How to Decide If Pet Insurance Is Worth the Cost

Woman deciding if pet insurance is worth the cost

Last fall, our greyhound Tivo refused his breakfast on a Friday morning. He didn’t eat or drink water all day, and we were worried. That night, we took him to the 24-hour emergency veterinarian and Tivo was diagnosed with a bacterial stomach bug and dehydration. We went home with antibiotics, a saline IV, and a $200 vet bill.

Thankfully, we could afford this bill for unexpected emergency care for Tivo. But if he were diagnosed with a chronic condition or needed a very costly intervention, we might find ourselves facing some heartbreaking financial decisions.

Pet insurance is often touted as a solution to these worries. With pet insurance covering some costs of veterinary care, you’re never forced to choose between your beloved pet and your finances. However, does this kind of coverage make sense for most pet-owners?

Here’s what you need to know about pet insurance so you can keep your fur babies bright-eyed and bushy-tailed for years to come.

Premium costs

As with human health insurance, pet insurance charges you a monthly premium for your pet’s coverage. According to Value Penguin, the average monthly cost for canine pet insurance is $47.20, and the average for feline insurance is $29.54 for accident and illness coverage.

Of course, this doesn’t tell the whole story of what to expect from premium costs. Many pet insurers increase premiums with the age of your pet. Which means the $47 per month you pay to keep your 4-year-old pup healthy could rise with his/her age, making the premiums harder to keep up with just as they’re more likely to need age-related medical intervention. In addition, different breeds can have different premium prices, since there are some hereditary conditions that various breeds may be more prone to.

However, even with these potential issues, there are some methods to keep premiums manageable. For instance, some tried and true insurance reduction strategies work just as well for your pet’s health insurance as they do for your own. These include increasing your deductible, reducing the percentage that the insurance reimburses, or limiting the annual payout rather than choosing unlimited coverage.

These strategies can keep your premiums affordable while still helping with big veterinary bills. But you need to be prepared to pay anything above and beyond the coverage limits you set up. (See also: 8 Ways to Lower Your Vet Bills) 

Coverage

It’s also important to note that pet insurance does not necessarily cover every kind of health cost for your pets. To start, unlike (some) human health insurance, most pet insurance will not cover preventive care and annual exams. So you will need to plan for these costs on top of your premiums.

Pet insurance policies generally come in two varieties: accident and illness policies, and accident-only policies. In general, accident-only policies do not raise their premiums as your pet ages, making this kind of insurance more affordable long-term. However, accident-only policies tend to be cheaper because your pet is less likely to get injured than fall ill. If you decide to invest in pet insurance, getting both accident and illness protection will likely offer you more protection.

That said, each insurer gets to decide which illnesses, conditions, and services it covers, and not all ailments are covered. Many insurers also do not cover the diagnostic exam for a particular illness, even if the treatments are covered. Make sure you pay attention to the details of what your potential insurer will cover before signing up for coverage.

As with many types of human health insurance, most pet insurance policies exclude preexisting conditions. Unfortunately, some insurers consider health problems to be "preexisting" if they crop up within a year of the purchase of your policy. Insuring your pet when they’re young is the best way to avert the preexisting condition coverage gap.

Finally, pet insurance coverage is usually handled via reimbursement. That means you’ll be on the hook to pay the vet bill at the time of service, and you’ll submit your receipts to your insurer to receive reimbursement. (See also: 7 Things You Need to Know About Pet Insurance)

Should you buy pet insurance?

With all the caveats, coverage gaps, and reimbursement requirements, pet insurance is not necessarily a slam dunk for everyone. In fact, many consumer advocates recommend that pet owners put aside an amount equal to the annual premium into a savings account each year. This will give you the same peace of mind that you can cover any potential health care needs for your pet while also allowing you to keep the money if you never need to use it.

However, if you struggle with financial discipline, this strategy will leave you in a difficult situation if your furry friend needs an expensive procedure. Pet insurance can provide you with the protection your pet needs even if you struggle with money. 

Show your love with an emergency fund

Whether or not you decide to purchase pet insurance, remember that you’ll have to pay upfront for any veterinary procedures. With insurance, you will get reimbursed for covered care, but you will still need to have access to funds to pay for Mittens’ kidney stone removal or Rex’s arthritis care at the time of care.

This means that one of the best ways you can protect your furry friends and avoid heartbreaking financial choices is to have an emergency fund. With or without pet insurance, set some money aside for the unexpected so you can enjoy your four-legged family members for years to come. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

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With pet insurance covering some costs of veterinary care, you're never forced to choose between your beloved pet and your finances. Here's what you need to know about pet insurance. | #pets #petcare #insurance


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Turkey, Money, COVID, and More

I’m thankful for you, reading this article. But I’m also thankful for turkey and potatoes and pecan pie. And in the spirit of Thanksgiving dinner, I’d like to serve you with a smorgasbord today. The appetizer comes from the engineering world. The main course brings in investing. And for dessert, I added a quick calculator to consider the risk of COVID at your Thanksgiving dinner.

Low and Slow

I’m a mechanical engineer. In the engineering sub-field of heat transfer, there’s an important quantity called the Biot number. The Biot (bee-yo) number compares the way heat enters a body at its surface against the way that heat travels through the body.

That might not make sense to you. That’s why the Biot number needs to be explained using food!

Why do we cook pizzas at 900ºF for 3 minutes? Great question, especially when compared against cooking turkeys at 350ºF for multiple hours.

Pizza has a small Biot number. It has a large surface area compared to its volume—it’s very thin. Any energy added to the pizza at its surface will quickly propagate to the center of the pie.

But turkey has a large Biot number. It’s roughly spherical, so its ratio of volume to surface area is vastly larger than a pizza’s. It takes time for energy added at the surface of the turkey to propagate to the center of the turkey.

Food pizza cooking GIF on GIFER - by Aragami

And then there’s the matter of mass. This is separate from the Biot number, but equally important. Cooking a 20-pound turkey will take longer than cooking a 1-pound pizza. That’s easily understood. Heavy stuff takes longer to warm up.

Potatoes and Pumpkin Bread

Why do I have to bake pumpkin bread at 325ºF for an hour? Why can’t I bake it for 450ºF for 40 minutes? Or in a pizza oven, at 900ºF for a few minutes?

I don’t recommend it, but it’s an experiment you could conduct yourself. You’d find that you’d overload the exterior of the loaf with heat before giving that heat enough time to propagate to the center of the loaf. The outside burns. The inside remains raw. And everyone’s sad at the lack of pumpkin bread.

Pumpkin bread GIFs - Get the best gif on GIFER

The more cubic or round or dense a food is, the more low-and-slow the cooking or baking will be. This applies to loaves of bread, cakes and pies, or dense cuts of meat. A meat smoker might run at 225ºF all day.

If a food is flat or thin or narrow, it can probably be cooked high and fast. Pizzas, bacon, stir fries all apply. Lots of surface area and lightweight.

But what about mashed potatoes? We only boil potatoes at 212ºF degrees for 15 minutes. That’s way colder and shorter than a turkey or pie. And potatoes are reasonably dense. What gives?

The answer is that water transfers heat more effectively than air. That’s why 60ºF air feels temperate to your skin, but 60ºF degree water is frigid. That’s why you can stick you bare hand in a 400ºF oven (for a few seconds), but sticking your hand in boiling water (212ºF) will scald you. Water moves heat better than air.

Snoop Dogg Adds Mayonnaise To His Mashed Potatoes And I'm Actually OK With It

And moving or flowing fluid transfers heat better than stagnant fluid. This is why cold winter air has a “wind chill” factor—the blowing cold air removes more heat from your skin that stagnant cold air. And those Thanksgiving potatoes are surrounded by boiling and roiling water. They cook quickly.

Invest Like a Turkey

Enough engineering. Let’s bring it back to money.

You can approach investing like baking a pizza. Or you can invest like you would cook a turkey. I recommend the turkey version.

Turkey Cooking GIFs | Tenor

You can (try to) pick stocks that will double overnight. Or you could explore exotic asset classes with promises of “going to the moon.” You can even borrow money—or leverage—to further extend your investments. This is investing like a pizzamaker. It’ll be hot and fast and potentially over in five minutes.

But sadly, historical context provides ample data suggesting that pizza investing is not effective. Hand-picking stocks has more risk than reward. Short-term flips are closer to gambling than to investing.

That’s why you should invest like a turkey. Low and slow and long-term. Check on your progress occasionally. Adjust your timeline if needed. A half-cooked turkey does not resemble your final product, just like a half-funded portfolio can’t support your retirement. But mostly, stay on plan and trust the process. Plan for the long-term and let time take care of the rest.

Use last week’s retirement calculator to plan for the long-term…starting with your savings goal for 2021.

A Plate Full of Stuffing

And speaking of Thanksgiving, ensure that your investing portfolio resembles a Thanksgiving plate: diverse and well-balanced.

Could you imagine eating 1500 calories worth of gravy? Well, maybe. But it would be accompanied by plenty of turkey, stuffing, cranberry sauce and potatoes, too. You can even fit in a slice of something exotic, like pecan pie.

Thanksgiving Dinner GIFs | Tenor

Similarly, a well-balanced investment portfolio reduces your risk from being over-exposed to any single asset type. I described my personal choices in my “How I Invest” article. But there are many ways to skin a turkey, and many ways to diversify a portfolio.

Will Your Turkey Get COVID?

Everyone seems to be all huffy about gathering for Thanksgiving. So-called “experts” are saying the holiday will act as a super-spreading event for COVID. First, Starbucks cancelled Christmas. And now China is cancelling Thanksgiving? What’s up with that?!

Don’t be an ignoramus. For most of the United States, a gathering of 10 or more people has a higher than 50% chance to contain at least person who is positive for COVID. Re-read that sentence.

If you’re going to gather for Thanksgiving, it’s helpful to understand the risk involved. For some, the risk is small and reasonable. For others, the probability of COVID being at your gathering will easily surpass a coin flip.

The following calculator is a simple, first-order estimate. It provides an example of how probabilities work. There’s more explanation after the calculator.

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I’m not an epidemiologist or virologist. Please take this math at face value. If an area has a positive infection rate P, then then odds of a person being negative is 1-P. The odds that all N people at your gathering are negative is (1-P)^N. Therefore, the odds of at least one positive case at your Thanksgiving gathering is 1-(1-P)^N.

I recommend looking up your area’s positive case rate here—COVID ActNow. Now, a large positive test rate is just as indicative of insufficient testing as it is of high infection rates. If you only have enough test supplies to test the sickest people, then you’re likely to have a higher rate of positive infections. More reading here from a guy named Johns Hopkins.

So feel free to play around with the infection rate. The true infection rate of an area is likely lower than what’s reported on COVID ActNow.

Keep Grandma healthy!

Thanks Again

Thanks a ton for reading the Best Interest. I try to stuff this blog full of fun and helpful information, and having wonderful readers is the gravy on top.

I wish you a happy and healthy Thanksgiving. And don’t burn the pumpkin bread!

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

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

Source: bestinterest.blog

A Beginner's Guide to Investing in Stocks

To new investors, the stock market can seem mysterious and intimidating. Many people hear that buying stocks is risky, but they like the potentially high investment returns. Fortunately, there are some ways to make money investing in stocks that significantly limit your risk.

Just about every investor should own some amount of stocks, even during times of market volatility.

Just about every investor should own some amount of stocks, even during times of market volatility. I'll explain how to invest in stocks when you have little experience or money. You’ll learn the pros and cons of stocks and the best ways to own them to build wealth safely.

What are stocks?

Stocks are intangible assets that give you ownership in a company. That’s why they’re also known as equities or equity investments. Owning stock entitles you to part of a company’s earnings and assets.

Let's say a company needs to fund groundbreaking research, open a division in a foreign country, or hire a crew of talented engineers. Companies issue stock to raise money from investors for these types of ventures—it’s that simple.

Publicly traded stocks are bought and sold on exchanges such as the NASDAQ or the New York Stock Exchange (NYSE). However, you can trade them only through a broker or investment firm.

When a stock increases in value, it’s called "capital appreciation." That’s a fancy way of saying that the price goes up. As I'm writing this episode, Facebook and Apple stock are selling on the NASDAQ exchange for $266.12 and $469.51 per share. Visa and Walt Disney stock are selling on the New York Stock Exchange for $202.41 and $127.92.

If you buy Visa at $202.41 per share and the price goes up to $210, you can sell it for a gain of $7.59 ($210 – $202.41). You can easily find current stock price quotes on sites like Google Finance and Yahoo Finance.

In addition to capital appreciation, some stocks also pay a portion of company profits. If so, it’s called a dividend stock and distributes dividend payments to stockholders. For instance, right now, Discover pays a dividend of $0.44 a share. If you own 1,000 shares of Discover, you'd be paid $440 in dividends over a year.

Dividend stocks pay you even when the share price goes down, so owning them is smart to hedge against potential market losses. You can find a list of dividend stocks on a site like Morningstar.

The pros and cons of investing in stocks

There are many advantages to investing in stocks. One is that you don't need much money to buy them compared to other assets such as real estate. Buying just one stock share makes you an instant business owner without investing your life savings or taking on significant risk.

Buying just one stock share makes you an instant business owner without investing your life savings or taking on significant risk.

Another advantage of making stock investments is that they offer the most significant potential for growth. Although there's no guarantee that every stock will increase in value, since 1926, the average large stock has returned close to 10% a year.

If you're investing for a long-term goal, such as retirement or a child's education, stocks turbocharge your portfolio with enough growth to achieve it. Over the long term, no other type of common investment performs better than stocks.

The main disadvantage of investing in stocks is that prices can be volatile and spike up or plummet quickly as trading volume fluctuates from minute to minute. News, earnings forecasts, and quarterly financial statements are just a few triggers that cause investors to buy or sell shares, and that activity influences a stock's price throughout the day.

Price volatility is why stocks are one of the riskiest investments to own in the short term.

Price volatility is why stocks are one of the riskiest investments to own in the short term. Investing at the wrong time could wipe out your portfolio or cause you to lose money if you need to sell shares on a day when the price is below what you originally paid.

But as I mentioned, you can minimize this risk (but never eliminate it) by adopting a long-term investing strategy.

What is diversification in stock investing?

In addition to taking a long-term approach, another key strategy for making money investing in stocks is diversification. Having a diversified stock portfolio means you own many stocks.  

People are often surprised to learn that it's better to own more investments than less. Diversification allows you to earn higher average returns while reducing risk because it's not likely that all your investments could drop in value at the same time.

Diversification allows you to earn higher average returns while reducing risk because it's not likely that all your investments could drop in value at the same time.

For instance, if you put your life’s savings into one technology stock that tanks, you’re in trouble. But if that stock only makes up a fraction of your portfolio, the loss is negligible. Having a mix of investments that responds to market conditions in different ways is the key to smoothing out risk.

Diversification isn’t a guarantee that you’ll make a killing with your investments, but the idea is that as some investments go up in value, others may decline and vice versa. It prevents you from “putting all your eggs in one basket,” financially speaking. 

RELATED: How to Invest in the Perfect Portfolio

How to create a diversified stock portfolio

If you think creating a diversified stock portfolio sounds difficult or time-consuming, I want to put you at ease. Buying one or more stock funds is a simple and inexpensive way to achieve instant diversification. 

Funds bundle investments of stocks, bonds, assets, and other securities into packages convenient for investors to buy. They’re made up of many underlying investments. Some funds may focus on one asset class only, such as international stocks, others may have a mix of asset types, such as stock and bonds.

Depending on the investment firm you use, you may see the following types of funds:

  • Mutual funds are collections of assets that are managed by a fund professional. They give you a simple way to own a portfolio of many stocks. Shares can be bought or sold only at the end of the trading day when the fund’s net asset value gets calculated.
     
  • Exchange-traded funds (ETFs) are similar to mutual funds because they’re baskets of assets. However, they trade like an individual stock on an exchange and experience price changes throughout the day.
     
  • Index funds are a mutual fund that aims to match or outperform a particular index, such as the S&P 500. They typically come with low fees and may be comprised of thousands of underlying investments.
     
  • Target date funds are a type of mutual fund that automatically resets the mix of stocks, bonds, and cash in its portfolio according to a selected time frame, such as your estimated retirement date.

How much stock should you own?

Stocks or stock funds should be an essential part of every investor's long-term portfolio. If you're young and have a long way to go before retirement, consider owning a large percentage of stocks. Though prices will go up and down in the short term, you're likely to see prices trend up and give you an impressive return over time.

But if you're nearing or already in retirement, take a more conservative approach to preserve your wealth. That doesn't mean eliminating stocks from your portfolio entirely but instead, owning a lower percentage.

There's a rough rule of thumb that says you should subtract your age from 100 or 110 to find the percentage of stocks to own.

There's a rough rule of thumb that says you should subtract your age from 100 or 110 to find the percentage of stocks to own. For instance, a 40-year-old should consider holding 60% to 70% of their investment portfolio in stocks. The remainder would be in other asset types such as bonds, real estate, and cash.

These investment allocation targets are not hard rules because everyone is different. To design your ideal allocation strategy, you can use an online resource, such as Bankrate's Asset Allocation Calculator.

What's important to remember about making money with stocks is that the amount you own should change over time. When you have decades to go before retirement, take advantage of as much growth as possible by investing mostly in stocks. As you get closer to retirement, devote more of your portfolio to bonds and cash, which preserve the wealth you worked hard to accumulate.

Source: quickanddirtytips.com

401k Early Withdrawal: What to Know Before You Cash Out

When it comes to making a 401k early withdrawal, there are a number of reasons why it might be tempting. With millions still unemployed due to the pandemic, unexpected expenses are taking a particularly hard toll. One reason why early withdrawal isn’t uncommon in the U.S. might be because it’s easy to assume you’ll have time to rebuild your 401k nest egg.

However, is the benefit of withdrawing your retirement savings early truly worth the cost? For many people, their 401k is their primary method of investing in their financial future. Before making a decision about early withdrawal, it’s important to consider the penalties and fees that could impact you. Read on to learn exactly what happens when you decide to dip into your 401k so you won’t be surprised by the repercussions.

How Much Are You Penalized for a 401k Early Withdrawal?

On the surface, withdrawing funds from your 401k might not seem like a bad option under extenuating circumstances, but you could face penalties. Young adults are especially prone to early withdrawals because they figure they have plenty of time to replace lost funds.

 

401k early withdrawal penalties

 

If you’re not experiencing a significant hardship, 401k early withdrawal probably isn’t the right choice for you. Ultimately, you could lose a substantial portion of your retirement savings if you choose to withdraw your 401k early to use the money to make other risky financial moves. Below, let’s delve further into the penalties that usually apply when you withdraw early.

1) Your Taxes Are Withheld

When you prematurely withdraw from your retirement account, your first consideration should be that you’ll have to pay normal income taxes on that money first. This means you’re losing at least roughly 30 percent of your savings to federal and state taxes before additional penalties.

Even if you only have $10,000 you want to withdraw, consider that you’re automatically giving $3,000 of your cash to the government. In the best case scenario, you might receive some money back in the form of a tax refund if your withholding exceeds your actual tax liability.

2) You Are Penalized by the IRS

If you withdraw money from your 401k before you’re 59 ½ , the IRS penalizes you with an extra 10 percent on those funds when you file your tax return. If we use the example above, an additional $1,000 would be taken by the government from your $10,000 — leaving you with just $6,000. If you’re 55 or older, you could try to get this penalty lifted by the IRS through the Rule of 55, which is designed for people retiring early.

Also, there are exceptions under the CARES Act, which is designed to help people affected by the pandemic. There are provisions under the act that state individuals under the age of 59 ½ can take up to $100,000 in Coronavirus-related early distributions from their retirement plans without facing the 10 percent early withdrawal penalty under certain conditions.

3) You Lose Thousands in Potential Growth

Even if you’re not deterred by tax penalties, think twice before you sabotage your long-term retirement savings goals. When you withdraw money early, you’ll miss out on potential future savings growth because you won’t gain the perks of compound interest. Compounding is the snowball effect resulting from your savings generating more earnings — not only on your principal investment but also on your accrued interest.

Also, if you make a 401k early withdrawal while the market is down, you’re doing yourself a disservice because you’ll be leaving thousands on the table. It’s unlikely you’ll fully recover the lost years of compound interest you would have benefited from. You might need to get creative with a passive income stream to help support you later in life.

 

tips to minimize 401k withdrawal penalties

 

When Does a 401k Early Withdrawal Make Sense?

In certain cases, it actually might be strategic to move forward with 401k early withdrawal. For example, it could be smart to cash out some of your 401k to pay off a loan with a high-interest rate, like 18–20 percent. You might be better off using alternative methods to pay off debt such as acquiring a 401k loan rather than actually withdrawing the money.

Always weigh the cost of interest against tax penalties before making your decision. Some 401k plans do allow for penalty-free early withdrawals due to a layoff, major medical expenses, home-related costs, college tuition, and more. Regardless of your strategy to withdraw with the least penalties, your retirement savings are still taking a significant hit.

401k Early Withdrawal, Hardship, or Loan: What’s the Difference?

Knowing the differences between a 401k early withdrawal, a hardship withdrawal, and a 401k loan is crucial. Due to the many obstacles to make a 401k early withdrawal, you may find you want to keep it untouched. If you’re convinced you still need to use your 401k for financial assistance, consult with a trusted financial advisor to figure out the best option.

When Does This Apply?

Taxes and
Penalties

Early Withdrawal

Your funds are withdrawn to pay off large debts or finance large projects. Your 401k fund is typically subject to taxes and penalties.

Hardship Withdrawal

You’re only eligible for this type of withdrawal under circumstances such as a pandemic or natural disasters. Withdrawals can’t exceed the amount of the need and the funds are still subject to taxes and penalties.

401k Loan

The loan must be paid back to the borrower’s retirement account under the plan. The money isn’t taxed if the loan meets the rules and the repayment schedule is followed.

Additional Considerations

If you’ve left a job and don’t know what to do with your Roth IRA, a 401k transfer is a good option. Most likely, you will save money and have a wider range of investment options when you transfer your funds. 401k fees can be high, and rolling over your funds to a Roth IRA account could be wise in the long run. Also, be aware that the process is more complicated for indirect rollovers. 

In Summary:

  • If you’re one of the millions of Americans who rely on workplace retirement savings, early 401k withdrawal may jeopardize your future financial stability.
  • There are very few instances when cashing out a portion of your 401k is a smart move.
  • In most cases, any kind of early 401k withdrawal is detrimental to your retirement plans.
  • Stick to your budget and bulk up your emergency fund to stay one step ahead.

In short, 401k early withdrawals are usually counterproductive. Prevent compromising your hard-earned savings by using a free budgeting tool that will set you up for success. After all, being prepared and informed are two of the most important parts of maintaining financial health.

Source: SEC

The post 401k Early Withdrawal: What to Know Before You Cash Out appeared first on MintLife Blog.

Source: mint.intuit.com

8 Essential Rules for Surviving Financial Hardship

At some point, most people experience an unexpected crisis that shakes their financial world. It could be losing a job, receiving a huge medical bill, or having a car break down at the worst possible time. But surviving a pandemic is a situation you probably never thought you would face.

No matter what challenge you’re facing, you’re not the first.

Along with the public health toll, the COVID crisis has put millions of people out of work. For those struggling financially, here are eight critical rules to help you manage money wisely, stretch your resources, and bounce back from this unprecedented health and economic disaster.

8 rules for managing a financial hardship

Here are the details about each rule to manage a financial setback during the coronavirus crisis.

Rule #1: Accept your situation and use your resources to seek help

The key to successfully navigating a financial setback is to be realistic. If you’re in denial and don’t face money troubles head-on, you can quickly compound the damage.

Instead of focusing on the problem, getting angry, or letting stress overwhelm you, channel your emotions into finding solutions. Start talking about your challenges with people and professionals you trust, such as a money-savvy family member, financial advisor, legitimate credit counselor, or an attorney.

Instead of focusing on the problem, getting angry, or letting stress overwhelm you, channel your emotions into finding solutions.

The following financial associations have certified volunteers who can offer free help and advice:

  • National Association of Personal Financial Advisors
  • The Financial Planning Association
  • Association for Financial Counseling & Planning Education

Rule #2: Get a bird’s eye view of your finances

To fully understand your situation, create a list of what you own and owe; this is called a net worth statement. Compiling your data in one place helps you evaluate your financial resources, make decisions more efficiently, and have essential information at your fingertips if creditors or advisors ask for it.

First, list your assets: 

  • Cash
  • Investments
  • Retirement accounts
  • Real estate
  • Vehicles 

Then list your liabilities:

  • Mortgage
  • Car loans
  • Student loans
  • Credit card debt

Include the estimated values of your assets, the balances on your debts, and the interest rates you pay for each liability. You could jot down this information on paper, enter it in a computer spreadsheet, or create a report using money management software.

When you subtract your total liabilities from your total assets, you’ve calculated your net worth, which is an indicator of your financial health. It’s not uncommon to have a low or negative net worth when you’re in financial trouble.

RELATED: 10 Things Student Loan Borrowers Should Know About Coronavirus Relief  

Rule #3: Understand your cash flow

An essential part of bouncing back from a financial crisis is keeping an eye on your monthly income and expenses. Create a cash flow statement that lists your expected income and typical expenses, such as rent, utilities, food, prescriptions, transportation, and insurance. Again, you can create this report manually or by using budgeting features in a financial program.

Understanding where your money goes is the only way to prioritize expenses and cut all non-essential spending.

Understanding where your money goes is the only way to prioritize expenses and cut all non-essential spending. Making temporary sacrifices will help you recover as quickly as possible with less long-term damage to your finances.

Rule #4: Shop your essential expenses

As you review your spending, it’s an excellent time to comparison-shop your essential expenses. Evaluate your highest costs first, such as housing, vehicles, and insurance, since they offer the most significant potential savings.

For instance, you may be able to move into a less expensive home, purchase or lease a cheaper vehicle, and shop your auto insurance to find better deals. Ask your utility provider about assistance programs that offer energy-saving improvements at no charge.

Rule #5: Communicate with your creditors

If you haven’t been in contact with your creditors, start a dialog with each one immediately. You’ll come out ahead and get favorable treatment from creditors if you are proactive and honest about your financial troubles. Ask them for solutions, such as deferring payments for several months, setting up a reduced payment plan, or refinancing a loan to reduce your financial burden.

You’ll come out ahead and get favorable treatment from creditors if you are proactive and honest about your financial troubles.

Creditors are likely to ask about details regarding your financial situation, so have your net worth and cash flow statements on hand when you speak to them. Be ready to complete any required assistance applications quickly.

Rule #6: Prioritize your debts carefully

Based on guidance from creditors and finance professionals, prioritize your bills and debts carefully. Your goal should be to conserve as much cash as possible without skipping essential payments. Always pay for necessities first: food, prescription drugs, and auto insurance.

Debts related to child support and legal judgments have severe consequences and should be prioritized

Use your net worth statement to rank your liabilities from highest to lowest priority. For instance, debts related to child support and legal judgments have severe consequences and should be prioritized. Keeping up with an auto loan is a high priority if you rely on your vehicle for transportation. Federal student loans are in automatic forbearance through September 30, and the relief may get extended through 2020.

Your unsecured debts—medical bills, credit cards, and private student loans—are lower priorities. Never pay these debts ahead of rent, a mortgage, or utilities when you have a cash shortage.

Rule #7: Don’t let collectors force you to make bad decisions

Prioritizing your debts means some may be paid late or not at all. If a debt collector contacts you about a low-priority debt, such as a medical bill or credit card, don’t allow them to persuade you to pay it before your highest priority bills.

Collectors may try various aggressive tactics, such as threatening to sue you or ruin your credit. A lawsuit could take years, and a creditor is more likely to negotiate a settlement with you. Remember that a creditor or collector can’t send you to jail for civil debts.

If you are behind on bills, that fact is likely already reflected on your credit reports. By the time a collector contacts you, the damage is already done, and paying the bill won’t improve your credit in the short-term.

Rule #8: Take advantage of local and federal benefits

If your income and savings have entirely dried up, use these resources to learn more about local and federal benefits.

  • FeedingAmerica.org has a map showing local food banks
  • Supplemental Nutrition Assistance Program (SNAP) is the federal food program you may qualify for based on where you live, your income, and family size
  • MakingHomeAffordable.gov can help you find a housing counselor or see if your mortgage is backed by the federal government and qualifies for forbearance
  • Benefits.gov has a questionnaire that helps you discover the benefits you’re eligible for
  • Medicaid.gov is the federal health insurance program you may qualify for based on where you live, your income, and family size
  • Healthcare.gov is the federal health insurance marketplace where you may find plans with substantial subsidies if you earn too much to qualify for Medicaid

Financial challenges can cause you and your family to experience a flood of emotions, including anger, fear, and embarrassment. As difficult as it might be to put a financial crisis into perspective, it’s critical. No matter what challenge you’re facing, you’re not the first. There are millions of people who are dealing with COVID-related financial hardships.

Face the fact that your recovery could take a while. Do everything in your power to manage your budget wisely by getting organized, seeking ways to earn more, and spending less. Don’t be afraid to ask for help from creditors, seek free advice from professionals, and take advantage of every local and federal benefit possible.

Source: quickanddirtytips.com

Dear Penny: How Do I Save for Retirement on a Teacher’s Salary?

Dear Penny,

I’m 51 years old and don’t have a large nest egg. I’m a single parent with three kids. I’m a second career middle school teacher, so there is not a lot of money left over each month. 

How much money should I be saving to be able to retire in my 70s? Where should I invest that money?

-B.

Dear B.,

You still have 20 years to build your nest egg if all goes as planned. Sure, you’ve missed out on the extra years of compounding you’d have gotten had you accumulated substantial savings in your 20s and 30s. But that’s not uncommon. I’ve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.

I like that you’re already planning to work longer to make up for a late start. But here’s my nagging concern: What if you can’t work into your 70s?

The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So it’s essential to have a Plan B should you need to leave the workforce earlier than you’d hoped.

Retirement planning naturally comes with a ton of uncertainty. But since I don’t know what you earn, whether you have debt or how much you have saved, I’m going to have to respond to your question about how much to save with the vague and unsatisfying answer of: “As much as you can.”

Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, let’s talk about how much you need to retire. You can set savings goals from there.

The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side — perhaps even less.

For the average worker, Social Security benefits will replace about 40% of income. If you’re able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until you’re 70 instead of claiming as early as possible at 62. That can make an enormous difference when you’re lacking in savings.

But since a Plan B is essential here, let’s only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.

If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once you’ve done that, try to max out your Roth IRA contribution. Since you’re over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.

If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, you’d have $185,000 after 15 years. Do that for 20 years and you’d have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.

The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes you’ll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.

Choosing what to invest in doesn’t need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.

By now you’re probably asking: How am I supposed to do all that as a single mom with a teacher’s salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isn’t enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.

I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I can’t change the fact that we underpay teachers. I want a solution for you that doesn’t involve working forever. That may mean you have to work more now.

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

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

Source: thepennyhoarder.com

How Much Should You Spend on Rent?

One of the most exciting parts of becoming an adult is moving out of your old place and starting your own life. However, as is the case with most major life events, moving out comes with a lot of added responsibility. Part of this duty is knowing and understanding your budget when shopping for the perfect apartment, condo, duplex, or rental house. So how much should you really spend on rent?

The 30 Percent Threshold

The first step in deciding how much you should spend on rent is calculating how much rent you can afford. This is done by finding your fixed income-to-rent ratio. Simply put, this is the percentage of your income that is budgeted towards rent.

As a general rule of thumb, allocating 30 percent of your net income towards rent is a good place to start. Government studies consider people who spend more than 30 percent on living expenses to be “cost-burdened,” and those who spend 50 percent or more to be “severely cost-burdened.”

When calculating your income-to-rent ratio, keep in mind that you should be using your total household income. If you live with a roommate or partner, be sure to factor in their income as well to ensure you’re finding a rent range that’s appropriate for your income level.

If you’re still unsure as to how much rent you can afford, consider an affordability calculator. Remember to consult a financial advisor before entering into a lease if you’re unsure if you’ll be able to make rent.

Consider the 50/30/20 Rule

Consider the 50:30:20 Rule

After you’ve set a fixed income-to-rent ratio, consider the 50/20/30 rule to round out your budget. This rule suggests that 50 percent of your income goes to essentials, 20 percent goes to savings, and the remaining 30 percent goes to non-essential, personal expenses. In this case, rent falls under “essentials.” Also included in this category are any expenses that are absolutely necessary, such as utilities, food, and transportation.

Let’s consider a hypothetical situation in which you make $4,000 per month. Under the 50/20/30 rule with a fixed income-to-rent ratio of 30 percent, you have $2,000 (50 percent) per month to spend on essential living expenses. $1,200 (30 percent) goes to rent, leaving you with $800 per month for other necessary expenses such as utilities and food.

Remember to Budget for Additional Expenses

Now that you’ve budgeted for rent and essential utilities, it’s time to make a plan for how you’re going to furnish your apartment. One of the biggest shocks of moving out on your own is how expensive filling a home can be. From kitchen utensils to lightbulbs and everything in between, it can be pricey to make your space perfect.

For the most part, furniture falls under the 30 percent of personal, non-essential expenses. Consider planning ahead before a move and saving for home goods so that you don’t go into major debt when it comes time to move out.

Be on the Lookout for Savings

If your budget is slightly out of reach for your dream apartment, try to nix unnecessary costs to see if you can make it work. Look for ways to cut down on utilities, insurance, groceries, and rent.

Utilities: Water, heat, and electricity are all necessities, but your TV service isn’t. Cut the cord on TV and mobile services that may not serve you and your budget anymore. Consider swapping out your light bulbs for eco-friendly and energy-efficient light bulbs to cut down your electric bill.

Insurance: Instead of paying monthly renters insurance rates, save a fraction of the cost by paying your yearly cost in full. If you have a roommate, ask to share a policy together at a premium rate.

Groceries: Swap your nights out for a homemade meal. You can save up to $832 a year with this simple habit change. When grocery shopping, add up costs as you shop to ensure your budget stays on track.

Rent: One of the best ways to save on rent is to split the bill. Consider getting roommates to save 50 percent or more on your monthly rent.

A lease is not something to be entered into lightly. Biting off more rent than you can chew can lead to unpaid rent, which can damage your credit score and make it harder to find an apartment or buy a home in the future. By implementing these best practices, you’ll hopefully find a balance between finding a place you love and still having room in your budget for a little bit of fun.

Sources: US Census Bureau

The post How Much Should You Spend on Rent? appeared first on MintLife Blog.

Source: mint.intuit.com

How Much House Should I Afford?

The internet is a treasure trove when it comes to finding information that can help you buy your first home. Unfortunately, searching for “How much house can I afford?” will mostly lead you to online calculators that use an algorithm to come up with a generic estimate.

To come up with a figure, these calculators ask you for details like your zip code, your gross annual income, your down payment amount, your monthly liabilities, and your credit score. From there, they come up with an estimate of your debt-to-income ratio (DTI), or the amount of bills and liabilities you have in relation to your monthly income. 

The truth is, most lenders prefer your debt-to-income ratio to be at 43 percent or lower, although some lenders may offer you a loan with a DTI slightly above that.

Either way, the figures these calculators throw at you are a simple reflection of what a bank is willing to lend you — not an estimate of what you really can or should spend. 

Let’s dig in a bit more to what factors to consider.

Factors that Should Impact Your Home Purchase Price

One of the main factors to consider when deciding how much to spend on a home is how much you want to pay for your mortgage each month. What kind of payment can you commit to without sacrificing other goals?

A mortgage payment calculator is a good tool to use in this case. With a mortgage calculator, you can see how much your monthly payment might be depending on the amount you borrow, the interest rate you qualify for, and the term of the loan. 

While you decide on a monthly payment you can live with, there are additional details you should consider. The main ones include:

  • Down Payment: If you’re able to put down 20% of your home purchase price, you can avoid private mortgage insurance, or PMI. PMI adds an additional cost to your mortgage each month (usually around 1% of your loan amount), although you can have this charge removed from your loan once you have at least 20% equity.
  • Property Taxes: Find out the annual property taxes for any home you’re considering, then divide that amount by 12 to figure out approximately how much you’ll need to pay toward taxes in your mortgage payment each month. Also remember that your property taxes will likely go up slowly over time, which will increase your monthly housing payment along the way.
  • Homeowners Insurance: Your homeowners insurance premiums will also vary depending on the property and other factors. Make sure to get a homeowners insurance quote so you know approximately how much you’ll pay for coverage each year.
  • Home Warranty: Do you want a home warranty that will repair or replace major components of your property that break down? If so, you’ll want to price out home warranties that can provide coverage for your HVAC system, plumbing, appliances, and more. 
  • Other Monthly Bills: Take other liabilities you have into account, and especially the big ones. Daycare expenses, college tuition, utility bills, car payments, and all other bills you have should be considered and planned for.
  • Financial Goals: Are you trying to save more than usual so you can retire early? Or, are you saving in a 529 plan for future college expenses? If your financial goals are a priority (as they should be), then you’ll want to make sure your new house payment won’t make saving for other goals a challenge.
  • Upgrades and Repairs: Finally, don’t forget to come up with an estimate of how much you might want to spend on repairs or changes to your new home. A property that is new or move-in ready may not require much of anything, but money you plan to spend on a major renovation should be taken into consideration along with the purchase price of your home.

Hidden Expenses to Plan For

The factors you should consider when figuring out how much home to buy are pretty obvious, but what about all the expenses of homeownership you can’t always plan for? The reality is, you will need to do some work on your home at some point, and many of the most popular repairs can cost tens of thousands of dollars on their own. 

These repair and renovation cost estimates from Remodeling Magazine’s 2020 Cost vs. Value study are just a few examples: 

  • Garage door replacement: $3,695
  • Vinyl siding replacement: $14,459
  • Wooden window replacement: $21,495
  • Asphalt roof replacement: $24,700

In addition to major repairs like these, you’ll also have repair bills for your HVAC system, mulch to buy for your flower beds, and ongoing costs for maintenance and upkeep to pay for. You may also decide to remodel your older kitchen one day, or to add an extra bedroom as your family grows. 

As you figure out how much you should spend on a home, remember that you won’t know exactly how much you’ll need for home repairs or upgrades. Most people set aside some money for home maintenance in their emergency fund, but you can also set aside money for home repairs in a separate high-yield savings account. 

How to Calculate How Much House You Should Afford

All of the costs we’ve outlined above probably seem overwhelming, but keep in mind that most major home repairs will be spread out over the years and even decades you own your home. Not only that, but you will hopefully start earning more over the course of your career. As your paycheck grows, you’ll be able to set aside more money for emergencies and potentially even pay your mortgage off faster.

So, how do you calculate how much house you can afford? That’s really up to you, but I would start by tallying up every bill you have to pay each month including car payments, insurance, utilities, student loans, and any other debts you have. From there, add in some savings so you have money to set aside for your investing and savings goals. Also factor in money you set aside for retirement in a workplace account.

At this point, you could consider other factors that might impact how much you want to pay for a home. For example:

  • Do you need to build an emergency fund?
  • Are children on the agenda, and should you play for daycare expenses?
  • Do you like being able to save more money for a rainy day? 
  • Do you want to have one spouse stay at home in the future?
  • How long do you want to pay off your home loan?

Once you’ve considered all other factors, you may decide that you should set aside money for some other goals, like future daycare bills or college savings. Maybe you decide you want to pay double on your student loans so you can pay them off early, or that you want a 15-year-home loan with a larger monthly payment instead of a traditional 30-year loan. 

Either way, experts tend to agree that your mortgage payment should be no more than 25% of your income. For a $7,000 monthly income, that means your payment shouldn’t exceed $1,750. If your income is $5,000 per month, your monthly payment should be no more than $1,250 per month. These are ballpark estimates, and your property taxes and homeowners insurance premiums (or estimates) should also be figured into this amount. 

What to Do If You Already Spent Too Much?

If you already overspent on your home, you’re probably wondering which steps to take next. Maybe your monthly mortgage payment is making it impossible to keep up with other bills, or perhaps the home you bought required a lot more work than you realized. 

Either way, there are some steps to get back on track financially if you bit off more than you can chew. Consider these options:

  • Refinance your mortgage. Today’s incredibly low rates have made it so almost anyone can refinance an existing mortgage and save money these days. If you’re able to qualify for a new mortgage with a lower interest rate, you could lower your monthly payment and save money on interest each month. Compare mortgage refinancing rates here. 
  • Cut your expenses. Look for ways to cut your spending on a daily basis — at least until you figure out what to do in the long run. Figure out areas of your budget where you might be spending more than you realized, such as dining out, getting takeout, or going out on the weekends. If you can cut your monthly spending somewhat, you can find more money to use toward your mortgage payment each month. 
  • Get a roommate. Consider renting out your guest room in order to get some help with your mortgage. If you live in a tourist area, you can also rent out a space using platforms like Airbnb.com or VRBO.com. 
  • Sell your home and move. Finally, consider selling your home and moving if you have enough equity to do so without taking a financial loss. Sometimes the best thing you can do in a financial crisis is cut your losses and move on.

The Bottom Line

How much house you can afford isn’t always the same as how much you should afford. Only you know what your monthly bills and liabilities look like each month, and only you know the goals and dreams you really should be saving for.

When it comes to buying a home, you’re almost always better off if you err on the side of caution and borrow less a bank will lend. Buying a modest home can leave you with a lot more choices in life, but buying a home you can’t really afford can leave you struggling for years to come.

The post How Much House Should I Afford? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

This Is the Best Online Savings Account for 2021

A new year can be the perfect time to look for a new savings account. One option that should be near the top of your list is Capital One’s Performance Savings. Capital One earned the honor of being named the best all-around bank for online savings in Money magazine’s annual rankings. Money says the bank’s Performance Savings account stands out for several reasons. For starters, it pays 0.40%

Source: moneytalksnews.com