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First-Time Homebuyer Grants and Programs for 2021

If you’re tired of renting it may be time to purchase your first home. Being a first-time homebuyer is nerve-wracking but many of the myths about buying a home just aren’t true. You don’t need…

The post First-Time Homebuyer Grants and Programs for 2021 appeared first on Crediful.

How to Save on Prescription Medications Without Insurance

The post How to Save on Prescription Medications Without Insurance appeared first on Penny Pinchin' Mom.

INSIDE: Looking for easy tips on how to save money on prescription drugs, even if you don’t have health insurance? Here you go! It seems that every time you get your prescription filled, the price creeps up. Even if you have insurance, you’re probably spending more these days to get your medicine. But that doesn’t … Read More about How to Save on Prescription Medications Without Insurance

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My True Travel Insurance Story – A Broken Leg & Surgery in the Dominican Republic

Today, I have a great article written by my sister-in-law and editor, Ariel Gardner. She is sharing her travel insurance review story, and goes in-depth on the travel insurance process. I asked her to write about this because I feel like it’s not really discussed, yet there is a lot to learn! You may have […]

The post My True Travel Insurance Story – A Broken Leg & Surgery in the Dominican Republic appeared first on Making Sense Of Cents.

8 Money-Saving Tips for Improving Your Bathroom’s Design

I don’t know about you, but for me, a bathroom goes well beyond its practical uses; within the past years, I’ve come to think about it as a sanctuary of sorts, that room of the house that’s dedicated to pampering, relaxing, and deconnecting — a place where I can enjoy some alone time and use […] More

The post 8 Money-Saving Tips for Improving Your Bathroom’s Design appeared first on Fancy Pants Homes.

Should I Refinance My Student Loans?

Should I refinance my student loans? It depends on your situation. But a common reason for people to refinance their student loans is that they want to pay less interest. Even a small decrease in the rate could save you a lot of money over the life of the loan and ultimately help you pay …

The post Should I Refinance My Student Loans? appeared first on GrowthRapidly.

Which Debts Should You Prepay First? A 6-Step Plan

Maya asks:

“Is it better to pay off student loans or a mortgage first? I’m asking for my brother, who took out $80,000 in student loans about 20 years ago and has only paid off about $10,000. He recently bought a home in Southern California and took out a 30-year mortgage that might be as much as $400,000. I don’t know the interest rates he’s paying on these debts. I think he should pay off his student loans first because the total debt is smaller, older, and can’t be discharged in a bankruptcy. What do you think?”

Thanks for your question, Maya! This dilemma is common, especially now that most federal student loans are in automatic forbearance from March 13 to September 30, 2020, due to coronavirus-related economic relief. That means millions of student loan borrowers suddenly have the option to stop making payments without adverse financial consequences, such as hurting their credit or getting charged additional interest or fees.

If you have qualifying student loans and you're dealing with financial hardship due to the pandemic or another challenge, you may be grateful to have your payments suspended. But if your finances are in good shape and you don’t have any dangerous debts, such as high-rate credit cards or loans, you may be wondering what to do with the extra money. Should you send it to your student loans despite the forbearance, to your mortgage, or to some other account?

RELATED: 10 Things Student Loan Borrowers Should Know About Coronavirus Relief

6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First

Let's take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.

1. Check your emergency savings

While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life's big picture. An excellent place to start is to review your emergency savings.

If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.

Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.

How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.

You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.

If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!

Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.

2. Reach your retirement goals

In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.

Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).

For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.

The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!

3. Have the right insurance

In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.

Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average. 

And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.

If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.

4. Set other financial goals

But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.

Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!

5. Consider your opportunity costs

Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.

A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.

Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.

But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.

Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.

If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.

 

6. Compare your student loans and mortgage

Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.

The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.

The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.

You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.

You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.

You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.

As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.

In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.

What Causes of Death are not Covered by Life Insurance?

The death of a loved one is hard to take and while a life insurance payout can ease the burden and allow you to continue leaving comfortably, it won’t take the grief or the heartbreak away. What’s more, if that life insurance policy refuses to payout, it can make the situation even worse, adding more stress, anxiety, anger, and frustration to an already […]

What Causes of Death are not Covered by Life Insurance? is a post from Pocket Your Dollars.

How to Get Your Kid Started With Investing

Kid learning the basics of investing

My daughter recently lost $80 in her bedroom. It’s just gone. One theory is that we accidentally donated it to Goodwill, since she had stored it in an old book and we’d been clearing out a lot of junk. But it got me thinking: What would be a better place to keep money she’s not using?

She’s been bringing in some respectable allowance earnings with the chores she’s taken on recently. Plus, she always receives some money for birthdays, and she doesn’t spend much. Maybe an investment account?

While the investing rules are a little different for minors compared to adults, it’s not hard to get your child started investing. Even if they only make a little money, the experience may encourage them to start investing for retirement early in adulthood, which can set them up for life. Here’s how to show your kid the basics of investing.

Determine what kind of account to set up

Children can set up savings, checking, or brokerage accounts using the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). All they need is an adult (presumably you) to sign on as the account’s custodian. This means you have to approve what your child does with the money until your kid is of age, which is 18 or 21, depending on what state you live in. Because the funds or investments in a UTMA legally belong to your child, once they’re in this account, they can only be spent for your child’s benefit. You can’t deposit $100 in your child’s UTMA account and later decide you want it back or transfer it to another child.

Setting up a UTMA account is much like setting up any other account. You can walk into a bank or credit union and open one for your child by filling out some paperwork and showing your identification, or you can go online to sign up for one with a firm such as Vanguard.

Your child could also set up a UTMA 529 savings plan. The 529 is a college savings vehicle that has tax advantages, but also comes with restrictions on how it can be spent. More on that below.

Aside from a traditional brokerage account, your child could also try a micro-investing account, since they’re likely to be starting with a small amount of money. You can set up a custodial account through Stash or Stockpile — in fact, Stockpile even works with BusyKid, an app that helps families track kids’ chores and pay their allowances digitally.

Besides an investment account, you may also need to open a checking or money market UTMA for your child and link it to the brokerage account, as a way to fund the brokerage account and a place to receive dividends and other proceeds.

Unless they have earned income from working, your kids can’t set up a traditional or Roth individual retirement account. (See also: 9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out)

Figure out what investment vehicles to use

Once their account is set up, kids have access to the same investment products that adults do, such as mutual funds, individual stocks, or exchange-traded funds. Which products they choose depends on their interests, how much money they have to start with, and how actively they wish to invest.

A child who is interested in following one or more companies in the news and making active investment choices may want to buy individual stocks. Look for a brokerage firm with no minimum initial deposit (or a low one) and low trade fees. While this is a concrete and exciting way to start understanding the stock market, make sure that kids understand that for the long haul, many financial advisers recommend investing in funds over individual stocks.

If your child doesn’t have any individual companies in mind, but would like to invest in the market as a whole, a mutual fund such as an S&P 500 index fund is a great way to go. Good ones have low expenses, meaning that your kid gets to keep more of his/her investment. Unfortunately, mutual funds do tend to require minimum investments. For instance, to buy shares in Charles Schwab’s often-recommended S&P 500 index fund, you need to open a Schwab brokerage account with a $1,000 initial deposit. However, there is one way around that: You can also open a Schwab account with a $100 deposit — but you have to deposit an additional $100 each month until the account has a $1,000 balance.

Your child could also buy exchange-traded funds, which work a lot like mutual funds but tend to have lower minimum investments.

Another way to get started with a small initial investment is to use one of the micro-investing apps mentioned above, which split one share of stock or of an ETF and sells the investor a fraction of it. These apps can make getting started very simple for young kids by characterizing investments by category. In exchange for making things this simple for you, these services usually charge a monthly fee; Stash’s is $1 per month.

While your child could also opt to invest in Treasury bonds or certificates of deposit, at today’s low interest rates, this probably wouldn’t be a very exciting way for them to learn about investing.

What about taxes?

Does your child have to pay taxes on their investment gains? Do they have to file their own tax return? The answer to both questions is, "It depends."

If your child’s investment income is less than $1,050, don’t worry about it; you don’t need to report this to the Internal Revenue Service. If the child’s investment income is less than $12,000, the parent can opt to report it on their own tax return, or file a separate return for the child. At more than $12,000, you have to file a tax return for your child.

What rate will your kid pay? Unearned income up to $2,100 will get taxed at between 0 percent and 10 percent, depending on what kind of income it is. After that, your child’s unearned income will be taxed at your rate, no matter if you file separately or together. So don’t imagine that you can save a bundle on taxes by transferring all your investment accounts to your kids — the IRS caught on to that gambit years ago.

If your child chose to put their money in a UTMA 529 plan, they never have to pay federal taxes (and generally not state taxes either) on the earnings, as long as they spend it on qualifying educational expenses, such as tuition and textbooks.

Will investing hurt their chances of getting college aid?

It’s important to note that when it’s time to apply for college financial aid, assets in the child’s name count against them more than assets in the parents’ name. Unless you’re sure your family won’t qualify for financial aid — and outside of the 1 percent, that’s not usually something you can be sure of in advance — encourage your child to choose shorter-term goals for their investment account. They could choose a goal of anything from buying a new Lego set, to a week of sleep-away camp, to their first car.

Again, putting their investments in a 529 plan changes the situation a bit. Even if the child is the account owner, the financial aid officers consider assets in a 529 account a parental asset. This is great, because only about 5 percent of parental assets count against financial aid eligibility, compared to 20 percent of student assets in a non-529 UTMA account.

If your student does invest college savings in their own name, have them spend their own money first before you tap into a 529 plan or any other savings you are holding for their education.

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Want to know how to get your kid started with investing? It’s a great way to help your children make money for the future. For personal finance tips here's how to show your kid the basics of investing! | #investing #personalfinance #moneymatters


6-Month CD Rates: Earn More Money

6-month CD rates can be a smart strategy for your short-term saving goals. If you’re saving for a house, you may be wondering where you can park your hard-earned cash safely and earn interest at the same time. If so, you should consider a 6-month CD, because the rates can still be very competitive. In …

The post 6-Month CD Rates: Earn More Money appeared first on GrowthRapidly.