Friend of the blog Matt sent in a great question this week:
Hi Jesse – do you have any recommendations when it comes to life insurance? I know Term is the way to go, but that’s about all I got…
I scanned your blog posts and didn’t see anything too specific with it but if you have any guidelines for pricing or coverage recommendations, please let me know!
Matt
Matt’s Right. We Want Term!
Matt’s right. Term life insurance is the best option in 99.99% of cases.
Other types of life insurance (Whole, Variable, Universal, etc.) are bloated products that are “pushed” and “sold” far more often than they’re genuinely sought after. These products try to combine investing with insurance and end up being overpriced versions of each.
Some things aren’t worth combining!
The smarter option is to buy insurance that only acts as insurance and then use your remaining money to invest in pure investments. Term life insurance is just that life insurance product. All it does is provide money to your beneficiaries if you die. If you don’t die, it doesn’t pay. It’s simple.
But Do We Need Life Insurance?
How do we determine if someone needs life insurance?
I use the same framework I would use for anyinsurance question (home, boat, pet llama insurance, etc.).
Are you exposed to a financial risk that you could not comfortably recover from using your current asset base?
Let’s say your house burns down. Does that present a financial risk you could recover from using your current assets (cash, investments, etc)? If you answer no, then you need home insurance. (If you have a mortgage, your lender likely mandates you have insurance so they’recovered should the house burn down).
If your wedding ring got stolen, does it present a financial risk you could recover from? Personally, I wear a ~$200 tungsten carbide wedding ring. If my finger got stuck in a tragic 3-ring binder accident while compiling someone’s financial plan, I could replace that $200 ring without issue. I do not need ring insurance. Granted, the cosmetic costs of finger reconstruction might make me wish I had better health insurance…
Back to the point: that’s the framework to use! Does the downside risk present an insurmountable financial burden to you (or your beneficiaries?)
The answer for many younger readers with dependents (spouses, children) is a screaming YES. As in, “If I died and the family lost my income, it would be very financially uncomfortable for many years!”
But how much coverage do you need?
My Preferred Methods: Income Replacement and “DIME”
The two methods I prefer (and suggested to reader Matt) are the Income Replacement method and the DIME method.
Income replacement suggests you replace your income for a certain number of years, typically until your children reach a particular age or until your spouse reaches retirement age.
In my personal case, I wanted to replace my income until my youngest child (who is still technically hypothetical) is out of the house. I chose a 30-year term policy equivalent to ~20 years of my income (with a small discount rate for future years). No matter when I get hit by that proverbial bus, 20 years of income should cover my youngest child until they’re out of the house.
The DIME method adds up any outstanding debts, add in your income for a certain number of years, then adds your remaining mortgage, and finally adds on future expected education costs. Debts, income, mortgage, education.
The DIME method double-counts a few things. For example, I’m using my income to pay my debts and mortgage. I shouldn’t need to double-count them. Nevertheless, I like the idea of itemizing the biggest future expenses (college costs, mortgage payoff, etc.) and ensuring your life insurance policy can cover them.
The Best of the Rest
Other strategies I’ve seen for sizing life insurance policies include:
The Human Life Value (HLV) method. It asks an individual to consider their annual income for each year until their retirement, add in other benefits and bonuses, subtract the income used for their personal consumption, and then discount future income to today’s value.
Done correctly, this method should provide the beneficiaries with a lump sum of the resources you would have expected to provide to them over the remainder of your working life. It’s just a bit too complicated and mathematical for most people to get right.
The Budget-Based method simply multiplies your household’s monthly expenses by the number of months you expect those expenses to be maintained. It’s similar to Income Replacement, but looks at expenses rather than income.
Lastly, the “Rule of Thumb” (which I think is a poor name!) suggests you multiply your income by 10. Very much “one size fits all,” which is why I don’t like it.
Granted, one detail to note is that most life insurance sizing strategies are intentionally conservative, leading to policy sizes that are large enough during the highest-risk years but end up being too large as time goes on.
For example: a young family might need a $2M, 25-year policy on each parents. But by the time the kids are in college, that $4M of total coverage is surely too much.
Thanks for the question, Matt!
And to all of you: term life insurance is a smart financial planning move. But I hope none of you ever need to collect!
Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.
-Jesse
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The average salary across the United States sits at $63,795, per the Social Security Administration. So an income of $300,000 per year — more than four times that figure — is by most standards a great salary for a single person in 2024.
Of course, even a large amount of money can come up short if you don’t have a solid budget in place or if you lead a particularly expensive lifestyle.
Below, we’ll dive into the various considerations.
Is $300K a Good Salary?
If you’ve just been offered a job with this figure in its compensation package, you may be wondering, “Is $300,000 a good salary for a single person?”
The thing is, there’s really no one-size-fits-all answer to that question. While $300,000 per year is substantially more than most people — or even most U.S. households — make, whether or not it’s comfortable for you depends on your lifestyle choices and expectations.
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Median Income in the US by State in 2024
You may be wondering how much you make compared to your neighbors. Median yearly household income varies significantly by state, ranging from Mississippi’s $52,985 to Maryland’s $98,461. However, nowhere in America does the median household income come anywhere close to $300,000 per year.
State
Median Household Income
Alabama
$59,609
Alaska
$86,370
Arizona
$72,581
Arkansas
$56,335
California
$91,905
Colorado
$87,598
Connecticut
$90,213
Delaware
$79,325
Florida
$67,917
Georgia
$71,355
Hawaii
$94,814
Idaho
$70,214
Illinois
$78,433
Indiana
$67,173
Iowa
$70,571
Kansas
$69,747
Kentucky
$60,183
Louisiana
$57,852
Maine
$68,251
Maryland
$98,461
Massachusetts
$96,505
Michigan
$68,505
Minnesota
$84,313
Mississippi
$52,985
Missouri
$65,920
Montana
$66,341
Nebraska
$71,772
Nevada
$71,646
New Hampshire
$90,845
New Jersey
$97,126
New Mexico
$58,722
New York
$81,386
North Carolina
$66,186
North Dakota
$73,959
Ohio
$66,990
Oklahoma
$61,364
Oregon
$76,362
Pennsylvania
$73,170
Rhode Island
$81,370
South Carolina
$63,623
South Dakota
$69,457
Tennessee
$64,035
Texas
$73,035
Utah
$86,833
Vermont
$74,014
Virginia
$87,249
Washington
$90,325
West Virginia
$55,217
Wisconsin
$72,458
Wyoming
$72,495
Source: U.S. Census Bureau
Average Cost of Living in the US by State in 2024
Just as median income varies significantly depending on which state you’re in, so does the state-by-state cost of living. This means that $300,000 can go a lot further in, say, Arkansas than it would in California.
While these figures are just averages — and the state-wide cost of living can vary substantially depending on which city you live in — here’s the average cost of living in each of the 50 states:
State
Average Cost of Living
Alabama
$42,391
Alaska
$59,179
Arizona
$50,123/td>
Arkansas
$42,245
California
$60,272
Colorado
$59,371
Connecticut
$60,413
Delaware
$54,532
Florida
$55,516
Georgia
$47,406
Hawaii
$54,655
Idaho
$43,508
Illinois
$54,341
Indiana
$46,579
Iowa
$45,455
Kansas
$46,069
Kentucky
$44,193
Louisiana
$45,178
Maine
$55,789
Maryland
$52,651
Massachusetts
$64,214
Michigan
$49,482
Minnesota
$52,849
Mississippi
$39,678
Missouri
$48,613
Montana
$51,913
Nebraska
$37,519
Nevada
$49,522
New Hampshire
$60,828
New Jersey
$60,082
New Mexico
$43,336
New York
$58,571
North Carolina
$47,834
North Dakota
$52,631
Ohio
$47,768
Oklahoma
$42,046
Oregon
$52,159
Pennsylvania
$53,703
Rhode Island
$52,820
South Carolina
$46,220
South Dakota
$48,997
Tennessee
$46,280
Texas
$49,082
Utah
$48,189
Vermont
$55,743
Virginia
$52,057
Washington
$56,567
West Virginia
$44,460
Wisconsin
$49,284
Wyoming
$52,403
Source: U.S. Bureau of Economic Analysis
How to Live on $300K a Year
No matter what you earn, figuring out how to spend (and save) your money takes effort and planning. Although it may seem like, with a six-figure salary, you can just buy whatever you want, if you don’t take the time to lay out how much money you’re actually taking home each month — and how much needs to be set aside for regular, necessary expenses like housing, insurance, food, and utility bills — you could quickly find yourself eating into your savings or even spiraling into credit card debt.
A money tracker is a great way to get a bird’s-eye view of where your funds are really going. This can be a first step toward deciding where you want them to go, rather than letting them whisk themselves away.
How to Budget for a $300K Salary
Whether you’re earning an entry-level salary or sitting in the C-suite, a little bit of budgeting can go a long way. But how?
The first step in budgeting is to determine how much money you make each month, which, in the case of someone earning a $300,000 salary, is about $25,000 before taxes are taken out. Because state taxes can vary significantly, you’ll need to look at your own pay stubs or do the math to determine how much is left afterwards, also known as your “net” income.
Once you know your net income, you can begin to deduct your regular, expected expenses. These include your housing payment (like rent or a mortgage), insurance payments, utility bills, and other recurring regular expenses (like your Netflix subscription). You should also set aside a budget for required monthly expenses that may vary a bit but are still critical, like groceries and fuel, or transportation.
Now, you can subtract your monthly expenses from your monthly earnings to determine how much discretionary income you have to do with what you please, including setting aside at least some of it for savings.
Sounds like too much work to do this all on paper? Fortunately, there are plenty of budget planner apps that can make the process a breeze.
Maximizing a $300K Salary
Just because you earn a lot doesn’t mean you have to spend a lot. And if you’re careful with your over-average salary, you can save money for the future and help safeguard your lifestyle for the long run.
For example, if you saved just 10% of your $300,000 per year salary, that would be $30,000 per year into your emergency fund or investment account. Especially if you choose to invest it, that amount can really add up over a relatively short amount of time — increasing your overall net worth and potentially even giving you the opportunity to retire early!
Quality of Life with a $300K Salary
Because a $300,000 per year salary is so much higher than the average cost of living in most states, most people who earn this much will find themselves able to afford a very comfortable, high quality of living anywhere.
Of course, the money can still go further in some places than others. For instance, on $300,000, you might be able to afford a small mansion in Mississippi — or an 800-square-foot apartment in Manhattan.
Is $300,000 a Year Considered Rich?
Given that the average salary in the U.S. is about 21% of $300,000, yes, many would consider someone earning $300,000 per year by themselves to be rich.
However, in most states, you’d need to make substantially more than $300,000 per year to be in the top 1% of earners. The states where you’d come closest are West Virginia and Mississippi, where the top 1% earn at least $367,582 and $381,919 per year, respectively.
Is $300K a Year Considered Middle Class?
The amount of money you’d need to earn to be considered middle class varies depending on where you live. But according to the Pew Research Center, it’s between about $47,189 and $141,568 per year on average. Which is to say, no, $300,000 per year is not considered middle class in the vast majority of cities and scenarios.
Example Jobs that Make About $300,000 a Year
Don’t make $300,000 per year (yet), and curious about how to make the dream a reality?
You might consider opening your heart to cardiology, which, according to data compiled by SoFi, offers an average salary of $421,330 per year. Medical positions feature prominently among the top-paying jobs, with surgeons, radiologists, dermatologists, emergency medicine physicians, and anesthesiologists all earning more than $300,000 per year.
The Takeaway
A salary of $300,000 is substantially higher than the national average and certainly a “good” salary for a single person in 2024 by most peoples’ reckoning. That said, no matter how much you earn, bad financial habits can bite you in the long run, so don’t forget about your budget.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
Can I live comfortably making $300K a year?
While everyone’s standard of comfort is individual, given how much higher $300,000 per year is than the average U.S. salary, yes, most people would be able to live comfortably on $300,000 per year. Even for high earners, however, having a budget is important. Making a plan for your money helps ensure you know exactly where each dollar is going rather than watching them fly away on their own.
What can I afford with a $300K salary?
With a $300,000 salary, you could afford a lot of things, including, depending on your overall applicant profile, a home priced close to a million dollars. With a high salary and the opportunity to save up money, you could likely afford luxurious vacations or high-end toys and gadgets, too. Again, though, a higher-than-average salary doesn’t preclude you from overspending or going into debt, so be sure to make a budget that accounts for all your necessary and discretionary expenses.
How much is $300K a year hourly?
For those who work 40-hour weeks 50 weeks out of the year, a $300,000 salary comes out to an hourly rate of around $150.
How much is $300K a year monthly?
A salary of $300,000 per year, divided by 12 months, comes out to roughly $25,000 per month.
How much is $300K a year daily?
A gross annual income of $300,000 per year, divided by 365 days, comes out to about $821.92 per day. Of course, most people don’t work every single day of the year. As an estimate for the normal five-day work week, accounting for weekends and typical American public holidays, an employee might work about 250 days per year, in which case a $300,000 salary comes out to approximately $1,200 per day.
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Looking for the best ways to get free money from the government? Getting free money from the government might sound too good to be true, but there are actually several ways you can receive financial assistance. From helping with monthly expenses to finding unclaimed funds, these programs and resources can be a big help. The…
Looking for the best ways to get free money from the government?
Getting free money from the government might sound too good to be true, but there are actually several ways you can receive financial assistance. From helping with monthly expenses to finding unclaimed funds, these programs and resources can be a big help. The key is knowing where to look and meeting eligibility requirements.
This article will show you different ways to get extra money from the government. Whether you need help with your bills or want to get back money that belongs to you, there are many options for you.
Best Ways To Get Free Money From the Government
Below are the best ways to get free money from the government – for housing, children, health insurance, food, and more.
1. Apply for unemployment benefits
If you lose your job, you might be eligible for unemployment benefits. These benefits can help you cover some of your expenses while you look for a new job.
To qualify, you usually need to have worked a certain amount of time in the past year. Each state has its own rules, so you should check your state’s specific requirements.
You can apply for unemployment benefits online or by phone, and be ready to provide details about your recent jobs and earnings. This will help determine how much you can get each week.
The benefit amount is based on a percentage of your earnings from your previous job. It can range from about 40% to 60% of your past earnings. This money can be a helpful bridge while you search for new work.
Each week, you’ll need to report if you’re still unemployed and looking for a job. Some states may also ask you to document your job search activities so it’s important to follow these rules to keep receiving benefits.
Unemployment benefits probably won’t cover all your expenses, but they can make a tough time a little easier. Remember to apply as soon as you lose your job to start getting support right away.
2. Check for child tax credits
Child tax credits can be a big help for families.
You might be able to get money back from the government if you have kids such as for childcare or for just having children. The amount you can get depends on your income and the number of kids you have.
The Child Tax Credit now gives up to $2,000 for each child.
Make sure you check if you qualify for these credits. You can find out more by visiting the IRS website or talking to a tax expert.
3. Women, Infants, and Children (WIC)
The Women, Infants, and Children (WIC) program helps pregnant women, new mothers, and young children get healthy foods. This program is a great way to get extra help when you need it the most, and this is free government money for low-income families. It’s focused on keeping you and your little ones healthy and well-fed.
If you’re pregnant, you can get help right away and continue to receive it for up to six months after giving birth. If you have children, they have to be under the age of 5.
To qualify, you need to meet income guidelines and show that you are at nutritional risk. This can include being underweight or having a diet low in essential nutrients. WIC then provides monthly benefits that can be used to buy specific foods like milk, eggs, and fruits.
To apply, you need to contact your state or local WIC office (you can start by Googling “WIC + your state name”). They will tell you what documents to bring and where to go for your appointment.
4. Use SNAP for food assistance
SNAP stands for Supplemental Nutrition Assistance Program. It’s a government program that helps low-income families buy healthy food. If you qualify, you get an EBT card loaded with funds every month.
Using SNAP is easy. You can use your EBT card at most grocery stores and it works just like a debit card.
To qualify for SNAP, you need to meet certain income and other eligibility requirements. These can include having a low income based on your household size.
SNAP can be a huge help if you’re struggling to afford groceries. It allows you to buy essential foods like fruits, vegetables, meats, and dairy products.
5. Free and reduced breakfast and lunch at school
Your child may be able to get free or reduced-price meals at school through several programs, and these programs make sure kids have healthy meals every day.
The most well-known program is the National School Lunch Program (NSLP). It provides low-cost or free lunches to millions of children in public and nonprofit private schools.
Schools many times also have the School Breakfast Program. This is similar to the lunch program but focuses on providing a nutritious morning meal.
In addition to these programs, there is the Special Milk Program. This program provides milk to children who do not participate in other meal programs.
Some schools offer the Community Eligibility Provision (CEP). This allows schools in high-need areas to serve breakfast and lunch at no cost.
To find out if your child is eligible, check with your school. They can guide you through the application process and let you know what your child qualifies for.
6. Seek Temporary Assistance for Needy Families (TANF)
Temporary Assistance for Needy Families (TANF) is a government program that can help you if you’re facing hard times. It provides financial aid to families with children who are struggling to make ends meet and can help with childcare, job training, and finding work.
To apply for TANF, you need to contact your local TANF office. They will help you through the application process and let you know what documents you need.
It’s important to know that each state runs its own TANF program, so the benefits and services might vary. Be sure to ask your local office (you can also reach out to the U.S. Department of Health and Human Services) what specific help they can offer.
7. Low-Income Home Energy Assistance Program (LIHEAP)
If you need help paying your energy bills, you might qualify for the Low-Income Home Energy Assistance Program (LIHEAP). This program helps low-income households with their heating and cooling costs.
LIHEAP provides federal funds to reduce energy costs. This can include help with your energy bills and dealing with energy crises.
You can also get help making your home more energy-efficient. This is known as weatherization and might include things like adding insulation or fixing drafty windows.
8. Early Intervention and Head Start
Early Intervention services are great for families with young children who have special needs. These services help kids from birth to age three. They offer things like speech therapy, occupational therapy, and more. Most services are free, and others have a sliding scale fee. They make sure your child gets the help they need, even if you can’t pay.
Head Start programs are for kids aged three to five. They help with early learning and development. Head Start also supports families with health and dental services.
Both Early Intervention and Head Start focus on getting kids ready for school. They help children learn and grow in important ways and also support families by connecting them to resources they may need.
You can usually self-refer your child to these programs (each state has its own), or ask your pediatrician for a referral.
9. Apply for college grants
College grants are a great way to get free money for school. Unlike loans, you don’t have to pay back grants. They can help cover your tuition, books, and other school expenses.
One of the most well-known grants is the Pell Grant. For the 2023-24 school year, the maximum Pell Grant is $7,395. This grant is for students with financial need.
Another option is the Federal Supplemental Educational Opportunity Grant (FSEOG). This is for students with exceptional financial need. The amount you can get depends on your school and your financial situation.
To apply for these grants, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA helps the government determine how much aid you qualify for.
Many states and schools also offer their own grants. Check with your school’s financial aid office to see what you might be eligible for. It’s a good idea to apply for as many grants as you can.
Grants can make a big difference in paying for college, so it’s worth the effort to apply. Make sure to look for scholarships too!
10. Public Student Loan Forgiveness (PSLF) program
The Public Student Loan Forgiveness (PSLF) program can help if you work in public service. This includes jobs like teaching, nursing, firefighting, and more. If you work in these fields and have federal student loans, you may be able to get your remaining loan balance forgiven after ten years of payments.
To qualify, you must work full-time for a qualified government or nonprofit organization. You also need to make 120 qualifying monthly payments under a qualifying repayment plan. Only payments made after October 1, 2007, count toward the 120 payments required.
The program mainly benefits people who work in low-paying, but important, public service jobs. It’s a way to give back while also getting financial relief. Though the application process can be long and require careful tracking, many find the effort worth it when their loans are wiped out.
11. Claim Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) gives low- to moderate-income workers and families a tax break.
If your income is under a certain amount, you might qualify. This credit can either reduce the taxes you owe or increase your refund. For 2024, the EITC amounts can go up to $3,995, based on your income and family size.
To claim the EITC, you need to file a tax return, even if you do not owe any taxes. You should fill out Form 1040 and a Schedule EIC if you have qualifying children.
12. Get housing vouchers
Housing vouchers are a great way to get help with rent. They are commonly known as Section 8. These vouchers help low-income families, seniors, and people with disabilities afford safe and decent housing.
To get a voucher, your income must be below a certain level and this varies by location and family size.
With a voucher, you can choose any housing that meets program requirements. This gives you some freedom to pick a home that suits your needs best. The government will pay part of the rent, making it more affordable for you.
13. See if you qualify for down payment assistance
Buying a home can be tough, especially when it comes to saving for a down payment. That’s where down payment assistance programs can help prospective homeowners.
These programs come in many forms. You might find grants, loans, or other types of aid to help you with the down payment. Each state offers different programs and some are more generous than others.
To qualify, you’ll need to meet certain requirements. These can include income limits or being a first-time homebuyer.
14. Apply for Supplemental Security Income (SSI)
Supplemental Security Income (SSI) is a program that gives monthly payments to people who are disabled, blind, or over 65 and have limited income. You may get help with food, rent, and medical bills.
To apply for SSI, visit the Social Security Administration (SSA) website. There, you can find the application forms and details about the process. You may need to provide information about your finances and living situation.
The application can be done online, by phone, or in person. If you’re under 18 or applying for someone under 18, there are special forms for children.
15. Look for health insurance in the marketplace
We all know that health insurance can be very expensive. Before you skip it, I highly recommend comparing pricing of health insurance on the Health Insurance Marketplace to see if you can find something more affordable for you and your family.
It’s a great way to get coverage and possibly save money. Sometimes, if you qualify, you can get free or low-cost health insurance plans.
Go to Healthcare.gov to start, and each state has its own Marketplace, so follow the specific steps for your state. It can be a little confusing, so make sure you have no distractions and can spend some time doing this.
During the open enrollment period, you can choose a new plan or keep your current one. If you’ve had a big life event, like losing your job, you might qualify to sign up outside the usual enrollment times.
16. Medicaid
Medicaid is a state and federal program that helps people with low incomes get health care. If you qualify, you can receive free or low-cost medical services, like doctor visits, hospital stays, and even prescription drugs.
Medicaid is especially helpful for families, pregnant women, seniors, and people with disabilities.
One of the best parts is that Medicaid covers a wide range of services – you can get help with dental care, mental health services, and even long-term care.
Your income and family size usually determine if you can get Medicaid.
17. Search for unclaimed money
You might have unclaimed money waiting for you. This money comes from many sources like unpaid wages, forgotten bank accounts, or unclaimed insurance benefits.
You can check by going to unclaimed.org, the website managed by the National Association of Unclaimed Property Administrators (NAUPA).
Each state has its own database for unclaimed property. Check your state’s website to see if there is money owed to you.
Frequently Asked Questions
There are several ways you can get money from the government to help with different needs, like paying for food or getting extra support if you don’t make a lot of money.
What ways can I get money from the government?
There are many ways to get free government money. You can apply for unemployment benefits if you lose your job. Families can also check for child tax credits, which give extra money for children. Programs like WIC and SNAP can help with paying for food, and students can get free and reduced breakfast and lunch at school.
How can I get help from the government if I don’t make a lot of money?
Low-income families can use programs like WIC (Women, Infants, and Children), SNAP (Supplemental Nutrition Assistance Program), TANF (Temporary Assistance for Needy Families), LIHEAP (Low-Income Home Energy Assistance Program), and more to get help from the government if they don’t make a lot of money.
How can I borrow money from the government?
The government offers student loans for education through programs like FAFSA. Small businesses can apply for loans from the Small Business Administration (SBA). There are also some loan programs based on specific needs like starting a farm or buying a home.
What is FAFSA?
FAFSA stands for Free Application for Federal Student Aid. It’s a form that students fill out to get financial aid for college. It can help you get grants, loans, and work-study opportunities to pay for your education.
Can I borrow money from my social security benefits?
No, you cannot borrow money from your Social Security benefits. Social Security is designed to provide income during retirement or if you become disabled, so it’s not a source of loans or advance cash.
Is there free grant money for bills and personal use?
Yes, there can be grants for specific needs like paying utility bills or home repairs. You might also find grants for education, food, and health care. Check with local and federal agencies to see if you qualify for any of these grants.
How do I find out if I qualify for any government assistance?
You can visit government websites or contact local agencies. Many state and local governments have online tools to check your eligibility. It’s also helpful to reach out to community organizations that can guide you through the application process.
How To Get Free Money From the Government – Summary
I hope you enjoyed this article on the best ways to get free money from the government.
There are many ways to get free money from the government, such as for housing, to help pay for your children’s expenses, to afford health insurance, to buy food, and more.
Note: There may be changes or updates to the free government programs above. I recommend contacting the program to learn more. Also, please be sure to stay safe with your sensitive information and only use official websites (look for .gov websites and official government organization websites to start with to avoid scams).
What do you think of these free government programs? Have you ever used any of the ways above to get free money from the government?
Raleigh, the capital of North Carolina, is known for its thriving tech industry, vibrant cultural scene, and beautiful green spaces. With a mix of Southern charm and modern amenities, Raleigh attracts people from all over the country. However, living in this bustling city comes with its own set of advantages and challenges.
Whether you’re looking at a cozy apartment in Five Points or a sleek apartment in Downtown Raleigh, this article will help you weigh the pros and cons of living in Raleigh.
Fast facts about living in Raleigh
Population: Approximately 470,000 residents
Average rent: $1,368 per month for a one-bedroom apartment
Median home sale price: $441,000
Public transit: GoRaleigh provides bus services throughout the city
Public parks: Over 200 parks and green spaces for recreation and relaxation
Annual tourists: Approximately 16 million visitors each year
Restaurants: Over 1,300, offering a variety of cuisines from around the world
1. Pro: Thriving tech industry
Raleigh is part of the Research Triangle, one of the largest research parks in the world, which includes nearby Durham and Chapel Hill. This area is a hub for technology, research, and innovation, attracting major companies like IBM, Cisco, and SAS. The presence of these tech giants, along with numerous startups, provides ample job opportunities and drives economic growth in the region.
2. Con: Mixed cost of living
Overall, the cost of living in Raleigh is about 2% less than the national average, making it relatively affordable. However, there are variations within different expense categories. Housing costs are about 4% less than the national average, with the average rent for a one-bedroom apartment in Raleigh around $1,368 per month and a median home sale price of $441,000. Utilities are approximately 3% less than the national average, providing some relief in monthly expenses. Groceries are about 1% less than the national average, which can help reduce the overall cost of living. However, health care costs are significantly higher, about 12% more than the national average, which can be a notable expense for residents.
3. Pro: Excellent education
Raleigh is home to several esteemed educational institutions, including North Carolina State University (NCSU), Meredith College, and Shaw University. These institutions offer a wide range of programs and contribute to the city’s vibrant academic atmosphere. Additionally, there are various public and charter schools providing diverse educational options, including top-rated schools like Raleigh Charter High School and Wake Early College of Health and Sciences.
Raleigh also boasts a number of research centers and specialized training programs, fostering innovation and continuous learning within the community. This strong emphasis on education not only benefits students but also supports the city’s growing economy and attracts a highly skilled workforce.
4. Con: Limited nightlife options
While Raleigh offers a variety of dining and entertainment options, its nightlife scene is not as vibrant as larger cities like New York or Los Angeles. The city has a more laid-back atmosphere, with fewer late-night venues and entertainment options. Residents seeking a bustling nightlife might find the options limited, though there are still plenty of local bars, breweries, and restaurants to enjoy. For those who crave more excitement, cities like Durham and Chapel Hill offer additional nightlife options but still require a short drive.
5. Pro: Green spaces and parks
Raleigh boasts numerous parks and green spaces where residents can enjoy outdoor activities. The city is home to expansive areas like Umstead State Park and Pullen Park, providing a wide range of recreational opportunities, including hiking, biking, picnicking, and more. The city’s commitment to maintaining and expanding its green spaces contributes to a high quality of life for its residents.
Parks and trails in Raleigh
William B. Umstead State Park
Pullen Park
Dorothea Dix Park
Lake Johnson Park
Neuse River Trail
Shelley Lake Park
6. Con: Limited public transportation
While Raleigh has made improvements to its public transportation system, it still lags behind other major cities. The GoRaleigh bus system provides essential services, but the routes and schedules may not be convenient for all residents. The city has a transit score of 29, a walk score of 31, and a bike score of 39. This means that public transportation options are limited, and most daily errands require a car. This limitation can be inconvenient for those who prefer not to drive or do not own a vehicle.
7. Pro: Vibrant arts and culture scene
Raleigh offers a thriving arts and culture scene, making it an appealing destination for those who appreciate creativity and the arts. The city is home to numerous galleries, theaters, and cultural institutions, such as the North Carolina Museum of Art and the Duke Energy Center for the Performing Arts. Residents can enjoy a wide range of cultural events, including art exhibitions, live performances, and music festivals throughout the year. This vibrant cultural environment not only enriches the community but also provides ample opportunities for personal enrichment and entertainment.
8. Con: Weather extremes
Raleigh experiences all four seasons, which can mean hot, humid summers and cold, occasionally snowy winters. While some residents appreciate the variety, others may find the weather extremes challenging to manage. Summer heat waves can be uncomfortable, and winter storms can disrupt daily life, affecting transportation and causing school and work closures. The transition seasons, spring and fall, can also be unpredictable, with sudden changes in temperature and weather conditions.
9. Pro: Strong sense of community
Raleigh is known for its strong sense of community, with numerous events and festivals that bring residents together. The city hosts a variety of cultural and social events, such as the Raleigh Arts Festival and the International Festival of Raleigh, which celebrate the city’s diversity and promote community engagement. Neighborhoods in Raleigh often have active community associations and local initiatives that foster a sense of belonging and camaraderie among residents.
Neighborhoods in Raleigh
Downtown Raleigh
North Hills
Glenwood South
Cameron Village
Brier Creek
10. Con: High humidity
Raleigh’s climate, while providing beautiful weather, also means high humidity levels. The humidity can be uncomfortable, especially during the summer months when temperatures can soar. High humidity can make outdoor activities less enjoyable and lead to increased reliance on air conditioning, which can raise energy costs. Even with air conditioning as a standard feature in most homes and buildings, the persistent humidity can still be a challenge, making it harder to stay comfortable and maintain certain household items like electronics and wooden furniture.
11. Pro: Diverse food scene
Raleigh’s food scene is diverse and innovative, with a wide range of restaurants offering various cuisines. From Southern comfort food to international delights, the city has something to offer every palate. The downtown area and surrounding neighborhoods are known for their trendy eateries, food trucks, and craft breweries. Additionally, Raleigh hosts several food festivals, such as the Downtown Raleigh Food Truck Rodeo and the International Food Festival, showcasing the city’s culinary talent and diversity.
12. Con: High taxes
While North Carolina has a relatively moderate tax rate, Raleigh’s local taxes and cost of living can still be a financial consideration for residents. Property taxes in Wake County are higher than in some other parts of the state, impacting homeowners significantly. The combined state and local sales tax rate is 7.25%, which can add to the overall cost of living. Residents need to consider these factors when planning their budgets, as they can affect everything from housing affordability to daily expenses.
13. Pro: Iconic landmarks
Living in Raleigh means having iconic landmarks and cultural institutions at your doorstep. From the historic North Carolina State Capitol to the contemporary North Carolina Museum of Art, these sites contribute to the city’s unique character and charm. These landmarks offer a wealth of educational opportunities, recreational activities, and aesthetic enjoyment, making the city a delightful place to live and explore.
A budget is an important tool to help you balance your income and your spending, keep your savings on track, and help you avoid debt. But like many good things, it sometimes goes off the rails. A person might start a budget with the best of intentions but then find it hard to stick to it. Or they might encounter an emergency expense and have a hard time getting back in the groove.
Learn what the common pitfalls are and how to avoid common budgeting mistakes to help your financial life thrive.
10 Budgeting Mistakes to Avoid
Here are 10 of the most common budget mistakes people make. Get familiar with them as a way to steer clear of them.
1. Not Having a Budget
Some people make the budget error of…not having a budget at all. Maybe it seems too hard, too time-consuming, or too boring; you’d rather be watching a hot new streaming series or playing with your dog.
Nevertheless, if you don’t create and follow a budget, you’re missing out on major benefits:
• You may not save enough in your bank account for your future
• You may feel stressed about reaching your long-term goals
• You might spend beyond your means, which could land you in debt and strain on your financial resources.
Recommended: Common Financial Mistakes First-Time Parents Make
2. Not Tracking Spending
Tracking your spending can be one of the more tedious tasks required for budgeting, but it’s also an incredible, truth-revealing tool. How else would you know when you are above or below your limits? You risk blowing past your limit by overspending in some categories, meaning you’ll have less (or none) for other categories. For example, overspend on eating out, and you might have less to put toward your retirement savings. Fortunately, there are an array of expense-tracking apps (many are free) that can help simplify this process.
3. Not Having Emergency Savings
The general recommendation is to save three to six months’ worth of expenses in a dedicated emergency fund. This is money you can draw on in case of emergency medical expenses and car repairs, for instance. It also provides a cash cushion should you lose your job, giving you time to get back on your feet without going into debt.
Not having an emergency fund can torpedo your budget, requiring you to draw money from other categories to cover unexpected expenses, or requiring you to take on debt.
If you don’t have a rainy day fund yet, it may be wise to set up automatic deductions monthly. Even as little as $25 can begin building a buffer. Keep your emergency cash in a separate savings account so you aren’t tempted to touch it. And if you need to dip into the account, be sure to budget additional savings until you are able to replenish it.
4. Not Considering Cheaper Alternatives
Budgeting doesn’t necessarily mean giving things up. Sometimes it can mean looking for cheaper alternatives. For example, you could swap out a pricey gym membership for one at a more budget-friendly place instead. Instead of renewing the same car insurance you’ve always had, you could shop around online for a better deal. You might even call your credit card issuer to request a lower interest rate or try to negotiate a medical bill. All of these options can free up cash in your budget that can go toward meeting other goals.
5. Thinking That You Can’t Have Fun While on a Budget
One of the reasons people don’t budget is it can feel like a real slog and a buzzkill. They assume that in order to budget successfully, they have to give up doing things they like. However, that’s not necessarily true. While a budget ensures that your necessary expenses are taken care of first, it can also provide discretionary funds that can be used however you want, from going to see a movie to booking a weekend getaway.
You may also consider making budgeting more fun by rewarding yourself when you meet certain goals. For example, you may want to treat yourself when you pay off a credit card. Just be sure you’ve already earmarked funds to pay for your reward.
6. Saving for Too Many Things Simultaneously
Another budgeting mistake involves trying to save for too many things at once. In this situation, it’s easy to stretch yourself thin. You might start to feel like you’re spinning your wheels and are unable to follow your budget.
A solution can be to narrow your focus. To prioritize your savings, first consider wants versus needs. For example, you may want to drill down on a single need, like building an emergency savings fund, rather than upgrading your mobile phone (which is a want, after all). Once your need is taken care of, then you can consider allocating funds for a want. Delaying gratification a bit can be a valuable tool when successfully managing your money.
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7. Not Adjusting Varying Expenses Every Month
Some expenses, like rent and utility bills, are relatively fixed. Others, like how much you spend on groceries can vary from month to month. If you don’t compensate for that fluctuation, you may be making a budget mistake.
If you notice you are suddenly spending more each month in a certain category, be sure to adjust your budget accordingly, or look for ways to cut back on spending in that category. To protect yourself in times of high inflation, it can be especially important to monitor this. Your food, gas, and heating expenses may well run high for a while.
8. Not Taking Into Account One-Time Expenses
One-time expenses can be real budget busters if you don’t plan for them ahead of time. Estimate the cost of the expense, and spread out your savings over a couple of months.
For example, if you plan to attend a wedding that will cost $800, you could start saving $200 a month four months in advance so you don’t end up footing the bill all at once. Or let’s say you know you’ll be needing a set of new tires soon; start stashing away cash in advance so you don’t get hit with a major bill that sends your budget spiraling. Another category many budgeters overlook is gifts; birthday and holiday presents can add up, so remember to set aside funds to afford them without a hiccup.
9. Having an Unrealistic Budget
It’s easy to be optimistic and have the best intentions when you create your budget, but make sure it’s something you can realistically stick to. Otherwise, you may have a budget mistake on your hands.
You may be overly optimistic, for instance, if you allocate 20% of your take-home pay toward one goal. If you oversave in one area, like for a downpayment on a home, for example, it may mean that you could incur credit card debt in order to buy necessities like groceries. Be honest with yourself about how much you spend and how much you can save.
10. Having the Wrong Budget Method for You
There is no one-size-fits all budgeting strategy. As we mentioned above, there are a number of different budgeting strategies you can use to help you build and stick to your budget. The best one is the one that works for you. Just because a budget strategy sounds good when you first learn about it or your best friend swears by it doesn’t mean it will work for you. It’s a budgeting error to cling to a system that isn’t working. If the technique you are using isn’t right for you, acknowledge that, and try something else.
The Takeaway
Now you know what is a common mistake made in budgeting; 10 of them, in fact. By avoiding these pitfalls, you give yourself a better chance of sticking to your budget, saving money in your bank account, and meeting your financial goals. What’s more, you’re far less likely to be derailed by debt, and interest payments that could eat into your ability to save and manage your money.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
What are some pitfalls of budgeting?
Budgeting pitfalls that can derail your financial goals include failing to have a budget, not tracking your expenses, forgetting to account for varying monthly expenses, and not building up an emergency fund.
What is improper budgeting?
Improper budgeting can occur if your budget is incomplete, if it’s overly ambitious (not recognizing how much you actually spend, for instance), or if you don’t update it with new sources of income or expenses, you’re not budgeting correctly.
Why do people fail in budgeting?
A budget may fail for a variety of reasons, such as trying to achieve too ambitious a goal or too many goals at once; not tracking your expenses; and sticking with a budgeting strategy that doesn’t fit your needs. If the latter is the case, try multiple strategies to find the one that suits you best.
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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
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If you received a raise at work, first things first: Congratulations! Your first impulse may be to celebrate with a big purchase or party. But rather than blowing your salary bump right away, it’s wise to be strategic. Take a little time and consider how you might use that extra cash. It could help you reach some short- and long-term financial goals.
There can be a lot to consider, but keeping a few things in mind may help you figure out the best course of action.
How to Financially Handle a Pay Raise
To help you decide what to do with a pay raise, you’ll want to think broadly, and about the future. Here are a dozen tips that may help you be better informed as you make your decision about what to do when you get a raise.
1. Using It to Get Rid of Debt
Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss.
A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need. 💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
2. Using It to Build Your Emergency Fund
Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss. A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need.
3. Re-Evaluating and Updating Your Budgeting
When you get a raise, you may be wondering how to manage this extra cash. There are probably a lot of wish-list items tempting you to increase your spending. Instead of shopping, it may be a good time to reevaluate your budget to see how you can best put your money to work.
Typically, budgets recommend that you first allocate funds toward your mandatory monthly expenses like mortgage, rent and other bills. Next, don’t forget to pay down debt, followed by adding some money to your emergency stash if needed. Have you also thought about retirement funds?
Make sure to figure out how much to save every month and put some of your money to work in a 401(k) or another retirement fund. With the money that’s left, you can spend as you see fit, invest it in the stock market, make charitable donations, or decide other ways to use it.
If you need more guidance on budgeting, look online at different techniques, such as the 50/30/20 budgeting rule, or test-drive some apps that help you see where your money is going and determine how to best manage it.
4. Avoiding Lifestyle Creep
If you are contemplating what to do with a raise, one thing to sidestep is lifestyle creep. That happens when a person makes more money but also spends more of it, typically on luxuries. So if you get a raise and then rent a more expensive apartment or sign up for a luxury-car lease, that’s lifestyle creep. You have bought into some of life’s finer things, but you may wind up just breaking even. In fact, even with more money, you may feel as if you are living beyond your means.
It can be smart to try and avoid this behavior because you don’t want to spend every penny you make. That’s not a healthy financial habit; it doesn’t help you build wealth over time. Yes, you can allow yourself to enjoy some discretionary spending (more on that in a minute). But if you let lifestyle creep happen, it may be hard to make ends meet and find opportunities to save for longer-term goals.
5. Re-Evaluating Your Retirement
When you get a raise, you have a prime opportunity to increase your retirement savings. It may not sound like fun compared to taking a vacation, but allocating money this way can be a good financial strategy to reach your goals.
If you have, say, a 401(k) plan with your employer, you can increase your monthly contribution and possibly snag the employer match, too, which is akin to free money. While it may not feel like a fun use of your raise now, your future self will thank you when you see how well your retirement savings are growing.
6. Invest in Yourself
Consider how your raise might help your long-term wellbeing, your mood, and your quality of life. Would it be wise for you to get in better shape? Have you been having trouble sleeping for a while? Do you feel hungry to learn a new skill? A bit of extra money might help you resolve those situations. Sometimes, not having enough money is a common and valid reason for not doing more of this kind of self-care.
Maybe, with your raise, you can now afford to take a few fitness classes and learn some moves you can do on your own. Perhaps you can work with a therapist on what’s keeping you up at night. Or maybe it would bring you joy to take some guitar lessons or pursue a continuing-ed class in a topic that has always fascinated you. Putting a portion of your raise to work this way can be rewarding on so many levels. 💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
7. Considering Inflation
Inflation has been very much in the spotlight lately. In recent years, inflation has reached highs not seen in decades. When inflation is high, your purchasing power declines. Simply put, your dollar doesn’t go as far.
If you get a raise during a period of high inflation, do the math. If you receive a 5% raise and inflation is 3.6%, then you are staying (just barely) ahead in terms of your finances. That raise is helping to protect your money against inflation but unfortunately it won’t stretch much further. This perspective is good to keep in mind so you don’t overspend and wind up with debt.
8. Preparing for Taxes
Getting a bump in your salary may impact your tax liabilities; it may nudge you into a higher tax bracket. If this is the case, your tax rate will rise, and you may need to pay out a higher percentage in taxes. Typically, this will only take your effective tax rate up a couple of percentage points, but it can make a difference to your bottom line.
To offset that, you may want to adjust your withholdings with your employer. If more money is withheld during the year, you could owe less or get a refund at tax time. This could help you avoid an unpleasant surprise (namely, a tax bill) come April.
9. Saving up More for a Large Expense
Are you saving for a vacation, a wedding, a home renovation, or a new car? If you have a big-ticket item on the horizon, you may want to put part of your raise towards that goal. It can be a good move for your finances in the long-run. The extra money can help you afford what you are saving toward. You can sidestep debt as you make your dream a reality. By doing so, you’re likely improving your credit and building wealth — it’s a win-win situation.
10. Investing Your Money
Investing your hard-earned money is historically one of the best ways to build wealth. For some, that can be a good reason to allocate some of your raise to increasing their investments.
A good place to start is by creating an investment portfolio with stocks, bonds, exchange-traded funds (ETFs) and other assets. This can be a vital part of making your financial plan.
11. Funding and Starting a Side Hustle
If you dream of building your own business from a hobby someday, you could use money from your raise to start a side hustle. If, say, you love making pastry, you might invest in cookware that will take your game up a notch. Or if creating apps is your passion, perhaps there’s a weekend class that could boost your skills. Keep tabs on how much money you allocate toward this side hustle and make sure these funds put you on a path to building a business.
12. Enjoying Your Financial and Career Successes
Many of these tips for using your raise wisely revolve around paying down debt, achieving long-term financial goals, and building wealth. But of course, do use a portion of your raise to reward yourself. You’ve received a financial award because of your hard work and dedication. You deserve to treat yourself! Whether that means having a fantastic dinner out with a couple of close friends or buying a coat you’ve been eyeing for a while now, you should find a way to mark this happy moment.
Managing Your Finances with SoFi
Getting a raise is an exciting life event. It shows that your hard work has paid off and your career is making progress. But it also means that you need to make some decisions about what to do with your money – it can be both exciting, and nerve-wracking.
Making some smart decisions about saving, investing, or even investing in yourself may be a good path. But again, it’ll come down to you, your goals, and your preferences. It may be helpful to speak with a financial professional, too.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
How do I avoid spending too much after I get a raise?
Create and stick to a budget. Even though you are making more money, you still have to be conscious over where your cash goes and avoid lifestyle creep, which involves spending more as you earn more. This can make it harder to achieve your financial goals.
Is it okay to treat myself when I get a raise?
It’s definitely reasonable to treat yourself when you get a raise; you earned it! But it’s not a habit that you want to get out of hand. You want to make sure you’re spending within your means and not accumulating debt.
Can a pay raise be a negative?
A raise can potentially be a negative if you spiral into unreasonable spending. You could wind up with debt to deal with. Also, take note if your raise pushes you into a higher tax bracket, which still means you’re making more money, but you’d be paying a higher tax rate on a portion of your earnings.
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The amount of money a couple needs for retirement can depend on several factors, including age, health, life expectancy, location, and desired lifestyle. There’s no exact number that represents what is a good monthly retirement income for a couple, as every couple’s financial needs are different.
Creating a retirement budget and considering what might affect your cost of living can help you narrow down how much monthly income you’ll need. You can use that as a guide to decide how much you’ll need to save and invest for retirement.
How Being a Couple Affects Your Income Needs
Being the main breadwinner in a couple usually increases the amount of income you’ll need for retirement, since you’re saving for two people instead of one. The money you save has to be enough to last for your lifetime and your spouse or partner’s, so that neither of you is left without income if you outlive the other.
Aside from differences in life expectancy, there are other factors that affect a couple’ income needs, including:
• Lifestyle preferences
• Estimated Social Security benefits
• Target retirement dates for each partner
• Part-time work status of each partner in retirement
• Expected long-term care needs
• Location
All of those things must be considered when pinpointing what is a good monthly retirement income for a couple. The sooner you start thinking about your needs ahead of retirement, the easier it is to prepare financially.
It’s also important to keep in mind that numbers to be used for the sake of comparison can vary widely. Consider this:
• According to the Pension Rights Center, the median income for fully retired people aged 65 and older in 2023 was $24,190.
• The average income after taxes for older households in 2022 was $63,187 per year for those aged 65–74 and $47,928 per year for those aged 75 and older, according to U.S. News Money.
💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.
What to Consider When Calculating Your Monthly Income
One couple’s budget for retirement may be very different from another’s. A budget is simply a plan for spending the money that you have coming in.
If you’re wondering how much to save each month, it’s helpful to start with the basics:
• What do you expect your retirement expenses to be each month?
• How much income will you have for retirement?
• Where will this income come from?
It’s also important to consider how your retirement income needs may change over time and what circumstances might impact your financial plan.
Spending May Not Be as Low as You Think
Figuring out your monthly expenses is central to determining what is a good monthly retirement income. According to the Bureau of Labor Statistics, the typical household age 65 and older has annual expenditures of $72,967. That breaks down to monthly spending of about $6,080 per month. The largest monthly expense is typically housing, followed by transportation and food. If you’re planning to live frugally in retirement, spending, say, under $50,000 a year may sound achievable, but it’s not a realistic target for every couple.
For one thing, it’s all too easy to underestimate what you’ll spend in retirement if you’re not making a detailed budget. For another, inflation during retirement can cause your costs to rise even if your spending habits don’t change. That fact needs to be recognized and budgeted for.
Spending Doesn’t Stay Steady the Whole Time
It’s a common retirement mistake to assume spending will be fixed. In fact, the budget you start out with in retirement may not be sustainable years from now. As you get older and your needs or lifestyle change, your spending habits will follow suit. And spending tends not to be static from month to month even without events to throw things off.
You may need less monthly income over time as your costs decrease. Spending among older Americans has been found to be highest between ages 55 and 64 and then dip, according to Social Security reports.
It’s very possible, however, that your monthly income needs may increase instead. That could happen if one of you develops a serious illness or requires long-term care. According to Genworth Financial’s 2023 Cost of Care survey, the monthly median cost of long-term care in a nursing facility ranged from $8,669 for a semi-private room to $9,733 for a private room.
Expenses May Change When One of You Dies
The loss of a partner can affect your spending and how much income you’ll need each month. If you decide to downsize your home or move in with one of your adult children, for example, that could reduce the percentage of your budget that goes to housing. Or if your joint retirement goals included seeing the world, you may decide to spend more money on travel to fulfill that dream.
Creating a contingency retirement budget for each of you, along with your joint retirement budget, is an opportunity to anticipate how your spending needs might change.
Taxes and Medicare May Change in Your Lifetime
Taxes can take a bite out of your retirement income. Planning for taxes during your working years by saving in tax-advantaged accounts, such as a 401(k) or IRA, can help. But there’s no way to predict exactly what changes might take place in the tax code or how that might affect your income needs.
Changes to Medicare could also change what you’ll need for monthly income. Medicare is government-funded health insurance for seniors age 65 and older. This coverage is not free, however, as there are premiums and deductibles associated with different types of Medicare plans. These premiums and deductibles are adjusted each year, meaning your out-of-pocket costs could also increase.
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Common Sources of Income in Retirement
Having more income streams in retirement means you and your spouse or partner are less reliant on any single one to pay the bills and cover your expenses. When projecting your retirement income pie-chart, it helps to know which income sources you’re able to include.
Social Security
Social Security benefits may be a central part of your income plans. According to the Social Security Administration (SSA), a retired worker received $1,845 in benefits and the average spouse of a retired worker netted $886 during the most recent year reviewed.
You can expect Social Security to cover some, but not all, of your retirement expenses. It’s also wise to consider the timing for taking Social Security benefits. Taking benefits before your full retirement age, 65 or 67 for most people, can reduce the amount you’re able to collect.
Retirement Savings
Retirement savings refers to money saved in tax-advantaged accounts, such as a 401(k), 403(b), 457 plan, or Thrift Savings Plan (TSP). Whether you and your partner have access to these plans can depend on where you’re employed. You can also save for retirement using an Individual Retirement Account (IRA).
Tax-advantaged accounts can work in your favor for retirement planning, since they yield tax breaks. In the case of a 401(k) plan, you can also benefit from employer matching contributions that can help you grow your savings faster.
Annuities
An annuity is a contract in which you agree to pay money to an annuity company in exchange for payments at a later date. An immediate annuity typically pays out money within a year of the contract’s purchase while deferred annuities may not begin making payments for several years.
Either way, an annuity can create guaranteed income for retirement. And you can set up an annuity to continue making payments to your spouse for the duration of their lifetime after you pass away.
Other Savings
The other savings category includes money you save in high-yield savings accounts, money market accounts, and certificate of deposit accounts (CDs). You could also include money held in a taxable brokerage account in this category. All of these accounts can help to supplement your retirement income, though they don’t offer the same tax advantages as a 401(k) or an IRA.
Pensions
A pension is an employer-based plan that pays out money to you based on your earnings and years of service. Employers can set up pension plans for employees and make contributions on their behalf. Once you retire, you can take money from your pension, typically either as a lump sum or a series of installment payments. Compared to 401(k) plans, pensions are less commonly offered, though you or your partner may have access to one, depending on where you’re employed.
Reverse Mortgages
A reverse mortgage can allow eligible homeowners to tap their home equity. A Home Equity Conversion Mortgage (HECM) is a special type of reverse mortgage that’s backed by the federal government.
If you qualify for a HECM, you can turn your equity into an income stream. No payment is due against the balance as long as you live in your home. If your spouse is listed as a co-borrower or an eligible non-borrower, they’d be able to stay in the home without having to pay the reverse mortgage balance after you die or permanently move to nursing care.
Reverse mortgages can be used to supplement retirement income, but it’s important to understand the downsides as well. Chief among those are:
• Interest will accrue: As interest is applied to the loan balance, it can decrease the amount of equity in the home.
• Upfront expenses: Funds obtained from the loan may be reduced by upfront costs, such as origination, closing, and servicing fees, as well as mortgage insurance premiums.
• Impact on inheritance: An HECM can cause the borrower’s estate to lose value. That in turn can impact on the inheritance that heirs get.
How to Plan for Retirement as a Couple
Planning for retirement as a couple is an ongoing process that ideally begins decades before you’ll actually retire. Some of the most important steps in the planning process are:
• Figuring out your target retirement savings number
• Investing in tax-advantaged retirement accounts
• Paying down debt (a debt payoff planner can help you track your progress)
• Developing an estate plan
• Deciding when you’ll retire
• Planning for long-term care
You’ll also have to decide when to take Social Security benefits. Working with a financial advisor can help you to create a plan that’s tailored to your needs and goals.
Maximizing Social Security Benefits
Technically, you’re eligible to begin taking Social Security benefits at age 62. But doing so reduces the benefits you’ll receive. Meanwhile, delaying benefits past normal retirement age could increase your benefit amount.
For couples, it’s important to consider timing in order to maximize benefits. The Social Security Administration changed rules regarding spousal benefits in 2015. You can no longer file for spousal benefits and delay your own benefits, so it’s important to consider how that might affect your decision of when to take Social Security.
To get the highest benefit possible, you and your spouse would want to delay benefits until age 70. At this point, you’d be eligible to receive an amount that’s equal to 132% of your regular benefit. Whether this is feasible or not can depend on how much retirement income you’re able to draw from other sources.
Recommended: Does Net Worth Include Home Equity?
The Takeaway
To enjoy a secure retirement as a couple, you’ll need to create a detailed financial plan with room for various contingencies. First, determine your retirement expenses by projecting costs for housing, transportation, food, health care, and nonessentials like travel. Then consider all sources of retirement income, such as Social Security, retirement accounts, and pensions, and budget well.
If you want a simple way to track your progress, SoFi can help.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
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FAQ
What is the average retired couple income?
Figures vary. According to the Pension Rights Center, the median income for fully retired people aged 65 and older in 2023 was $24,190. The average income after taxes for older households in 2022 was $63,187 per year for those aged 65–74 and $47,928 per year for those aged 75 and older, according to US News Money.
What is a good retirement income for a married couple?
A good retirement income for a married couple is an amount that allows you to live the lifestyle you desire. Your retirement income should also be enough to last for your lifetime and your spouse’s.
How much does the average retired person live on per month?
According to the Bureau of Labor Statistics, the typical household age 65 and older has annual expenditures of $72,967. That breaks down to monthly spending of about $6,080 per month. Many factors, however, can impact a particular household’s spending and the amount of money they need to feel secure.
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Refinancing a mortgage is a decision that can have a significant impact on your financial journey. It’s a process where you replace your existing mortgage with a new one, often with different terms and interest rates.
This move can potentially save you money, adjust your payment schedule, or allow you to tap into your home’s equity. However, it’s not a decision to be taken lightly. Refinancing comes with its own set of closing costs and considerations that need careful evaluation.
In this article, we’ll dive deep into the world of mortgage refinancing. We’ll explore the reasons why refinancing might be a good idea, the different types of refinancing options available, and, importantly, the closing costs associated with the process.
Whether you’re looking to lower your monthly payment, change your mortgage type, or access some cash, it’s essential to understand the nuts and bolts of refinancing. We aim to provide you with the knowledge and tools needed to make an informed decision about whether refinancing your mortgage aligns with your financial goals.
Why refinance a mortgage?
Homeowners might consider refinancing their mortgage for various compelling reasons. Each situation is unique, but there are a few common motivators that lead many to explore the refinancing path. Understanding these reasons can help you assess whether refinancing aligns with your financial objectives.
Lower interest rates: Perhaps the most straightforward reason to refinance is to take advantage of lower interest rates. When interest rates drop, refinancing can lead to significant savings, both in terms of monthly payments and the total interest paid over the life of the loan.
Switch from ARM to fixed-rate mortgage: If you currently have an Adjustable-Rate Mortgage (ARM), you might face uncertainty regarding future payment amounts. Refinancing to a Fixed-Rate Mortgage locks in a consistent interest rate, bringing stability and predictability to your payments.
Cashing out equity: For homeowners who have built up substantial equity in their homes, a cash-out refinance can be a way to access that capital. This option allows you to borrow more than what you owe on your current mortgage and use the difference for other financial needs, such as home improvements, debt consolidation, or education expenses.
Altering loan terms: Some homeowners might refinance to change the terms of their loan. Whether it’s extending the loan duration to lower monthly payments or shortening it to pay off the mortgage faster, refinancing can adjust the loan to better fit current financial situations and goals.
Debt consolidation: Refinancing can also be a strategic move to consolidate debt. By rolling high-interest debts into a mortgage with a lower rate, you can simplify your finances and potentially reduce overall monthly expenses.
Eliminating private mortgage insurance (PMI): If your home value has increased, refinancing might allow you to drop PMI, which is typically required when your down payment is less than 20% of the home’s value. This can lead to substantial savings over time.
Each of these reasons reflects a different financial need or goal. Refinancing a mortgage can be a powerful tool, but it’s essential to weigh the benefits against the costs and long-term implications. The right choice depends on your personal circumstances and financial objectives.
Types of Refinancing Options
Refinancing your mortgage isn’t a one-size-fits-all solution. There are several types of refinancing options available, each with its own set of features, benefits, and drawbacks. Understanding these can help you determine which option best suits your financial needs and goals.
Cash-Out Refinance
A cash-out refinance allows you to replace your existing mortgage with a new loan for more than you owe on your home. The difference is paid to you in cash, which can be used for various purposes like home renovations, debt consolidation, or other financial needs.
Pros:
Access to cash for large expenses.
Potential to secure a lower interest rate than your current mortgage.
Consolidates debt into a single payment, often at a lower rate.
Cons:
Increases the amount you owe, potentially extending the time to pay off your mortgage.
Can lead to higher interest costs over the life of the loan.
Requires sufficient home equity to qualify.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit that lets you borrow against the equity in your home. It works similarly to a credit card, where you can draw funds as needed and pay them back over time.
Pros:
Flexible access to funds; borrow as much or as little as needed.
Only pay interest on the amount you draw.
Can be a lower-cost option for accessing home equity.
Cons:
Variable interest rates can increase over time.
Temptation to overspend due to easy access to funds.
Could put your home at risk if you cannot repay the borrowed amount.
ARM to Fixed-Rate Mortgage Refinance
This type of refinancing involves switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. It offers a stable interest rate and a predictable monthly mortgage payment for the life of the loan.
Pros:
Stability and predictability in monthly payments.
Protection against rising interest rates in the future.
Easier budgeting and financial planning.
Cons:
May come with a higher interest rate than the initial rate of an ARM.
Closing costs and refinance fees.
Fixed-rate might be higher than current ARM rates if interest rates are rising.
Each refinancing option serves different financial scenarios and objectives. So, analyze your financial situation, consider the long-term implications, and perhaps talk to a financial advisor to choose the most appropriate path for your needs.
Understanding Mortgage Refinance Closing Costs
When considering refinancing your mortgage, be aware of the various fees and costs involved. Each of these costs plays a role in the overall financial equation of refinancing, and they can vary significantly based on your lender, loan terms, and even geographic location.
As a general rule of thumb, expect to pay around 2% – 6% of your loan balance in closing costs. This percentage can give you a ballpark figure to start with when estimating the expenses involved in your refinancing process.
Application Fee
This is a charge by the lender for processing your new mortgage application. It generally ranges from $75 to $300 and covers the cost of credit checks and administrative expenses.
Loan Origination Fee
Often the most significant cost, the origination fee, is charged by the lender for evaluating and preparing your mortgage loan. It’s typically calculated as a percentage of the loan amount (ranging from 0% to 1.5%). This fee can vary greatly among lenders, so it’s wise to compare offers.
Points
Points, also known as discount points, are optional fees paid at closing to reduce your interest rate. Each point is typically equal to 1% of the loan amount. While this can save you money over the life of the loan, it increases your upfront costs.
Appraisal Fee
This fee, ranging from $300 to $700, pays for a professional appraisal of your home to assess its current value. Lenders require this to ensure the loan amount is not more than the home’s worth.
Inspection Fee
Ranging between $175 to $350, this fee covers the cost of a professional inspection of the property to identify any structural or mechanical issues.
Attorney Review/Closing Fee
This fee, usually between $500 to $1,000, is for the services of an attorney or a title company during the closing process to ensure all legal documents are correct and in order.
Homeowner’s Insurance
If you’re not already insured, or if additional coverage is needed, this cost can range from $300 to $1,000. It ensures the property is insured before the lender approves the refinancing.
FHA, VA, or Private Mortgage Insurance Fees
For certain loan types, like FHA or VA loans, there are specific fees or insurance premiums. For example, FHA loans include a 1.5% upfront fee and a yearly premium. VA loans have a funding fee that varies based on the loan type and down payment.
Title Search and Title Insurance
Costing between $700 to $900, this covers the title search and insurance, ensuring there are no liens or problems with the ownership of the property.
Survey Fee
If required, this fee ranges from $150 to $400 and pays for a survey to confirm the property’s boundaries and structure.
Prepayment Penalty
Not all loans have this, but some might charge a prepayment penalty for paying off your current mortgage early. This could range from one to six months of interest payments.
Each of these fees contributes to the total cost of refinancing your mortgage. To get a clear picture of how much refinancing will cost you, it’s important to obtain detailed estimates from potential lenders and consider how these costs weigh against the potential savings or benefits of refinancing.
State and Lender Variability in Closing Costs
The closing costs associated with refinancing a mortgage can vary significantly depending on your location (state) and the lender you choose. This variability is influenced by local regulations, market conditions, and individual lender practices.
By state: Different states have varying regulations and fees, which can affect the overall closing costs. For instance, states with higher real estate values or specific local taxes and fees might have higher refinancing costs.
By lender: Lenders have different pricing models. Some may offer lower interest rates but charge higher closing costs, while others might have higher rates but lower upfront fees or offer to waive certain charges.
Real-Life Examples and Case Studies
To better understand the impact of refinancing, let’s explore a few real-life scenarios. These examples will highlight how different refinancing options can play out financially.
Scenario 1: Lowering Interest Rates
John and Sarah’s Story:
Original mortgage: $200,000 at 5% interest, 30-year term.
Refinanced mortgage: $200,000 at 3.5% interest, 30-year term.
Outcome: By refinancing to a lower interest rate, they reduced their monthly payment and will save $55,000 in interest over the life of the loan.
Scenario 2: Switching from ARM to Fixed-Rate
The Smiths’ Experience:
Original mortgage: $250,000 5/1 ARM starting at 3%.
Refinanced mortgage: $250,000 30-year fixed at 4%.
Outcome: Although they faced a higher interest rate initially, the Smiths secured predictable monthly payments, protecting them from potential rate increases in the future.
Scenario 3: Cashing Out Equity for Home Improvements
Alex’s Decision:
Original mortgage: $150,000 remaining on a home valued at $300,000.
Refinanced mortgage: $200,000 with cash-out of $50,000.
Use of funds: Alex used the $50,000 to renovate the kitchen and bathrooms, increasing the home’s value.
These examples illustrate how refinancing can serve different needs, from reducing payments to accessing equity. The right choice depends on personal financial situations and long-term goals.
The Impact of Credit Score on a Mortgage Refinance
Your credit score plays a major role in refinancing. It affects not only your ability to qualify for refinancing, but also the interest rates you’ll be offered.
How Credit Scores Affect Refinancing:
Higher scores, lower rates: The higher your credit score, the lower the interest rates lenders are likely to offer. A strong credit score signals lower risk to lenders.
Qualification thresholds: Some refinancing options have minimum credit score requirements. Falling below these can limit your options or result in higher interest rates.
Tips for Improving Credit Scores Before Refinancing:
Check your credit report: Obtain a free report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) to check for errors or inaccuracies.
Pay down debts: Lowering your overall debt can improve your credit utilization ratio, a key factor in credit scores.
Make timely payments: Ensure all your bills and existing loan payments are up-to-date. Late payments can significantly harm your credit score.
Limit new credit applications: Each new application can cause a small, temporary dip in your credit score.
Address delinquencies: If you have any delinquencies or collections, try to resolve them. These have a major negative impact on your score.
By understanding and improving your credit score, you can position yourself for better refinancing options and terms. Remember, refinancing is a tool that, when used wisely, can align with and enhance your financial strategy.
The Refinancing Process
Refinancing a mortgage involves several steps. Here’s a general outline of the process:
Assess your financial situation: Start by reviewing your current mortgage, home equity, credit score, and overall financial goals to determine if refinancing is a beneficial move for you.
Gather necessary documents: Prepare important documents such as recent pay stubs, tax returns, bank statements, and details of your current mortgage.
Shop around for lenders: Research various lenders to compare interest rates, fees, and terms. Don’t limit your search to just your current lender; consider banks, credit unions, and online lenders.
Get a credit check: Lenders will review your credit history and score. Remember, your credit score can significantly impact the interest rate offered.
Apply for refinancing: Once you’ve chosen a lender, complete their application process. This will typically involve submitting your financial documents and possibly paying an application fee.
Lock in your interest rate: When you receive a favorable interest rate, consider locking it in to protect against market fluctuations during the processing of your refinance.
Home appraisal: Most lenders will require a home appraisal to determine the current value of your property.
Underwriting: The lender will review your application, financial documents, and home appraisal to make a final decision on your loan approval.
Closing: If approved, you’ll proceed to closing, where you’ll sign the new mortgage agreement. This will involve paying closing costs and any other fees.
Settle old mortgage: Your new lender will use the funds from the refinance to pay off your existing mortgage.
Begin new mortgage payments: Once the refinance is complete, you’ll start making payments on your new mortgage according to the agreed terms.
Remember, the refinancing process can vary in length and complexity based on individual circumstances and the lender’s requirements. It’s important to ask questions and understand each step to make informed decisions throughout the process.
Conclusion
The decision to refinance your mortgage is significant and multifaceted. It’s essential to weigh the potential benefits, such as lower interest rates or altered loan terms, against the costs and implications that come with refinancing. Each homeowner’s situation is unique, and what may be advantageous for one may not be the best choice for another.
Understanding the impact of your credit score on refinancing options, the variability in closing costs by state and lender, and the specific steps involved in the refinancing process are key to making the right decision. Remember, refinancing is more than just securing a lower interest rate; it’s about aligning the decision with your overall financial goals and long-term plans.
Before taking the leap, consider all these factors carefully. Consulting with financial advisors or mortgage specialists can provide additional clarity and guidance tailored to your personal circumstances. Refinancing can be a powerful financial move when done for the right reasons and under the right conditions, but you must take the time to fully understand and prepare.
“As Montanans face more economic challenges due to inflation, it can weigh heavily on our most vulnerable populations, including senior citizens,” Cheryl Cohen, division administrator for the housing division at the Montana Department of Commerce and executive director of the Montana Board of Housing, wrote in a recent op-ed.
“Housing costs are soaring across the nation, thanks in part due to a lack of supply keeping up with demand. While many Montana seniors own their own homes and have little or no remaining mortgage debt, they struggle to make ends meet on fixed incomes.”
This is where the RAM program can come into play. Cohen describes the program as overseeing “low-interest rate loans [which] allow senior homeowners to benefit from an additional income source from their home equity while offering the financial flexibility they need to continue living at home.”
Differences with HECM
HousingWire’s Reverse Mortgage Daily (RMD) submitted questions to Montana’s Department of Commerce about the RAM program and received responses from a spokesperson.
In terms of how the RAM program aims to solve issues that a Home Equity Conversion Mortgage (HECM) might not address, the department said that many of the goals are the same but that the RAM program may come with more flexibility on qualifications.
“The Montana Board of Housing’s RAM program provides interest rates that are competitive or lower with requirements that are simple and easy to understand,” the spokesperson said. “Board staff and participating counselors work closely with the borrowers helping to set up the reverse mortgage with closing costs often several hundreds to thousands of dollars less than similar programs.”
These closing costs are limited to the “actual charges from the appraisals and title companies with no administrative costs added by the Board,” and the administration of the reverse mortgage itself is handled by state housing staff “who can easily be personally contacted for any questions or assistance. The Montana Board of Housing is administratively attached to the Montana Department of Commerce,” the spokesperson said.
Additionally, Cohen explained in her op-ed the different types of proceeds available for RAM borrowers.
“The RAM program helps senior Montana homeowners with monthly payments back to them to manage everyday expenses while living in their homes,” she said. “Eligible homeowners can borrow a minimum of $15,000 up to a maximum of $150,000. The maximum loan amount is determined based on 80 percent of the FHA-determined value of the home.
“Additionally, lump sum advances are available at loan closing, and up to $10,000 is available for payment of prior mortgages, liens and pledges or for accessibility improvements and other home repairs.”
Longer retirements
The loan values for the HECM program are generally larger depending on the age of the borrower and the value of the home, with the HECM limit in 2024 topping $1.1 million. The minimum qualifying age for a HECM is 62 years, while the minimum for the RAM program is 68. There’s a reason for this, the spokesperson said.
“With Montana’s elderly population growing and living longer, we find that even with an age limit of 68, many of our borrowers outlive the 10 years of payments allocated,” the spokesperson explained. “Providing loans to a younger population may add to financial issues as more participants outlive those payments.”
The program’s availability is also subject to the financial disbursements the state Legislature gives to the department itself. The origination process also has similarities to the HECM program, with some state-specific requirements.
“Applicants must go through trained RAM counselors from the non-profit sector before qualifying for our financing,” the spokesperson stated. “Once they’ve completed the session, housing staff work with the participant to determine needs and financing availability. Staff assist in obtaining an appraisal and in closing the loan and setting up payments. The Montana Board of Housing is the only entity to provide this service.”
Renewed communication efforts
As for why the state is interested in spreading more awareness about the RAM program now, the spokesperson cited the economic circumstances faced by the state’s seniors as a key reason.
“The board hopes to increase knowledge of this program for the elderly in Montana and offer this option to help with costs that surpass what can be paid by social security or other pension receipts,” they said. “Since the RAM proceeds don’t need to be paid back until the home is vacated, additional funds become available without incurring further debt. We hope those monthly payments provide peace of mind and assist in our RAM participants’ quality of life.”
That being said, the reputational issues faced by the wider reverse mortgage industry have also been faced by the RAM program, which may have depressed consumer demand, according to both Cohen and the department’s spokesperson.
“Reverse Annuity Mortgages scare some seniors because of scams that have taken place by some providers of such financing,” the spokesperson said. “For this reason, we require counseling and have staff available to speak directly with participants and their families about any issues they may have. Payments we can provide often cover costs of medications or shortfalls concerning income to help pay monthly expenses for food or utilities.”
The spokesperson also mentioned a borrower’s success story granted by the program.
“One borrower mentioned to staff that she was having to sell her furniture a piece at a time to help pay for her medication but was able to stop when she started receiving the RAM monthly payments,” they said.
Have you always dreamed of owning your own home? It’s not an uncommon goal. But one of the greatest challenges is saving up enough for a down payment.
Does this mean you’ll have to wait several years to buy a home? Not quite. Read on to discover the best ways to save up for a down payment.
How to Save for Down Payment on a House
Before you begin saving for a down payment on a house, you need to know how much house you can afford. There are several things you will need to plan for. Your monthly mortgage payment will include the following:
Mortgage principal and interest
Real estate taxes
Private mortgage insurance (PMI)
Homeowners insurance
Homeowners’ Association (HOA) fees, if any.
You will also have closing costs and possibly moving expenses.
Furthermore, remember that for a conventional mortgage, you’ll typically need to save up to 20% of a home’s purchase price for a down payment. That means you’ll likely need to come up with tens of thousands of dollars.
1. Make a Plan
Making a plan can be helpful in saving money, even if you are unsure of where the funds will come from. It allows you to set a timeline for reaching your savings goals and helps to keep you motivated. Additionally, having a plan can help you track your progress and make measurable progress towards your financial goals.
To illustrate, if you need to save $6,000 in 12 months for a down payment, you must find a way to come up with $500 each month.
Some may be able to do this by cutting a few expenses. Others may have to get creative and find other ways to earn money. Either way, breaking it down into small chunks makes meeting the goal a lot more workable.
So, start by figuring out how much you need, come up with a plan, and execute. And remember that discipline is a must. If you have the right mindset and commit to the plan, you’ll be closing on your new home in no time.
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2. Prepare for the Unexpected
Life happens, and sometimes those unexpected occurrences can wreak havoc on your finances. This makes it near impossible to achieve your savings goals. But you can cut the chances of this happening by creating a safety net before you start saving for a down payment. That way, your dreams of buying a home won’t crash and burn if a financial emergency comes up.
3. Pay Yourself First
Have you ever tried saving money at the end of the month only to have your plans go up in smoke? It usually goes a little something like this: you make a budget for the month and vow to follow it line by line. And whatever is remains at the end of the month gets deposited into your savings, CD, or money market account.
Sounds good, but that’s not typically how it goes. A more realistic chain of events: you create a budget and all is well until life happens. By the end of the month, your wallet is empty and you’re awaiting the next paycheck.
We’re talking about saving up thousands of dollars for a down payment fund. For this reason, you want to save money at the beginning of the month or pay yourself first. This ensures a busted budget doesn’t get in the way of saving up for a down-payment on a home.
4. Start a Side Hustle
Starting a side hustle can be a great way to earn extra money and save for a down payment on a house. If you have a particular skill or talent, you may be able to offer your services as a freelancer or independent contractor. This could include writing, design, photography, or any other service that you have experience in and can offer to others.
You might also consider starting a small business on the side, such as selling handmade crafts or offering a service like pet sitting or tutoring. This allows you to diversify your income streams and potentially increase your overall earning potential.
5. Make It Fun
Did you discover a brand-new savings challenge at the beginning of the year? You don’t have to wait until the new year to partake in the fun. Put a savings challenge in place now to help accomplish your goal. A few ideas:
Gather a group of friends to join in as you embark on the challenge. You can come up with some sort of small incentive to award the person who reaches their target goal the fastest. Even if you don’t win, having that sort of accountability will help reach your goals faster.
Keep the change. You won’t get very far saving coins from transactions. But committing to saving every $1 or $5 bill could be effective. (This approach is most effective when you only use cash for everyday transactions).
Commit to no-spend days. Pick one day of the week to not spend a single dollar (unless it’s an emergency).
Rotating spending category months.
Use financial windfalls wisely. If you receive an unexpected financial gift or a lump sum of cash, put it in your down payment savings account.
Participate in a 52-week challenge with weekly increases. You don’t have to wait until the first of the year to get started. Start on your next payday and stretch it out for an entire year.
6. Look at Your Budget
When was the last time you took a close look at your budget? If it’s been a while, you may be wasting money on items or services that are no longer needed or beneficial to you. Or you can stand to reduce some expenses and reach your savings goal faster. Some tips to cut costs:
Bundle cable, internet, and phone services or cut them altogether.
Request a free energy-audit to identify problem areas in your home.
Increase the deductible on your insurance policies to decrease premiums.
Create weekly meal plans to decrease grocery expenditures.
Ditch eating out for home cooked meals.
Use coupons and shop for bargains.
Avoid impulse spending.
Downgrade your cell phone or opt-in for a low-cost prepaid plan.
7. Get a Roommate
Having a roommate can be a great way to reduce your living expenses and free up more money to put towards a down payment on a house. By sharing the cost of rent and other expenses, you can significantly reduce your monthly expenses and save more money each month.
Additionally, if you are able to find a roommate who is willing to pay more than their share of the expenses, you may be able to increase your overall income and save even more.
8. Boost Your Income
Worried about stretching yourself too thin from your savings plan? Explore other ways to boost your income, so your efforts won’t interfere with your budget. Some ways to pull this off:
Work overtime to earn some extra cash.
Ask for a raise if it’s been awhile and your latest evaluation was stellar.
Get a part-time job and work when you have spare time.
Find odd jobs on Craigslist.
9. Sell Your Unwanted Stuff
Selling items that you no longer use or need can be a good way to raise extra money to put towards a down payment on a house. Here are a few ideas for items that you might consider selling:
Clothing and accessories: Do you have clothes, shoes, or accessories that you no longer wear or that no longer fit?
Home decor and furniture: Do you have furniture or home decor items that you no longer need or that no longer fit your style?
Electronics: Are there any electronic devices that you no longer use or need, such as an outdated phone or laptop?
Books, CDs, and DVDs: Do you have a collection of books, CDs, or DVDs that you no longer want or need?
Collectibles and antiques: Do you have collectibles or antiques that you no longer want or that you think may be worth a lot of money?
Consider selling these items through an online consignment shop or online marketplace like eBay or Craigslist.
10. Refinance Existing Loans
Are you paying too much in interest for your current debt obligations? The only way to find out is by reaching out to your lenders to determine if you’re eligible for lower interest rates.
If not, consider refinancing your loans, especially student loans, to lower the monthly payment and free up funds to go towards your down payment. (Keep in mind that extending the loan term could mean more interest paid over the life of the mortgage loan unless the new interest rate is lower).
11. Consolidate Your Debt
What about credit card debt with exorbitant APRs that are costing you a fortune? Explore debt consolidation options to determine if you qualify for a loan with a competitive rate. By going this route, you could shave hundreds off your monthly expenses, and pay off the credit cards much faster while saving for a down payment on a house.
12. Automate Savings
One simple way to boost your savings is by setting up an automatic deposit from your paycheck. By transferring a predetermined amount from your checking account into a high-yield savings account on a regular basis, you can watch your savings grow over time. This way, you don’t have to actively remember to transfer the funds yourself.
13. Explore First-Time Home Buyer Programs
If you are a first-time home buyer working towards the goal of homeownership, it can be helpful to research first-time home buyer programs that may be available to you. These programs may offer assistance with a down payment or low down payment options.
Some examples include Fannie Mae and Freddie Mac’s down payment assistance programs, VA loans, USDA loans, and FHA loans.
By considering these options, you may be able to significantly reduce the amount of money you need for a down payment on a home. It’s worth taking the time to research and see what kind of help may be available to you based on your personal financial situation.
14. Save on Transportation
Consider switching to cheaper forms of transportation, such as biking or public transit, if you live within a reasonable distance from your workplace. This will this save you money on gas and parking fees. It can also improve your physical fitness if you choose to ride a bike.
If you live in an urban area, using the subway or bus as an alternative to driving can also help reduce air pollution and traffic congestion, benefiting both your personal well-being and the environment.
15. Save Money on Your Purchases
There are several ways to save money while shopping, both online and in-store. Here are some suggestions:
Use online browser extensions like Honey or Rakuten to find and apply coupon codes automatically at checkout. These extensions can also alert you to price drops and help you find the best deals.
Look for sales and clearance items, and consider buying in bulk when it makes sense.
Compare prices across different retailers before making a purchase. Websites like PriceGrabber and CamelCamelCamel can help you find the best prices online.
Use cashback credit cards or apps like Ibotta and Dosh to earn money back on your purchases.
When shopping for groceries, try to plan your meals in advance and make a list of the items you need to purchase. This can help you avoid buying unnecessary items and sticking to a budget.
Consider buying generic or store-brand products, which can often be just as good as name-brand items but at a lower price.
Look for deals and discounts, such as buy-one-get-one-free offers or discounts for purchasing a certain number of items.
Use coupons and take advantage of loyalty programs if the store offers them.
Consider purchasing items that are in-season, as they are often cheaper than out-of-season items.
Shop at discount stores or warehouse clubs such as Costco or Sam’s. They often offer lower prices on a wide range of products.
Bottom Line
While it may be intimidating to save for a down payment, you can pull it off if you have a solid plan. It may take a bit longer than you’d like, but the benefits of homeownership will make your efforts worthwhile.