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Do You Have Too Much Debt?

Editorial Note: 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 prior to publication.


It may seem normal to have debt. After all, total household indebtedness in the U.S. hit a record high of $13.21 trillion as of March 2018.

While it seems like so many Americans carry debt, it may be hard to judge just how much debt is too much debt. There is no “right” amount of debt to have, nor is it easy to figure out how much debt is too much for the average person to handle.

“The appropriate amount of debt is a very personal question,” said Arielle Minicozzi, an executive financial planner at Sphynx Financial Planning. “What feels comfortable for one person may be overwhelming for another.”

There is a point when having too much debt, or too much of the wrong kind of debt can seriously harm your current and future financial situation. When you’re juggling different types of debts, it can be sometimes difficult to realize you have too much owed until it’s too late. We spoke with Minicozzi and other financial experts for their best tips to help tell when you have too much debt on your plate.

Good debt vs. Bad Debt

Debt — in most cases — should be avoided, according to the experts we spoke with. But, some debts make more financial sense to take on than others.

Good debts are debts that help you grow

Debts generally thought of as an investment in your future, like a student loan or a mortgage, are considered good debts. Good debt generally carries a low interest rate and has fixed payment terms, Dan Andrews, a CFP with Well-Rounded Success in Fort Collins, Colo., told MagnifyMoney.

“Our economy allows people to take on debt to pursue opportunities without having to save all the money upfront,” Andrews said. “Lots of people go to school, open businesses and get houses by leveraging debt.”

Andrews adds taking on those kinds of debts — the ones that help you improve your financial life — can be a great way to improve your overall wealth and accumulate assets through your career.

Bad debts slow financial progress

Sometimes we take on what are considered “bad” debts. Bad debts are generally unsecured by an asset and carry high-interest rates on variable terms, like credit cards.

If not managed properly, bad debt can stunt or reverse your financial progress.

“In a perfect world, you’d only use debt strategically because you’d be able to pay cash for everything, however, many of us do not have that luxury,” said Angela Moore, CFP and founder of ModernMoneyAdvisor.

Of course, even good debts can quickly turn into bad debts if you let them spiral out of control, or fall on hard times and struggle to pay them off. For example, you took student loans but did not earn a degree that would have increased your income, or if you took out an auto loan for a car you can’t afford. In these cases, a good debt suddenly becomes a true liability, putting your finances and even assets like your home or your car, at risk.

You can prevent this by being sure you have a healthy emergency fund saved for lean times, and hold yourself back from taking on more debt than you can afford in the first place.

– View this article to get more information on good debt vs. bad debt!

5 warning signs you have too much debt

Beyond just the good and bad, you don’t want to realize you’re in over your head with the debt you’re responsible for paying back. Here are a few warning signs that may indicate you’re getting to that point.

1. You can’t get peace of mind

Minicozzi said the first sign you have too much debt is that you’re feeling overwhelmed and stressed by your bills. If you get anxious at the thought of looking at your balances, and managing your finances is affecting your peace of mind, that’s a red flag you may have bitten off more you can chew.

2. You’re diverting money from your goals

If your other financial goals are suffering, it may be time to make a change. For example, a red flag would be if you are diverting funds away from important goals like retirement savings month after month.

“Once you get to that point, it’s a good sign you need to have an honest conversation with yourself about your repayment strategy,” said Minicozzi.

3. You have no strategy to pay off your debt

If you have a number of debts, you may be making payments each month. But you may not have in place a strategy for finally paying off your debts. If you don’t have a plan that pays off your debts in full, you may have more than what’s manageable for you, according to Moore.

4 You’re not making any progress

Kristi Sullivan, a Denver.-based financial planner at Sullivan Financial Planning, said a main red flag is that you are not making any progress paying down the principal. You are only making the minimum payments, which is just paying off interest each month.

5. The numbers just don’t add up

Looking at a few key numbers may help you point to the conclusion that you have too much debt on your hands for your comfort level. The following are suggested benchmarks and ratios the experts we spoke with suggest you consider when trying to figure out if you have too much debt.

Here are five numbers to check.


Your debt-to-income ratio

“A good rule of thumb is that your total debt payments, including a housing payment, should be no more than 40% of your monthly income,” said Minicozzi.


Your credit score

“Your credit score allows you to put a number on how responsible you are in the bank’s world. The higher the number, the more responsible possible lenders feel you are to repay the loan; so good job to you for being responsible,” said Andrews. Good credit is considered a FICO score of 670 or higher.


Your credit utilization

A high credit utilization ratio — which measures the overall credit limit you are using up — can indicate you’re leaning on your credit cards too much to make ends meet. The utilization ratio is the second most important factor in determining your credit score so reducing your utilization could improve your score, too.

“As far as maximizing your credit score, keeping balances on your cards below 20%-30% of their limits is ideal,” said Minicozzi.

For example, if your overall credit limit on all of your accounts is $10,000, your goal would be to use less than $3,000 of your balances on those cards.


Your net worth

Your net worth is just a step further than your debt-to-income ratio. If your net worth is negative and you own valuable assets, it may be an indication you should focus on paying down your debt to bring that number into the positive.


Your housing expense

Housing is the largest expense for most households, and a necessary one. A mortgage is considered good debt, or even an asset by some. On the other hand, a mortgage you can’t afford could leave you with too little left over to cover other bills and savings. Moore advised you pay no more than 28% of your gross income on housing.

Action steps to take if you have too much debt

After you’ve found you have too much debt, you can start planning to pay it off.

Create a budget

“While some people are in debt due to factors outside of their control such as medical expenses, mostly it is because of choices that now require sacrifices to reverse. Get ready for life to change, at least while you are digging out of debt,” said Sullivan.

Find expenses to trim

“You may be living in too nice of a house or apartment and need to adjust your living situation. Roommates or a less desirable area of town to cut down on housing costs can free up big chunks of cash to pay down debt,” said Sullivan. She added downgrading your car choice (changing to a car that costs you less to own and/or maintain) will lead to lower taxes and insurance costs on transportation.

Make a debt payoff plan

With your unsecured debts, you can employ one of two debt paydown methods: the debt snowball and the debt avalanche.

When you snowball debt, you order all of your debts by balance and prioritize paying off the account with the lowest amount first. If this method suits your personality, paying off lower balance loans may motivate you to pay off the remainder of the debt.

The avalanche approach has you order your debts by order of interest rate. Prioritize paying off the account balance with the highest interest rate while still making minimum payments on the other debts. The avalanche method saves you money in the long run since you can avoid paying the most interest and address the principal of your debt faster.

Whatever you do, don’t “wing it” with debt repayment, Andrews said, “A ‘winging it’ mentality can snowball out of control, especially if there is credit card debt.”

Try consolidating your debts

If you find it’s difficult to manage several debt payments each month, debt consolidation can help to simplify your debt payoff process. Debt consolidation can combine multiple debts — like credit card debt, auto loans, medical debt and student loan debt — into a single debt with one monthly payment. In some cases, consolidating your debts could even save you money on future interest payments as you pay down the balance.

Two common debt consolidation methods are to use a personal loan or balance transfer credit card.

If you use a personal loan for debt consolidation, you’d pay off other debts using the cash you’d receive from the personal loan, then pay down the personal loan in monthly installments.

When you use a balance transfer credit card, you can transfer the balances on your credit cards to another credit card with a 0% intro APR. Intro offers typically last from six to 18 months.

Ask for help

If you’re struggling to repay the debts and stay consistent, you may want to reach out to a credit counseling service or a financial planner to help you create a budget and debt repayment plan that works best for your financial needs.

“As long as you can pay your bills without sacrificing your long-term goals and as long as you aren’t stressed out over the level of debt you have, you’re in a good spot,” said Minicozzi.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


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How Debt Consolidation Affects Your Credit Score

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understanding good faith estimate vs loan estimate

Debt consolidation can sound intimidating, or something that requires professional help. But consolidating your debts with a personal loan doesn’t have to be scary or complicated. In fact, when used properly, a debt consolidation loan can be a helpful tool for managing debt if you find it difficult to juggle multiple debts and due dates. You can take control and consolidate debts on your own once you understand the basics.

When you consolidate, you’re simply taking out one new loan and using it to pay off multiple existing loans or bills. Ideally, you’d aim to qualify for a personal loan that offers a lower APR than the APRs of your debts, because that will save you money in the long term and help you pay it off faster.

In addition to making your debt easier to manage, debt consolidation can be helpful to your credit score, too.

“If you consolidate multiple other debts into a new personal loan, your credit score would likely be improved. You would free up available balance on all of the debts you transfer to the new loan,” said Melinda Opperman, executive vice president of, a nonprofit consumer credit counseling agency.

How debt consolidation can help your credit

One monthly payment makes it easier to manage payments. Fewer missed payments = credit score boost.

When you consolidate multiple debts with a debt consolidation loan, what you’re left with is one new monthly payment instead of several payments to keep track of. As a result, you may be more likely to make on-time payments, which will improve your credit score.

It may be easier to budget.

If you’ve missed payments in the past, which hurt your credit score, it could be because you’re constantly juggling different minimum payment requirements with different due dates. Some months, you may not have enough on hand when your bills are due. When you use a personal loan to pay off your debt, you apply for a personal loan at a fixed rate and a fixed repayment term. Because the rate and term are fixed, you’ll know exactly what your monthly payment will be each month and how long it will take to pay it off, so you can budget accordingly.

You’ll decrease your credit utilization ratio.

If you use that new debt consolidation loan to pay off high-interest debts, it can also help you pay off debt faster because you won’t be accumulating as many finance charges.

And, as the balances on those debts fall, so does your credit utilization ratio. Your utilization ratio refers to the amount of credit you used over the total amount of credit available to you on your cards. Credit utilization counts for 30 percent of your FICO score. The higher your utilization, the more damage it can do to your credit score.

Ideally, you should aim to use no more than 20 to 30 percent of your overall credit limit, but that’s not always easy if you’re struggling to keep up with multiple debts.

You can pay off delinquent debts.

The consolidation loan may help you pay off some outstanding balances or delinquent debts, causing your score to improve. You can use debt consolidation to consolidate almost any type of unsecured consumer debt, including credit cards. medical bills, utility bills, payday loans, student loans, taxes and delinquent debts that have gone to collection.

Delinquencies negatively impact the payment history part of your FICO calculation depending on how late they were, how much you owe, how recent a delinquent account is and how many delinquencies you have. Based on where you started, your score improvement will vary.

Read our guide on what you should do if you’re delinquent on debt.

You can diversify your credit file.

Opening a personal loan can add some diversity to your credit mix, which accounts for 10 percent of your FICO credit score. When you open the personal loan, an installment account will be added to your credit report. It’s beneficial your score to have a mix of both revolving credit like credit cards and installment accounts like a personal loan.

The personal loan is an installment debt, not a revolving line of credit like a credit card, so having the new debt on your credit report would have less of a negative impact on your credit score, Opperman told MagnifyMoney.

How debt consolidation can hurt your credit

Debt consolidation can boost the credit scores of consumers struggling to manage several debts such as high-interest credit card debt, medical debt and student loans — if used properly. That said, there are some scenarios in which consolidation could, in fact, cause more harm than good to your credit score.

You may see a minor hit to your credit score (at first).

When you apply for a personal loan, the creditor has to pull your credit report to qualify you for the loan. They do what’s called a hard pull, which will add an inquiry to your credit report. This will cause your credit score to dip a bit, as new credit inquiries account for about 10 percent of your FICO credit score. But, your utilization accounts for more — 35 percent— of the calculation. So while your score may take a minor hit, significantly reducing your utilization with debt consolidation should benefit your score more.

You can avoid adding several inquiries to your report by getting prequalified for a loan. When you are prequalified, the creditor does a soft pull of your credit report to see if you are likely to meet the criteria for a loan. The soft pull does not result in an inquiry added to your credit report so your score won’t take a hit.

It’s important to note: Being prequalified for a loan does not mean you will be approved once you submit an application, or that you will receive a loan on the terms you were prequalified for. But, it does allow you to shop around and compare your options before applying. Use our table below to compare the best debt consolidation loans for you.



Credit Req.

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Minimum Credit Score


24 to 60


Origination Fee



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It can be easy to get into even more debt.

Using a personal loan to consolidate your credit card debt can be risky for anyone who hasn’t yet learned to keep bad spending habits in check, as they could end up in even more debt and cause further damage to their score. The danger comes not with the personal loan itself, but what happens after you use it to pay off your old debts. If you use it to pay off credit cards, for example, you may be tempted to start running up charges on those cards again.

“If you start using the freed-up revolving debt balances to spend, you will be right back where you started, and worse,” said Opperman. “A personal loan for debt consolidation can help, but you have to be fully committed to paying on time and not increasing your revolving debt balances.”

Creating and following a budget can help to combat poor spending habits. If you think it may be too difficult not to use your cards, cutting them up or literally freezing them by placing them in a plastic bag with water and sticking it in the freezer can help make it more difficult to use them. Some credit card issuers allow you to lock and unlock your cards online or by using an app. Having to unlock your card to use it can act as an additional step in preventing overspending.

An alternative to debt consolidation loan: A balance transfer credit card

Balance transfers can work if you have credit card debt specifically.

When you use a balance transfer credit card to consolidate credit debt, you transfer the balances on your other credit cards to a credit card that charges a lower interest rate. Ideally, the card you use to do a balance transfer will be a new credit card with a 0% promotional period for balance transfers, so you won’t be charged any interest while the offer lasts while you pay down the balance on the card. One caveat: To qualify for the best balance transfer credit card’s you’ll need Excellent/Good credit.

When you open the new credit card, your overall credit utilization should fall, because you will have more credit available to you overall. The decrease in utilization should boost your credit score. If you pay off a card or two using the balance transfer, that action may boost your credit score, too. Unless you absolutely have to, do not close the credit card you pay off. If you do, you will not only decrease the total amount of credit available to you, but you will also reduce the average length of your credit history, which accounts for 15 percent of your credit score.

Beware: Even with 0% intro APR balance transfer offers, you may be required to pay a fee — usually 3 to 5 percent of the amount you transfer — to complete the balance transfer.

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Rates & Fees

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Regular APR
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Intro Purchase APR
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Annual fee
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Balance Transfer Fee
Credit required
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Compare balance transfer offers in the MagnifyMoney marketplace

Time is of the essence when you use a balance transfer credit card to consolidate debts. If you open a new card with an introductory 0% interest offer on balance transfers, you need to prioritize paying off the balance before the period ends and the APR goes up. If you’re worried you won’t pay off the balance in time, setting up autopay to pay the balance down and setting a reminder a couple months ahead of the promotion’s expiration date can help you keep your paydown on track.

Using a balance transfer also comes with the risk of racking up even more credit card debt if you haven’t learned to manage your spending. Although you will have more credit to work with, charging expenses to your newly paid-off card could increase your utilization ratio, and further damage your score. You can freeze or cut up the new card once you receive it if you fear you’ll start using it. Check out this article for some great tips on staying out of debt after using a balance transfer.

The bottom line

When used properly, debt consolidation can be extremely helpful to your credit score. The terms you receive on a debt consolidation loan is largely dependent on your credit rating and debt-to-income ratio at the time you apply. The method could backfire if you haven’t yet resolved your reason for racking up debt in the first place. But, if you use a debt consolidation loan with the intention to become debt-free, debt consolidation could significantly help your credit score.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


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The Happiest States in the U.S.

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In a new study, MagnifyMoney researchers sought to find out which state is home to the happiest people.

The methodology was inspired by a recent Oxford Economics study of the components of well-being, in which researchers found sleep is the largest factor contributing to well-being, followed by other health, lifestyle and economic factors.

In line with the Oxford team’s findings, MagnifyMoney evaluated how each of the 50 states rank on 20 factors in the categories of health, lifestyle, and prosperity. Based on an analysis of those elements, our study found the state where you live may impact your baseline level of happiness.

Top 10 happiest states

Minnesota is the happiest state. Minnesota didn’t rank highest in either of the three categories, but it ranked highest overall. The home of the Mall of America scored an overall 73.3 out of 100. Minnesota ranked third in health, third in lifestyle and sixth overall in prosperity. Minnesota is trailed by South Dakota with an overall score of 72 and Colorado with 70.5.

Midwesterners are generally happier than people living in the South. Of the top ten happiest states in our ranking six of them — Minnesota, North Dakota, South Dakota, Wisconsin, Nebraska, and Iowa — are in the Midwest. And of the top ten unhappiest states, seven of the states — Louisiana, Alabama, Mississippi, Kentucky, Arkansas, Tennessee and Georgia — are in the South.

No. 1 in health: South Dakota. South Dakota ranked first in the health category and second overall in prosperity after weighing all factors. Boosting the state’s ranking was its first-place rank in the percentage of people who get at least seven hours of sleep. South Dakota ranked sixth in the state health index. The state landed 20th in lifestyle, which brought it down just below Minnesota to the number two spot overall in our happiest states ranking.

No. 1 in lifestyle & prosperity: Utah. Utah was top in both lifestyle and prosperity in our analysis. In the lifestyle category, Utah had the third lowest divorce rate and ranked first in volunteering (43.20%), beating out Minnesota by nearly 10 basis points. In prosperity, the state ranked tenth overall in homeownership (71.87%) and had the fifth lowest unemployment rate at 4%.
However, the state ranked ranked among the bottom 10 states in depression, suicide rate and air quality. It ranked 48th, 46th and 47th in each factor, respectively, bringing its ranking in the health category down to 21st overall and thwarting its shot at No. 1.

Top 10 unhappiest states

Louisiana is the unhappiest state

According to our findings, Louisiana was the unhappiest state to live in, with an overall score of 29.8. The state was weighed down by its bottom ranking in both lifestyle and prosperity factors, although it ranked a little higher in overall health. In lifestyle the state ranked 50th in the percentage of people married with and without children. In health the state ranked 50th again in volunteering (18.40%) and 42nd overall in the percentage of people who exercise (28.20%).

In prosperity, Louisiana ranked 49th in the percentage of people with a late payment in their credit history and an unemployment rate of 7.10% landed Louisiana 41st place in that category. Louisiana ranked 47th in median household income with an average of $45,146.

Rhode Island and West Virginia preceded Louisiana to round out the top three unhappiest states. What’s bringing these states down? Rhode Island ranked 49th in lifestyle and West Virginia ranked 49th in the health category.

Keys to happiness

As the Oxford researchers found, focusing on sleep, health, lifestyle and prosperity can lead to a life of wellness.

“Happiness comes when you’re thriving in your relationships, career, finances, health and in your engagement with your community,” said Victoria Craze, co-founder and life coach at Wellbeing Coaches.

Of course, that can be easier said than done. Only about 7 percent of people worldwide thrive in all areas of wellness, a 2010 study found.

Each of the key elements of happiness are related, however, so even making changes in one area may benefit you in others, Craze noted. To get enough sleep, for example, exercise is helpful, which can also have good long-term health effects. For stress, exercise again is a recommendation as well as eating healthier and practicing breathing techniques such as meditation. And to be more active, Craze recommended an effort to walk a bit more than you already do.

“Any additional movement do each day is a good thing that can help improve your well-being over time,” said Craze.

The full ranking


Using the Sainsbury’s Living Well Index (September 2017) from Oxford Economics analysis of well-being in Britain as a broad guide, we used 20 factors in the categories of health, lifestyle, and economic for each of the 50 states. Health and lifestyle factors had double the weight of economic stability, and within health, sleep was weighted three times higher than the other factors.

  • Diagnosed depression rate in adults
  • Suicide rate
  • State health index
  • Life expectancy in years
  • Air quality
  • People who get at least seven hours of sleep


  • Number of hours spent outside of work
  • Volunteer rate
  • People who are married
  • Married people who have children
  • Average household size
  • People who don’t use all of their vacation time
  • Divorce rate
  • Social ties relative to other states
  • People who regularly exercise

Economic Stability (Prosperity):

  • People who own their own homes
  • Median household income
  • Unemployment rate
  • Regional price parity
  • People who have at least one late payment on their credit reports

Sources include the U.S. Census Bureau, the Centers for Disease Control and Prevention, the Environmental Protection Agency, the Bureau of Economic Analysis, Gallup Inc., Blue Cross Blue Shield, Corporation for National and Community Service, Project: Time Off, and STAT News.


Final state rankings

Detailed state rankings

Media contact: Kellie Pelletier/

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


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Do I Spend More Than I Earn Each Month?

Editorial Note: 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 prior to publication.


It can be difficult to know if you’re spending more than you earn each month if you’re not necessarily falling behind on any bills or financial responsibilities. But if you’re not tracking your spending, you may not be aware if you’re digging yourself into debt. In fact, 42% of Americans use credit cards to fill in the occasional shortfall in their budget, according to a survey from CompareCards. (Disclosure: LendingTree is the parent company of both CompareCards and MagnifyMoney.)

Knowing if you are spending more than you earn each month requires paying attention to your money and doing some simple math. Here’s how to do it — and figure out if you need to make adjustments to your budget and spending habits.

Getting started: Track your spending

First, you need to figure out where your money has been going.

“Actually getting the data to visualize your finances can be one of the most powerful exercises you can do to begin your journey of cash flow management,” said Dan Andrews, CFP at Well Rounded Success based in Fort Collins, Colo.

But, before you can even do that, you need to decide which tracking method you want to use. There are several strategies for figuring out what you spend your money on, and we’ve listed a few of the most popular ways to track your spending below.

The automated option: Budgeting apps

Budgeting apps make tracking your spending easy because — depending on which app you use — the app may do most of the work for you. Most budgeting apps like Mint, YNAB or EveryDollar link directly to your bank accounts, credit cards and retirement accounts. After you’ve linked all of your accounts, the app will automatically pull in and categorize your transactions.

“The apps are fantastic because they generally pull in 3 months of information, and 3 months of data is generally good to see spending habits,” says Krista Cavalieri, senior adviser at Evolve Capital Financial Planning based in Columbus, Ohio.

Once the app does its job, all you need to do is check in regularly to correct any mistakes in categorizing or add in any cash expenses, if the app allows. The apps generally learn to categorize things properly after you correct them. Budgeting apps also generally allow you to visualize your spending in charts and graphs.

Understandably, budgeting apps aren’t for everybody. If you’re in that camp, you could try tracking all of your spending manually using a spreadsheet or spending journal.


In a spreadsheet, you can simply record what you spent money on and how much you spent. If you want, you can use formulas to make the process easier and to automatically calculate sums, percentages and other parts of your spending habits you’re curious about. Several budgeting templates exist within spreadsheet programs and online to help you get started.

A written spending journal

You can also try keeping a digital or physical spending journal. Every time you spend money, record it by hand in a pocket journal or in a notes application on your phone. At the end of each day or week you can spend time reviewing, categorizing and adding up what you’ve spent.


Check in on your spending challenge regularly to get an idea of where your money went and make adjustments accordingly. For example, it may take 10 to 30 minutes to do a weekly review, so pick a recurring day and time when you know you’ll be free for about half an hour. If you notice during your period check-ins that you are overspending, make some changes then and there to correct yourself, suggested Cavalieri.

Choose the budgeting and check-in method that’s the easiest for you to manage so you can see exactly where your money is going, said Cavalieri. She recommends tracking your expenses for three months to get a good sense of your spending, but recording all your transactions for 30 days will give you a sense of how your regular expenses stack up against your monthly income. A 30-day spending challenge using one of the tracking tactics above will give you the figures you need to answer the question, “Do I spend more than I earn?”

Understand the jargon

Before calculating whether or not you’re spending more than you earn each month, you’ll need to understand the components of the equation.

  • Income — Any and all sources of after-tax income coming into your budget. Examples of income would be:
    • Salary or hourly wages
    • Tips
    • Commission
    • Income from a side gig
    • Social Security or disability income
    • Cash windfalls like a tax refund or gifted money
    • Child support or alimony
    • Any other source of money coming to you
  • Necessary expenses — Necessary expenses are the basics required in your household budget to keep you functioning and gainfully employed. Fixed expenses are non-negotiables like:
    • Rent or mortgage to keep a roof over your head
    • Groceries to cook food at home
    • Transportation
      • For example, your car payment, if having a vehicle is necessary to get yourself and members of your household to their obligations, plus fuel and required maintenance for that vehicle
      • Public transit fare
    • Insurance
    • Health care expenses
    • Child care expenses
    • Utilities necessary to live or communicate like electricity, gas, water, internet and phone bills
    • Any debts owed to the government like child support or alimony payments, tax payments and federal student loan debt. (Exclude credit card debt or collection items, as you will deal with that debt separately.)

When you are tallying up your expenses, take care to account for any recurring quarterly, semiannual or annual payments, too, so they don’t catch you off guard, Andrews said. Those may be things like your vehicle registration or tax payments. You may need to plan to save for those month to month so you will have the money on hand when it comes time to make the payment.

  • Everything else — Everything else, sometimes called flexible expenses, is just what it means: Every other thing in your budget that is — technically — optional spending. This would include things like:
    • Debts
    • Buying lunch or dining out
    • Shopping
    • Subscription payments
    • Vacations
    • Any other line items that don’t fall into the “needs” category in your budget

Now that you understand the important parts of the equation, it’s time to crunch some numbers and get to the answer you’ve been waiting for:

Do the math

    • Step 1 – Income: The question you want to answer is: How much do I make, after taxes, each month? Be sure to include all consistent income streams and any additional windfalls you are expecting during the time period. Write down that number.
    • Step 2 – Necessary expenses: Write down and add up every expense you have that’s vital to meet your basic needs. (To account for fixed annual, semiannual or quarterly payments, figure out how much you’d need to set aside each month to cover that payment when it’s due.)
    • Step 3 — Subtract necessary expenses: Now, subtract your necessary expenses from your income. The equation (so far) should look like:

Income – Necessary Expenses = Amount you have left for flexible expenses.

For example, if your salary (income) is $4,000 a month after taxes, you receive a $1,000 monthly child support payment and your necessary expenses total $3,500, then $5,000-$3,500 = $1,500 left over for flexible spending.

If the number you get is negative, that means your necessary expenses total more than your income and that’s not-so-good news.

“If we are not even making this much per month then we really need to take a look at our life and say what’s our living status,” said Colin Overweg, CFP at Advize Wealth Management based in Grand Rapids, Mich. Look to see if you can increase your income or decrease your expenses. You may be able to pick up a side hustle to increase income or ask for a promotion at work that comes with a raise.

If you realize you can’t cover your fixed expenses, take a look at your standard of living to see where you can cut back, Overweg advised. Consider the following options among other fixed expenses:

      • Can you downsize your home?
      • Can you switch to a car that won’t cost you as much to own and maintain?
      • Can you trim your phone bill by switching plans or carriers?
      • Are you spending too much money on groceries?
      • Can you lower your insurance premiums somehow?
      • Can you negotiate some of your bills down?
    • Step 4 – Subtract everything else:

This is where the math can sometimes get a little messy.

Cavalieri said the hardest part about budgeting is figuring out where the expendable income in your budget is going, because all of those little expenses here and there add up. Before you know it, the money’s gone and you may feel like you have no idea what you spent it on. But if you’ve been diligently tracking your spending, as described in the first section of this guide, this part gets a lot easier. It’s important to record our “everything else” expenses so you know you can cover your spending and not reach for that credit card.

Speaking of credit cards, this is the time to address your debt obligations and factor in the minimum payments you are responsible for paying each month in to your budget. Here’s the equation:

For “everything “else,” you may be able to insert the number you got from your 30-day spending challenge.

Ideally, the number you get in the end will be equal to or larger than zero. If it’s negative, you are definitely spending more than you earn each month.

What to do if you spend more than you earn

If you are spending more than you earn, you are likely carrying a credit card balance each month, and it’s growing. You need to trim back your spending, or else you will continue to dig yourself into debt.

“Understand the needs versus wants expenses, and cut out as many “wants” as possible to either get out of debt, or start having your expenses be less than your income,” Andrews said. “You might have to get uncomfortable for a short-term period to get on track.”

He recommended you start saying “no” to a lot of things to start the trim. “No to expensive vacations, no to expensive bars no to expensive gadgets is a start,” said Andrews.

You can try a spending freeze or other challenge aimed at cutting back your unnecessary expenses. A spending freeze challenges you to not buy anything that’s not a necessary expense for a period of time. You can do a less-inclusive version of a spending freeze and limit yourself to not spending any money at your favorite retailer, or commit to making coffee at home or in the office instead of visiting a coffee shop.

Challenge yourself to adjust your spending

Now that you know where your money is going, you may realize you need to reroute it. There are several tactics you can use to change the way you spend. In addition to using one of the tracking methods mentioned earlier (an app, spreadsheet or spending journal), try one of these exercises:

Ask, “Why?”

Look at what you spent money on and think about why you made that purchase.

“It does benefit a person to bring awareness to spending habits by understanding the psychology of impulse buying,” said Andrews.

Or, you could take a different approach: Before looking at the numbers, guess how much you’ve spent.

“Track what you think you are spending versus what you are actually spending, and check in with yourself at least once a week to see how it’s going,” Cavalieri suggested. The exercise could serve as a much-needed reality check before your spending gets out of control.

Money mantra

Andrews suggested that those who are prone to making impulsive purchases try using a money mantra — a short phrase that can help you ground yourself at the checkout line. For example, you could make it a habit to ask yourself, “Do I really need this?” before you swipe your card.

An accountability partner

Try asking a friend or professional financial planner to join you in tracking your spending habits. Andrews said this tactic may work best for people who are looking for a different perspective on their habits and don’t have an emotional connection to the way the person is spending money. He suggested that those who need a professional choose a fee-only, fiduciary, certified financial planner.

30-day cash diet with a spending journal

Try using cash instead of a debit or credit card for a while. The cash will be a physical reminder of your budget. Take out exactly what you need for a certain spending category, and you’ll be forced to spend within that limit.

What to do if you spend less than you earn but are in debt

If you have room in your budget after accounting for all of your expenses but have debt, you should plan to aggressively address your debt with the money you have left over.

Two common methods used to get out of debt are the debt snowball and debt avalanche. The method you choose will depend on your personality type and what will best motivate you to kill off your debts. Click here to view our Snowball vs. Avalanche calculator.

The debt snowball orders your debts from lowest balance to highest. You will then throw all of the money you can at the debt with the lowest balance first and keep making minimum payments on all of the other debts. The snowball method may help those who will feel more motivated by quickly paying off smaller debts before tackling the larger ones.

The debt avalanche works by listing and paying off your debts in order of highest to lowest interest rate. This method saves borrowers the most money in future interest payments, but may not be the most motivational if the debt with the highest interest rate is also a large debt that will take the a long time to eliminate.

Debt consolidation is another option. Consolidating debt into a personal loan is a good way to save money from eliminating high-interest rates. You can read more about it here.

What to do if you spend less than you earn and are not in debt

If you realize you have wiggle room in your budget and don’t have any debt, the experts suggest you funnel your extra funds into savings and investments.

This is the time to think of your future goals. Are you planning to buy a home? Do you want to start a college savings fund for your child? Would you like to travel or go on vacation soon?

The money left over in your budget can be put toward these savings goals. In addition, you could simply put even more money away for your nest egg. If you are behind in saving for retirement, Overweg suggested you send any leftover income into tax-advantaged retirement plans.

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Brittney Laryea
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Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at

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Strategies to Save

How to Build Wealth at Any Stage in Your Career

Editorial Note: 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 prior to publication.

Your individual financial wealth, or net worth, is built over a lifetime. Financial situations vary widely at birth, and as you go through life, your situation changes. A host of factors can alter your “wealth.” Your income may rise, or it may fall. You may start a new career; you may change careers. You may experience setbacks, large and small.

You can read plenty about what you should do, but real-life wealth-building strategies rarely go according to plan. So we asked several people at various stages in their lives to share how they cultivated their personal wealth — including the setbacks, regrets and breakthroughs they experienced along the way.

Building wealth when you’re just starting your career

When Meredith Dean, 25, was getting ready to move from Georgia to New York City to start her first post-grad job, she was terrified.

“I was told by everyone that it was going to be super expensive and it was not going to be feasible,”’ said Dean, who at the time had just graduated from The University of Georgia with a bachelor’s in Journalism.

She immediately focused on keeping her expenses in check: She sold her car and used the savings to kickstart her life in New York. She also made sure she wasn’t spending more than 40 percent of her salary on housing. Dean lived in a tiny three-bedroom apartment with no kitchen and two roommates. It was close enough to walk to work, and when she had to travel anywhere else, she used public transportation.

But keeping her costs low was only the first step to building wealth at the start of her career.

Wealth-building strategy

Dean’s advice for those in their first years out of school: monetize a hobby you love.

Just a few months into her new job, Dean started a business that builds online portfolios for students and recent grads trying to land their first jobs. She got the idea for it after making a website for her then-boss and created the company, The Dean’s List, in the hours after her 9-to-5.

“I thought, ‘Man, I’m doing this for a lot of people and I’m loving this. Why don’t I start doing this for students?’” said Dean. After the idea struck, she pulled an all-nighter to create a website for her new company and never looked back. Today, Dean serves one or two clients a week through The Dean’s List, in addition to her full-time work.

“I now have these extra funds that I can rely on in case there is an emergency or if there is a trip I really want to go on,” said Dean. “It’s really nice to feel comfortable at 25 and not have any debt.”

Top tips

Start early

For Dean, a crucial component to building wealth at the beginning of her career was not starting in a hole: She started working as a restaurant hostess in her hometown of Milton, Ga., at age 15, and around the same time, she learned she could have almost all of her college tuition paid for if she graduated high school with at least a 3.0 GPA under Georgia’s Zell Miller Scholarship program. Primarily because of that scholarship, Dean didn’t have any debt when she completed her undergraduate degree in 2014.

Don’t quit your day job

Although Dean started her own company, she kept a full-time position. And she really lives the ideal that having multiple income streams is crucial to building wealth — at one point, she even picked up a third job.

Surround yourself by people who support your goals

While living in New York, Dean attended a Jeffersonian dinner at another recent UGA graduate’s place. At a Jeffersonian dinner, all guests must stay on one topic for the entire dinner — and it just so happened on that night the conversation topic was personal finance and women in finance.

“I learned so much from that dinner,” said Dean. Not only did she pick up a little newfound knowledge on everything from saving to investing, she also connected with a supportive group of friends.

“Surround yourself with the right people that push you forward, that motivate and inspire you,” Dean said. “That’s going to help you build wealth.”

Lessons learned

“I just really wish I would have taken a personal finance course,” said Dean, when asked about her biggest wealth-building regret.

She’d been saving in her retirement account and had an emergency fund. But after two years exclusively using her debit card, Dean hadn’t learned much about building credit. She didn’t get her first credit card until she left New York for her current home, Charlotte, N.C., in 2016.

Once in Charlotte, she found she needed a car. “I had no established credit to get a car, so my dad had to cosign for it,” Dean said.

She ended up educating herself about personal finance, but recommended college students take at least one personal finance course before they graduate, as long as they can afford to take the course (or if their school even offers one).

Building wealth early on in your career

Building wealth when you’re just starting your career

Although Jimmy Chan, 35, and his partner, Sue, 36, landed good jobs and bought a house together shortly after they earned undergraduate degrees in 2008, they still weren’t the best with money.

“We had to borrow money just to furnish our new home because we didn’t have extra savings,” said Chan. At the time, Chan, a computer engineer, was paying down his student loans on an entry level IT salary. Having to borrow money for furniture completely wiped them out, he said. But, it was the wake-up call they needed to avoid getting into any more debt.

The Montreal couple managed to pay off the IKEA debt, and Chan repaid his C$10,000 in student loan debt in his 20s. Still, they didn’t really start getting their financial lives in order until a few months shy of Chan’s 30th birthday.

Wealth-building strategy

Chan and his partner took the approach of starting with small goals and sticking to them. To kickstart their wealth-building, they found ways to live more frugally with the goal of living below their means. They cooked at home, packed lunches and avoided taking on more debt. They worked their way up to setting aside 20 percent of their income, on average, Chan said.

“Once we started to make small adjustments and were seeing results we were motivated,” said Chan. “It may take you 3 months, or 6 months, until you gain that confidence. Once you achieve [your] goal you can say, ‘Wow, we did it again.’”

That strategy allowed the couple to max out their retirement contributions, pay down their mortgage faster and launch Chan’s photography business, Pixelicious, which he operates in addition to his day job in IT.

“You work, you earn money, you save and you invest and you just keep on that cycle,” said Chan. “The payoff is that it gives us options. If we wanted to go on a vacation we would just go because we were able to save diligently.”

Top tips

Start now, start small

Chan’s two pieces of advice for people building wealth early in their careers are

  1. Start small with what you can handle.
  2. Make the most of the time you have to invest and earn compound interest on their savings.

Chan said he’s seen an increase of about 30 percent in his salary since he started his first job, so most of the wealth he and his partner have established has been through staying ambitious and disciplined.

Avoid paying interest on debt

After the IKEA loan, the couple avoided debt.

“We made a priority very early on that besides the mortgage we did not want any outstanding debt,” said Chan. “We have kept it a priority as long as I can remember.”

Keep multiple income streams

In 2015, the couple said they used some $20,000 of their savings (non-retirement, non-emergency fund savings) to launch Chan’s professional photography business. Chan operates the business in his free time, outside of his job in IT. Today, the business is profitable and has increased the household’s income by about 10 to 15 percent, Chan told MagnifyMoney.

“The business venture is a cherry on top,” said Chan. “It helps us to diversify our income streams.” He adds that the business’s income gives the couple more options and helps avoid financial stress overall.

Work together

Chan said the one of the most impactful parts of his wealth-building journey has been being on the same page with his partner.

“Every financial decision was decided as a team,” said Chan. “We both contribute. It doesn’t matter if one earns more than the other one.”

With the exception of his student loans, the couple has tackled their debts and savings goals together. When it came to Chan’s business, Chan said, Sue was supportive and they made the decision to invest the money together. They would both delay taking a vacation and instead put the money toward the business.

“Be honest and upfront about your financial goals from the get go and work together to realize your dreams,” said Chan.

Lessons learned

Chan said that there was a point when he thought money was the most important thing in the world — and then he lost money in the stock market.

“I’ve made mistakes. I’ve put money in places, in stocks, where I should not have been,” said Chan. “I lost a few thousand bucks in a stock that crashed I thought it was the end of the world. We started arguing. We started fighting.”

Chan told MagnifyMoney that he, like everyone else, is destined to make mistakes or lose some money along the way. But he said that he’s learned that money is only one aspect of your life and that it’s not the most important component, even as you’re working to build wealth — your relationships are. He added that you should accept your mistakes and come back even stronger.

Wealth-building in the middle of your career

Wealth-building in the middle of your career

Shortly after he graduated from Pepperdine University with a bachelor’s in business, Terence Michael began his career as a film producer in Los Angeles. It was the early 1990s.

Michael, now 49, worked for three months with other producers, then launched his own production company. He said it took several years to get his first couple of films going, and the income was inconsistent. He often stayed at his parents’ house and did odd jobs to scrape by.

Eventually at 29, after producing a few successful films, Michael bought a house. He fixed it up and sold it two years later, and he took a break from producing at age 31 to continue this pattern of real-estate investing. Even as he returned to producing a few years later, he kept the real-estate side hustle going. A couple of decades into his career, his resume includes highlights like “Duck Dynasty” (executive producer) and “Planet Primetime” (executive producer), as well as his own film and TV company, 100 Percent Terry Cloth. On top of that, he’s continued to build wealth through a host of real estate and investing activities.

Wealth-building strategy

Michael said his greatest wealth building strategy has been making the most out of what he calls “proximity potential” — combining the things he knows with the worlds or business industries he knows. He coined the term in his book “Produce Yourself.”

Instead of paying fees to brokers and agents to buy and sell houses, Michael got a mortgage broker’s license after his first few sales. He sat at a Starbucks and took courses online until he earned his real estate broker’s license.

With the license under his belt, he could act independently as a self-employed broker representing clients and form an independent mortgage company. Knowing that people in the entertainment industry may receive income sporadically, and understanding the difficulty that presents when getting a mortgage, Michael focused his business on helping that population.

Top tips

Make money off of what you own

“You can find some financial independence by having a good job, but you’re never going to have real wealth unless you have ownership vehicles,” said Michael.“I don’t know if anyone in history has ever created financial wealth [just] by working for someone else, with just a paycheck.”

In addition to running his production company, Michael:

  • works as a showrunner on other production projects;
  • brokers mortgages;
  • is a superhost on Airbnb;
  • hosts the “Produce Yourself” podcast;
  • coaches entrepreneurs and young couples on how to invest and grow their money

Michael said having his side hustle in real estate allowed him the financial stability to pursue his main purpose and passion, film and TV.

“Whenever I’m developing, raising money, and trying to sell, it’s nice to have all of these other streams flowing,” said Michael.

Lend and receive

Michael saves for retirement, but puts any extra funds into online platforms that lend money to other people and businesses.

He started off with investments in peer-to-peer lending platforms like LendingClub and Prosper. Then, he realized he could do the same with real estate and have his money secured by an asset, so he invested heavier on platforms like Ground Floor, Patch of Land and Yield Street.

“That I would call my savings, because if you keep laddering in eventually after a year, year and a half, it starts laddering it out,” said Michael.

Teach what you know

Michael wrote his book, “Produce Yourself,” in 2017 and started a podcast with that same title later that year. He said he decided to write the book after friends and colleagues asked him about his side hustles, multiple streams of income and how he did it all while working in Hollywood — and the book and podcast led to yet another income stream.

Lessons learned

Although Michael’s never lived “a story where [he] was in the gutter and crying for help,” he still attributes his success to a network of family and friends: “I know that whatever risk I take, I won’t go hungry and I will have someplace to sleep.”

Having a support system is important, but so is understanding what you’re getting into. Michael said he has experienced things like bad tenants and investments that have fallen through. It happens all the time, but having multiple investments going at once makes it easier to weather.

Building wealth when you’re making a career change

Building wealth when you’re making a career change

In 2017, police officer Adam Doran in Kansas City, Mo., wanted to make a career change. A few years prior, he had found himself deep in debt, facing foreclosure and trying to cover fixed expenses that exceeded his income by about $1,100 each month. On top of that, the recently divorced Doran had a 5-year-old daughter to care for.

“I can’t adequately describe the anxiety of that situation, but it was incredibly stressful,” said Doran.

That was about six years ago. Last year, having bounced back from that low place and growing increasingly tired of police work, Doran put together a six-week finance class at his church. It went so well, he said, people were asking him if he would be their financial adviser and his wife suggested a career change. Doran has since obtained his life and health insurance licenses and has started working towards certification in financial advising. He retired from his policing career in January 2018.

Of course, making a career switch can be very difficult. Doran was going from a steady job in law enforcement to becoming an entrepreneur, all while trying to continue paying down his debt and building wealth.

Wealth-building strategy

Though Doran is only a few months into his new career, he has attributed his stability during this time of change to strict discipline. After his divorce, his faith played a significant role in his ability to move forward, Doran told MagnifyMoney.

“I prayed a lot,” he said. “And I made a renewed commitment to giving 10 percent of my gross income back to God.”

His decision to tithe (give 10% of his income to church) and save money consistently became the foundation of his financial recovery. Maintaining that discipline helped Doran learn that finances are mainly behavioral, he told MagnifyMoney.

“The kind of person that has the discipline to faithfully give and save a percentage of their money, consistently without fail, regardless of the circumstances, is bound to encounter success financially,” Doran said.

Top tips

Diversify your income

While leaving the police force meant Doran was leaving behind a steady paycheck, it wasn’t his only stream of income. Doran fully owns a rental property and has multiple assets growing in value, he told MagnifyMoney. So when he decided to make a professional shift, he wasn’t betting his entire financial future on the new career.

Stay the course

When it came time to transition into his new line of work, Doran focused on staying the course. He’s continued to pay off his debts to free up more and more of his income. His investments in real estate also supply him with passive income streams.

“It was pretty cool that I had monthly checks coming in from rents on rental properties and payments on private loans,” said Doran.

His properties and business also allow him to take tax deductions he didn’t have before, so he gets more money back from the government at tax time.

Read and network

Doran looked to books and mentors to learn about personal finance and investing. He went online, searched LinkedIn and attended in-person investor gatherings to meet people who had spent years in the field he was just starting to get to know.

“I also did my best to connect with those who had gray hair, because I figured they would, and they did, have success and failure stories and experiences I could learn from,” said Doran.

He read books like “Think and Grow Rich,” “Conversations with Millionaires” and “How Successful People Think” to change his mindset about money and help him make decisions that could grow his business.

Lessons learned

So far, he hasn’t learned any of the tough lessons that are sure to come with his career change, but Doran has plenty of other things in his past that have helped him better approach his finances. He’s said that he wouldn’t change anything about his recovery and wealth-building process, but has expressed regret over the bad decisions that got him into the situation.

“I wish I hadn’t borrowed money on vehicles or gotten into a house that was too expensive for me. But, I suppose that was all part of the process of living and growing that I was supposed to go through to help me become who I am today,” he said.

Building wealth in retirement

Building wealth in retirement

Markus Horner, 69, of Sachse, Texas, ran his residential maintenance business for just over 25 years before a knee injury forced him to retire at 67. During his working years, Horner struggled to save much money for retirement.

“I was able to contribute a little bit but not a whole lot,” said Horner about his retirement nest-egg. “I wasn’t making enough to be able to do that back then, but now I can.”

That’s because just before he retired two years ago, one of the customers he was installing a front door for introduced him to swing trading: short-term trading on the stock market.

Wealth-building strategy

Horner said the money he used to start his swing trading business is money he had saved up over a long period of time while working as a maintenance man. Swing trading is a short-term trading method one can use on stocks and options. Swing traders look for stocks with short-term price momentum, and they hold assets for two days to two weeks before they sell.

Now, in addition to Social Security and the income he receives as a disabled veteran, Horner is able to use income from swing trading to help support his family, fund his hobbies and pad his retirement savings.

“It’s not for everybody, but it’s something I find very, very interesting,” said Horner about the business.

He said he uses some of the extra funds to cover bills here and there, but the majority goes to his savings, helping his daughter pay for graduate school and to an expensive, longtime hobby: building hot rods.

“Hopefully I will make enough that when I do pass away — whenever that occurs, hoping its a number of years from now — there will be enough money that my wife will be able to live comfortably,” Horner said — although, he noted that the family doesn’t necessarily need his income, since his wife, Lourdes, 59, still works as an opthamologist.

“She makes enough there that we could live off of her income if we chose to,” said Horner; his wife also has a pension and ample retirement savings in a 401(k) and Social Security she can tap into when she retires. “But I like to work and make my own money so I will have something to help me build my hot rods.”

Top tips

Don’t limit yourself

Those looking for additional income to help them through their retirement years shouldn’t feel limited in their search. Horner advises they look for something they like to do that they find interesting.

“I did not know that swing trading even existed until two years go,” said Horner. “Look around, don’t limit yourself to just one or two or even three things.”

Set up a savings account

Horner said it’s “absolutely critical” for those strapped for cash in retirement to set up a savings account if they haven’t already, and they should automate the savings.

That’s something he and his wife did in the years just before he retired. They set up an automatic transfer to their savings account for every Friday, and increased the amount over time as their incomes rose. They started out saving $25, Horner said, and now, they are saving about $200 every Friday.

“We are at a point where we can do that and not struggle. But we couldn’t do that in the beginning,” said Horner.

That’s why he suggests people start small, and gradually learn to live with less. After about five years, the couple had saved more than $10,000, Horner told Magnifymoney.

“And that’s the money I used to start my trading account. $10,000. That’s how I got started,” said Horner.

Lessons learned

Horner said his biggest financial regret is not having been able to put money into a retirement account during his younger working years.

Although he said he wish he’d learned about swing trading earlier, it was probably good timing, as it wouldn’t have been something he thinks his younger self could have done.

“Being a swing trader requires tremendous patience. I did not have the patience 30 years ago that I have now,” said Horner. “If you don’t have the willingness to be patient, you will actually lose money by being impatient.”

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at

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Zelle Is Big Banks’ Response to Venmo — Here’s How it Stacks Up

Editorial Note: 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 prior to publication.

Perhaps you’ve heard of Venmo, a PayPal-owned social payments platform that caught like wildfire among millennials, and serves as a popular way for people to split the bill. The digital peer-to-peer (P2P) payment service is ubiquitous to the point of being a verb — “Venmo me” — but that’s not stopping the big banks from making a play for the market.

In 2017, the banks responded with Zelle, a P2P transaction platform that can process payments between accounts at different banks within minutes, for free. When using apps like Venmo, PayPal and Square Cash, consumers may have to wait up to two or three days to access deposits in their bank accounts or pay a fee for instant access.

What is Zelle?

Zelle is a peer-to-peer payment service created by Early Warning Services, a company owned by Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. Zelle users can send, receive or request money directly to and from friends’ and family members’ bank accounts using only an email address or phone number, even if the other party has an account with a different bank. Zelle claims to process payments between accounts at different banks within minutes, for free.

As of this writing, Zelle partners with more than 65 banks and is accessible to more than 85 million U.S. consumers through its partners’ mobile banking applications. If your bank isn’t partnered with Zelle, you can still create an account using the Zelle app to send, receive and request money much like other P2P payment services.

Zelle, formerly known as ClearXchange, has grown rapidly since it’s rebranding and rollout to banking applications in 2017. It’s now a serious competitor in the P2P space. Early Warning reported the payments company processed $75 billion in payments in 2017. Meanwhile, its main competitor, Venmo, processed more than $40 billion in payments on its free mobile app in the 12-month period ending March 31, 2018. Early Warning said Zelle processed more than $25 billion in the first quarter of 2018, and Venmo processed $12 billion in the same period.

Is Zelle safe to use?

Zelle is advertised as a service for sending money to friends, family and people you know personally. The company does not offer a protection program for purchases or sales made through its platform, and neither do its participating financial institutions.

If you initiate the transfer, you are not covered for fraud by Zelle or your bank. For example, if you send someone money for event tickets using Zelle and it turns out the tickets are fake, there is no recourse against the person via Zelle or your bank, and you will lose your money like this woman did.

However, consumers are not liable for “unauthorized activity,” like if someone else uses Zelle to hack into your bank account. Zelle provides fraud protections as required by the Federal Reserve’s Regulation E.

How to avoid the biggest risks of using Zelle

Know the recipient personally
Sending money on Zelle is akin to handing cash to someone. To avoid losing your money to a fraudster, ensure you are only sending money to people you know and trust.

Confirm the recipient’s information
Zelle transactions cannot be disputed or reversed, so you want to double-check with the recipient that you’re using the correct email address or phone number. If you initiate a transaction to the wrong person, Zelle has no obligation to help you get your money back.

Enroll with only one bank
To avoid delays in sending and receiving funds using Zelle, make sure the email and/or phone number you want to use is only enrolled at one bank or credit union, and that it matches what the bank has on file.

If the same phone number and/or email is registered with your Zelle profile at more than one institution, you may run into issues sending and receiving payments using this service. Money sent to you using the phone number or email address you provide friends and family may be sent to the wrong bank account or to an old Zelle account. The funds may also get held up until you sort out the mix-up.

If you were previously enrolled in ClearXchange or the Zelle app before your bank integrated Zelle into its banking app, you may already have an active Zelle account using your phone number and/or email. If you want to enroll in Zelle with your bank, you’ll first need to contact customer support team and deactivate your old account there.

How does Zelle work?

Zelle plays up its ease of use: Because it’s integrated into mobile banking apps, customers of banks using Zelle can use a single app to schedule bill pay, make deposits and complete fee-free P2P transactions. That means users don’t have to download an extra app to use Zelle on a mobile device, unlike stand-alone apps like Venmo and PayPal. Zelle does, however, have a stand-alone app, if you’d prefer to use that.

Zelle withdraws money directly from the sender’s bank account and deposits it directly into the recipient’s bank account. Users can send, request or receive money using an enrolled email address or mobile phone number.

How to send money with Zelle

On your mobile banking app
Zelle works a little differently on each of its partners’ mobile banking apps, but the main steps to send money are the same.

You’ll first select a recipient from (either from your contacts list or by adding them manually) and whether you’re sending money to them using their phone number or email address. Then, you enter the amount you want to send. At that point, you may have the option to set a sending date and add an optional note. Then, hit send. Your recipient should get a notification and see the funds in their bank account within minutes.

Here are some examples of how this service has been integrated into mobile banking:

Send money on Chase mobile app

Source: JPMorgan Chase

Send money on Bank of America mobile app

Source: Bank of America

Split expenses with Zelle on Bank of America mobile app

Source: Bank of America

Sending money on the Zelle app

To reach customers whose banks aren’t part of the Zelle network, Early Warning partnered with Mastercard and Visa to make a Zelle app that allows transfers to those at nonparticipating banks and just about everyone with a U.S.-based debit card. However, at least one person involved in a Zelle transaction must have access to it through their bank or credit union.

Sending money on the Zelle app is similar to using other P2P apps like Venmo.

  1. Select someone to send money.
  2. Enter the amount of money you want to send and hit “review.”
  3. Confirm the amount you’re sending, and enter an optional message to the recipient.
  4. Hit send. The transaction is recorded and the recipient will get a notification that you’ve sent them money.
Source: iTunes

How to receive money with Zelle

When someone sends you money using Zelle, the funds should show up in your bank account within a few minutes, unless it’s your first time using this service.

If you’re not already enrolled with Zelle, you should get an email or text saying someone sent you money using Zelle. You’ll then need to follow the enrollment instructions to get set up with the service. After you’re enrolled, it may take up to three days to receive the money in the bank account associated with your profile.

How long does it take to send and receive money with Zelle?

Zelle transfers money directly between U.S. bank accounts. Transfers occur typically within minutes, unless the recipient is not already enrolled in Zelle. If the recipient is not yet enrolled, it may take up to three business days for the money to become available in their bank account.

Is there a limit to how much money you can send and receive with Zelle?

There are no limits to the amount of money you can receive, but there may be limits on how much money you can send, depending on your bank and the type of account you’re using. Zelle recommends you contact your bank or credit union to learn about any sending limits.

For example, Chase caps transfers from personal checking accounts at $2,000 per transaction, and customers can send up to $2,000 a day and $16,000 in a calendar month. However, customers sending money from a Chase Private Client or Private Banking client account can send up to $5,000 per day and $40,000 per calendar month.

If your institution doesn’t offer Zelle and you use the Zelle app, Zelle bases your weekly send limit on your track record using the app.

Are there any fees to use Zelle?

There are no fees to use the service. The company recommended you confirm with your bank or credit union that there are no additional fees.

Are there any other limitations to Zelle?

No credit card transactions: You won’t be able to send money using a credit card at all; you can for a 3% fee on Venmo.

No international transfers: As of this writing, Zelle’s system doesn’t support international payments. The service only works with U.S.-based bank accounts, so you won’t be able to send money directly to family abroad. However, if you are traveling and have access to your bank account overseas, you can receive transfers made to your U.S.-based bank account.

Zelle vs. other person-to-person payment systems

By leveraging its network of bank partnerships, Zelle claimed consumers should be able to make transactions between different institutions within minutes. However, if your recipient does not have access to Zelle through their bank or credit union, or their partnered bank does not yet support real-time payments, Zelle loses its advantage. Transactions would then take between one and three days to complete, no better than the likes of PayPal or Venmo.

When you send money to a friend using Venmo, they instantly receive that amount as their Venmo balance, but then need to initiate a bank transfer to access the funds. The same goes for PayPal and Square Cash. With Popmoney, a service that sends money directly between bank accounts, there’s no need to initiate a deposit, but it takes a couple of days for the transactions to clear. With these services, it can take one to three days for a deposit to become available in your bank account.

What you need to know about instant transfers

Though Zelle touts transaction speed as one of its greatest strengths. While the instant transfer feature made the company stand out when it first rolled out in 2017, its competitors weren’t far behind. The Cash App, by Square, Inc. offers instant access to transferred funds for a 1.5% fee of the deposit amount, PayPal and Venmo both offer instant transfers for $0.25 per transfer.

What also made Zelle stand from the crowd was its free instant transfers. But now Google Pay offers that, too. Money sent using a debit card or Google Pay balance is transferred instantly to the person’s debit account — if it’s set as their default payment method — for free.

There are several ways you can can send money to friends, family members or the person you picked up your coffee table from on Craigslist. They range from social media options like Snapcash or Facebook Messenger, to full-fledged mobile and web apps like the PayPal app or Google Wallet.

Here’s how some of the big players in the P2P payments space to compare with Zelle:

FeatureZelleVenmoPayPalSquare CashPopmoneyGoogle Pay SendFacebook Messenger
Who you can send money toAnyone whose bank offers Zelle (85 million consumers) or anyone who is set up with the Zelle appAnyone with a Venmo accountAnyone with a PayPal account (237 million customer accounts)Anyone with a Square accountAnyone at any of nearly 2,500 financial institutionsAnyone; no need to have a Google account or the Google Pay Send appAnyone with a Facebook account who is 18+ years old
Time it takes deposit to become available in recipient’s bank accountMinutes, unless the recipient’s bank doesn’t support instant transfers or isn’t a partnered institution1 to 3 business days after transferring from Venmo account to bank.

Instant transfers for a fee of $0.25 per transaction.

Transfers made before 7 p.m. EST typically arrive the following business day. Transfers made after 7 p.m. EST or on weekends or holidays will typically arrive on the second business day.

Instant transfers are available for a fee of $0.25 per transaction.

Up to 3 business days.

Instant deposits are available for a fee of 1.5% of the deposit amount.

Up to 3 business daysMoney received transfers automatically to your default payment method

Funds are available typically within minutes if a debit card is set as your default payment method

Transfers to a bank account may take up to three business days

Up to 5 business days
Has a stand-alone appYes. In addition, this service is integrated directly into existing bank mobile apps.YesYesYesNo. PopMoney is integrated into existing mobile banking appsYesYes
Has a web versionYesYesYesYesYesYesYes
FeesNoneFree to send money from a bank account or debit card

3% fee to send money from a credit card

$0.25 to make an instant transfer

Free when you send funds via a bank account

2.9% plus 30 cents (U.S.) of the amount you send using a debit or credit card

$0.25 to make an instant transfer

Free to send money from a bank account or debit card.

3% fee to send money from a credit card

Free to receive money or pay a request
$0.95 to send or request funds
Accepts credit card transactionsNoYesYesYesNoNoNo
Transaction limitsNone, but your bank may impose transfer limitsSend up to $2,999.99 per 7 days after identity verification; no receiving limit.

Cash out up to up to $19,999.99 per week after identity verification.

Send and receive up to $10,000 per transactionSend up to $2,500 a week after identity verification; receive more than $1,000 per 30 days after identity verificationDaily transaction limit for a debit card: $500

Daily transaction limit for a bank account: $2,000

30-day transaction limit for a debit card: $1,000

30-day transaction limit for a bank account: $5,000

Send up to $9,999 per transaction or up to $50,000 in 5 days

If you live in Florida, you can send up to $3,000 every 24 hours

Unclear. The terms and FAQs say nothing about limits, and Facebook did not respond to our request for information. A community forum post from 2016 says you can send up to $9,999 within 30 days
Supports international transfersNoNoYes – Fees for sending in other currencies varyNoNoNoNo
Lets you store funds on an in-app accountNoYesYesYesNoYesNo
Fraud protectionNone if you, the consumer, initiated the transfer.

You are covered if someone makes an unauthorized transaction on your Zelle account if reported within 4 days after learning of the unauthorized transaction.

Venmo does not offer buyer or seller protection.

You are covered if someone uses your Venmo account to make an unauthorized transactions if reported within 60 days.

Yes: Paypal offers purchase protection to buyers and sellers of goods and services for claims reported within 180 days

Paypal covers unauthorized transactions if reported within 60 days

Paypal does not provide protections for personal transactions sending money to “friends and family.”

Sellers protection only

Square is not responsible for any unauthorized access or use of the services on your square account

Varies by stateNo protection for authorized transactions.

Google Pay offers fraud protection for all verified unauthorized transactions if reported within 120 days of the transaction date

Facebook is not liable for payments you send via Messenger

Facebook provides protection for unauthorized transactions on your account if you submit a claim within 30 days

What banks use Zelle?

Zelle partners with the following banks and credit unions, as of this writing:

  • Ally
  • America First Credit Union
  • Bank of America
  • Bank of Central Florida
  • Bank of Hawaii
  • Bank of the West
  • Bank of York
  • Bank7
  • BB&T
  • BBVA Compass
  • BECU
  • BNY Mellon
  • Capital One
  • Chase
  • Citi
  • Citizens Bank
  • City National Bank
  • Collins State Bank
  • Comerica Bank
  • ConnectOne Bank
  • Dollar Bank
  • FCB Bank
  • Fifth Third Bank
  • First National Bank
  • First National Bank in Creston
  • First National Bank of Central Texas
  • First Tech
  • First Tennessee Bank
  • FirstBank
  • Franklin Synergy Bank
  • Frost Bank
  • Guadalupe National Bank
  • Homestreet Bank
  • Huntington Bank
  • KeyBank
  • M&T Bank
  • MB Financial
  • MidwestOne Bank
  • Morgan Stanley
  • Navy Federal Credit Union
  • Northwest Bank
  • PNC
  • Provident Bank
  • Quontic Bank
  • Regions Bank
  • Renasant
  • SchoolsFirst FCU
  • Seacoast National Bank
  • Star One Credit Union
  • Stockman Bank of Montana
  • SunTrust
  • Surrey Bank & Trust
  • TBK Bank, SSB
  • TD Bank
  • The First Citizens National Bank of Upper Sandusky
  • U.S. Bank
  • United Bank
  • United Community Bank
  • USAA
  • Wells Fargo

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

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Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at

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It Will Soon Be Free to Freeze Your Credit Report

Editorial Note: 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 prior to publication.


Eight months after it happened, Congress tangibly responded to the major data breach at Equifax that exposed the sensitive information of more than 146 million consumers. On May 24, President Donald Trump signed into law a bipartisan bill that makes freezing a credit report free for everyone in the U.S. and simultaneously fulfilled his early-term promise to “do a big number” on Dodd-Frank.

The provision for free credit freezes was included in the larger Economic Growth, Regulatory Relief, and Consumer Protection Act, which effectively rolls back major parts of the Obama-era Dodd-Frank Act.

What’s changing?

The new law affects a wide variety of consumer finance issues, but as far as credit freezes go, it makes placing, lifting and permanently removing a freeze on your credit report free, no matter where you live.

Before the law, each state had its own laws regulating the prices consumers pay to the big three reporting agencies — Experian, Equifax and TransUnion — to freeze and unfreeze credit reports. Previously, only three states (Indiana, Maine and South Carolina) allowed any resident to freeze or unfreeze their credit reports for free.

In addition, the new law requires credit reporting agencies to fulfill a request to freeze, thaw or permanently lift a freeze within one business day if the request is placed online or over the phone, and three business days if the request was made via snail mail. These new provisions will go into effect four months after they became law.

What’s a credit freeze again?

A credit freeze is a consumer protection tool that restricts access to your credit report. It can be used to prevent fraudsters from using your information to commit financial identity fraud.

Placing a freeze on your credit report prevents creditors from seeing your file when you or someone else applies for new credit, so no one will be able to open a new credit account in your name without your knowledge. If you want to apply for credit, you’ll need to lift, or thaw, the freeze.

A credit freeze doesn’t completely prevent identity theft, as it only pertains to transactions that involve credit report requests. The freeze doesn’t impact your credit score, restrict your existing creditors’ access to your credit report or stop you from receiving prescreened credit offers (lenders generally pre-qualify new consumers using a soft pull).

How to freeze your credit report:

You can freeze your credit report online, or by phone or mail with all three major credit reporting bureaus. You must go through a separate process with each credit bureau. We explain the steps in detail here, but here are the basics:

Each credit bureau allows you to request a credit freeze online, by phone or by mail.






Equifax: 1-800-685-1111 (1-800-349-9960 for New York residents)

Experian: 1-888-EXPERIAN (1-888-397-3742). Press 2.

TransUnion: 1-888-909-8872


Send a letter to each credit bureau by certified mail requesting the freeze. Here are the addresses.

Equifax: Equifax Security Freeze/P.O. Box 105788/Atlanta, GA 30348

Experian: Experian Security Freeze/P.O. Box 9554/Allen, TX 75013

TransUnion: TransUnion LLC/P.O. Box 2000/Chester, PA 19016

There are mobile options, too.

TransUnion offers a free TrueIdentity mobile app for those enrolled in its free True Identity service that provides the ability to lock and unlock credit reports instantly. And, in the aftermath of the data breach, Equifax released its free Lock & Alert app, which allows consumers to freeze and thaw their credit reports with a swipe. Experian has a free credit freeze app, IdentityWorks, to lock and unlock your credit report, but only for people with memberships to Experian IdentityWorks Premium or Experian CreditWorks? Premium, which charge fees.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

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Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at

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I’m Always the Broke Friend in My Group — Here’s What I Do to Cope

Editorial Note: 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 prior to publication.



At some point or another most of us have had — or will have to —  miss out on dinners, nights out and events with our peers simply because we can’t afford to participate. In other words, we’ve all been the “broke” friend.

Whitney Griffin said she’s used to being the broke friend in her social circles. Griffin, 32, is college educated —  she earned a bachelor’s in art from Florida State University in 2009 — yet has never earned more than $19,000 in a given year. It’s not for lack of trying, she told MagnifyMoney, however, she purposefully chose a career path that is fulfilling yet not exactly lucrative.

“There’s something to be said for enjoying your life,” said Griffin, who lives in Asheville, N.C. and has worked various jobs in both art and business. “I’ve chosen jobs that I’ve enjoyed more so than I would make money at.”

It’s when she runs into friends who have more cash to burn that she’s reminded of the financial consequences of her professional decisions.

“When people say ‘oh you should visit Ireland’ or ‘you should take this cruise,’ I’m just sitting there in my head thinking, ‘I should really get health insurance.’”

Financial inequities can be difficult to deal with at any age, as evidenced by Michael Little. Little, a 71-year-old retiree in West Linn, Ore., told MagnifyMoney in his early days of marriage and starting a family, he realized how different his lifestyle was compared with friends who earned more and did not have children.

At a time when everyone’s lifestyles are made public on social media, it can be even more difficult to stay on a path of frugality when it feels as if your peers are doing exactly the opposite.

MagnifyMoney spoke to Little, Griffin and other self-professed “broke friends” to compile a list of strategies and tips they use to cope.

Stick to your values

Little, now retired from a career as a software developer and systems analyst, lived frugally from the start.

“I grew up pretty poor in Indiana,” Little said. “We had a roof, we had good food. I never felt any less than any of my friends. That influenced me — that you could enjoy yourself and be frugal when you have to.”

As a teenager, he hung with a group of friends he described as more well-to-do.

“They [would] just go out and do stuff, and I didn’t have any money,” he said. “I would say I’m not really hungry and go out and get a soft drink or something like that. I was a little uncomfortable with it as a kid.”

When he married his wife Debbie at 30, they had children right away and a lot of expenses. He was in school and again didn’t have as much money as his peers who didn’t have children.

“I learned a lot of financial discipline from my wife,” said Little. “She’s really good about saying ‘well, I can’t afford that.’”

Make the most of what you can get for free

Hunter Jamison, 19, said a scholarship is the only way he’s able to attend New York University, which can cost up to $72,900 per year, according to The College Board.

He learned to find ways to socialize with peers who have more disposable income than he does.

When a friend suggests they grab a bite to eat, he doesn’t waste an opportunity to use his prepaid campus meal plan.

“If someone wants to meet up and has the meal plan, I’d be like ‘hey do you just want to go to the dining hall,’” he said. “If they don’t, I suggest we cook something because it’s a lot cheaper to buy groceries and cook than to always eat out.”

He also takes advantage of school events where there will be free food and discounts all over the city for NYU students like free access to some museums.

Be the planner

When Heidi McBain, a licensed professional counselor in Flower Mound, Texas, was in graduate school, she had to make her dollars stretch. She decided to take the lead, planning ways to spend time with her friends so they wouldn’t have a chance to propose a super expensive activity.

She said she often suggested they do something outside, like bike riding or hanging out at the beach. If she wanted to have friends over, she’d cook at home or invite them to bring a dish and make it a potluck.

“I was in a very expensive area and I didn’t have any money but I’m also pretty extroverted so I like to be around people,” said McBain. “I had to be really creative in how I would spend time with people.”

Look for free or inexpensive family outings

Little and his wife would look for things to do around town that were free or inexpensive for their family. They had picnics instead of going out to eat at a restaurant and went to the movies on Tuesday afternoons as opposed to Saturday nights.

“Every vacation I ever went on as a kid … we went camping,” said Little. He did the same with his children and continues to pass his love for the outdoors down generations.

He often took his family on camping trips to the mountains. There, his children could get filthy playing in the sand and enjoy roasted marshmallows.

“Tomorrow, I’m taking my grandson up on the mountains and we are going to take him sledding.

It’ll cost me the price of a tank of gas and some snack food,” said Little in an interview with MagnifyMoney.

Don’t fall into the ‘drinks’ trap

“One of the easiest ways to kind of blow through money is dining out” and meeting up with friends at bars, said Griffin. “It’s really easy to blow through a tab without noticing.”

So she limits herself to having only one drink — and not finishing it so she’s not obligated to get the next round — and the cheapest thing on the menu. She says it’s often a salad or something else inexpensive.

While in graduate school, McBain realized if she signed up to be the designated driver, she wouldn’t have to deal with pressure to spend money on drinks.

“If I didn’t have money, I would always drive,” said McBain. “People always love having a DD, so that worked out really well.”

Going out? Eat and drink ahead of time

When Griffin wants to go out to eat or out on the town with her friends, she plans to eat and drink a bit ahead of time, so she doesn’t spend as much money when she’s out.

“If I’m really wanting to go out and party, then I’ll bring my flask on the side,” she told MagnifyMoney. “I tend to pack my lunch box every day that I go to work anyway, so I have no problem filling up on snacks.”

Focus on the bigger picture — your goals

You may need to sacrifice going out to dinner once or twice to join your friends at another time at an event or on a vacation, and that’s OK.

“It’s about choices,” said McBain. “People get invited to stuff all of the time, regardless of how much money you have, it’s about being really choosy.”

During her graduate school days, she would cook at home or pack her lunches to save money so if something big came up, she could still go.

“If there was a new restaurant and everybody was going, I had saved money very rarely eating out so that I would have it for the bigger things,” said McBain.

Find your frugal tribe

“Find friends that are sympathetic to your situation,” said Jamison. In any environment, there definitely are people that are frugal like you.”

He said this makes it so that not spending money doesn’t mean you’re not socializing.

“There are definitely a lot of people — even if they have money — that don’t spend money left and right,” said Jamison.

You can even make frugality social. For example, Griffin suggests hosting clothing swaps when you need new wardrobe pieces in the name of environmental conservation. Everyone would clean out their closets before the event. During the event, the clothing is displayed and people can browse and take what they want, with no money involved.

There are also many online Facebook groups, like Frugal Homemaking and Living and Frugal Family Life where affordable-minded folks get together to share tips and support one another.

Be frank with friends who don’t understand your situation

There will always be that friend who just doesn’t understand when you have to constantly turn them down.

“I had one friend and he was one that didn’t get it,” Little told MagnifyMoney. “He came from a family with a lot of money.”

He would invite Little and his wife to go on couple’s vacations and out to $200 dinners.

If Little balked, his friend would respond with something like, “You guys have really nice jobs you should have the money.” But he was putting his money into retirement, something he knew his friend didn’t need to do because he inherited close to a million dollars. After an invite to Costa Rica, Little finally broke it to his friend.

“I told him if I’d inherited $700,000, a new car and a condo in Florida and had no kids, I would retire today,” Little said. “I think it finally woke him up.”

It can be frustrating to feel like you’re always playing the “sorry, I’m broke” card, but it shouldn’t be an issue for your real friends.

“If you have a good friendship, you should be able to say ‘I really would like to go but I just don’t have the funds to do that,’” said McBain.

“People need to give themselves permission when friendships change to not have to feel like they need to stick with it,” she added.  “Really, the heart of most friendships is spending time together.”

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at


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The Best Cities to Be Young and Broke

Editorial Note: 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 prior to publication.


When you’re young and just starting out your career, choosing where to live can truly make or break your finances.

Young people today already have to manage a host of financial stressors, like student loan debt and rising housing costs, with the usual demands of early adulthood, like starting their first retirement fund and learning to balance work and play.

When you couple these competing responsibilities with a location that only contributes more financial obstacles, you could be setting yourself up for failure.

On the other hand, some cities are affordable enough to give even the lowest earners a fighting chance at a decent quality of life.

With this in mind, MagnifyMoney decided to take a look at some of the biggest cities in the U.S. and determine which cities are the best places to be young and broke today.

We started by analyzing more than 100 U.S. cities to find the most favorable and affordable places for people between the ages of 18 and 24. Among other data points, we not only looked at obvious expenses like housing and food, but also unemployment rates, income taxes and the rate of young adults who are living in poverty.

Key findings: The top 10 cities for the young and broke

Of the 10 best places to make the most of a tight budget, five were in the Midwest —  Madison, Wis., Grand Rapids, Mich., and Dayton, Ohio.

Although Midwestern cities did not score highest on all of the features analyzed, when they were put up against what young adults said matters to them the most, low rents and short commute times pushed these places ahead.

“It’s not that these cities necessarily scored the highest on all the features we analyzed, but when we weighted those features according to what the young adults we surveyed said mattered the most, the lower-than-typical rents and price combined with modest commute times to bring Midwestern cities to the top of the list,” said MagnifyMoney Senior Research Analyst Kali McFadden.

#1 Madison, Wis.

Overall score: 73.2/100

It stands to reason that a renowned university town would be a draw for the young and broke, but Madison stands apart, thanks to a relatively low cost of living (median rent is $950, and goods run almost 5% cheaper than the rest of the country) and a fairly robust public transportation system.

About 4% of the population use public transportation, which may not seem like a lot, but that’s enough to rank 21 among the cities reviewed. Moreover, the average commute is just over 21 minutes.

Only two other cities (Provo, Utah and Springfield, Mass.) have a higher proportion of young adults, yet no other big city has more young people who either attended or graduated from college (70%), and the city ranks in the top 10 for lowest youth unemployment.

The bad news is that there are more young adults living in poverty in Madison than other city analyzed, but this may have to do with how college students and their families file their taxes.  When considering what city features young people in our survey said they care most about, Madison still places 1st, with an overall score of 73.2.

#2 Grand Rapids, Mich.

Overall score: 72.4/100

With an overall score of 72.4, Grand Rapids misses 1st place by a hair. Grand Rapids shines in many of the same ways that Madison does, such as the price of goods, relative to the rest of the country (almost 5% less), average commute time (just over 21 minutes) and low youth unemployment rates (6.7%).

Grand Rapids is also full of young, educated citizens, with over 10% of the population between the ages of 18 and 24, and 59% of those young people either college graduates or on their way.  Most young people are local, with fewer than 5% newly arrived from out of state.

Fewer than 2% of people use public transportation, which is pretty middle-of-the-pack, and statewide and income taxes are lower than most, ranking 42nd and 44th out of the 107 big cities.  Grand Rapids exceeds Madison in a few areas, such as median rent at $812, fewer young people in poverty and over twice as many pizza joints per capita.

The other Midwest cities that made the top ten were Des Moines, Iowa (6) and Akron, Ohio (8).

#3 Dayton, Ohio

Overall score: 72.2/100

It turns out that Ohio is a great place to be young and broke. Statewide, income and sales taxes are low, ranking 23rd and 33rd among the 107 big cities we reviewed, and Dayton’s modest median rent ($761) and low cost of goods (over 4% cheaper than the national average) add to Dayton’s affordability.

Of the 10% of Dayton’s young population who are between the ages of 18 and 24, 63% have or are working toward an undergraduate degree (13th highest).  Average commute times also compare favorably with the rest of the nation, coming in at just under 23 minutes.  Dayton does fall short in the areas of youth unemployment (11%) and youth living in poverty, ranking in the bottom half of all cities we reviewed.

#4 Syracuse, N.Y.

Overall score: 71.4/100

Our first city outside of the Midwest is another university town in the northern reaches. With a score of 71.4, Syracuse compares very favorably with the rest of the country in average commute times (21 minutes), statewide sales tax (4th lowest), and percentage of the population between the ages of 18 and 24 (11%).

As one would expect for a college town, a lot of young adults are newly arrived from out of state or country (11%), and Syracuse ranks 11 out of 107 for number of young people who attend or have graduated from college (64%).

Rents are low at $790, as is youth unemployment (8%), but as seen with the other top cities on our list, a lot of young people live below the poverty line (26%).

#5 Durham, N.C.

Overall score: 70.9/100

Durham-Chapel Hill is home to two large schools, Duke University and University of North Carolina, which helps explain why over 11% of the population is between the ages of 18 and 24.

It also helps to explain why 68% of those young adults either have or are pursuing a college degree (the 3rd largest proportion in our study), and why 11% of them arrived in the last year from another state or country. Durham is also relatively affordable, with a middle-of-the-pack median rent of $947 and prices almost 4.5% lower than the national average.

Commute times are also middle of the pack at under 25 minutes, but almost 5% of the population use public transportation.  Again, 5% may not sound like a lot, but it’s actually the 15th highest among cities with populations over half a million. Some 30% of young people live below the poverty line, although that may be because so many college students don’t have much, if any, income.

It’s not all roses in the Midwest

Ironically, the best five cities for the young and broke also have a high rate of young adults living in poverty, comparatively. As we said, the reason these cities have an edge is that they tended to rank well in the factors that young people said mattered most to them, like rent costs and commute times.

Top-ranked Madison, Wis., for example, also boasts the highest rate of young adults living in poverty in Madison than any other city analyzed. Similarly, in Durham, N.C (5), 30% of young people live below the poverty line.

However, this doesn’t necessarily mean these cities are rife with homeless young adults. One explanation could be that these cities are home to several colleges and with a high volume of college students in the population, it’s easy to see how it could appear that young adults aren’t earning much.

“These two things are likely connected, as college students often have little or no income, but that doesn’t mean they’re not being supported through family assistance or loans,” McFadden said.

On the plus side, college towns are affordable

The list also boasts a number of college towns like the aforementioned Madison, Wis. (1) and Grand Rapids, Mich. (2). Rounding out the top five were college towns outside of the Midwest, Syracuse, N.Y. (4) and Durham, N.C. (5). The results suggest college towns may be more affordable destinations for young people who want to keep their expenses relatively low.

The 10 Worst Cities to Be Young and Broke

Methodology: What do young people want in a city?

To find city features most appealing to young people without a ton of disposable income, MagnifyMoney asked 100 young people (ages 18-24) to rank the importance of 12 city features that factor into quality of life for the young and broke. The responses were weighted according to which were the most important to the youth surveyed.

Here are the most important city features, according to this survey:

  1. Median rent
  2. Price of goods compared with the national average
  3. Average commute times
  4. Unemployment rate for young people
  5. Statewide income tax rates
  6. Statewide sales tax (we note that local sales tax may be higher)
  7. Percentage of the young adult population who live in poverty, by federal standards
  8. Percentage of the population between the ages of 18 and 24
  9. Percentage of young adults who have either completed or are pursuing a college degree
  10. Percentage of the population who use public transportation
  11. Percentage of young adults who moved from another state or another country in the previous year, and
  12. Availability of cheap food, as expressed in the number of pizza parlors per 100,000 residents.

Once we know what to look for, our team weighted the features of 107 metro areas with populations over 500,000 against what young people said they wanted most in the city.

Based on this information, the cities were then scored, for a highest potential score of 100 and a lowest potential score of zero to find the best places for broke young adults.


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Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at