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The advent of fall serves as a good reminder that you may need to correct course and keep your financial responsibilities in mind. On the first day of fall, the autumnal equinox, the lengths of day and night are roughly equal, and the daylight grows shorter from there. Use the diminishing sunlit hours to get you and your money back on course after a summer of sun and fun.
Start over
Every year at back-to-school time, there are ads for notebooks, fancy pens and backpacks. Even if you don’t have children, the fall season brings to mind stacks of blank paper, waiting for you to write your story….or re-write it! Are you financially off-track and your money goals are nowhere in sight? Start with a clean slate and get back to basics. Create fresh goals. Redo your monthly budget. Commit anew.
Become a night owl
We turn our clocks back on November 1. Use that hour to reflect on your day, unwind and set action items for tomorrow that will keep you on the right financial path.
Spring cleaning isn’t just for spring
If you live in a cold climate, now is the time you are pulling winter gear out of storage. Purge ill-fitting or never-worn garments and gear and have a fall yard sale. You’ll clear space in your life and earn a bit of money you can put towards your saving goals.
Give your bills a checkup
Scrutinize your bills. Are you paying the right amount for utilities, cable or broadband, phone, and other recurring monthly expenses? Are there any hidden fees? This is a good time to get organized, adjust your data plan or cut some channels out of your satellite TV package to save a few more bucks.
Pay attention to open enrollment
Many employees benefit plans run open enrollment — the period when you can make changes or sign up for new benefits — at this time of year. Instead of ignoring those flyers or emails, open them! Make sure you are taking advantage of vision, dental, and health insurance, and contributing to your employer’s retirement plan. Look at how much you spent this year on healthcare costs and see if a healthcare savings account may benefit your family. Keep in mind that Health Insurance Marketplace open enrollment for 2016 is from November 1, 2015 through January 31, 2016.
Stock up for next year
Now is the time to purchase used summer gear like patio furniture, pool toys and bikes. When others are deciding what doesn’t get to stay in the garage for another year, you can snag a great bargain on something you’ve wanted to add to your warm-weather activities. Grab it now and look forward to using it next year.
Resist the pumpkin spice latte
You can’t open your eyes in September without seeing an ad for a pumpkin spice something. It can be tempting to embrace the fall flavor, but did you know that a pumpkin spice latte can be as much as $5.25? I don’t know about you, but every year I succumb to the advertising pressure and long for the tasty warm treat. It’s a good reminder to skip the coffee stop and make your latte at home and save a fiver. Or at least custom order yours, which could save you half the cost!
Watch the calendar
The countdown to Christmas is alive in social media feeds. Whatever winter holiday you celebrate, plan accordingly. They happen at the same time every year, so now’s the time to make your plan — don’t let them sneak up on you and force you into overspending on food, travel, or gifts at the last minute.
Snuggle and save
When it gets cold outside, we tend to stay in, watch movies or invite friends over. While this routine may get old by March, at least you’re not out somewhere spending money! Silver lining, right?
Kim Tracy Prince is a Los Angeles-based writer. If she didn’t have a husband and 2 young boys who love sports, she’d save money by staying in and reading all the books that she never has time for.
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While you can’t stop winter’s imminent arrival, there are preventative steps you can take to avoid an unexpected freeze to your cash flow. Mint sought out the experts for tips on how to protect your budget this winter.
Your Home
If you’re a homeowner, prevention is key to keeping maintenance costs low throughout the year—but especially in the winter. The best part is, you don’t have to have a knack for home improvement in order to stay vigilant about keeping home repair costs to a minimum.
Check your roof. If you are weary about climbing a ladder, you can get a feel for your roof’s condition from the ground with a pair of binoculars. Alyssa Hall of GAF, North America’s largest roofing manufacturer, recommends visually scanning your roof for any signs of sagging or uneven areas, which can indicate roof damage beneath the shingles. On the shingles, look for curling edges, those that are missing entirely, and any signs of damage caused by animals. If you have asphalt shingles or a slate roof, look for black areas, which indicate that a shingle is cracked or missing. If you spot problem areas, call a roofer to assess the situation before snowfall strikes. If problems are left to worsen, you could have a sagging or caving roof, water leaks, and water damage on your hands.
Clean gutter systems. Hall also advises clearing gutters of any leaves, branches and roots, so that melting snow and ice has a way to get off the roof. Water or snow left standing on the roof increases the odds of leaks and ice dams—which can quickly lead to major repair costs.
Seal windows. Richard Apfel, president of Skyline Windows says, “the average home uses 10 to 15 percent of its energy costs through improperly sealed windows.” Check for leaks by placing piece of paper in the window frame and then closing the window. If you can pull the piece of paper out without tearing it, you’ve got an air leak. You can try to seal the leak yourself with silicon-based caulking materials (available at your hardware store). If you still feel a draft after caulking, buy a clear plastic window film kit (also sold at hardware stores). They’re inexpensive, easy to install with the help of a hair dryer, and can save you major bucks on your heating bills. Apfel also says, “the plastic creates an insulating air pocket that can cut heat loss by 25 to 40 percent.”
Maintain water pipes. Roto-Rooter Plumbing and Drain Service‘s Larry Rothman advises homeowners to disconnect outside water hoses and repair dripping outside faucets before temperatures drop to freezing.
If you have interior shut-off valves that lead to outside faucets, drain the water from the pipes and close them for winter. Wrap heat tape (available at hardware stores) around pipes that are in unheated areas to minimize the potential for frozen pipes. If you leave for the winter months, set the furnace to no lower than 55 degrees.
Your Car
Maintenance and safety. Experts at PEAK Automotive Performance advise replacing wiper blades, and filling wiper and brake fluid, motor oil, and antifreeze before the winter. Check tire pressure regularly as temperatures get lower; you’ll lose a pound of pressure for every ten degrees that drops. (Your driver side doorjamb will tell you the advised pressure—also called “pounds per square inch” (PSI). Check your battery life, too—they can lose up to one-third of their starting power in the cold. (PEAK experts say that many auto service shops will check this for little to no cost).
If you live in an area that gets snow and ice, keep a bag of sand in your trunk. If you get stuck, spread the sand underneath your wheels to gain traction.
Your Safety
Fire prevention. Heating is a leading cause of residential fires during the winter. When compared to central heating, using space heaters increases the risk of fire by three to four times, according to Brett Brenner, President of the Electric Safety Foundation International (EFSI). Plug space heaters directly into a wall outlet and allow at least three feet of space between the heater and anything that can catch fire. Never place the heater on cabinets, tables, or furniture.
If you use a space heater in a bathroom, make sure that it is specifically designed for use in a damp area. When you leave a room or go to sleep, unplug the space heater.
Insurance. Review your homeowner’s, renter’s, and auto insurance policies to confirm that you have adequate levels of coverage before an accident happens. If you carry minimal amounts of coverage with a high deductible to save money on premiums, make sure that you have enough savings readily available to cover the deductible amount. Otherwise, you won’t be able to tap into your insurance coverage when you need it most. This is particularly true in the case of auto insurance. Remember that liability-only policies will help pay for damage you cause to other drivers—but won’t cover your auto repair costs.
Your Pets
Pets also face potential dangers in winter months and veterinary care can quickly erode your budget. Dr. Jules Benson of Petplan Pet Insurance reminds pet owners to remove snow, ice and salt from paws and the coat as soon as pets return indoors to prevent potential cuts and abrasions. (According to 2010 Petplan claims data, the average cost to tend to an injured paw is $200!)
Older pets and those with medical conditions can also experience exacerbated symptoms and joint pain in the winter months, so pay close attention to temperament changes. When applying rock salt to sidewalks and driveways, try to use a pet-friendly version and make sure animals do not ingest it. Besides the stress of a poisoned pet, Petplan data shows the average cost to treat it is around $500.
Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.
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The following credit resource question was submitted by a Minter on Mint’s Facebook page.
Question: “Why is it incredibly cumbersome to get your credit report and FICO score? There are so many detours, traps, and dead-ends! Where can I go to go to get trustworthy information about my credit history and credit score?”
Answer: This question exposes what many of us in the credit space already know…it’s a jungle out there!
Smart consumers understand that it’s important to have good credit. The first step to maintaining a good credit score is to get your credit reports from time to time so you can see what the credit bureaus are saying about you. T
his process is supposed to be easy enough so claiming your credit reports doesn’t become burdensome to the point you do it once, and never again.
SmartMoney published an article a little over a year ago identifying the significant growth of websites that sell credit-related products and services. At publication time, the number was “more than 20 websites,” which was up from five a decade prior.
Multiple destinations offering similar credit-related products and services can sometimes leave the consumer feeling confused as to which are the most appropriate and reputable.
So, in an effort to help out the Minter who asked the question, and anyone else who finds the online credit landscape a little confusing, I’ve come up with reputable outlets you can use to stay engaged with your credit and credit-related rights.
Getting Free Credit Reports
You have the right under Federal law to claim your free credit reports once every 12 months. In order to leverage these rights, you have to go to www.annualcreditreport.com. This is the only website where you can claim your legitimately free credit reports provided for under Federal law.
If you live in Colorado, Maine, Maryland, Massachusetts, New Jersey, Puerto Rico or Vermont, you’re entitled to one additional free credit report per year (either calendar year or every 12 months, depending on the state). Georgia residents get two free reports per calendar year.
In order to claim your state law freebie, you have to go directly to the credit bureaus’ websites, which are www.Equifax.com, www.Experian.com and www.TransUnion.com. You cannot claim your free credit report per state law via the annualcreditreport.com website.
I’ve said this over and over, but it’s worth repeating: the credit reporting agencies are not going to sneak up behind you and stick a credit report in your pocket because they’re not obligated to do so. You have to ask for them.
Getting Free Credit Scores or Buying FICO Scores
You do NOT have the right under any law for free annual credit scores, although a provision in Dodd-Frank requires that if your credit score was used to make an adverse decision in response to a credit application, then the lender has to give you your score for free.
There are a variety of outlets that will give you a score if you sign up for a credit monitoring service trial subscription. Opinions vary on whether or not that’s “free” or “conditionally free.”
I’m not here to have that argument. I’m here to show you where you can get free credit scores without a chance of being charged anything.
www.CreditSesame.com will give you a free credit score from Experian called the “Experian National Risk Model.” It’s a legit credit score that’s available for sale to lenders.
It’s not a FICO score, but it will give you a very good idea of what kind of credit risk you pose to lenders. No credit card is required for claim your free score.
www.CreditKarma.com will give you a free TransRisk credit score from TransUnion, which is also commercially available to lenders. Again, it’s not a FICO score, but it will give you an idea of your credit risk.
You can also get your VantageScore credit score from the site. VantageScore is also a credit score available to lenders. No credit card is required to claim your free score.
www.myFICO.com will sell you your FICO scores based on Equifax and/or TransUnion data. myFICO is the consumer division of FICO (formerly known as Fair, Isaac) and these are the guys that invented the ubiquitous FICO credit score. The cost is $19.95 per credit report and score.
www.Equifax.com will sell you your FICO score based only on Equifax data. Be aware that they also sell a non-FICO score. Point being, if you want to get your FICO score, then be sure it says “FICO score” and not simply “credit score.” The cost is $19.95.
Freezing Your Credit Reports
In my mind, the credit freeze is infinitely more effective at protecting you from identity theft than simply monitoring your credit reports. Freezing your credit reports is proactive and locks out any lender trying to process new credit applications.
Monitoring your credit reports is reactive and tells you after something bad has already happened. The good news is that freezing your credit reports is much less expensive than paying monthly subscriptions to monitor your credit report.
To freeze your credit reports you can go to…
Stopping or Minimizing Credit Card Offers
Under Federal law, you have the right to prevent the credit reporting agencies from selling your name to creditors who want to offer you preapproved offers of credit. This is often called “Opting Out.”
If you’re not opted out, then your name can be sold, normally to credit card issuers, who will take a first pass at screening your credit reports and FICO score. If you meet or surpass their criteria you may get a firm offer of credit in the mail.
If you want to ensure that your name is never screened like this again, you can opt out for free here. This is 100% free and you can always opt back in if you want to start getting preapproved credit card offers in the mail again. After a few months you’ll be surprised just how empty your mailbox is.
Do you have a credit question for John Ulzheimer? Visit Mint’s Facebook page and ask away!
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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A photo of the homepage of Facebook.com in Firefox. Note: Shallow focus on the ‘eb’ in ‘facebook’.
Sacramento, California, USA – February 25, 2011: Facebook.com’s homepage displayed in a Firefox browser on a computer monitor. Facebook is the world’s most popular social networking website.
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Being a personal finance writer, I thought a lot about how my husband and I (who I married just a few short weeks ago) would merge our finances. Despite writing about finance daily over the last seven years, it may shock some that even after living together for a year and a half pre-marriage, we waited until we were legally husband and wife to merge any element of our finances.
But that’s not to say we didn’t discuss money along the way. In fact, having open and honest discussions pre-marriage has helped us sail smoothly into our first year of married life, although getting there wasn’t without its trials.
#RealMoneyTalk When You’re Dating
As privy as I am to the most intimate details of people’s finances, getting to the point where I felt comfortable talking about my own took longer than I thought. I’d never been at the point in the relationship with anyone else prior to meeting my husband.
I always admire couples who know they’re getting serious and decide to just lay it all out there. My friend and fellow blogger and author Erin Lowry famously calls this “getting financially naked.”
But for me and my now-husband, our overall approach to money talk was like peeling back the layers of the onion. Slowly, as we became more comfortable, we began to let one another “in” to our respective money situations a little bit more, and perhaps now I prefer this approach.
Here are the most common money conversations couples have when they’ dating:
As the relationship progresses, eventually you’ll discuss more serious conversations like moving in together, and how much you can afford jointly and how you’ll split the bills. You’ll have to discuss credit scores (if you apply jointly for a loan) and how you’ll split payment for items like furniture or a new television.
#RealMoneyTalk in Marriage
The #RealMoneyTalk you and any new partner you’re dating might be initially uncomfortable, largely because everything is so fresh and you’re still getting to know one another. But it can be awkward still once you’re married and the “real money talk” becomes “actual money practices.”
Here’s what my husband and I have covered so far in the short time we’ve been married:
Our savings goal and how we’ll get there together
How we’ll spend for our fixed expenses and utilities
How we’ll handle our personal spending (video games for him, Sephora runs for me)
Saving for retirement
But it hasn’t been a breeze.
For example, my husband and I applied for a mortgage and for the first time he found out my actual credit score (it’s 720) but his was over 800 and my score cost us a lower interest rate. He teased me about it, but I still remember feeling slightly anxious and embarrassed. Revealing details about your personal money situation is no joke, even if you’re willing and prepared.
I also remember those first feelings of indignation when my partner would see packages from Sephora arrive and comment on their frequency or remind me to pay the water bill.
We were both older when we met: both in our 30’s, we both owned homes, had both (unsuccessfully) lived with other partners, both paid off significant amounts of debt (him his law school student loans, me and my credit card debt.) The slow pace of our financial merger was due, in part, because we’d both been managing our finances completely on our own for over ten years and were comfortable and strongly preferred doing things a certain way.
We’d cleared the hard money convos, but we were both set in our own financial patterns and habits. In the end, it took us coming to the table with our feelings around money, instead of actual numbers that helped us get on the same page and start fresh managing money as a team. It’s different than how others would do it, but it’s how we’ve done it and it works for us – which is the most important goal.
Perhaps, I’m so enamored with how couples manage money because, quite frankly, I’ve never met two couples who managed it in exactly the same way. There’s the couple where one partner is the only earner, and the other stays at home yet completely controls the bank account. I met a couple who even after having several children still split everything 50/50 (“Do you Venmo one another for diapers?” I asked, “Yes.” She replied.) I even met a couple who has just one joint bank account and both agreed they’d never spent a day fighting about money.
Fascinating, right?
No matter how you and your partner decide to manage your finances, remember that the first step is getting the courage to have the talk.
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Apartment hunting can be a real hassle. Newspaper listings don’t give you enough information, apartment guide magazines are almost always out of date, and driving around town looking for “For Rent” signs wastes time and gas.
Apartment search engines aim to make finding a new apartment easier by showing listings from multiple sites in a single, easy-to-read format. Some sites hit the mark, while others miss it by miles.
As a renter, here’s how I rank apartment rental sites from best to worst:
PadMapper
PadMapper is the one site I’ve had the most success with because you can customize your search results in nearly every way imaginable. The basic search goes by price, number of bedrooms, and type. The expanded search lets you enter in your own keyword or look for pet-friendly spots. But the best feature of PadMapper is the super-secret setting (seriously), which is a blue bar called “Show Super-Secret Advanced Features.” With this setting, you get a crime map, walk score, neighborhood layout, and mass transit map for each listing.
MyApartmentMap
If you’re looking for a specific type of rental, MyApartmentMap is the site to search. It sorts results by pets allowed, military housing, college apartments, or affordable housing. You can also refine your search within each option, such as, choosing cats, small dogs, or large dogs under the “pets allowed” subsection. The listings themselves are the easiest to browse of all the sites. Each listing has a photo and the rent price clearly marked.
HotPads
If you’re an organizational nut like me, you’ll love the interactive map on HotPads. Each apartment listing appears on the map as a color-coded “hotspot.” Clicking a hotspot pulls up the listing, and from there you can hide the apartment or add it to your favorites. Hiding a listing removes the hotspot, while adding to your favorites puts a star on the map. After sorting all the listings, you’re left with one easy map showing you which apartments you want to look at.
RentLinx
RentLinx does have some cool search features. You can look for income-based, Section 8-approved, handicapped-accessible, and smoke-free rentals. The site was harder to navigate than the others, and even after sorting by most recent listing, all of the ads I saw were a year or two old.
MyNewPlace
MyNewPlace is pretty bare-bones. The site does have some advanced search features that will let you sort by rent price or show you pet-friendly apartments, but the available listings are sparse. My ZIP code only showed 27 listings, whereas PadMapper, MyApartmentMap, and HotPads showed hundreds. After searching, the site required I give my email before I could view any of the listings. The signup sheet had a disclaimer that basically promises to spam my email with advertisements from the site. It adds, “Generally, you may not opt-out of these communications.”
Rentals.com
In my area, Rentals.com mainly listed sponsored ads from corporate apartment complexes with a few private rentals mixed in. While the site listed tons of complexes, the listings themselves weren’t all that comprehensive. None of the ads had floor plans, the photos included were mostly of the complex, and the pricing usually said “Varies.”
RentCompare
RentCompare was a navigational nightmare. The site’s two search options, sort by ZIP code or sort by city name, both came back with errors no matter how many different combinations I tried. When I finally got a search to work, the site required me to sign up before I could see the listings. Sign-up took four separate tries with four separate errors. In the end, I was able to see a few listings with some decent information, but the site wasn’t worth the hassle.
While I tried to cover most of the popular sites, there’s no shortage of others out there. Do you have a favorite site I didn’t mention, or one to avoid?
“The Best and Worst Apartment Rental Sites” was provided by MoneyTalksNews.
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Last week we explored the impact defaulting on loans has on your credit reports and credit scores, and how it can leave you on the wrong end of a collection lawsuit. You can read that article here.
Today I’m closing out this 2-part series by exploring the impact of letting your auto loan and your home go into default.
Transportation
Unless you live in a city where rapid transit is a viable transportation option or you can ride your bike to work, you’re probably going to need a car. And no, public transportation isn’t really a realistic alternative in most large and expansive metropolitan areas. You’re going to need your car to get to work, chauffeur the kids, do your shopping, etc.
If you stopped making your car payments today, your car would be gone in 60-90 days. That’s a much faster response from a jilted lender than you would see with any other type of loan. It normally takes 6 months for a credit card issuer to charge off your balance. And, you’ll see below that not paying your mortgage lender doesn’t lead to immediate homelessness.
Bottom Line: In my opinion, defaulting on your auto loan is going to leave you with more problems than any other loan default. You can live without a credit card, but you can’t live without transportation to earn a living and take care of your family.
Housing
I know what some of you are probably asking, “Why wouldn’t you pay your mortgage first? You need a place to live, right?” You are absolutely correct. You do need a place to live. The good news is that even if you stop paying your mortgage today, you’ll have a place to live for probably the next 12-24 months.
It’s taking forever for lenders to begin foreclosure proceedings and even if/when foreclosure proceedings do start, it doesn’t mean you’re getting kicked out of your house. That’s the next step.
I’m sure we’ve all heard the stories of homeowners refusing to pay their mortgages and living rent-free for years before the lender has them evicted. In fact, there are even examples where the mortgage lender or the investor who has purchased the home out of default actually pays the former owner to leave.
I’m not suggesting this is the right thing to do; I’m just pointing out the realities in the mortgage default world right now.
Bottom Line: Defaulting on your mortgage is going to eventually cost you your home. But, that’s going to take some time and you may be able to use the extra money from the mortgage payment you’re not making to pay down/off other more expensive credit card debt.
Financial Burden
Financially, any default is going to sting, but the pain is variable across loan types.
For example, if you default on a car loan, the lender is going to pay to repossess the car and then probably liquidate it at auction. You’ll be held liable for any deficiency that remains after the car is sold. That could be as little as a few thousand dollars, unless you borrowed a ton of money to buy a quickly depreciating model.
Defaulting on a mortgage loan is going to lead to the same type of financial burden, just a much larger dollar amount. Once the house has been liquidated, likely for much less than you owe on the loan, you may or may not be liable for the deficiency balance. It’s not that cut and dry though, and you’ll want to speak with a lawyer and even a tax advisor about it.
Defaulting on a credit card is a different animal. There is nothing to repossess, which means there’s nothing to liquidate and apply toward your balance. You owe it all, plus interest.
Even when you default, the credit card issuer can still charge you interest and apply late fees. When they finally sell the debt to a collection agency, they can also charge interest. And, if they are successful getting a judgment against you, then yes, more interest can accrue, too. Use Mint’s loan calculator to see how long it will take to pay down each liability.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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If you’ve paid off debt, congratulations! Paying down debt is the top goal for many Minters when they start monitoring their finances. Getting out of the red takes focus and discipline, and luckily, there are many free resources to help you. But what happens after you’ve paid off debt and freed yourself from that burden?
Check out these steps to ensure you stay on the right financial path even after your circumstances have changed for the better.
Understand Your Debt Triggers
Staying debt free can be as difficult as getting into debt. So before you make any changes to your financial behavior, it’s important to assess and understand how you fell into debt in the first place. The answer might be as easy as student loans; however, for most people the answer is not so obvious. First, take a moment to think about how you approach your finances and how people and experiences influence your attitude towards money. Then, identify the behaviors and choices that led to your prior financial situation. You’ll likely identify some patterns. A deeper understanding of how you think about money will help keep you out of debt.
Re-establish Your Budget
A monthly budget is now more important than ever. Having a plan for where to spend and save your new discretionary cash flow will help you from falling back into old habits – especially when newly available funds may tempt you into spending on unnecessary extravagances. You used to pay creditors first; now you can pay yourself first. Consider saving 20 percet of your disposable income. Even though you are no longer in debt, make saving non-negotiable.
Set New Goals
Once you establish your new commitment to saving, you must determine what you are you saving for! Here are the first two goals you should considering setting:
Emergency Fund: Most people don’t have an emergency fund, which can protect you in case of sudden unemployment, a medical emergency or other unexpected expenses. This fund should be the equivalent of 3 to 6 months of your net income, which gives you enough to live on without taking out loans. However, don’t discount the cost of risk. Make sure you can pay off your credit card bills so that you don’t pay unnecessary interest that could otherwise be going to your emergency fund.
Retirement Fund: When it comes to retirement, the sooner you start saving, the better. A good place to start is with your company’s 401(k) plan which is free money! In most cases, you can have deductions from your paycheck automated and put into your 401(k) account. This simplifies the process and many companies will even match your contributions to your 401(k) account.
If you are self-employed or a full-time parent, consider opening an IRA account. This can be done at a discount brokerage firm such as Charles Schwab. Discuss whether a Roth or Traditional IRA is best for you, then set up a monthly automatic draft payment system. Similar to the 401(k), automate your savings by specifying an amount to be automatically withdrawn from your checking account each month. Be aware that the government limits how much money you can put tax-free into retirement savings annually.
Once you hit the maximum, it is time to move on to your next savings goal: perhaps buying a home or a well deserved vacation.
What’s your life after debt story? Share with us at @mint on Twitter!
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By Peter Anderson5 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 18, 2021.
A week or two ago I wrote a review of Betterment.com, an investing website and online brokerage that allows people to automatically invest their money on a regular basis, and have their money be automatically and regularly re-allocated to their correct percentage of stocks and bonds. Basically, it’s an easy and simple way to invest for people who don’t want to deal with all the nitty-gritty details of investing.
I’ve been pretty impressed with the site, and with how it makes investing more accessible to regular folks who might have otherwise not had the time or inclination to invest. It’s a point-and-click solution that will take you 5-10 minutes to get up and running.
Now that they’ve announced this week that you’ll also get a signup bonus when you open your account, I think now is a good time to sign up for an account. After all, you’re already making a return before you start!
Details Of Signing Up For Betterment
Signing up for Betterment is about as simple as a process can get. I went through it a couple of weeks ago when signing up for my own account. It will take you about 5 minutes to enter all your information. You’ll need the following to get started:
Contact information, date of birth, and social security number
Employment information
Checking account information
I had opened my account and linked my checking account in less than 5 minutes, and then I just had to wait for Betterment’s trial deposits into my account, which took about 1-2 days to happen. Next I transferred my money over to my account and I was ready to invest!
Using Betterment Once You’ve Signed Up
Betterment keeps everything extremely simple when it comes to investing your money, and really you’re only going to have to make choices on a few things.
Choose how much to put into your account.
Choose your allocation of stocks vs. bonds. (They’ll help you with this if you’re not sure)
Decide if you want to do automatic investments.
Here’s a video from Betterment talking about the site, the signup process, and how their tools work.
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What Investments Make Up The Account?
Curious about just which investments make up your account? They divide up your holdings into a few different diversified ETFs so your money will basically track market performance.
Stock ETFs:
10% SPDR Dow Jones Industrial Average ETF (DIA)
20% iShares S&P 500 Value Index ETF (IVE)
20% iShares S&P 1000 Value Index ETF (IWD)
15% iShares Russell 2000 Value Index ETF (IWN)
15% iShares Russell Midcap Value Index ETF (IWS)
20% Vanguard Total Stock Market ETF (VTI)
Treasury Bonds:
50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
50% iShares Barclays TIPS Bond Fund (TIP).
So there is your diversified portfolio! Piece of cake!
Track Your Betterment Account In Mint.com
If you’re a fan and user of Mint.com personal finance manager like I am, once you’re signed up for your Betterment account you can also track your portfolio’s performance in your Mint.com account. To add your new account just log in, and click on the “add account” link in the left sidebar. On the page that comes up search for Betterment when it asks for your bank name. It will bring up the login screen where you’ll just put in your login info for betterment. Your account will then be added to the “Investments” section of your accounts.
If you’ve set up automatic investments already with Betterment, you can now just track your performance in Mint without having to regularly log in to Betterment. It will show you historical performance charts, allocations, and lots more. Talk about easy.
Sign Up Now To Get Your Account Fee Free For A Limited Time!
I’ve been using Betterment for a couple of weeks now, and I’m really enjoying using the site because it just makes everything so easy. Add money, allocate, invest. That’s how simple investing should be!
Since they now have a limited-time account bonus that will give you your account fee-free for a time, you’ll be ahead of the game right out of the gate. There’s no reason not to invest, especially if you were thinking about jumping in anyway! Sign up through the link below.
Signup Bonus When You Open A Betterment account. Click here.
Save more, spend smarter, and make your money go further
Let’s do a little investment simulation. Don’t worry—I’ll do the math.
Jane has a $5000 consumer loan and a $20,000 stock portfolio. Her net worth is $15,000. (Ah, the simple life of a person in a word problem.)
If the stock market goes up 10%, Jane makes $2,000 and her net worth goes up to $17,000 ($22,000 in the portfolio, minus the $5000 loan).
If the market goes down 10%, Jane loses $2000. Are you with me so far?
Jane decides to pay off the loan. Her net worth is still $15,000, but now it’s $15,000 in stocks and no debt. Then the stock market goes down 10%, and Jane only loses $1500. By paying off the loan (a financial nerd would call it “deleveraging”), Jane’s portfolio got less risky: The same change in the market caused a smaller change in her portfolio, even though her net worth stayed the same.
It doesn’t matter that Jane borrowed the money for a dining room set. As long as she owes the money, she’s taking on more investment risk than if she didn’t owe it. Her net worth fluctuates more with each day’s stock returns because of the debt. That’s not necessarily good or bad (maybe Jane wants to take on more risk in the hope of getting a bigger return) but it’s a mathematical fact.
This is all grade school math, right? But if we replace “consumer loan” with “mortgage,” somehow it makes otherwise intelligent people, investors and financial planners alike, forget basic arithmetic.
“Investing on mortgage”
I’ll include myself among the mathematical amnesiacs, because I only came to understand this principle because of a recent blog post by Michael Kitces, director of research for Pinnacle Advisory Group, who writes the Nerd’s Eye View blog.
The post is written with financial planners in mind, not consumers, so I’m going to summarize it as follows: If you have both a mortgage and an investment portfolio, you’re probably making a big mistake. A big, fat, Greek default-style mistake.
Let’s go back to Jane. Now she has a $100,000 mortgage, a $100,000 house, and a $200,000 stock portfolio. Her net worth is $200,000 (the portfolio plus the house, minus the mortgage). When the stock market goes up 10%, Jane makes $20,000. When it goes down 10%, she loses $20,000.
Say Jane takes $100,000 from her portfolio and pays off the house. Her net worth is still $200,000, but her portfolio has dropped to $100,000. Now when the stock market goes down 10%, Jane only loses $10,000. Her portfolio got less risky, but her net worth stayed the same. (Yes, we’re assuming remarkable stability in the real estate market.)
Jane would tell you that she wasn’t borrowing money to invest in stocks, she was borrowing money to buy a house. Well, her portfolio and her bank don’t give a hoot. As long as she owes money, her investment performance has a bigger effect on her bottom line than if she didn’t owe.
After paying off her mortgage, Jane comes to you for financial advice. She’s thinking of taking out a new fixed-rate home equity loan to plump her portfolio back up to $200,000. What is she, insane? If she’d decided not pay off her mortgage in the first place, she’d be in exactly the same position, with the blessing of most financial planners and, until recently, me.
Whether Jane knows it or not, she is borrowing against her house to invest in the stock market, and she should understand the risks.
So what?
That sounded like a lot of academic drivel, I know. But if you’re a homeowner with a mortgage, it has real implications for your financial health. Assuming you’re in a position to save money beyond your mortgage payment, you are making a scaled down version of Jane’s decision every month: Pay down the mortgage, invest for retirement, or both?
“Each and every year I get to make a conscious decision about whether I want to implicitly buy stocks on mortgage by keeping the mortgage and buying stocks,” says Kitces. Or bonds, for that matter. Look at what you’re really doing:
Using borrowed money to buy bonds is stupid. Sure, mortgage rates are low. Bond rates are lower. Would you take out a 4% mortgage to buy bonds paying 2%? Me neither.
Using borrowed money to buy stocks is dangerous. Stocks are risky. Stocks bought with borrowed money are more risky. If you walk into a reputable financial planner’s office and tell them your financial plan is to borrow a bunch of money to invest in stocks, they will sit you down and give you a parental lecture about imprudent risk-taking. But if you’re using mortgage money to juice up your portfolio, somehow that’s okay?
Implicit in the idea that it’s okay to buy stocks “on mortgage,” as Kitces puts it, is the belief that stocks will definitely outperform in the long run. Jorie Johnson, a certified financial planner in Manasquan, New Jersey, doesn’t take a client’s mortgage into account when setting up their investment portfolio for this reason. “As long as you have a reasonable expectation of doing better in the market than your mortgage interest rate, you should be putting the money in the market,” she says.
However, this a point both technical and practical. If your goal is to shoot for the moon in your retirement portfolio by ratcheting up the risk with borrowed money, there’s a cheaper way to do the same thing by maintaining a smaller, but riskier, portfolio: Pay down the mortgage, but own more stocks and fewer bonds. You’ll lower your risk of ending up with negative home equity, save on mortgage interest, and achieve the same level of portfolio risk, with the same expected returns.
“Taking on more portfolio risk is the equivalent of having less portfolio risk but more leverage,” says Don St. Clair, a certified financial planner in Roseville, California. “If you’re not willing to take some of your portfolio and pay off your debt and jack the risk of your portfolio back up, then you shouldn’t be willing to keep the same portfolio and not pay off your debt.”
The good old days
So, if you shouldn’t use borrowed money to buy stocks or bonds, what should you use it for?
Kitces just bought a house, and here’s his answer. “I’m really going to spend the bulk of the next ten years knocking this mortgage down to zero,” he says. “We are radically ratcheting down savings into investment accounts and really ratcheting up payments toward the mortgage.”
This feels intuitively wrong, doesn’t it? Everybody knows you should make retirement saving a habit and do it faithfully, month after month. Accelerating mortgage payments so you end up with a paid-off house and very little in other assets beyond an emergency fund and your 401(k) match can’t be a good idea, can it?
Just a couple of decades ago, it wasn’t just a good idea; it was conventional wisdom. “It was really straightforward: You built a giant down payment, you took on as little debt as possible, and whatever you did take on in debt, you knocked it out as quickly as possible,” says Kitces. “And when you actually got it done, you literally held a party and burned the mortgage note in your fireplace.”
Can anyone really say that isn’t still good advice? Oh, don’t explain it to me. Explain it to the Las Vegas homeowner who is $100,000 underwater. Nobody needs to be told how toxic negative equity is in 2011, right? If anything, positive home equity offers more flexibility than a 401(k) balance. “They have home equity line of credit options, the ability to move, the ability to relocate, and the financial freedom to make decisions,” says Kitces.
My money is trapped!
Now, wait a minute. Presumably, your investment portfolio is inside a 401(k) or IRA or some other box with “do not open until retirement” stamped on it. It would be crazy to pay the 10% penalty and a huge wad of taxes just to knock off a chunk of your mortgage.
I agree. So while you have a mortgage, what do you do with this money? You invest it in a way that reflects the fact that you’re playing with borrowed money. In other words, Johnny Mortgage’s portfolio should be invested heavily in bonds and cash. Remember that they’re not really bonds and cash. They’re stocks wearing disguises, because a portfolio of low-risk assets bought on leverage is still high-risk.
Even though it doesn’t often feel like it, a mortgage has an end. Later, when the mortgage is nothing but fireplace ashes, you can direct 100% of your former mortgage payment into your retirement savings.
But mortgages are special
Mortgages are weird. Nowhere else in the world of finance can you get a 30-year fixed-rate loan with tax-deductible interest and the option to refinance if rates drop. Of all the kinds of debt, I’d probably agree that this is the best one to use to invest on leverage.
That still doesn’t make mortgage debt cute and cuddly. As the 23% of homeowners who are underwater know, mortgage debt can still bite you right where it hurts. Nearly all of those homeowners would have been better off paying down the mortgage rather than investing, or just keeping their investments in cash. (Yes, I know plenty of them did neither, which compounds the injury.)
Oh, there is one last wrinkle. In most states, you can walk away from a mortgage. The bank will take your house but can’t come after your other assets. As a forward-looking strategy, however, strategic default sucks. (Sorry for the parent lecture.) “Is your strategy for wealth creation really that you should buy real estate with as much debt as you can, because if it goes badly you can stick it to the bank?” says Kitces. “I don’t think that’s really how we’re telling people to build wealth.”
What do you think? Is there any defensible reason to buy stocks or bonds “on mortgage”? Or has everyone already forgotten 2008?
Save more, spend smarter, and make your money go further
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Then and Now: The European Debt Crisis
You’ll have to forgive the overt theme of today’s post. I’ve been wanting to write about this topic for a while, but it’s such personal issue that I’ve shied away from it.
But when I realized that this week’s post would fall on Valentine’s Day, I took it as a serendipitous opportunity to break out of my comfort zone and talk about something that scares me a little: my love life. Specifically, this is the story of my love life meeting my financial life. Oh, boy.
A couple of years ago, I met someone who changed my whole perspective. I started to not just think in terms of “me” but also “we.” As these things go, we decided to share a life together. Sharing a life meant sharing an apartment. And sharing an apartment meant sharing finances.
We’ve had many discussions about money, but only one real full-blown fight. But I thought I’d share what I’ve learned about living in financial harmony and ask what you’ve learned, too. But first, a little background.
We’re balanced — usually
I’m an extreme worrier. This is with everything, but especially money. Brian is more easygoing. We’re both hard workers, but when there’s an obstacle, we react differently. When faced with a problem, Brian might let out an expletive or two, but for the most part, he doesn’t let it get to him. I, on the other hand, completely freak out.
Sometimes he should let it get to him more. And sometimes I shouldn’t freak out so much. Most of the time, we come to a reasonable middle ground, and that’s great. For example, last year, when I underestimated my tax payments and lost all my savings, I went into full-blown panic mode. His rational attitude was helpful — he explained that we would just have to tighten up the budget. He explained that, contrary to what I was feeling, this wasn’t the end of the world. “You don’t have debts to pay off,” he reassured me. “You have a job, and you can still pay your bills. You just have to rebuild.” He was reasonable, and it helped.
But there are times that I find his attitude to be too casual, and there are times that he finds my neurosis to be unreasonable. That’s our dynamic. I never really expected to make my GRS journey with someone else, but here we are, and here’s what we’re learning.
We have different financial motivators
In discussing finances with Brian, I’ve realized that my main impulse for financial independence is fear. Last month, I wrote about how I desperately need a new computer, but the poor kid in me won’t spend the money to buy a new one, even though I can afford it. Brian was the one who inspired me to think about the pitfalls of this behavior when he asked, “Why else do you save money if not to have a sense of security and be comfortable?”
When he asked that, I realized that he seeks financial independence because he wants to live a nice, comfortable life. Meanwhile, I seek financial independence because I’m terrified of being poor. That was a weird thing to learn about myself, and I’m trying to transform that fear into something healthy. But in terms of our relationship, realizing our differences helped us learn how to talk about money.
How to talk about money
It’s great that Brian has a different motivation for financial independence, but sometimes, that can backfire, too. When you’re trying to save, for example, the desire to live a comfortable lifestyle right now can get in the way.
Last year, Brian was frustrated over some bills that were much higher than he anticipated. At first, I tried to help by telling him I would “manage” his finances and budget. “I know what works,” I would tell him (this coming from the person who didn’t pay her quarterly estimated taxes). “So this is what you should do.”
I’ll admit, “Do what works for you” has been the GRS tenet I struggle with most. For one, I feel like some things just work for everyone — they’re just universally good ideas. And second, I can be unsympathetic. I forget that people have different ways of motivating themselves. And this is what caused the one full-blown fight Brian and I had about finances, in which I stormed upstairs and sulked because he wouldn’t listen to me.
“Your advice makes sense,” he said. “But I need to figure this out on my own.”
J.D. once asked how we talk to our loved ones about money. He brought up the point that “if they’re not ready to listen, you run the risk of doing more harm than good when you offer advice.”
Realizing there was only so much I could do, I decided to do two things: 1. Lead by example, and 2. Have faith in the man I chose to live with.
Lead by example
It’s easier to budget if you’re living with someone on a budget. Out of the blue one day, I caught Brian using Mint.com — a suggestion I once made that I thought had been shrugged off. Turns out, he saw me make it a part of my regular finance routine and realized this would be the easiest way to keep track of his finances, too. Sometimes, leading by example works better than lecturing, and I think that’s especially helpful in a relationship, because lecturing kind of kills romance.
Have faith
I think most of us have the capacity to come to terms with what’s best for us. But I’ve never really been the type of person who leaves it up to someone else to figure things out. I’m more of a “here just let me do it” kind of gal. But that’s not how relationships work, so I’ve learned that you have to have faith in the other person. Or, as my mom has told me, you have to have faith that you picked the right person.
Brian is both open-minded and perceptive. I had faith in those qualities when we got into that money fight. It was really all I could do for our relationship — I hate to admit it, but I had to learn to be less controlling.
Preparing for the future
I’m not sure how I feel about the phrase “When you know, you know.” Some couples hit it off immediately, get married fast, and then live together in perfect harmony. I did feel something different when I met Brian, but it was more that, as I got to know him, I grew more confident of that feeling. I see us working out whatever hurdles may arise in the future. I see us figuring out a way to combine our finances, should we decide to do that. Because we’ve gotten to know each other’s money habits and behaviors, we’ll have a better idea of what to expect from the other person in our financial future. Money is an unavoidable issue when you’re sharing a life together, but having these financial experiences and discussions makes me feel better about tackling money issues down the road.
Overall, a lot of the stuff that seems to solve money issues in relationships is the same stuff that solves relationship issues in general. We’ve learned to communicate better about money. We’ve learned to be open about our finances. We’ve learned to compromise on our budgets. We still don’t have the same spending and savings habits, but we’ve found a way to live in financial harmony.
But I’m curious what you’ve learned. This is new to me — I’ve never really shared a budget or financial information with a significant other before. So, I’d like to ask:
How did you learn to live in financial harmony with your partner? What were some obstacles you faced?
What’s your advice for preparing for a financial life together?