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November 25, 2021

Using Income Share Agreements to Pay for School

Many students end up taking out loans to finance the cost of college. As of the first quarter of 2021, Americans collectively held $1.57 trillion in student debt, up $29 billion from the previous quarter. And a significant share of borrowers were struggling with their debt burdens: Just under 6% of total student debt was 90 days or more past due or in default.

Students looking for alternatives to student loans can apply for grants and scholarships, take on work-study jobs or other part-time work, or find ways to save on expenses.

Recently, another alternative has appeared on the table for students at certain institutions: income share agreements. An income share agreement is a type of college financing in which repayment is a fixed percentage of the borrower’s future income over a specified period of time.

As this financing option grows in popularity, here are some key things to know about how these agreements operate and to help you decide whether they’re the right choice for you.

How Income Share Agreements Work

Unlike student loans, an income share agreement, also known as an income sharing agreement or ISA, doesn’t involve a contract with the government or a private lender. Rather, it’s a contract between the student and their college or university.

In exchange for receiving educational funds from the school, the student promises to pay a share of his or her future earnings to the institution for a fixed amount of time after graduation.

ISAs don’t typically charge interest, and the amount students pay usually fluctuates according to their income. Students don’t necessarily have to pay back the entire amount they borrow, as long as they make the agreed-upon payments over a set period. Though, they also may end up paying more than the amount they received.

Income share agreements only appeared on the scene in the last few years, but they are quickly expanding. Since 2016, ISA programs have launched at places like Purdue University in Indiana, Clarkson University in New York, and Lackawanna College in Pennsylvania. Each school decides on its own terms and eligibility guidelines for the programs. The school itself or outside investors may provide funds for ISAs.

Purdue University was one of the first schools to create a modern ISA program. Sophomores, juniors, and seniors who meet certain criteria, including full-time enrollment and satisfactory academic progress, are eligible to apply.

Students may have a six-month grace period after graduation to start making payments, similar to the six-month grace period for student loans, and the repayment term at Purdue is typically 10 years. For some schools, however, the repayment term ranges from two to 10 years.

The exact amount students can expect to pay depends on the amount they took out and their income. The university estimates that a junior who graduates in 2023 with a marketing major will have a starting salary of $51,000 and will see their income grow an average of 4.7% a year.

If that student borrowed $10,000 in ISA funds, he or she would be required to pay 3.39% of his or her income for a little over eight years. The total amount that student would pay back is $17,971. The repayment cap for the 2021-2022 school year is $23,100.

Again, every ISA is different and may have different requirements, so be sure to check with your college or university for all the details.

The Advantages of Income Share Agreements

ISAs aren’t for everyone, but they can be beneficial for some students. For example, students who don’t qualify for other forms of financial aid, such as undocumented immigrants, may have few other options for funding school.

For students who have already maxed out their federal loans, ISAs can be a more affordable option than Parent PLUS loans or private student loans, both of which sometimes come with relatively high interest rates and fees.

Compared to student loans, many ISAs also protect students by preventing monthly payments from becoming unaffordable. Since the amount paid is always tied to income, students should never end up owing more than a set percentage for a fixed period of time. However, a student’s field of study may impact this. Students who are high earners after college may end up paying more to repay an ISA than they would have under other financing options.

If a student has trouble finding a well-paying job, or finding one at all, payments typically shrink accordingly. For example, Purdue sets a minimum income amount below which students don’t pay anything.

In Purdue’s case, the student won’t owe anything else once the repayment period is over, compared to student loans that can multiply exponentially over time due to accrued interest.

Purdue and several other universities also set the amount and length of repayment based on a student’s major, meaning monthly payments can be more tailored to graduates’ fields and salaries than student loans are. For fortunate students who see their income rise beyond expectations, many schools ensure the student won’t pay beyond a certain cap.

Potential Pitfalls of Income Share Agreements

ISAs come with some risks and drawbacks, as well. Firstly, since the repayment amount is based on income, a student who earns a lot after graduation might end up paying more than they would have with some student loans. This is because if a student earns a high income after graduating, they’d pay more to the fund. Second, the terms of repayment can vary widely, and some programs require graduates to give up a huge chunk of their paychecks.

For example, Lambda School , an online program that trains students to be software engineers, requires alums who earn at least $50,000 to pay 17% of their income for two years (up to $30,000). This can be a burden for recent graduates, especially compared to other options like income-driven repayment, which determines the percentage of income going towards student loans based on discretionary income.

Currently, there is very little regulation of ISAs, so students should read ISA terms carefully to understand what they’re signing up for.

No matter what, income share agreements are still funding that needs to be repaid, often at a higher amount than the principal.

So you’re still paying more overall for your education compared to finding sources of income like scholarships, a part-time job, gifts from family, or reducing expenses through lifestyle changes or going to a less expensive school.

How Do Income Share Agreements Impact You?

Many schools’ ISA programs are designed to fill in gaps in funding when students do not receive enough from other sources, such as financial aid, federal or private student loans, scholarships or savings. Thus, it’s important to understand how an ISA will impact both your long-term finances and other methods to pay for college.

ISAs do not impact need-based aid like grants or scholarships. Students with loans, however, could have a more complicated repayment plan with multiple payments due each month.

With ISAs, there is less clarity as to how much you’ll end up repaying from up to 10 years of income. As your income changes, your payment will remain the same percentage unless it falls below the minimum income threshold ($1,666.67 at Purdue) or reaches a repayment cap.

Whereas students may pay more than the loan principal to reduce interest, ISAs often require reaching a repayment cap of roughly double the borrowed amount to be paid off early.

Depending on your future income and career path, an ISA could cut into potential savings and investments or serve as a safety net for a less stable occupation.

Who Should Consider An ISA?

As previously mentioned, income share agreements are an option for students who have maxed out on federal loans and scholarships. There are other circumstances when an ISA may or may not be worth considering.

Colleges may require a minimum GPA to be eligible for an ISA. For instance, Robert Morris University requires incoming students to have a 3.0 high school GPA and maintain a 2.75 GPA during their studies for continued funding eligibility. Taking stock of how an ISA aligns with your academic performance before accepting funding could reduce stress later on.

Since ISA programs structure repayment as a percentage of income, graduates who secure high-paying jobs can end up paying a significant sum compared to the borrowed amount. An ISA term could be more favorable to students planning to enter sectors with more gradual salary growth, such as civil service.

Repayment plans at income sharing agreement colleges are not uniform. Students at schools with lower payment caps and early repayment options may find ISAs more advantageous.

Considering Private Loans

Students should generally exhaust all their federal options for grants and loans before considering other types of debt. But for some students looking to fill gaps in their educational funding, private student loans may make more sense for their needs than ISAs.

Recommended: Examining the Different Types of Student Loans

In particular, students who expect to have high salaries after graduation may end up paying less based on interest for a private student loan than they would for an ISA. Some private loans can also allow you to reduce what you owe overall by repaying your debt ahead of schedule.

SoFi doesn’t charge any fees, including origination fees or late fees. Nor are there prepayment penalties for paying off your loan early. You can also qualify for a 0.25% reduction on your interest rate when you sign up for automated payments.

The Takeaway

As mentioned, an income share agreement is an alternate financing option for college. An ISA is generally used to fill in gaps in college funding. Generally, it’s an agreement between the borrower and the school that states the borrower will repay the funds based on their future salary for a set amount of time.

One alternative to an ISA could be private student loans. Keep in mind that private loans are generally only considered as an option after all other sources of federal aid, including federal student loans, have been exhausted.

If you’ve exhausted your federal loan options and need help paying for school, consider a SoFi private student loan.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. SoFi Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

November 23, 2021

10 Embarrassing Online Shopping Fails to Avoid This Holiday Season

There’s no need to wait in long lines at crowded stores to snag the perfect holiday gifts at the best prices. All kinds of great deals can be found online.

However, online shopping comes with its own perils when you’re trying to stick to a budget. Buying virtually makes it easy to buy a cartload of stuff in a few simple clicks — without really paying attention to the real-life dollars you’re spending.

Before you hit that “buy now” button, check out how to avoid making these 10 common mistakes when you shop online.

10 Online Shopping Mistakes to Avoid This Holiday Season

As you browse online for your holiday finds, avoid these pitfalls to keep yourself from spending a ho-ho-whole lotta money.

1. Getting Fooled by Terrible Discounts

When is a Black Friday sale not really a sale? When the discounts aren’t any better than the ones you normally receive.

For example, if you can typically find your favorite brand of shoes for $50 — even though the “suggested retail price” is $90 — consider $50 the benchmark. So if a retailer advertises the shoes for 50% off, but the discount is off the regular suggested retail price of $90, it won’t be much of a deal because you’re only saving $5 off of what you’d normally pay.

Let it be a lesson that just because an item is listed on the sale page of a website doesn’t mean something is worth your money.

2. Spending More to Get “Free” Shipping

We’ve all been there. You know you can get free shipping if your order totals more than $50, but your cart comes to $48.50.

Maybe you can find something for $1.50 to meet the minimum… or maybe you’ll just toss in that $10 item you don’t really need but lets you get the free shipping.

Rather than sorting the sale section from low to high, step away from the virtual cart and rethink your original purchase.

Would it be worth paying to have that original item shipped and sticking to your original budget? Or consider other shipping options the retailer offers — could you use a ship-to-store option that lets you save on shipping and drive up to get the goods?

3. Not Abandoning Your Cart

Yeah, it might be bad form to leave a cart full of stuff in a brick-and-mortar store, but do it online, and you could score a better deal.

Some retail sites will trigger an email coupon when you leave items in your cart and close your browser. Leave your cart for a few hours (or a day) and you could receive an email saying, “Did you forget something? Here, have a discount!”

If you don’t need to place the order immediately, a short period of indecision can help you get a better deal.

4. Falling for Expensive Promoted Products

Websites like Amazon, Etsy and eBay know that consumers want convenience — and are easily distracted by the first item they see in search results. So they place advertised products in the search results, even if you choose to sort by price from lowest to highest.

Before you click on that attractive-looking item, thinking it’s in your price range, double-check for an indicator that it’s a promoted product.

5. Not Shopping in Incognito Mode

Did you know some online shopping sites will show higher prices depending on your location, the time of day you’re shopping and whether you’ve checked out the item on the site earlier?

Shop in your browser’s private mode to avoid retailers switching up prices to try to get you to buy now.

6. Shopping While Intoxicated, Tired or Hungry

No. Do not.

That is how you end up with a skirt two sizes smaller than what you normally wear, because you think you might be able to fit into it eventually. And it’s a final sale. Just don’t do it.

If you have the tendency to shop when you’ve been drinking or late at night as you try to cure your insomnia, do yourself a favor and protect your wallet from your worst shopping tendencies.

Put a few of these shopping safeguards in place to prevent your retail hangover.

7. Not Doing Your Research

Never make an impulse buy based on the image of the item alone.

Did you read reviews for the product? (Bonus points if you peep user-uploaded photos.)

Did you check the specs on expensive electronics to make sure you’re getting a high-quality item? Or that it has the connectors you need for it to work with your current setup?

Did you check the clothing size chart?

If you can’t rattle off the reasons it’s worth buying that product right now, step away from your laptop. You’re not ready to buy.

8. Not Checking the Return Policy

A lot of online stores let you make returns, but some of them also make you jump through hoops before you can get your money back.

Before you buy, check the store’s restrictions on returns and find out how much it will deduct from your refund (for return shipping or restocking) if you send the item back.

9. Not Using a Cash-Back Program

If you’re not shopping online through a cash-back portal, you’re missing out on free money.

Check out these Google Chrome extensions — they automatically detect if there’s a rebate, cash-back offer or deal for your purchase.

Bonus points if you shop with a credit card that offers cash back or reward points.

10. Not Having a Budget

Before, when you headed to the store, you may have had a list, or if you shopped with cash you’d know how much you had left to spend. It’s a lot easier for online shopping to get out of control since you can hop from site to site — and can do it any time.

Plus, online retailers purposely try to get you to spend more by suggesting similar products you might like based on what you’ve searched for.

If you set aside an hour before you start your holiday shopping to review your numbers and create a holiday budget, you’ll be able to make the holiday cheer (and more cash) last into the new year.

Lisa Rowan is a former writer at The Penny Hoarder. Staff writer/editor Tiffany Wendeln Connors and senior writer Nicole Dow contributed to this post.

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Source: thepennyhoarder.com

November 23, 2021

Winter Houseplant Care: How To Keep Your Plants Happy and Alive This Winter

Change your houseplant’s care routine this winter with these tried and true winter houseplant care tips!

According to U.S. Census data, 66 percent of consumers have at least one house plant. As we head into winter, it’s important to acknowledge that plants need a little extra TLC to get them through the season. To help you keep your green thumb during the colder months, experts shared their winter houseplant care tips with us.

Why is winter houseplant care so tricky?

During the winter, a lot of elements come into play when caring for your houseplants. Since the temperatures drop and there is less daylight this time of year, houseplants — many of which come from tropical environments — die-off easier than warmer times of the year. These three things could result in your houseplant’s demise:

Lack of light
Too much water
Not enough humidity

Keep these three things in mind when you’re caring for your houseplants and follow these winter houseplant care tips so you can keep your plants — succulents and air plants, too — alive and happy until spring.

1. Mist regularly

Misting a houseplant in the winter.

“Humidity levels will decrease during the colder months and coupled with using heaters, this can be harmful to indoor plants such as ferns and calatheas which require high humidity, says Raymond from the Cheeky Plant Co., “Group up your plants closer together and mist them regularly to keep them happy throughout winter. Using a humidifier does the same trick but will be more effective and efficient.

2. Establish a watering routine

“One of our favorite winter houseplant care tips is to adjust your watering schedules! In the winter months, our plants receive less sunshine and have a slower growth rate. The best way to get a feel for your plants’ new watering schedule is to check by sticking your finger into the soil a few inches down, and if it’s dry, it’s time for watering!” says Plant Therapy.

Also, it’s important to water your houseplants with room temperature water during this time of year. A critical step in winter houseplant care is to not shock your plant’s roots — so avoid watering your plant friends with cold water at all costs.

3. Do not over-fertilize

Man fertilizing a plant.

“For winter care in cold and dry northern areas, add a couple of drops of fertilizer to a spray bottle once a month and mist the leaves of your plants,” says Christie Pollack from Learn Plant Grow, “Your plants will enjoy the additional humidity from the mist and will absorb the fertilizer through their leaves to help keep them green without over-fertilizing them in the winter months.”

4. Add humidity where you can

“The key to maintaining your house plants in winter is to try to keep them in an area that has lots of natural sunlight plus increase the humidity around the plants by standing the plants on dishes or saucers which you can add water. This will offset the drying effects of central heating which is the biggest problem for houseplants in winter months,” says Garden Advice.

5. Look to the light

Light hitting houseplants inside of an apartment.

“While reducing watering is essential to keep your plants alive during the winter months, people often underestimate the importance of light. As the amount of available light goes down, your plant’s current spot might not remain suitable. Try moving your plants to a new location or add a grow light to substitute the natural light,” says Samira from PlanterSam.

6. Don’t forget to dust

“Just like you and me, houseplants require natural light to thrive. You may want to consider relocating plants to south or west-facing windows to optimize their daylight exposure during winter months,” says Alex Kuisis of Soul Fitness Coaching, “Also, keep in mind that even thin layers of dust on a plant’s leaves can block its access to light, so use a damp cloth to gently remove dust each time you water — your plants will thank you for the TLC!”

7. Help your plants stay warm

“Keep your roots warm. Invest in a root zone heat mat to keep your plant’s root zone active all winter long! Heat mats are an easy and cheap way to make your plants thrive even in the dead of winter,” says David Flores of Hort N Culture.

Winter plant care for specific types of plants

Not every plant has the same type of care routine — so it’s key to know what type of houseplant you have. Most houseplants fall into three categories:

Air plants
Succulents and cacti (indoor and outdoor)
Common houseplants (bright to low light)

Air plants

Air plants hanging up during the winter.

Formally known as Tillandsias, air plants continue to rise in popularity. A part of the Bromeliaceae family — there are about 650 different kinds. In nature, these plants grow on and around other plants like trees and they are native to desert, forest and mountain areas in South and Central America.

Airplants have a reputation for being relatively easy to care for, so it’s no surprise they frequent must-have plant lists. Winter houseplant care specifically for air plants should focus on making sure they get enough light and don’t get too cold.

“During winter make sure to protect your air plants from frost, keep them inside your home in colder environments. Air plants may demand more water when your heat is on creating a drier environment,” says air plant experts from Twisted Acres, “Slowly increase your water if needed.”

Succulents and cacti

Succulents by the window.

There are over 10,000 succulent species in the world. Known for being hard to kill, succulents have leaves and stems that retain moisture — making them tolerant to drought periods and easy to care for.

“It’s best to provide succulents with well-draining soil for the winter,” says Chau Ly from SucculentsBox.com, “Before moving the succulents inside for the winter, water them so that they soak up the water and begin to dry out. Covering the succulents with bedsheets, row or non-woven fabric will also benefit them from the cold of winter. It is important for gardeners and plant lovers to keep in mind that many succulents do not need much water in winters, and they require at least 8 hours of indirect sunlight a day.”

If you’re looking for hardy succulents that will make it through cold winters, try these:

Sempervivum Calcareum, Cobweb, Red Lion or Mahogany
Stonecrop Sedum
Corsican Stonecrop
Sedum Golden Moss
Dragon’s Blood Sedum
Cape Blanco Sedum
Ice Plant Oscularia Deltoides
Agave Butterfly

Also, remember cacti belong to the succulent family too. Christmas cactuses and Opuntia, better known as prickly pear, both thrive during the winter season.

Other tips if your home has low-light during winter

Check regularly if your plant needs water. Put your finger in the soil up to the first knuckle, if it’s dry, it’s time to water. Keep it splashing on until water comes out of the drainage holes. Don’t just water in the same spot. Water all the way around the plant thoroughly so the root ball gets moistened.
Keep your windows clean — the less dirt on the window itself or the screen the better for more light to make it through.
Rinse your plants in the sink or shower — this will help remove any dirt or dust build-up on the leaves and will help your plants absorb more nutrients.

Plants that will thrive in the winter

Houseplants in an apartment during the winter.

Maria Arrowhead plant
Moth Orchid
Maidenhair Fern
Ponytail Palms
Pothos
Snake Plants
Aloe vera
Cactus
Snake plant
Clivia
Corn plant
Jade plant
Dragon tree
Sweetheart plant
Dracaena Reflexa
Dracaena Tarzan Bush
Cast Iron Plant Aspidistra
Euphorbia Milii Crown of Thorns
Christmas Cactus
Peperomia Obtusifolia
Chinese Evergreen
Philodendrons
Fiddle Leaf Fig
Wax Plant
ZZ plant

Take a leaf of faith this winter

All in all, by modifying your routine to combat the challenges that winter may pose — you’re giving your succulents, air plants and large, leafy green houseplants the best chance of survival. Remember, a little extra care goes a long way during the coldest months of the year and that stands not just for houseplants, but humans and animals, too. Whatever you do — don’t give up on your plants this season because spring 2022 will be here before you know it.

Source: rent.com

November 22, 2021

How to Financially Prepare for a Child – 13 Steps to Take

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Dig Deeper

Additional Resources

Stressed about how much it costs to have and raise kids?

Having extra mouths to feed barely scratches the surface of the expenses to come. From larger housing to larger cars, higher health care costs to higher education, diapers to child care, strap in for a costly ride.

But like everything else in life, it helps to be prepared. The better your financial planning, the better you can navigate the costs without derailing your current lifestyle.

How to Financially Prepare for a Child

If you tried to make every ideal financial move before having kids, you’d reach retirement age before even trying. So don’t think of these as prerequisites for trying to get pregnant.

Instead, think of them as parts of your larger financial plan that apply more than ever as you start having children.

1. Reconsider Your Income

There’s nothing wrong with pursuing low-paying work you love. I never believed my mother — an educator — when she said, “Do what you love, and the money will follow.” She proved me wrong by achieving a seven-figure net worth through frugal living, working a side hustle (tutoring), and consistent investing.

But your motivation matters. There’s a difference between choosing a modest-income career because you’re passionate about it and being stuck in one due to inertia.

I know teachers who love what they do and wouldn’t want another job even if someone offered to double their salary. Others coast their way through every tedious lesson plan.

If you don’t love what you do, go back to the drawing board. That goes doubly if you also don’t love your salary.

Brainstorm jobs that provide fulfillment and meaning to you personally. Then get creative and explore remote positions, jobs that provide free housing, or jobs that pay well even without a college degree.

Choose a career that fulfills you both personally and financially. It doesn’t need to pay a huge salary, but aim to get up every morning happy with the career choice you made.

2. Enroll in Health Insurance

Pregnancy is expensive. So are delivery, infant checkups, and pediatric health care in general. If you do nothing else before your baby arrives, get health insurance.

Fortunately, not having insurance through your employer doesn’t mean you have to go without it. Explore options for health insurance without employer coverage. There are even part-time jobs that provide medical insurance.

Note that families with a high-deductible health insurance plan may well burn through every dollar of that deductible over the course of pregnancy, delivery, and the first few months of life. Plan accordingly.

Low-income families can explore the Children’s Health Insurance Program as another option.

3. Revamp Your Budget

Once upon a time, I spent more money on happy hours, dinners out, concerts, and entertainment in general. My budget looked different before I got married, and then it changed again after my wife and I had children.

That’s normal. Your budget isn’t static. It’s a living thing that evolves over time alongside your life. And if you do it right, you can save more money even after having children. I managed to do it through a mix of house hacking, getting rid of a car, and moving overseas.

If you don’t have one, create a formal budget. If you do have one, look over all your budgeting categories and start brainstorming ways to spend less and save more.

4. Check Your Emergency Fund

You never know when an emergency or unexpected job loss could leave you without an income. And when you have children, the stakes are higher.

As you prepare for the responsibility of a family, set up an emergency fund to cover two to 12 months’ worth of expenses.

How much you need depends on the stability of your income and expenses. The more variable each is, the more months of living expenses you should stash away. An average person needs three to six months’ expenses, but people with inconsistent incomes or living expenses need closer to a year’s worth.

You can always temporarily cut out costs like entertainment or a gym membership to save on expenses. But needs like electricity and food are nonnegotiable.

And while some of your expenses may go down while you’re unemployed (such as gasoline), others may go up. For example, if you spend $200 per month on employer-subsidized health insurance, that expense may rise while you’re unemployed, as you may be forced onto a new plan or required to pay for your current plan in full.

5. Get Serious About Paying Off Unsecured Debts

Many people have unsecured debts, such as credit card debt, personal loans, and student loans. And those often come with high interest rates that exceed the long-term returns you can earn by investing.

That makes paying off your unsecured debts a high priority. Follow a structured plan to pay them off quickly, such as the debt snowball method.

Once you incur the added expenses that come with having kids, you’re less likely to have room in your budget to chip away at that old debt. Plus, the interest on it can make the expenses your child requires that much harder to manage.

While baby-related expenses tend to be significant initially, they don’t completely go away once your children are done with diapers. In fact, school-age kids can cost more than infants because they require more expensive clothing and food as well as money for activities like soccer lessons and ballet classes.

6. Plan for Child Care

Child care is the elephant in the room when planning the financial costs of having children.

Explore all your child care options, from nannies and au pairs to day care to relatives and friends. If one parent doesn’t love their job, you can explore becoming a single-income family, with one parent staying home for the first few years of your children’s lives.

Whatever you decide, plan and budget accordingly — because parental leave will be over before you blink.

7. Plan for Baby Essentials

My wife wouldn’t let me try this experiment, but I believe you could get everything you need for an infant for free — or almost anything.

Diapers cost money, and there are some things you should never buy used for safety reasons. Everything else you can get either free through services like Freecycle or inexpensively used via eBay, Craigslist, or local garage sales.

Whether you buy used or new, get creative to save money on baby gear. See this baby supplies checklist from The Bump to ensure you plan for every need.

8. Update Your Will

Your estate plan does more than tell your family and friends who gets your autographed guitars after you die. It also makes provisions for child care if you die prematurely. Your will can include provisions for an unborn child, which you can amend after they’re born.

You have a couple of options for creating a will (or any other estate planning documents):

Do It Yourself. You don’t need a lawyer to create a valid will. You simply need to be 18 or older and of sound mind. You also need to sign your will in front of two witnesses and ensure it’s accessible once you die. You can use an online service like Trust & Will to draft one affordably.
Hire an Attorney. The cost is significantly more, but a lawyer handles all the details for you. Expect to pay anywhere from $300 to $1,000 for a basic will. If your assets and estate are complex or you need to establish a trust, it could cost upward of $10,000.

Optional Financial Moves to Consider

Some moves could help you feel more ready for kids, though they aren’t strictly necessary. If you can’t do them, no need to worry. In fact, some people may decide holding off on these is smarter than doing it before they have kids.

So consider this type of financial planning purely optional: a list of ideas for thought rather than more reasons to fret.

9. Reevaluate Your Housing

You can care for an infant in a studio apartment. They certainly won’t know the difference. But that doesn’t mean you’d enjoy it.

As a long-term planning exercise, think about what type of home you want to live in for the next few years. You don’t need extra bedrooms or bathrooms right away, as infants can sleep in the same room as you for a while. Even when they move out of your room, they could move into a room with an older sibling.

But you may decide you want a larger home, so start thinking about what that looks like and how to pay for it. Only buy a home if you plan to stay for at least a few years, as closing costs on either end of the transaction make it cheaper to rent otherwise.

10. Reevaluate Your Transportation

If you and your spouse each drive two-seat sports cars, one of you may need to swap it out for a more family-friendly option.

Of course, you don’t always need a car. My wife and I don’t have one. We simply take the car seat with us when we hire an Uber. I also installed a baby seat on my bike so I can transport my daughter that way too.

Consider the public transportation, walkability, and bikeability of the area you live in. It’s possible you could live without a car too.

But most Americans drive cars as their primary means of transportation, so if yours is either too small to fit your whole family or unreliable, it’s probably time to get a different one. But explore used cars first as a more budget-friendly option.

Give yourself more flexibility by choosing three to five models you’d be happy to buy, and shop around among both dealerships and individual owners to find the ideal used car for you and your growing family.

11. Buy Life Insurance or Disability Insurance

In households with one breadwinner or a partner who significantly outearns the other, life insurance makes sense. You want to ensure your family would survive financially if it lost that primary breadwinner.

Life insurance policies come in two broad buckets:

Term Life Insurance. Term life offers coverage for a specified period. It’s generally cheaper and comes with a guaranteed set death benefit. With term life insurance, your premiums increase at preset intervals, such as 10, 20, or 30 years.
Whole or Universal Life Insurance. Also known as permanent life insurance, whole or universal life insurance death benefits never expire as long as you pay premiums. These policies often also provide certain living benefits, such as the ability to borrow money against the policy.

As a rule of thumb, your death benefit should be six to eight times your annual salary. But there are other considerations to take into account, such as your homeownership status and anticipated number of dependents as well as how much you can afford.

If you’re unsure about your coverage needs, talk to an independent financial advisor and shop around for the right plan. You can compare policies on sites like Policygenius and GoCompare.

The same concepts apply to long-term disability insurance. Both protect against the risk of the breadwinner losing their ability to earn.

Granted, not everyone needs life insurance or disability insurance.

For example, my wife and I live on one income even though we both work. We live on her income and save every dime of mine. And we don’t have life or disability insurance because we maintain low living expenses relative to our income and a high savings rate to build our net worth quickly.

If either of us kicked the bucket tomorrow, each of our incomes would be enough in itself to support ourselves and our child, and the surviving spouse would have a hefty nest egg to fall back on in a crunch.

Avoiding the need for life insurance and disability insurance by “self-insuring” are two of the many hidden benefits of pursuing a financially independent lifestyle. Once you build enough money, you can opt out of life and disability insurance.

12. Double Down on Retirement Investments

I joke that my backup plan for retirement is my daughter. If she were old enough to get the joke, she wouldn’t laugh.

The worst thing you can put on your adult children is asking them to take care of you in retirement. It adds a burden on them in an already hectic time of their lives, when they’re trying to start and raise their own families.

Before you even consider setting aside money for their college education, take a closer look at your retirement investments. If you have the slightest worries about them, put more money into your tax-sheltered retirement accounts long before saving money for your kids’ college tuition.

They have many other ways to pay for college, but you only have one way to pay for your retirement.

Invest money now so it can start compounding, and decide what to do with it later. You can withdraw contributions from a Roth individual retirement account tax- and penalty-free to put toward any costs, but you can only use 529 plans or ESAs for education costs.

13. Invest to Help With College Costs

Not paying your kids’ college tuition doesn’t make you a bad parent. Young adults who pay for their own college education often take the experience much more seriously. And many parents question whether to help with college even when they can afford it.

Even small amounts invested when your child is young can compound into significant sums by the time they turn 18. If you decide to chip in, you have several tax-friendly options to do so.

529 Plan. Your 529 college savings plan earnings grow and remain tax-free if you spend them on qualified educational expenses.
Coverdell Education Savings Account. A Coverdell ESA works similarly to a Roth IRA for education expenses. There are income limits ($110,000 for single filers and $220,000 for married), and the maximum allowable yearly contribution is $2,000, regardless of your income.
Upromise.Upromise allows you to earn cash back to use to pay for college. Unlike 529 plans and ESAs, you don’t have to contribute additional money. Rather, you earn cash back on expenses like online retail purchases and restaurant meals.

In all cases, you can open the accounts early and designate your child as a beneficiary after birth.

Final Word

As much as I preach fiscal responsibility, I know firsthand that putting off children doesn’t always make sense, financially or otherwise.

My wife and I married in our early 30s and agreed to spend one year building a foundation for our marriage before having children. Then one year became two, then three.

I started a business, and my wife worried about money. Then we went through a rough patch in our marriage. We survived it but had reached our late 30s by that point.

When we finally started trying in earnest, nothing happened, which kicked off a stretch of infertility questions and interventions. Eventually, we did have a child, but not all couples are so lucky.

Many of my friends haven’t experienced the joy of having children despite spending large sums of money — not to mention enduring immense heartache — trying to do so. In one of life’s bitter ironies, many delayed trying for children because they worried about money.

On the opposite end of the spectrum, I know plenty of parents without much money who have multiple children. And every one of them finds a way to make it work.

There’s no perfect time to have children. They disrupt your life in every possible way. But like billions of parents with less money than you have, you’ll find a way to make it work too.

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G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

November 22, 2021

If a Debt Is Not on My Credit Report, Do I Have to Pay It?

Not all debts show up on your credit report, BUT that doesn’t mean you don’t owe them. Creditors aren’t under any obligation to report unpaid debts to the credit bureaus. They can if they want, but they aren’t required to do so.

What does this mean for you?

Can a creditor, or collection agency harass you for payment if the debt isn’t on your credit report?

They can. Here’s why.

What does it mean when a debt isn’t on my credit report?

You can borrow money for instance personal loans or student loans and not have it show up on your credit report. Even some mortgage lenders don’t report the debt to the credit bureaus. Most private creditors don’t report to the credit bureaus – it’s another expense they don’t want to take on, but that doesn’t mean you don’t owe the debt.

It also doesn’t mean the debt won’t show up on your credit report if you don’t pay it.

Say, for example, you decide you aren’t going to make your loan payment because times are tough and you know they don’t report to the credit bureaus. If you go long enough without paying the debt, the lender could send your account to a collection agency.

If that collection agency reports debts to the credit bureaus, suddenly the debt shows up on your credit report in the worst way possible – as a collection. This would have a negative impact on your credit history and lower your credit scores.

Do collection accounts always appear on a credit report?

Collection accounts don’t always appear on a credit report. Some collection agencies don’t report right away. If they’re able to secure the payment from you without reporting it to the credit bureaus, it increases their profits, so some wait.

But, if you don’t pay the debt, the collection agency may try to leverage your payment by reporting to the credit bureaus.

The minute a debt collection agency reports your debt to the credit bureaus, it hurts your credit score and chances of securing new credit. This may make you more likely to make good on your debt.

Even if a debt appears on your credit report, don’t automatically pay it without looking into it, as it might be an incorrect debt. Make sure all information is accurate on the account. Does the collection agency have the right to collect in your state? Do they have all the right information? Does the account belong to you?

If anything they reported is unfair or inaccurate, you have the right (by law) to dispute it. Before you pay the debt, try getting it removed from your credit report. You’ll still need to negotiate with the debt collector and come up with a payment plan unless you can prove the debt doesn’t belong to you at all. If it does, though, you may be able to work out a payment arrangement.

If you have inaccurate or incomplete collection accounts on your credit report, the Fair Credit Reporting Act gives you the power to dispute this information directly with the credit bureaus or creditor.

What if the original account is on your credit report?

Sometimes you can get hit twice with the same debt. If you defaulted on a debt with a creditor that reports debts to the credit bureaus and then they sold it to a collection agency that reports to the credit bureaus, you’d see the debt twice.

Not only will you see the debt twice, but so will anyone that pulls your credit. This means they’ll see that not only did you have late payments with the original creditor, but you got so behind that they sent it to a collection agency.

Your original creditor may show the account as ‘charged off’ or something similar. This shows that you didn’t live up to the agreement you made and still owe the debt, but the creditor sold it off to someone else to handle.

If you’ve reviewed your credit reports and neither the original account nor the collection account is appearing, gather as much information as you can from the collection agency and the original lender to help you determine if you owe the money.

See also: Should I Pay the Debt Collector or Original Creditor?

How long does a collection stay on your credit report?

If the creditor sent your account to collections, it could remain on your credit report for seven years. The clock starts from the original date you were delinquent. This means the original debt and the collection can sit there for seven years.

Even if the collection agency doesn’t report the debt to the credit bureaus right away, hoping you’ll pay it, the clock starts on the original date of delinquency.

What can you do about a collection that’s not on your credit report?

You may wonder what you can do about a collection that’s not on your credit report.

Should you pay it or ignore it?

Will it hurt you in the long run if you don’t pay it?

These are all valid questions, but the bottom line is that you must satisfy the issue. This may or may not mean paying it. First, you have to get down to the bottom of the issue.

Get the Debt Validated

Determine if the debt is valid. If it’s not reporting on your credit report, you’ll have more sleuthing to do. You must determine where the account originated – who was the original creditor? If the collection has been sold multiple times, you may have to do a little more digging. Sometimes collection agencies only hold onto a debt for a few months before they sell it to someone else.

Once you finally get account information, compare your findings. Look at original account numbers, delinquency dates, balance due, and the name of the original creditor. If something doesn’t match, ask questions.

You can write to the debt collector and ask them to prove where the account originated, the account number, and any other information you want to be verified. They must be able to prove beyond a reasonable doubt that you owe the debt to them.

If they prove it, you’ll need to pay it or at least work out a payment arrangement. Collection agencies are often willing to negotiate too. Most collection agencies buy debts for pennies on the dollar. They then try to collect the full amount from you – this is how they make a profit.

Negotiate with the Debt Collector

But, this leaves room for you to negotiate a lower amount. When you negotiate with debt collectors, start with a lower amount, assuming the collection agency will negotiate – they usually do. Eventually, you’ll land on a number you both agree on, but make sure you get it in writing.

You can also simply ask the debt collector or original collector to remove the collection. This usually involves sending the debt collector or collection agency a goodwill deletion letter explaining your mistake, asking for its forgiveness, and showing them how your payment history has improved.

If you choose not to pay the debt, be aware that the collector can continue to pursue you for the debt indefinitely – that means calling, sending letters, or suing you for debts still in the statute of limitations – even if it’s not on your credit report.

Take These Steps Before Paying A Collection

Whether your collection is on your credit report or not, always take these steps to protect yourself.

Make sure the account belongs to you. Do as much research as you can to make sure the collection is legitimate, especially if it’s not on your credit report.
Negotiate a lower amount; never pay the full amount. But ensure that the collection agency will mark the account ‘paid as agreed.’
Get all agreements in writing. This is very important if the collection agency reports the debt to the credit bureaus. If they agree to remove the debt from your credit report after you pay it and they don’t, you can dispute the debt with the credit bureau with your proof.
Check your credit 30 days after paying the debt. Make sure the collection agency held up their end of the deal.

Final Thoughts

Do you think, ‘if a debt isn’t on my credit report, I don’t have to pay it’?

Don’t fall for it, because chances are you still have to pay for it. Any unpaid debt is owed, whether it’s on your credit report or not. If a creditor or collection agency can prove the debt belongs to you and let it go unpaid for too long, they can sue you. It’s unlikely, but it does happen.

Don’t rely on your credit report for 100% accuracy. If you have debts not reported to the credit bureaus, you still owe them, and if you default, there will be consequences. If you’ve fallen behind and can’t catch up, talk to your creditors about options, they have to avoid your account getting sent to collections.

If debt collectors are sent to try and reclaim a debt, you can follow our guide so you’re fully aware of your rights and the ways to proceed.

Source: crediful.com

November 21, 2021

Stock Market Corrections – What Are They and How to Handle Them

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People look to the stock market as a way to build and protect wealth, but experienced investors know it doesn’t always work out that way. The market moves through a series of peaks and valleys, often leading to overvaluations or undervaluations.

When a long-term bull market takes place, investors know that a dreaded downturn on Wall Street is likely ahead.

These drawdowns, or market corrections, are periods when stock valuations fall. They tend to cause some investors to panic, but there’s no need to be alarmed. These occasional declines are perfectly normal, and most consider them necessary in a healthy U.S. stock market.

Here’s everything you need to know about market corrections.

What Is a Stock Market Correction?

A correction is a downward market trend characterized by the value of a financial asset falling at least 10% from its most recent peak.

For example, imagine stock ABC was trading at a peak of $100 per share 45 days ago. Today, the stock is trading at $89 per share, down $11 or 11% from recent highs. Since the decline is greater than 10%, the move would be considered a correction.

These market declines are often riddled with volatility as investors race to sell, hoping to protect themselves from further financial pain.

However, as you’ll learn below, a sudden drop in stock prices from recent highs isn’t always a reason to sell. In fact, corrections are often the best time to buy more shares of your favorite stocks, practicing dollar-cost averaging and increasing your overall return potential.

Here are a few important facts about corrections:

There Are Different Levels of Stock Market Corrections

First and foremost, market corrections take place on varying levels:

Individual Stocks

Like in the example above, corrections often happen on individual stocks. They can be spurred by bad news like missed earnings or revenue expectations, or they can come completely out of the blue as a group of investors decides it’s time to take a profit. These corrections only tend to affect a single stock.

Sectors

Some corrections wreak havoc on entire sectors, sending nearly every stock in an industry down a slide. For example, sudden shocks to the price of oil might put the oil and gas sector into a correction, or new legislation targeting drug prices might send the pharmaceutical sector into a slump.

Regional

Some events can lead entire financial markets in a specific region on a spiral downward. For example, when tariffs were placed on Chinese goods entering the United States, Chinese stocks took a dive, resulting in a regional correction.

Market

Finally, corrections can happen across the global market. During a stock market correction, the entire market drops. These events are characterized by simultaneous declines of 10% or more throughout major market indexes around the globe.

Corrections Are Generally Short-Lived

While some market corrections lead to long-lasting bear markets, the vast majority of corrections are actually short-term sell-offs. In fact, only 10 out of the past 37 corrections from 1980 to 2018 resulted in bear markets, with the rest turning out to be short-term blips.

In general, corrections last between three and four months. Once the event is over, the market generally rebounds quickly, resulting in tremendous earnings potential. So, it’s important not to panic when these events take place; keeping a level head and paying attention to market conditions will likely open the door to several profitable opportunities.

A Correction Isn’t the Same as a Bear Market

Both corrections and bear markets are characterized by stock market crashes. However, there are a few important differences between the two:

Percentage Declines. Bear markets are generally characterized by declines of 20% or more from recent peak values rather than 10% declines.
Term. When the bears take hold of a sector, region, or the whole market, they tend to maintain control for some time. According to Hartford Funds, the average bear market lasts 9.6 months, which is substantially longer than the three to four months the average correction takes to subside.
Cause. Corrections can take place out of the blue when the investing masses decide it’s time to take profit. However, bear markets are generally more meaningful. These long-standing declines are usually signs of concerning economic conditions, geopolitical conditions, or a mix of the two.

Corrections Happen Often

As mentioned above, 37 corrections took place from 1980 to 2018, working out to slightly less than one per year on average. That stands as evidence that you shouldn’t panic when it happens.

While the talking heads on financial media will make a big deal out of any correction that takes place, level heads prevail in the stock market.

Examples of Corrections

One of the best ways to get an understanding of the nature of stock market corrections is to look at a few examples from history.

One of the most recent market-wide corrections was caused by the coronavirus pandemic in 2020. As the virus spread, hair salons, movie theaters, amusement parks, and shopping malls were considered nonessential and forced to shut down for months. This led to widespread job loss, corporate bankruptcies, and reduced consumer spending.

As a result, the market started to tank.

Soon, the correction caused by the pandemic became an all-out bear market, leading the S&P 500 index, Dow Jones Industrial Average, and the Nasdaq all down by more than 30%. It took 10 months for all three indexes to make a full recovery.

Another example occurred in February 2018, when the Dow Jones Industrial Average and the S&P 500 index fell by more than 10% each. While the correction was prompted by inflation-related concerns, the profit-taking proved to be overblown in the long run. By mid-March 2018, prices began to rise, eventually making a full recovery.

What Corrections Tell You

Market corrections aren’t always as informative as you might think. They can be a sign of healthy market and economic conditions as valuations balance themselves out, acting as a perfectly normal part of the financial system.

For example, if a correction happens out of the blue at a time when economic growth is at its peak, corporations are experiencing growth in profitability, and geopolitical conditions are stable, the move is likely nothing more than investors taking profits, and it will soon be over.

On the other hand, when coupled with concerning fundamental data, corrections can be signs of tough times to come.

For example, if recent economic reports show slowing new home sales, increasing unemployment insurance claims, and declining consumer spending, and stocks slide by 10% or more, the move could be a sign that an economic recession and all-out bear market is on the horizon.

What to Do if a Stock Market Correction Takes Place

Although it may come as a surprise, many long-term investors do nothing at all when market downturns set in. These investors know that the vast majority of corrections won’t last long, and they avoid knee-jerk reactions when it happens. Riding out corrections is the favored approach of buy-and-hold investors, especially those with a long-term outlook.

On the other hand, some seasoned active investors take steps in order to make the declines work to their advantage. Here’s how:

1. Rebalance

If you’ve been following a solid investment strategy, your asset allocation was thoughtfully chosen to provide diversification.

Unfortunately, over time, your allocation will fall out of balance as some assets move at faster rates and in different directions than others. When imbalance happens, it can leave you either overexposed to risk or underexposed to opportunity.

With the market edging down, it’s crucial to make sure your allocation isn’t out of balance and the protections you’ve put in place are able to work to your advantage. Now is the time to rebalance your investment portfolio.

2. Assess the Correction

Next, you’ll want to determine what type of correction you’re seeing and whether the move is likely to continue into a bear market. Ask yourself the following questions:

How Widespread Is the Correction? Are you noticing the move on a single stock or single index? Take time to look around and see if it’s more widespread. Look into what the Dow Jones Industrial Average, Nasdaq composite index, and S&P 500 index are doing. If they’re all falling at a similar rate, the correction is a widespread one.
Is There a Clear Cause? Corrections can come out of nowhere with no rhyme or reason, or they may be the result of deep underlying issues. The only way to find out is to do a bit of research.
How Deep Is the Cause? Did the U.S. Federal Reserve raise interest rates by a quarter of a percent? If so, although the move may slow lending slightly, it’s a sign that the U.S. economy is doing well, and the market will likely recover quickly. On the other hand, if war was just declared or jobs reports have shown months-long declines in hiring, there may be cause for long-term concern.

3. Act On What You’ve Learned

There are several different actions you could take based on your answers to the questions above, but they’ll all boil down to one of the following:

If it’s a Single Stock or Sector Correction With No Apparent Cause

If the move is in a single stock or sector, and there’s no clear rhyme or reason to it, you’re in luck — you’ve found a buying opportunity.

Traders take profits all the time, and this profit-taking can lead to painful, short-term declines. Although there’s no telling where the bottom will be, now is the time to strategically buy more shares in a company you like. Here are a few tips for doing so:

Set the Floor. If the sell-off has no rhyme or reason, it’s likely a technical move in which traders are taking profits. This means that there will likely be a clear point of support. Use technical analysis to find the support level.
Buy Even Blocks of Shares. As the stock continues to fall to support, make consistent, equal purchases of blocks of shares. This process of dollar-cost averaging ensures you don’t lose too much with a large purchase before further declines or miss out on opportunities when the rebound happens. As the stock falls, your average cost per share will fall as well. When the rebound happens, that reduced average cost means larger gains.
Set Stop-Loss Orders. Set stop-loss or stop-limit orders just below the support level. If the stock falls below this point, there may be a significant underlying reason for the declines. It’s time to exit the position and reassess the situation.

If it’s a Single Stock With a Short-Term Cause

In some cases, there will be good reasons for a single stock taking a dive, but those reasons will only lead to short-term movement.

For example, a company may miss earnings or revenue expectations in a single quarter, leading to fear among investors. In this case, the company’s stock will likely fall, but if the company is solid, it will make up the losses and then some in the long run.

If this is the case, consider using the dollar-cost averaging method described above to gain further exposure to the rebound.

If it’s a Single Stock With a Serious Problem

If the correction takes place in a single stock and the reason is both clear and long term, it’s time to sell and accept your losses.

For example, imagine a biotech company you’ve invested in has been working to find the cure for a devastating ailment. Things looked great. However, the FDA rejected the drug, and the company decided it’s going to cut its losses and go back to the drawing board. At this point, the stock’s losses are likely to continue for some time.

In this case, it’s best to cut your losses and look for a more promising opportunity elsewhere.

If the Entire Market Is Falling

If you’re looking at a market-wide correction, there are a few things to consider. In the majority of cases, if the entire market is falling, there’s a reason, regardless of how clear or unclear that reason may be.

One of the most common reasons for market-wide corrections is high valuations. Movement in the market takes place through a series of ebbs and flows. However, when the market flows up too fast without enough ebbs in between, overvaluations happen, and investors begin to take profits.

These are generally short-term moves and nothing to be concerned about. As a result, outside of buying in on undervalued opportunities as prices fall, there’s not much action that needs to be taken.

On the other hand, corrections can be signs of deep economic or geopolitical concerns. For example, if job growth in the U.S. seems to be plateauing, home sales are slowing, and unemployment lines are growing during a market correction, all these signs together point to a potential economic recession, which could cause the correction to turn into a long-term bear market.

Even in this case, it’s important not to panic. After all, panicking leads to poor decision making.

Instead, consider making adjustments to your asset allocation to reduce your overall risk. To do so, move a portion of your money out of stocks and into fixed-income securities and other safe-haven assets.

After doing so, keep a close eye on economic data. When the economy begins to improve, it’s time to go shopping for discounts in the stock market. At this point, long-term declines will have led the valuations of many quality companies into the dumps, which is great news for buyers. Buying in at these lows will often lead to jaw-dropping profits.

4. Consider Speaking to a Financial Advisor

If the market’s experiencing declines, and you’re not sure what to do, one of the best courses of action is to speak to a professional.

Sure, it may cost a few hundred dollars to get a financial advisor’s ear for an hour, but those few hundred dollars could save you thousands — or, even better, help you turn a profit in a down market.

When you have a leak, you call a roofer, even though you know that will cost you more money than doing the research and fixing the roof yourself. There’s no reason to be ashamed to call a financial pro when you have questions about your money and activities in the market.

Pros and Cons of Market Corrections

Although corrections may be concerning at first glance, they’re not all doom and gloom. In fact, there are several benefits to corrections happening as well. Here are the pros and cons of these moves:

Market Correction Pros

1. Discounted Buying Opportunities

The basic concept of making money in the stock market is the act of buying low and selling high. If you’re looking for a strong entry point, there are few better than in the midst of a correction. During these times, stocks are undervalued, offering discounted opportunities to get in on future gains.

2. Market Health

Financial markets are complex systems with multiple moving parts, and for those systems to work properly, there have to be checks and balances. Corrections help to keep the market balanced, which is necessary for a healthy system overall. An occasional round of profit-taking helps to keep euphoria in check.

3. Set the Stage for Bull Markets

A far smaller portion of corrections become bear markets than are followed by bull markets. Statistically, these moves are more often than not signs of a bull market on the horizon.

Market Correction Cons

Unfortunately, market corrections come with some drawbacks, the most important being:

1. Retail Investor Panic

The biggest victims of corrections are often inexperienced retail investors who panic and sell when stocks fall. While the retail crowd sells for a loss, savvy investors — often institutional investors or experienced traders — are picking up their shares and enjoying the gains the average investor would have had if they’d simply kept a level head.

2. Can Be Signs of Bear Markets

Although a market correction is more likely to be followed by a bull market than a bear market, there are times when bear markets do set in. If economic conditions are troubling, a correction can be a signal of something even worse ahead. It’s important to understand the reason for the correction and determine whether a long-term bear market is likely before deciding how to react.

3. Short-Term Financial Pain

Finally, stock market corrections aren’t significant points of pain for everyone. Although nobody likes to see short-term losses, for some investors, the moves can come with significant financial concern.

This is particularly the case for investors with a short time horizon, like retirees. Investors who are dependent on the income generated through their portfolios often have to withdraw money to survive during market corrections. Unfortunately, these investors don’t always have the option of waiting for the correction to end and may be forced to realize significant losses.

Final Word

All told, corrections aren’t quite as scary as they’re cracked up to be. Sure, losses can and often do happen during these downward moves. However, they’re important cycles that help to keep the overall financial machine healthy.

Not to mention, savvy investors can make corrections work to their advantage by strategically buying undervalued stocks for a discount to take advantage of the gains that are likely to follow.

No matter what your plan is during a market correction, it’s important not to panic. Level heads make educated decisions, and educated decisions usually equate to profits in the stock market.

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

November 21, 2021

Dear Penny: Did My Husband Betray Me by Giving Our Broke Daughter Our Car?

Dear Penny,
A couple of things in your letter — like the fact that he was swayed by your daughter’s tears into giving over the car keys and then told you by phone instead of in person — make me think that he may be the type who doesn’t like conflict. If you think that’s the case, make it clear that avoiding tough discussions is causing way more conflict. But if your husband doesn’t involve you out of arrogance, your problem will be a lot harder to solve. This isn’t going to be an easy pattern to fix, particularly if it’s persisted throughout the past 48 years. But your husband needs an impetus to change. Otherwise, this cycle will continue and your feelings of hurt and betrayal will only compound. -Livid Wife We have been married for 48 years. I was LIVID that he didn’t have the guts to talk to me about it and told me on a phone call with everyone there. I am mad and hurt over this. I feel betrayed. My daughter just about ruined our credit because our names were on the title of her past vehicle. Now he does the same thing AGAIN!! Tell your husband that you feel hurt and betrayed, and explain how his actions affect you. Ask him why he feels that he can’t talk over these matters with you. The key here is to be proactive and talk about this before he makes another big decision.
You need to focus on mitigating the damage from your husband’s latest decision. Your daughter clearly has a history of not making payments, so your husband has put your credit at risk again.

More importantly, you need to get it across to your husband that making big decisions unilaterally is not OK.
Your husband made at least three big financial decisions without your consent. So the answer to your question is, yes, you have every reason to feel betrayed. But focusing on whether you have a right to feel a certain way doesn’t get you anywhere.
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The bigger challenge is communicating with your husband, particularly if he’s gotten used to being the sole decision maker in your 48 years of marriage. You need to have a frank discussion with him about how you handle money matters before he makes another big decision without involving you.
The best way to protect your finances from your daughter is to have her make payments directly to you. Then, you can directly make the payment to the lender. At the very least, you need to have access to the account so you can confirm that your daughter is actually making payments.
Our daughter got a check for ,400 and wanted him to help her find a car, but her credit wasn’t good enough to get one. She was upset and crying. So unbeknownst to me, he sold her our car for 0 down and had her take over payments.
In that year he kept trying to get rid of his truck. Fast-forward to now. He made a deal to sell it to a car dealer without me. Then he bought a different car. Of course I wasn’t happy about it, but it did take our interest down and the payment to 0 per month.
Ready to stop worrying about money?
Dear Livid,
Unfortunately, the reality of helping someone who isn’t creditworthy is that there’s a high likelihood you won’t get repaid. So you’ll need to budget with the assumption that you won’t get that 0 each month. If your names are still on the title, that’s actually a good thing because you can take back the car if your daughter fails to make payments.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected] or chat with her in The Penny Hoarder Community.

He trusted her to make payments that will end up being 0 with the other money she owes us. Am I right to be so hurt and betrayed?

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My husband and I had a four-wheel drive pickup. He bought this vehicle unseen in 2017. The car lot drove it to our house, all without my input. We had it for one year. In that time, our payments were 3 a month.

November 17, 2021

15 Tips for Young Entrepreneurs Who Want to Start a Successful Business

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Additional Resources

The astrophysicist Neil DeGrasse Tyson famously said that the best way to encourage our children to become scientists is to get out of their way. He notes that the messes toddlers make are their way of experimenting with the world and exploring it, and only interference by adults starts to turn them away from that curious explorer mindset.

Much the same can be said of encouraging our children to develop an entrepreneurial spirit. Whether mowing lawns, opening a lemonade stand, or selling creative projects, our kids are consistently looking for ways to earn money, and with it increase their independence.

Unlike encouraging a spirit of scientific exploration, raising successful aspiring entrepreneurs requires a slightly more hands-on approach. This is more complicated ground with steeper penalties for failure. While your child, tween, or teen flexes their small-business muscles, keep in mind some important ways you can help them in their journey.

Tips for Young Entrepreneurs Who Want to Start a Successful Business

1. Check the Local Small Business Laws

No local authorities will take issue with a second grader’s lemonade stand, or a fifth grader mowing neighborhood loans. That can’t always be said of a teen earning a few thousand dollars with a small business. Although many business licensing requirements have relaxed in this age of online commerce, you don’t want your teen to lose their earnings to fines and fees.

Look into the laws surrounding small businesses in your area, and get an expert opinion from somebody in the City Planning Office or local Chamber of Commerce. Dot your i’s and cross your t’s here, and have your teen do most of the work. The necessities of law are part of being an entrepreneur.

If your child’s successful business venture approaches five figures of income, consider looking into formally structuring it as a corporation. This can provide various legal protections, help with compliance with any licensing or permit requirements, and be an important learning experience as you navigate the associated expenses and observances side by side.

2. Don’t Let the Business Eclipse Academics

Running a small business can be exciting and time-consuming to the point that it tempts your teen away from their schoolwork. If this happens, it’s important to view school as their full-time, regular job and their business venture as a side hustle. This is true even if the small business is making enough money to represent a real opportunity for post-graduation financial success.

Keep in mind, and remind your teen, that if the business fails they’ll have little to fall back on without at least a high school diploma. Yes, there are examples of famous entrepreneurs who didn’t graduate like Richard Branson and Quentin Tarantino, but there are far more dropouts working low-skill, low-wage jobs to make ends meet.

It can help to set formal goals for academics and the business, and to set those goals on timelines that allow for success in both. If academics falls behind, adjust the goals to prioritize the school work. For kids who are excited about their business, you can write up a business plan and an academics plan, using similar formatting to emphasize the similarities.

As a bonus, balancing academics with having their own company can teach time management skills at a level deeper and more meaningful than any other experience available to teens.

3. Encourage Them To Take on Employees

Being their own boss teaches young entrepreneurs a lot, but managing other people — especially peers — can teach lessons that no other experience in life can teach.

If your teen’s business is making money, encourage them to hire a friend, classmate, or younger family member to help with some of the work. This helps them learn about the skills and challenges of leadership while also teaching an important lesson about the value of having help.

By outsourcing tasks they don’t like or aren’t good at early, your teen starts to learn how to value their time and expertise. It fundamentally changes their relationship with work, and their potential for success. This is a skill many adults still struggle with, and can unlock many doors to success.

Start with younger siblings and cousins as options for your child’s initial labor pool. This not only fosters a stronger relationship between family members, but many states offer exemptions to worker’s compensation and some employment laws when hiring a family member. Check with the laws for your area first, but this can save a surprising amount of money over the run of a business.

4. Become a Managing Partner

The smartest teen in the world will fall down on some of the basic tasks of business management because they lack the perspective, contextual knowledge, and physical brain development to succeed in those areas. For that reason, it’s smart for you to fill a role as a managing partner when your child decides to start their own business.

Depending on your teen’s skill level and business experience, your role might just be to check in once every other week to make sure certain tasks are getting done. It might be to handle the books and business metrics. You might even take on the duties of the sales department or bookkeeping. Your mileage will vary, but getting involved helps them succeed while simultaneously demonstrating that you care about their success.

Partnering with your child in a business carries a second benefit beyond improving their potential business success. By working together on a business, you build a relationship that lasts long after they leave the house. Whether the enterprise fails catastrophically or makes the whole family rich, the shared experience is irreplaceable.

If your child needs some start-up cash, you can use a managing partnership as a condition of giving them an informal business loan. Like real investors in the business world, you grant them starting funds but require a hand on the business’s operations to protect your investment.

5. Start With Scalability

Before taking on their first client for any business idea, your teen should think about and develop a plan for how to build up to a second client, and a third. They should also have an idea of the maximum number of clients they can serve given the realities of their schedule and access to transportation, and a plan for going beyond that number if they’re experiencing rapid success.

A plan to scale up is important even at the beginning stages to start a business. Even if your teen never implements any of it, and only makes some pocket change off a valuable experiment, the exercise will introduce them to a success concept many adults never learn about.

It bears repeating that you must make certain any plans for scalability take academic, athletic, and social needs into account. This might mean artificially slowing the company’s growth during homecoming or baseball season, but that’s all right. Entrepreneurially-minded kids need early and repeated lessons in work-life balance, which can start right here.

6. Be Ready for Taxes

Like with your local business regulations, the IRS and your state Department of Revenue won’t much care about a kid making a few bucks, but if your teen has self-employment income of at least $400 from their own business, they’re responsible to report it and potentially pay taxes. If they earn enough money, it can even interfere with their status as a claimable dependent.

Talk to your accountant about this, and set up a plan for dealing with that part of your teen’s entrepreneurial journey. If they become small-business owners for life, taxes will be their constant companion over the course of their career.

Although companies like H&R Block and TurboTax offer online corporate, small-business, and self-employment filing options, it’s often worth it to hire a CPA to do business taxes. If you keep your books organized, the amount they charge for the service is reliably lower than the deductions they help you find.

7. Remember Community Resources

Almost every city, county, state, and special interest organization has some sort of resources for small-business owners. These may include in-person education, online classes, grants and loans, mentorship access, or work spaces filled with expensive, specialized tools. They’re out there, often paid for with your tax dollars, waiting to be used.

Not all such opportunities are open to teens, but in many cases the staff will be excited about somebody getting involved so young and become even more enthusiastic about contributing success tips. LinkedIn and local meetups can be good sources for mentoring and success tips, as long as you monitor and curate the adults your child meets. Encourage your teen to check into these opportunities in the community.

When seeking resources and help, don’t forget your child is still in school. Many schools have business classes, workshops, technical equipment, social media advice, and experts on hand any student can access for help with projects. Many teachers and counselors will be eager to help, especially those with business knowledge or experience they rarely access on the average school day.

8. Begin With the Goal In Mind

This advice from business management legend Steven Covey is a classic for a reason. Whatever business model your teen decides to pursue, they should begin the journey thinking about how they want it to end, with clearly defined goals set from the beginning.

Starting a new business to earn money for a car requires one set of circumstances, warrants a certain amount of time and financial investment, and has a lifespan of a set number of weeks or months. Starting the same new business as something your teen might want to make into a career changes every one of those aspects.

There is no right or wrong goal here, but starting without one in mind is almost always a mistake. Even the best business in the world can falter and fail without a strong guiding goal.

Sit with your budding entrepreneur early in the process and ask what they hope to accomplish. “Making a few bucks” is a fine goal, but nail down specifics. That top-level goal can help them assign priorities, make wise purchases, and set up timelines for tasks in ways they would not otherwise.

9. Teach Them How to Set Goals — Then Apply Them

Knowing how to set goals isn’t just important for small-business success. It will help your child succeed in whatever endeavors they take on at school, in college, and beyond.

It’s easy to start with a smaller goal — something that will take multiple days of effort but which will absolutely happen if the child does their part.

For example, saving enough money for a $20 video game is a good initial goal. They set a goal of earning $1 per day for a month, with up to 11 days off. As long as they achieve their daily targets, they’ll be able to get the game. Winning the lottery is a bad initial goal because even if they succeed at buying a ticket every week, there’s no guarantee of winning.

Tying cash flow to realistic goal setting introduces them to the concept of setting goals and attaining them. Whether or not this small business works out, the experience of working toward a concrete goal and its inherent lesson will serve your young entrepreneur well for the rest of their life.

Teach your young entrepreneur to write down their goals and commit to a timeline for completion. When they reach the end of their timeline, assess with them how they did. If they didn’t reach their goal, what might they do differently next time? If they did, what might they do to succeed even more or faster? As they establish a track record of success and understanding, move to loftier, more complex, and less guaranteed goals.

10. Model Smart Risk-Taking

A business is only successful if its key decision-makers are willing to take risks, and if most of those risks work out. Taking risks may seem like a natural part of childhood, but when you add money and parental approval, suddenly those risks feel much more intimidating.

The best way to help your child overcome this challenge is to live by example. Demonstrate taking small and large risks in everyday life. Better yet, talk with your child about those risks. Discuss what made them risky, how you analyzed the dangers and benefits, what you gained from the gamble, and especially what you did to minimize the impact if the risk didn’t work out.

Once you’ve made a habit of having that talk with your child, you can use it as a framework for assessing the risks associated with their business. This doesn’t just help their business succeed, but helps them practice and master a vital life skill.

11. Foster Creativity

Creativity is a skill. Like all other skills, it gets better with practice and fades if not used.

Creativity is also essential to small-business success, and success in the business world overall. It’s how your child will come up with a working business model, how they will expand on their idea to help the business grow, and how they will devise solutions to the problems and challenges they encounter.

Some ways to help build that creativity in your child include:

Make up stories together instead of reading them at some bedtimes
Play pretend games with your child, ranging from make-believe to more structured activities like Dungeons & Dragons or theater sports
Set aside art time and craft time, where your child plays creatively
Get out of the habit of simply answering questions or solving problems, but instead create the habit of exploring answers together
Play “what if” games, where your child explores the possibilities of simple changes to life or the world around them
Set up time for your child to get bored, then let them find new ways to fill that time

Most importantly, resist the temptation to come swiftly to the rescue when your child encounters a challenge. As long as it’s safe, let them find their own creative solutions. If you always swoop in to save the day, they never learn to develop their own creative problem-solving. Instead, they look to others for help — a habit that is absolutely lethal to entrepreneurial success.

12. Show Them How to Ask For Help

One of the ways schools often hurt our children is by how often they insist kids work on their own. Asking a classmate for clarification is punished as being disruptive in class. Looking up a tutorial to help with your homework can be considered cheating. Although this is sometimes necessary within the context of school, a small-business owner can always ask for help.

Model finding help so your kids can see you asking your parents or partner, polling social media groups, calling an expert with applicable know-how, or looking for an instructional video on YouTube. Make this normal and encouraged — a tool you use to succeed at your goals just like any other resource. Knowing who to ask for help and how is a key success factor in any form of entrepreneurship.

When your kid is comfortable asking for help, show them some of the best ways to do it. Explore online tutorials and free trainings, and look for resources at the library, Chamber of Commerce, and local small-business authorities. Share audiobooks and podcasts together while running errands or on road trips.

Teach your kids early and often how much help is out there, where to find it, and how to tell the good advice from the bad.

13. Reward Failure Whenever You Can

World-famous Brazilian jiujitsu competitor Rickson Gracie writes in his memoir that at his first jiujitsu match, his father said to him, “Win and I will give you a present. Lose and I will give you two presents.”

It’s a little transactional to be appropriate for most kids, but the spirit is solid.

Children — and adults — who are afraid of failure often can’t make the decisions necessary to succeed in business. So embrace failure when your children lose a game, make a mistake, or fall short of a goal.

Your children will probably fail the first time they try something, because most people do. Nobody is born with everything you need to succeed on the first attempt.

Congratulate them for having tried, and share honestly the ways they made you proud. Talk about what variables they controlled they could change the next time they try, and what they might do to minimize what they can’t control or change.

Most importantly, share that it’s okay to be disappointed in the outcome, but that you will never be disappointed in them as a person. The short-term pain of trying and failing leads to the long-term gain of succeeding at something hard.

14. Make Them Find a Way

Rob Kiyosaki, author of “Rich Dad, Poor Dad,” tells a story about how he was given a job as a child that paid nothing. His friend’s father, who gave him that job, instead challenged him to find a way to make money with what he learned from that work.

The work in question was cleaning up in a convenience store. Young Rob found a loophole in how comic books were distributed, and used it to create a comic book rental operation in his parents’ basement.

That’s not to say you should be that extreme in your approach to training your child to solve problems and find business opportunities. But you can foster more independence and creativity by backing off a little more than you’re comfortable with when they ask for help. Make them identify the problem decisively and find their own solutions, then reward them for the effort even if the solution they try doesn’t work.

Necessity is the mother of invention, so help your child experience necessity more often and see what they invent. Whether the finished product becomes a full-time adult income or just some after school pocket money, the lessons they learn will last.

15. Don’t Let Them Cut Corners

Attention to detail and a willingness to work hard are two of the most important traits of a successful entrepreneur. Without micromanaging, watch how they approach the work of their business and help them see the value in doing it right from the beginning.

This can sometimes lead to friction. Kids and teens are not always known for either of those characteristics. That’s okay. If you work through it well, you’ve accomplished two goals. The first is helping your child succeed with their business by pushing them to deliver quality for themselves and their customers.

The second is even more important. Once they see the results of the extra effort, they begin to internalize its importance. That lesson will carry past the business into their academics, athletics, and relationships. It will set them up for success no matter where they go in their adult lives.

Final Word

Whether your child is destined to make $1 million by age 18 or to fondly remember a summer they spent working for themselves, they can benefit from what starting a small-business teaches.

Your role in this isn’t to do it for them, or to stand in their way, but to balance between the two. Lend enough support to allow them to flourish, but keep your hands off enough that they can truly say they accomplished the most important parts by themselves. That’s not just how you set up young entrepreneurs to succeed — it’s how you raise happy, empowered children.

Always remember: keep it light and fun. The goal here is not to raise the next Steve Jobs or see your kid on the cover of Forbes before they’re old enough to drive. It’s to teach them valuable life lessons they can apply to a new business, online business, or simply going to work.

Jason Brick became a freelance writer after years of small business ownership and life coaching experience. He now works full-time as a freelance writer and speaker. He lives in Oregon.

Source: moneycrashers.com

November 16, 2021

Why Inheriting Money May Not Solve Your Problems

It would be nice to believe that a financial windfall, such as winning the lottery or receiving an inheritance, is a silver bullet to solving all financial problems. However, history is filled with stories that prove this often is not the case.

One of the most high-profile examples is the sad story of Maureen O’Connor, a former California politician who inherited more than $40 million from her late husband, Robert O. Peterson, the founder of the Jack in the Box restaurant chain. She gambled it all away at casinos and was left destitute. O’Connor liquidated her savings, sold numerous real estate holdings and auctioned valuable personal items. To top it off, she misappropriated millions of dollars from her deceased husband’s charitable foundation.

Other heirs have lost their fortunes to extravagant lifestyles, lavish gifts, multiple costly divorces and illicit habits.

If you believe you will receive an inheritance one day, it is important to know that a lump sum will present opportunities – but also some challenges. Here are some of the ways people mishandle a windfall and recommendations on how to best prepare yourself for an inheritance.

It’s Not Your Debt, It’s Your Spending

People often think an inheritance will solve their debt problems. Under a mountain of debt with steep interest rates and a barely manageable minimum payment, it seems reasonable to assume that a large lump sum would save the day.

However, debt is often a symptom of an underlying problem. Most consumer debt is incurred when spending exceeds income. Spending more than you make is not simply solved by making more money. We have seen people of all levels of financial means outspend their earnings. Unfortunately, this problem only gets more complex when the numbers are larger.

Years ago, one of our clients passed away, leaving each of her three children with millions of dollars. The two children who already had a healthy relationship with money, strong savings and reasonable spending habits invested their inheritances and continued to live life largely the same as before. However, the sibling with money problems eagerly paid off six figures of debt, immediately upgraded his lifestyle, and within 36 months found that his multimillion-dollar inheritance was almost gone already.

People who spend too much usually know it. If you do, begin working on your relationship with money now instead of waiting for an inheritance to save the day. Your attitude and decisions regarding money will impact you more than the numbers in your bank account.

You May Have to Wait Years to See a Dime

People are living longer these days, so you may have to wait a long time to inherit assets – into your 50s, 60s or even 70s. By that point, it may be too late. And a longer life means an aging parent will need more money for long-term care and other needs – so any inheritance may be less money than expected.

We have seen this happen firsthand. One of our clients thought they would inherit a large sum of money from their mother. But Mom ended up living past age 100 and needed around-the-clock care for the last 10 years of her life. By the time the funds were inherited, there wasn’t a whole lot left.

Fortunately, through careful planning and disciplined savings, this person got on track to be financially independent apart from the inheritance, which was key to their success. Relying on an inheritance to make a plan work is problematic since you never know what can happen.

What You Should Do If an Inheritance Is Imminently Coming?

If you know an inheritance is coming soon, start making a thoughtful plan. You may want to pay off your mortgage or other debts or use this newfound money to give more to charitable organizations and have an impact in your community. Having a plan, even just to save those funds, can prevent impulsive decisions that you later regret.

A financial adviser can help you navigate how to manage this windfall. With a sound plan, a person could retire earlier than expected. There may also be some tax-planning techniques or your own estate tax considerations to consider. You may also benefit by a plan to protect your assets, such as determining the correct amount needed for an umbrella insurance policy to protect against excess liability or putting a trust in place.

A Final Word of Caution – Don’t Do These Two Things

No. 1: Don’t advertise that you have this windfall coming. You probably do not want extended family or “friends” coming out of nowhere trying to make claims on your inheritance or trying to guilt you into giving them money.

No. 2: Don’t spend the money before you get it. It’s great to have goals for those funds, but make sure nothing has been implemented before the funds are received. Wait until funds are in your possession before putting your plan in motion.

Our experience has taught us that an inheritance is best thought of as the cherry on top rather than a lifeline to save the day.

Wealth Adviser, Brigthworth

Patricia Sklar is a wealth adviser at Brightworth, an Atlanta wealth management firm. She is a Certified Public Accountant, a CERTIFIED FINANCIAL PLANNER™ practitioner and holds the Chartered Financial Analyst® designation. Sklar uses her CPA and investment background to help develop and implement financial planning strategies for high-net-worth and high-income earning individuals.

Associate Wealth Adviser, Brightworth

Josh Monroe is a CERTIFIED FINANCIAL PLANNER™ practitioner and a Chartered Financial Consultant designee who listens actively and plans thoughtfully to help clients achieve their goals. He joined the Brightworth team in 2019 as a Financial Planner. Before Brightworth, Josh spent eight years at a leading insurance and investment firm in a variety of roles, including compliance and supervision. Josh is passionate about financial planning and making complex concepts easy to understand.

Source: kiplinger.com

November 15, 2021

Earn 7% Risk-Free on Your Savings With Government I Bonds

You won’t lose money if the interest rate goes down — you just won’t earn as much. (The I bond inflation rate in May 2015, for example, was just 0.24%.)
When it comes to taxes, I bonds are exempt at the local and state level.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
I bonds won’t make you rich. But for everyday working Americans, these investments offer a safe way to grow your cash and hedge against inflation.
You can also give I bonds as a gift.
On May 1, 2022, The Treasury will calculate a new inflation rate. If inflation continues to heat up, you could get more interest on your bonds. If it cools off, your variable rate declines.
FYI: You can’t resell I bonds and you must cash them out directly with the U.S. government. Also, only U.S. citizens, residents and employees can purchase these bonds.
While new buyers will enjoy 7.12% on these bonds for now, that rate can change after six months. It goes up or down, depending on national inflation.

What Are I Bonds and How Do They Work?

Forget high-yield savings accounts and CDs. If you want a nearly risk-free way to grow your cash, Uncle Sam has an attractive offer.
Since this half of the bond rate is locked in, your 0% fixed rate won’t increase over time. Instead, all the money you make from an I bond purchased today will be interest earned from the inflation-based semiannual rate.

A fixed rate of return, which remains the same throughout the life of the bond. (It’s currently at 0%.)
A semiannual (twice a year) inflation rate that fluctuates based on changes in the Consumer Price Index.

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You can buy I bonds in increments of this way. You don’t need to put your entire refund in bonds — you can earmark just part of it.
The U.S. government announced a new 7.12% interest rate for Series I savings bonds from November 2021 through April 2022 — the second highest interest rate ever for these investments.
The Treasury also offers a payroll savings option, which lets you purchase electronic savings bonds with money deducted from your paycheck.
In fact, inflation grew so much this year, the government nearly doubled the variable rate on I bonds (it was set at 3.34% just six months ago).
Because I bonds can’t be cashed in for a year, it’s important to keep enough money in your cash emergency fund to cover immediate expenses.
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But before you rush to buy I bonds, there’s a few things you need to know.
You can tell your tax preparer you want to buy savings bonds with part or all of your refund. Or, if you’re using tax software, the computer will guide you through the process.
Check out this chart from the U.S. Treasury to see how I bond rates have changed over time.

Must-Know Facts About I Bonds

That’s right: The fixed rate has been flatlining at 0% since May 2020.
You can buy up to ,000 in digital I bonds per person per year.
You can also buy up to ,000 in paper I bonds per year. The only way to get paper bonds is at tax time with your federal refund.

I Bond Fast Facts

I bonds are sold at face value (no fees, sales tax, etc.)
They earn interest monthly that is compounded twice a year.
The bond matures (stops earning interest) after 30 years.
You have to wait at least one year to cash in I bonds.
You’ll lose three months of interest payments if you cash in a bond you’ve owned for less than five years.
Minimum investment is $25.
Maximum digital I bond investment is $10,000 per year.
The value of your I bond will never drop below what you paid for it.
It’s exempt from state and municipal taxes.

I bonds are meant to protect the purchasing power of your dollar against inflation.

Pro Tip
In fact, 7.12% is closer to the historical yearly average of the stock market — typically 10% — than current CD rates.

At 7.12%, these bonds offer a rate about 12 times higher than what you’d currently earn from the best savings accounts.
I bonds might be nearly risk-free, but they still come with rules and restrictions.
And since I bonds are backed by the full faith and credit of the U.S. government, your risk of losing money is basically zero. (Historically, the U.S. government has never defaulted on bonds.)

How to Purchase I Bonds

You can choose to either pay federal tax on the bond each year or defer tax on the interest until the bond is redeemed.
That’s big news because Series I bonds— also known as inflation bonds or I bonds — are fetching a much higher return than other conservative investments, like high-yield savings accounts and bank certificates of deposit (CDs).
That’s because the current fixed rate for I bonds is absolutely nothing.
The fastest and easiest way to purchase I bonds is on the TreasuryDirect website. It’s a free and secure platform where you can view all your account information, including pending transactions.
Ready to stop worrying about money?
There’s a few ways investors can benefit from purchasing I bonds at the current 7.12% rate.

Pro Tip
For context, the best annual interest rate for a one-year CD is currently hovering around 0.65% to 0.75%, while the best five-year CDs only pay around 1.2% a year.

Who Are I Bonds Right For?

Rising inflation triggered the new, higher I bond rate. Annual inflation rose by 4.4% in September — the fastest pace in over 30 years, according to a report from the U.S. Department of Commerce.

Scenarios When It Makes Sense to Buy I Bonds

You’re a conservative investor worried about inflation and stock market fluctuations.
You want to diversify your stock-heavy portfolio with a safe investment.
You’re nearing retirement and are shifting your portfolio toward bonds.
You want to save money for a child’s future college expenses.
You’re saving up for a big purchase that’s at least a year away, and want to earn a little interest on your cash in the meantime.

Source: thepennyhoarder.com
You may be able to forgo paying federal tax altogether by using the bonds for higher education costs. Your adjusted gross income needs to be under ,200 for a single filer in 2021 to qualify for this education tax perk, or 4,800 for couples.
However, new I bond buyers will miss out on the fixed rate enjoyed by purchasers in years past. <!–

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Another option is buying I bonds at tax time with your refund.

How Income Share Agreements Work

The Advantages of Income Share Agreements

Potential Pitfalls of Income Share Agreements

How Do Income Share Agreements Impact You?

Who Should Consider An ISA?

Considering Private Loans

The Takeaway

10 Online Shopping Mistakes to Avoid This Holiday Season

1. Getting Fooled by Terrible Discounts

2. Spending More to Get “Free” Shipping

3. Not Abandoning Your Cart

4. Falling for Expensive Promoted Products

5. Not Shopping in Incognito Mode

6. Shopping While Intoxicated, Tired or Hungry

7. Not Doing Your Research

8. Not Checking the Return Policy

9. Not Using a Cash-Back Program

10. Not Having a Budget

Why is winter houseplant care so tricky?

1. Mist regularly

2. Establish a watering routine

3. Do not over-fertilize

4. Add humidity where you can

5. Look to the light

6. Don’t forget to dust

7. Help your plants stay warm

Winter plant care for specific types of plants

Air plants

Succulents and cacti

Other tips if your home has low-light during winter

Plants that will thrive in the winter

Take a leaf of faith this winter

Dig Deeper

Additional Resources

How to Financially Prepare for a Child

1. Reconsider Your Income

2. Enroll in Health Insurance

3. Revamp Your Budget

4. Check Your Emergency Fund

5. Get Serious About Paying Off Unsecured Debts

6. Plan for Child Care

7. Plan for Baby Essentials

8. Update Your Will

Optional Financial Moves to Consider

9. Reevaluate Your Housing

10. Reevaluate Your Transportation

11. Buy Life Insurance or Disability Insurance

12. Double Down on Retirement Investments

13. Invest to Help With College Costs

Final Word

Related Articles

What does it mean when a debt isn’t on my credit report?

Do collection accounts always appear on a credit report?

What if the original account is on your credit report?

How long does a collection stay on your credit report?

What can you do about a collection that’s not on your credit report?

Get the Debt Validated

Negotiate with the Debt Collector

Take These Steps Before Paying A Collection

Final Thoughts

Dig Deeper

Additional Resources

What Is a Stock Market Correction?

There Are Different Levels of Stock Market Corrections

Individual Stocks

Sectors

Regional

Market

Corrections Are Generally Short-Lived

A Correction Isn’t the Same as a Bear Market

Corrections Happen Often

Examples of Corrections

What Corrections Tell You

What to Do if a Stock Market Correction Takes Place

1. Rebalance

2. Assess the Correction

3. Act On What You’ve Learned

If it’s a Single Stock or Sector Correction With No Apparent Cause

If it’s a Single Stock With a Short-Term Cause

If it’s a Single Stock With a Serious Problem