4 Signs You’re About to Get a Tax Surprise

At tax time, it’s often hard to predict how much you’ll owe or receive in a tax refund without actually doing your taxes. But there are some telltale red flags that can mean an unwelcome tax surprise is headed your way, tax pros say. Here’s how to spot the signs — and how to keep them from financially derailing you.

1. A 1099-NEC lands in your mailbox

1099-NEC reports income earned from freelancing, from a side gig or as an independent contractor. Money your clients paid you is on that form if it was at least $600 — and there was likely no tax withheld. The IRS and maybe even your state will probably be looking for that tax money from you by the April 15 tax-filing deadline.

“More people are working side jobs or driving Uber or delivering for DoorDash,” says Eric Fletcher, a certified public accountant at Thompson Greenspon in Fairfax, Virginia. “And that income is going to come to them reported as a 1099.”

How to cope: You’re generally not taxed on the gross income for this type of work, you’re taxed on the net income or profit, Fletcher says. Gathering your receipts and other information about your business expenses can reduce that net income and thus cut your tax bill. Contributing to an IRA could also reduce your taxable income for 2020 if you do it by the April 15 tax-filing deadline, he says.

2. You filled out a new W-4 last year to reduce paycheck withholdings

A W-4 is the form you use to tell your employer how much tax to withhold from your paycheck. Many people may have filled out a new W-4 in 2020 to reduce those withholdings and get more take-home pay in order to make ends meet. But that could mean a nasty surprise at tax time for a lot of filers, says Abby Donnellan, a CPA at Anders CPAs and Advisors in St. Louis.

“Their withholding has been adjusted, and they didn’t really realize that until the end of the year, when they’re used to a couple-thousand-dollar refund and now they’re having to pay a couple thousand dollars,” she says.

How to cope: Check with a tax pro or use a tax calculator now so that you have more time to plan for any tax-refund shortfalls or unexpected tax bills. If you need to, readjust your W-4 so you don’t encounter the same issue next year.

3. Your investments did well in 2020

If the market lifted your portfolio or you sold some investments last year, your tax situation may not be what you expect, Donnellan warns. “There might be some large capital gains coming,” she says.

How to cope: There may not be a lot you can do to offset those capital gains now, because Dec. 31 has come and gone. But you can make some strategic moves now for a better 2021, including reviewing your situation more frequently. “I would suggest quarterly, at least, looking at your investments to make sure there’s not a bunch of income that you’re not expecting,” Donnellan says.

4. You received unemployment

Unemployment income isn’t tax-free. “It will be subject to income tax, and that also is going to include any additional unemployment compensation that’s provided from the federal government,” Fletcher says. You’ll likely receive a form 1099-G in the mail showing how much you received, and the IRS and your state may want a cut by April 15.

How to cope: If you don’t have the money to pay your tax bill by April 15, know that the IRS offers installment plans that allow you to pay over time. And if you’re receiving unemployment in 2021, you can have 10% withheld for taxes from each disbursement, which could help prevent another tax surprise next year.

Tina Orem writes for NerdWallet. Email: torem@nerdwallet.com.

The article 4 Signs You’re About to Get a Tax Surprise originally appeared on NerdWallet.

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How to Budget When You Hate to Budget

Budgeting is a pain. But what’s more painful is a bill you can’t easily pay, debt that costs a fortune or not having enough money to retire.

Fortunately, you can have a useful, working budget without watching every penny. Automation, technology and a few simple guidelines can keep you on track.

The following approach works best if you have reasonably steady income that comfortably exceeds your basic expenses. If your income isn’t steady or doesn’t cover much more than the basics, you may need to track your spending more closely.

Also, no budget in the world can fix a true income shortfall, where there’s not enough coming in to cover your basic bills. If that’s the case, you need more income, fewer expenses or outside help. One place to start your search for aid is 211.org, which provides links to charitable and government resources in many communities.

Otherwise, though, you can craft a spending plan with the following steps.

Start with your must-haves

Must-have costs include housing, utilities, food, transportation, insurance, minimum debt payments and child care that allows you to work. Using the 50/30/20 budget, these costs ideally would consume no more than 50% of your after-tax income. That leaves 30% for wants (entertainment, clothes, vacations, eating out and so on) and 20% for savings and extra debt payments.

A budgeting app or your last few credit card and bank statements can help you determine your must-have costs. The more these expenses exceed that 50% mark, the harder you may find it to make ends meet. For now, you can compensate by reducing what you spend on wants. Eventually, you can look for ways to reduce some of those basic expenses, boost your income or both.

“After tax,” by the way, means your income minus the taxes you pay. If other expenses are deducted from your paycheck, such as health insurance premiums or 401(k) contributions, add those amounts to your take-home pay to determine your after-tax income.

If you don’t have a steady job or are self-employed, forecasting your after-tax income can be tougher. You can use a previous year’s tax return or make an educated guess about the minimum income you expect to make this year. A withholding calculator can help you determine what you’re likely to have left after taxes.

Automate what you can

Automatic transfers can put many financial tasks on autopilot, reducing the effort needed to achieve goals. If you don’t automate anything else, automate your retirement savings to ensure you’re saving consistently.

Also consider saving money in separate accounts — often called “savings buckets” — to cover big, non-monthly expenses such as insurance premiums, vacations and car repairs. Online banks typically allow you to set up multiple savings accounts without requiring minimum balances or charging fees. You can name these accounts for different goals, and automate transfers into those accounts so the money is ready when you need it.

My family typically has eight to 12 of these savings accounts at our online bank. I figure out how much I want to have saved by a certain date, divide by the number of months until that date and send the resulting amount, via automated monthly transfers, from our checking account.

Manage what’s left

Return to your after-tax monthly income figure. Subtract your must-have expenses, your contributions to retirement and savings accounts, and any extra debt payments you plan to make consistently. What’s left is your spending money for the month. (Nothing left? Try winnowing some of those must-haves or set less ambitious savings or debt pay-down goals.)

In the olden days, you might have put cash in an envelope and used it for your spending money. Once the envelope was empty, you were supposed to stop spending. Some people still do that, but in today’s digital, contactless world, you might prefer other approaches.

The easiest would be to put all your spending on a single credit card that’s dedicated to this purpose and paid in full every month. (And since you’re paying in full, consider using a cash back or other rewards card to get some extra benefit from your spending.) Check your balance every few days or set up alerts to let you know when you’re approaching your spending limit for the month. To protect your credit score, you can make payments periodically throughout the month so your balance stays low compared to your credit limit.

Alternatively, you could use more than one card, a debit card or a spending app that’s tied to your checking account, such as Venmo, PayPal or Zelle. A budget app or spreadsheet can help keep you on track. You also could consider setting up a separate checking account just for this spending. Again, many online banks offer checking accounts without minimum balance requirements or monthly fees.

Your budget won’t be perfect and you’ll have to make adjustments as you go. But at least you, and your money, will be headed in the right direction.

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

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

How to Make Debt Less Costly When You Need It in a Crisis

The coronavirus pandemic that upended the U.S. economy has resulted in widespread job and income losses and added to the debt load for millions of Americans. More than 2 in 5 U.S. adults (42%) report that their household financial situation has worsened since the pandemic’s onset, according to NerdWallet’s annual household debt study, while just 14% say it has gotten better and 43% say it’s stayed the same. Of those who report a worse situation, close to half (45%) say they’ve taken on debt because of it.

Bar chart with the headline "How Americans with worsening finances are making ends meet" shows six green bars with the percentage of responses to survey questions: "I withdrew money from savings to pay bills/necessities, 45%; I took on debt/additional debt, 45%; I borrowed money from a friend or family member, 26%; I took on additional work, 19%; I moved into more affordable housing, 8%; Something else, 9%. Survey respondents were able to pick more than one answer.

Taking on debt may be unavoidable under the circumstances, but there may be ways to reduce the cost of that debt in terms of interest or fees. Depending on your personal situation, you might have more affordable or accessible options.

For good/excellent credit: Balance transfers, 0% credit cards, personal loans

Balance transfer credit card offers got harder to find during the pandemic as card issuers looked to reduce their risk. But those with good credit to excellent — generally defined as credit scores of 690 or higher — can still find them. If you have a balance you can’t reasonably pay off in the next few months, transferring it to a card with a 0% introductory offer could help you avoid interest for a year or more. Balance transfers typically incur a fee, though.

If you expect you may have to carry a credit card balance in the near future — because of a disruption in income, for example — a card with a 0% introductory rate on purchases can offer breathing room for a year or more. For those who need more time, a low-interest personal loan may be the better choice. You can also use a personal loan to consolidate existing balances, making it a good option if the 0% period on a balance transfer card wouldn’t be long enough for you to wipe out the debt before the rate rises into double digits.

For fair or poor credit or no credit history: Emergency loans

If you need cash fast but don’t have a good credit history, an unsecured emergency loan may be the way to go. Depending on your credit, these can have high interest rates, so this should be thought of as a fallback if you can’t borrow from family, get assistance from a nonprofit or religious organization or qualify for a 0% credit card.

Members of a local credit union might be able to get better terms and lower rates on an emergency loan, as they consider your entire financial situation instead of just your credit score. Emergency loans may not be ideal from a cost perspective, but they are there for those who don’t have good alternatives.

For those with 15% or more home equity: HELOCs

If you have sufficient equity in your home and need access to credit, tapping a home equity line of credit, or HELOC, will probably be less expensive than piling up a credit card balance. A HELOC allows you to borrow against your home equity, which is the value of your home minus the amount you owe on the mortgage.

To qualify for a HELOC, you’ll generally need equity of at least 15% of your home’s value, a credit score of 620 or higher and 40% or less for a debt-to-income ratio, which is the percentage of your gross income taken up by debt obligations.

Interest rates on HELOCs tend to be adjustable, so they can go up and down. Try to get quotes from a few different lenders so you know you’re getting the best rates available. Pay attention to the lifetime cap, which is the highest rate you can be charged. If you don’t think you can reasonably afford payments at the highest rate, it’s probably not worth it, as a HELOC carries a risk of losing your home in foreclosure if you can’t repay your debt.

For medical bills: 0% payment plans, medical credit cards, income-based hardship

Among Americans who report worsened finances since the onset of the pandemic, 14% say they took on medical debt or additional medical debt, according to NerdWallet’s study.

If you have outstanding medical bills, ask your medical providers if they offer payment plans; if so, find out about interest or fees. Some providers will allow you to make equal monthly payments within your budget, which can be a good option if there aren’t costly fees tacked onto your balance.

When an affordable payment plan isn’t an option, a 0% interest medical credit card could help you avoid interest for a certain period of time (generally six to 12 months). Keep in mind that some medical cards charge deferred interest. This means that if you don’t pay the balance in full by the time the no-interest period expires, you will owe interest on the entire original balance going back to the start.

Depending on your income, you may be eligible for a hardship plan, which can reduce your payments as well as the total amount you owe. Ask your provider if this option is available.

For multiple unsecured balances: Debt management plans

A debt management plan can be a good choice if you can’t reasonably make your existing credit payments each month. You’ll work with a credit counselor who will be an advocate for you, trying to get better terms on your existing balances and consolidating your unsecured debts into one monthly payment you make to the credit counseling agency instead of to your creditors.

If you go this route, look for a nonprofit agency accredited by the National Foundation for Credit Counseling. You’ll probably have to close your credit card accounts when going through a debt management program.

For those who are unemployed: Credit unions, crisis relief loans

Accessing credit is often hardest for those who need it most, but there are possibilities for Americans who are unemployed. Local or regional credit unions may offer loans to help get you through a tough time, and Capital Good Fund offers a crisis relief loan that looks at your pre-pandemic employment and finances. Capital Good Fund is available in a limited number of states, but those residents may find it to be just the life raft they need.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.

The article How to Make Debt Less Costly When You Need It in a Crisis originally appeared on NerdWallet.

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A Pandemic Shift in Finances: Simplifying and Saving

The pandemic has caused many people to reassess their priorities. There is talk of moving out of the city, simplifying life and saving more money.

“I’m not going to spend money like that anymore,” my millennial daughter told me recently, talking about past shopping sprees on handbags, jewelry, and yes, lattes. “Financial security is fun now.”

This from the same person who, until recently, has annually paid to upgrade to the latest version of smartphone ever since she purchased her first Juicy Couture Sidekick back in 2005.

But, as usual, my daughter alerted me to a growing trend.

Developing new financial goals

In an annual survey, consumer research firm The Family Room LLC identifies prevailing trends in more than 150 psychological drivers. Determining changing priorities from year to year helps identify emotional hot spots among different age groups.

The latest results show dramatic shifts in attitudes, the company says, including a 14% increase over the previous year’s survey among parents in “making my life simpler and less complicated.”

Changes are happening in the way people save, too. Among U.S. adults who say they developed new financial habits during the pandemic, 58% said they plan to continue cutting back spending on “wants” in 2021, according to a recent NerdWallet survey. Many (36%) plan to continue building up general savings, and 30% will continue stashing money in emergency savings.

Here are some ideas for simplifying your life and morphing your money habits from carefree to careful.

The gift of prioritization

Leo Babauta, 46, a writer in Southern California, is on a mission to help people “implement Zen habits in daily life.” He believes the pandemic has given us the gift of prioritization.

“When things are falling apart, it helps us realize what’s most important to us,” Babauta says. “This will help us to simplify our lives as we move forward because simplicity really boils down to two steps: Identify what is most important to you, and eliminate everything else.”

On Babauta’s blog at ZenHabits.net, he chronicles a long list of life changes through the years: quitting smoking, paying off debt, losing weight and taking control of his finances.

He stopped living paycheck to paycheck by addressing the things that turn us to bad financial habits in the first place: fear, anxiety and stress. Babauta says that the COVID outbreak has sparked him to be even more focused on “taking care of myself, meditating, walking and getting rest.”

“If we’re shopping too much, it’s because we’re stressed,” he says. “If we avoid budgeting, it’s because it causes us anxiety. Breaking the cycle is about choosing better habits to deal with that stress, like going for a walk or making a list, and then creating accountability and support to do the new habit every day, instead of the old habit.”

Tracking spending is essential

Simplifying life is a theme echoed by Richard Liu, 26, a marketing manager in Sydney.

“One of the ways I helped simplify my expenses is using a money tracking application. Since so many things are digital, making purchases online has been the norm, so being able to track spending is essential,” Liu says. He keeps tabs on his expenses, investments and net worth.

Like so many other COVID castaways, Liu says he is saving money on transportation due to less commuting — and on food by doing more of his own cooking. He also found ways to prepare for a post-pandemic financial rebound:

  1. Trim nonessential recurring expenses. These include things like monthly subscriptions and gym memberships. Make a list of them all. It’s possible you’ll find more than a couple you’ve either forgotten about or haven’t used in a while.
  2. Refinance existing debt while interest rates are low. A mortgage, student loans or personal loans are all candidates for rate improvements. Perhaps even your car loan.
  3. Shop for better deals on existing insurance policies. With people driving fewer miles, some vehicle insurance rates have fallen. Many insurers have even issued rebates to policyholders.

Liu says he’s combining these money-saving ideas with another important moneymaking component: He’s been taking on additional freelance work to help make extra cash.

“I think it’s never been so important to create side income or develop new streams of money. More money means more savings, but also stability,” he says. “This has been my main focus and priority and will continue to be.”

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

Hal M. Bundrick, CFP writes for NerdWallet. Email: hal@nerdwallet.com. Twitter: @halmbundrick.

The article A Pandemic Shift in Finances: Simplifying and Saving originally appeared on NerdWallet.

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Start 2021 Off Strong With These Smart Money Moves

After the train wreck that was 2020, you may well question whether it’s worth trying to plan anything. But knocking off a few financial tasks early in the year can better prepare you for whatever 2021 has in store.

File your tax return ASAP

Filing your tax return early typically means getting your refund sooner. Not only that, it could thwart refund-stealing identity thieves. Also, If you were owed a stimulus check in 2020 but didn’t get one, or should have gotten more, you can claim the missing money on your return.

If you owe the IRS, it’s better to know sooner rather than later. You’ll have more time to find the money or arrange a payment plan.

Also, unemployment checks are generally taxable. Many people who received last year’s extended jobless benefits may face a larger-than-expected tax bill this year, tax experts say.

Check your withholding

Once your 2020 tax return is prepared, you can use that and your first pay stub from 2021 to see if you’re on track with tax withholding. A good tax withholding calculator can help you determine how to adjust the amounts taken from each paycheck. Then, contact your employer if you need to make changes.

If you’re self-employed, you may need to make estimated quarterly payments. You could consult a tax professional to find out how much those should be.

Adjust your retirement savings

Consider increasing and diversifying your retirement contributions. After you take full advantage of any available company match in a 401(k) or 403(b), look into funding a Roth IRA. Financial planners often recommend having at least some money in a Roth so you can better control your tax bill in retirement. If your income is too high to make a direct Roth contribution — the ability to contribute starts to phase out at modified adjusted gross income of $140,000 for singles and $208,000 for married filing jointly — you could consider converting a portion of an existing traditional IRA.

Check your spending

Budgeting apps and personal finance websites can help you see where your money went in 2020 and help you make a plan for 2021. You can also look back over bank or credit card statements. But even if you can’t get the full year’s worth of transactions, reviewing just a few months can show you some patterns and help you identify spending you want to change.

Set up your savings ‘buckets’

Preparing for irregular but predictable expenses can help you feel less panicked when those bills arrive. These expenses can include insurance premiums, property taxes, car and home repairs, vacations, back-to-school shopping and holidays. Check your spending in each of these areas for the past few years to ballpark how much to save this year.

Once you have your savings goals for each category, consider setting up separate savings accounts at an online bank that doesn’t charge monthly fees. You can divide the amounts by the number of paychecks you’ll get before the money is needed, and set up automatic transfers from your checking account to the appropriate savings account after each payday.

Put charitable contributions on automatic

Most charities prefer getting regular contributions throughout the year, since the steady income helps them plan. You may discover you can give more if you’re not trying to squeeze your contributions in with other year-end spending. You can use your bank’s bill pay system to send monthly checks or arrange with the charity to charge a credit card.

Spend your medical FSA

Flexible spending accounts are employer-provided benefits that allow you to put aside tax-free money for medical or child care expenses.

If you signed up for your employer’s medical FSA, try to spend that money as early in the year as possible. You don’t have to wait until the money is taken from your paycheck to use it for eligible health care expenses. (That’s different from child care FSAs, which don’t allow you to spend money before you contribute it.)

Spending early has a few advantages. You don’t risk leaving money in the account and potentially losing it. (Many employers extend the deadline for using the money past Dec. 31, but at some point unspent money is forfeited.)

Incurring medical expenses early in the year can help you meet insurance deductibles, too, so the rest of your health care can cost less. Also, if you leave your job during the year, you don’t have to finish making FSA contributions. In other words, you can spend the full amount you had planned to contribute, up to $2,750, without actually having to contribute the full amount.

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

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article Start 2021 Off Strong With These Smart Money Moves originally appeared on NerdWallet.

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How to Nail a No-Spend Month

Holiday spending always gets the best of me. The gifts, the food, the Christmas tree and decorations — sandwiched between two monthly rent payments — siphon money from my bank account. Every year I feel the sticker shock, briefly tuck my tail between my legs, then carry on like it never happened.

But this year I’m trying something different. I’m committing to a no-spend January. That means I’m freezing spending on unnecessary purchases this month to build my savings back up. Goodbye, mindless Target-app browsing. See you later, desserts.

I’m not the only one to emerge from the holiday season in less-than-ideal financial shape. More than half of 2019 holiday shoppers (55%) took on credit card debt, according to NerdWallet’s 2020 Holiday Shopping Report.

If you’re looking to shed holiday debt, boost your savings or simply manage your money better, a spending freeze can get you on track. Here’s how to embark on (and stick to) a no-spend month.

Customize it

A “no-spend month” sounds strict, but there are no hard-and-fast rules. Obviously, it’s about reducing spending. But resolving to spend no money whatsoever is unrealistic. There’s no need to take it to an extreme, especially during a pandemic when many of us have already scaled back our spending.

Everyone has expenses they can’t go without, like groceries and electricity. You get to decide which categories are untouchable and which ones to cut.

Start by defining your discretionary expenses, known as “wants.” For many of us, those include restaurant dinners, alcohol or frivolous online shopping. Leo Marte, a certified financial planner based in Huntersville, North Carolina, suggests using a budgeting app to easily identify your nonessential spending categories. Then, pick which ones to pause.

Next, choose a time frame. A no-spend challenge can last a full calendar month, 30 days, four weeks or whatever period you prefer. Some people schedule a “Frugal February” because it’s the shortest month. If that still seems too long, start with a week and see how it goes.

Know your motivation

Before diving into a no-spend month, really think about what you’re trying to achieve, says Kristin Larsen, who runs the blog Believe in a Budget. Are you planning to pay down holiday debt or student loans? Do you want to start an emergency fund or save for a trip?

“If you’re just doing a no-spend month because it’s fashionable or because you thought it was a nice idea and somebody shared it with you on social media, you’re not going to stick with it,” Marte says. 

Attaching a specific goal can create a stronger emotional connection and inspire you to carry on.

Find a support system

A no-spend challenge can feel daunting if you go it alone. Telling family and friends about it — or better yet, encouraging them to join — gives you a “built-in accountability system,” Marte says. Your squad can provide crucial tips, reassurance or even constructive criticism when you need it.

Making your journey public on social media networks or other online forums takes accountability one step further. It shines a spotlight on successes and failures, which is exactly what some people need to stay the course.

“Maybe every time you make a meal at home and don’t go out to a restaurant, you post it on Instagram. And your tribe gets excited and gives you those kudos and that recognition you need to stick it out,” Marte says.

Get creative

When Larsen goes through a no-spend period, she looks for no-cost resources to fill the void. She downloads free audiobooks through her library to get her entertainment fix. Instead of grabbing food to go, she uses a website that suggests recipes based on ingredients she already has in her pantry. (Try SuperCook or MyFridgeFood.)

Many expenses have free alternatives. See what clever workarounds you can come up with.

Build in a buffer for cheat days

Mistakes and surprises happen. Planning for them will help you avoid feeling shame or throwing in the towel.

“You could decide, ‘I’m not going to eat out at any restaurants this month, but I’m going to put in the budget for a takeout night in case we have a bad day at work and don’t want to cook,’” Marte says.

It’s also OK to set aside a little reward money in your budget for when things go well. But it’s important to set limits in advance so you don’t go overboard.

“If you’re earning money or you have some money to spend, you should be able to enjoy it,” Larsen says. “But I think there’s definitely a difference between binging or splurging versus treating yourself.”

Creating a “cheat day fund” rather than scheduling a specific day of the month to spend willy-nilly can curb a major setback.

It’s up to you to decide whether you want to return to your regular spending habits when the month is up. If a spending freeze works well, try to keep the momentum going.

I’m ready to crush it. Are you?

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

Lauren Schwahn writes for NerdWallet. Email: lschwahn@nerdwallet.com. Twitter: @lauren_schwahn.

The article How to Nail a No-Spend Month originally appeared on NerdWallet.

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5 Ways Young Drivers Can Save on Car Insurance

Insurance costs for drivers in their early 20s can be staggering — after teenagers, young adults have some of the highest car insurance rates in the country.

In fact, the average car insurance rate for drivers 20 to 25 years old is about $2,200 a year for full coverage, according to a 2020 NerdWallet analysis of the top five insurers in the nation. That’s about $700 more per year than the average rate for a 40-year-old driver.

Why is car insurance so expensive for young drivers?

Drivers ages 20 to 24 are involved in more crashes than any other age group besides teens, according to the most recent data from the Insurance Institute for Highway Safety, or IIHS. Young drivers, like teenagers, are inexperienced and more prone than older age groups to take risks like speeding and not wearing a seat belt.

For example, IIHS has found that 16- to 24-year-olds in the front seat are the least likely to wear seat belts, and drivers who speed tend to be younger than drivers who don’t. IIHS has also found that 42% of drivers ages 21 to 30 who were killed in crashes in 2018 had a blood alcohol content at or above the legal limit, more than any other age group in the study.

As drivers age, risky driving behavior declines, with crash rates leveling out around age 30, according to Eric Teoh, director of statistical services at IIHS.

Even so, young drivers can still save on auto insurance by following a few guidelines.

1. Drive safely

Don’t drink and drive, avoid accidents and slow down. Sounds simple, but a clean driving record can save hundreds of dollars a year. A separate 2020 analysis from NerdWallet showed that, on average, 25-year-old drivers pay nearly 25% more per year for full coverage car insurance after one speeding ticket and almost 50% more annually after a car accident.

Staying “ticket- and accident-free goes a long way to less expensive insurance,” says Michael McCartin, president of Joseph W. McCartin Insurance Inc., an independent agency in the Baltimore and Washington, D.C., metro areas. “You don’t want to be 22 years old and looking for insurance with three tickets.”

2. Shop around

In addition to age, insurers use a variety of factors to determine rates, including gender, location and your car’s make and model. Because each company weighs these factors differently, getting car insurance quotes from multiple providers is the best way to find a good rate.

Try to compare car insurance rates from at least three insurers for equal amounts of coverage once a year or whenever any big changes happen, such as moving or getting married.

3. Take advantage of discounts

Ask your insurer about any discounts you might qualify for. McCartin says young drivers will save the most by bundling insurance if they buy another policy from the same company. And young drivers still living at home save by staying on the same policy as their parents.

Other discounts young drivers can ask for include price breaks for being a student living away from home, getting good grades and completing a driver’s education course.

4. Consider nontraditional car insurance

If you won’t be driving much for the foreseeable future, you could save money by switching to pay-per-mile insurance, with rates based on how many miles you drive.

Similarly, if you’re a safe driver, consider usage-based coverage, which uses an app or device to track driving behavior, such as speeding and hard braking, to determine a discount or reward.

While some companies specialize in per-mile insurance, many traditional insurers offer both of these options.

5. Build your credit

In most states, insurers use a credit-based insurance score to calculate your auto insurance rate. This score looks at information such as payment history and outstanding debt, similar to the credit scores used to get a credit card or loan, but weighed differently. The practice is not allowed in California, Hawaii, Massachusetts or Michigan.

In other states, credit can impact car insurance rates more than a DUI for some drivers. On average, 25-year-olds with poor credit pay 74% more per year for full coverage car insurance than drivers with good credit, according to NerdWallet’s rate analysis.

You can improve your credit by:

  • Paying bills on time.
  • Paying down credit card debt.
  • Keeping your credit utilization, the percentage of your total available credit, low.

Learn more about your score by getting a free credit report.

Kayda Norman writes for NerdWallet. Email: knorman@nerdwallet.com.

The article 5 Ways Young Drivers Can Save on Car Insurance originally appeared on NerdWallet.

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Take These Cards Out of Your Wallet Right Now

Decluttering your wallet can give you a quick sense of accomplishment in the new year. You can check a task off your list and feel more organized and safer. A lost or stolen wallet holding too much personal and financial information puts you at risk of identity theft and fraud.

Experts don’t always agree on what you absolutely must keep in your wallet, but there’s wide agreement on cards that do not belong there. It might be simplest to start the task by taking everything out and returning only those things you actually need.

What to take out

Focus on minimizing the danger that a stolen or lost wallet would put you at risk of identity theft. Here’s what definitely should come out:

  • Social Security card. This represents a high risk because the number can be used by scammers to file a tax return to hijack your refund, to collect benefits and to access or open new accounts.
  • Debit card attached to a bank account (plus checks and deposit slips). Unlike with credit cards, where the cardholder is not out any money while fraud is being investigated, debit cards take the money from your account immediately.
  • Gift or prepaid debit cards you do not plan to use today. A lost gift card may be impossible to cancel and replace.
  • ATM and gas station receipts. These may contain up to five digits of your credit card number and the expiration date. For identity thieves, those can be puzzle pieces.
  • Any paper with PINs or passwords. It’s especially risky to carry them with the associated cards.

And yes, people discover they have these things in their wallets, even if they know better. Identity theft consultant and author Carrie Kerskie says Social Security cards can end up in wallets because they were put in for a specific purpose — say, when starting a new job — and just never removed. Receipts, passwords and other items may have gone in your wallet “temporarily.”

In addition, the AARP recommends you take out:

  • Medicare and health insurance cards. Scammers may be able to use the info to get benefits using your data.
  • Employee badge when not needed for workplace access.
  • Birth certificate.

What to keep in your wallet

There are some things that belong in your wallet or car all the time. Those are the first things that you return to it when doing your clean-out:

  • Driver’s license or some other form of government-issued identification.
  • Student ID, if applicable.
  • Proof of auto insurance (could also be kept in your car’s glove box).
  • At least two general-use credit cards if you have them.
  • A medical alert card, if applicable.

What to carry only occasionally

Some cards you need only sometimes, such as:

  • Medical debit card for a flexible spending account.
  • Credit cards for specific retailers.
  • Health, dental or prescription insurance cards.
  • Membership cards.
  • Gift cards.

There’s no time like a new year to establish new habits. Eva Velasquez, president and CEO of the nonprofit Identity Theft Resource Center, recommends relying on tools you already use — phone alarms, calendars, journals or refrigerator notes — to remind you to add cards when needed and remove them afterward. For example, add a note saying “take insurance and prescription cards” to the reminder about your doctor appointment. Set a reminder to remove them, too.

While there’s no limit to how many credit cards you can have, there is a limit to how many you should carry, Kerskie says. If you carry 25, and one is stolen, how soon will you notice? Carrying just a few is safer and lets you use an “autopay and everyday” approach to reducing fraud risk.

Avoid the dangerous workaround of taking photographs of all your cards, front and back, and storing them on your phone as photos, Kerskie says. If you want to store photos of your cards on your phone, put them in an encrypted, password-protected file.

Should your phone be your wallet?

Even identity theft experts differ on exactly which cards they carry, and in what format — physical or virtual wallet in a smartphone.

“I prefer tangible over digital any day,” Kerskie says. “You have a better chance of getting your phone stolen than your wallet. You could also leave your phone behind, or drop it or it malfunctions and stops working. Now, what do you do?”

Velasquez tends to favor digital, but that comes with a lot of habits to increase cybersecurity, including treating your phone as the small computer that it is:

  • Having a phone passcode of at least six digits.
  • Updating and backing up the device regularly.
  • Using antivirus software.
  • Signing out of every app after use.
  • Not using “remember me” when signing into apps and websites.
  • Using unique, complex passwords.
  • Having a remote “wiping” program in case it is lost or stolen.

But it’s not for everyone. “I have a high degree of confidence not just in the technology itself, but my ability to manage it properly,” Velasquez says. “I choose security over convenience.”

If that sounds just a little too inconvenient, you can simply “be a good steward” of your cards, taking them out of your wallet when they are not needed, she says.

Bev O’Shea writes for NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article Take These Cards Out of Your Wallet Right Now originally appeared on NerdWallet.

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How the Government’s Response to Inflation Could Help Savers

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.

Inflation has been surging worldwide for months, and it’s impacting prices of nearly everything, from gas to Oreos. Wednesday, the Federal Reserve announced steps to take action.

“High inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” said Fed Chairman Jerome Powell in a prepared statement on Wednesday. “We are committed to our price stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

The Fed this week signaled interest rate hikes next year and an end to current, near-zero interest rates. Forecasts released Wednesday show that Fed officials project as many as three 0.25 percentage point interest rate hikes in 2022.

The Fed on Wednesday also increased its 2021 forecast, projecting a 5.3% inflation rate this year, above its previous estimate of 4.2%. Additionally, it increased 2022 inflation projections to 2.6%, up from 2.2%.

Maybe you’re a saver planning for retirement. Maybe you’re a borrower — either with credit card debt or planning a major purchase, such as taking out a mortgage on a home. For savers and borrowers alike, the news is set to make major waves on your money. Here’s what you need to know.

Inflation simply means that the value of your money decreases over time. When your grandparents reminisce about when a soda cost a nickel, that’s a result of inflation.

While inflation is happening all over the world, it has hit the U.S. particularly hard, according to the Pew Research Center, which looked at inflation across 46 countries. Inflation during the third quarter of 2021 was higher than it was during the same period in 2019 in 39 of the 46 countries.

What’s more, the U.S. saw a 3.58 percentage point increase in inflation, which was the third- highest increase of any country in Pew’s analysis, behind only Brazil and Turkey.

What surging inflation and interest rate hikes mean for savers

“Inflation has been further fueled by a tight labor market,” says Leah Hartman, a finance and economics lecturer at the University of New Haven’s Pompea College of Business. “We’ve had global supply chain shortages. Pricing is crazy, and it’s especially hurting low-income consumers.”

The recent inflation surge has worried some investors. Investor outlook is currently hovering just above where it was during the second quarter of 2020, which was its lowest point since the pandemic. That’s according to the Gallup Investor Optimism Index, a composite of investors’ ratings of various aspects of the economy, personal finances and investments. What’s more, investors haven’t been this pessimistic since 2014.

That survey found that investors’ current sentiment about inflation is now more negative than what their view of unemployment was at the start of the pandemic, when unemployment reached 14.8% in April 2020. That figure is the highest ever recorded by the Congressional Research Service since it began collecting data in 1948.

The good news is that investors are bullish on Wednesday’s news, as stocks closed higher that day after the Fed’s meeting, which is not always the case when the Fed suggests interest rate hikes.

“By taking a fairly aggressive stance, the Fed implicitly stated that the economy is strong enough to take this tightening,” says Giuseppe Moscarini, a professor of economics at Yale University. “The Fed forecast is one of a booming economy in 2022.”

A good rule of thumb for combating inflation is by investing, versus saving money in a traditional savings account. That’s thanks to the magic of compound interest. Your investment strategy could look like retirement planning with an IRA or 401(k), or building a well-diversified stock portfolio in a brokerage account.

And Hartman says, even in a rising-rate environment, that’s no reason to panic.

“As a consumer, don’t go out and stockpile because you’re afraid that gas or food prices might go up,” Hartman says. “That only pushes them higher.”

And even if something like housing, car or Oreo prices are rising, you might not necessarily even see price increases, depending on your lifestyle.

What surging inflation and interest rate hikes mean for borrowers

If you have credit card debt, expect to pay more in interest when the Fed raises interest rates. Typically, credit card interest rates rise and fall in line with the federal funds rate, so you’ll likely owe more in interest on that credit card debt when rate increases occur.

As far as other types of debt — such as mortgage debt — it depends. Sometimes Fed rate increases lead mortgage rates to rise, but sometimes they fall.

If you’re home shopping, it’s true that higher interest rates may reduce your buying power. That said, you don’t have to panic or rush to buy because of possibly rising interest rates. Other factors go into your home-purchasing decision, including existing home prices, your family’s needs and your employment situation.

“Check that inflation is really hitting the part of the basket you spend more of your budget on,” Moscarini says. “If house prices are going up fast, but rents are not rising as fast and you are a young renter not planning to buy any time soon, then inflation is not as big a deal.”

Meanwhile, Hartman says, work to reduce debt and increase savings.

“If you are in credit card debt, get that paid down,” says Hartman. “If that’s your student loan — and it might be — then go after that. Target the highest interest rate burden that you have, and diminish that debt as quickly as you can.”

Meanwhile, stay focused on your long-term investing strategy. With that, rising rates can be a good thing for your finances — even if inflation hasn’t been.

Sally French writes for NerdWallet. Email: sfrench@nerdwallet.com. Twitter: @SAFmedia.