When Your Income Drops, Here’s How to Bounce Back

Losing income is never easy, but it’s become increasingly common over the last year and a half: According to the Pew Research Center, 44 percent of U.S. adults say their household has experienced either job loss (including temporarily) or a pay cut since the beginning of the pandemic, with Hispanic and Asian adults most likely to say so.

That creates an incredible strain as people scramble to cover basic expenses like food and housing as well as monthly bills and everyday expenses, even if the reduction in income is temporary. Having a sense of your budget and avoiding procrastination is the key to doing well post-pay cut, says certified financial planner Manisha Thakor, founder of MoneyZen, a financial educational consultancy in Portland, Oregon.

She says your odds of surviving and perhaps thriving go up exponentially “if you know your expenses beforehand, immediately acknowledge something bad has happened and you need to adjust them — and open your mind to the notion that it’s really likely that by downsizing, you could actually end up having a richer life.”

Acknowledge the emotions

“It’s OK to admit that it’s a crappy situation and you are going through it. I think a lot of people don’t give themselves that grace,” says Athena Valentine Lent, founder of the Money Smart Latina website.

There can be grief involved in losing income as you mourn your previous lifestyle, says Daisy Luther, founder of The Frugalite website. “I grew up in a well-to-do-family and never heard, ‘We can’t afford that,’ and then got divorced and I had to accept that my life had changed,” she says. She could no longer go out to pizza with her kids every Friday night, for example. Gym memberships and nail salon visits were out, too. She suggests giving yourself a set amount of time to feel sad and then start focusing on how you are going to move on.

Audit your spending

If you review all of your spending, Thakor says, then you can get tactical about which items to cut: “Anything you’re spending money on that doesn’t bring you joy, like cable bills, activities for kids, things that have crept into your life about ‘who looks the best?’ — just step out of that competition,” Thakor advises.

Lent adds that you can make trade-offs: “I might need the Internet but not cable. I need a phone, but not that extra stuff on the phone plan. I need groceries, but I don’t need to eat out. I don’t need Netflix, I can go to the library. Anything you don’t need to spend on, don’t spend it,” she says.

Zero in on food

Food is a major spending category for a lot of people, and it’s a prime target for cuts, says Valerie Rind, author of “Gold Diggers and Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin,” who experienced a major income drop when she changed careers about 16 years ago. “I cut back on eating out, even though I like it and I’m not much of a cook,” she says. She also changed the way she shopped for groceries, bypassing the $4 orange juice and using a crock pot for more meals, which also generated leftovers for the freezer.

Recently, she has gotten inspiration for meals from TikTok chefs, who break down recipes in short video segments. “It makes things easy and simple,” she says, adding that her favorite chef is @thatdudecancook.

Adjust your expectations

Thakor suggests asking yourself if you could get by with less, such as whether you can trade in for more economical vehicles or consider having only one car. “People are driving more expensive cars than they can comfortably afford. Look at pre-owned certified cars,” she suggests. It’s easier to handle income loss, even a temporary one, without a large car payment each month.

Relish the challenge of being frugal

Luther suggests treating frugality like a game. When it comes to food, home decor or an accessory, she suggests asking yourself if you can make it for less than the cost of purchasing it.

“It really can be a lot of fun,” she says. She enjoys growing tomatoes and lettuce to make her own salads, which she estimates saves at least $10 a week.

Save up for next time

If you’ve had to deplete your emergency fund or don’t have one, consider deepening your cuts to allow savings that will cushion you in the next financial crisis. Thakor suggests a $2,000 emergency fund goal and then continuing to build — but even $500 can protect you from financial shocks.

“If you know you will be in a cash deficit in a few months, start stacking cash,” Lent says. Look for ways to make extra money, for example — perhaps ride-sharing, freelance work or selling items you no longer need, she adds.

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

Kimberly Palmer writes for NerdWallet. Email: kpalmer@nerdwallet.com. Twitter: @kimberlypalmer.

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3 Things to Do Before You Buy Crypto

Investing in cryptocurrency can be as easy as a few taps on your phone, and with crypto all over the news and coming up in conversations with friends, it’s tempting to dive right in. However, depending on your financial situation and appetite for investing risk, crypto might not be an appropriate investment for you right now — or ever.

“I am the biggest crypto hippie you’ll talk to in a very long time,” says Tyrone Ross, CEO of Onramp Invest, a cryptoasset platform for registered investment advisors. And yet, he cautions against it. “I don’t think the general public should be investing in crypto.”

Picture your finances as an ice cream sundae, with crypto as the cherry on top. It makes up a small proportion of the overall sundae, and not everyone wants one. And before you fish that cherry out of the jar, you need to assemble the rest of your dessert. In non-ice-cream terms, that means creating a strong financial foundation and learning everything you can about crypto before you put any real money in.

1. Put financial safeguards in place

First and foremost, you need to prepare for those times when things don’t go as planned.

Over the past year, workers who lost income because of the pandemic had to tap into savings, take on debt or enter into hardship programs to afford their bills. This time has been a stark reminder of the importance of having an emergency fund.

“When you’re young, you can feel like Superman or Superwoman, but when the bubble happens, you could easily be out of a job for nine to 12 months,” says Theresa Morrison, a financial planner in Tucson, Arizona. “Don’t underestimate systemic shocks to the market.”

Morrison recommends saving up six months of living expenses if you’re single, or around three months if you share expenses with a working spouse or partner. But stashing away even a few hundred dollars can be helpful when you’re faced with an unexpected expense. And if you have any high-interest debt, like credit card debt, paying this down can further strengthen your financial position.

Review your insurance coverage, too, because these policies can provide much-needed money during difficult times. Life insurance can be especially important if you have dependents.

2. Save and invest for future plans

Once you have money set aside for emergencies, begin thinking about your short-, medium- and long-term financial goals. Retirement is, of course, a big thing to save for, so contribute to retirement accounts (especially if you have access to a plan with an employer match). But set specific savings goals for other major life steps.

“Most people want to travel every year, buy a house in 10 years, get married in 10 years. These things cost money,” Morrison says. “Put down how much it’ll cost in today’s terms and figure out how much to save out of your paycheck every month. From my experience, that alone can be $1,000 a month.”

3. Get educated about cryptocurrency

You’ve got the money and you’re ready to jump on the crypto bandwagon, only you have no idea how someone even buys crypto. Or how it will fit into your overall financial plan. Or if it’s too risky for you.

Time out. Don’t do anything with your money that you don’t understand. Dedicate some time to learning everything you can about crypto. Understanding the mechanics is important, but so is learning what kind of investor you are, because that also affects the kinds of investments that would be a good fit for you.

“There’s a process you have to go through to determine if this new asset class is right for you. What’s your plan? How old are you? What are your goals? How tech-savvy are you? Do you understand what it means to hold these assets and have them not be insured? If something happens to you, who in your family knows about this stuff to retrieve it?” Ross says. “People don’t do the right due diligence before dumping money into something. I know that’s not the sexy answer, but it’s the truth.”

If you still want to dabble in crypto, start small

Once you have a grasp on how it all works, you can begin to think about allocating some of your excess cash (after you pay your bills and meet your monthly savings goals) toward crypto. But keep your investment totals small and manageable. Ross recommends investing up to $500 or so. This way, even if you lose it all, it’s an amount you specifically budgeted.

“If you invest in crypto, think of it as dead money. Money you’ll never get back,” says Danny Lee, a financial planner in Denver. “At the end of the day, it’s going to be a speculative investment.”

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.

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

Sara Rathner writes for NerdWallet. Email: srathner@nerdwallet.com. Twitter: @sarakrathner.

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In Your Debt: Back to Pre-Pandemic Spending? Don’t Overdo It

With COVID-19 restrictions mostly lifted in the U.S. (though that’s changing), you may be enjoying a more social summer than you were last year. But dinners out and movie tickets can seem pricey compared with a year and a half of home-cooked meals and whatever’s on TV — especially if you experienced pandemic-related financial hardships.

It could be time to recalibrate your money habits for the way life is now. Doing so just takes some planning and a healthy dose of honest communication.

Reconsider your values

Your values may have changed over the past year. Ask yourself a few questions: What did I start or stop spending money on? What do or don’t I miss doing? What specific money goals do I have now? Your answers can help you create a list of your current values, in order of importance, which can lead to an updated spending plan. If you have a spouse or partner, involve them in this process, too.

“Many people think this process is for those who can’t save,” Julie Quick, a financial planner in White Lake, Michigan, said in an email. “I would argue it’s for people who want to live intentionally.”

Match spending and saving with updated needs and wants

After reconsidering your financial priorities, you can begin to give your money specific jobs. You’ll likely have a combination of short- and long-term goals, like budgeting for weekly outings while replenishing your emergency fund or saving for an upcoming major purchase.

It’s in the name: A spending plan requires planning. Though it’s tempting to meet up with friends and see where the night takes you, for instance, picking where you’ll go in advance allows you to design social outings around your budget.

Be thoughtful about diving back into travel, too. According to U.S. Bureau of Labor Statistics data compiled by the Federal Reserve Bank of St. Louis, airfares have been increasing in the U.S. since March 2021, though they haven’t yet returned to levels seen in February 2020 and earlier.

“Spontaneous travel is exciting, but it can also run away with your wallet,” Vadim Verdyan, head of advice at the financial wellness mobile app Albert, said in an email. “Keep in mind that people usually get the best deals when they plan far in advance and the worst deals when they plan last minute.”

Open up about money with friends and family

The outside pressure to spend is nothing new, though now you may be feeling an extra-strong urge to make up for lost time with people you haven’t seen in more than a year. But all those far-flung weddings and in-person visits may be beyond what you can afford. This is where honest communication comes in, even though discussing money can be difficult. In these situations, it can help to let the other person know what’s going on in your life.

“To tell a friend that something they want to do isn’t in your budget, it feels like a rejection of them,” says Joshua Escalante Troesh, a financial planner in Rancho Cucamonga, California. He recommends telling your loved one about the thing you’re saving up for that makes it difficult to afford the activity. “Most people who care about you will say, ‘Yeah, I understand that.’”

If you overspend, get back on track

There’s nothing quite like an enormous credit card bill to ruin the fun you’ve been having, especially if you can’t pay it in full and end up in debt. If this happens to you, it’s time to regroup and reallocate some funds.

If you were saving for something, like a vacation, by automatically transferring money to a savings account, you’ve already learned to live without that cash each month. This situation presents an opportunity: Apply that monthly sum toward your debt instead. You may have to postpone or scale back your trip, but you’ll get out of debt quicker without having to make too many changes to your day-to-day life.

Escalante Troesh recommends putting away your credit cards and using only cash or a debit card for purchases while you pay down your debt. “We’ve dug ourselves in a bit of a hole — not a big deal, people make mistakes,” he says. “But let’s get the shovel out of our hands.”

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

Sara Rathner writes for NerdWallet. Email: srathner@nerdwallet.com. Twitter: @sarakrathner.

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How to Handle Mixed-Income Friendships

Finally, as the country reopens, you’re likely seeing more of your friends. Out with the video chatting and in with the high-fiving, hugging and, well, spending.

For every dinner, there’s a check to pay; for every wedding, a gift to buy; and for every concert, a ticket to score.

You may notice that you and your reunited friends handle these kinds of expenses differently. Maybe one of you sees an $80 night out as chump change, while the other feels like a chump for desperately needing that cash for rent.

Here’s how to reenter the world of socializing and spending while keeping friendships and finances intact.

If you’re the friend with less money

Reflect on your finances and priorities, as well as how they may have changed during the pandemic.

“This is an opportunity for everyone to be more mindful about where they want to spend their time, money and resources,” says Kathleen Burns Kingsbury, a Waitsfield, Vermont-based wealth psychology expert and host of the “Breaking Money Silence” podcast.

Consider what’s important to you, she says, as well as the experiences you want to invest in and those you’d rather skip to save money. “Then you can decline invitations a little easier because you feel more solid in your decision,” she says.

Say you realize that during quarantine you didn’t mind PB&J for most meals, but you craved live music. Skip the fancy dinner plans and, if your finances allow, buy the concert ticket.

Or make your own plans if you’re simply longing to catch up with friends. Host a potluck, movie night, bike ride or another more affordable hangout.

With this kind of intention, you’re empowering yourself to make strategic financial decisions. Doesn’t that sound better than bailing because money is tight?

As Kingsbury puts it: “Instead of saying, ‘I can’t, I can’t, I can’t,’ it’s more about saying, ‘This is what I’m going to do.’”

As you reflect on financial priorities, consider creating a budget to match them, says New York-based financial therapist Aja Evans.

A budget is a plan for your incoming and outgoing money — though you can call it something else if the B-word wigs you out. (Evans calls her family budget their “killing-it plan.”)

The key word is “plan.” No need to resort to a shrug or stress-fest when you’re invited to a destination wedding or pricey brunch. With a budget, you already have an idea of how much you can (or can’t) spend on those activities.

If you can’t swing the event, trust that your friends will understand. “I would imagine that, after COVID, people really understand financial stress no matter their level of income or assets,” Kingsbury says.

If you’re the friend with more money

If you can afford the dinners and concerts, then live it up, Evans says. But try to understand that your friends can’t always join you.

Be “empathetic and compassionate and — here’s the hard part — not judgmental,” Kingsbury says.

You may not know your friend’s circumstances. Many people don’t share when they’re financially stressed, Kingsbury says, “because there’s that judgment and shame.” So give your friend the benefit of the doubt when she declines an invite.

And give your friend something else: time. As soon as you plan an outing or learn about a pricey event, tell them so they can try to plan for it, Evans says.

Even with that time, “be prepared that some people might not be able to make it work,” Evans says. Allow friends to opt out or even participate in an alternative plan.

So if you invite friends to a destination wedding, for example, explain that you know it’s an expensive request and understand if they can’t join. Maybe you and your friends who can’t make the trip go out to dinner locally to celebrate instead.

How to talk about money with friends

These spending situations become easier when you and your friends can talk openly about money. If your buddy already knows you’re saving for a down payment or supporting your parents, for example, she’s more likely to understand when you pass on a winery trip.

And if you discuss finances with friends, you may be able to motivate and help each other. Maybe your friend knows of a first-time homebuyer program that could help you with that down payment.

But, of course, money can be a loaded subject. To keep the conversation casual, avoid having it while you’re already out spending money, Evans says. (Or while you’re drinking.)

As for what to say, start with “I” statements, she says, as in “I’ve been looking at my finances and noticed …” With this phrasing, your friend is less likely to feel defensive or pressured to share.

Or start with a more general, less personal chat. Share an article, Kingsbury says, or bring up the financial aspect of a news event or even celebrity gossip.

“Once people start to talk about money in general, then the conversation over time evolves,” she says. And friends “become more vulnerable and willing to share.”

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

Laura McMullen writes for NerdWallet. Email: lmcmullen@nerdwallet.com. Twitter: @lauraemcmullen.

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A Garden’s Lessons for Growing Your Money

Soil, sun, water and seed: The ingredients of a garden are simple, but the final product is never guaranteed. Willing a plot of land into a vibrant state of bloom takes intention, know-how and no small amount of trial and error.

Like many people staying at home, I spent much of the past year tending to the soil of my yard and crafting a garden oasis of my own imagination. The work wasn’t easy, and I’m sure many now-dead plants wish that I’d been a little more proficient.

But as my vision came to life — and I realized the care that this new hobby requires — I saw parallels between tending to a garden and handling finances with intentionality.  Here’s what my garden taught me about managing money.

Have a vision

Before you put a spade into the ground — or sign up for a new financial instrument — define what you want to accomplish. Like a garden, your financial future can be a reflection of your passions and priorities.

“There are no rules — it’s your garden,” says Brooke Edmunds, associate professor of community horticulture with Oregon State University Extension. “Don’t be afraid to try new things. You’ll get so much joy out of the pride of growing things yourself.”

How you manage your money is an individual endeavor, too. “When imagining your goals, a good jumping-off point is defining your needs and your wants and what you value,” says Lacey Langford, a North Carolina-based financial coach. “Not everyone values the same thing. Some people might value a nice home or a nice car or retirement savings more.”

Understand that big goals can take years to accomplish. “Take the long-view approach,” Edmunds says. “It really takes five years or so to really see how plants are and to learn your garden space.”

Likewise, think about various aspects of your finances — debts, income, investments — and define what you want them to look like in five years. Do some self-reflection and sketch out the life you want. Then get started on bringing this vision to fruition.

Make growth easy

With goals defined, dig in and establish the right foundation for growth.

In a garden, this step means testing the soil to determine if it has the right components to support your specific plants. Developing the right soil can make the difference between a season of vigorous growth and a lackluster performance.

When it comes to managing money, think of the fundamentals — things like income, expenses and savings, as well as your attitudes and behavior toward money — as the soil. Your ambitions are the plants you put into the ground, hoping they’ll take root and thrive. Upon inspection, you may find that you’re primed for growth or that the soil needs amending.

Adjusting financial habits to meet an ambitious savings goal, like a down payment on a house, is one example. If you’re not able to save much after covering your current expenses, get creative and trim expenses or increase your income.

Next, turn to your attitudes and habits around money, says Kathleen Burns Kingsbury, a wealth psychology expert based in Vermont.

“I recommend people look at what lessons they learned growing up about managing money,” Burns Kingsbury says. “How have those beliefs about money impacted their behavior as adults? The foundational part is really looking at how these thoughts and beliefs impact your ability to make progress down this path.”

Reorienting attitudes toward money can help you meet your goals. For example, you may have been taught that debt should be avoided at all costs. You could reassess your thinking and explore ways to use debt as a financial tool with less risk. When paying for a major expense, a credit card that has a 0% annual-percentage-rate period could help you cover the cost while keeping your savings intact.

Put in the work

A green thumb or a certified financial planner certificate isn’t necessary to achieve your goals. Much like weeding, regularly chipping away at tasks is easier than trying to accomplish everything immediately.

“You don’t have to weed the entire garden in one day,” Burns Kingsbury says. “Take a small chunk and think about how to get rid of those weeds.”

Focus on regular tasks to nurture your finances. When paying off debt, for example, spend a day organizing accounts into a spreadsheet or using a debt tracker. The next day, choose a payoff path, like the debt snowball or debt avalanche method, then stick with it. Breaking tasks into small steps makes them easier to manage. The same is true when improving credit; making regular on-time payments will build your score over time.

“Your garden doesn’t have to be perfect, but stay on top of your weeds so they don’t affect the productivity of your garden,” Edmunds says.

Tending to a garden and managing finances are about marrying a bold vision with daily, incremental tasks to bring it to life.

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

Sean Pyles writes for NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

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The 5 Worst Investment Tips on TikTok

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.

Do-it-yourself is fine when the stakes are low; everything you need to know about patching drywall is on TikTok. But what about when the stakes are high? Would you rewire your home after watching a few TikTok videos? Probably not, and the same logic goes for financial advice.

Pouring your savings into an investment — or any product — being hawked on social media is generally a bad idea. But how will you know which bits of advice are legitimate, and which are bunk? Below, experts weigh in on the worst investment advice they’ve seen recently on TikTok and other social media.

1. The FIRE movement is for everyone

FIRE stands for “financial independence, retire early,” and given how the movement has spread on social media, the acronym is apt. Chris Woods, a certified financial planner and founder of LifePoint Financial Group in Alexandria, Virginia, says that many of the core tenets of the FIRE movement are great: They focus on lowering your expenses, saving heavily, putting money into diversified index funds and generating multiple streams of income to help you retire early, which may all be sound financial decisions.

The problem is, everyone’s financial situation is different. Financial planners spend a lot of time upfront learning as much as they can about someone’s unique financial standing before making any recommendations. And for some, he says, the FIRE movement may be an appropriate goal. But it’s not for everyone, and sound bites from social media influencers can’t take your personal situation into consideration.

“So many people will do what these influencers are saying, even if it’s not the appropriate thing for them,” Woods says. “That’s one of my big overarching disappointments or gripes with the influencers out there. Because a lot of times, they’re talking about this stuff without context.”

The next time you see someone living their best #vanlife and boasting how they retired at 30, remember you’re seeing a highlight reel, Woods says. Their financial situation may have been completely different from yours, and there’s no guarantee what worked for them is right for you.

2. Forget about 401(k)s and IRAs

There’s a thought out there that boring, long-established wealth-building strategies, such as funding retirement accounts like 401(k)s and IRAs, are outdated.

“This is all so faulty and so bad I don’t know where to start,” says Tiffany Kent, a CFP and portfolio manager at Wealth Engagement LLC in Atlanta.

Kent says that to stand out on social media, someone can’t just talk about typical retirement accounts over and over again, no matter how proven they are. Boring doesn’t inspire viewers to smash that “like” button.

Instead, they talk up new, complicated — and at times confusing — products, simply to stand out from the crowd. Sometimes the ideas are a bit contrarian, other times they’re outright outlandish. But this approach, Kent says, is absolutely the wrong way to get financial advice.

“If it’s boring, it’s good,” Kent says.

3. Precious metals are the best long-term play

Gene McManus, a CFP, certified public accountant and managing partner at AP Wealth Management in Augusta, Georgia, said by email that he’s seen claims that precious metals IRAs (which invest in gold and silver instead of stocks and bonds) are a better choice than typical IRAs.

He said acolytes of the strategy argue that precious metals IRAs better protect your money from things like inflation, global supply shortages or a collapse of the financial markets.

But McManus disagrees.

“The long-term history and performance of gold and silver do not indicate that they are a rewarding asset class,” he said. “There are short-term periods that they might outperform the S&P 500, but over the long term, they don’t make sense to own, especially exclusively or overweight in a portfolio.”

4. Hundreds of thousands of people can’t be wrong

It’s true that there’s power in numbers. However, it’s equally fair to say that mob mentality, echo chambers and hype can get in the way of rational decision making. Anthony Trias, a CFP and principal at Stonebridge Financial Group in San Rafael, California, says he’s worked with clients who are investing in stocks they’ve heard mentioned on social media — no matter how staggering the claims of future potential — because of how many people were talking them up.

“There are going to be 300,000 people on social media saying one thing,” Trias says. “But prudent investors block out the noise, do their due diligence and look at who they’re actually listening to.”

Trias also echoes Woods’ concerns. Validating investment ideas based on social media hype is problematic, he says, because investment decisions should be highly tailored to you and your needs — and that’s just not possible on social media.

5. Your cryptocurrency will absolutely go to the moon

All the rocket emoji in the world couldn’t give a valueless cryptocurrency long-term staying power, no matter who’s pumping it.

Clayton Moore, founder and CEO at crypto-payment system NetCents Technology, said by email that while engaging platforms like TikTok have been instrumental in spreading the word about cryptocurrencies, they’ve also become breeding grounds for fraud.

“You’ve got to watch out for the crypto influencer who’s just in it for a quick buck,” he said. “The classic pump and dump.”

Moore said it’s common for crypto influencers to accept payment in exchange for making wild claims about a coin, only to abandon their support for it once the check clears.

“If it is too good to be true, 99% of the time, it is,” Moore said.

Chris Davis writes for NerdWallet. Email: cdavis@nerdwallet.com.

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What 6 Financial Planners Wish They’d Known About Credit Cards

As a boy, Travis Tracy watched his mom struggle with credit card debt. Consequently, he avoided credit cards until age 23. John Bovard, Ron Strobel, and Marcus Blanchard grew up hearing horror stories about credit card debt and so they steered clear as young adults. Marguerita Cheng says she was initially afraid of credit since her father warned her early on about the risks of interest and fees. And Justin Green wasn’t taught much of anything about credit cards, so he didn’t use one until he was 22.

And yet, Tracy, Bovard, Strobel, Blanchard, Cheng and Green each grew up to be certified financial planners who now use credit cards regularly to their advantage.

Here is what these pros wish they had known earlier:

Credit cards aren’t inherently bad

Tracy, a CFP in Durham, North Carolina, and founder of Fortitude Financial Planning, grew up as the oldest child in a single-parent household. “My mom always got in trouble with credit card debt, so in my mind, it seemed like a bad idea,” he says. That’s why he waited until he was 23 before he got his first credit card, which he only applied for because he was moving and needed to finance some purchases.

He carefully paid off his debt, and as his comfort level with credit cards increased, he started using rewards cards to earn cash back. Now, at age 31, he earns cash back on his everyday purchases and makes sure to pay off the balance each month to avoid interest. “My biggest lesson was how important credit cards are to your overall financial purchasing power,” he says.

They can help you build your credit

“I was always hesitant; there were stories about people trying to sign you up for credit cards, and I was told, ‘Don’t do it,’” recalls Bovard, now a CFP in Cincinnati and owner of Incline Wealth Advisors. “In Cincinnati, cash is king, and credit cards are bad. My parents emphasized that message, too.” He also remembers being told that credit cards could lead to a lot of debt.

As a result, Bovard stuck with debit cards until his early 20s. That’s when he realized that if he wanted to get approved for a mortgage at some point, he would need to build his credit history. “I was nervous about it, especially around the fear of forgetting to make a payment,” he says. He avoided that risk by checking his balance frequently and eventually setting up automatic payments.

Now 32, he says he wishes he had opened a credit card sooner, as soon as he started earning income, so he could have started building his credit earlier. “That could have led to a better credit history,” he says, which he now knows can translate to lower mortgage rates when you apply for a loan.

Credit cards offer fraud protection

After college, Ron Strobel, CFP and founder of Retire Sensibly in Nampa, Idaho, opted to use a debit card instead of credit card because he grew up hearing credit cards could lead to debt. Then, when he was 22, his debit card was compromised with fraudulent charges, and the $900 in his checking account instantly disappeared. It took months to get the money back. After that, Strobel switched to using credit cards for the additional fraud protection.

“You should use a credit card for the fraud protection aspect. Every time you buy something, it feels different to swipe that credit card instead of a debit card, because you know you’re protected,” says Strobel, now 32.

They can help you in an emergency

When Cheng, a CFP based in Gaithersburg, Maryland, studied abroad in Japan in her early 20s, her host family’s smoking and cats aggravated her asthma. She had to quickly find new housing and buy a futon. That $300 purchase was made possible by her credit card.

“It would have been hard for me to get out of that home without the credit card. It taught me that having credit was important for emergencies,” she says. Her dad, who came to the United States in the 1960s with $17, had taught her that credit was powerful but also risky. “He would always say, ‘Don’t spend money in the dark,’ meaning fees and fines — that’s just wasting money,” she recalls.

“My dad did teach me well,” she adds. “I didn’t abuse credit. I used it wisely.” And her father was so proud of her (and concerned about her health) that he ended up paying her credit card bill for her.

You can keep your credit limit low

Blanchard, CFP and founder of Focal Point Financial Planning in Pleasant Grove, Utah, says he took out his first credit card at age 19 while serving in the Marine Corps, but then quickly closed it after hearing horror stories about credit card debt. “I didn’t really understand how it worked, how you build credit, or anything,” he recalls.

After he had a similar experience to Strobel in which his debit card information was stolen and his bank account was drained, he finally took out his next credit card. Now in his mid-20s, he was no less nervous about overspending and building up debt. “I didn’t really understand that if you pay it off, the interest rate doesn’t matter,” says Blanchard, now 30.

He says he wishes he knew that if you’re worried about overspending, you can keep your credit limit low on the card, which will cap the amount you are able to spend.

While that’s true, there is a major downside to this approach: A lower credit limit means you have less available credit. This can lead to a higher credit utilization ratio, which is the portion of your credit that you’re using, and can hurt your credit score. (Using much more than 30% of your overall available credit can have a major negative impact.) That said, once credit bureaus report that you have paid the balance down or off, the damage should disappear.

“I look back and think, ‘Dang it, I would have been better if I’d kept that first card open. My credit score would have gone from good to great,” he says.

‘Never spend what you don’t have’

“I grew up in a lower-income family, so credit wasn’t something that crossed my mind until I learned I had unpaid medical debt,” says Justin Green, CFP and founder of Assist FP, a virtual financial planning firm based in the Boston area. Then, around age 22, he took out a credit card with a relatively low credit limit of $300 and paid it off each month so he could slowly rebuild his credit.

“The main thing to consider with a credit card is that you should never spend what you don’t have in cash on the card, because it can easily rack up and get you in trouble,” Green says. “Even as someone who is personal-finance oriented, I can see how it’s very easy to spend more using a credit card, and you do have to be careful,” he adds.

Now, at age 29, Green uses multiple cards, which he pays off each month, and maximizes his travel rewards. He and his fiancé are planning to use those accumulated points to pay for their upcoming honeymoon, which will be to a yet-undetermined location. The only requirement? “Blue water,” he says.

Kimberly Palmer writes for NerdWallet. Email: kpalmer@nerdwallet.com. Twitter: @kimberlypalmer.

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How to Be a Frugal Traveler and Still Have Fun

That first post-vaccine vacation is finally a possibility for many, but after more than a year without travel, the sticker shock is no joke. In general, travel prices are increasing to reflect higher demand. According to the U.S. Travel Association Travel Price Index for May 2021, airfare is up 24.1% and lodging prices are up 10% year over year.

Nothing will stamp out that after-travel sense of bliss like getting a credit card bill full of vacation splurges. With some creativity and advanced planning, your trip can be budget-friendly without feeling cheap.

Use credit card perks

Airline and hotel credit cards can provide valuable VIP treatments for those with good credit. Some offer free checked bags on flights, which can be worth around $60 each round trip you fly with the airline. Other cards offer discounts on in-flight food and beverage purchases, complimentary airport lounge access and hotel room upgrades that can enhance your trip at no extra cost. These cards usually come with an annual fee, but the value they offer can be worth the cost for many travelers.

Think outside the big brands

If you’re not loyal to a well-known hotel chain, co-branded credit cards aren’t as helpful. Instead, look for deals on rates at independent hotels. Becky Pokora, founder of the travel blog SightDoing, finds that independent hotels can be 20%-30% cheaper than equivalent chain brands.

“In past years, everybody kind of had to play on the same level to attract travelers, but this year there’s so much demand,” she says. “The obvious answers get booked up fast, leaving these independent places having to compete more.”

Save money on getting around

Ground transportation is increasingly expensive. According to the U.S. Bureau of Labor Statistics, the consumer price index for car and truck rentals increased 109.8% from May 2020 to May 2021. Because of COVID-19, the number of drivers working for ride-sharing services is down, affecting availability and pricing. To save time and money, consider other ways to navigate your destination:

  • Walk and take public transit: If you’re able to walk longer distances and use public transit, you can save a lot on transportation costs. Unique transit options like ferries, cable cars and gondola lifts double as fun tourist experiences. In cities like New York and San Francisco, you can walk on world-famous bridges for free.
  • Stay close to the action: It can cost more to stay in the heart of a city, but a hotel in a far-flung location means you have to spend time and money getting into town every day. You may also need to rent a car to get into the city, which adds to the expense. It can be worth it to spend a bit more (or tap into travel credit card rewards that you’ve earned) to book a stay at a well-located hotel, or at least a hotel near public transit that can whisk you into the city quickly.
  • Be strategic when renting a car: There’s no need to book a rental car from the moment you arrive until the day you leave if it’s just going to sit in the hotel parking lot and rack up parking fees for half the trip. Arrange your travel itinerary so you can manage a few days without a car, then rent one for the part of the trip where you need to drive. A car rental location within the city may also be more cost-effective than renting a car at the airport. For example, at Ronald Reagan Washington National Airport near Washington, D.C., fees, including a concession recovery fee and customer facility charge, drive up rental prices. At a rental car location in downtown D.C., the base price for a similar car is higher, but with fewer fees, you may end up spending less overall.

Save money on souvenirs

Bringing home souvenirs and gifts can get expensive, and your minimalist friends may not want another trinket that will just collect dust. This is where grocery stores come in handy. They’re great places to find local foods and snacks for a reasonable price (and consumable gifts don’t take up space for long).

Pokora offers a creative way to spend less: Instead of buying food and drink items for all your friends, buy a few things, then host a tasting when you get home. You’ll bring people together for a cost-effective shared experience.

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

Sara Rathner writes for NerdWallet. Email: srathner@nerdwallet.com. Twitter: @sarakrathner.

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Dorm Costs Have Soared, but Many Freshmen Have No Choice

Living in the dorms is a rite of passage for millions of first-year college students. But like the rest of the college experience, it’s costly. And in many cases it’s mandatory.

Moving my only daughter into the dorms of scenic Appalachian State University her freshman year was tough on us both, but an exciting time. She received an academic scholarship for tuition and fees, so room and board were among our only financial obligations. Well, the only official ones — college kids have many “needs.”

As with many four-year colleges and universities, App State requires freshmen to live on campus. They’re the only ones guaranteed housing. Students beyond their first year interested in staying in the dorms enter a lottery system to battle for the remaining rooms. By early spring of her freshman year (2019-20), she got word she had “won” a room for sophomore year. But then COVID-19 hit, and like many other college students, she finished her 2020 spring semester at home.

As summer 2020 passed, the thought of living in tight dorm quarters looked less and less appealing, so we began apartment hunting. We found that although the rental market in the small college town of Boone, North Carolina, is competitive, she could get into an apartment for less than the cost of a dorm.

Student housing is a boon to universities and colleges across the country, and dorm costs have skyrocketed 111% at public four-year institutions over the past 30 years, far faster than rents. In many markets, first-year students could rent apartments nearby for less than they pay on campus, particularly if they’re sharing the costs with roommates. But they’re not always given that option.

It isn’t clear how many colleges and universities currently require most freshmen to live on campus. The Department of Education does not collect this data, though 74 schools report requiring all first-time degree-seeking students — no matter their year — to live on campus, no exceptions. Whatever the exact figure, many schools do this, often under the justification that on-campus living is a good transition into adulthood. But if we allow 18-year-olds (or their parents, by proxy) to incur the costs of college and, in many cases, take on student loan debt to cover them, isn’t the better transition into adulthood allowing them to determine just how that money is best spent?

Housing is a considerable source of college revenue

As COVID-19 spread and dorms shuttered in 2020, colleges’ reliance on student housing as a source of revenue became apparent. Indeed, auxiliary revenue (which includes housing, dining, athletics and other sources), was one of the hardest-hit categories of revenue loss, especially among larger institutions, according to data obtained from 107 schools by the Chronicle of Higher Education. In an effort to minimize this loss early on, some schools debated whether to provide refunds for the remainder of the semester when students were sent home and dorm rooms sat empty, and added language to 2020-21 housing contracts protecting them against potential future refunds. This is because institutes of higher learning make considerable money on student housing, though pinpointing exact figures is difficult.

Four-year institutions made $28 billion on “ancillary enterprises” in the 2018-19 school year, roughly 8% of all revenue, according to the National Center on Education Statistics. This figure lumps housing and dining in with parking, on-campus stores and other sources of revenue. New York University’s 2021 fiscal budget, one of few publicly available online, reveals 10% of its revenue comes from student housing and dining.

This isn’t to say on-campus living requirements are rooted in money alone. Some of the arguments colleges make for policies are sound: Living in a dorm can be enjoyable, convenient, good for grades and retention, and a more gradual segue into adulthood. However, this doesn’t make it the right fit for everyone.

Making on-campus housing optional and at the discretion of students (and their parents, no doubt) could lead to an increased supply of available dorm rooms for upperclassmen. In other words, the housing would more likely be available to students for whom it’s a good fit, no matter their academic year.

Most schools with on-campus freshman housing requirements have ways to bypass those mandates, but what passes as proper justification for living off-campus is often very narrow, if it’s clear at all. At my daughter’s college, for example, only some nontraditional students, those living at a parent’s home within 30 miles of campus, or those taking only online courses while living with a parent are eligible for an exemption. That last option was added only during the pandemic. Unfortunately not eligible for an exemption: those who have made a sound and thoughtful decision that living off-campus is a better fit, whether for financial or other reasons.

On-campus housing costs rise more steeply than off-campus

From 1989-90 to 2019-20, the average room rate among public four-year institutions rose 111% after accounting for inflation, to $6,655 per academic year, generally 30 weeks, according to data from the Department of Education. Incidentally, public four-year institutions are some of the most affordable. Compare this to the national median gross rent — the Census measure that includes both the contracted rent amount plus utilities — which grew just 24% during that same period.

At that average room rate, the student’s weekly housing cost is $222. Median gross rent works out to about $253 per week. So, dorms are cheaper? Hang tight. Lest you think I’m undercutting my own argument here, let’s not forget the costs incurred moving into and out of the dorms at least once per academic year, if not per semester, along with the costs of finding other housing during the remaining 22 weeks of the year, and the fact that very few college students are paying the entire rent of an apartment or house on their own.

If that national median rent was shared with a roomie, you’d be looking at $127 per week. But the national median is just a ballpark estimate.

Is it always cheaper off campus? No

New York City is one of the priciest and most competitive rental markets, so students attending college at highly competitive and expensive institutions such as New York University or Columbia University may breathe a sigh of relief knowing they have on-campus living options. In fact, the weekly room rate at Columbia’s freshman dorms is a couple of hundred dollars cheaper than one person’s share of rent on a median-priced two-person, two-bedroom apartment in Manhattan, according to the June 2021 Elliman Report, a monthly rental market report. However, the difference is negligible between several of NYU’s freshman dorms and that same median rent.

The COVID pandemic brought with it slowed rent growth and even declines in many urban centers, according to data from Realtor.com. As of May, some pricey metro areas including New York City, San Francisco and San Jose are still seeing rents lower than last year. Students able to freely participate in local rental markets may have been able to lock in rents lower than what they’d pay in the dorms, even in big cities.

These big cities often have extreme housing prices, and students in more representative college towns across the country would likely find more comparable prices when weighing dorm costs against local rentals.

App State is a public four-year college nestled in the mountains of Western North Carolina. It’s a gorgeous place and a welcoming institution. The mascot is a Mountaineer named Yosef wearing a flannel shirt and a beard, for crying out loud. And their football is some of the best. Go ‘Neers! The freshman dorm my daughter was assigned to in 2019-20 opened to students in 1970 and doesn’t have air conditioning. The weekly rate there is roughly $50 more than that of one person’s share of a two-bedroom rental, according to Census data. Her sophomore year, she managed to find a shared four-bedroom home, where her portion of the rent is about $140 per week, and includes parking and all utilities.

Navigating limited options

It doesn’t always make sense — financial or otherwise — to rent an apartment as a college student. However, when it does make sense, students should be able to elect that option, or any other option that fits their budget, long-term goals and any other personal factors. We allow, even encourage, 18-year-olds to take on student loan debt — debt that they’ll typically carry for at least the first decade of their career, if not longer. On-campus housing requirements add insult to the mounting costs of higher education by not giving students latitude to decide how their money — and first year away from home — are best spent.

Students opting for a college that requires on-campus housing have little to no say in the matter. In that case, the best advice is to look into possible exemptions from the requirement if staying in the dorms would cause considerable hardship, and always be strategic with your use of student loans.

For those with a choice, a careful comparison of your options will help ensure you’re making the right choice for your budget and your long-term educational goals. Make sure to include:

  • Direct costs such as rent and utilities versus on-campus housing rates and the costs of living when school isn’t in session.
  • Transportation and parking.
  • Convenience and time considerations.
  • Possible social trade-offs like being farther away from college social clubs but perhaps having the luxury to choose roommates.
  • Academic preferences such as how a living arrangement may affect study location or quality.

Elizabeth Renter writes for NerdWallet. Email: elizabeth@nerdwallet.com. Twitter: @elizabethrenter.

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