4 Items for Your Midyear Money Checklist

A lot can happen in six months. That’s why, as we close out the first half of the year, it makes sense to check in on your financial life.

“With inflation, I think people this year are more heavily impacted than they probably have been in many years leading up to this point,” says Jason Dall’Acqua, a certified financial planner and founder of Crest Wealth Advisors in Annapolis, Maryland. “So it’s a good time to see how things have been going … as well as plan for what lies ahead in the remainder of the year.”

So where should you start? Add these four items to your midyear money checklist.

1. Review your income, expenses and goals

You don’t have to tally up every penny you’ve made and spent over the last six months. But taking a few minutes to check a bank or budget app can help you better understand your finances and course-correct if necessary.

“Right now with inflation, even if you had a budget back in January, it probably is not the same as it is today. There are some things that are going to need to be changed. So it’s just really resetting and figuring out where you stand today versus where you thought you were going to stand today,” says Kayla Welte, a CFP with District Capital Management who lives in Denver.

Look for opportunities to scale back if you’ve spent more than anticipated. For example, you can dine out less or cancel subscription services you rarely use. “Any excess spending that you’ve been doing, you may have to cut down to account for this higher cost of things that you absolutely have to buy,” Welte says.

If you set money resolutions or other financial goals earlier this year, check on those too. Have you saved as much toward retirement or an emergency fund as you planned? Are you on track to pay off debt?

2. Deal with debt

Debt is becoming more expensive to carry due to rising interest rates. Pay down debts sooner, particularly those with variable interest rates, to save money. These debts might include credit cards, personal loans or adjustable-rate mortgages.

Concentrate on reducing your highest-rate debt first, then move on to the next highest. Dall’Acqua also suggests switching from variable-rate to fixed-rate options by refinancing, if possible. “If you can lock in the fixed rate now, you’re likely to be saving yourself significantly in interest costs over time,” he says.

Be aware of end dates for loans in forbearance. For instance, federal student loan payments will resume on Sept. 1, barring another extension.

“At this point they have been on pause for nearly two years,” Dall’Acqua says. “So if that money has gotten lost within [people’s] overall spending, it’s going to be a big shock when they then have to resume paying.”

Setting aside money now in a separate savings fund can help soften the blow.

3. Plan holiday shopping

Inflation could make holiday gifts a little pricier this year. Create a shopping list and think about how much you can afford to spend. “Figure out what that would require for you to start saving on a weekly or monthly basis and start putting that money aside right now,” Dall’Acqua says.

Starting on shopping early can also help you manage the cost without accruing debt. Many retailers host major sale events in the summer, so you’ll find discounts well before Black Friday. Amazon’s Prime Day is coming in July. So is the Nordstrom Anniversary Sale.

4. Examine your taxes and benefits

Welte recommends using an online tax calculator to check whether you’re withholding too much or too little. This can help you avoid getting hit with a big tax bill unexpectedly or missing out on extra cash you may need now.

“If you do the math and you’re going to get a $6,000 tax refund, it would be a great time to change your W-4s, get more money in your pocket now to pay for these excess costs that are coming up with inflation rather than waiting until next April to get that refund,” Welte says.

If you need to make adjustments, fill out a new Form W-4 (you can find this on the IRS website) and submit it to your employer.

While you’re at it, evaluate your employee benefit selections. These benefits can include health insurance, life insurance, health savings accounts and flexible spending accounts, plus perks like gym memberships.

Reviewing your choices in the summer can prevent you from becoming overwhelmed in October and November, when open enrollment begins for most companies, says Joe Bautista, a CFP in Lake Oswego, Oregon.

The goal is to ensure you’re choosing the most cost-effective options that suit your needs. For example, “a PPO has higher premiums but a lower cost if you tend to use health care, lower deductibles and copays typically. But if someone doesn’t use that health care, then they can be overspending,” Bautista says.

Don’t worry about getting everything perfect right now. As Bautista says, “financial planning is dynamic, it’s not static.” Check in on your money plans periodically and update as needed.

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Start 2021 Off Strong With These Smart Money Moves

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

File your tax return ASAP

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

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

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

Check your withholding

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

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

Adjust your retirement savings

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

Check your spending

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

Set up your savings ‘buckets’

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

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

Put charitable contributions on automatic

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

Spend your medical FSA

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

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

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

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

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

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

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

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5 Myths About High-Yield Savings Accounts During COVID-19

Last year’s savings rates of 2% and higher have come and gone, but that doesn’t mean high-yield savings accounts disappeared.

“There are high-yield savings accounts out there, but it’s all relative,” says Mike Schenk, chief economist for the Credit Union National Association.

When the Federal Reserve cut its benchmark rate to nearly zero in March, many banks and credit unions took their cue to lower rates on savings accounts. This affected online high-yield accounts more drastically than others. And it’s unclear when to expect rates to rise as the monthslong pandemic and related economic uncertainty continue.

If you’re thinking about getting a high-yield savings account or ditching the one you have, don’t fall for these misconceptions.

Myth 1: A high-yield savings account has the same rate over time

Not true, which can be good and bad. Savings accounts have variable rates that are subject to change, so an account you opened last week might not have the same rate this week. This means rising rates can benefit you without you doing anything. But on the flip side, rate drops can occur and, as in recent months, even become common.

From March to September 2020, the average rate across 15 online banks’ high-yield savings accounts dropped from 1.70% to 0.90% annual percentage yield, based on a NerdWallet analysis.

Despite this, having a high-yield and typically online-based savings account still blows traditional options out of the water. Their rates remain far above the national average of 0.05% for savings accounts. And if you already have a high-yield account and you’re itching to switch for a higher rate, maybe reconsider. Rates may keep dropping.

Myth 2: The most important aspect of a high-yield savings account is the rate

Not exactly. The rate has big appeal, but a high-yield account’s safety, lack of fees and easy access to funds shouldn’t be overlooked.

Like other savings options, high-yield accounts are federally insured up to the standard limit of $250,000. This ensures that a bank failure won’t rob you of your money. You can double-check that an account is insured by finding the bank on the Federal Deposit Insurance Corp.’s BankFind tool. Some online banking firms like Chime and Simple have a partner bank to provide their FDIC insurance;
check the fine print at the bottom of the website’s pages for details. Credit unions receive equivalent insurance through the National Credit Union Administration, which you can look up on NCUA’s Research a Credit Union tool.

Most high-yield savings accounts don’t have monthly fees, which can save you money. Quick access to funds is also crucial, especially if you need cash on short notice during a crisis like the current pandemic.

Myth 3: Your money is harder to access in an online savings account

That’s not true in most cases. Like traditional savings accounts, high-yield options provide ways to transfer money online to and from accounts you own at other banks. Generally, it takes a few weekdays for banks to process transfers, but some online banks also offer faster ways to access funds, such as ATM withdrawals and wire transfers.

Since online banks tend to be where the high-yield savings accounts are, chances are you’ll lose branch access in order to gain a top rate. But how often do you visit a branch, especially this year?

Myth 4: All savings accounts make your money accessible at the same speed

Nope, and this may matter. How long a bank takes to process transactions can be the reason you’re waiting for money longer than expected. Every bank has a funds availability policy that states how long it takes to settle transactions: for example, processing cash and government checks the day after a bank receives them.

But banks can make exceptions. Funds can take longer to become available, such as seven days, especially for accounts opened within the previous 30 days and for check deposits over $5,000. Switching banks may also carry an adjustment period with some processing delays. But if your bank processes transactions more slowly than others, it can be a real problem if you expect to need your money soon after depositing it.

“Ask your regular bank how long they hold funds,” says Dana Twight, certified financial planner and owner of the Seattle area-based firm Twight Financial. “I just had a call with my credit union where they were withholding an ATM deposit for three days because it came from another credit union.”

Myth 5: The main purpose of a high-yield savings account is to earn interest

It’s tempting to think so, but no. Contributing money to a savings account consistently and over time will likely raise your balance a lot more than interest payments will. And a savings account is the ideal place to grow your money with an eye toward goals, such as saving for a down payment on a house or building an emergency fund of three to six months of living expenses.

“No dollar amount is too small” to save, Twight says. Once “you have an emergency fund, you have increased your ability to make choices when hard times come.”

Your account rate may waver, but your approach toward saving matters more.

John Thompson, chief program officer at the national nonprofit Financial Health Network, says, “To save with a plan … is one of the most critical behaviors for improving and sustaining financial health.”

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article 5 Myths About High-Yield Savings Accounts During COVID-19 originally appeared on NerdWallet.

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6 Do’s and Don’ts When Saving Money During a Crisis

Probably the last thing you want to think about during a crisis is working on healthy financial habits like saving money. But if you’re able to save, you can make your eventual recovery easier.

“Every time you put some [money] away, you’re looking out for your future self,” says Saundra Davis, founder and executive director at Sage Financial Solutions, a San Francisco Bay Area-based nonprofit that offers financial coach training and services to people across the wealth spectrum.

Whether or not your financial situation has changed since the start of 2020, you may benefit from these saving strategies now or down the road.

Do: Reduce costs, including bills if needed

Common advice to save money is to cut unnecessary costs. During an ongoing crisis such as a pandemic, you might need to redefine what is “unnecessary.”

Start with the cost of bare essentials to operate your household — rent or mortgage, utilities, food — and when you factor bills in, don’t treat them all the same. For example, paying your credit card bill in full every month is normally the best tactic, but in hard times, it’s OK not to follow this rule and just pay the minimum. For loan payments, see if your creditor can offer relief.

“Don’t have your lender deciding what you can pay,” Davis says. “Sketch out your own budget.” This might mean working with your lender to reduce payments or suspend them temporarily.

Do: Adjust your savings goals

Having a dollar amount to save up to is generally helpful. An emergency fund, for example, is a standard goal that involves building up three to six months’ worth of living expenses. But during an emergency, consider resetting expectations.

“If your income changes, you aren’t beholden to saving a fixed amount,” says LaKhaun McKinley, certified financial planner and owner of the firm MNM Vested in Katy, Texas.

The way you save might need to be tweaked, too. If you use automatic transfers from checking to savings accounts, see if that amount is still doable for you. If not, reduce the amount. Or, as a last resort, cancel the transfers for the time being and make one-off transfers when possible.

When saving money, “the habit is more important than the amount,” Davis says.

Do: Find a high savings rate

Opening a high-yield savings account at an online bank is a good strategy, regardless of the economic environment. The national average rate is 0.06%, but some online savings accounts are currently offering over 1% annual percentage yield. The account-opening process can take a few minutes.

Opening a high-yield account “can be such a simple way to earn more,” says Kelley Long. She’s a Chicago-based certified public accountant, financial planner and member of the American Institute of CPAs’ Consumer Financial Education Advocates.

Do: Get help from your community to save costs

If you’re experiencing financial hardship, call 2-1-1 or visit the website 211.org. This is a free way to learn about resources in your community, including food banks, meal services for seniors and students, shelters, mental health services and more. If you’ve never asked for help like this before, it may feel uncomfortable. But accepting meals or other support can be an important lifeline as well as help you save money.

“We want to stay aware of what’s available in our community and give ourselves the emotional room to do things we’ve never done before,” Davis says.

Some relief is nationwide, including postponed federal student loan payments and coronavirus-specific unemployment programs, but your local community might have additional resources.

Don’t: Dip into savings without a plan

If you have an emergency fund and you need it now, use it. But estimate the amount you need before withdrawing, and keep tabs on how you spend it.

You’ll eventually need to save up again, and you want to make that process manageable. It might help to settle on a minimum amount you need to keep in a savings account to feel OK.

“Everyone has a different feeling [for] what would give them that security,” Long says. For some people, for example, “seeing a comma in your account can have a formative effect on your feeling of financial security.”

Don’t: Withdraw from savings too often

Keep an eye on the frequency with which you turn to your savings account. Banks can charge an excessive savings withdrawal fee if you go over six per month. During COVID-19, the Federal Reserve has paused this rule, but it’s up to each bank to choose whether to charge the fee. Watch out for other fees, too, such as for overdrawing if you dip past your checking account balance.

If you’re running into trouble with fees, examine why you needed more savings than expected.

“We might be overaggressive in savings goals. That’s usually due to failing to account for certain expenses in our spending plan,” Long says.

“In a crisis,” she adds, “we need to remember that there are times that we can’t be long-term in our thinking.”

Spencer Tierney is a writer at NerdWallet. Email: spencer.tierney@nerdwallet.com. Twitter: @SpencerNerd.

The article 6 Do’s and Don’ts When Saving Money During a Crisis originally appeared on NerdWallet.

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Scaling Back Spending Yields Unexpected Benefits

When I originally set out to write this column, I wanted to share the unexpected benefits of cutting back on my online shopping habit.

At the beginning of the year, I set a personal challenge to reduce my online orders from several times a week (insert embarrassed emoji) to a few times a month. As time passed, I realized I had fewer deliveries to track and more money left in my bank account at the end of the month.

But then COVID-19 happened. And now eliminating online shopping is more than a fad or a New Year’s resolution. For millions, cutting things out of the budget is an absolute necessity.

If you’re having to scale back on discretionary spending — whether that’s shopping, travel or something else entirely — here’s how to give up that financial habit without feeling deprived.

See the silver lining

The news is filled with fear, worry and sadness. But it helps to see the silver lining, says Denise Downey, a certified financial planner and owner of Financial Trex LLC, based in Spokane, Washington.

Depending on where you live, you may be forced to stop some spending — on travel, sporting events, haircuts, entertainment and more. This involuntary saving can help you make changes you wouldn’t have otherwise made on your own.

“Those decisions are being made for us right now,” Downey says. “It’s not a matter of, ‘Do I cut the vacation this year or not?’ It’s cut. There’s no decision to be made with that.”

“If you want to put a positive spin on it, it’s making it easier for people to cut their expenses because they’re removing that decision-making hurdle.”

It’s all about perspective. So, if you can, focus on the benefits. For instance, you may find you’re feeling a positive boost as you watch your bank account grow and your credit card bill stop climbing.

So sure, my deliveries of clothing, makeup and the newest scented candles aren’t as frequent. But much like the thrill of getting a delivery, I’m finding that not spending is also appealing.

Get your power back

It’s probably obvious that placing fewer online orders equates to saving more money, as long as you don’t substitute an expensive activity in its place. The same goes for other types of spending. Cutting back any spending habit can lead to savings.

It can also give you a sense of empowerment, says Drew Harris, CFP, senior financial advisor at Greenway Wealth Advisors LLC, based in Charlotte, North Carolina.

“It’s a good way to gain back some control by taking ownership of our spending,” Harris says.

Cutting back means you’re giving something up. But you’re also gaining freedom from the financial stress that discretionary spending can cause, as well as the buyer’s remorse that so often accompanies spending.

This sense of empowerment can help you feel better. L. Kevin Chapman, a licensed clinical psychologist, says you may “adopt a sense of mastery when eliminating something that has led to financial strain.”

Basically, you’ll feel a sense of accomplishment, which allows you to feel positive (rather than negative) about the changes you’re making.

Learn a new habit

Don’t get discouraged. Your decreased spending won’t have to last forever.

But then again, you may find you don’t necessarily want to return to your pre-pandemic spending habits. And that’s OK, too.

Chapman says many people will become more accustomed to shopping less following the COVID-19 outbreak, especially if they’ve replaced their shopping habit with more cost-effective activities.

Take this time to learn some new habits in place of your old costly ones. Harris suggests going for a walk, talking with family and friends or finding some other inexpensive activity you enjoy doing.

Another example? Downey says her children were constantly busy with extracurricular activities — activities that cost money. But since the family has been home, she’s noticed they’re happy and entertained, even with a not-so-busy schedule. That has led her to rethink enrolling them in quite as many activities in the future.

Regardless of the specific substitutions you make, the changes you’re implementing during these unprecedented times will help boost your savings and emergency fund. Best case scenario, when life returns to some degree of normalcy one day, hopefully that fund is more than you ended up needing, Downey says.

In that case, you can reward yourself by buying something you’re putting off right now — and paying for it in cash.

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

Courtney Jespersen is a writer at NerdWallet. Email: courtney@nerdwallet.com. Twitter: @CourtneyNerd.

The article Scaling Back Spending Yields Unexpected Benefits originally appeared on NerdWallet.

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Keeping (Credit) Score: Don’t Let a 3-Digit Number Define You

Your credit score makes a big difference in your life: It can help you qualify for credit cards or car loans, let you skip deposits on utilities, and even make car insurance more affordable.

But that three-digit number is not who you are.

While it’s easy to feel discouraged about a low score, it’s important to remember that you can change it.

Why a low score feels so bad

“In our culture, credit is king, and if you don’t have it or don’t have access to it …  that taps into one of our greatest fears — that we don’t have a place,” explains Ted Klontz, an associate professor at Creighton University in the practice of financial psychology and behavioral finance. No one likes feeling excluded or unworthy.

But a credit score is simply the result of an impersonal algorithm applied to information in your credit reports.

Your score doesn’t tell the backstory: It could mean you’re disorganized — or it could mean you had a baby and charged diapers and other necessities to your credit cards. It could mean that you lost your job and simply couldn’t pay all your bills — or that you borrowed money and made no effort to pay it.

My score, myself?

Just as a good score doesn’t mean you are trustworthy and ethical, a low score doesn’t mean you aren’t. If your score is lower than you’d like, keep it in perspective.

The first thing Chicago certified financial planner Kelley Long of Financial Finesse recommends has nothing to do with money: “Give yourself some grace.”  Everyone makes mistakes, and rumination and regret won’t help you move ahead.

“The past is the past,” she says.

Figure out why your score is low

Two common causes for score damage are missing payments and charging up credit cards. You can check to see if these issues are on your credit reports by using AnnualCreditReport.com.

Also, learning about how credit scores are calculated can help you know what to avoid and set realistic expectations for how quickly your score is likely to increase. A late payment, for example, casts a long shadow on your credit score — up to seven years. But a high balance on a credit card stops hurting your score as soon as you pay it down and the lower balance is reported to the credit bureaus.

Know how your habits contribute

Long says she’s seen disorganization shred the scores of high-income clients. You may always be the sort who misplaces your keys or phone, but you need to figure out how to pay bills on time, she says. If you see missed payments on your reports, try automating payments or using account alerts and calendar reminders.

If you are using a significant portion of your credit limits, try making more than one payment per month to keep the balance lower. If you’re routinely spending more than you bring in, you may need to redo your budget or find an additional source of income.

Know why you want a better score

Klontz says goals you can see, smell or touch tend to be more motivating. If you want a better score so you can buy a cabin in the woods or qualify for a rewards card that will allow you to travel more, imagining those is much more motivating than just wanting to see a higher number.

Long says it’s the difference between wanting to run a marathon because your partner wishes you would exercise more and training for a marathon because you want to run one.

Celebrate milestones

As you work to build your score, give yourself rewards at intervals of 10 to 20 points, Klontz suggests. There’s no reason to wait until your score hits the level you ultimately want to achieve. It’s unlikely to get there overnight.

Long agrees that monitoring your score can help to connect choices and behaviors with scores. Many personal finance websites and credit card issuers offer free access to credit scores; pick either a free FICO or VantageScore and stick with the same score version as you check your progress. Even when consulting the same score source, expect fluctuations, because the data on your credit reports varies from month to month.

And when you finally achieve that hoped-for credit score? Try to tack on a few more points so that a fluctuation down doesn’t move you to a lower credit band.

After that, Long suggests switching your focus. “Reaching a great credit score may feel great for a little while,” she explains. “But attaining a positive net worth and watching it grow means you’re getting closer to financial freedom, which means you can start making life decisions based on your values and not because of money.”

And nobody’s going to judge you harshly for that.

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article Keeping (Credit) Score: Don’t Let a 3-Digit Number Define You originally appeared on NerdWallet.

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4 Things to Know if You’ve Never Budgeted Before

We’ve entered a new year and a new decade. Not surprisingly, this fresh start has probably brought new goals to mind — like money management.

If you’re planning to start balancing your income and spending, here are four things to keep in mind before you dive headfirst into budgeting in 2020.

1. Budgets aren’t just a New Year’s resolution

If budgeting is one of your New Year’s resolutions, maybe it’s time to think about it differently.

“My personal opinion is forget New Year’s resolutions,” says David G. Metzger, certified financial planner and the founder of Onyx Wealth Management in Chicago. “They never work.”

Budgeting is more than just a January whim, so don’t view it as such. Before you begin, be honest with yourself about if you’re ready to make changes that extend into the foreseeable future.

2. You’ll need a support system

Know that you don’t have to do it alone. Tools like budget apps can help track your spending, while people in your life can hold you accountable along the way.

“An accountability partner or budget buddy can really be helpful when your motivation is waning about the end of February,” says Colleen Weber, a CPA and certified financial planner in Chanhassen, Minnesota.

If you’re part of a couple, devote 20 minutes each week to talking about money together, she says. Look back at your recent money decisions, anticipate major expenses coming up and get on the same page about strategies to reduce spending in the week ahead.

Even if you’re not part of a couple, potential encouragement is everywhere.

“If you have a picture of a vacation place that you want to go to, post it on your refrigerator or somewhere where you would see that regularly,” Weber says. “You can say, ‘This is why I packed my lunch today. I’ll be in the Bahamas this time next year.’”

3. Fun won’t be a distant memory

When you commit to budgeting, you don’t have to kiss movies, concerts, vacations and fancy dinners goodbye. In fact, it’s crucial for you to leave room for discretionary spending.

“A budget where there is no room to have fun — you’re wasting your time,” Metzger says. “Nobody wants to live that way. Nobody’s going to live that way.”

Ideally, according to the 50/30/20 budget, 50% of your budget should be allocated for needs, 30% for wants and 20% for savings and debt repayment.

When you do have to cut back, it helps to change your thinking. Budgeting doesn’t always have to be confining, especially if you’re accomplishing goals like saving for a house or paying down debt.

“Think of it in terms of a predetermined spending plan and not a budget restriction plan,” Weber says.

4. Don’t expect perfection

Remember, you’re not perfect — and your budget doesn’t have to be perfect. Be patient with yourself, especially if you’re taking steps in the right direction.

“Cut yourself some slack,” Metzger says.

That being said, check in on your progress regularly to review your spending and ensure you’re following through with the budgeting goals you’ve implemented.

“If you’re making positive changes and you’re making these positive incremental steps, take stock of them,” Metzger says.

Courtney Jespersen is a writer at NerdWallet. Email: courtney@nerdwallet.com. Twitter: @CourtneyNerd.

The article 4 Things to Know if You’ve Never Budgeted Before originally appeared on NerdWallet.

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Overshopped in December? Try These 3 Strategies to Recover

Christmas, Hanukkah and the holiday season have come and gone — likely taking quite a bit of your cash with them.

You can’t magically make more money appear in your bank account. And it’s definitely too late to ask Santa for a check. But here are three of the next best things you can do.

1. Adjust

It’s not surprising if you spent more than you can afford over the past couple of months. After all, we often do this to make loved ones happy, says Richard K. Colarossi, a certified financial planner and partner at Colarossi & Williams in Islandia, New York.

But now it’s time to get back on budget. Cut back your regular spending in an attempt to save more money to free up funds for debt repayment and savings.

Colarossi estimates that bringing your lunch to work for the next few weeks and skipping a $5 cup of coffee could save at least $100 in a month.

There are other things you can do, too. Consider minimal changes such as setting your thermostat a degree or two lower and cutting down on an online shopping habit.

For more substantial savings, bundle your cable and internet, cut out rideshare services, cancel some music and streaming subscriptions or renegotiate the price of your utility bills.

Pay down high-interest debt as soon as possible, Colarossi advises. And, if you’re able, make it a point to fund your savings plan as much as you can, even if it’s a small amount.

2. Avoid

You can also control spending by managing commitments over the next 12 months. If you’re already struggling after paying for gifts, try not to overload yourself with more financial obligations.

“Plan ahead for abstention,” said Kelly Goldsmith, an associate professor of marketing at Vanderbilt University, in an email. “Don’t book a vacation, or commit to attending a wedding that you know will be accompanied by a hefty price tag.”

Allow some time to get your bearings before you take on new, out-of-the-ordinary expenses.

3. Encourage

Give yourself positive reinforcement along the way. The first month might be the hardest, but it will get better. Goldsmith says cutting spending now will boost your confidence and make it easier to save in February, March and beyond.

“Compare your credit card bills from November, December and January and blow your own mind with how much less you spent,” she said.

As you keep saving, you’ll figure out which techniques work (or don’t work) for your lifestyle. Perhaps you’ll want to keep coffee in your budget after all, but discover that you can do without monthly beauty box deliveries.

Then, look ahead so you can put yourself in a more desirable financial position later this year. Colarossi points out that, ideally, sticking with a budget should produce a surplus that can be used for holiday spending.

Depending on what happened this time around, you may need to budget more money for the next holiday season — or budget the same amount and spend less.

Courtney Jespersen is a writer at NerdWallet. Email: courtney@nerdwallet.com. Twitter: @CourtneyNerd.

The article Overshopped in December? Try These 3 Strategies to Recover originally appeared on NerdWallet.

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How to Make Room for Fun in Your 2020 Budget

Reporting for jury duty. Standing in line at the DMV. Going to the dentist. Making a budget.

What do all of these have in common? They’re activities you’d probably like to skip.

And while budgeting certainly isn’t exciting, breaking down your spending can give you the ability to do things you enjoy.

Here’s how to leave room for more than just bills in 2020. (These simple tips spell F-U-N.)

Find your 50/30/20 balance

There are countless budgeting techniques out there, but one is particularly effective and easy to remember.

It’s called the 50/30/20 budget. This plan accounts for typical general expenses like your mortgage, rent, car payment and utility bills, as well as individualized discretionary spending such as travel, streaming services and more.

Here’s the gist: Start with your take-home pay. Commit no more than 50% of that figure to needs and fixed expenses, like your mortgage. Use 20% for savings and debt repayment. The remaining 30% can be spent on wants and variable expenses. A 50/30/20 budget calculator will do the monthly math for you.

Katie Brewer, certified financial planner at Your Richest Life, likes the flexibility of this method.

“It’s a lot less restrictive than $200 in this category, $300 in this and $127.50 in this one,” Brewer says.

It’s also freeing to know that this method allows you to spend money on things that are important to you, your family and your lifestyle.

“I really like for people to go through and tell me the top two things they really like to spend money on,” Brewer says. “Sometimes with a couple, those might be slightly different. We try to always have those be a priority in their spending plan.”

Your current spending percentages probably aren’t at exactly 50%, 30% and 20%. You’ll want to slowly modify until you get close to these levels.

Understand your money flow

Once you have an idea of your recommended spending, start tracking.

“Have your bills account and your spending account,” Brewer says. “There’s no cheating that. Whatever is in there is in there.”

Divide your money appropriately between them when it first hits your bank account, she suggests.

Robert Lopez, CFP and founder of financial planning company FP Guidance, advocates a similar strategy. While some people may prefer to keep everything in one place, he says separate accounts can be helpful — especially if you name them. You can even create different accounts for different financial goals you have at the same time.

For example, if you call one account your “honeymoon fund,” you may be less inclined to pull money from it than if it were just an undesignated savings account.

But don’t stop there. Implement more methods to ensure you’re not spending your mortgage money on subscription boxes.

Lopez recommends getting a different-looking card for each one of your accounts, if your bank offers that option. So, for instance, your grocery shopping card might be red, but your entertainment card would be blue. Depending on which card you use, you’ll be pulling money from the appropriate category.

Then, you can check your bank’s app to see where you stand.

Never stop trying

Remember that having a wants category in your budget isn’t an excuse to spend money on vacations or shopping sprees just because. Rather, Lopez says, it’s like a cheat day — a way to keep yourself motivated to follow the rest of your budgeting habits.

“If your whole budget is just things that you need and then paying down debt or investing … you’re never going to have any fun, and you’re not going to stick to it,” he says. “You’re going to break that budget.”

Your budget will be a work in progress, and that’s OK. Your spending in some months may be higher than during others. You’ll probably spend more on gifts in December than in March, for example.

Brewer recommends starting to pay for your variable expenses with a debit card so you can be proactive (rather than reactive) about your spending. Once you get the hang of it, you can switch back to using a credit card. Lopez says cash can be helpful, too. If you bring only $50 to a concert, for instance, that’s all you’ll be able to spend on merchandise and refreshments.

Find the method that works for you. As he puts it, a budget is something to grow with.

“If someone can build a perfect budget in January, they are in the wrong profession.”

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

Courtney Jespersen is a writer at NerdWallet. Email: courtney@nerdwallet.com. Twitter: @CourtneyNerd.

The article How to Make Room for Fun in Your 2020 Budget originally appeared on NerdWallet.

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5 Money Hacks Hiding in Your Wallet

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

1. Use a savings app

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

2. Maximize your card benefits

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

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

Among such benefits:

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

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

3. Use your rewards cards for everything

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

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

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

4. Stack savings with a cash-back portal

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

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

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

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

5. Know your price protections

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

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

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

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