How to Make Your Money Biases Work for You

The way our brains work can cost us a lot of money. But some of our mental quirks can be turned to our advantage.

Cognitive biases are the faulty ways of thinking that can persuade us to run up debt, save too little and make stupid investment decisions. The bandwagon effect, for example, entices us to buy the hot stock everyone’s talking about, rather than the mutual fund that makes more sense for our long-term goals. Or we sign up for a too-large mortgage because of optimism bias (“I’ll figure out a way to make the payments, somehow!”).

We can try to be more rational, but sometimes it makes sense to exploit our faulty wiring instead. Here are three money biases that you could put to work for yourself:

Mental accounting

Money is fungible, which means every dollar has the same value regardless of how we get it or store it. But our brains didn’t get that memo, so we treat different types of money differently. We’re tempted to splurge with windfalls, for example, or to be more careful spending cash than using credit.

You can turn this mental accounting to good use by creating multiple savings accounts, each labeled with your goal for the money. For example, you could create accounts called “vacation,” “car repair fund,” “home down payment” and so on. Online banks and credit unions typically make this easy by allowing you to create and name numerous subaccounts without minimum balance requirements or fees.

Labeling and segregating money could help you keep your hands off of it. While you might dip into a general savings account for a questionable purchase, you may resist the urge if you can envision having less money for your vacation or not being able to pay for a needed car repair.

‘End-of-history’ illusion

Think of the person you were a decade ago — what you thought was important, what you liked and disliked, how you behaved. If you’re like most people, you’ve changed, but you also probably think that the person you are today is pretty much who you’ll be from now on.

Regardless of their age, adults consistently underestimate how much they’ll change in the future, according to research by psychologists Jordi Quoidbach, Daniel T. Gilbert and Timothy D. Wilson, who dubbed this phenomenon the “end of history illusion.”

This illusion leads to the tattoo, mortgage or marriage you later regret. But the end-of-history illusion could be beneficial if you use it to give your future self more, rather than fewer, options.

Here’s an example: People who save for retirement often anticipate the freedom and leisure they’ll enjoy one day when they can quit work. They can’t imagine they’ll feel differently later. As they get closer to retirement, though, some realize they want to keep working at least part time for the extra money, the intellectual stimulation, the social benefits.

With sufficient savings, you typically have more options: You could quit, work part time, work full time, take a break and return to work or start your own business. If you haven’t saved, you may have little choice but to keep working.

Hyperbolic discounting

Our hard-wired preference for short-term payoffs, even when we would get more by waiting, is known as “hyperbolic discounting.” We know we need to save more for retirement, or pay down debt, or build an emergency fund. In the moment, though, we want to spend our money in other ways.

But hyperbolic discounting can be leveraged to create good outcomes, as well. Behavioral economists Richard H. Thaler and Shlomo Benartzi designed a “Save More Tomorrow” intervention where people committed to saving a portion of future raises. The economists figured opportunities to save future income would be considered more attractive than giving up current income. They were right: Retirement plan participation and contribution rates rose at the companies that tried this approach.

Saving future income is also the idea behind automatic escalation. Many 401(k) plans allow you to sign up now to increase your contribution in the future by, say, 1 percentage point a year, and some plans have automatic escalation as the default. The IRS also offers a kind of “save more tomorrow” plan: You can split the direct deposit of your next tax refund, sending part to your savings account and the rest to checking.

It would be great if we were always rational and could count on ourselves to make smart decisions. Since we aren’t and we can’t, using these workarounds can help us get better results with our money.

This article was written by NerdWallet and was originally published by The Associated Press.

The article How to Make Your Money Biases Work for You originally appeared on NerdWallet.

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5 Money Hacks Hiding in Your Wallet

Your wallet has a secret. Buried in your billfold, bound in a money clip, or stuffed in a pocket on your phone case are untapped benefits on credit and debit cards that could save you hundreds of dollars a year. Here are five money hacks hiding in plain sight.

1. Use a savings app

Build savings even as you spend money by linking your credit and debit cards to an app like Acorns or Digit. Acorns automatically rounds up your purchases to the nearest dollar and then adds the difference to your savings. Digit analyzes your spending and income and sets aside a little of your extra money for savings.  It’s like a tip jar by the register or a spare-change dish, but the money goes to your future.

2. Maximize your card benefits

Credit cards often come with valuable but easy-to-overlook benefits. According to a 2019 J.D. Power study, only 36% of cardholders understand the supplementary benefits on their cards.

“Consumers generally are probably not very knowledgeable about all of the features of their credit cards,” says John Cabell, director of wealth and lending management at J.D. Power and a lead researcher on the study. Money-saving card benefits “may not be clearly communicated or communicated proactively by the issuers.”

Among such benefits:

  • Travel perks. Cabell points to airline cards that offer free checked bags and airport lounge access, as well as cards that charge no foreign transaction fees. Several cards reimburse the application fee for TSA Precheck and Global Entry.
  • Cell phone insurance. Wells Fargo, U.S. Bank, Mastercard and other credit card companies offer cell phone coverage with certain cards when you pay your bill with the card.
  • Automatic credits. Some cards automatically reimburse you for things like travel expenses, rideshares, meal delivery or purchases at select merchants, up to a monthly or annual limit.

Read your credit card’s benefits guide to see what’s included. You might be surprised by how much you can save. A checked-bag benefit, for example, could save you $120 on a single round-trip with a companion. Getting cell phone coverage from your card could shave $9 to $15 a month off your wireless bill if you were previously paying for it through your carrier.

3. Use your rewards cards for everything

Some people have a habit of using credit cards only for “big” or “important” purchases while paying for smaller or everyday purchases with cash or debit. But every purchase that isn’t on a rewards card is money left on the table.

“I think if you pay your balance in full every month, it’s kind of silly not to have a rewards card because you’re getting something for nothing,” says Holly Johnson, who with her husband, Greg, runs the money-saving tips blog

Rewards cards essentially give you a discount on all your spending. Depending on the card, how its rewards are structured and where you use it, you’ll typically earn rewards equal to 1% to 6% of the purchase price. Even earning a paltry 1% on everything, a modest $100 in spending a week turns into more than $50 in rewards in a year.

4. Stack savings with a cash-back portal

Websites such as Rakuten (formerly Ebates) and BeFrugal pay you a percentage back on every qualified purchase from participating retailers. A Rakuten spokesperson, for example, says the average member earns 4% to 6% in cash back on purchases made through the site, which can add up to hundreds of dollars a year.

The trick is to get into the habit of checking the sites before you shop and to use them only for purchases you were going to make regardless.

“I am a big online shopper, and once I learned about Ebates a couple of years ago, I thought ‘Why would anyone not use a program like this?’ You’re ordering from the store anyway, so why not get cash back?” says Stacey Wallenstein, a parenting blogger at The Mint Chip Mama and mother of three from Plainview, New York. Wallenstein says she has saved more than $175 in 2019 just through Rakuten.

Use a rewards credit card on a cash-back site, and you’re multiplying your savings with zero extra effort.

5. Know your price protections

Here’s another good reason to keep your receipts: You might be able to get money back if something you bought goes on sale for less somewhere else. If your credit card has price protection, you can claim a refund of the difference if you submit proof of the lower price on an eligible item within a particular time period after your purchase. Don’t have price protection on your card? Several major retailers offer their own version if certain competitors offer the same item for less. Participating stores include Bed Bath & Beyond, Best Buy and Home Depot.

An earlier version of this article misstated how the Digit app works. It has been corrected.

The article 5 Money Hacks Hiding in Your Wallet originally appeared on NerdWallet.

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One Credit Score Factor to Check Twice During the Holidays

You probably know that paying your bills on time is crucial for your credit score. But there are other factors that play into your score, as well.

One factor that you might not know about: how much of your available credit you use. You probably know it’s bad to max out a card, but even modest changes in your spending can have an impact on your score.

That’s because this factor, known as your “credit utilization ratio,” accounts for 30% of your FICO score. The other major credit scoring model, VantageScore, calls it “highly influential.” Put simply, it’s the second-most important part of your score after paying on time.

To calculate your credit utilization, add up the credit limits across all your credit cards. Next, add up the balances on your cards. Divide total balances by total limits and multiply it by 100 to get a percentage. For example, if your balances add up to $5,000 and the credit limits across all your cards add up to $10,000, your credit utilization ratio is 50%.

Ideally, you shouldn’t use more than 30% of your available credit on any card, a guideline supported by FICO and VantageScore. And the lower your usage, the better it is for your score. People with excellent credit scores tend to have a utilization ratio much lower than 30%.

As you prepare your lists and plan your budget for the holiday shopping season, it’s worth paying attention to your credit utilization. Here are tips for protecting your credit score as you shop.

Make multiple payments throughout the month

Credit card issuers typically report balances to the credit bureaus once a month. If your issuer reports your balance after you’ve charged quite a bit and have yet to pay, your utilization will be high. That can ding your credit score, even if you routinely pay off your balance every month.

Consider making multiple small payments throughout your billing cycle, so your utilization is consistently low, rather than building up to one big payment.

Note that this strategy won’t help if you only pay the minimums on your cards, says Elaina Johannessen, a program director at LSS Financial Counseling in Duluth, Minnesota.

“If you are making your minimum payments and paying half of it now and then later, it’s not making a difference. Pay down debt as fast as possible to increase your score,” she says. If possible, pay in full. Carrying a balance on your cards does not help your score — that’s a common myth.

Ask for an increase in your credit limits

A higher credit limit will automatically lower your overall utilization ratio. If your issuer offers you a credit limit increase, take it. You can also request a higher limit, especially if you have been a good customer and paid on time, or your income or score has gone up. Ask the issuer if there will be a type of credit check called a hard inquiry, as that can temporarily knock a few points off your score.

Johannessen warns that having a higher limit may tempt you to spend more, which would defeat the purpose. As long as your spending remains the same, the higher limit should help your utilization, and in turn, your score.

Use cash or rewards points instead of charging

Using cash or your credit card’s rewards points is an easy way to control how much you charge to your cards during the holidays, says Daniel Milks, a certified financial planner and founder of Woodmark Wealth Management in Greenville, South Carolina.

Milks says he plans for the holidays by saving up rewards points from purchases throughout the year. Some credit cards also offer cash back at department stores during the holiday season or for using their online portal to make purchases. You can find these offers by logging into your credit card account online.

In the long term, think about creating a budget for next year’s holidays and saving money ahead of time, says Johannessen, so you don’t need to worry about your credit utilization at all.


The article One Credit Score Factor to Check Twice During the Holidays originally appeared on NerdWallet.

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Holiday Money-Saving Strategies That Can Backfire

Holiday marketers have your number, and they know how to entice you to spend.

You try to rein it in. But two favorite strategies can lead to spending more, according to a 2018 survey by the Center for the New Middle Class, a research organization funded by Elevate, which lends to credit-challenged borrowers. Consumers who shopped at sales were 50% more likely to say they spent more than they expected. Among shoppers who used coupons, 38.5% said they overspent.

Many shoppers try to be careful instead of making a spending plan. Using a budget can feel like it’s wringing the joy out of a happy season. Why? Giving feels good, says Jeff Kreisler, co-author of “Dollars and Sense: How We Misthink Money and How to Spend Smarter.”

But simply being careful doesn’t work, “because a lot of the reasons we make poor financial decisions are unconscious,” says Kreisler, who’s editor in chief of, which applies behavioral science to the marketplace.

However, you can position yourself to recognize — and overcome — overspending triggers.

Use the best defense: a holiday budget

Ashley Feinstein Gerstley, a financial coach and founder of the Fiscal Femme website, advises setting aside time — not over an hour — to list holiday expenses. Build in a buffer, because you’ll forget some things. But you’ll be better off if you have a number in mind, she says.

Be realistic, not rigid, about your budget. Otherwise, controlling expenses can seem so futile you don’t bother trying, she says. “It’s like being on a strict diet and figuring if you cheated and had a cookie, you may as well eat the whole bag.”

If you worry about overspending, consider getting a prepaid gift card in that amount, Kreisler says. It can help you stay aware of what you are spending and what’s left.

Having a successful holiday spending plan may also inspire you to create a budget to help you achieve financial goals throughout the year.

Understand how sales can cost you

Shopping sales can be smart — but only if you’re strategic and aware of the psychology at play. Kreisler says if you see a $100 cashmere sweater marked down to $40, your brain registers “saving $60.” Train yourself to translate that to “spending $40” and compare how it fits into your spending plan.

Then, figure out how much the sweater is worth to you. Would you still want it if $40 was the regular price? It’s the same sweater and the same money but minus the rush of feeling that you got a deal.

Watch out for impulse purchases, too. Gerstley says she’s encountered products she never knew existed while shopping (think cell phone sanitizer or weighted blanket) and suddenly wanted them. Badly.  She’s a fan of “the 48-hour rule”: Put the item back on the shelf or abandon your virtual cart, and if you still want it 48 hours later, go ahead and buy it. Often you won’t, she says.

Understand that marketers use one-day sales or even shorter buying windows to create urgency. Fear of missing out can lead to poor decisions; buy only the items you intended to anyway.

Know the trouble with coupons

Coupons can save you money — or tempt you to upgrade because of your “savings.”

Kreisler says a coupon is great if you’ve been waiting for a discount to buy something specific on your list. If you’ve done your research and buy the item you intended to, using a coupon to drop the price, then you really are saving.

As with sales, it’s important to focus on your spending, not your “savings.” If you have a coupon for $10 off a $50 purchase or $30 off a $100 purchase, would you spend more to “save” more? Stick with what you intended to spend.

Keep three tips in mind as you shop

Kreisler offers these additional tips for spending less:

  • Imagine how the holidays would be different if you spent a little less on a particular gift. Would it really detract from the joy?
  • If you cannot afford to reciprocate with a gift of equal monetary value, consider giving something else of value, such as offering an evening of child care or creating a painting. Write a note about why you chose the gift especially for the recipient.
  • If you want to trim your gift list, discuss it with friends and family shortly after the holidays, when warm feelings abound. Announcing it late in the year isn’t a great idea.

The article Holiday Money-Saving Strategies That Can Backfire originally appeared on NerdWallet.

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What to Do When Your First Student Loan Payment Is Due

The first student loan bills are arriving for the Class of 2019. If the grads are able to stick to the standard plan, they’ll make payments every month for the next 10 years and be done with it.

But not all borrowers will knock out their loans so quickly. Among federal loan borrowers who began taking on debt in 2003-2004, just 1 in 4 had paid off their debt by 2015, according to the most recent data from the National Center for Education Statistics. As for the students with debt remaining, about 39% were still in repayment.

This year’s recent graduates can improve their odds by setting a plan now to pay back the debt and stay on track moving forward, no matter what obstacles pop up.

“A plan will alleviate the stress you feel when you’re unsure about what life looks like after college, and you have this debt to pay,” says Tracie Miller-Nobles, an associate professor at Austin Community College and a member of the American Institute of CPAs’ Consumer Financial Education Advocates.

Here’s how to create a strategy.

Get details on all loans

Don’t wait to find out how much money you owe. There’s a chance your bill won’t arrive before your first due date, student loans experts say.

“Just because you don’t get a bill doesn’t mean you don’t owe the money,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

For federal loans, go to the student aid website or the National Student Loan Data System. To find private debt, visit for a credit report, which lists private loan debt and the lender.

Once you know who holds the loans, call it to check or update your contact information. You can also create an online account to track payments.

Find the right repayment plan

Your repayment goal should be to pay the least amount over time, Mayotte says. That’s because the longer you pay off the loan, more interest will accumulate. For most borrowers, the standard 10-year repayment plan is the cheapest option.

For others, that may mean pursuing a loan forgiveness program, like Public Service Loan Forgiveness, which forgives federal loan debt after making 120 payments on an income-driven plan while working full-time for the government or a qualifying nonprofit.

High earners may pay off loans faster by asking their servicer to apply additional payments to their loan balance.

It’s borrowers who face modest incomes or job uncertainty who have some thinking to do.

“There are a lot of options, and borrowers tend to get confused or distracted because there are so many options that aren’t that drastically different,” says Abril Hunt, outreach manager for ECMC, a nonprofit organization focused on student success.

Hunt recommends that borrowers who can’t make payments on the standard plan try Revised Pay As You Earn, or REPAYE. It’s the income-driven repayment plan that all graduates with federal loan borrowers can enroll in.

An income-driven repayment plan, like REPAYE, sets payments at a portion of your income, which can help fit them into your budget. You’ll need to recertify your income each year. If you lose your job or don’t have one yet, your payments could be as little as $0.

If you’re not sure which plan to choose, use the Department of Education’s repayment estimator to find out your payment on each plan.

Automate repayments

Once you’ve selected a plan, make sure you never miss a payment. Enroll in autopay, but be sure to have enough money in your bank account to cover those direct payments.

Autopay can save you money, too: All federal student loan servicers and most private lenders will reduce your interest rate by 0.25 percentage points when you enroll.

Have a plan if you run into trouble

If the worst happens — a costly medical emergency or job loss, for example — contact your servicer or lender as soon as possible. They can help you work out a short-term reduced payment plan, sign up for income-driven repayment or apply for a temporary postponement.

Pausing payments for a short period can give you breathing room. But interest may continue to grow, so try to pay the interest during this time to avoid higher debt.

Reevaluate every year

Your knee-jerk move might be to pick a plan with the lowest payment possible, Mayotte says.

“That might be the right thing to do for your first loan payments, but as your income grows and your living situation changes you don’t want to leave it on autopilot,” she says.

Set an annual reminder to reassess your repayment strategy. That could be tax time or when you recertify your income for an income-driven plan.

This article was written by NerdWallet and was originally published by The Associated Press. 

The article What to Do When Your First Student Loan Payment Is Due originally appeared on NerdWallet.

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How to Give Back Without Busting Your Budget

It may not come as a surprise that millennials are passionate about giving back.

Millennials as a generation believe in supporting causes more than individual organizations, are likely to be influenced by peer networks when it comes to giving and want to give back in terms of money, time and leadership, according to the Millennial Impact Report, a decade-long study of millennial philanthropic behavior.

As you move through your career, you’ll likely have more room in your wallet to give back. Here’s how to prioritize causes you care about and be strategic about giving, regardless of your income.

Create a giving plan

The environment. Women’s issues. Children’s education. Animal welfare. There are so many causes that could benefit from your time and money that it can be overwhelming.

Begin by writing down the issues you care about most, says Andrea Pactor, interim director of the Women’s Philanthropy Institute at Indiana University.

The act of making the list gives you clarity about what’s important to you and how to direct your spending or your time. (Financial planners say this is also a handy technique for prioritizing your financial goals, like saving for a down payment or getting rid of student loans, and creating a budget.)

“The next step is to do a real assessment of what you’re giving now,” Pactor says. “Is what I’m doing now aligned with my values?”

If you find yourself contributing to causes only when a friend or family member asks for help or clicking yes to Facebook pledge requests, having a giving plan can help you focus on the issues you really care about.

“The benefit of a giving plan is that it enables the person who’s been asked to say no without feeling guilty,” Pactor says.

Determine your do-good fund

Financial experts say there’s no rule of thumb about how much of your income you should dedicate to charitable giving.

Religious communities that practice tithing recommend giving 10% of your income, but unless you adhere to that, there’s no “right” amount, says Christine Centeno, a certified financial planner at Simplicity Wealth Management near Richmond, Virginia.

“It all goes back to what you can afford,” she says. “Charitable gifting is important, but you have to make sure you are saving for retirement and building a cash reserve.” Centeno notes that volunteering your time or expertise can be an alternative to cash donations.

Regardless of how much you make, you can pick a percentage of your income and set it aside for giving, says Theresa Stevens, a financial coach who works with millennials at Declutter Your Money in Providence, Rhode Island.

Stevens says starting now — with as little as 1% — instead of waiting until you reach some target number helps you build a savings habit that you can apply to other aspects of your finances.

When your income changes, revisit your giving plan to see if your priorities have changed and how much you can afford to donate, Pactor says.

Stevens recommends dividing your giving allowance into two buckets — one for causes you choose and one for spontaneous giving. “If I have 5% [set aside] for giving, I might earmark 3% for an organization I’ve chosen and 2% for Facebook fundraisers or causes that come up randomly,” she says. The key is making room in your budget for both your own charitable causes and those of others.

Make a meaningful impact

Even if you feel like your donations are modest, you can ensure every dollar you give counts.

Both Pactor and Centeno recommend looking at websites like Charity Navigator and GuideStar,  which allow you to research nonprofits, see their tax filings and identify organizations that make the most impact on your chosen cause.

Since charity begins at home, your local Community Foundation website is also a good place to start. Many have a list of vetted organizations in your community you can help.

Lastly, if your company matches your charitable donations, use that to double the amount you give to your favorite cause, Centeno says.

The article How to Give Back Without Busting Your Budget originally appeared on NerdWallet.

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5 Financial Tasks You Should Tackle by Year-End

A task without a deadline is just wishful thinking.

Sometimes, you can get away with procrastinating. If you never get around to alphabetizing your spices, no one’s life will change. But putting off some tasks could have a huge impact on loved ones.

The close of the year is a good time to set some firm deadlines to make sure you won’t leave a financial mess for people you love if you unexpectedly die or become incapacitated. Consider putting these items on your to-do list with a Dec. 31 due date:

1. Check your beneficiaries

If you need convincing that updating beneficiaries is important, consider the case of David Egelhoff, a Washington state man who died two months after his divorce was final in 1994. Because he had not changed his beneficiaries, his life insurance proceeds and pension plan were paid to his ex-wife rather than his children from a previous marriage. The children sued, and the case went all the way to the U.S. Supreme Court, which ruled in 2001 that the beneficiary designations had to be honored.

You’re typically prompted to name beneficiaries when you sign up for a 401(k) or other retirement account. Beneficiaries also are usually required when you buy annuities or life insurance. You often can check and change beneficiaries online, or you may need to call the company to request the appropriate form.

2. Review pay-on-death resignations

You may not have been required to name beneficiaries when you opened your checking account or a non-retirement investment account. Instead, financial institutions may offer a “pay on death” option. This allows you to name a beneficiary who can receive the money directly. Otherwise, the account typically has to go through probate, the legal procedure to distribute your property after you die.

Some states also have “transfer on death” options for vehicles and even real estate. Like pay-on-death accounts, these options allow you to pass property directly to heirs without the potential delays and costs of probate.

Beneficiaries can be added to vehicle registrations in Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Indiana, Kansas, Maryland, Missouri, Nebraska, Nevada, Ohio, Oklahoma, Texas, Vermont and Virginia, according to self-help legal site Nolo. To add or change a beneficiary, you apply for a certificate of car ownership with the beneficiary form.

Transfer-on-death deeds for real estate are available in Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Virginia, Washington, West Virginia, Wisconsin and Wyoming, according to legal site RocketLawyer. To add or change a beneficiary, the deed must be submitted to the appropriate county recorder.

3. Update insurers — and your heirs

Insurers usually don’t pay out life insurance proceeds until someone files a claim. But far too often, heirs are unaware that the money exists. A Consumer Reports investigation in 2013 found about $1 billion in life insurance proceeds waiting to be claimed.

Updating your contact information with your insurer also may help prevent policies from lapsing. I just heard from a reader who lost her long-term care coverage because she’d moved, forgotten to tell her insurer and failed to notice she hadn’t been billed. Many insurers will allow you to name someone who can be notified if a payment is overdue or they can’t find you. You’ll want to keep the contact information for those back-up people updated with the company, as well.

4. Visit your safe deposit box

If you forget to pay your annual fee and your bank can’t find you, after a few years your safe deposit box will be drilled and the contents turned over to the state. Photos and documents could be destroyed and family heirlooms sold at auction. Visit your box once a year to make sure your payments and contact details are current. Leave clear instructions with your executor or your heirs about where to find the box and its keys.

5. Create or revise powers of attorney

Powers of attorney allow others to make financial and health care decisions for you if you become incapacitated. If you don’t have these documents, or the designated people have died or are otherwise unavailable, your loved ones may have to go to court to take over. The expense and delay can add trauma at an already difficult time. Spare everyone that pain by naming a backup person or two and reviewing the documents every year to make sure the people named can still serve.

This article was written by NerdWallet and was originally published by The Associated Press.

The article 5 Financial Tasks You Should Tackle by Year-End originally appeared on NerdWallet.

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You Lost Your Job? Here’s How to Find Your Financial Footing

It doesn’t matter if you were fired or laid off, whether you saw it coming or were completely blindsided: Losing your job is disorienting. You’ll feel like you’re in a fog. And yet, in that fog you still need to answer some important questions:

How will you pay rent? Put gas in your car? What about your student loans?

The average length of unemployment is almost 22 weeks, according to the Bureau of Labor Statistics, so it’s important to quickly adapt your finances to your temporary new normal.

Working through these tasks in the first seven days can help you find your financial footing as you figure out the next step in your career.

Day 1: Apply for unemployment

“Filing for unemployment insurance is a critical piece to getting back on your feet,” says Kyle Goulard, a certified financial planner in Portland, Oregon.

Contact your state’s unemployment office the day you lose your job. In most cases, you can file your unemployment claim online. The process can take a few weeks, so don’t delay.

Day 2: Assess your savings

Take stock of what you’ve squirreled away over the years. How far will it get you? Factor in any severance or payouts for unused vacation days, which will help you stretch your reserves.

In an ideal world, you’ll have enough savings to get you through a few months. In reality, you may only have a few weeks’ worth. Prioritizing bills and cutting back spending can help stretch that (more on that below).

Your 401(k) might look like a lifeline, but resist the urge to cash it out. Between taxes, penalties and lost retirement earnings, that’s an incredibly expensive move. Consider it a last resort, and you’re not there yet.

Day 3: Strip down your spending

“As soon as you lose your job, you should switch to an emergency bare-bones budget,” says Bruce McClary with the National Foundation for Credit Counseling.

That means cutting nonessentials, including gym memberships, ride shares, cable, streaming services and other subscriptions.

These changes feel extreme, but they’re only temporary. You can readjust your spending once you find another job.

Day 4: Call your creditors

Contact any lenders, utility companies and credit card issuers that you owe money. Many will have options to help out, including reducing or suspending payments, McClary says. The key here is to be proactive.

“It’s definitely taken into consideration when a borrower reaches out first,” McClary adds. “It can change the entire conversation.”

Day 5: Don’t neglect your student loans

Most student loans have built-in protections to help with this exact situation.

You may be able to temporarily suspend your loan payments through deferment or forbearance, or change your repayment plan to lower the amount due each month. Call your loan servicer to figure out the best option based on your loans.

If you’ve already missed a payment, you may have some wiggle room. Federal student loans aren’t considered in “default” until they’re 270 days past due. Avoid getting to that point, says Dana Kelly with the National Association of Student Financial Aid Administrators.

“Little dings are gonna happen, but you don’t want anything major. Especially when truly there is no need for it to happen,” Kelly says. “You can simply make a phone call and get yourself on better footing while you’re finding that next job.”

Day 6: Prioritize financial obligations

You may need to make some hard decisions if you don’t have enough money to go around. But how do you decide what gets paid and what doesn’t?

“Your top priority should be on making rent, keeping the lights on, putting food on the table,” says Scott Newhouse, a certified financial planner in Thousand Oaks, California.

Debt comes next. McClary says to prioritize collateralized loans, like your mortgage or auto loan. Defaulting on those could lead to losing your home or car.

With credit cards, continue to make at least the minimum payment for as long as possible. Missing payments will damage your credit score, which can take years to rebound. And you may need your credit cards to cover expenses down the road.

Remember: Continue talking with your creditors, especially if you need to miss a payment. You’ll have more control over the situation if you keep them in the loop.

Day 7: Sort out your health care

Health insurance through your employer typically won’t terminate the day your employment does. Often, you’ll have coverage at least until the end of the month, but you’ll need something to bridge the gap until your next gig.

Job loss is considered a “qualifying event,” meaning you can get health insurance outside of the annual open enrollment period. Explore the following options:

  • Your parents’ plan, if you’re under age 26.
  • Your spouse’s employer-sponsored plan.
  • The health insurance marketplace (
  • Continuing coverage through your former employer via COBRA insurance.

One option that should not be on the table: forgoing insurance.

“This is a ‘must-have’ without question,” Goulard says. “The only thing worse than being unemployed is incurring health care costs without health insurance coverage.”

This article was written by NerdWallet and was originally published by The Associated Press.

The article You Lost Your Job? Here’s How to Find Your Financial Footing originally appeared on NerdWallet.

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