Inside: Are you confused about how gross pay and net pay are calculated? This guide will clear everything up. Learn about the different deductions that are taken from your paycheck, as well as the tax rates that apply to your gross pay.
This is one of the most confusing questions for many people.
So, if you are wondering what the difference between gross pay and net pay, you are in the right place.
In order to become financially stable, you need to have a tiny amount of financial literacy.
If you’re like most people, you probably think of your “gross pay” as the amount of money you make before taxes are taken out. But in reality, gross pay is your total compensation from your employer before any deductions are made.
So what is “net pay,” then? Net pay is the amount of money that actually goes into your bank account or paycheck after all of those deductions are made.
Now you want to which one is more important between gross pay and net pay.
The answer is: it depends! If you’re trying to save money or make a budget, then net pay is probably more important to you. But if you’re trying to figure out how much taxes you’ll owe at the
We will dive into all of the details, you will not ever be confused again.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is gross pay?
Gross pay is the total amount of money earned by an employee before any taxes or deductions are taken out. It’s important to know your gross pay as it determines your overall income and can impact your taxes and benefits.
This is the total amount paid by your employer.
Knowing your gross pay is crucial for financial planning and paying taxes.
How can I calculate my gross pay?
To calculate gross pay, you need to know your hourly wage or salary, any overtime pay, bonuses, and additional reimbursements for work-related expenses.
For hourly workers, multiply the hourly wage by the number of regular hours worked within a pay period and include the overtime pay rate for any extra hours.
For salaried workers, multiply the gross monthly income by 12 to find the annual gross salary.
To calculate a paycheck, start with the annual salary amount and divide it by the number of pay periods in the year.
Find out 5000 a month is how much a year.
What deductions are taken out of gross pay?
Gross pay refers to the total amount of money an employee earns before any deductions are taken out.
As such, there are no deductions.
Learn what is annual income.
How are taxes calculated on gross pay?
Gross pay is the amount an employee earns before taxes and deductions are taken out by their employer.
Understanding taxes on gross pay is essential, as it affects an employee’s take-home pay and tax liability.
Taxes that are deducted from gross pay include FICA payroll taxes, federal and state income tax withholding, along with any state-mandated programs like this Colorado Paid Sick Leave.
To calculate taxes on gross pay, an employer uses a formula that subtracts all taxes and deductions from the gross pay amount. Learn how much you should withhold on your taxes.
Common issues that may arise during tax calculation include incorrect tax withholding and not considering voluntary pre-tax deductions. Understand why do I owe taxes this year.
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For U.S. taxpayers, you will find helpful tips in this new edition to help you apply the new tax incentives to your situation.
Tax breaks are not only for the rich. It is for everybody! You just have to take time and learn it.
What is net pay?
Net pay refers to the amount of money an employee takes home after all deductions and taxes have been taken out of their gross pay.
This is the money left over that you can spend, save, and invest.
Thus, you will be able to budget by paycheck like a pro!
How to calculate net pay?
Calculating net pay is crucial for accurate and compliant payroll management.
Here is a step-by-step guide on how to calculate net pay:
Determine the gross pay based on hours worked or salary divided by the number of pay periods in the year.
Subtract mandatory deductions, including health insurance premiums, federal, state, and local income taxes, payroll taxes, and court-ordered wage attachments.
Subtract voluntary deductions, such as employee contributions to a 401(k) or other retirement plan as well as any flexible spending account.
The resulting amount is the employee’s net pay.
Learn about annual net income.
What deductions are taken out of net pay?
Net pay refers to the amount of money an individual receives after taxes and other necessary deductions have been subtracted from their gross pay.
It is a crucial factor in determining an individual’s income, as it represents the actual amount of money they take home.
There are various deductions that are commonly taken out of net pay, including mandatory and voluntary deductions.
Mandatory deductions are made in accordance with the law, while voluntary deductions are ones that employees have the freedom to opt out of.
The mandatory deductions include:
Federal, state, and local income taxes
Social security taxes
Medicare taxes
Local state or municipal taxes
Other common voluntary deductions from gross pay include:
Health insurance premiums (if signed up on a company plan)
Retirement contributions
Health savings account contributions
Flexible spending account contributions
Dependent Care FSA
Is gross before or after taxes?
Gross pay is BEFORE taxes.
Gross pay is the amount earned before taxes and other deductions are taken out. Taxes are then calculated based on the gross pay amount and deducted to arrive at the net pay. This means that gross pay is always before taxes.
Understanding the difference between gross pay and net pay is important to effectively manage finances.
Gross pay may seem like a large amount, but it is important to consider the impact of taxes and other deductions on the final amount received.
What is the difference between gross pay and net pay?
Gross pay and net pay are two important terms that employers and employees should understand.
Gross pay refers to an employee’s total earnings before any deductions are taken out, while net pay is the amount an employee takes home after deductions such as taxes, benefits, and garnishments have been subtracted.
Here are some key differences between gross pay and net pay:
Gross pay includes all earnings, such as wages, salary, reimbursements, commissions, and bonuses, while net pay is the actual amount of the paycheck after deductions.
Employers are responsible for deducting necessary expenses from an employee’s paycheck and making payments to the appropriate accounts before issuing the check or depositing the net pay into the employee’s bank account.
Gross income determines an individual’s federal income tax bracket and borrowing capacity, while net pay presents disposable income.
When budgeting for the year, starting with gross wages requires subtracting the total of taxes and other deductions to compute the actual amount left to spend from each paycheck.
Understanding the difference between gross pay and net pay is crucial for effective budgeting and financial planning.
Employers must ensure proper employee taxes are collected and paid to the government, while employees need to know their take-home pay to manage their expenses.
How do gross pay and net pay work?
Gross pay and net pay are two important terms in the payroll world that employees should understand to manage their finances effectively.
Gross pay is the total amount of pay while net pay is the amount of money you have to spend each month.
Understanding the difference between gross and net pay can help employees and employers avoid confusion and manage their finances better.
What is better gross pay or net pay?
One term is not “better” than the other as they each have different meanings.
When you increase your gross pay, your net pay will rise as well.
Here is how to use gross pay to your advantage:
Provides a clear understanding of the employee’s total compensation
Helps employees plan for future expenses
Can be used as a basis for negotiating salary increases
Figure out the amount of taxes you are required to pay.
Here is how to use net pay to your advantage:
Reflects the employee’s actual take-home pay
Helps employees budget for their expenses
Provides a clear understanding of the impact of deductions on their pay
Can be difficult to compare with other job offers that list gross pay
Overall, net pay is better for employees as it reflects their actual take-home pay and helps them budget for their expenses.
However, it’s important for employees to understand both gross pay and net pay to make informed decisions about their compensation.
Why do you receive more gross pay than net pay in your paycheck?
Employees receive more gross pay than net pay in their paychecks because gross pay is the total amount of money an employee earns before any deductions are taken out.
This includes an employee’s salary, wages, commissions, and bonuses.
On the other hand, net pay is the actual amount of money an employee takes home after taxes, benefits, and other mandatory deductions have been subtracted from their gross pay. These deductions can include federal and state taxes, Social Security contributions, health insurance premiums, and retirement plan contributions.
Therefore, employees receive more gross pay than net pay.
Learn is social security disability income taxable.
FAQs
Overtime wages are included in gross pay when an employee works more than their regular hours and earns additional compensation for the extra hours worked.
This is the case for nonexempt employees who are entitled to overtime pay under federal or state law.
Net income is the take-home pay or the money that you earn on payday, which is why it may be best to focus on that number when creating a budget.
This number helps you determine how much you have to spend, save, or invest.
By tracking your expenses and using budgeting techniques like budgeting with percentages or the 50/30/20 rule, you can manage your finances effectively and make the most out of your net income.
Remember, creating a budget is about being realistic and disciplined with your spending habits, so make sure to adjust your budget accordingly as your income or expenses change.
The tax rates for gross pay depend on the specific taxes being withheld, such as federal income tax, Social Security tax, and Medicare tax.
Federal income tax rates vary depending on the employee’s income level and filing status, with higher earners generally paying a higher percentage of their gross pay in taxes. Click here for the latest federal income tax brackets.
Social Security tax is a flat rate of 6.2% for the employee on the first $$160,200 of gross pay earned. Your employer must match the same contribution. (source)
Medicare tax is a flat rate of 1.45% on all gross pay with the employer matching the same percentage, with an additional 0.9% tax for high earners. (source)
Employees need to understand their tax liability based on their gross pay to accurately calculate their net pay and avoid any surprises come tax time.
Now, you Know the Difference between Gross and Net Pay
Understanding deductions and their impact on net pay is crucial for employees to accurately budget and plan their finances.
Since you know the difference between gross and net pay, you can make sure that you are getting the right amount of money in your paycheck.
Be sure to check your pay stubs carefully to make sure that all of the deductions are correct. If you have any questions, be sure to ask your human resources department.
Know someone else that needs this, too? Then, please share!!
It’s never fun to consider declaring bankruptcy. But, believe it or not, bankruptcy can be a smart financial decision in certain situations. Bankruptcy’s designed to give people a fresh start when they need one. And if you file for bankruptcy, you’re taking a big step towards getting your finances under control. That’s always a responsible goal.
But it’s a serious decision with consequences. Your credit rating takes a big drop (as you may know already) and your spending habits may need to change. How do you know when the pros of bankruptcy outweigh the cons?
First, know the basics of what bankruptcy does. Bankruptcy usually does not eliminate all your debt. The courts treat different kinds of debts differently.
Here are the debts bankruptcy will NOT erase:
Student loans, whether public or private. You can get relief from student loan payments, but that’s a separate process
Income taxes you owe. There are payment options for back taxes. Just like student loans, though, income tax payments have a process all their own
Child support and alimony
Court fines or other legal penalties (such as traffic tickets)
Debts to government agencies
Debts for personal injury or death caused by drunk driving
Any debts you forget to list in bankruptcy papers
Here are the debts bankruptcy CAN erase or make easier to pay over time:
But debt itself doesn’t automatically make bankruptcy the best option. If any or all of the following circumstances apply to you, it might be time to file:
Creditors are suing you for unpaid debts
If creditors have already passed your debt to a collection agency, they may take the next step—a lawsuit. Debt collection lawsuits usually aren’t worth fighting in court. You’ll end up with court costs to worry about.
Bankruptcy will place an automatic “stay” on your account. This is a court order requiring creditors to cease all collection activity, including lawsuits.
Credit card debt is “unsecured” debt. This means creditors can’t repossess any items if you don’t pay it. Bankruptcy usually erases credit card and other unsecured debts.
If your utilities are about to be disconnected, bankruptcy can keep them from being cut off as well.
What’s Ahead:
You’re facing home foreclosure and/or car repossession
Bankruptcy can issue a stay on any repossession or foreclosure activity, just like it can for credit card collections. But this stay’s a little more complicated.
Money you owe on homes and cars may be a “secured” debt, or a debt where a creditor can repossess the property. This is the case if a creditor has a lien on your home or car. A lien is basically a claim on your property saying the creditor can take it back if you don’t make payments. You may have to read the fine print or consult a professional if you’re not sure whether creditors have a lien on your home. Bankruptcy can erase what you owe—but it can’t keep creditors with liens from repossessing property.
Don’t panic! In many cases you can keep your home even after you file. One type of personal bankruptcy, Chapter 13 bankruptcy, gives you time to catch up on mortgage payments. The property you get to keep also depends on your state’s bankruptcy “exemption” laws—each state has different rules about which properties are exempt from creditor claims.
Your wages are being garnished
Wage garnishment, or creditors taking a certain percentage of your paycheck, may be the result of a lawsuit or court order. Bankruptcy’s automatic stay will stop the garnishment.
You pay for everything on credit cards
If you’re paying off debt by digging yourself deeper into debt, bankruptcy can help you break the cycle. Chapter 7 bankruptcy, the most common type of individual bankruptcy, usually erases credit card debt.
You’re dipping into a retirement account to pay bills
Thought it may be tempting, think twice before you turn to retirement funds. Most states protect your pensions, life insurance, and retirement accounts like IRAs and 401(k)s in bankruptcy. You can file, get the rest of your bills under control, and keep the retirement funds. Check the specific legislation in your state to find out what’s protected.
Paying off your debts will take five years or more
To get a full financial picture, calculate how much you owe, to whom, and when you think you can repay—or how long you can manage modest regular payments without going underwater. Focus on the debts bankruptcy can possibly discharge, like credit card debt.
If you don’t see yourself making a dent within five years, much less paying everything back, bankruptcy may give you much-needed relief.
Your revolving debt exceeds your annual income
Revolving debt is any debt with an open-ended term or no end date. Credit cards, personal lines of credit, and home equity lines of credit are all sources of revolving debt. The debt “revolves” from month to month, though you pay a percentage each month.
You’ve tried everything else
Maybe you’ve already negotiated with creditors for a better payment plan. You’ve refinanced loans. You’ve done your best to budget and search for more income sources. And you’ve explored debt consolidation, management, and settlement.
Been there, done all of the above? Keep reading.
Since declaring bankruptcy takes time and affects your credit, it’s often considered a last resort. But the resort is there for a reason. Life happens. Overwhelming medical debt, for example, is a frequent cause of bankruptcy. If medical bills are stressing you out, though, you may have more options than you realize.
You’re eligible to file
We’ll discuss the two types of individual bankruptcy—Chapter 7 and Chapter 13—in detail below. But first, find out if you qualify.
For either type of bankruptcy you should be 90 days overdue on all the debts you need to discharge.
Chapter 7 bankruptcy requires filers’ monthly income to be below the median monthly income for their state (and a household of their size). To figure out your median income, add your gross income from the past six months and divide by six. Then deduct “reasonable and allowable expenses”. This includes what you spend each month on essentials like groceries, housing, and transportation. The number remaining is the income you have available to repay debts.
Here’s a 2016 estimate of the median annual household incomes per state—divide this number by 12 to see if you’re below the average.
If your income’s over the limit, you might still qualify for Chapter 13 bankruptcy.
So how are the two types different? And which one should you choose?
Chapter 7 bankruptcy
Otherwise known as “liquidation bankruptcy,” Chapter 7 is designed for individuals with no way to pay their bills otherwise. This type of bankruptcy pays off as much of your unsecured debt as possible, including credit card debt and medical bills. The court “liquidates” your assets by converting them into cash to pay off your creditors.
The process takes anywhere from three to six months. It’s usually much quicker than Chapter 13 bankruptcy. You can keep any assets your state marks as “exempt.” Your house or car, for instance, may or may not be exempt depending on the state you live in. If they’re not exempt, they can be collected. You’re more likely to lose assets if their equity—the value of the property minus the amount still owed—is high.
What if you have little to no income and few (if any) assets? Chapter 7 bankruptcy may be the best choice for you. Be aware, though, Chapter 7 doesn’t erase the obligations of any co-signers you may have on a loan.
Chapter 13 bankruptcy
Also known as “reorganization bankruptcy” or “wage earner’s bankruptcy,” Chapter 13 is designed for people who have a consistent income and who want to keep their property. Chapter 13 bankruptcy gives filers a “grace period” of between three to five years to make payments on their debts. Any debts that remain at the end of the grace period are discharged.
The Chapter 13 plan is similar to debt consolidation. Unlike Chapter 7, this plan lets you keep your assets. It can erase the same debts Chapter 7 can erase, along with any debts from a divorce (except for alimony and child support). The court will determine the value of your equity in assets, look at your income and expenses, and figure out a repayment amount and schedule.
If you have money coming in but you need to buy some time—and you want to ensure you keep your house—Chapter 13 bankruptcy may be the best choice for you. Chapter 13 also protects any co-signers, as long as you make payments on time.
What to know before you file
This is not a decision to be taken lightly (obviously), so consider the following before filing.
Your credit will be affected
A Chapter 7 bankruptcy stays on your credit report for 10 years. A Chapter 13 bankruptcy stays on your credit report for seven years. Scores can drop anywhere from 50 to 200 points (higher scores will drop more steeply). You may have trouble getting certain loans or will pay higher interest rates. But people have successfully obtained credit and even purchased homes after declaring bankruptcy. Good money management practices, from here on out, go a long way.
You’ll have a meeting or two in court
For Chapter 7 bankruptcy you only have to go once, to a hearing called a “Meeting of Creditors.” The trustee will ask you questions about the paperwork you filed, including your assets and debts. Creditors may or may not attend—they usually don’t. For Chapter 13 bankruptcy you go to court twice, for the Meeting of Creditors and an additional confirmation hearing.
You need a lawyer
Technically you can represent yourself, but experts don’t recommend doing this. Filing becomes complicated and takes time and research to get all the facts right. Especially with a Chapter 13 bankruptcy, the more complex kind, there are details of bankruptcy law only an attorney can navigate. Fees range between $2,000 and $4,000. The fee may seem steep, but you’ll save on the penalties you might pay otherwise. The American Bar has a directory of bankruptcy lawyers. Some lawyers offer free first consultations, and you may even be eligible for pro bono representation. The American Bankruptcy Institute keeps a list of pro bono bankruptcy attorneys in each state.
Bankruptcy becomes part of a public record
Potential lenders will know you’ve filed for bankruptcy in the past. Your employer, however, can’t fire you for declaring bankruptcy.
There’s a fee of around $300 to file
If your household income is less than 150% of the poverty line, the fee can be waived.
You’ll have mandatory financial counseling
The process of filing for bankruptcy includes mandatory lessons on financial literacy. You take one class before you file and one class before your bankruptcy is discharged.
Your spouse won’t be affected
Your spouse does not have to file for bankruptcy, and your filing won’t affect their credit. The exception is if you need relief from debts you acquired together. In that case you can jointly file for bankruptcy.
You’ll need to simultaneously stop bill payments
Once you file you’ll probably be required to stop all bill payments at once. This may feel strange, but any payment can show you favor one creditor over another, which creditors don’t like.
Filing bankruptcy, first steps
If you think you may be a candidate for bankruptcy, start gathering as much information as you can as early as possible. Although you can learn a lot online about the pros and cons of bankruptcy—and what to expect if you file—you’ll want a lawyer that specializes in bankruptcy to actually go through with filing.
Bankruptcy filing fees and your lawyer’s fees are apt to cost anywhere from $1,000 to several thousand dollars, which is another reason why the decision to file bankruptcy should be made extremely carefully.
If, however, creditors are already pursuing you in court, and bankruptcy will help keep the roof over your head and food on the table, those costs—and the other downfalls to bankruptcy—may just be worth it.
Summary
Filing for bankruptcy is a last resort and can be frustrating. But the end result should give you a little breathing room and a chance to rebuild your finances. Take advantage of this chance if you need to.
When shopping for a wedding dress, I was given some sound advice: don’t try it on if you can’t afford it. Because if you fall in love with it, you will either be heartbroken when you can’t have it or you’ll blow your budget to get it.
What I love about this advice is that it is applicable to more than just wedding dress shopping.
For example, it works just as well when figuring how much rent you can afford. After all, the last thing you want to do is find your dream apartment only to discover it’s way out of your budget.
What’s Ahead:
Determine How Much Rent You Can Afford
Here are some rules of thumb to use when determining how much of your income should go to rent:
The 30% Rule
This rule is about as quick and easy as it gets when trying to decide how much you can afford to spend on rent: you should spend about 30% of your gross monthly income (before taxes) on rent.
Keep in mind the 30% rule doesn’t include utilities or any other housing expenses — it’s 30% of your gross income on rent alone.
So, if you bring home $3,000 per month, then you should aim to spend around $900 (or less) on your monthly rent ($3,000 x 0.30 = $900).
Keep in mind, this is just a general rule. The 30% rule is a good starting point, you may still need to adjust this figure based on what works best for you.
For example, if you live in a city with high rental prices, then you might be required to pay more than 30% just to find housing.
On the other hand, if you have student loan payments or other loans, then spending 30% on rent might be too high for your monthly budget.
Read more: How To Manage Student Loan Debt
The 30% rule has its origins in 1937 and the U.S. National Housing Act, which created the public housing program for low-income families. Income limits were established as eligibility for families that wanted to live in public housing. Back then, the rule was that, “a tenant’s income could not exceed five to six times the rent.”
Since then, the limit has increased. In 1961, the Housing and Urban Development Act established that the rent threshold should not exceed 25% of a family’s income. This was then raised to 30% in 1981 — a benchmark that’s since stayed the same.
The 50/30/20 Budget Rule
Another simple rule for determining how much of your income should go to rent is the 50/30/20 budget. This rule states you cam use 50% of your net income (after taxes) for your “needs.” Your needs include things like housing, utilities, car payments, and groceries.
Next, allot 30% of your monthly income for wants — things like clothing, eating out, and hobbies.
The remaining 20% should go towards saving, investing, and debt repayment.
So, if you bring home $3,000 per month after taxes, this would give you $1,500 per month to spend on your needs, $900 for wants, and $600 for saving, investing, and debt repayment:
To calculate 50% ($3,000 x 0.50 = $1,500).
To calculate 30% ($3,000 x 0.30 = $900).
To calculate 20% ($3,000 x 0.20 = $600).
Remember, the 50% is for all your needs, not just your rent alone. So make sure you have a good idea of how much you spend per month on things like food and utilities before deciding the exact amount you can put towards rent.
For help calculating your 50/30/20 budget, check out our handy 50/30/20 calculator.
The 50/30/20 rule was popularized by Senator Elizabeth Warren and her daughter Amelia Warren Tyagi in their book, “All Your Worth: The Ultimate Lifetime Money Plan.”
Other Considerations besides the Rent Price
While these rules of thumb are helpful starting points for determining how much rent you can afford, there are several other factors to consider — such as other expenses associated with renting, where you want to live, how much debt you have, and the kind of lifestyle you want.
Additional Costs Associated With Renting
Your monthly rent payment will likely be your largest housing expense, but it’s not the only expense. Often landlords require all sorts of extras. Here are some other things you’ll need to factor in:
Moving costs.
Security deposit.
Pet deposit.
Utility payments.
Renters insurance.
Parking.
Commuting costs.
Where Do You Want to Live?
If you’re looking in a high-cost-of-living city like San Francisco, where the average cost of a one-bedroom apartment is $2,995, then you might have to spend more than the recommended benchmark amount (or get four roommates).
On the other hand, if you’re looking for a place in a low-cost-of-living city and you make a high salary, you might spend less.
How Much Debt Do You Have?
You also have to consider how much debt you are carrying. If you are completely debt-free, then you might be able to pay a little more to your rent.
If you are drowning in student loans and credit card debt, then you probably need to be putting more of your income towards debt repayment.
Read more: How to Pay Off Credit Card Debt Fast
What Kind of Lifestyle Do You Want?
This is very important: don’t forget to think about the type of life you want to live. Your spending habits and other financial goals matter.
If you enjoy going out for dinner or spending extra money on hobbies, then make sure you are budgeting for these things. You don’t want to be house-poor and forced to spend all your time at home if what you enjoy most in life is being out and about.
Read more: When It’s OK to Spend Money
How To Reduce the Amount You Spend on Rent
If you want to decrease your housing expenses, there are some things you can do to reduce what you spend on rent:
Move to a city with a lower cost of living. If you can work remotely or you have the option to move to a cheaper city, consider doing it.
Move farther outside the city. Living in the city core can be expensive. If you want to reduce your rent, you can look into moving to the suburbs. This will often afford you more space for less money.
Get a roommate. Splitting housing costs with a few roommates can drastically reduce the amount you are spending on rent each month.
Negotiate with your landlord. Depending on where you live and the demand for rentals, you might be able to negotiate the cost of rent with your landlord. You can offer to prepay for a few months upfront in exchange for a discount. Or you could offer to extend the length of your lease if they are willing to reduce the monthly rent.
Offer to help your landlord. If you’re the handy type, offer your services to your landlord in exchange for reduced rent. Maybe you could paint or do minor fixes around the place for a cheaper monthly bill.
The Bottom Line
For many of us, we are spending the largest chunk of our income on rent.
While what you should spend on one month’s rent comes down to a few personal factors, like where you live and how much debt you’re carrying, simple rules like the 30% rule or the 50/30/20 budget can help set a baseline for what you can afford.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
The ripple effect of a financial mindset can be seen in every aspect of your life.
Think about it: If you are not mindful of how you spend and save money, then you will be in a constant struggle each and every month.
If you are simply someone who is struggling to make ends meet, there are many things we can do to save money. If you are trying desperately to reach financial freedom sooner, then you need these best money hacks to make it happen sooner.
Around here at Money Bliss, we spend a lot of time on our money mindset and setting goals.
Everyone is in a different season with their finances.
But, one thing is true… Most of us never learned proper money management.
Do you find yourself in a constant cycle of financial struggle? Do you feel like you are constantly trying to live up to unrealistic standards?
It is easy for people to feel that they are constantly broke, and in some cases this is true. But, it is also important to remember that there are ways in which you can make more money and start saving for your future.
Since changing money habits does not always come easy and often requires some serious changes in our mindset, we are here to support you to find the top money hacks.
Read on as we share 50+ ways you can start saving more money as well as making more money while also saving your sanity!
What are Money Hacks?
Money hacks are the ways in which people stretch their money.
These money hacks can come from a variety of sources, such as personal experience, family members or friends, and other individuals on social media.
Money hacks can come in many forms such as:
Simple money saving hacks
Ways to make money on the side
Strategies to make every dollar count
Thrifty ideas to be more frugal
Ideas to be more conscious of our waste
All in all, money hacks will help you to spend less money. Thus, saving more money.
As you will learn at Money Bliss, saving money opens up doors of opportunities
Best Money Hacks
Money hacks are ways to build long-term wealth.
Even though most of the hacks for money include quick saving wins, over the long term, you will actually start a snowball effect of more money in your bank account.
Sometimes, it can be difficult to find the motivation to save money, but these 7 best real money hacks will help you reset your financial mindset and start saving!
The best money hacks are the overarching big picture concepts that you must master for long-term success.
1. Think Big
Open up your mind.
One way to reset your financial mindset is by opening yourself up to new ways of thinking about spending and saving.
Too often, we are focused on what is directly in front of us instead of thinking about the big picture.
A great way to think big with your finances is to decide how you want to live life with intention.
2. Habit of Saving Money
Get back in the habit of saving.
If you have been beyond your means or barely scraping by, the best way to get back on track is by saving at least 20% of your income.
This may seem a little ludicrous. However, by prioritizing saving first, you will be pleasantly surprised how well you live off the rest.
In this post, there will be so many simple and easy ways to start saving today.
3. Make a Plan for Your Money
Create a spending plan (aka that dreaded word budget).
Creating an outline for what you want and need will help you to make smarter decisions about your spending.
This concept has been made too difficult over the years.
The bottom line is you want to spend less than you make. So, make a plan for that to happen today.
4. Make Money on the Side
This one is huge!
Personally, making extra money has been a priority for the last 5 years. We spent many years trying to cut our expenses and hating our inability to actually spend less as a growing family. So, we changed our focus to finding ways to make more money instead.
Start a side hustle. If you are not making enough to live comfortably, start a side hustle! Use your unique skill set to make extra cash.
Pick up a second job or ask for more hours.
There are plenty of ways to make money fast.
5. Invest in Stock Market
This means a way to make money or increase your net worth. AKA make your money work for you.
Too many times, the concept of investing is big and scary. The thought of starting is way too overwhelming. So you put it off until next week or next month. Then, a couple of years go by and you have not invested your money.
That is the biggest financial mistake you can make.
Start small by investing in an index fund. Each month consistently add more money.
If you want to learn to trade stocks, then you must enroll in the best investing course I have found.
Read my in-depth investing course review.
6. Pay Off Debt
Ugh… debt is the cash flow killer.
You are unable to make forward progress if you are straddled by debt.
Figure out how to pay off debt ASAP.
When calculating how long it will take to pay off high-interest debt, you should consider paying the highest interest rate first. Here is the best debt payoff app available.
7. Watch Your Spending
Be mindful of your spending.
This is a great practice that many people need to start doing again, regardless of how much money or how little money they have.
Every few months, you need to evaluate your spending to see if it matches up with your values.
As you can imagine there are many money hacks that can help you save, but the list above is the money hacks that will make the biggest difference the quickest. Below we have many more money hacks for you to explore.
Hacks for Saving Money
Money app hacks are small, quick, and easy ways to improve your finances.
They can range from things like automating your budget or creating a money jar that pays for itself, to more complex solutions like changing your tax withholding or moving money around to get a higher return.
Honestly, there are so many life hacks for saving money.
8. Automatic Savings
This is a practice of automatically transferring money from your checking account into your savings account on a regular basis.
It is best to set a transfer amount and stick to it.
Since it is easier to save your money before you spend it, you must save as much money as possible in order for this strategy to be effective.
9. Financial goals
A financial goal is a long-term, quantifiable expectation for how much money you want to have, or what you plan on doing with your money. Your goals can be as simple as saving for the down payment on a house or as involved as saving for retirement.
Our financial goals allow us to set specific, numerical targets that help us achieve our desired lifestyle in a more concrete way.
You must set smart financial goals.
10. What brings you joy?
At the end of the day, it is important to remember that life is all about finding what brings you joy.
The question is open-ended, but your money must line up with what brings you joy.
Spend a few minutes and stew on the question.
11. Build an emergency savings fund
Building an emergency savings fund is a great idea if you are in the habit of saving money and want to make sure that you have some money saved up when times get rough.
If you are struggling to save, there are a few ways you can increase your savings.
For example, you might be able to set up automatic transfers from your checking account into an investment account. You should also make sure that you have a way to save money outside of your checking account.
Saving cash in a jar or saving up coins are ideas for some people.
12. Invest spare change
If you go shopping and buy something, most stores will give you change. If you use a debit or credit card, you can do the same thing with help of a popular app!
Simple money hack: investing your spare change.
In order to invest your spare change in an account, you can open one for as little as $5. Acorns then automatically invest the money from your checking account and into a savings acorn account.
As the round-up feature continues to add upon each purchase, it is a good idea to invest in this app so that you can save more dollars!
13. Challenge Yourself to Save
If you are looking to save money, it is best to set up a budget that includes challenging yourself.
A great way to do this is with the no spend challenge.
A no-buy is when you decide to simply not make any purchases for a certain amount of time.
A no-spend is when someone decides to not spend any money in a certain period of time.
When you are struggling with spending too much money and want to reset your wallet, then give up spending money. Period.
14. Join a buy nothing group
The buy nothing groups are a growing movement that started in order to help people cut their ecological footprint, save money, and break free of consumerism.
This is a great way to find things you need as well as declutter your house.
15. Negotiate everything
The key to successful negotiation is preparation.
Research the company’s past sales, price changes, and discounts offered in order to get a better understanding of what you’re negotiating for.
Don’t be afraid to negotiate.
What is the worst thing that can happen when someone says no!?!
16. Refinance Your Mortgage
It is never too late to refinance your mortgage.
In fact, it might be a good idea if you’re in the market for a new home or refinancing your loan on an existing property.
You must weigh the costs of refinancing to how much you will save over the time period of the loan.
Ask around for mortgage broker recommendations and get at least two quotes.
17. Downsize your Home
Downsize your home is the term for reducing a residence in size. This can be done by either moving to an apartment or buying a smaller house. There are many benefits of downsizing, including living a more affordable lifestyle and having less upkeep.
Downsizers use their homes as investments and save money on rent or mortgage payments.
18. Cut the cord
With the internet becoming accessible to everyone, people have started cutting their cable and watching shows online. People can save up to $500 a year by cutting cable from their bills.
Cut the cable & stop watching TV!
19. Learn about Finances
Ask for help.
If you are struggling, there is no shame in asking for assistance from your friends or family members.
The goal is to get ahead with money and not keep digging further into a hole.
Check out any of our courses to help you.
20. Save for What You Want
Decide what you want most and work towards it with the money you have now, instead of waiting for a windfall or a large inheritance.
This may mean setting aside $200 a month.
For example, as a reminder of your long-term goal of buying a beach property, you may buy something you would hang in the new place. Every time you see it, you will be reminded of what you are saving towards.
Budget Hacks
Financial hacks are not unusual.
Since it is so easy to overspend, you must know a few budgeting hacks ahead of time.
21. Need vs Want
A want is a desire for something, while a need is something that fulfills the requirement of your body like food or shelter.
When you think about buying something, ask yourself if it is a want or a need.
By uncovering needs vs wants, you are quickly able to find ways to spend less and save more.
22. Avoid Temptation
To avoid temptation, it is important to maintain a healthy amount of physical and emotional distance from the things that tempt you.
Sometimes, spending triggers are easy to avoid but other times they’re not.
However, people should always be aware of their temptations and try to stay away from them because it will lead to unnecessary debt or stress in the long run.
23. Practice the 30-day rule
Many people wonder what’s the 30 day rule with money…
The 30-day rule is the principle that states that you should practice a new habit or stop an old habit for at least thirty days before expecting success.
When it comes to your money, it means to wait thirty days before making big purchases or changes.
24. Keep a Budget Binder
A budget binder is an important tool that helps people keep track of their finances.
The binder can help people plan out their finances by providing a place to record expenses and income.
Keeping a budget binder is an effective way to track your spending and keep yourself accountable.
By keeping it, you can easily plan for future expenses in advance as well as see what money could be saved or spent on different items over time.
25. Get a spend tracker and use it regularly
Track your spending for 30 days. It can be a good idea to track your spending for at least a month to get an idea of what you’re spending and where.
A spending tracker is a tool that helps people keep track of how much they are spending on a certain item. It is important to use this tool regularly in order to be able to see patterns in your spending.
Then, review your spending. Share it with a trusted friend or family member to come up with some goals to reduce expenses in order to save money.
26. Create a budget
Create a budget, and follow it.
When you schedule your spending, make sure to leave room for savings. This is the easiest way to ensure that you can stick to your budget.
Find more budgeting resources on our site.
27. Pay Bills on Time
This should be a simple statement that we all know. However, life can throw curveballs.
Try to pay your bills on time and in full every month, and make sure all of your bills are paid each month.
This will show lenders that you are responsible and that you are taking care of your credit. Plus you don’t rack up those pesky late fees and high interest rates.
28. Avoid Missed Payments
Don’t miss any payments, and pay off your balances each month to avoid paying high interest rates or fees on late or missed payments.
Read again… do not miss paying your bills.
29. Reconcile Your Checking Account
Balance your checkbook monthly. Okay, no one really uses a checkbook anymore, but you can still do this with pen and paper.
Even better, use Quicken as a simple way to balance your checking account. Read my Quicken review.
This is a great way to check for being charged too much or find a subscription you don’t use anymore.
30. Avoid Summer Budget Busters
Avoid spending money for the summer by just being conscious of your spending and reviewing what is different than the norm.
It is too easy to get into the trap of spending money because the weather is warm.
31. Review your Credit Card Statements
If you’re like most people, you probably review your credit card statements once every six months.
What’s the best way to go about reviewing them?
It depends on how often you use your credit card, how much debt you have, and what your credit score is. You should review your statements at least once a year if you’re carrying a balance on your credit cards.
If you use your credit card, then you should review your statements at least monthly.
32. Use the Cents Plan Formula
While the 50/30/20 budgeting rule is popular, our method of budgeting your money will be more helpful.
Learn how to divide your income into various categories.
Check out the Cents Plan Formula.
33. Use Cash
Use cash instead of credit cards to spend, which will make it easier to limit yourself to how much you can spend.
The envelope system helps you save money by only spending from one designated cash stash each month and withdrawing a set amount for different types of expenses (like groceries).
34. Spending Freeze
Implement a spending freeze, which helps you get used to not buying things for an allotted time so that when the freeze is over, it’s easier to buy what you want.
You will be surprised how much random online shopping you do.
Begin your spending freeze now.
35. Use a Budgeting App
Use your bank’s budgeting tools, like Quicken, which can help you track how much money is coming in and out of your account.
This is the simplest way to manage your money wisely.
Using a money app or a personal finance website can help you to stay organized and get more creative about your budgeting.
Check out this list of the best budgeting apps available.
Hacks to Make Money
Hacks to make money are a list of ways to generate income for yourself. Many ways to make money include blogging, affiliate marketing, or day trading. These money making hacks are great, but they can take more time and energy invested.
36. Use cash back apps
Cash back reward apps like Ibotta are a way to get extra money for your purchases.
They take some time getting used to and you only have access to partner stores that offer cash-back offers. It only takes a few seconds to make some extra cash.
Check out the best cash back apps available.
37. Ask for a Raise
A raise is an increase in pay for a job, labor, or service.
If you are concerned about asking for a raise, then you are missing out on lost money.
Your boss may be receptive to it, then try negotiating more money. Not only will this be good for your career, but also the relationship between you two can improve as well.
38. Get a side hustle
A side hustle is an additional job or career, usually, one that requires only a small amount of time and effort.
For example, someone who wants to work on the weekends might start a side hustle as a bartender.
Side hustles are a form of entrepreneurship that allows you to earn money and do little tasks. They are not difficult or time-consuming, but they can still help you make extra cash on the side.
Pick one of the best gig economy jobs.
39. Rent out a part of your home
A part of your home is often a room, which can be rented out on Airbnb.
Airbnb is the largest and most successful company in the world that lets people rent their extra space or properties. They are a well-known company that provides an easy way for people to make money from their extra space.
Use Neighbor to lend out your space in your home.
40. Declutter: sell your junk for cash
Decluttering is the act of getting rid of excess or unnecessary items.
In order to declutter, you must be willing to give up something that has been a part of your life for a long time. It is important to remember that decluttering does not have to be a quick or easy process.
Then, sell your stuff on Facebook Marketplace, Nextdoor, eBay, etc.
Learn more at Flea Market Flippers.
41. Earn Money While Watching TV
Although it is not a fast way to get rich, this can be used as a side hustle.
It’s better to use the money earned from watching TV or something else that takes up your time for other things like bills and groceries.
Survey platforms are online sites that allow people to earn money while watching TV.
The survey platform will send surveys through the mail or email, and then they can choose whether they want to take the survey for a set reward amount or if they would like cash back on their purchase.
One of these options is MyPoints, which allows users to earn points by completing tasks such as taking surveys and shopping online at specific retailers.
Others include:
42. Maximize Your Income
Find ways to increase the amount of money you bring in, whether that’s through a side hustle, increasing hours at work, or asking for a raise.
In today’s society, there are plenty of ways to make more money.
Only you put a limit on what you are capable of earning.
43. Build Your Credit
Building your credit can be a long process, but it’s worth the effort. If you’re trying to establish or improve your credit score, here are some tips that might help:
Try to keep your credit utilization rate below 30% at all times.
Do not open too many new lines of credit in a short period of time.
Pay your bills on time.
This will help you avoid damaging your credit score.
Hacks for Free Money
Hacks for free money are a form of fraud wherein the perpetrator solicits payment via PayPal, credit card, or other methods in exchange for access to what they promise will be a legitimate business opportunity.
Hacking free money is a way to make more cash, fund your financial goals, or help you pay off debt. There are lots of ways that people hack their finances and use cash back apps for some extra income.
Other options include signing up for bank bonuses or credit card bonuses.
Honestly, real free money hacks are more likely to be scams. So, beware when searching online.
Money Hacks in the Kitchen
You can save the most money by looking at what you eat.
Typically, people waste over 25% of their grocery budget and throw out food. Would you willingly throw out $250 a month? Probably not.
So, learn how to stretch your money for food.
44. Start meal planning
Meal planning is a money-saving strategy that can help in the long run. It’s also important to eat healthily and reduce food waste when meal planning.
But planning ahead will help save on the grocery budget, and it’s not too late to start now.
Start meal planning by deciding what you want to eat for each day. Then, make a list.
45. Say no to prepackaged foods
Packing your lunch for work or school can be time-consuming, especially if you have a family.
Some people prefer to buy prepackaged foods because they save time, but this is not always the best option.
A better choice is to make your own food at home and pack it for lunch, which you can then eat in peace without worrying about what other people might be saying about the food you packed.
46. Eat at home
Eating at home is a way to save money. It may be uncomfortable for those who do not enjoy cooking as it requires extra effort and time.
Instead of getting food at restaurants, consider cooking your favorite meals at home.
You can save money and time by eating the same meal over and over again.
Learn about the frugal home must haves.
47. Grow your own herbs and food
The most common methods of gardening include container gardening, hydroponics, and both indoor and outdoor gardening.
Many people are growing their own herbs and food for the satisfaction of being able to eat something that was grown with their hands.
48. Take your lunch
If you are interested in saving money, consider taking your lunch. This will save you up to $1,000 a year on work lunches and make it easier to meet the recommended daily intake of fruits and vegetables as well.
“Take your lunch” is an invitation to eat at home. There are many benefits of eating out less often, such as saving money and gaining more control over food choices.
Travel Hacks to Save Money
The following are travel hacks that can help you save money on your next trip.
Some of these hacks include traveling during weekdays, using public transportation, staying at hostels and Airbnb instead of hotels, and using a travel credit card.
49. Use foreign websites for lower prices abroad
Foreign websites are websites that have been created by people from other countries, and they sell products in the language of their country. These websites often offer lower prices on products than what is offered in the United States.
If you’re traveling abroad and need to find a place to stay, there are plenty of websites that can help. A few websites have deals on places where travelers often stay while they travel internationally.
50. Stay for free or get paid to house sit abroad
A house sitter is someone who looks after someone’s property for a certain amount of time in exchange for the promise of payment.
House sitting is typically offered by homeowners to travelers and others who are looking to stay in a particular location for an extended period of time.
The main types of house sitting include:
– full-time house sitters, who are responsible for all aspects of the house and who are typically paid a monthly salary,
– part-time house sitters, who may be responsible for taking care of one or more specific tasks such as gardening or handling the mail
51. Hide your search
To avoid being taken advantage of by airlines, it is best to open a new incognito or private window between searches.
This will make sure that you are not tricked into buying tickets that may be significantly more expensive than they need to be.
Airlines use cookies in your browser to make you believe the prices are going up and up.
Money App Hacks
Money app hacks are ways that people have figured out to make their money work for them in terms of saving and spending. These apps offer different features, such as budgeting, tracking your spending, and saving money.
If you want a simple way to save money, then any of these money apps are designed to find excessive spending.
52. Billshark
This is a legitimate way to save money on monthly bills. Billshark offers you the opportunity to save up to 25% each month (when compared with regular bill payments).
All of this can be done for you by BillShark team, and there are no fees involved!
Try Billshark for free!
53. Trim
Review your spending habits to find what you can cut out, like subscriptions.
Find other ways to save by looking for ways to reduce costly bank fees or getting a discount on your cell phone plan. By using Trim, you are saving money and improving your financial health.
Sign up with Trim now.
54. Truebill
Truebill can help you to track your spending, save money and get a clear picture of your financial life.
This helps you identify services that you are no longer using but continue to pay for. It will help save money by automatically negotiating prices with your service providers and receiving a refund of the money going to waste, which is free money.
Get started with Truebill.
Which Life Money Hacks Can You Start?
This is a lot to take in, but don’t worry.
Take the time to read through each suggestion and consider how you can implement it into your life.
The more hacks you try out, the closer you’ll get to a healthy financial mindset.
These are the life hacks to save money I have found to work for me and my family in order to reset our financial mindsets and grow our net worth.
Everyone will find their niche and what will work best for them.
Personally, you need to figure out how do I make more money. That will make the biggest impact the fastest.
What have you done with your money lately?
Know someone else that needs this, too? Then, please share!!
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This probably sounds strange coming from a guy who has been anti-budget all his life. Besides, haven’t I paid off all my debt? Don’t I have a positive cash-flow of over $1,000 per month? Yes, these things are true. But I’ve noticed something troubling: I’ve begun to experience that lifestyle inflation I’m always warning others about.
Lifestyle inflation is the natural tendency to increase our spending as our incomes increase. When we get a raise at work, we’re likely to spend more at home. A little lifestyle inflation is fine. But there’s a real danger of becoming too comfortable with increased spending. Once we become accustomed to a certain lifestyle, it’s difficult to cut back.
Cracks in the Foundation
On our flight home from Orlando, Kris and I talked about my spending. It has increased in recent months. Some of this is deliberate. I’ve made a conscious decision to allow myself to spend more money on Wants. I can afford it. The trouble is that I’ve begun to spend indiscriminately again, and I’m afraid that’s a slippery slope. I’ll buy random magazines at the grocery store, or pick up a game for the Wii that I’m only half interested in.
I’m certainly not spending beyond my means, but I’ve begun to make more impulse purchases. I want to correct this now — before it becomes a problem. In the past, I’ve used a spending plan to help me meet my goals, and more recently I’ve been following the broad outlines of Elizabeth Warren’s balanced money formula:
But sometimes broad outlines aren’t enough. In this case, Kris suggested that a budget might help curb my impulsiveness, and I think she’s right. With a budget, I can set specific goals. I can focus on the things I really want instead of just spending on random things that appeal to me in the moment.
So, I’ve decided to create a budget. Not a comprehensive budget — my Income, Needs, and Saving are all fine — but a budget for my Wants. I want to exercise discipline in this area so that I’m spending on things that are actually important to me instead of random stuff, stuff that ultimately turns into clutter.
Blueprint for Success
To start, I reviewed my discretionary spending from last year and compared it to the totals from the first four months of 2009. This is where tracking every penny you spend can prove valuable. By comparing my past spending to my present spending, I’m able to detect trends. It’s very clear, for example, that I am again spending too much on dining out. Time to cut back.
Next, I thought about my goals. What is it that I really want to do? Lately, travel appeals to me. Kris and I both would like to take a vacation to Europe in 2010. To make that happen, I need to save. This gives me a medium-term goal to save toward.
Finally, I allocated a specific amount of money toward my monthly Wants. Remember, because I’m self-employed, I have an irregular income that passes through my business account first. If I pull out $2500 per month (after taxes) to act as personal income, that gives me $750 to spend on my passions. That should be plenty.
Note:Based on my Income, Needs, and Saving, I can afford to allocate $750 for Wants. This might seem high to some GRS readers. It would have seemed high to me once, too. But because I’ve paid off my consumer debt, I have $750 per month to spend on the things that make me happy.
Building the Budget
After collecting the data and setting my goals, I made a first pass at a budget. This is what I’ll use for June and July:
Books: $50/month
Comic Books: $50/month
Entertainment: $50/month
Clothing: $50/month
Charity: $50/month
Dining Out: $200/month
Vacation 2010: $200/month (plus small windfalls)
Miscellaneous: $100/month
Obviously, you might make different choices. I know that many GRS readers are avid contributors to charity, for example, and I suspect few of you budget for comic books! These are the allocations that seem to make sense for me and my situation. I’m sure that I’ll make changes to this budget as I work with it in the real world.
Actually, I have a lot of questions about how a budget should work in the real world. Because I’m a budgeting novice, I could use some help. I’m hoping that you experienced budgeters can answer some of my questions:
How often do you re-evaluate your budget? Do you make monthly adjustments? Quarterly? Yearly?
If you go over budget for a month, what do you do? Do you make immediate adjustments? Or do you simply try to correct things the following month?
What if I go under budget in a category? Does that mean I get to carry that money into the next month? Can I use it for a different Want category? (Perhaps sweep anything extra into the Vacation fund?) Or does does that money go to Saving instead? Or should I donate it to charity?
How do you track your spending against the budget? If I used the envelope system, I’d allocate the actual cash to each account before-hand. But what if I don’t want to have that much cash around the house? Is there a good way to keep track of current spending in each category? Should I carry a notecard with my monthly spending on it? (That seems to be what Bargain Babe recommends.)
Do you try to further reduce spending on these categories? For example, should I try to drop my budget for Dining Out even more?
This is a strange new world for me. Over the past year, I’ve been pursuing more and more advanced personal finance subjects and concepts. Yet here I am, in better financial shape than ever, about to implement a basic skill I’ve never mastered before. That’s okay. I believe it’s important to continue focusing on the fundamentals even as we tackle more advanced topics.
My Discretionary Spending: Bits and Pieces
I want to talk about a couple of my spending habits. One is a worrisome trend, and one is a thing I’m doing right.
Food for Thought
Long-time readers know that Kris and I love to dine out. It’s one of those things we’re willing to spend on. We cut corners in other areas of our lives so that we can afford to make this happen. Still, I’ve been concerned about my restaurant spending for the past couple of years. It seems a tad excessive.
How’d I do last year? Well, my grocery spending dropped, but my restaurant spending went up again — a lot. Here’s a look at five years of data:
In 2005, we spent $1423.39 to dine out 100 times, for an average cost of $14.23 per meal.
In 2006, we spent $1869.58 to dine out 108 times, for an average cost of $17.31 per meal.
In 2007, we spent $2051.93 to dine out 84 times, for an average cost of $24.43 per meal.
In 2008, we spent $2628.08 to dine out 77 times, for an average cost of $34.14 per meal.
In 2009, we spent $3443.61 to dine out 69 times, for an average cost of $49.91 per meal.
Holy cats! Will you look at those numbers? We’re only dining out about half two-thirds as often as we were in 2006, but we’re spending nearly three times as much per meal. At the current rate of spending growth, we’ll be spending $300 per meal in 2015! Since I can afford our current spending — I’m not living beyond my means — the real question is: Am I getting my money’s worth? I’m not sure that I am.
If I’m honest, I have to admit that I don’t like the idea that we’re paying $50 per meal. I’d much rather return to our former habit: Dining out more often, but spending less each time. To that end, I’ve been brainstorming ways we can work to cut costs:
We could do a better job of looking for discounts. We have an Entertainment book, and the local paper often features specials at local restaurants. We should take advantage of both of these. We used to do this, but have fallen out of the habit (primarily because we’ve become so used to eating at the same places again and again).
We need to find more cheap places to eat. Half the fun of going out is just going out. Sure, we love the fancy restaurants, but we used to be happy with Dairy Queen. (This is lifestyle inflation in action!) The real problem is that the cheap places I know and love (Cha Cha Cha and Imperial Garden) aren’t Kris’ favorites. We need to find cheap places we both like.
When we do eat in the same old haunts, we need to make an effort to reduce our spending. It’s okay to have an appetizer, entree, dessert, and drink all in the same meal now and then, but we could save money by cutting one or two of these from the mix each time we dine out.
Finally, we should invite friends to our home for dinner more often. As soon as the book is done (getting close!), I’m going to make a habit of inviting one family to dine with us every couple of weeks. We used to do this a lot, but have fallen out of the habit. It’s fun and frugal to have folks over for dinner.
So, that’s one part of my financial life that still needs work. Next, let’s look at something I’m doing right.
Tangent: Portlanders, help me out. What are your favorite cheap places to eat around town? Bonus points for inner southeast, West of 39th from Hawthorne south to Oregon City.
A Waning of Want
Here’s something that amazes me: We’re twelve days into the year and I haven’t spent anything yet on personal expenses. I haven’t even felt the urge. I’ve bought gas for the Mini and groceries for home, and Kris and I went out to lunch last Friday, but I haven’t spent a dime on gadgets or books or games or toys or magazines.
“Big deal,” you might say. “That’s how it should be.” You’re right. But for me, this is a big deal. All my life, I’ve had the uncontrollable urge to buy Stuff. It used to be that I couldn’t go more than a day or two without buying something. Even while writing this blog, that’s been the case. (I’ve just learned to channel my desires into smaller, cheaper things.) Now, as last, I seem to have licked it.
I still want things — no question! — but I’ve become very good at ignoring the wants and moving on. How?
Sometimes, I just put down the thing I want, turn off my brain, and walk away. I force myself to stop thinking about it. (Usually by thinking about something else — like our upcoming trip to Europe, and how I need to save for that instead.)
If I still want the thing when I get home, I put it on my Amazon wish-list. For whatever reason, that’s often enough to satisfy the strange inner workings of my mind. I feel comforted knowing I’ve let myself put it on a list where I won’t forget it.
I’m very good about using the 30-day rule to control my impulse spending. My Amazon wish-list plays a role in that, but so does my mountain of index cards. (My life wouldn’t be complete without index cards.) I have a handful of cards on my desk filled with notes about the things I want. It’s amazing how many times I sort through this stack and end up throwing cards away because I no longer want the item I’ve written down.
These techniques help me deal with desire. They don’t quell it completely — nor would I want them to — but they do keep it in check. That last rule is probably the most effective. By delaying purchases 30 days, I don’t feel like I’m denying myself. I can still buy what I want if I want it 30 days later, but I’m not just giving in to impulse spending. (When 30 days rolls around and I do still want something, it actually feels pretty good to be able to buy it.)
My current spending moratorium isn’t permanent, and I know that. In fact, the new Dick Tracy anthology comes out tomorrow, so if nothing else, I’ll be shelling over $25 for that.
Remember: there’s nothing inherently wrong with spending money on things that bring you joy. Problems arise when you finance these purchases with debt. If you’re meeting your other financial goals and have money left over, it’s good to indulge your interests and passions. Just make sure you’re getting value for the dollars you spend.
A Look Back to Previous Years
I believe there are two components to building wealth:
Reducing costs
Boosting income
Doing one or the other can help you meet your goals, but to really succeed, you must do both. My goal has been to create a significant positive monthly cash flow. I’ve managed to do this. But as my income increases, so does the temptation to spend more. Have I been able to fight the urge? It’s time for the annual review of my largest sources of discretionary spending:
Although I use comics as a prop for laughs at Get Rich Slowly, I’ve genuinely struggled with my spending on them in the past. Not this year. I made vast improvements in 2008, actually spending less on comics than I had planned. There are two reasons for this. First, I’ve narrowed my focus, collecting only those titles I most desire. I’m also making an effort to read all of the books I’ve bought but never finished. These two changes have helped me to spend less on this hobby.
At one time, I spent over $200 a month on books. Now I spend less than $40. I’m content with this number, especially since many of these are for our monthly book group. One reason my inclination to buy books has decreased is that I’m able to purchase personal-finance books through Get Rich Slowly, the business. (Plus authors and publishers send them to me for free.) This gives me a never-ending source of reading material, and makes me less inclined to spend time in a bookstore. And again, I’m trying to read books I own but have never finished.
Entertainment (2005: $478.81, 2006: $543.55, 2007: $1094.83, 2008: $897.91)
This number isn’t as bad as it seems. It includes two Decemberists concerts for me and Kris, and it also includes some of our television viewing. (Remember that Kris and I cut back to basic cable, and now we watch TV through Netflix and through the iTunes Music Store.) There’s also a one-time $236 event here that ought to have been a business expense. I’m not unhappy with my spending on Entertainment.
Many personal finance writers view pets as an unnecessary expense. To me, $35 a month to keep four cats is a bargain. It only costs me about a quarter a day for each animal, and they bring much more joy to my life than that. If Kris would let me, I’d be the “crazy cat lady” on the block. (Are there “crazy cat gentlemen”?) Note that our actual pet expenses are greater. Kris pays for their food, and that’s not reflected in these numbers
This includes wine, liquor, pipe tobacco, poker nights, etc. I don’t smoke regularly, but I do smoke a pipe maybe a dozen times a year. Most of this expense is for alcohol at dinner parties and social gatherings. My alcohol consumption did increase during 2008, which is a concern, but that’s not the reason for the increased spending. For the first time ever, we bought a couple of cases of wine. This will actually reduce the “wages of sin” in the long run, but it bumped the number for 2008.
Although this report is interesting, there are problems with my methodology. For example, I’ve included my grocery spending above (although it’s not really discretionary), but have not included spending on exercise equipment (which is discretionary). Also, Kris pays for much of our grocery shopping. Because we keep separate accounts, her share of that expense isn’t reflected in these numbers.
In order to be consistent from year-to-year, however, I’ve elected to continue reporting the same expenses in the same ways. You’ll have to take my word that the figures here are representative of my spending as a whole. This annual report is sort of like tracking a stock market index, I guess. It doesn’t reveal nuances, but it’s still a useful indicator of the Big Picture.
So despite cutting back on the areas that are really important to me — books and comics — my spending increased. And most of that increase came from dining out.
How did you do on your spending goals last year? Are there areas where you wish you spent less? If so, what strategies do you use to keep yourself in check?
In-depth reviews of the best travel rewards credit cards
Capital One Venture X Rewards Credit Card
Pros:
Elevated earn rate on everyday spending
High welcome bonus for a reasonable spending requirement
Excellent travel perks and recurring benefits
Cons:
Travel bonuses are limited to Capital One bookings
High annual fee
Capital One pulls your credit from all three credit bureaus
The Capital One Venture X Rewards Credit Card is a relatively new travel credit card but has quickly distinguished itself as one of the best. See Rates & Fees.
The card offers a substantial welcome bonus and elevated earn rate that makes racking up points fast and easy. Even if you don’t take advantage of the 5-10x travel bonus, you’ll earn 2x miles on all spending. This earning structure is ideal for people who don’t want to deal with tracking category bonuses. If you want a single credit card in your wallet that earns more than one mile per dollar spent, this is the card for you.
The card’s $395 annual fee is high but still lower than most premium credit cards. However, the recurring benefits offset it — think things like a $300 annual travel statement credit for Capital One Travel bookings and a Global Entry/TSA PreCheck® credit every four years. Best of all, the card offers a yearly 10,000-mile bonus worth $100 towards travel.
The card’s lounge benefits are also worth noting. Members get unlimited visits to Capital One Lounges. While the Capital One lounge network is still developing, members also get Priority Pass Select membership, valid at over 1,300 lounges worldwide.
The only downside about Capital One is that the bank pulls your credit from all three bureaus rather than just one, making for a sure hard hit on your credit score. However, if you keep this card long-term, it’s worth it.
Annual fee: $395
Welcome bonus: Earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months from account opening
Rewards: 10x miles on hotels and rental cars booked through Capital One Travel; 5x miles on flights booked with Capital One Travel; 2x miles on all other purchases
Travel benefits: $300 annual travel statement credit on Capital One Travel bookings; up to $100 Global Entry or TSA PreCheck® credit every four years; 10,000 anniversary bonus miles (worth $100 towards travel); unlimited Capital One lounge access (plus two complimentary guests); Priority Pass™ membership; Hertz President’s Circle® status*, and; no foreign transaction fees
Travel insurance: Travel accident insurance, auto rental coverage (See Rates & Fees.)
Read our full review of the Capital One Venture X Rewards Card.
The Platinum Card® from American Express
Pros:
Loaded with travel and dining credits that help offset the annual fee
Automatic elite status with Hilton and Marriott
Substantial welcome bonus that will cover at least one round-trip international business class fare
Transfer your points to 20 airline and hotel partners
Cons:
High annual fee
Lack of meaningful category bonuses
Requires excellent credit
The Platinum Card® from American Express has one of the highest annual fees at $695, but it also comes packed with travel credits and benefits galore. Taking advantage of them would get you well over $1,500 in value every year. Between the elite status perks, travel credits, digital entertainment credits, and lounge membership, it offers the most comprehensive travel perks of any credit card.
The Amex Platinum also offers best-in-class travel insurance. All you have to do is charge your travel bookings to the Platinum card, and you’ll be protected in case of cancellations and delays.
With a 80,000-point welcome bonus, you can book an off-peak round-trip business class ticket to Europe with All Nippon Airways miles. Or you can opt for economy class and cover up to four round-trip tickets to Europe using Flying Blue rewards.
The Amex Platinum is an excellent travel rewards card if you want a large welcome bonus and tons of travel perks. But the annual fee is hefty, and the card lacks any meaningful category bonuses beyond direct travel bookings. If you don’t think you’ll be able to get your money’s worth through the various credits every year, you might want to consider a different card.
Annual fee: $695
Welcome bonus: Earn 80,000 Membership Rewards® points after spending $6,000 within the first six months
Rewards: 5x points on flights and prepaid hotels; 1x point on all other purchases
Travel benefits: $300 annual Equinox credit (issued monthly); $200 annual credit on prepaid hotels booked through Amex Travel; $200 in annual Uber Cash (distributed monthly); $200 annual airline fee credit; $155 Walmart+ credit; $20 monthly digital entertainment credit; access to the Amex Global Lounge Collection; $189 CLEAR credit; Global Entry/TSA PreCheck® credit every five years; $100 Saks credit issued semi-annually; Hilton and Marriott Gold status; access to Amex Fine Hotels & Resorts; premium car rental status; no foreign transaction fees
Travel insurance: Primary rental car coverage; trip delay insurance (up to $500 per trip); trip cancellation & interruption insurance (up to $10,000 per trip)
Read more: Are Amex cards worth it?
Chase Sapphire Preferred®
Pros:
Generous earn rate on common spending categories
Flexible loyalty program with good transfer partner selection and ability to redeem for direct bookings through Chase Ultimate Rewards® at a rate of 1.25 cents per point
Generous travel benefits and protections for a mid-tier card
Cons:
Limitations on the highest spending categories
Bookings made with the $50 hotel credit don’t earn 5x points
The Chase Sapphire Preferred® Card has had the distinction of being one of the best travel credit cards for over a decade. The card is popular because it offers a generous welcome bonus, which is fairly simple to redeem. You can transfer points to one of 14 airlines or hotels. Or you can redeem points through Ultimate Rewards® Travel at just 1.25 cents each. This flexibility makes Ultimate Rewards® points (and the Sapphire Preferred® Card) incredibly valuable.
If one loyalty program devalues, you can transfer your points to a different partner. Just keep in mind that point transfers are not reversible, so don’t do it unless you’re ready to redeem the points.
The Chase Sapphire Preferred® Card is a great starter travel card, and its $95 annual fee is typical for a mid-tier card. However, if you don’t use the $50 annual hotel credit or earn at least 9,500 points per year to justify the annual fee, then it’s not worth it.
Annual fee: $95
Welcome bonus:60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $750 when you redeem through Chase Ultimate Rewards®.
Rewards: 5x points on travel booked with Chase Ultimate Rewards®; 3x points on dining (including eligible delivery services), select streaming services, and online grocery store purchases; 2x on other travel purchases; 1x on all other spending
Travel benefits: Up to $50 in annual credits towards Ultimate Rewards® hotel bookings; no foreign transaction fees
Travel insurance: Primary rental car collision waiver; up to $10,000 in trip cancellation/interruption coverage; purchase protection for 120 days; extended warranty protection
Read our full review of the Chase Sapphire Preferred® Card.
Citi Premier® Card
Pros:
High welcome bonus that transfers to 16 airline and hotel programs
$100 hotel credit on Citi ThankYou® Travel bookings of $500 or more
Reasonable annual fee
Cons:
No travel protections
$100 hotel credit excludes taxes and fees
At first sight, the Citi Premier® Card shouldn’t be on this list. The card has no travel protections, which is not ideal when booking thousands of dollars in travel. However, if you buy travel insurance anyway, then the Citi Premier® isn’t so bad. It’s a great card for maximizing spending on everyday purchases.
The card earns 3x points on select travel and common spending categories like dining, gas, and groceries. Cardmembers also get a $100 annual hotel credit valid on Citi Travel bookings of $500 or more. Considering the annual fee, this perk is pretty generous.
The Citi ThankYou® program is also one of the best, allowing you to transfer the card’s substantial bonus to 16 airline and hotel programs.
If you want a travel rewards card that really rewards you in your everyday life, this is a great card. Just think twice about charging expensive travel bookings to it, since they won’t be protected.
Annual fee:
Welcome bonus:Earn 60,000 bonus ThankYou(R) Points after you spend $4,000 in purchases within the first 3 months of account opening. Plus, for a limited time, earn a total of 10 ThankYou(R) Points per $1 spent on hotel, car rentals, and attractions (excluding air travel) booked on the Citi Travel(SM) portal through June 30, 2024.
Rewards: 3x points at restaurants, supermarkets, gas stations, air travel, and hotels; 1x on all other purchases
Benefits: Annual $100 hotel savings on a booking of $500 or more (excluding taxes and fees); no foreign transaction fees
Travel insurance: None
Read our full review of the Citi Premier® Card.
Card info has been independently collected by MoneyUnder30 to help consumers better compare cards. The financial institution did not provide or approve card details.
AAdvantage® Aviator® Red World Elite Mastercard®
Pros:
Easy welcome bonus
Free checked bags and priority boarding when flying American Airlines
Ability to earn a Companion Certificate every year
Cons:
$99 annual fee
Airline miles are more limited in use than transferable rewards
The best airline credit card is a tough one because it really comes down to your airline loyalty and whether you live near a hub city. But there’s a good reason we’ve chosen the AAdvantage® Aviator® Red World Elite Mastercard® for this category. The card offers one of the easiest spending requirements to complete and includes several ongoing perks that provide value beyond the $99 annual fee.
The Aviator Red card’s 50,000-mile welcome bonus is easy to earn. You only need to use the card once (for any purchase), and you’ll earn 50,000 bonus miles.
The card also offers a free checked bag on American Airlines flights, discounts on in-flight purchases and Wi-Fi credits, and a $99 Companion Certificate when you spend $20,000 in a year. Best of all: every dollar spent on this card counts towards elite status with American Airlines.
Annual fee: $99
Welcome bonus: 50,000 bonus miles after the first purchase and paying the $99 annual fee
Rewards: 2x miles on all American Airlines purchases; 1x mile on everything else
Travel benefits: $25 in statement credits towards in-flight Wi-Fi purchases; 25% discount on inflight food and beverage purchases; free first checked bag; preferred boarding; $99 Companion Certificate every year you spend $20,000 on the card; no foreign transaction fees
Annual free weekend night and resort credits help offset the annual fee
Generous category bonuses, with an additional spending incentive
Cons:
$450 annual fee
Priority Pass membership from American Express cards does not include access to airport restaurants
Hilton points have limited use
The Hilton Honors American Express Aspire Card is arguably the best hotel credit card. If you’re looking to earn Hilton points and make your next stay more rewarding, look no further.
Cardmembers get automatic top-tier Diamond status, which normally requires 42 nights, 21 stays, or 84,000 base points. Diamond members get free complimentary breakfast (or a dining credit at U.S. properties), club lounge access, space-available room upgrades, and 100% bonus points on paid stays.
Cardmembers also receive an annual free weekend night award, plus the ability to earn a second free night after spending $60,000 in a calendar year.
A $250 airline fee credit makes the $450 annual fee more palatable, along with the Priority Pass membership.
The only downside? American Express cards don’t get restaurant access with their Priority Pass membership, and some airports have restaurants that are part of the Priority Pass network. Members receive a credit of $28-$35 per person at these restaurants, which is handy when airline lounges are full or closed.
The Hilton Aspire Card offers a ton of value beyond the welcome bonus. Even if you just stay at one Hilton hotel a year, you can get your money’s worth. The card’s category bonuses make it easy to earn Hilton points. The only negative side to this is that you’re earning Hilton points rather than a transferable currency with more flexible use.
Annual fee: $450
Welcome bonus: 150,000 Hilton Honors bonus points after spending $4,000 within your first three months of card membership
Rewards: 14x points on hotels and resorts; 7x points on travel (flights booked directly with airlines or Amex Travel, cars booked with select companies); 7x points at U.S. restaurants; 3x points on all other purchases
Travel benefits: Annual free weekend night reward; $250 annual Hilton resort credit; annual $250 airline fee credit; $100 property credit at select hotels booked for two nights minimum; top-tier Hilton Diamond elite status; Priority Pass Select membership; no foreign transaction fees
Travel insurance: Secondary rental car collision coverage; up to $3,000 baggage insurance plan
Read more: The best hotel credit cards
Bilt Rewards Mastercard®
Pros:
Earn fee-free points on rent
Transfer points to 14 airline and hotel partners, most of which overlap with Chase Ultimate Rewards®
No annual fee
Cons:
Must make five transactions per billing period to earn points
Limited category bonuses
No welcome bonus
The Bilt Rewards Mastercard® is a relative newcomer to the travel credit card scene but has already shaken things up. The card has no welcome bonus, but it has one very lucrative feature: cardmembers can earn points on rent payments without paying fees. Services like Plastiq charge a 2.8% fee when you use a credit card for rent payments. Bilt lets you earn points without a fee if you make at least five transactions per billing period.
Bilt makes other purchases rewarding too. Cardmembers earn 3x points on dining, 2x on travel, and 1x everywhere else. In addition, cardmembers earn double points on the first of every month (except on rent payments). But what can you do with the rewards?
Bilt has 14 airline and hotel transfer partners, including Hyatt – which only partners with one other program (Chase Ultimate Rewards®). Bilt Rewards has 10 transfer partners in common with Chase, making this an excellent option if you want a no-annual-fee rewards card.
Annual fee: $0
Welcome bonus: None
Rewards: 3x points on dining; 2x on travel; 1x on rent payments without the transaction fee
Benefits: $5 Lyft credit when you take three rides per month; 3-month DashPass membership; travel perks on Rent Day (i.e., two-for-one Virgin Voyages sailings); no foreign transaction fees
Travel insurance: Trip cancellation and interruption coverage (up to $5,000); trip delay reimbursement (up to $1,800 per trip); auto rental collision coverage
Read our full review of the Bilt Rewards Mastercard®.
Chase Sapphire Reserve®
Pros:
The current welcome bonus is valid for up to $900 in direct travel bookings through Chase Ultimate Rewards® or can be transferred to 14 airline and hotel partners
The $300 annual travel credit offsets most of the annual fee
Excellent travel protections and benefits
Cons:
High annual fee
$75 fee per authorized user
The Chase Sapphire Reserve® Card is a great choice if you want a premium credit card that earns Ultimate Rewards®. The card currently has an elevated welcome bonus of 60,000 bonus points after spending $4,000 within the first three months of account opening. It also offers plenty of category bonuses to help you keep earning points beyond the initial bonus.
The $300 annual travel credit partially offsets the $550 fee. Cardmembers also get Priority Pass membership, up to $100 towards TSA PreCheck®, Global Entry or NEXUS application fees. The card also has plenty of travel protections, so you can charge your travel expenses with peace of mind.
Chase Ultimate Rewards® is a great program, whether you want to maximize its transfer partners or use it for direct travel bookings. Sapphire Reserve® cardholders can redeem their points for 1.5 cents each towards Ultimate Rewards® travel bookings. This flexibility is great for folks looking for simple redemption options.
Annual fee: $550 and $75 per authorized user
Welcome bonus:60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $900 toward travel when you redeem through Chase Ultimate Rewards®.
Rewards: 10x points on Chase Dining and hotel and car rental bookings through Chase Ultimate Rewards®; 5x points on Chase Ultimate Rewards® flight bookings; 3x points on travel worldwide; 3x points on other dining purchases (including eligible delivery services; 1x points on all other purchases
Travel benefits: $300 annual travel credit; Priority Pass Select membership; up to $100 Global Entry, TSA Precheck or NEXUS fee credit every four years; Luxury Hotel & Resort Collection perks
Travel Insurance: Trip cancellation and interruption insurance (up to $20,000 per trip); trip delay reimbursement (up to $500 per ticket); primary rental car coverage (up to $75,000); lost luggage reimbursement (up to $3,000 per passenger); emergency evacuation and transportation coverage (up to $100,000)
Read our full review of the Chase Sapphire Reserve®.
Capital One Venture Rewards Credit Card
Pros:
High welcome bonus and simple rewards structure for maximizing mileage earnings
Excellent transfer partners
Generous travel perks for a low-annual-fee card
Cons:
Capital One pulls your credit from all three credit bureaus
Limited lounge network
The Capital One Venture Rewards Credit Card has it all: an excellent welcome bonus, a top-notch rewards program, and generous travel perks for a low annual fee. Cardmembers get up to $100 Global Entry or TSA PreCheck® credit and two complimentary annual visits to Capital One Lounges. These perks are highly unusual for a mid-tier card, making Capital One Venture Reward’s $95 annual fee an excellent value. See Rates & Fees.
The welcome bonus is the same as the Venture X Rewards Card. So if you don’t want to shell out the $395 annual fee, the Venture Rewards card is a cheaper alternative. The 2x earn rate on all purchases is especially significant if you want to elevate the rewards you earn on everyday spending without tracking category bonuses across multiple cards. This can be your one-and-done rewards card.
Annual fee: $95
Welcome bonus: Earn 75,000 miles once you spend $4,000 on purchases within 3 months from account opening
Rewards: 5x miles on hotels and rental cars booked through Capital One Travel; 2x miles on all other purchases
Travel benefits: Two free Capital One Lounge visits per year; Hertz Five Star status*; up to $100 Global Entry/TSA PreCheck® credit; no foreign transaction fees
Travel insurance: Travel & Emergency Assistance Services and Auto Rental Insurance (See Rates & Fees.)
Read our full review of the Capital One Venture Rewards Card.
American Express® Gold Card
Pros:
Category bonuses are great for maximizing everyday spending
Amex has 17 airline and hotel partners, with periodic transfer bonuses
Statement credits can offset the annual fee
Cons:
Car rental coverage is secondary — upgrade to primary coverage costs $12.25-$24.95 per rental through Premium Car Rental Protection
$250 annual fee is high
Statement credits are limited to select merchants
The Amex Gold Card is an excellent travel card for everyday use. It offers generous category bonuses to help you maximize everyday purchases. Plus, the card provides monthly statement credits at select restaurants and Uber Cash that can make dining out (and transportation) easier. The Uber credits are valid on both UberEats and Uber rides, making them great for travelers and homebodies alike.
The 4x bonus on dining applies to restaurants worldwide, so you can continue maximizing this bonus even while out of the country. The card also has several travel protections, so you have peace of mind when booking your trips.
The downside? The $250 annual fee is steep; not everyone will find value in the statement credits. Amex’s once-per-lifetime rule can also make the welcome bonus less attainable. My advice? Wait for a higher offer. Not too long ago, the card was offering 90,000 bonus points. Since you’re limited to one bonus, you might as well hold out for the highest one possible.
Annual fee: $250
Welcome bonus: 60,000 bonus points after spending $4,000 within the first six months of card membership.
Rewards: 4x points at restaurants worldwide; 4x points at U.S. supermarkets (up to $25,000 per year); 3x on flights; 1x on all other purchases
Travel benefits: $10 monthly credit valid at Cheesecake Factory, Gold Belly, GrubHub, Milk Bar, Wine.com, and select Shake Shack locations; $10 monthly Uber cash; no foreign transaction fees
Travel Insurance: Baggage insurance plan (up to $1,250); secondary car rental coverage
Read more: Amex Gold vs. Chase Sapphire Preferred® Card: Which travel rewards card is right for you?
How do travel credit cards work?
Travel credit cards offer rewards that you can redeem for nearly-free flights and hotel nights. There are generally three types of travel credit cards: ones that earn transferable points, that earn hotel points, or that earn airline miles.
A diverse points portfolio is part of a good travel hacking strategy, so you should aim for at least one credit card that earns transferrable rewards. This way, you’re not stuck with one currency and have flexibility in redeeming points. If one loyalty program devalues, you can transfer your points to another one. If one program limits award space, you can transfer points to one with the seats or rooms you need.
Travel credit cards go beyond points. Many offer recurring travel perks like free hotel nights, airline credits, lounge membership, elite status perks, and more. If you play your cards right, travel credit cards can improve your travel experience substantially and help you save money.
The only downside is that most travel cards carry annual fees. Some of these fees go as high as $695. You’ll want to evaluate the card’s features and recurring perks before choosing one. The last thing you want is to shell out thousands of dollars in credit card annual fees and not get your money’s worth.
What’s the difference between points and miles?
Points and miles are two different types of currencies that can be used for travel. Points are generally issued by hotel loyalty programs or banks, while airlines issue miles. Of course, there are exceptions. For example, JetBlue, Southwest and Air Canada all call their rewards currencies “points” rather than miles.
Most banks have transferrable rewards they call points — these rewards can be used towards travel or cash back at a fixed cost. Their best use is transferring them to participating airline or hotel loyalty programs. Most transfers are 1:1 and nearly instant.
Airline miles are ideal for flights, while hotel points are best for free nights. Some hotel chains let you convert your points to airline miles, though the transfer ratio isn’t ideal. For example, Marriott points transfer to most airlines 3:1, with a 5,000-point bonus for every 60,000 points transferred.
For the best points strategy, you should have credit cards that earn points and miles. However, consider getting a transferrable rewards card like the Capital One Venture if you want to narrow it down to one card. You’ll earn 2x miles on every dollar spent and have access to 15+ airline and hotel transfer partners.
And if you don’t want to figure out where to transfer your points, you can redeem them towards travel purchases at one cent each.
How to choose a travel card
With so many great options, choosing a travel credit card can seem overwhelming. Everyone has different goals and spending habits, so there is no “best credit card” that meets every need. But if you’re in the market for a travel card, there are a few factors to consider that will help you make the best choice:
1. Know the (credit card application) rules
Most banks require good credit for travel cards, but did you know they also have various rules that impact approvals? Before you apply for a credit card, you should familiarize yourself with these rules to avoid unnecessary rejection. Here are some credit card application rules from different banks:
American Express
Once-per-lifetime rule
Five card limit
No more than two cards within 90 days
American Express has three credit card application rules you should be aware of. The first is the once-per-lifetime rule, which applies to most credit cards. If you’ve received a welcome bonus for an Amex card, you generally will not receive it again. There are, of course, exceptions, especially on targeted offers sent via mail and email. Be sure to read the terms and conditions of any such offers you receive.
The five-card limit restricts you to no more than five Amex charge cards open at a time. This rule does not apply to business cards. You also won’t be approved for more than two Amex cards in 90 days.
Capital One
Welcome bonuses are restricted for existing cardholders
Many Capital One cards have language on the marketing page prohibiting the welcome bonus for anyone who has had the card before. The Capital One Venture X, Venture, and VentureOne have this restrictive language.
The Spark Cards are vaguer, stating, “The bonus may not be available for existing or previous Spark cardholders.”
Keep this in mind if you’re applying for a Capital One credit card you’ve had before.
Chase
5/24 rule
24 and 48-month rule
No more than two cards within 30 days
Chase’s 5/24 rule is perhaps the most well-known credit card application rule. If you’ve applied for five or more credit cards from any bank in the last 24 months, you won’t be approved for a Chase card.
The 24-month rule applies to the Chase Freedom Flex℠ and Chase Freedom Unlimited®. If you’ve had the bonus in the last 24 months, you won’t qualify for another one.
Similarly, if you’ve had a Chase Sapphire Reserve® in the previous 48 months, you’re not eligible for another one.
Lastly, Chase won’t approve you for more than two cards within 30 days. Keep these rules in mind and time your applications accordingly.
Citi
24 and 48-month rule
No more than one card every eight days
No more than two cards every 65 days
Citi won’t approve you for a Citi Premier® Card or Citi Rewards+® Card if you’ve had it in the last 24 months. Meanwhile, the CitiBusiness® / AAdvantage® Platinum Select® World Elite Mastercard is off-limits if you earned the welcome bonus or closed the card within the previous 48 months.
Lastly, Citi will only approve you for one card every eight days or more than two every 65 days.
2. Get a card that suits your goals
When choosing a travel credit card, you should consider your spending habits and redemption goals.
Are you primarily a budget traveler looking to get the family to Disney World next summer? Or perhaps you want to experience the thrill of flying international first class with your significant other.
Your travel goals matter because they determine the rewards you should be earning and card perks that will suit your needs.
3. Decide on co-brand vs. transferrable rewards
As we’ve established, there are three types of cards: co-branded airline cards, co-branded hotel cards, and transferrable rewards. Think about which type of card will meet your travel goals. Generally, you’re better off with a transferrable rewards card because of the flexibility you have in using the points.
However, a hotel credit card might be handy if you’re planning a trip with hotel stays. You’ll get elite status and maybe even annual free nights. Meanwhile, you might consider getting an airline credit card for elite-type perks like free checked bags and priority boarding.
4. Go for a big welcome bonus
When it comes to welcome bonuses, you should aim for at least 50,000 points or higher. That’s pretty standard nowadays and enough to cover at least two round-trip domestic flights.
When you apply for a credit card, you incur a 2-5 point credit score hit, so make it count by getting a substantial bonus in exchange.
Read more: Best credit card sign-up bonuses
5. Evaluate your spending habits
Think about which categories you spend the most on and find a card that offers bonus points on that spending.
Similarly, if you’re not a big spender, you might want to steer clear of credit cards with large spending requirements. There’s no sense in applying for a card if you can’t meet the spend to secure the welcome bonus. Or even worse, if you have to go into debt to meet the requirement.
6. Pick a card with purchase and travel protections
Most people ignore this, but it’s crucial. Purchase protection can cover expensive items in case of damage or loss. The same goes for travel protection — if your trip is canceled for unforeseeable reasons, your credit card’s travel insurance can save you a lot of money.
So take travel and purchase protection into account when choosing a credit card. You’ll be glad if you ever have to use it.
7. Check the fees
Most travel credit cards have annual fees, ranging from $95 to $695. When choosing a card, be sure to take credit card annual fees into account. If you can’t afford the premium version of a card, downgrade to the mid-tier version.
Another type of fee that can add up is foreign transaction fees. Most travel credit cards waive these fees, but no-annual-fee cards like the Chase Freedom Unlimited® still carry them. You’ll pay an extra 3% just to use your card abroad. If you plan on traveling internationally, get a card with no foreign transaction fees.
Read more: Best credit cards with no foreign transaction fees
The bottom line: Should you get a travel credit card?
Travel credit cards are great if you want to earn or redeem points for cheaper travel. They can also save you money with perks like airline fee credits, free hotel nights, elite status, and waived foreign transaction fees. A travel credit card can be an excellent tool in your travel hacking arsenal.
However, it can also be costly if you don’t take advantage of their various perks and add more cards to your wallet without a strategy. Think through the steps we’ve outlined above and make your decision wisely.
For Capital One products listed on this page, some of the above benefits are provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply.
*Upon enrollment, accessible through the Capital One website or mobile app, eligible cardholders will remain at upgraded status level through December 31, 2024. Please note, enrolling through the normal Hertz Gold Plus Rewards enrollment process (e.g. at Hertz.com) will not automatically detect a cardholder as being eligible for the program and cardholders will not be automatically upgraded to the applicable status tier. Additional terms apply.
In today’s digital world, having a checking account is not just a luxury, but a necessity. As a leading financial institution, Chase, a division of JPMorgan Chase Bank, N.A, offers a variety of checking accounts to suit different needs.
This guide will provide an overview of how to open a Chase checking account, detail the available account types, and explain their associated benefits and costs.
The Basics of Opening a Chase Checking Account
Opening a Chase checking account is a simple and streamlined process. It’s designed to be accessible whether you prefer to handle your banking online or in-person. With over 4,700 branches, JPMorgan Chase Co. has made it possible to open an account virtually anywhere in the U.S.
When preparing to open your account, you’ll need to have certain information on hand. This includes your Social Security Number or Tax ID number, which is a basic requirement for any financial transactions in the U.S. You’ll also need a valid form of identification, such as a driver’s license or passport. Chase uses this information to verify your identity, ensuring your financial safety and security.
In addition to the above, you’ll also need to provide personal contact information. This includes your address, email, and phone number. This is so Chase can contact you about account information, and so they can send you important banking documents.
For new customers under the age of 18, a parent or guardian will need to co-own the account. This is standard practice at many financial institutions. It ensures that there’s an adult associated with the account who can manage the account responsibly.
Choosing the Right Chase Checking Account for You
Choosing a bank account is a critical decision, and Chase offers a variety of options, each with its own features, benefits, and costs. These include Chase Total Checking®, Chase Secure Banking℠, Chase Premier Plus Checking℠, and Chase Student Checking. It’s essential to review each option and choose one that fits your lifestyle and financial goals.
Chase Total Checking®
Chase Total Checking® is the most popular checking account offered by Chase. With access to over 15,000 ATMs and 4,700 branches, it offers a range of features including Chase Overdraft Assist℠, Zero Liability Protection for unauthorized debit card transactions.
Additionally, you’ll have the ability to manage your money on the go with the Chase Mobile® app. You can deposit checks, pay bills, and transfer money virtually anywhere, which makes it an excellent option for everyday banking needs.
The monthly service fee for this account is $12, which can be waived if you meet specific requirements such as maintaining a minimum balance, direct deposit, or holding a combination of qualifying Chase accounts.
Chase Secure Banking℠
Chase Secure Banking℠ is designed to help you manage your money without worrying about maintaining a minimum balance or unexpected overdraft fees. With a monthly service fee of $4.95, you can enjoy features like early direct deposit, paying bills, and cashing checks. It also allows you to send money and access Chase’s extensive network of ATMs and branches, all from the Chase Mobile app.
One significant advantage of this account is the absence of overdraft fees. This account enables you to spend only what you have, thus promoting responsible spending habits. Other benefits include no fees on money orders, cashier’s checks, and when using the Chase Online Bill Pay.
Chase Premier Plus Checking℠
The Chase Premier Plus Checking℠ is a premium checking account that not only gives you the standard benefits of online bill pay and mobile banking through the Chase Mobile app but also earns you interest on your balance. You’ll have access to 15,000 ATMs and 4,700 branches, Chase ATMs, and a Chase debit card with chip technology.
This account comes with a $25 monthly service fee that can be waived under specific conditions. These include maintaining a qualifying average balance, having a linked qualifying Chase mortgage, or for current U.S. service members and veterans with a qualifying military ID.
Additional perks include no fee for the first four non-Chase ATM transactions, Chase design checks, and no monthly service fees on up to two additional linked Chase checking and personal savings accounts.
How to Open a Chase Checking Account Step-by-Step
Whether you choose to open a Chase account online or in-person, the process is simple and hassle-free.
Opening an Account Online
To open a Chase checking account online, follow these steps:
Visit the Chase website and select the ‘Open an account’ option.
Select the type of account you wish to open.
Click ‘Open account’ and fill in your personal information.
Review the Deposit Account Agreement and other disclosures.
Fund your new Chase bank account.
Submit your application.
You should receive an email confirmation, and your debit card and account details should arrive by mail within 7-10 business days.
Opening an Account In-Person
If you prefer to open a Chase checking account in person, follow these steps:
Visit a Chase branch. You can use the ‘Branch/ATM locator’ on the Chase website or Chase Mobile app to find a branch near you.
A Chase representative will guide you through the process, help you understand the various account options, and complete the application form.
Review the Deposit Account Agreement and other disclosures.
Fund your new account.
You will receive a temporary debit card immediately and your permanent debit card will be mailed to you.
The in-person option offers the advantage of personalized assistance from a Chase representative who can answer any questions you might have and ensure a smooth application process.
Understanding Chase’s Monthly Account Fees
Understanding the monthly service fees associated with your checking account is crucial to managing your money effectively. Most accounts come with different fees, depending on the account type.
For instance, the Chase Total Checking account has a $12 monthly service fee. However, this can be waived under certain conditions. These include a direct deposit totaling $500 or more. It can also be waived by maintaining a beginning day balance of $1,500 or more. Alternatively, an average beginning day balance of $5,000 or more across qualifying accounts can also waive the fee.
The Chase Secure Banking account is a bit different. It has a $4.95 monthly service fee with no waiver option. On the other hand, the Chase Premier Plus Checking account has a $25 monthly service fee. But, this fee can be waived. You can do this by meeting certain balance requirements or having linked accounts.
Understanding Minimum Balance Requirements for Chase Checking Accounts
Chase checking accounts have different minimum balance requirements, which can influence the account’s cost. The Chase Total Checking account, for example, requires a daily beginning balance of $1,500 or more to avoid the monthly service fee.
For the Chase Premier Plus Checking account, an average beginning day balance of $15,000 or more in any combination of linked qualifying accounts or a linked Chase mortgage can help avoid the monthly service fee.
The Chase Secure Banking account, however, does not require a minimum balance, making it an attractive option for those looking for a low-cost, simple checking account.
Perks and Drawbacks of Chase Checking Accounts
The checking accounts offered by Chase come with several perks, such as access to a broad ATM and branch network, excellent customer service, and a highly-rated mobile app for easy access to your money. Furthermore, accounts like the Chase Total Checking and Chase Premier Plus Checking offer additional benefits like earning interest and waiving the monthly service fee under specific conditions.
However, these accounts also have some drawbacks. Monthly service fees, unless waived, and ATM fees for non-Chase ATMs can add to your banking costs. Furthermore, the interest rates offered on these accounts are typically lower than those offered by online banks.
Is a Chase checking account right for you?
Choosing the right checking account depends on your personal financial needs and lifestyle. If you value in-person banking, broad ATM and branch access, and a comprehensive mobile banking experience, a Chase checking account could be a good fit. However, if you’re looking for high-interest rates or zero fees, you might want to explore other financial institutions.
It’s essential to consider the different features, benefits, and costs associated with each account type. Make sure to read the fine print and understand the terms of the Deposit Account Agreement before opening a new account. Whether you’re a student, a professional, or someone looking for secure banking, Chase has a variety of options to help you manage your money effectively.
A potentially scary, or intriguing thought, depending on your worldview: Whether you are approved for a mortgage could hinge upon the type of yogurt you purchase.
Buying the more daring and worldly Siggi’s — a fancy imported Icelandic brand — could mean you achieve the American Dream while enjoying the more pedestrian choice of Yoplait’s whipped strawberry flavor could lead to another year of living in your parents’ basement.
Consumer habits and preferences can be used by machine learning or artificial intelligence-powered systems to build a financial profile of an applicant. In this evolving field, the data used to determine a person’s creditworthiness could include anything from subscriptions to certain streaming services to applying for a mortgage in an area with a higher rate of defaults to even a penchant for purchasing luxury products — the Siggi’s brand of yogurt, for instance.
Unlike the recent craze with AI-powered bots, such as ChatGPT, machine learning technology involved in the lending process has been around for at least half a decade. But a greater awareness of this technology in the cultural zeitgeist, and fresh scrutiny from regulators have many weighing both its potential benefits and the possible unintended — and negative — consequences.
AI-driven decision-making is advertised as a more holistic way of assessing a borrower than solely relying on traditional methods, such as credit reports, which can be disadvantageous for some socio-economic groups and result in more denials of loan applications or in higher interest rates being charged.
Companies in the financial services sector, including Churchill Mortgage, Planet Home Lending, Discover and Citibank, have started experimenting with using this technology during the underwriting process.
The AI tools could offer a fairer risk assessment of a borrower, according to Sean Kamar, vice president of data science at Zest AI, a technology company that builds software for lending.
“A more accurate risk score allows lenders to be more confident about the decision that they’re making,” he said. “This is also a solution that mitigates any kind of biases that are present.”
But despite the promise of more equitable outcomes, additional transparency about how these tools learn and make choices may be needed before broad adoption is seen across the mortgage industry. This is partially due to ongoing concerns about a proclivity for discriminatory lending practices.
AI-powered systems have been under the watchful eye of agencies responsible for enforcing consumer protection laws, such as the Consumer Financial Protection Bureau.
“Companies must take responsibility for the use of these tools,” Rohit Chopra, the CFPB’s director, warned during a recent interagency press briefing about automated systems. “Unchecked AI poses threats to fairness and our civil rights,” he added.
Stakeholders in the AI industry expect standards to be rolled out by regulators in the near future, which could require companies to disclose their secret sauce — what variables they use to make decisions.
Companies involved in building this type of technology welcome guardrails, seeing them as a necessary burden that can result in greater clarity and more future customers.
The world of automated systems
In the analog world, a handful of data points provided by one of the credit reporting agencies, such as Equifax, Experian or TransUnion, help to determine whether a borrower qualifies for a mortgage.
A summary report is issued by these agencies that outlines a borrower’s credit history, the number of credit accounts they’ve had, payment history and bankruptcies. From this information, a credit score is calculated and used in the lending decision.
Credit scores are “a two-edged sword,” explained David Dworkin, CEO of the National Housing Conference.
“On the one hand, the score is highly predictive of the likelihood of [default],” he said. “And, on the other hand, the scoring algorithm clearly skews in favor of a white traditional, upper middle class borrower.”
This pattern begins as early as young adulthood for borrowers. A report published by the Urban Institute in 2022 found that young minority groups experience “deteriorating credit scores” compared to white borrowers. From 2010 to 2021, almost 33% of Black 18-to-29-year-olds and about 26% of Hispanic people in that age group saw their credit score drop, compared with 21% of young adults in majority-white communities.
That points to “decades of systemic racism” when it comes to traditional credit scoring, the nonprofit’s analysis argues. The selling point of underwriting systems powered by machine learning is that they rely on a much broader swath of data and can analyze it in a more nuanced, nonlinear way, which can potentially minimize bias, industry stakeholders said.
“The old way of underwriting loans is relying on FICO calculations,” said Subodha Kumar, data science professor at Temple University in Philadelphia. “But the newer technologies can look at [e-commerce and purchase data], such as the yogurt you buy to help in predicting whether you’ll pay your loan or not. These algorithms can give us the optimal value of each individual so you don’t put people in a bucket anymore and the decision becomes more personalized, which is supposedly much better.”
An example of how a consumer’s purchase decisions may be used by automated systems to determine creditworthiness are displayed in a research paper published in 2021 by the University of Pennsylvania, which found a correlation between products consumers buy at a grocery store and the financial habits that shape credit behaviors.
The paper concluded that applicants who buy things such as fresh yogurt or imported snacks fall into the category of low-risk applicants. In contrast, those who add canned food and deli meats and sausages to their carts land in the more likely to default category because their purchases are “less time-intensive…to transform into consumption.”
Though technology companies interviewed denied using such data points, most do rely on a more creative approach to determine whether a borrower qualifies for a loan. According to Kamar, Zest AI’s underwriting system can distinguish between a “safe borrower” who has high utilization and a consumer whose spending habits pose risk.
“[If you have a high utilization, but you are consistently paying off your debt] you’re probably a much safer borrower than somebody who has very high utilization and is constantly opening up new lines of credit,” Kamar said. “Those are two very different borrowers, but that difference is not seen by more simpler, linear models.”
Meanwhile, TurnKey Lender, a technology company that also has an automated underwriting system that pulls standard data, such as personal information, property information and employment, but can also analyze more “out-of-the-box” data to determine a borrower’s creditworthiness. Their web platform, which handles origination, underwriting, and credit reporting, can look at algorithms that predict the future behavior of the client, according to Vit Arnautov, chief product officer at TurnKey.
The company’s technology can analyze “spending transactions on an account and what the usual balance is,” added Arnautov. This helps to analyze income and potential liabilities for lending institutions. Additionally, TurnKey’s system can create a heatmap “to see how many delinquencies and how many bad loans are in an area where a borrower lives or is trying to buy a house.”
Bias concerns
Automated systems that pull alternative information could make lending more fair, or, some worry, they could do the exact opposite.
“The challenges that typically happen in systems like these [are] from the data used to train the system,” said Jayendran GS, CEO of Prudent AI, a lending decision platform built for non-qualified mortgage lenders. “The biases typically come from the data.
“If I need to teach you how to make a cup of coffee, I will give you a set of instructions and a recipe, but if I need to teach you how to ride a bicycle, I’m going to let you try it and eventually you’ll learn,” he added. “AI systems tend to work like the bicycle model.”
If the quality of the data is “not good,” the autonomous system could make biased, or discriminatory decisions. And the opportunities to ingest potentially biased data are ample, because “your input is the entire internet and there’s a lot of crazy stuff out there,” noted Dworkin.
“I think that when we look at the whole issue, it’s if we do it right, we could really remove bias from the system completely, but we can’t do that unless we have a lot of intentionality behind it,” Dworkin added. Fear of bias is why government agencies, specifically the CFPB, have been wary of AI-powered platforms making lending decisions without proper guardrails. The government watchdog has expressed skepticism about the use of predictive analytics, algorithms, and machine learning in underwriting, warning that it can also reinforce “historical biases that have excluded too many Americans from opportunities.”
Most recently, the CFPB along with the Civil Rights Division of the Department of Justice, Federal Trade Commission, and the Equal Employment Opportunity Commission warned that automated systems may perpetuate discrimination by relying on nonrepresentative datasets. They also criticized the lack of transparency around what variables are actually used to make a lending determination.
Though no guidelines have been set in stone, stakeholders in the AI space expect regulations to be implemented soon. Future rules could require companies to disclose exactly what data is being used and explain why they are using said variables to regulators and customers, said Kumar, the Temple professor.
“Going forward maybe these systems use 17 variables instead of the 20 they were relying on because they are not sure how these other three are playing a role,” said Kumar. “We may need to have a trade-off in accuracy for fairness and explainability.”
This notion is welcomed by players in the AI space who see regulations as something that could broaden adoption.
“We’ve had very large customers that have gotten very close to a partnership deal [with us] but at the end of the day it got canceled because they didn’t want to stick their neck out because they were concerned with what might happen, not knowing how future rulings may impact this space,” said Zest AI’s Kamar. “We appreciate and invite government regulators to make even stronger positions with regard to how much is absolutely critical for credit underwriting decisioning systems to be fully transparent and fair.”
Some technology companies, such as Prudent AI, have also been cautious about including alternative data because of a lack of regulatory guidance. But once guidelines are developed around AI in lending, GS noted that he would consider expanding the capabilities of Prudent AI’s underwriting system.
“The lending decision is a complicated decision and bank statements are only a part of the decision,” said GS. “We are happy to look at extending our capabilities to solve problems, with other documents as well, but there has to be a level of data quality and we feel that until you have reliable data quality, autonomy is dangerous.”
As potential developments surrounding AI-lending evolve, one point is clear: it is better to live with these systems than without them.
“Automated underwriting, for all of its faults, is almost always going to be better than the manual underwriting of the old days when you had Betty in the back room, with her calculator and whatever biases Betty might have had,” said Dworkin, the head of NHC. “I think at the end of the day, common sense really dictates a lot of how [the future landscape of automated systems will play out] but anybody who thinks they’re going to be successful in defeating the Moore’s Law of technology is fooling themselves.”
I used to be guilty of spending money on the life I thought I lived, rather than the life I was actually living. To illustrate what I mean, consider the following past expenditures:
Snowboarding apparel, for my first and only snowboarding trip to date.
Evening dresses from Bluefly.com. Yes, they were purchased at a big discount, but I had nowhere to wear them!
A mountain bike. I was so dedicated to riding, for about three months.
Last week I read an article on the Psychology Today blog titled “What You Do Every Day Matters More Than What You Do Once In a While.” Written by Gretchen Rubin, author of The Happiness Project, the main point of the article is that people are happiest when they make decisions based on their daily life, not the life they lead every once in awhile. From the article:
In his fascinating book, House Lust, Daniel McGinn notes that market researchers use the term maximum-use imperative to describe the fact that people will often buy something to accommodate a use that they need only rarely…Along the same lines, I’ve noticed that when making decisions, I tend to give too much thought to what I do once in a while and not enough weight to what I do every day. For example, I wear running shoes 29 days out of 30 days a month, yet I have three pairs of black flats and only one pair of running shoes.
Maximum-use imperative doesn’t just affect happiness, though, it also affects your bottom line.
Buying For Someone Else’s Life
It struck me that spending money on the things I used to do once in awhile was a large part of why I wasn’t saving money, or at least spending on the things that really mattered, and yes, that led to a lot of unhappiness.
For example, as mentioned earlier, I used to buy clothing for someone else’s lifestyle. I had clothes for snowboarding, cocktail parties, and mountain biking. I had several winter coats and countless pairs of gloves, and I live in Texas. Who knows how much I spent over the years, buying new apparel every time a new hobby interested me or picking up a little black dress without so much as an event on my calendar? Not only was the money wasted, but it also chipped away at my happiness. I had a closet full of clothes and nothing to actually wear. I also had to look at the result of my spending habits every morning when I got dressed, which only made me feel bad.
Then one day I’d had enough. I started cleaning out my closet and pared it down so much that my husband and I now use the same small closet — a huge accomplishment if you knew me 10 years ago! (If you’re interested, you can read more on my process and how I’ve maintained a streamlined wardrobe in a previous GRS post.) I’m not perfect in this regard, but I do ask myself if I’ll really wear something before I buy it, and I walk away more often than not, which surprisingly feels pretty good.
House Rich, Lifestyle Poor
Another example of maximum-use imperative is the person who buys too much house so he can host the entire family during the holidays. This isn’t far-fetched; I know more than one person who has done it. It’s a lovely sentiment to want your entire family under one roof, and a gracious thing to offer to host them, but if you’re a family of three and you buy enough house to accommodate 15-plus people, that’s a huge expense you’ll pay all because of a few days during the holiday season. The mortgage payments will be higher, not to mention taxes, interest, insurance, utilities, and then the time (or money) spent to clean a larger house.
Instead, if you think about your family’s daily needs and go with a smaller house, you’ll have more options, which might include the following:
Moving somewhere more central (paying for location instead of square footage)
Paying off your mortgage faster
Buying a smaller house and using the extra money to travel
Saving the money you’d spend on a larger house for long-term goals, retirement, and other investments
On a day-to-day basis, one of those options will probably make you much happier. Then, during those few days of the year when family is in town, you can find a way to make things work. Better to structure your life and your spending around the other 362 days of the year.
Invest in Your Real Life
I just returned from a trip to Italy and Spain, and I was tempted more than once by a great sweater or scarf that I saw in a shop window. One of my travel companions said, “You’re here, just get it so you won’t think about it later.” I thought about it for a second, and then I remembered that I have more than enough sweaters and scarves and decided I’d rather spend the money on tickets to a museum or a round of churros and chocolate, or maybe just save it toward the next trip.
As Rubin writes, “…we’re happiest when our decisions most closely match our natures and our values,” and that’s definitely applicable to our spending decisions. Instead of spending money on the things you use once in awhile, ask yourself how often you’ll need something before you buy it. Then invest in your day-to-day life, not your fantasy life.