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6 Bad Money Habits That Could Wreck Your Finances — and How to Break Them

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.

Bad spending habits — everyone has at least one of them. Maybe for you it’s adding “just one more thing” to your shopping cart, or repeatedly getting slapped with overdraft or late payment fees.

These bad habits may seem innocuous at first but could easily turn into financial self-sabotage.

“Breaking a habit like these can be really difficult because these habits have developed over the years, and they provide us with psychological comfort and safety,” says Thomas Oberlechner, founder and Chief Science Officer at FinPsy, a San Francisco-based consulting firm that integrates behavioral expertise into financial services and products.

Oberlechner says the key to overcoming a bad money habit lies in knowing when you’re using the impulsive, right side of your brain — as opposed to the focused, concentrated left side — in financial decision-making.

“It’s really about psychological experience. It’s about behavior. If we understand the role of emotion, then we have a chance to fix it,” Oberlechner says.

Once you understand yourself and can identify your bad habit, Oberlechner adds, then you can create a plan “that turns your impulsive or unconscious behavior into the healthy financial behavior that [you] actually want.”

Of course, breaking any bad habit is easier said than done.

MagnifyMoney spoke to financial professionals to hear how they and their clients broke their bad habit. See if any of their hacks could help you break yours.

Bad money habit #1: Spending money as soon as you get it

The solution: Automation

If you’re constantly feeling broke just a few days after you receive a paycheck, you may be guilty of this bad money habit. One way to make sure you hold onto some of your cash is to use what the behavioral finance community calls a “commitment device” to lock you into a course of action you wouldn’t choose on your own, like saving your money.

In this case, the device is automation. Automating your savings won’t help you stop siphoning money from your checking account the same day your direct deposit clears, but it can make sure you save what you need to first. Check with your bank or the human resources department at work to have a portion of your paycheck automatically sent to a savings account instead of putting the entire sum in your checking account.

You should automate your bills and credit card payments for the pay period, too. Once your obligations are automated, “you can be impulsive with your play money,” says Oberlechner.

Bad money habit #2: Reaching for your credit card all the time

The solution: A cash diet

Paying for everything you buy with a credit card can be good practice if you pay off your card every month. If you’re chronically swiping your credit card for things you can’t afford to pay off by the next billing cycle, leave your card at home and use cash instead.

When you don’t pay off your card each billing cycle, you rack up interest charges on everyday purchases, and that may cost you a lot more money in the long run. If you’re using more than 30 percent of your total credit limit each month, you may also be harming your credit score.

To break your habit, leave your credit card at home and use cash or a debit card for your purchases.

“Take a certain amount of cash and say ‘I can spend no more than that,’” says Vicki Bogan, an associate professor at Cornell University in Ithaca, N.Y., who researches behavioral finance. “If you have a huge [spending] problem, try to limit yourself so that you only have access to a certain amount of money.”

If you really want to challenge yourself, you can try going on what’s called a spending freeze, where you stop spending any money on non-essentials for a period of time. On top of helping you save money, the freeze can help you notice how much money you may be wasting simply because you’re always pulling out your credit card. After your freeze ends, you may be less inclined to swipe your credit card.

Another rule that could help you break your swiping habit is the $20 rule. The financial rule of thumb is simple: Anytime your purchase is less than $20, pay in cash, not credit. The $20 rule forces you to think about whether or not a purchase is worth swiping your card for. Chances are, if what you’re buying costs less than $20, it’s not something you’d be OK paying interest on.

Bad money habit #3: Spending beyond your means

Solution: Budgeting

If you chronically spend beyond your means each pay period, you are likely digging yourself into debt. Get a handle on this habit by understanding how much money you have coming in and how much you can afford to spend on a monthly basis. You can use budgeting apps like Mint or YNAB to make that part easier. These tools can also help you identify the spending categories that are costing you more than you might realize.

Oak Brook, Ill.-based certified financial planner Elizabeth Buffardi tells MagnifyMoney that after examining one of her client’s expenses she found the client was spending a lot of money at drugstores picking up snacks and little things after work. So the client gave herself a budget of $10 per drugstore visit to save money.

“We’ve been seeing her spending at drugstores go down steadily over the last few months,” says Buffardi.

Buffardi had two other clients who struggled with overspending because they loved to shop online. They both created boundaries for themselves when it came time to pay for the items in their online shopping carts. One client decided to buy a certain amount of gift cards that she could use on a given site.

“If she spent all the gift cards in the first day, then she was done until the next paycheck. If she wanted something that was more expensive than the amount she had on the gift cards, she had to hold off on other purchases in order to purchase the more expensive item,” says Buffardi.

The other client simply removed her credit card number from her payment profiles so it would be more difficult to make thoughtless purchases. Her theory, Buffardi tells MagnifyMoney, was that if she was forced to stop and pull out her credit card before she could make the purchase, it might slow her down and give her time to think about the purchase she is about to make and — maybe — stop some purchases from happening.

Bad money habit #4: Always buying lunch from a restaurant

The solution: Plan your lunches a week in advance

If you’re losing $10-$15 a day to the local deli during the workweek, remember this: You don’t have to buy lunch if you bring it to work with you. However, organizing your day so that you actually have time to prepare and pack your lunch may be where you struggle.

Leave room in your busy schedule to pack your lunch in the mornings, or during the evening when you may have more time to yourself.

Melville, N.Y.- based certified financial planner David Frisch says he packs his lunches in the evening because he knows he runs late in the morning. He puts together everything but the dressings and sauces he plans to eat while making dinner, so lunch is already 90% done, then he adds the last 10 percent in the morning.

Frisch suggests setting a budget for how much you’d like to spend on food per pay period, then tracking how much money you typically spend on the convenience of frequently going out to lunch. Again, a budgeting app can be handy here to easily identify places where you spend the most.

Compare that amount to how much you spend on food for entertainment purposes, like going out to dinner with friends over the weekend and for your necessities, like eating lunch to fuel your workday.

“If you are spending so much money on convenience, you have that much less money to spend on everything else,” says Frisch. If you’re spending money from your food budget for convenience purposes, you may be more reluctant to go out on Saturday night for dinner.

If you’re already packing your lunch, but purchase a second lunch because you’re still hungry or you no longer want to eat what you packed, try packing a larger meal or having leftovers for a second lunch.

Bad money habit #5: Ordering out for dinner because you’re too tired to cook

The solution(s): Prep when you have time/energy; try meal delivery services

It’s easy to spend more than $50 getting dinner delivered three to four days out of the week, or buying groceries that go to waste because you’re too tired to cook. Oberlechner suggests doing some of the “work” of making dinner when you know you have more energy.

“If you’re too tired to cook in the evening, replace the spontaneous behavior by preparing dinner in the morning. So in the evening you don’t have the work of preparing anything,” he tells MagnifyMoney.

Another hack Oberlechner suggests is making a little extra dinner for the days you know will be especially long, when you won’t want to cook dinner. For example, if you know Tuesday is a really long day but Monday is not, cook a little extra on Monday and have those leftovers for dinner on Tuesday.

If cooking dinner simply isn’t a habit for you, you can try a meal kit service like Blue Apron, Plated, or HelloFresh to get interested in cooking, suggests Brooklyn, N.Y.- based certified financial planner Pamela Capalad. She tells MagnifyMoney she’s advised many of her clients to sign up for a meal kit service, then transition into grocery shopping and cooking at home regularly.

Generally, the services cost about $10 to $15 per serving and can serve up to four people.

Bad money habit #6: Letting your kids throw extra things in your shopping cart

The solution(s): Shop solo or lay ground rules early

Frisch says he and his wife solved this problem with their now 15-year-old triplets when they were four years old.

“Up until they were four we couldn’t bring them to a supermarket because it was impossible for my wife and I to watch three kids at the same time,” says Frisch. The easiest recommendation, he says, is to have somebody watch them at home while you go do the shopping. You may spend some money on a sitter, but you are also saving money without an eager child sneaking candy and toys into your shopping cart as well.

If an extra set of hands at home isn’t available, then try to set ground rules before you go to the store. For Frisch, that meant allowing the triplets to get one — just one — extra item at the store.

When a child wanted to add something “extra” to the cart, Frisch or his wife would say, “If you want this now, then you have to put the other one back.”

“Ultimately what happened was they kind of had to make a decision as to which one they would really get,” says Frisch.

The triplets quickly realized they could all benefit from working together.

“They actually started to communicate and say ‘if you get this and I get this, we can share,’” Frisch told MagnifyMoney. “They just figured out that if they all got one thing and shared, they ultimately all got more than they would have.

Brittney Laryea
Brittney Laryea |

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

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Retirement, Small Business

A Comprehensive Guide to the Solo 401(k) for Business Owners

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.

If you run your own business, one of the difficulties in saving for retirement is that you don’t necessarily have easy access to a 401(k).

Enter the solo 401(k). This is a retirement savings option for self-employed business owners who have no employees and their spouses. Read on to find out how it works, who is eligible, and how you can open an account.

The Solo 401(k): Explained

What Is a Solo 401(k)?

Also known as a one-participant or individual 401(k), a solo 401(k) works just like a company-sponsored 401(k) would, except it’s for self-employed individuals who don’t have any other employees other than their spouses and themselves.

Just like a traditional 401(k), you can control how your money is invested. There are different plans, with most comprising stocks, bonds, and money market funds. These are considered “free” prototype plans offered by brokerages, and you’re typically limited to investments offered by that brokerage.

However, there are options for those looking to participate in alternative investments, such as precious metals or even real estate. There are companies that help you open what’s called a self-directed 401(k) and that sponsor “checkbook control” solo 401(k) plans, meaning that individuals can control the type of investments they want to make, whether it’s stocks, bonds, foreign currency, real estate, or commodities. You do so by writing a check for investment purchases, from a bank account dedicated specifically for that purpose.

Who Is Eligible for a Solo 401(k)

Only self-employed individuals and their spouses are eligible for a solo 401(k). This plan is ideal for consultants, independent contractors, or sole proprietors. If you hire part-time workers or contractors, then you’re still safe. However, if they work for you for more than 1,000 hours a year, you cannot participate in a solo 401(k).

Furthermore, you need to have the presence of self-employment activity to be eligible, which includes ownership and operation of an LLC, C, or S corporation, a sole proprietorship, or a limited partnership where the business intends to make a profit. There are no criteria as to how much profit a business needs to generate, as long as you run a legitimate business with the intention to generate a profit.

If you are currently employed elsewhere, you can still open a solo 401(k) account if you’re serious about maximizing your pre-tax savings. If you work for an employer that offers a 401(k) plan, you can still participate in their plan alongside a solo 401(k) plan, as long as you don’t exceed the contribution limits.

Where to Open a Solo 401(k)

You can open a solo 401(k) with most major brokerages. For those looking for a custom plan, there are companies that specialize in providing those plans. Some insurance companies also offer solo 401(k) plans but only if your goal is to invest solely in annuities.

Below are some of the most popular companies offering solo 401(k) plans:

Vanguard – The individual 401(k) offers all Vanguard mutual funds. However, you cannot purchase exchange-traded funds (ETFs) or mutual funds from other companies and cannot take out a loan. There is no setup fee, but there is a $20 fee per account per year to maintain your solo 401(k).

SunAmerica – The SunAmerica Individual(k) offers mainly annuities as part of their plan. You can take out a loan (for a fee). It costs $35 to set up your account, and there is an annual maintenance fee of $75.

E-Trade – The E-Trade Individual 401(k) Plan allows Roth contributions and has a brokerage option with $9.99 trades for any ETF. They accept IRA rollovers and allow for loans. They also will pay you if you transfer your current solo 401(k) to them: $200 for $25,000-$99,000, $300 for $100,000-$249,000, and $600 for a $250,000+ plan.

How to Establish a Solo 401(k)

When opening a solo 401(k) plan, you want to choose the option best for your needs. Once you’ve selected your brokerage, you’ll need to have the necessary documents:

  • 401(k) plan adoption agreement
  • Designation of successor plan administrator, which requires a notary or a witness
  • Brokerage account application
  • Designation of beneficiary form
  • Power of attorney (optional)

If you plan on opening one for your spouse, you’ll need to do twice the paperwork (one form for each person).

Remember, you need to open a solo 401(k) account by December 31 of the tax year. You don’t need to actually fund it until the April 15 filing deadline. If you miss opening an account, you’ll have to wait until the next tax year to do so.

How Much You Can Contribute to a Solo 401(k)

Participants in a solo 401(k) plan can make contributions both as an employee and an employer.

For elective (employee) contributions, you can contribute up to 100% of your earned income, up to the annual contribution limit, which is $18,000 in 2017. Those age 50 or older can contribute an additional $6,000, depending on the type of plan, according to the IRS.

When making a contribution as an employer, you can contribute up to 25% of your earned income as an employee. Your total contributions cannot exceed $54,000 in 2017 ($53,000 for 2016), not counting extra contributions for those 50 or older.

For example, Mary earned $40,000 from her freelance business in 2016. She put $18,000 in this plan as an employee. As an employer, she contributed 25% of earnings, which is $10,000. In total, she contributed $28,000, which is the maximum she can contribute.

Remember, contribution limits are for each person, not each plan. If you are working full time for another employer and participate in that company’s 401(k) plan, combined contributions to your traditional 401(k) and solo 401(k) cannot exceed the annual limit.

To figure out the maximum contributions you can make, check the IRS website on how to calculate a more accurate amount.

Read more: 9 Essential Tax Tips for Entrepreneurs >

Learn More About Solo 401(k)s

The Pros of a Solo 401(k)

The solo 401(k) has higher contribution limits compared to other retirement savings plans. You can contribute up to $18,000 plus 25% of earned income, compared to a maximum of $54,000 or only 20% your earnings (whichever is less) with a SEP IRA. Your employer contributions are also tax deductible.

You also have the option to borrow up to 50% of your account’s value or $50,000, whichever amount is less.

The Cons of a Solo 401(k)

A solo 401(k) can get complicated to set up and maintain, particularly if you intend on opening a customized plan. Depending on the company you go with, fees can cost you at least a few hundred dollars to set up an account, not including fees to maintain the plan annually.

Even if you open a prototype plan, it can cost you. Yes, it’s free to set up, but they put many requirements on you as the owner. These requirements include filing tax return documents once a year if your plan has more than $250,000 in assets and keeping up to date with all records and transactions.

Alternatives to a Solo 401(k) Plan

There are two alternatives to a solo 401(k) plan — a SIMPLE IRA and a SEP IRA. The main difference between each is the maximum amount you can contribute to each year.

SIMPLE IRA – A Simple IRA plan is for those who as an employee (including those who are self-employed) have earned a minimum of $5,000 any two years before the current calendar year and expect to receive at least $5,000 for the current calendar year. You can contribute up to $12,500, plus an employer match of 3% of employee compensation. Those 50 or older can also contribute up to an extra $3,000. You can find more information about the simple IRA on the IRS website.

SEP IRA – A Simplified Employee Pension (SEP) plan only allows employers to contribute to the plan, unlike a solo 401(k). Employers can contribute a maximum of $53,000 or 20% of their net self-employment earnings, whichever amount is less.

Even with all its benefits, there may be a few reasons why someone is better off not opening a solo 401(k). “If you’re concerned about doing additional paperwork, a SEP IRA might also be a better choice,” advises Robert Farrington, founder of the College Investor. “If you’re working a side hustle and have a regular 401(k) at your day job, the alternatives might be easier.”

Who Solo 401(k) Plans Are Best For

While any of the above options are helpful for self-employed individuals, the solo 401(k) is best for those who are looking to invest heavily in their savings. “The solo 401(k) is best suited for a self-employed individual who wants to maximize their retirement savings,” says Farrington.

“Furthermore, if you’re a husband/wife/spouse team, your spouse can also contribute to the solo 401(k) with the same percentage of ownership, so you can get even more in tax savings and retirement contributions.”

Sarah Li Cain
Sarah Li Cain |

Sarah Li Cain is a writer at MagnifyMoney. You can email Sarah Li here

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What To Do if Your Insurance Doesn’t Cover a Health Care Provider

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.

Smiling senior man having measured blood pressure

It’s a pretty common scenario: you’re looking to book a medical appointment, so you go to your insurance company’s website to find an in-network doctor. You book the appointment, see the doctor, and all seems well — until you get a whopping bill. Apparently, that doctor wasn’t in your network after all, and now you’re faced with out-of-network charges.

This happens more often than we think. Unfortunately, insurance company websites are notoriously fallible. Not only that, but they change so frequently that it can be difficult to nail down just who is and isn’t covered. At some point or another, just about everyone will have to deal with a situation where their insurance doesn’t cover a provider.

It’s easy to feel duped in this scenario. Navigating the ins and outs of insurance is hard enough, but there’s nothing more frustrating than being fed incorrect information.

So what should you do?

What to Do If You’ve Already Gotten the Bill

Call the doctor

Doctors don’t usually consider themselves responsible for significant out-of-pocket costs resulting from a lack of research on the part of the patient.

But if you asked the doctor or their representative about insurance coverage beforehand, you should contact them immediately if that information ends up being false. Many physicians will honor the price they initially told you or at least give a hefty discount. Don’t get discouraged if they don’t get back to you right away. Keep calling to see if you can get a lower price.

Negotiate and ask for a better rate

Most doctors have two different rates: one for insurance companies and one for self-pay individuals. If your doctor’s visit isn’t going to be covered by your insurance, call the doctor’s billing department to ask for the self-pay cost.

“Most physician offices will accept a lesser amount, especially if they know the service is not going toward a deductible,” said health insurance agent Natalie Cooper of Best Quote Insurance of Ohio.

Ask about a payment plan if you can’t afford to pay the bill in one go. Most medical offices would rather get the money a little bit at a time than not at all.

“Most physician and hospital groups will accept a small payment of $25 or $50 per month until it’s paid off,” Cooper said.

Use a health savings account

If you’re struggling to pay a medical bill out of pocket, see if you can open an HSA and use those funds to pay for it. If you owe $2,000, you can transfer $2,000 to an HSA and then pay the doctor directly from that account.

What’s the benefit? HSA contributions are deductible on your taxes. Unfortunately, only people with high-deductible plans are eligible to start an HSA. Individuals can only contribute up to $3,400 a year or $6,750 in an HSA. You can start an HSA anytime if you have an eligible healthcare plan.

The IRS says you can only use your HSA to pay for qualified medical expenses, a list of which you can find here. Funds in an HSA roll over from year to year, and you can contribute up to $3,400 annually or $6,750 for families.

You can also open a Flex Spending Account, which works similarly to an HSA. However, funds don’t roll over to the next year and users can only contribute $2,550 a year.

How to Prevent Out-of-Pocket Expenses

Ask beforehand

Many people use the insurance company’s website to find a doctor, but those lists are often out of date. Insurance information can even change daily. The only way to confirm a doctor’s status with an insurance company is to call them directly and ask if they’re a network provider — not just if they accept your insurance.

“When they are a network provider, they are contractually required to accept no more than the negotiated contracted rate as payment in full, which is usually less than the billed rate,” said human resources expert Laurie A. Brednich. “When they say they ‘accept xyz insurance,’ they are usually not a network provider, but will file the claims on your behalf, and you are responsible for the full billed charges.”

It can also be helpful to give them your insurance group and account numbers beforehand so there’s no question about your specific policy. The more specific you can be, the more accurately you’ll be able to navigate the insurance labyrinth.

Find out if all procedures and doctors are covered

Have you ever been to a doctor who’s recommended you see a specialist for a certain procedure — only to find out that the specialist isn’t covered by your insurance, even though they’re in the same building?

When a doctor recommends you to a colleague, they’re not confirming that the other physician is covered in-network. Before you make the appointment, talk to the billing department to see what their policies are. You can request an estimate in writing beforehand so you’ll have an idea of what the costs will be.

Some procedures might not be covered even if they’re being ordered by your in-network doctor. If your doctor sends your results to a lab, that lab might be out of network, even if your insurance covers the doctor who ordered them.

Confirm the lab’s status before you go in. If it’s too late, call your insurance and ask if they can bill the service as in-network. Cite the fact that you weren’t aware the lab would not be covered.

If they refuse, contact the doctor’s office and explain your situation. Ask them why they used an out-of-network provider and see if they’re willing to write off the bill. Be polite, but firm.

Ask the doctor to apply

When Julie Rains’ insurance changed to a preferred provider plan, she discovered her trusted doctor was now going to be out of network. Instead of searching for a replacement, she asked if her physician would apply to the insurance company to be covered by her new plan. He agreed.

It took almost two months for him to be accepted, Rains said. If you’re going this route, it’s best to start as soon as you find out your insurance company has changed policies. Rains said between the time she found out about the changes and when they went into effect, her doctor had already been approved.

You might have less luck with a doctor you’ve only been seeing for a short time, but most medical professionals take long-term patient relationships seriously — especially if your whole family goes to the same office. As always, it doesn’t hurt to ask.

Zina Kumok
Zina Kumok |

Zina Kumok is a writer at MagnifyMoney. You can email Zina here

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Featured, Strategies to Save

How to Use Truebill to Identify & Cancel Recurring Subscriptions

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.

 

Have you ever forgotten to cancel a subscription that charges you automatically each month? Me, too.

Thanks to Apple Music album exclusives, I’ve racked up quite a few charges from a subscription that I initially planned to cancel right after the free trial.

Truebill is an app that wants to make you aware of all the seemingly low-cost subscriptions that can add up to a lot of money spent. Truebill uses an algorithm to help you identify and cancel recurring payments made from your credit cards and bank accounts so you can find savings.

We tried out the app to see whether or not using it to cut costs is worthwhile. In this post, we’ll cover:

  • How it works
  • Truebill extra features
  • The cost
  • Pros and cons

How Truebill Works

You need to download the Truebill app from iTunes or GooglePlay to get started. The app lets you sign up for a Truebill account by email or Facebook.

Truebill mobile interface

After you create an account, the next step is signing into your credit card and bank accounts through Truebill so that it can review your account data. I signed into one bank account and one credit card account for this trial.
Truebill mobile interface connect accounts

The results of the Truebill statement scan

Truebill scan of bills

The results of the account scan will appear in your app dashboard within a few minutes.

Recurring transactions found are broken down into three categories — subscriptions, recurring bills, and miscellaneous recurring payments.

Here’s what Truebill found from my accounts:

For subscriptions:

  • A recurring Express Scripts prescription charge
  • Payments for monthly services I use to run a business including:
    • ConvertKit
    • FreshBooks
    • Grammarly
    • GoDaddy

For recurring bills and utilities:

  • An annual credit card membership fee
  • A Comcast bill
  • An insurance bill

For recurring miscellaneous payments: 

  • A Bluehost monthly service charge
  • An iTunes (Hulu) monthly subscription

All of the above are current recurring payments that I’m making periodically.

Truebill also has a section that lists your inactive recurring payments.

Inactive payments are for past recurring items that are no longer posting to your account regularly.

In my inactive section, Truebill has recurring transactions and subscriptions from as far back as 2013, including old student loan payments, car note payments, and more.

If you discover that Truebill is missing a subscription, there’s an option to enter the service name, and Truebill will perform another search on your account.

Truebill no results screen show

You can reach out to a customer service representative for extra help if Truebill still can’t locate a subscription after doing this search.

Does Truebill Find All the Sneaky Costs?

The current auto-payments that show up for me are ones I already know about. I’m also someone who pays pretty close attention to every account transaction so I didn’t expect any surprises.

Despite being aware of these auto-payments, I still find it impressive how many past and present recurring transactions the algorithm picked up on. I can see how this tool can be a shortcut for catching pesky auto-payments in one fell swoop for someone who monitors their statements a little less frequently.

I did learn something new related to very old charges.

Truebill found a questionable Home Depot Project Loan transaction from 2013 and was unsure whether or not to mark it as an old inactive recurring payment.

Truebill Home Depot loan

I’ve never taken out a Home Depot Project Loan, so that’s a charge I plan on researching.

How to Cancel Recurring Payments

The second key feature of Truebill is that it helps you cancel these services.

You’re able to terminate many subscriptions within the app itself. When you click on a specific subscription, there’s an “Options” link, and then a red button to “cancel” the subscription appears.

Truebill cancel ConvertKit

However, the option to cancel isn’t available for all services on auto-payment. This is the case for my Express Scripts recurring payment below.

Truebill cancel subscription

If cancellation isn’t an option, you can head over to the Truebill cancellation page for additional instructions.

On this page, there’s a mega list of companies with directions on how to cancel services from each one. The list includes insurance companies, telephone companies, music streaming services, gyms, and more.

You need to fill out more information about yourself for Truebill to move forward with the cancellation of Express Scripts. The site gives a phone number you can call to cancel on your own. For some companies, Truebill even has video instructions on how to cancel a service.
Truebill form to cancel subscriptions

Truebill Extras to Lower Your Bills

Canceling isn’t the only action you can take to cut costs. The app also notifies you of opportunities to renegotiate contract terms for bills like cable, internet, and insurance to save money.

According to the app, my Comcast bill is high, and it recommends using the BillShark service to negotiate a lower bill. BillShark is a partner of Truebill and renegotiates contracts for consumers. If BillShark can lower your bill, it takes a 40% cut of the savings as a service fee. You do not have to pay a dime if BillShark isn’t able to reduce your bill.

I got a notification that my insurance bill seems high as well. The app refers me to a third party called SolidQuote to shop for competitive insurance rates.

We’ll talk a little bit more about these recommendations in the next section.

The Cost of Truebill

The Truebill app is entirely free to download and use. The one extra service that you may have to pay for is BillShark if you choose to use it to renegotiate your bill contracts. Technically, you’re not paying out of pocket for this service either. You will only pay if BillShark is able to find you savings.

How Does Truebill Make Money?

On the terms and conditions page, there’s mention of Truebill having sponsored links to third parties and advertisements. Truebill may receive compensation from recommending other companies to you.

For example, under the suggestion to shop for competitive insurance quotes with SolidQuote, there’s a link to an advertiser disclosure stating Truebill can get paid for the referral.

Truebill advertiser disclosure

You do not have to sign up for any of these third-party offers to use the service for free. You can simply avoid offers throughout the app and still benefit from using it.

Truebill Security

Truebill uses 256-bit encryption and bank-level security to protect your information. The account history used from your financial institutions to manage auto-payments is read-only, and your information is not stored by Truebill servers. Find out more about Truebill security here.

Pros and Cons

Pros:

  • Truebill is free for users.
  • The app is simple to use and reviews your accounts for subscription information quickly.
  • It shows you both active and inactive recurring payments.
  • You may be able to cancel bills with one click on the app. If you can’t cancel through the app, there are instructions on how you can terminate contracts with many companies on the website. Some cancellation instructions even include step-by-step video tutorials.

Cons:

  • There are advertisements to special offers on the app. These offers are not too distracting, but you should be aware that recommendations may be from paid affiliates.
  • The Truebill algorithm works by analyzing your account data. You need to sign in to your financial accounts for it to do its magic. If that’s a turnoff, you won’t get much use from this app.

The Final Verdict

The Truebill app is easy to use and definitely one to consider if you might be flushing money down the toilet with random subscriptions and services. The fact that it shows both current and past subscriptions is a highlight because it’s also helpful to review how much you’ve spent on these recurring payments in the past few years.

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor at taylor@magnifymoney.com

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Clever Ways to Reduce or Eliminate Your Housing Costs

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.

We all know that aiming to live well below your means will help you save more money, get out of debt, and get ahead financially overall. To supercharge this process, you may want to consider attacking your largest expense: housing.

Just being able to save $200, $500, or more each month on housing could put a large dent in your debt repayment or help you seriously pad your savings. Reducing or eliminating your housing expenses might sound difficult, but there are so many different strategies, at least one could work for you.

What’s more is that these options don’t have to be permanent. You can always go back to a more traditional housing situation once you feel like the arrangement has run its course.

See if one of these ways of cutting your housing costs might work for you.

Be Energy Efficient

The eco-revolution is here, and as a result, there are so many ways to save on utilities. A bonus is that some energy-efficient modifications and products can help you earn federal tax credits.

The list of things you can do is long and can get expensive, but there’s some low-hanging fruit when it comes to reducing your energy consumption:

  • Stop air leaks with caulk, insulation, or weatherstripping
  • Swap out incandescent lights for LED lights
  • Turn down your water heater and get a jacket for it
  • Plug your devices into powerstrips that minimize idle current usage (or unplug devices altogether)
  • Use rainwater barrels for your outdoor water needs
  • Air-dry your clothing
  • Choose light colors on flooring and walls to minimize artificial light use during daylight hours
  • Program your thermostat
  • Get alerts for higher priced kilowatt rates during certain hours of the day

You get the point. The more you can minimize your energy use, obviously the more money you’ll save on these costs. Pick a few that work for you, then use the money saved to get ahead in your finances.

Put Your Bills on Autopay

Not only will this small gesture save your sanity, it could potentially save you fees and penalties connected with late payments. You can set up automatic payments to be deducted from your bank account or a credit card account. If you choose the latter, be sure to avoid carrying a balance from month to month and pay your credit card bill on time as well. Otherwise, the interest and late fees from missing your credit card payment could cancel out the benefits of your autopay set-up.

Appeal Your Property Taxes

If you’ve ever gotten those solicitations in the mail from companies that claim to reduce your property tax bill, don’t put it in the junk pile quite yet. According to the National Taxpayers Union, up to 60% of U.S. properties are over-assessed. This means that 60% of Americans could be paying inflated property tax bills.

Many property owners don’t even know that they can get their property tax bill reduced via an appeal process. Because of this, it’s very possible that you are paying too much for your property taxes.

The appeal process to get your taxes can seem daunting, but it’s usually a string of paperwork and deadlines. Of course, you’ll be dealing with government entities so that could add a layer of complexity to the whole ordeal, but it’s not insurmountable.

If you have the time and ambition, it’s a process you could easily undertake yourself. If not, it may be worth hiring help to file and follow up through the property-tax appeal process. If the appeal is successful and your property taxes are reduced, you’d fork over a portion of the savings to the firm or person you hire.

Shop Around for Insurance

If you’ve got home insurance, you are likely to have other policies for vehicles, and perhaps you also have coverage for health and life insurance benefits, too. If you’ve got insurance needs that require multiple policies, you can leverage your buying power to shop around for better rates.

Shopping around for insurance can seem straightforward, but be ready to use your brain to the utmost in this endeavor. Not only will you need to compare prices, but you’ll also want to compare things like coverage amounts, premiums, deductibles, and available riders at the quoted prices.

Fortunately, there are comparison sites and independent insurance agents that can make this task a little easier. Either way you do it, it’s a good idea to check around every once in a while to make sure your current insurance provider is being competitive and offering you the best rate.

Become a DIYer

One of the most costly expenses of owning a home can be maintenance, repairs, and upgrades. Save money by learning to do some things around the house yourself. There are many resources to help you with anything you don’t know much about, from books, to websites, to YouTube. Though it can take more time, you might come out ahead by cutting your own grass or installing your own kitchen backsplash.

If you’ve got complicated jobs that require special expertise and equipment, consider a partial DIY approach. For example, if you’re redoing your bathroom, you might ask the contractor about things you can do yourself to shave the bill down some. Demolition and cleanup of existing fixtures might be the type of work you can handle.

Don’t be afraid to experiment, but definitely be wise about the projects you decide to take on yourself. Finding the right balance between hiring and DIYing can save you time, money, and headaches as a homeowner.

Rethink Your Home Purchase Plan

Getting a conventional mortgage with vanilla terms that include a 10%-20% down payment and a 30-year loan period are all too familiar to the home-buying public. But if you really want to save on the single largest expense in your life, you might have to be a little more flexible than the standard terms accepted on most home loans.

Larger Down Payment

One approach to consider is putting down at least 20% on your home purchase. This will allow you to skip private mortgage insurance (PMI), which can amount to thousands of dollars over the life of your home loan. PMI can eventually go away over the life of the loan when certain criteria is met, but you can save more money by dumping it sooner than later.

Refinance Your Mortgage

Many people refinance their homes in hopes of getting a lower monthly payment or locking in a lower interest rate. Adjusting these numbers downward can definitely save money for some homeowners over the long run.

However, refinancing your home loan is not a silver-bullet solution that will work in every scenario. In some cases, it makes perfect sense to refinance, and in others, it wouldn’t be a good idea. The best thing to do is run the refinance numbers and make a decision. After doing the math, you might actually find that fees and extended loan terms could cause you to lose money rather than save it.

Make sure you fully understand the terms of your refinanced mortgage along with the potential impact on your entire financial outlook. Most definitely, confirm your assumptions about this move with math. If you need help running the numbers, check out this refinance calculator from myFICO.

Pay Cash for Your Home

While not an option for the average American, paying cash for your home is not unheard of. Paying cash for a home would eliminate tens, maybe hundreds of thousands of dollars in interest, mortgage fees, and PMI. If you think you’d like to go for the gusto and pay cash for a home, consider ways to make this feat possible:

Drastically Change Your Lifestyle

Though these options aren’t for everyone, they are still worth a mention. These suggestions are for those who might be willing to change their lifestyle in order to garner the most savings possible when it comes to housing.

Get a Roommate (or Two)

The home-sharing revolution has caught on, and everyone from young professionals to empty nesters are finding boarders on places like Craigslist and Airbnb. If it works out, it can truly be a good solution to help lower your housing costs. Plus, having a roommate can be temporary or longer term, based on your living preferences.

Again, this option is not for the faint of heart. Adding a roommate to your living equation could be utterly disastrous or surprisingly pleasant, so choose your housemates wisely.

Buy a Multifamily Unit, Rent One Unit Out

Depending on the location and property type in these situations, homeowners can often cover their entire mortgage amount with their renters’ payments. It can definitely have its benefits, but don’t buy that two-flat just yet.

Remember, with this arrangement, you’ll be swimming deep in the waters of landlordship. How it all pans out can be based on so many variables: the landlord, tenant, property, location, and a host of other factors can make this arrangement easy income or a nightmarish headache.

If things go wrong with your property, your tenant doesn’t share the burden of fixing things though they live there just the same. There can be costs associated with maintenance and repairs that go well beyond the monthly income your rented unit brings in. You’ll want to have a comfortable cash cushion for incidentals before starting your homeownership journey as a landlord.

Downsize

You don’t have to join the tiny home revolution to downsize (though it’s not a terrible idea). Downsizing can look different for different people. Downsizing for one person might be moving from the lake-view two-bedroom apartment to a studio in a less ritzy location. You’ll have to decide what downsizing looks like for you and if it will be worth the effort.

While you might not be game for all of these suggestions, you can probably adopt a few that could change your financial situation significantly. Whatever measures you choose to save or eliminate your housing costs, make sure you are ready to deal with the consequences. These consequences can be both beneficial and somewhat inconvenient for your quality of life and your financial health. In the end, you’ll have to determine if it’s worth it.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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3 Investing Strategies to Save for a New 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.

3 Investing Strategies to Save for a New Home

Buying a home is one of the most significant financial decisions you will make in your lifetime. For many Americans, saving for a purchase of that magnitude can feel impossible. The good news is there is no shortage of strategies you can choose from. The number one factor to consider (apart from your income) is how much time you have to save. Depending on when you plan on buying, some options may be better than others.

Here’s a guide to saving for a new home with various timelines in mind.

If you want to buy a home in the next 3 years…

Every investment option comes with a degree of risk, and with only a few short years to save, it’s likely not a wise idea to take big risks with your savings. The last thing you want is for the money to lose value without enough time to recover.

In this case, you should be looking for savings options that offer safety rather than growth, like a high-yield savings account and certificates of deposit (CDs). These are very low risk and, best of all, come with guaranteed returns on investment. If you’re looking for the highest paying savings accounts in your area, you can use our free comparison tool. We also have a list of the best CDs for the month.

If you want to buy a new home in 4 to 7 years…

The longer you have to save for a home, the more creative you can be with your investing strategy. The key is to strike the right mix between safety and growth. You want your money to grow at a comfortable enough pace to beat inflation but maintain enough conservative investments to offset any potential losses you might experience in the market.

You may be able to achieve this with a 25/75 portfolio.

The 25/75 portfolio strategy is pretty simple — no more than 25% of your money is invested in stocks, and the remaining 75% are in bonds. This blend of stocks and bonds should allow your money to grow modestly while keeping safety top of mind. You can start this process by opening a brokerage account and choosing your own mutual funds to reach the right mix. But do your research first. For example, U.S. News & World Report maintains a list of funds that are ranked for their allocation, fees, and performance. 

If you want to buy a home in 8 to 10 years…

Time is certainly on your side if you’ve got nearly a decade to save for your dream home. The key is taking on the right amount of risk. Because you have so much time to save, you can afford to take riskier investment bets, which can potentially reap much higher rewards in the long run.

Consider a 50/50 investment strategy: You’ll invest 50% of your savings in stocks and 50% in bonds. You should have just enough risk to ensure you’ll beat inflation and then some, but still be conservative enough to be able to weather any downturns in the market. To achieve the perfect 50/50 mix, you could split your money evenly between your own selection of stocks and bonds. For those who like a more hands-off approach, U.S. News & World Report has a ranking of mutual funds that are preset to give you the 50/50 allocation. There you can select the fund you feel suits you best. 

Deciding where to invest 

Where you invest your money matters. Save your money in the wrong place and taxes could eat up a portion of your gains each year. You could also be in a situation where taking the money out to buy a home could cause a penalty as well.

If you plan on buying a home in five years or more, strategically using a Roth IRA could be your best option. With a Roth IRA you can withdraw all of your contributions without penalty; additionally, you can withdraw $10,000 of the earnings without tax or penalty for a first-time home purchase. 

Lastly, a plain brokerage account may suit you. There are no tax advantages to investing here, but if you’re using the account to buy a home in the future, there may be more benefits in other areas. You can only contribute $5,500 ($6,500 after age 50) in a Traditional IRA or Roth IRA, and withdrawals are subject to strict rules. A regular brokerage account, on the other hand, has no limits to what you can put in or take out for home purchases or any other purchases. Take a look at your situation and see which options fit you best.

What about my 401(k)?

A common question most people ask is whether they should use their 401(k) to grow the money and then use it to buy a home. This is usually a bad idea. If you withdraw the money before age 59½, you would be subject to a 10% penalty, plus income taxes on top of that amount. In addition, the amount that you withdraw could severely alter your retirement goals. This is called an opportunity cost.

A better idea, though still not one we recommend, is taking a loan from your 401(k). You are allowed to take a loan of up to $50,000 or half the value of the account balance, whichever amount is less. This is still a loan, however, meaning it could affect your ability to qualify for a mortgage. You also have to pay this loan back. Depending on your company’s 401(k) rules, if you leave the company, the entire balance of the loan might come due within 60 to 90 days after you leave. If you stay with the company, you could be required to pay the loan back within five years.

Thankfully, your 401(k) isn’t your only option. Taking money from a Traditional IRA is a bit better. You are allowed to withdraw $10,000 without penalty for a first-time home purchase. This may change your tax situation as any withdrawal would have to be counted as part of your regular income. For most people this still isn’t the best option but certainly better than dipping into your 401(k).

Making a clear goal

Do some research to see what home prices are like in your desired area. Then make a clear savings goal. An easy way to do this is to take 10 to 20% of the average home value in your area to estimate your downpayment. Use this calculator to see how long it will take you to reach your goal.

Kevin Matthews II
Kevin Matthews II |

Kevin Matthews II is a writer at MagnifyMoney. You can email Kevin here

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Review: You Need a Budget (YNAB) — The Budgeting Tool That Makes Every Dollar Count

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 Budgeting Tool That Makes Every Dollar Count

You Need a Budget (YNAB) is subscription-based budgeting software available both on desktop and mobile devices. Its trademark mantra is, “Give every dollar a job.” That means as you have money coming in, you assign it a budget category. Once you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.

How Does ‘You Need a Budget’ Work?

When you first sign up for You Need a Budget, you will be asked to link your checking, savings, and credit card accounts. This allows the app to see exactly how much money you have at this very moment.

Next, you’ll add upcoming transactions like rent, utilities, and groceries. As you add these expenses, you’ll also be prioritizing them. The ones that are most important (generally rent or mortgage payments) will go on top, and the ones that are a little more frivolous like entertainment spending will go at the bottom.

After you’ve set up transactions you know are coming, you’ll be able to establish goals. You can set up goals by a date, in which case the app will tell you how much you have to save per month to meet your objective. You can also set them up by how many dollars you’d like to allocate toward them per month, in which case the app will tell you how long it will be until they are fully funded (or in the case of debt repayment goals, paid off).

6 January screen shot 1

You’ve linked accounts. You’ve accounted for bills and upcoming spending. You’ve set goals. Now it’s time to fund all of those things! You start with the money you have, and not a penny more. You assign each dollar to a certain line item, again, starting with the most important items at the top. Once you reach the end of your current funds, you won’t be able to budget any more until you get more cash in your hands.

If you are able to fully fund one whole month, then you can use any excess funds on hand to start funding the next month. The more you do this, the happier the founders of YNAB get. Their entire philosophy is that you should “age your dollars,” meaning the further in advance you can fund a transaction or goal, the more financial stability you will have.

How Much Does ‘You Need a Budget’ Cost?

Currently, You Need a Budget offers a 34-day free trial — no credit card required. After that, you will have to pay either $5 per month or $50 per year. Students get twelve months free, after which they’ll be eligible for a 10% discount for one year. If you have a previous version of YNAB, you’ll be able to score a 10% lifetime discount on the latest version.

Fine Print

 YNAB  Budget App
YNAB is extremely transparent and seemingly ethical in their practices. They do not sell information to third parties, but may give others access to it in the course of business as they work to facilitate the software through companies such as Amazon Web Services and Finicity, which are two trusted names in the Fintech industry as far as security is concerned. Your data is always encrypted, and will be completely and irreversibly deleted upon request should you ever choose to close your account.

Pros and Cons

You Need a Budget is commonly recognized as one of the best budgeting apps around. That doesn’t mean that it’s perfect for everyone, though. Think through the pros and cons before downloading.

Pros

  • Transparent company.
  • Committed to security and positive user experience.
  • Helps you change your financial habits through a simple, yet revolutionary, process.
  • Prioritizes your expenses each month.
  • Forces you to address overspending.
  • Allows you to set goals.
  • Can be used by those who get paid regularly and receive W-2s or by freelancers.
  • There are user guides and lessons accessible to members to deepen your understanding of common personal finance principles and concepts.
  • There is a community where you can get support.

Cons

  • There is a price for your subscription.
  • This won’t be good software for you if you’re a percentage budgeter as the interface makes no allowance for that method.
  • At this point in time, there are no reports or analyses to help you disseminate your habits. They are promised on the horizon, though.

How Does ‘You Need a Budget’ Stack Up against the Competition?

YNAB is an extremely useful and user-friendly app. However, it does come with a fee and is far from the only budgeting software on the market. Here are some other options you may want to check out if the YNAB $50 annual subscription is getting you down:

Mint.com

While it may not use the “give every dollar a job” philosophy, Mint.com solves very similar budgeting problems in a very free way. It allows you to link accounts, plan for upcoming expenses, and set goals. It also provides charts and graphs to analyze your past behavior and provides your FICO score at no charge — two things YNAB doesn’t do. The biggest con to this no-cost application is that it is laden with ads.

Wally

If you don’t like the idea of your financial accounts being linked to a third-party app, another free option is Wally. When you use this app, you’ll have to be a lot more diligent at inputting your income and expense as none of it will be automated, but that’s the price you pay for keeping your bank account info completely separate.

Level Money

Level Money is a free app that allows you to link accounts, gives you insights into how much you have left to spend in any given category on any given day, and comes 100% ad-free. This app isn’t the best for the self-employed or those with variable income, and also isn’t as useful for those who make a lot of cash purchases.

Who Should Use You Need a Budget?

You Need a Budget is great for anyone who wants to get a hold on their money today, but doesn’t necessarily want to analyze their past spending. It’s developed for people who prefer budgeting by dollars rather than percentages, and comes with extra savings for students who are trying to establish good money habits at a younger age. It is time-tested, and is created by a company that has continually shown it cares for its customers.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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5 Things Millionaires Understand About Investing

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.

retirement retire millionaire happy couple on the beach

The idea of investing like a millionaire can seem complex — and, for some, a little intimidating. But let’s bust some myths about becoming a millionaire. There are no top-secret ingredients needed. When you figure out their investing recipe, you’ll find out the habits that helped millionaires achieve seven-figure status are remarkably simple.

And no, you don’t need a finance degree, access to a Bloomberg Terminal, or even much investing knowledge at all to invest your way to a million bucks. According to a 2014 Spectrem Group survey, 20% of millionaires said they did not consider themselves knowledgeable about investing, and 60% of those who consider themselves fairly knowledgeable admit they still have a lot to learn.

Here are a few ways you can invest like a millionaire right now.

Millionaires know how to tune out the noise and stay focused

Millionaires know how to tune out the noise and stay focused

Millionaire investors know that when it comes to money, perception is not always reality. No matter what the headlines on cable news networks or social media say, you should never let those messages sway your investing strategy.

Take Twitter (TWTR), for example. When the social media site went public in November 2013, the media covered the event obsessively. And when Twitter debuted on the stock exchange, its stock value shot up 73% the first day, making it the most traded stock of the day. But what happened since then? Twitter has lost more than 55% of its share price. A $1,000 investment in Twitter back in 2013 would be worth less than $400 today. CNBC’s Jim Cramer was still singing Twitter’s praises back in June 2015. Had you invested then, however, you would have lost 13% of your money.

The same knowledge works in reverse. When the market is performing poorly, it feels logical to get your money and run. But you could actually lose money in the long-term. Smart millionaires develop an investment strategy, and they stick to it (for the most part) come what may. Checking up on investments and reading too much into headlines can actually be harmful. It is best to set up recurring dates to check your investment strategy in advance instead of being reactionary and checking only when you see good or bad news.

Millionaires know success doesn’t have to be complicated

Millionaires know success doesn’t have to be complicated

Your investment strategy does not have to be complex in order to be effective. There is nothing wrong with a simple investing strategy; in fact, the most successful strategies can be explained to children.

For example, famous investors like Warren Buffett and Jack Bogle have long championed the merits of investing in index funds. While a regular mutual fund attempts to pick a select group of the best companies, an index fund on the other hand allows investors to own a share of every company. The strategy behind index funds is that you are able to invest in many companies at once, without putting all of your eggs in just a few baskets.

Or, look at it this way: Instead of trying to find all the best-selling books individually, you can just buy a piece of every book in the bookstore. Barnes & Noble doesn’t shut down every time one book fails to sell well, because it has thousands of others on the shelf to balance out its risk.

Not only do index funds often beat their more complex (and expensive) counterparts, they’re actually the most common investment choice for millionaires.

Millionaires know when to act their age

Millionaires know when to act their age

Your investment portfolio is a living, breathing organism that will change over time and need to be adjusted accordingly. Asset allocation — the amount of money you have in stocks and bonds — will be responsible for the bulk of your investing success.

If you’re in your 20s or 30s, keeping 80% to 90% of your portfolio in stocks may be fine depending on how you feel about risk. But your allocations should shift over time, becoming increasingly more conservative with age. It’s generally considered unwise to have so much of your investment funds invested in stocks when you are five to 10 years away from retirement. Millions of people during the Great Recession were hurt tremendously by the market crash because they were too heavily allocated in stocks.

One rule of thumb to check your allocation is to subtract your age from 110. Doing so should give you the percentage you should be investing in stocks. Someone who is 35 years old, for example, should have about 75% of their money in stocks and 25% in bonds. Though it isn’t a perfect rule of thumb, it does give you a general idea of whether you’re going in the right direction.

Again, your risk tolerance is almost as important as your allocation. If you are 90% allocated in stocks and you wake up in a cold sweat each night because you’re worried about the market, you might be better off allocating more into bonds. Of course, you might miss out on big gains when the stock market does well, but at least you’ll be able to sleep at night. An easy way to invest your age is to invest in target date funds. These funds are tied to your estimated retirement date and their allocations will automatically adjust as you age.

The key is staying invested even during the down times. Don’t panic because of a drop in the market. In most cases if you’re properly allocated, you should have nothing to worry about in the long term.

Millionaires probably didn’t wait until they were millionaires to start investing

Millionaires probably didn’t wait until they were millionaires to start investing

You don’t have to wait until you have a lot of money to get started in the market.

If a worker were to save just $5,000 a year between ages 25 and 65, it would be possible to become a millionaire. That breaks down to about $417 per month. If you’re putting this in a 401(k), you could be getting a match, meaning you wouldn’t have to put in the full $417. If $417 still feels like a lot of money, you can invest less, but you’d likely have to do it for a longer period of time. There is nothing wrong with starting small, but no matter what you have, it is imperative that you start.

Most workers would do well to open a 401(k) and set aside a percentage of their paycheck each month. If your job offers a matching 401(k), you should at least max out your contribution to capture the full match. That match is like a guaranteed return on your money, something the stock market can’t offer. If you aren’t quite ready to explore 401(k) or IRA options, consider saving a small amount of your pay each month.

Millionaires know cash isn’t always king

money

As stated earlier, we have a natural aversion to risk. There are many people who feel it is in their best interest to wait until it’s the “right time” to invest or would rather just invest in something with a much lower return because it feels safer.

In their latest guide to retirement, the folks at J.P. Morgan show how investing in cash can seriously limit your ability to grow your wealth.

Let’s start with Noah: He is very conservative. He invests in no individual stocks and no mutual funds. He’s just afraid of losing his money. From ages 25 to 65 Noah invests $10,000 every year in very safe investments like money market accounts and CDs. Assuming he gets a generous average return of 2.25%, Noah would have $652,214; he put in $400,000 of that amount on his own.

Quincy on the other hand also starts investing $10,000 at age 25 each year and stops at age 35. Quincy decides to take on more risk by investing his money in mutual funds. With an average return of 6.5%, he would have $950,588 by age 65!

Though Noah invested four times the amount of money, he’s still nearly $300,000 behind Quincy. Millionaires know the key to investing isn’t to avoid all risk, but instead to take the right amount of risk given the situation.

Ready to make your first million? Check out our tips on how to buy your first stock and kickstart your 401(k).

Kevin Matthews II
Kevin Matthews II |

Kevin Matthews II is a writer at MagnifyMoney. You can email Kevin here

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What Happened When I Used a Credit Card for the First Time in 7 Years

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.

Credit card fraud

The following story is an excerpt from “The Recovering Spender: How to Live a Happy, Fulfilled, Debt-Free Life” by Lauren Greutman.

I decided to do a little experiment. I took myself off a budget for three months and made myself start using a credit card again. I’d been successfully budgeting for more than seven years, and had successfully paid off over $40,000 in debt and half of our mortgage.

People around me consider me very good with money, and I agree with them; I am very good with sticking to a budget. I know my boundaries and how to stay within the fence. (Remember, I wasn’t always this way.) But I wanted to see what would happen if I took myself off a budget, stopped using cash, and used a credit card instead. I haven’t owned a single credit card in years, ever since we put ours through a paper shredder. I’ve been using cash for most of the past seven years, so using a credit card again was way outside of my comfort zone.

The first thing I did was to sign up for a card that would give me a certain amount of points if I spent $3,000 in the first three months of using it. I then stopped using cash and decided to only use the credit card for those three months. My goal was to earn enough points for a free stay at a hotel for a fun vacation for my family. I wanted to see how quickly my money rules would go out the window and I would turn back into a Spender.

How bad could it be?

In the first week I did pretty well. I didn’t spend too much unnecessary money. I did try to find different ways to spend money using the credit card so that I could earn extra points. I paid a few of my bills with the card and paid them o right away online. I figured this couldn’t be bad. Two nights that week I had nightmares in which I woke up in a panic attack.

The nightmares were about moving back into our old house in South Carolina, and they were both the same: We decided to return to our old home and found it was back on the market, so we bought it again. I saw my family of six living in the same house where we had lived in during those stressful years. Not only were we back in that house, but we were also again in $40,000 worth of debt. Those dreams felt so real. They were the kind where you wake up and your heart is beating fast and you aren’t sure if you are awake or asleep. I woke up in my current house, thankful that it was only a dream. There was no way I wanted to go back to that old way of life.

Looking back, I see those dreams as a warning. Both times I woke up mid-dream in a panic attack that we were going to go back into debt. I was terrified of using the credit card again. It literally was giving me nightmares, and I found myself hating what I was doing. I could see myself going down the same path again, and I was terrified. I never want to go back to that place of no self-control, transferring balances to zero percent credit cards to stay afloat, and constantly stressed because we didn’t have the money for basic essentials.

Sticking it out

At this point, I wanted to quit my experiment; it was just too hard for me to go back to old habits. Ultimately, I decided to stick it out, because the question of whether I would fall back into my old spending habits had not been answered yet.

One day I was having a rough time with the kids. I looked at my husband, Mark, and said, “Can I just go somewhere by myself for an hour?” Being the great husband that he is, he put the kids to bed and I left the house to find something to do. I live in a small town and there isn’t much open in the evening, so I did what most people do and headed to Walmart (it would have been Target if I had one nearby). I found myself walking around the store, sick to my stomach and anxious, looking around for something to “do” and something to buy.

I picked up a York Peppermint Patty, a new curling iron, and some fake eyelashes (a total impulse purchase). I was sad, depressed, and feeling totally lost. I found myself wandering around the brightly lit store without a plan or goal. It was a very lonely feeling, but I realized that living without a budget made me depressed. I had no idea how much money was in our checking account. It felt horrible! Ironically, that feeling of depression over not knowing what was going on led to more spending because of boredom.

Three months later

At the end of my experiment, three months later, I was a complete mess. I had spent $3,000 on the credit card but paid it off in full every month. Yet I had somehow managed to spend an extra $2,000 on that card and didn’t know where the money had gone or what I had spent it on. I was anxious because I had no idea what we had in our bank account, and I was stressed out to the max. Here I was, seven years later, sitting on that same bed in our much smaller master bedroom. I knew that if I continued to use credit cards this way, I could end up dead broke again.

This was a huge milestone for me in my journey to financial independence. I realized that I will never “arrive” at being good with money. I will forever be in “recovery” as a Spender, and one of the things that I need to continue to do to keep myself in recovery is to stay within my fence.

I know that staying inside the fence works for me. I know that if I use cash and set a budget with Mark, I stick to it and feel safe. I don’t know why I always try to play with fire, but whenever I do, I certainly get burned! As a well-known expert in the field of frugal living, it’s hard to admit that I still have the ability to overspend. But how helpful would I be if I said I was perfect?

A common reason that Spenders continue to spend is that you lie to yourself—you tell yourself that you can stop spending, but the spending continues. You feel out of control, and that feeling leads you to spend more, and you continue to feel out of control.

If I were to tell you that I have it all figured out, I would be defeating the entire purpose and message of this book. I know that I will always be a Spender, but after seven years of successful budgeting and not owning a credit card, I thought I was strong enough to have one.

The reality is that I am not, and I’m not sure I ever will be. But what I do know is that if I set a budget and make sure I am safe within my fence—I do amazingly well! I got us into over $40,000 worth of debt, and I got us out of over $40,000 worth of debt. I got us in debt by using credit cards, and I got us out by not using credit cards.

Life inside the fence

I decided to run this experiment on myself to see if I am strong enough to live outside the fence, to see if so many years of good financial habits had changed me. Unfortunately, the conclusion is that despite my excellent financial habits and new ways, it’s dangerous to reintroduce some of my old temptations, because I fall right back into my old ways.

This is why this book is called The Recovering Spender and not The Recovered Spender. To be in recovery, you must constantly be trying to better yourself. If I were recovered, I would be able to use a credit card and not overspend.

I am in recovery, which means that I am in a constant state of trying to better myself and improve my spending habits. I realize that one bad turn can lead me down a road that I do not want to travel. One bad financial move can turn into a financial disaster for anyone who is a Recovering Spender like I am.

If you find something that works and helps you stay inside your fence, by all means continue doing it! Despite how much time you’ve been inside your fence, there is always danger on the other side. I much prefer to stay within my fence, stay out of debt, be happy and financially fulfilled by keeping a budget, and live the rest of my life as a Spender in recovery.

Lauren

Lauren Greutman is the frugal living expert behind the popular money saving blog laurengreutman.com (formerly iamthatlady.com).

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10 Things I Wish I Knew about Money in My 20s

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.

millennials

For all you 20-somethings out there, know this: We 30-somethings, we get it. We get what it’s like to be a 20-something struggling to find your way and make ends meet financially. We get that your baby-boomer parents don’t always seem to understand the social and financial pressures 20-somethings face nowadays. We get that times have changed, and that financial advice from folks 30 years your senior – folks who themselves grew up in a dramatically different era – doesn’t always seem relevant. We get what it’s like to be you because we so recently were you. In many ways, we still are you.

That said, while the gap in years between your 20s and your 30s isn’t all that large, the life changes that often occur in that time period tend to be dramatic. And whether it’s marriage, children, or the fact that some of us are now closer to 50 than we are to 20, most 30-somethings, myself included, suddenly find themselves looking back at a long list of financial moves we’re either glad we made or wish we made when we were in our 20s.

So, without further ado, here are 10 pieces of financial advice I wish I had known in my 20s.

1. Live at home for as long as you can.

If the offer to live at home is on the table, then consider yourself lucky and take it. Even if only for a year or two, the savings are significant. I know living with your parents might not seem hip, but take it from a 30-something, there’s nothing hip about paying thousands of dollars in rent unnecessarily. If you do live at home, be mature about it. Help out around the house when and where you can, and don’t be surprised or offended if you’re asked to chip in financially.

2. Pursue a postgraduate degree only if you’re sure you’ll need it and use it.

The world is littered with 30-somethings who piled on additional student loan debt to pursue an expensive postgraduate degree they’ve never put to use. Not knowing what you want to do is fine. Paying for graduate school on account of it is not.

3. Don’t make money-driven career decisions … yet.

Now, I’m not saying money shouldn’t be a consideration when weighing job offers and career paths. But I am saying that for a 20-something, it shouldn’t be the only consideration. There will come a day when, out of necessity, financial considerations guide your career decisions. Your 20s shouldn’t be that time. Instead, use your 20s to explore, learn, and find a career you find fulfilling and, hopefully, enjoyable.

4. Keep credit card debt out of your life.

By the time your 30s roll around, you will regret every penny you spent paying interest on a credit card. Use your credit cards to build your credit history and earn rewards, but be sure to pay them off in full every month.

5. A 401(k) match is your best friend.

Regardless of what decade of life you’re in, free money is free money, and it’s never to be passed up. If you’re lucky enough to work for a company that offers a 401(k) match, then be sure to sign up and start contributing from day one.

6. A Roth IRA is your second best friend.

One of the best ways for 20-somethings to put themselves in a great financial position come their 30s is to start investing in a Roth IRA as soon as possible. If you’re not familiar with a Roth IRA, there are many great resources available to help you learn. But it really is pretty simple. You contribute after-tax money, and your investments grow tax free and cannot be taxed as ordinary income if withdrawn during retirement.

7. Automate everything.

One of the major advantages you have as a 20-something is your comfort and familiarity with modern online tools and technology, a growing segment of which is being built specifically to help you get a head start financially. Perhaps the best thing modern technology does is help you automate everything. Automation is the easy button for managing your finances as a 20-something. So, whether you’re talking about credit card payments, bill paying, 401(k) contributions, investments in your Roth IRA, or anything in between, automate it and know it’s done.

8. Skip the wedding of the century.

Yes, I know, easy for us to say. We 30-somethings all spent a fortune having grand weddings. But that’s exactly the point. We spent a fortune. And trust us, your wedding day will fly by, and you won’t remember every last detail about place settings and flower arrangements. What you will remember is how much you spent on it. There’s no limit to the good use to which 30-somethings could put all that money spent (or should I say, blown) in one day.

9. Spend on experiences, not things.

As we 30-somethings can attest, you’ll never look back and regret the things you didn’t buy (they go out of style fast anyway), but you will regret the experiences you never had. Which is why it’s no surprise so many millennials prefer to spend money on memorable experiences, like traveling the world, over things, like the hottest smartwatch. 

10. Understand that time is on your side now, but it won’t be forever.

The biggest financial advantage you have as a 20-something is also the most fleeting – time. Hard as it may be to believe now, your 30s aren’t that far off. Whether it’s planning, saving, or investing, the sooner you start, the better off you’ll be. 

If there’s one thing you take away from this long list of advice, make it that last point. There are few absolute truths in the world of finance, but in all aspects of money management, if you get started as a 20-something, you’ll be glad you did once you’re a 30-something. Trust us on that one.

Brian Smith
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Brian Smith is a writer at MagnifyMoney. You can email Brian here

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