Budget

How to Find a Happy Balance Among Competing Savings Goals

Posted on by Kimberly Palmer

Saving money sounds straightforward — set cash aside for a future purpose — but in reality, people often face competing savings priorities. We want it all: the travel, the house, the flush savings account. So how do we figure out which savings goals to put first, especially when we’re working toward so many things at once?

“You’re also still trying to live and have fun and not eat ramen noodles every day,” says Al-Nesha Jones, a certified public accountant and founder of ASE Group, a full-service accounting, tax and advisory firm in West Orange, New Jersey. Saving is further complicated by the fact that we’re currently facing economic uncertainty, higher prices on everyday items and a tumultuous stock market.

Figuring out your savings priorities isn’t easy, but these strategies can act as guideposts:

Put your emergency fund first

Consider how you felt the last time you couldn’t cover an emergency, Jones says. “If it gave you major anxiety, keep that feeling in mind when you prioritize.” In other words, create your emergency fund before everything else, because it’s so critical to financial security.

“Now more than ever, people are understanding the importance of a rainy day fund,” says Eric Maldonado, certified financial planner and owner of Aquila Wealth Advisors in San Luis Obispo, California. “It’s good fundamentals to have cash in case stuff starts costing more.”

Next, prioritize retirement

“Retirement is a long-term game and time is on your side, so even if you start with something very small, the more time you give yourself to work on it, the better off you’ll be,” Jones says. “If you keep pushing retirement off, we blink and now we’re scrambling.”

Thinking through the worst-case scenarios of not saving for different goals can help underscore the importance of funding retirement accounts. Noah Damsky, principal of Marina Wealth Advisors in Los Angeles, says you should save for the categories with the most severe consequences first — and retirement tops that list, since no one wants to be impoverished in old age. “Running through those scenarios helps crystallize what’s important,” Damsky says.

Decide what you want in the near term

This next category of savings priorities is complicated, because you must determine your near-term goals. They might include buying a home, traveling, moving to a new city, starting a family or something else entirely.

Dale L. Shafer II, CFP and founder of Life Moves Wealth Management in Scottsdale, Arizona, recently moved with his family to that area from Michigan, and his near-term goal is to save up to buy a home there. The pandemic spurred many people to make major lifestyle changes, he says, and as a result their near-term savings goals shifted.

“Sometimes we reset expectations and sometimes we achieve more than we thought,” he says. It’s important to check in on your savings progress at least several times a year so you can recalibrate when needed.

Jay Zigmont, CFP and founder of Childfree Wealth in Water Valley, Mississippi, works with clients who don’t have and aren’t planning on having children. He says many of them are focused on major life shifts, such as starting a business, moving overseas, traveling or taking a sabbatical from work.

“You might not be able to do everything at once, but you can do most things over time,” Zigmont says.

Stay organized

To keep all of these goals straight, Maldonado suggests opening a separate savings account for each one and giving it a nickname, such as “Greece, $5,000” or “Lake cabin rental, $1,500.”

Online, high-yield savings accounts tend to offer higher returns than those at traditional banks, and you can set up automatic deductions from your checking account or paycheck. “It’s positive inertia that keeps the money going where you want it,” he adds.

You can always make changes later. “Just get in the habit of saving, and then you can go back and add other goals,” Jones says.

Enjoy life along the way

As important as it is to save for all of those priorities, so is enjoying life today. Don’t wait until you have a fully funded retirement to put money toward items that bring you joy, Jones warns. That’s why she’s saving to buy a Tesla, which she hopes to purchase by the end of the year.

Maldonado and his wife contribute a set portion of money to a family fun account. “We drain it every quarter. It’s guilt-free spending for the family,” he says, and goes toward things like camping trips, museums or parties. With their savings safely stored in other accounts, it’s spending the whole family can feel good about.

Kimberly Palmer writes for NerdWallet.

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What if You Can’t ‘Out-Budget’ Inflation?

Posted on by Laura McMullen

Inflation is a nightmare for the many Americans who already stretch their dollars to cover basic needs. What happens when those dollars lose value?

Their choice is probably not about whether to cut streaming services or opt for store-brand groceries. Instead, they may have to pick between buying enough food and paying rent.

The families hit hardest by inflation typically have little in savings and other resources. And that lack of access to wealth can be rooted in a history of inequality, says Phuong Luong, a Massachusetts-based certified financial planner and founder of Just Wealth, a financial education and consulting firm.

For example, say generations of your family have been underpaid or limited in where they can live, due in part to racist policies. Then inflation causes everything to become more expensive.

You may have to scrape together cash to support not just yourself, but also family or community members. Perhaps you have to spend money and time traveling across town to the grocery store or doctor’s office.

“Your proximity to people with resources and people with wealth is going to be different depending on where you live and who you are,” Luong says. “There’s a larger context than just expenses and budgeting.”

Whatever context describes your situation, here’s how to combat inflation if money is already tight.

Prioritize essentials

Aim to pay for expenses that enable you to live safely: housing (mortgage or rent), utilities and food. Also try to cover costs that help you work, such as transportation, cell phone and child care.

Next-level priorities are those that trigger major consequences if you don’t pay: taxes, child support and insurance.

For credit cards, aim to pay your minimum at least, because you may need that credit access.

Tap local resources

If you’re struggling to pay bills, find support. Luong suggests Findhelp.org, which lists local programs designed to cut costs across many categories.

Calling 211 or visiting 211.org can also help you find assistance related to housing, health, food and emergency costs.

Pick up the phone

You may also save money by calling credit card and insurance companies, lenders, banks, cell phone providers and other businesses you pay.

With the pandemic affecting so many consumers, these companies “are a little more empathetic than they have been,” says Emlen Miles-Mattingly, co-founder of Onyx Advisor Network, a Sacramento, California-based support platform for underrepresented financial advisors.

They may pause or lower payments, for example, or forgive overdue bills. Or they could lower your interest rate.

But you have to ask. And often a patient phone call with customer service yields quicker, more effective results than an email or online form.

Connect with your community

To overcome financial struggles, “community is going to be major,” says Dasha Kennedy, Atlanta-based financial activist and founder of The Broke Black Girl Facebook community.

Leaning on — or supporting — your family members, friends and neighbors can take many forms. For example, Kennedy points out how temporarily living with others can lower housing expenses. Or you can pool resources by sharing a vehicle or splitting a large expense.

To connect with supportive locals you’ve yet to meet, look to libraries, religious organizations and recreation centers. Or use virtual platforms like Facebook and Nextdoor.

In these in-person and online spaces, you may find free or inexpensive goods and services. Maybe someone will give away secondhand clothes or walk your dog while you work.

Or seek guidance. Your neighbors may point you toward free, nearby health resources, for example, or describe what’s helped them stretch their money.

Profit from your skills

Of course, making more money helps, too. If you’re already working, Kennedy recommends first trying to increase earnings through your employer. Consider working overtime or negotiating raises and role changes, she says.

Or explore side work — with caution. Plenty of online gigs could waste your time, take your money or misuse your personal information.

“It’s high time for frauds and scams,” Kennedy says. Trust your gut, and read reviews. Also check the Federal Trade Commission and Better Business Bureau websites for tips to avoid scams.

The most effective way to make money? “Monetize skills you already have,” Kennedy says. These could include anything from cleaning and organizing to writing and designing.

Assuming you start without clients, she suggests tapping your community once again.

“You may not have the time to build trust and reputation, so you’re going to have to rely on personal relationships,” she says. Ask friends, neighbors and family members to promote and vouch for you.

Mind your mental health

Money struggles are exhausting. So regularly “connect with yourself,” Miles-Mattingly says. Identify what makes you feel better, whether it’s walking outside, calling a friend, meditating or reading.

If time is tight, make your activity quick, and consider Miles-Mattingly’s point: “People, when stressed, don’t have the best decision-making abilities.” And hard times mean hard decisions. It pays to feel centered before negotiating a lower bill or agreeing to a side job.

To avoid feeling overwhelmed during times of financial stress, Kennedy tries not to overthink the unpredictable future. Instead, she suggests “focusing on getting through the day.”

Laura McMullen writes for NerdWallet.

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Should You Use Buy Now, Pay Later Services for Travel?

Posted on by Sally French

Buy now, pay later services are an increasingly popular way to purchase products online. These services often target young shoppers through social networks and promote the ability to purchase products like clothing or makeup via a small down payment followed by installment payments to cover the difference.

But it’s not just physical stuff that you can click to buy and pay in full later. Travel providers have jumped on the trend by partnering with these services, which include Affirm and Uplift, to let you fund your vacation in small payments — sometimes even after you’ve finished the trip.

Affirm began partnering with Vacasa vacation rentals in February 2021 and then American Airlines in October 2021. Afterpay lets you use its service when you book through online travel agencies Klook and Agoda, and you can even order tickets to the Broadway musical “Hamilton.” United Airlines flights can be paid for later through Uplift.

Payment plans to cover vacations aren’t new. Charging your vacation to credit cards was an option before these services began, and many travel agencies have long offered payment plans. Buy now, pay later payment options are the shiny, technology-based version of payment programs like layaway or deferred interest.

“Buy now, pay later” services can be handy in some circumstances, but there are drawbacks to taking on this kind of debt.

The problems with using buy now, pay later to book travel

They make travel seem cheaper than it really is: Breaking down one big payment into multiple, smaller payments can make a purchase seem more affordable than it is and perhaps is psychologically satisfying. But adding up all the payments can end up the same, or sometimes even more due to interest, than the full quoted cost.

For example, a two-bedroom Vacasa vacation rental for a three-night stay cost $1,399. But Affirm markets it as six monthly payments of $233.

You might scoff at lodging expenses for a three-day weekend that may be more than a month’s rent. But don’t be fooled when you see the $233 offer — you’re still paying the $1,399, just not all in one go.

It’s usually not a good way to build credit: Sezzle proudly proclaims that it has “zero impact on your credit.” Afterpay advertises that it doesn’t conduct credit checks.

“We don’t believe in preventing people from accessing Afterpay because they may have had an old debt from a long time ago. And we don’t believe that missing a payment with Afterpay should result in a bad credit history,” according to a company statement.

While that notion has its merits, it does mean that people who might already have a history of debt are getting access to loans that they might be unable to pay off — in turn digging them into deeper debt.

In fact, Afterpay doesn’t affect your credit scores, period, so even a pristine, on-time reputation won’t help your scores. Had you paid on time through a traditional credit card, that information would be reported to the three credit bureaus and likely help your credit.

You could end up owing more than you thought in interest: Some services charge fees. Affirm typically charges interest on longer loans, but won’t charge fees on shorter loans. In the previous Vacasa example, you won’t owe interest if the loan is paid off within six months. But if you opt to pay in 12 monthly installments of $116.67 over the course of a year, you’ll also owe Affirm nearly $120 in interest fees. That turns what could have been a nearly $1,400 cabin into a $1,520 cabin.

Most other types of loans charge interest too. In fact, the average interest rate for a co-branded credit card in 2020 was 25.7%, according to data in a 2021 consumer credit card market report from the Consumer Financial Protection Bureau.

There are other fees besides interest: Especially if you already struggle to pay your regular bills or track your expenses, some of these services can make it easy to fall behind on payments and incur high late fees.

Zip, which partners with Airbnb and encourages bookers to split any purchase into four installments over six weeks, charges a $1 convenience fee per installment (so you’d owe $4 to Zip on top of the money you owe Airbnb). If you miss a payment, Zip charges late fees ranging from $5 to $10.

Sezzle doesn’t charge outright late fees but will deactivate your account if you’re two days late. To get your account reactivated, you’ll pay a fee of up to $10. And, if you preemptively delay your payment due date, Sezzle charges a $5 rescheduling fee.

Like many other services, Sezzle makes these fees tough to know about ahead of time. Case-in-point: Sezzle’s fees aren’t clearly stated on its site, but rather buried within the fine print of its 12,000-word user agreement.

Credit cards can also entail fees, and credit card issuers charged consumers a combined $12 billion in late fees in 2020, according to the CFPB. But the Credit Card Act of 2009, intended to protect cardholders, heavily regulates such fees by limiting how high those fees can go. And in most cases, buy now, pay later loans aren’t subject to the same consumer protections that apply to credit cards.

When buy now, pay later services make sense

You might pay less in interest or fees versus other forms of debt: Many of these services allow you to pay off purchases down the road without paying compounding interest, which you’ll typically owe with other forms of debt you take on. Unless you’re taking advantage of a 0% APR offer on a credit card, that includes most credit card debt, too.

You have poor credit or are credit invisible, and it’s a necessary expense: Maybe you have poor credit. Perhaps you’re great with money — but are credit invisible, meaning your credit history isn’t long enough to have generated a credit file.  (This situation is common among young people and recent immigrants.) While most of these services won’t help build your credit, they can help if you need to make a purchase that you can’t pay in full now.

It’s a necessary expense: Maybe you have a sick relative and you need to jump on a plane to care for them. Perhaps your house needs emergency repairs and you’ll need to stay in a hotel, but your homeowners or renters insurance won’t cover the upfront cost. If your travel expense is necessary, then buy now, pay later services can serve people with few to no other options.

The bottom line

Buy now, pay later services can be a lifesaver when you’re in an emergency situation and you’ve exhausted other options. They can also serve to cushion your savings account if you’re booking a trip that you know you can afford, but want to hold cash as long as possible.

But in general, there are far too many gotchas in these services to make them worth recommending for most travel purchases.

—

How to Protect Your Spending Power From Inflation

Posted on by Hal M. Bundrick

Inflation — the rise in consumer prices — is a slow erosion of your money over time. Before 2021, the United States hadn’t seen annual core inflation much above 3% for the better part of 25 years, says Michael Ashton, managing principal of Enduring Investments, a consulting and investing firm in Morristown, New Jersey.

So the 7.5% spike seen over the past year in the costs of fuel, used vehicles, groceries and just about everything else is the kind of sudden and systemic rise that can give a jolt to most peoples’ everyday spending.

Ashton also says that the COVID-19 pandemic stimulus checks and tax relief, combined with the reopening of the economy, fed consumer demand but didn’t replace product inventories. The result: shortages that lead to higher prices.

“Having supply chain difficulties is part of what inflation looks like,” Ashton says.

With inflation chipping away at your spending power, how can you protect yourself?

Examine your spending

  • Trim discretionary spending, voluntary spending in categories like entertainment or travel, by just 5%. This is one of those incremental changes that isn’t that difficult to do and goes directly to your personal bottom line.
  • Don’t delay a major purchase; prices will likely rise.
  • Shop strategically. Buy more generic brand products and prescriptions. Save on necessary expenses by using coupons and store loyalty programs. Use membership cards (like Walmart+ and others) to pay 5 cents less per gallon for gasoline.

Look for savings

  • Eliminate any fees you pay for credit cards or bank accounts (late fees, monthly or annual service fees, ATM fees, etc.). Many banks are waiving such fees and credit cards often have fee-free options.
  • Renegotiate bills like cable, streaming or cell phone for any possible savings.  “I can say from my own personal experience – it’s amazing how easy this is,” Ashton notes. He says that every time he would call his cell phone provider, it would offer him a plan that was far better than his current one. “And it doesn’t happen unless you call,” Ashton adds. He now makes a habit of calling once a year and asking, “What’s the best plan you have and should I be on that?”
  • Reduce the number of subscriptions you have, even if by just one. “You should do an audit of those from time to time because sometimes they sneak in a price increase, and it just shows up on your credit card,” Ashton says.

Try to bring more money in

  • Search for financial institutions that pay higher interest rates than you are earning now (if you are earning anything at all). Online banks and credit unions often offer high-yield savings accounts that sweeten returns, especially as interest rates rise.
  • Perhaps the most powerful idea of all: Ask for a raise. If you haven’t received an increase in salary in a few years, you’ve likely experienced what amounts to a pay cut because of inflation, Ashton says.

The inflation-matching savings account

Another inflation-fighting idea: Series I savings bonds. They were created specifically to protect consumers’ purchasing power against inflation, says Zvi Bodie, professor emeritus in finance at Boston University. Bodie holds a doctorate in economics from the Massachusetts Institute of Technology and has become an avid proponent of I bonds.

I bonds rates are keyed to the rate of inflation, which lately has been over 7%, he notes. They are a perfect safe haven for near-term savings. And not a bad addition to your long-term nest egg, too.

A minimum investment in I bonds through TreasuryDirect.gov is only $25, and an individual can put up to $10,000 annually into the savings bonds with electronic purchases. The bonds pay fixed interest plus the inflation rate, adjusted twice per year.

You can withdraw your savings without penalty after one year, but if you cash them in before five years, you’ll lose the last three months’ worth of interest.

“So what you get is essentially a savings account that can’t go down, and that’s going to go up with inflation,” Bodie adds. “Do I need to say more?”

Inflation is not the same for everyone

Inflation hit a 7.5% national average in January, but that’s not likely to be your inflation rate, says Ashton.

You may consume different items than the average person and you may not live in an average place, so your particular rate of inflation quite likely varies from the average, according to Ashton.

So, rather than agonizing over a single number as a spending power loss to recoup, use the small money moves above to improve your financial position slowly but surely.

—

The article How to Protect Your Spending Power From Inflation originally appeared on NerdWallet.

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8 Rules for Saving, Borrowing and Spending Money

Posted on by Liz Weston

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.

The best personal finance advice is tailored to your individual situation. That said, a few rules of thumb can cut through the confusion that often surrounds money decisions and help you build a solid financial foundation.

The following guidelines for saving, borrowing, spending and protecting your money are culled from nearly three decades of writing about personal finance.

1. Prioritize saving for retirement

In an ideal world, you’d start saving with your first paycheck and keep going until you’re ready to retire. You also wouldn’t touch that money until retirement. Even if you can’t save 15% of your pre-tax income for retirement, as recommended by Fidelity and other financial services firms, anything you put aside can help give you a more comfortable future. Aim to take full advantage of any company match you get from a 401(k) at work — that’s free money — and borrow against or cash out retirement funds only as a last resort.

2. Save for a rainy day

You may have read that you need an emergency fund equal to three to six months of expenses, but it can take years to save that much. That’s too long to put off other priorities, like saving for retirement. A starter emergency fund of $500 can be your first goal, and then you can build it up. While you’re saving, try to create other sources of emergency cash, such as a Roth IRA (you can pull out your contributions at any time without taxes or penalties), space on your credit cards or an unused home equity line of credit.

3. Save for college

Got kids? Open a 529 college savings plan and contribute at least the minimum, which is typically $15 to $25 a month. Retirement savings comes first, but anything you can save will reduce how much your child may need to borrow. Also, research shows the simple act of saving for college increases the chances that a child from a low- to moderate-income family will go to college.

4. Borrow smart for college

A college degree can pay off in higher earnings, but lenders may allow you to borrow far more than you can comfortably repay. If you’re borrowing for your own education, consider limiting your total debt to what you expect to make your first year out of school. If you’re a parent borrowing for a child’s education, aim for payments that are no more than 10% of your after-tax income and that still allow you to save for retirement. If your payments are higher than 10% of your after-tax income, investigate income-driven repayment plans that could bring down your costs.

5. Use credit cards as a convenience

Credit cards offer convenience and can protect you from fraud and disputes with merchants. But credit card interest tends to be high, so don’t carry credit card balances if you can avoid it. If you routinely pay your balances in full, look for a rewards card with a sign-up bonus that returns at least 1.5% of what you spend.

6. Finance your home smartly

If you want to be a homeowner, the best time to buy your first home is when you’re financially ready and in a position to stay put for a few years. Opt for a mortgage rate that’s fixed for as long as you plan to remain in the home, and don’t make extra payments against the principal until you’ve paid off all other debt and are on track for retirement.

7. Buy used vehicles and drive them for years

Buying a car right now isn’t a great idea; supply-chain kinks and other pandemic-related issues have inflated the cost of both new and used cars. In general, though, buying a used car can save you a ton of money over your driving lifetime, as can driving your car for many years before replacing it. These days, a well-maintained car can last 200,000 miles without major issues, according to J.D. Power. This means you can get roughly 13 years of service out of your car if you drive it 15,000 miles a year. Ideally, you would pay cash for cars. If you need to borrow, try to limit the term of your loan to a maximum of five years.

8. Insure against catastrophic expenses

Use insurance to protect yourself against catastrophic expenses rather than smaller costs that you can easily pay out of pocket. If you have sufficient savings, consider raising the deductibles on your policies to save money on premiums. Be careful about high-deductible health insurance policies, though. Having a high deductible could cause you to put off medical care, and it’s better to err on the side of safety when it comes to health.

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 8 Rules for Saving, Borrowing and Spending Money originally appeared on NerdWallet.

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6 Things to Know About Student Loans Before You Start School

Posted on by Anna Helhoski

The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

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The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

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

Posted on by Kimberly Palmer

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.

The article When Your Income Drops, Here’s How to Bounce Back originally appeared on NerdWallet.

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

Posted on by Sara Rathner

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.

The article In Your Debt: Back to Pre-Pandemic Spending? Don’t Overdo It originally appeared on NerdWallet.

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How to Handle Mixed-Income Friendships

Posted on by Laura McMullen

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.

The article How to Handle Mixed-Income Friendships originally appeared on NerdWallet.

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

Posted on by Kimberly Palmer

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.

The article What 6 Financial Planners Wish They’d Known About Credit Cards originally appeared on NerdWallet.

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