thing to do is ignore the bill. Contact the IRS and ask them to set up some kind of payment plan that you can afford.

Kat Khoury
Kat Khoury |

Kat Khoury is a writer at MagnifyMoney. You can email Kat at kat+mandi@magnifymoney.com

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27 Easy Ways You Can Save More Money in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Resolving to finally pay off a massive pile of debt at the beginning of the new year can seem like a good idea at the time. But then, you may find yourself back where you started months later, having barely made a dent in your goal.

Often, if resolutions are too broad or too lofty (read: unrealistic) from the start, it can actually hurt your chances of seeing them through.

Instead of setting a broad resolution like becoming a money expert, or eliminating a debt worth half your annual income, try starting small.

Making small behavioral changes — or, microresolutions — may help you inch toward financial freedom without taking on too much at once.

A microresolution, as defined by author Caroline Arnold in her book, “Small Move, Big Change,” is a commitment to a limited, specific, and measurable change in behavior or attitude that produces an immediate and observable benefit.

Arnold argues making small behavior changes that can be incorporated into your daily habits — for example, resolving to take a few seconds to check your bank account balance during a lull in your day — can help establish lasting changes.

The following are 20+ small changes you can make to save more and pay down debt this year.

1. Cut one subscription service right now.

 

List all of the subscription services you pay for and cross out one or two that you can stand to lose. Using an app like Mint or a service like Trim can help you identify services more easily — Trim will even cancel them for you. A $10.99 standard Netflix account adds up to over $100 per year and a $14.99 Spotify family plan is nearly $200 per year.

2. Ditch your big bank savings account for an online savings account.

Savings accounts at online banks almost always offer a higher annual yield than those at brick-and-mortar institutions. If you put $1,000 in an Ally online savings account today, you’d earn $12.50 in interest after one year. That same $1,000 in a Bank of America account would only earn $0.10.

Check here to compare the best online savings accounts.

3. While you’re at it, set up a checking account with an online bank, too.

Online banks notoriously carry fewer fees and often reimburse for out-of-network ATM use.  Big banks often charge maintenance fees or require minimum balances to avoid them. Ally Bank, for example, uses ATMs on the Allpoint network, available in most drugstores. Ally also reimburses ATM fees paid during each month up to $10.

Check here to compare the best checking account offers today.

4. Ask payroll to set up a recurring deposit to your savings account.

Automate your savings so you don’t have to think about it. If your employer allows you to split your direct deposit, speak with your human resources department to send a portion of your direct deposit directly to your savings account.

“Commit to make saving money happen without you doing anything,” said Dan Andrews, a Greenwood Village, Colo.-based financial planner. “This makes your lazy behavior happy because you don't have to do anything after you set up this system.”

5. Don't withdraw money from ATMs that charge a fee.

Try to pay less money to access your cash reserves this year. Do your best to avoid ATMs that charge a fee. Often, you are charged twice — by both the owner of the out-of-network ATM and your bank just to take out your cash. For example, Bank of America charges its members $2.50 to use out-of-network ATMs and non-members $3.00. Now let’s say the out-of-network ATM you’re using also charges its own $2 fee. You could pay a nearly 10% premium to take out $50 or more if you’re taking out less money.

6. Identify your guilty pleasure and vow to only use cash to pay for it.

If you’re having trouble controlling your spending in a certain area, like restaurants or new clothes, Monterey, Calif.-based financial planner Catherine Hawley recommends limiting yourself to a cash-only budget in that spending category.

“This strategy helps create awareness of how much one's spending in specific categories. Using cash makes spending tangible,” Hawley said.

For example, take out $50 for the week to spend dining out. If you spend $50 the first day then there’s no more spending in this category until the next week. But, if you can hold on to the cash, you can add it to what you’ll have to spend the following week.

7. Make a list of what you need before you go to the grocery store.

Making a list saves you time and money — preventing impulse purchases once you get to the store and stopping you from buying more food than you need.

8. Call one service provider and ask for a better rate.

If you pay recurring service bills like a cellphone bill, cable bill or wireless internet service, there’s likely somewhere you can save money. Take a few minutes to call up one of these servicers to see if you can negotiate savings.

If you don’t want to risk waiting on the phone for hours or getting bounced around from department to department in the process, you can try a service called BillFixers, that’ll negotiate your bills with your providers for you. The service costs 50% of the amount you save on your bills in the first year, paid to BillFixers upfront or monthly.

9. Aim to bring lunch to work once this week.

According to a 2015 survey commissioned by Visa, Americans spend $2,746 a year on lunch alone. Take the opportunity to redirect that money elsewhere in your budget. For a more challenging task, try setting aside some time once a week to prepare your lunches for work for a day or two in advance.

10. Sign up for a no-brainer savings app like Digit.

A savings app can take the work out of saving money. Digit watches your spending, then uses an algorithm to calculate how much money to transfer to your Digit savings account periodically. In addition, you earn 1% on the fund in your Digit savings account. Transfer your Digit savings to your bank account anytime, for free. Digit is free to start but after the 100-day trial period ends, you’ll be charged $2.99 monthly. You can easily get a better return on your savings by opening an high-rate online savings account. But if you’re not a good saver historically and you think you could benefit from the automation that Digit offers, that fee might be worth it.

Qapital helps you set savings goals and rules to match them. The app goes ahead and transfers money toward your savings goal when the rule, like rounding all of your debit card purchases to the nearest dollar and saving the difference, applies. Qapital does not charge any fee for its service.

11. Carry a reusable water bottle.

According to the Beverage Marketing Corporation, Americans spent nearly $16 billion on bottled water in 2016. If you’re even spending just $3 on water a week, you could still save around $150 this year carrying a reusable water bottle (if you buy the bottle for $6).

12. Increase your retirement contribution by 1%.

Adding even 1% more to your retirement account a year can have a huge impact down the line. According to the Economic Policy Institute, “nearly half of working-age families have nothing saved in retirement accounts.”
Your employer’s 401(k) administrator might offer a way to automatically increase your contributions by 1-2% each year. Or you can do it yourself in about five minutes by logging in to your account.

“This is a great way to increase savings consistently without any hassle,” said Hawley. “If you are not maxing out your 401(k) already increasing contributions is important.”

13. Check your retirement allocations.

Take a peek at how your retirement money is being invested. Resolve to take a few minutes this year to check your retirement allocations to make sure they still make sense for your age. A common rule of thumb for making sure the investment risk you’re taking matches your age is holding a percentage of stocks equal to 100 minus your age.

The remainder should be invested in lower-risk investments like bonds and government debt. For example, someone who is 60 years old should have 60% of his investment in the stock market, and 40% invested in safer investments.  If you’re more aggressive, subtract your age from 110.

14. Dedicate 5 minutes to reviewing your finances at the end of the day.

Pick a time of the day when you’ll know you have a few minutes to spare (after work when you’re catching up on Netflix?) and review your recent spending. Use your bank’s mobile app or money-tracking apps like Mint or YNAB. Regularly going over your recent transactions helps you stay on top of your spending and savings goals, and give you the opportunity to evaluate your spending decisions.

15. Calculate your net worth.

Your net worth is one of the most important numbers to know in life because it’s is the best way to understand your financial health. Knowing how much you are worth helps you track your debt paydown progress and keeps your debt-to-income ratio in check.

Your net worth is easy to calculate. Your net worth is the number you end up with when you add up how much you own — assets like your 401(k), or investments in the stock market, or the current value of your home — and subtract how much you owe —  like credit card debt, student loan debt, an auto loan, or what you owe on your mortgage.

16. Automate your monthly credit card payments.

Out of sight, out of mind isn’t always a great approach to take with your finances. That being said, taking a few minutes to automate your credit card payments may help you avoid the sting of paying your debts each month. It also helps to avoid late payments, if they have been an issue for you in the past.

17. Set reminders to pay your bills on time.

It can be tough to keep all of your due dates straight when you have several bills due at different points throughout the month. Do yourself a favor and look up the due dates of all of your recurring bills, then put them into your phone’s calendar and set a notification to alert you when the bill is due. This task should take all of about 30 minutes if you decide to do all of your bills at once.

18. Pay more than the minimum on one of your debts each month.

Debt can be overwhelming. Start small. Choose one of your debts and vow to pay more than the minimum amount due to your lender.

The average American household carries about $6,416.15 of credit card debt. Using MagnifyMoney’s credit payoff calculator, we found that if the household were to a pay minimum $143 per month, it would take more than five years to pay off the debt. In that time, they would also pay $2,967 in interest, assuming the card charges 15% APR.

19. Check your credit score.

Take a minute or two to check up on your credit health this year. Try any of these online and mobile resources you can use to check your credit score for free.

Keeping up with your credit score on a regular basis helps give an idea of where you stand as a borrower, which is important when it comes time to apply apply for a new credit card or other loans. It also helps you stay on top of signs of fraud, like unexpected changes to your credit history.

The stronger your credit score is, the better terms you'll get the next time you apply for a loan, like an auto loan or mortgage. And scoring a lower rate can mean huge savings on interest over time.

20. Choose one debt to pay down first.

Prioritize your debt by choosing specific debt to tackle first. Here are two ways to do that:

  • Prioritize the debt with the lowest balance and work to pay it down first — achieving small wins early on will help build the momentum you need to tackle bigger debts.
  • Prioritize the debt with the highest APR and work to pay it off first — you’ll save money in the long term by attacking the costliest debts first.

Once you’ve chosen your top priority debt, throw everything you have at it while making minimum balances on the rest.

21. Apply for a 0% promo intro APR balance transfer credit card offer.

If you’re working to pay off a substantial amount of credit debt, take a few minutes and apply for a 0% promo intro APR balance transfer credit card. If you get approved, you could avoid paying a high interest rate on some or all of your debts for the promotional 0% period the card offers. Beware: The lender may charge a fee, usually 3-5% of the amount you transfer, for the service.

For example, if you avoid paying interest on a $2,000 debt on a card that charges a 15% APR for 12 months, you avoid paying back nearly $180 in interest charges.

22. Shop for auto loan refinance offers.

Take 10 minutes to see if you can save money on your auto loan this year. Refinance your auto loan on more favorable terms to get your payment under control. You could get a loan with a lower interest rate or a longer loan term to reduce your monthly payment.

23. Call at least one lender to negotiate your interest rate.

If you are stretched paying student loans, an auto loan, or even credit card debt, and have a good track record as a borrower, it may behoove you to call your lender and ask to negotiate a lower interest rate. The longer you carry debt, the more it earns in interest. If you are currently carrying debt month to month, lowering your interest rate may help you get out of debt faster by reducing how much interest you are charged on the remaining balance.

24. If you’re badly behind your debts, call to see if they’ll negotiate.

If any of your debts are outstanding, prioritize eliminating one of them today. You have much more flexibility in paying off long-outstanding debts than you may believe. Few know they can negotiate debts in collections, and by doing so they can save as much as 75%.

Those are significant savings. Set aside half an hour one day soon to call up the collections agency, or any business where you may have debt outstanding, and see if you can negotiate down the amount owed. At the very least, you'll get the opportunity to work out a payment plan to pay off the debt.

25. Unsubscribe from promotional emails.

If you’re always tempted to follow the links on promotional emails you receive each week from your favorite retailers learn to delete the emails right away or, even better, unsubscribe from them all together.

“The less you look, the less you may click the "purchase" button,” said  Rose Swanger, a Knoxville, Tenn.-based financial planner.

26. Download a budgeting app.

If tracking your spending seems a little overwhelming, download an app that will do it for you. You Need a Budget is a longtime favorite for not just tracking spending but aligning your spending with your savings goals; and we recently reviewed the Honeydue app for couples looking for an easy way to track their household spending. If you don’t have a smartphone, many of these services have a web version.

27. Read one personal finance book.

Commit to reading just one book on personal finance this year. Browse your local library, the personal finance section on Amazon, or your local bookstore to find a book that stands out to you. If reading isn’t your thing, you may be able to purchase an audio version to listen to during your commute.

Some options:

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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These 18 States Are Raising the Minimum Wage in 2018

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Roughly 4.5 million workers in 18 states are starting off the new year with a pay raise.

Many of the new minimum wages are significantly higher than the federal minimum wage of $7.25, a rate that states are slowly but surely leaving behind. The Wage and Hour Division of the Department of Labor enforces wage laws, but a new federal minimum wage cannot be set unless a bill is passed by Congress and the president signs it into law.

Since 2009, the last time the federal minimum wage was raised, states have had to act independently to counter rising costs of living as well as the demands of their citizens.

Some 80 million Americans are paid hourly — a group that makes up nearly 59 percent of all wage and salary workers.

The number of people who earned the federal minimum wage or less decreased from 3.3 percent in 2015 to 2.7 percent in 2016, according to the U.S. Bureau of Labor Statistics. The 2016 percentage is far less than in 1979, when records started to be kept consistently and the number of people at or below minimum wage was 13.4 percent.

The 2018 wage increases were, for eight states, due to cost-of-living increases, and for 10 states, a result of approved legislation or ballot initiatives.

Who gets more pay?

An estimated 4.5 million U.S. workers are set to receive a total of $5 billion in additional wages, according to the Economic Policy Institute.

“Increasing the minimum wage is a crucial tool to help stop growing wage inequality, particularly for women and people of color who disproportionately hold minimum wage jobs,” wrote Janelle Jones, an economic analyst with the Institute. “As low-wage workers face a growing number of attacks on their ability get a fair return on their work, Congress should act to set a higher wage floor for working people.”

Keep in mind, however, that tipped wages are significantly lower than minimum wages, and wage laws have exceptions, such as full-time students or persons with disabilities. Not every employee who works on an hourly basis is affected by the changes.

Where is the minimum wage increasing?

Here’s a breakdown of the 18 states with higher minimum wages in 2018, using information from the National Conference of State Legislatures. These states join the 19 states in 2017 that raised their minimum wages.

State

Minimum Wage

Reasons and Future Adjustments

Alaska

$9.84

Change due to cost of living.

Arizona

$10.50

Change due to ballot/legislature.
Set to increase to $11 beginning 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on cost of living.

California

$11

Change due to ballot/legislature.
Set to increase to $12 in 2019, $13 in 2020, $14 in 2021, and $15 in 2022. At the start of 2023, the rate will increase annually based on the consumer price index.

Colorado

$10.20

Change due to ballot/legislature.
Set to increase to $11.10 in 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on the cost of living.

Florida

$8.25

Change due to cost of living, based on a 2004 constitutional amendment.

Hawaii

$10.10

Change due to ballot/legislature.

Maine

$10

Change due to ballot/legislature.
Set to increase to $11 in 2019 and $12 in 2020. At the start of 2021, the rate will increase annually based on the consumer price index.

Michigan

$9.25

Change due to ballot/legislature.
At the start of 2019, the rate will increase annually based on the consumer price index, but increases will cap at 3.5 percent.

Minnesota

$9.65/$7.87

Change due to cost of living.
Due to 2014's HB 2091, businesses with annual sales over $500,000 have a higher minimum wage than those with sales under $500,000.

Missouri

$7.85

Change due to cost of living.

Montana

$8.30/hr for businesses with annual sales over $110,000
$4/hr for businesses with annual sales under $110,000.

Change due to consumer price index.

New Jersey

$8.60

Change due to consumer price index.

New York

$10.40

Change due to ballot/legislature.
Set to increase to $11.10 beginning Dec. 31, 2018, $11.80 in 2019, and $12.50 in 2020. At the start of 2021, the rate will increase annually for inflation, capping at $15. Across the state, the minimum wage varies geographically, and by employer size within New York City.

Ohio

$8.30 for businesses with annual sales over $299,000
$7.25 for businesses with annual sales under $299,000

Change due to consumer price index.

Rhode Island

$10.10

Change due to ballot/legislature.
Set to increase to $10.50 beginning 2019.

South Dakota

$8.85

Change due to cost of living.

Vermont

$10.50

Change due to ballot/legislature.
At the start of 2019, the rate will increase annually by the smaller of two options: the consumer index price or 5 percent. The minimum wage cannot be decreased.

Washington

$11.50

Change due to ballot/legislature.
Set to increase to $12 in 2019 and $13.50 in 2020.

Kat Khoury
Kat Khoury |

Kat Khoury is a writer at MagnifyMoney. You can email Kat at kat+mandi@magnifymoney.com

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Spice Up Your Meals Without Hurting Your Wallet

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A fistful of parsley dries out in the refrigerator after you used it for a dish or two. And the 15 bottles of spices on your spice rack have long lost fragrance before you noticed.

Sound familiar?

It’s a common home-cook frustration. A new recipe calls for a tablespoon of fresh basil and a pinch of smoked paprika, but when you go to the grocery store, even the smallest quantities of those ingredients provide far more than you need. Why?

The answer is simple: It’s good business.

Big bunches make big money

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As far as fresh herbs go, sellers make more money off of large bunches, according to John Stanton, professor of food marketing at Saint Joseph's University in Philadelphia.

Demand for fresh herbs — like basil, cilantro, mint, rosemary, thyme, and parsley — has increased dramatically over the past few decades, thanks to gourmet restaurants, and the rise of celebrity chefs and cooking shows. Growing fresh herbs has become a high-profit niche market, experts say, but it’s costly to compete.

Because herbs are at their best when freshly picked, it is important for sellers to establish a quick supply chain. To be successful, they must develop an efficient system to move the herbs from growers to customers, Stanton said. Herbs are also more delicate than vegetables. To prevent damage to the leafy herbs and keep their attractiveness, growers, distributors, and sellers also have to handle them gently and package them properly for long shelf life.

“You cannot have the product sitting around some place too long,” Stanton said. “The withered parsley is almost as powerful as the unwithered, but it just doesn’t look good.”

The complex, labor-heavy logistics that get herbs from growers to grocers in good condition cost a lot of money. Selling herbs in large bunches — more than what a home cook may need — helps make up for these costs.

While no one wants to reveal profit margins for the products they sell, Stanton said growers profit more from fresh herbs than from competitive produce, such as tomatoes and carrots.

The struggle of minimizing waste

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Jeanine Davis, associate professor at the department of horticultural science at NC State University, said small packets of herbs are good alternatives to big bunches of cilantro, parsley, or mint.

While home cooks may avoid food waste by electing the fresh herbs that come in plastic containers, they aren’t necessarily saving money. For instance, a full bunch of cilantro costs $1.99 at Wegmans, a regional supermarket chain in the Northeast, but 0.25 ounces of the same product packaged in a plastic is priced at $1.25. The package is actually more expensive if you calculate the cost per unit. And it may still come with more than you need, as well.

If you’re more concerned about minimizing food waste, subscribing to meal kits might be the way to go. Herbs, spices and seasonings come in the exact amount you need for a dish from meal subscription services like Blue Apron or Sun Basket.

How to make fresh herbs last longer

Compared with buying smaller packages of herbs or subscribing to a meal kit, buying those big, fresh bunches of herbs is the most affordable choice. Buying more than you need doesn’t mean you’ll inevitably waste food either. Karen Kennedy, education coordinator at the Herb Society of America, shared these tips with MagnifyMoney for getting the most value out of your herb purchases:

Spices last longer but can still be problematic

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Most commonly, dried spices are sold in bottles at grocery stores. Each bottle contains a few ounces of herbs, generally about 1 to 2 ounces. Prices vary dramatically by spice.

Kai Stark, purchasing manager at Frontier Co-op, an Iowa-based natural product wholesaler that owns the organic spice brand Simply Organic, told MagnifyMoney that spices are costly because some are extremely difficult to harvest, such as saffron and vanilla, making them incredibly labor-intensive. Others are prone to crop failures, making them risky items for farmers to grow, Stark explained.

Still, many may think two ounces of nutmeg for $5 is costly, especially when the recipe calls for only a tiny bit. Stanton, however, argues that people believe that dried herbs and spices are expensive because they only think of the cost per bottle. He referred to a roasted chicken meal as an example:

“Let’s say a jar of tarragon costs about $3, and a nice chicken may cost $7,” he said. “So you put the chicken in a pan. You took a pinch of tarragon and then you put it in an oven. The cost of the meal is [actually] the full $7 dollars of the chicken and about 3 cents of tarragon.”

“It's better to think of it as cost per use and then it’s not that expensive,” he added.

How to keep your spice costs down

The trick to getting the most value out of a spice is using the whole bottle. Even though it might seem cheaper to buy dried herbs and spices in larger quantities, Kennedy suggests consumers stock them in small amounts to avoid waste.

In the case of nutmeg, you might want to buy a 0.53-ounce bottle that costs $2.

“If you can't use it all before the flavor diminishes, you haven't really saved anything,” Kennedy said.

Stark said the bulk aisle would be the place where consumers should look to save money on spices.

“You can purchase the exact amount of spice you want, whether it's a pinch or a pound,” he said.

To be sure, not every grocery store has bulk spice aisles, and there may not be a specialty spice shop in your town. If that’s not an option at your local grocer, and you feel like you’re wasting money on spices you don’t use up while they’re most potent, consider these tips:

What you can do to make spices last longer

To keep their shelf life as long as possible, Kennedy said it’s best to store the dried herbs and spices in airtight glass jars and and place the bottles in a dry, dark, and cool location. Use your nose as a judge: You may want to toss your spice jar when a strong aroma or flavor doesn’t come off right away when you open it.

“When the fragrance begins to fade, so has the flavor,” she said. Most spices are good for one year when stored properly.

Spices sitting on the shelf for a year may not smell as good as when they were freshly bought, but Stanton said that doesn’t mean they are not safe to eat.

The expiration dates on food are mostly irrelevant, said Stanton, adding that they were labeled by companies hoping that consumers would regularly toss old products and buy new ones. Indeed, expiration dates are not required by law. Industry groups such as the Grocery Manufacturers Association and the Food Marketing Institute are trying to get food manufacturers and retailers to stop labeling expiration/sell by dates to help consumers reduce food waste.

“If you have an old bottle of dried herbs, you might have to put a little more on,” Stanton said. “So instead of costing 3 cents to make the tarragon chicken, it actually costs 6 cents.”

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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How to Report Sexual Harassment at Work in a #MeToo World

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Veronica Cannon was just a year out of college when she was took a job at a Jewish community center in South Florida in the early 2000s. At the time, she worked as a social worker and program director for the organization’s senior citizen program.

One morning, about six months after she started, a male colleague made explicit sexual comments toward Cannon in an office corridor. She knew immediately his remarks were out of line. But despite the fact that she took notes of the encounter, recorded her side of the story on tape, and went to higher-ups at her office to complain, the man was never terminated.

“In the two to four weeks that followed, it was very uncomfortable [to work there],” said Cannon, 31, whose name and other identifying details have been changed in this story. “I definitely considered resigning. The only reason why I stayed was because I felt obligated to the clients I was serving. And then after some time had passed, I just tried to put it behind me as much as possible.”

The encounter happened nearly a decade ago, many years before the rise of the #MeToo movement, which was fueled by a wave of public allegations of sexual assault and harassment against Hollywood A-listers — from Harvey Weinstein to Louis C.K. — media moguls like former “Today” Show host Matt Lauer and former CBS anchor Charlie Rose, top editors at NPR and Vice and politicians like Sen. Al Franken and Roy Moore.

Momentum appears, for once, to be on the side of victims. In the wake of these allegations, many of the accused have lost lucrative contracts and jobs in their industries. And at the start of the new year, hundreds of well-known actresses and high-powered women in the entertainment industry launched the Time’s Up initiative, which features a multi-million-dollar legal defense fund to aid victims of workplace sexual harassment.

For targets of sexual harassment in the workplace, especially women, it has been historically difficult to speak up for fear of retaliation. According to a 2017 poll conducted by ABC News and The Washington Post, 30 percent of women in the U.S. have experienced “unwanted and inappropriate sexual advances” from a male colleague. And nearly 95 percent of women who claim they experienced unwanted sexual advances at work say the men did not get punished.

“It’s not easy and it takes a lot of courage, but things are changing little by little, and it’s because of more people finding the courage to stand up,” said Candice Blain, Esq., a managing attorney at Blain LLC in Atlanta. Blain, who is also a survivor of sexual assault, has focused on helping victims defend themselves in cases of sexual harassment, cyberbullying and human trafficking.

One thing is for certain. Whereas complaints like the one filed by Cannon might once have been brushed aside by higher management, the tide may be changing in workplaces across the country. Fueled by the heightened awareness of sexual harassment in the workplace, women may find their management more receptive to their complaints and more willing to take action against offending colleagues.

“Having more public role models to give a voice and safe space to reporting these issues is only going to further empower people to not feel as if they have to be shackled by the shame of experiencing discrimination in the workplace,” Cannon said. “By sharing our stories, we can be our best advocates.”

The best thing you can do if you experience inappropriate behavior from a colleague or superior is to be prepared. From bringing any relevant documentation with you to learning about your office’s specific sexual harassment policies, there are steps you can take that will help ensure you did everything in your power to appropriately report what happened.

Tips to report sexual harassment or assault in the workplace:

Report the incident to your company first.

Although some companies may choose not to take action, it’s still an important first step to look up your company’s harassment policy and follow the proper protocol for reporting.

Karla M. Altmayer, an attorney and co-founder of Healing to Action, a Chicago-based organization that aims to end gender violence in the workplace, says it’s a good place to start.

“If a person has followed that policy guideline, then they have done everything in their power to ensure that the company has knowledge of the incident,” Altmayer said. The company’s knowledge of the incident is crucial in the event that legal action is taken later on.

Know when to escalate the situation.

Altmayer says that if an employee has followed the appropriate protocol and the company has not taken proper action, then an employee should file his or her complaint with the U.S. Equal Employment Opportunity Office (EEOC) or their local human rights agency. If you find yourself questioning whether or not your company took appropriate action, Altmayer says to trust your gut.

“Ultimately, if a person feels like the action that the employer took was not reasonable, then usually that’s the beginning of a sign that maybe there are grounds for filing a complaint,” she said.

In Cannon’s case, she knew she needed to escalate her situation after her direct supervisor failed to take it seriously, even if the end result was not the one she hoped for. “If it was something that had happened to me, I was sure it had happened to someone else, and could potentially happen to someone else in the future,” Cannon said.

Bring documentation of the harassment in any form.

Cannon’s decision to record and write about the incident immediately after it happened was crucial. Altmayer says documentation is integral to the success of any claims of harassment, and can take many forms.

One of the common ways news reporters have partly validated stories from women who have come forward with sexual harassment allegations is to ask close relatives or friends whether or not the women told them about the harassment at the time.

“Talking to people is important,” Altmayer said. “Because it does establish a record.” She says another piece of advice she gives her clients is to keep a journal. “Because if you’re keeping a journal in contemporary time with the incidents that are happening, then that is actually admissible as a [court] record.”

If it’s been a long time since the incident occurred and there isn’t documentation, Altmayer says that doesn’t mean the victim won’t have a strong case. “There are ways of establishing the harm that occurred and the credibility of the harm,” she said. One way is by talking about the experience with a therapist, who can then write about it or testify on the victim’s behalf.

“If you don’t have documentation, your testimony is still important … ” Blain said. “If it happened, it’s the truth, it is still worth speaking up and you can work your way around the documentation later on.”

Find an ally.

Cannon called her mom immediately after she wrote down what happened. She said she decided to call her not only because she trusted her mom, but because she worked as a legal administrator and had experience dealing with similar situations.

Blain says having an ally is a great idea, but to be cautious of picking someone at your workplace.

“The problem is that if the victim confides in somebody at the workplace before she actually reports it up the chain, that can create problems for her later on because there is a duty on the part of victim to report it as immediately as possible,” Blain said.

She explains that companies can use the fact that a victim spoke about the incident with his or her colleagues but didn’t report it as a way to say they didn’t know what was happening.

“If you’re going to talk about it in the workplace, the first person you should talk about it with is somebody who can put a stop to it,” Blain said.

Know that not all workplaces are treated equal.

Some companies — especially very small ones — don’t have sexual harassment protocols in place. Cannon’s workplace didn’t have such a protocol, which made it less clear for her on how to proceed with her complaint. Even though her superiors decided not to take action against her colleague, Cannon took it upon herself to meet with the director of human resources to help put policies in the book for reporting incidents of sexual harassment, since none had existed previously.

Altmayer says that for people who work somewhere without protocol, the target of sexual harassment should first consult a manager or someone at the company who has hiring or firing power. She reiterates that one of the most important things is for a company to have knowledge of the incident occurring. If a workplace doesn’t take action, Altmayer says victims want to be able to have the power to say his or her employer had knowledge of the incident and could have done something, but didn’t.

“If you tell your supervisor who doesn’t really have hiring or firing power, that is not enough to bind the employer to actually take action,” she said.

Be prepared for retaliation — and document it.

For employees who don’t have the financial means to gamble with their livelihoods, speaking up against a colleague and facing potential retaliation in the workplace could easily dissuade them from reporting harassment.

If you do speak up, however, and your company retaliates against you in some way — such as reducing your work hours, turning you down for a raise, or moving you to a department that doesn’t match your skill set — you may have an even more firm case against them.

Blain says victims who are nervous of reporting sexual harassment for fear of workplace reprisal should know that retaliation is actually a separate claim.

“The reason that’s important and why victims should take comfort in that is because even if the original claim of harassment is not successful — even if you ultimately can’t prove it or win it — if you reported it and you were a victim of retaliation, that in and of itself is a separate violation,” she explained.

So, if a woman does not win a workplace sexual harassment lawsuit, she can still win one related to retaliation from the incident.

Document the incident and contact the EEOC or legal aid groups, such as Time’s Up.

How companies can better manage harassment claims

Altmayer shares this advice for companies looking to create or tweak their sexual harassment code.

Consider keeping the target’s identity anonymous.

“There’s no law that says that the information has to be kept anonymous,” Altmayer said. “But there are definitely best practices.” Her advice to companies who might be creating or tweaking their current policies is to have a rule in which they keep the identity of the complainant confidential.

Having the victim’s identity revealed could have major consequences. “They might be retaliated against,” she said, “or further harassed.”

Don’t put the offender and the victim in the same room at the same time.

Cannon’s direct supervisor brought her and the offender into the same room to discuss what happened. She says her direct supervisor wanted to give the offender the opportunity to share his side of the story.

Cannon, who no longer works at the community center where the incident occured, says that because she had conviction in what had happened she was OK with this. “But I could imagine that would be a really uncomfortable situation for someone else,” she adds.

Altmayer believes bringing people into the same room is a bad idea. “That’s never good practice,” she said. “Because you’re talking about someone who is really fearful of coming forward in the first place, who has put a lot on the line, and is taking a big risk in the workplace culture.”

Tweak the protocol’s language.

Research conducted by the Harvard Business Review found that often times, the language in companies’ sexual harassment policies is ineffective.

They gave 24 employees of a large government organization a copy of their company’s sexual harassment policy and found that nearly all of the participants found the language to be more concerned with perceptions of behaviors instead of behaviors themselves. “The policy was perceived as threatening, because any behavior could be sexual harassment if an irrational (typically female) employee perceived it as such,” the study’s authors wrote.

Consider taking a close look at your company’s policy to ensure it resonates well with all employees.

Be as proactive as possible.

“It’s important also for employers to think about what steps they can take to prevent the violence from happening in the first place,” Altmayer said.

Being proactive includes ensuring both men and women are at the table to discuss company culture, “because in many of these cases, it’s difficult to protect yourself, especially if you’re in a workforce that is predominantly male,” she said.

Jamie Friedlander
Jamie Friedlander |

Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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