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5 Reasons You Need To Hire A Financial Consultant

If you’re a busy individual and have no time for the day-to-day management of your money, you may need to consult a financial consultant. Beyond being busy, however, there are major turning points in your life where working with a financial consultant is absolutely necessary. For instance, if you’re approaching retirement, you’ll have to figure …

The post 5 Reasons You Need To Hire A Financial Consultant appeared first on GrowthRapidly.

Money Moves to Make in Your 20s, 30s, and 40s

Reaching your twenties is an exciting milestone for most as it means you’ve officially entered adulthood. Along with that milestone comes new responsibilities and worries that we didn’t picture when our teenage selves dreamed of turning 21. We imagined our…

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The post Money Moves to Make in Your 20s, 30s, and 40s appeared first on MintLife Blog.

How to Pay Off Credit Card Debt Faster

I've received several questions from Money Girl podcast listeners about paying off credit card debt. It's a fundamental goal because carrying card balances come with high interest, a waste of your financial resources. Instead of paying money to card companies, it's time to use it to build wealth for yourself.

7 Strategies to Pay Off Credit Card Debt Faster

1. Stop making new card charges

If you're carrying card balances from month-to-month, it's essential to understand what it costs you. As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

The first step to improving any area of your life is to acknowledge your mistakes, and financing a lifestyle you can't afford using a credit card is a biggie. So, stop making new charges until you take control of your cards and can pay them off in full each month.

As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

Yes, reining in your card spending will probably require sacrifices. Consider ways to earn extra income, such as starting a side gig, finding a better-paying job, or selling your unused stuff. Also, look for ways to cut costs by downsizing your home, vehicle, memberships, or unnecessary expenses.

2. Consider your big financial picture

Before you decide to pay off credit card debt aggressively, look at the "big picture" of your financial life. Consider any other debts or obligations you should prioritize, such as a tax delinquency, legal judgment, or unpaid child support. The next debts to pay off are those already in default or turned over to a collection agency.

In many cases, not having a cash reserve is why people get into credit card debt in the first place.

Assuming you don't have any debts in default, focus your attention on your emergency fund … or lack of one! I recommend maintaining a minimum of six months' worth of your living expenses on hand. In many cases, not having a cash reserve is why people get into credit card debt in the first place.

3. Make more than the minimum payment

Many people who can pay more than their monthly minimum card payment don't do it. The problem is that minimums go mostly toward interest and don't reduce your balance significantly.

For example, let's assume your card charges 15% APR, you have a $5,000 balance, and you never make another purchase on the card. If your minimum payment is 4% of your card balance, it will take you 10½ years to pay off. And here's the worst part—you'd have paid almost $2,400 in interest!

4. Target debts with the highest interest rates first

Make a list of all your debts, including credit cards, lines of credit, and loans. Include your balances owed and interest rates charged. Then rank your liabilities in order of highest to lowest interest rate.

Getting rid of the highest interest debts first saves you the most.

Remember that the higher a debt's interest rate, the more it costs you in interest per dollar of debt. So, getting rid of the highest interest debts first saves you the most. Then you can use the savings to pay more on your next highest interest debt and so on.

If you have several credit cards, evaluate them the same way—tackle them in order of highest to lowest interest rate to get the most bang for your buck. And if a credit card isn't the most expensive debt you have, make it a lower priority.

In general, debts that come with a tax deduction such as mortgages, home equity lines of credit, and student loans, should be paid off last. Not only do those types of debt have relatively low interest rates, but when some or all of the interest is tax-deductible, they cost you even less on an after-tax basis.

5. Use your assets to pay off cards

If you have assets such as savings and non-retirement investments that you could use to pay down high-interest credit cards, it may make sense. Just remember that you still need a healthy cash reserve, such as six months' worth of living expenses.

If you don't have any or enough emergency money saved, don't dip into your savings to pay off credit card debt. Also, consider what you could sell—such as unused sporting goods, jewelry, or a vehicle—to raise cash and increase your financial cushion.

6. Consider using a balance transfer card

If you can’t pay off credit card debt using existing assets, consider optimizing it by moving it from higher- to lower-interest options. That won’t make your debt disappear, but it will reduce the amount of interest you pay.

Balance transfers won’t make your debt disappear, but they will reduce the amount of interest you pay.

Using a balance transfer credit card is a common way to optimize debt temporarily. You receive a promotional offer during a set period if you move debt to the account. By transferring higher-interest debt to a lower- or zero-interest card, you save money and use it to pay down the balance faster.

7. Consolidate your high-rate balances

I received a question from Sarah F., who says, “I love your podcast and turn to it for a lot of my financial questions. I have credit card debt and am wondering if it’s a good idea to get a personal loan to pay it down, or is that a scam?”

And Rachel K. says, "I love listening to your podcasts and am focused on becoming more financially fit this year. I have a couple of credit cards with high interest rates. Would it be wise for me to consolidate them to a lower interest rate? If so, will it hurt my credit?" 

Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

Thanks to Sarah and Rachel for your questions. Consolidating credit card debt using a personal loan is not a scam but a legitimate way to shift debt to a lower interest rate.

Having an additional loan added to your credit history helps you build credit if you make payments on time. It also works in your favor by reducing your credit utilization ratio when you reduce your credit card debt.

If you qualify for a low-rate personal loan, here are some benefits you get from debt consolidation:

  • Cutting your interest expense
  • Getting a fixed rate and term (such as 6% APR for 60 months with monthly payments of $600)
  • Having one monthly debt payment
  • Building credit

A couple of downsides of using a personal loan to consolidate debt include:

  • Being tempted to continue making credit card charges
  • Having potentially higher monthly loan payments (compared to minimum credit card payments)

While it may seem counterintuitive to use new debt to get out of old debt, it all comes down to the interest rate. Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

What should you do after paying off a credit card?

Credit cards come with many benefits, such as purchase protection, convenience, and rewards. Don't forget that they're also powerful tools for building credit when used responsibly. If maintaining good credit is one of your goals, I recommend that you keep a paid-off card open instead of canceling it.

You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To maintain or improve your credit, you must have credit accounts open in your name, and you must use them regularly. Making small purchases charges from time to time that you pay off in full and on time is enough to add positive data to your credit reports. You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To learn more about building credit and getting out of debt, check out Laura’s best-selling online classes:

  • Build Better Credit—The Ultimate Credit Score Repair Guide
  • Get Out of Debt Fast—A Proven Plan to Stay Debt-Free Forever

No, You Didn’t Just Lose Half Of Your Retirement Savings

So here we are just a month later,  in a full-blown economic panic, and at the start of the most sudden recession ever. The pandemic has spread much further and faster than most uninformed people (including me) would have ever guessed, and the whole world is on some form of lockdown. Nothing quite like this […]

How to Copy Warren Buffet’s Biggest Investment of 2020

When Warren Buffet invests, people pay attention. His biggest investment of 2020 might surprise you — and you can do it, too.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Reducing Capital Gains Tax on a Rental Property

Owning a rental property can help you to grow wealth long-term and diversify your income streams. Receiving regular rental income can help supplement withdrawals you might make from a 401(k) or an individual retirement account (IRA) in retirement or give you an … Continue reading →

The post Reducing Capital Gains Tax on a Rental Property appeared first on SmartAsset Blog.

7 Pros and Cons of Investing in a 401(k) Retirement Plan at Work

A 401(k) retirement plan is one of the most powerful savings vehicles on the planet. If you’re fortunate enough to work for a company that offers one (or its sister for non-profits, a 403(b)), it’s a valuable benefit that you should take advantage of.

But many people ignore their retirement plan at work because they don’t understand the rules, which may seem confusing at first. Or they worry about what happens to their account after they leave the company or mistakenly believe you must be an investing expert to use a retirement plan.

Let's talk about seven primary pros and cons of using a 401(k). You’ll learn some lesser-known benefits and get tips to save quickly so you have plenty of money when you’re ready to kick back and enjoy retirement.

What is a 401(k) retirement plan?

Traditional retirement accounts give you an immediate benefit by making contributions on a pre-tax basis.

A 401(k) is a type of retirement plan that can be offered by an employer. And if you’re self-employed with no employees, you can have a similar account called a solo 401(k). These accounts allow you to contribute a portion of your paycheck or self-employment income and choose various savings and investment options such as CDs, stock funds, bond funds, and money market funds, to accelerate your account growth.

Traditional retirement accounts give you an immediate benefit by making contributions on a pre-tax basis, which reduces your annual taxable income and your tax liability. You defer paying income tax on contributions and account earnings until you take withdrawals in the future.

Roth retirement accounts require you to pay tax upfront on your contributions. However, your future withdrawals of contributions and investment earnings are entirely tax-free. A Roth 401(k) or 403(b) is similar to a Roth IRA; however, unlike a Roth IRA there isn’t an income limit to qualify. That means even high earners can participate in a Roth at work and reap the benefits.

RELATED: How the COVID-19 CARES Act Affects Your Retirement

Pros of investing in a 401(k) retirement plan at work

When I was in my 20s and started my first job that offered a 401(k), I didn’t enroll in it. I was nervous about having investments with an employer because I didn’t understand what would happen if I left the company, or it went out of business.

I want to put your mind at ease about using a 401(k) because there are many more advantages than disadvantages.

I want to put your mind at ease about using a 401(k) because there are many more advantages than disadvantages. Here are four primary pros for using a retirement plan at work.

1. Having federal legal protection

Qualified workplace retirement plans are protected by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law. It sets minimum standards for employers that offer retirement plans, and the administrators who manage them.

ERISA offers workplace retirement plans a powerful but lesser-known benefit—protection from creditors.

ERISA was enacted to protect your and your beneficiaries’ interests in workplace retirement plans. Here are some of the protections they give you:

  • Disclosure of important facts about your plan features and funding 
  • A claims and appeals process to get your benefits from a plan 
  • Right to sue for benefits and breaches of fiduciary duty if the plan is mismanaged 
  • Payment of certain benefits if you lose your job or a plan gets terminated

Additionally, ERISA offers workplace retirement plans a powerful but lesser-known benefit—protection from creditors. Let’s say you have money in a qualified account but lose your job and can’t pay your car loan. If the car lender gets a judgment against you, they can attempt to get repayment from you in various ways, but not by tapping your 401(k) or 403(b). There are exceptions when an ERISA plan is at risk, such as when you owe federal tax debts, criminal penalties, or an ex-spouse under a Qualified Domestic Relations Order. 

When you leave an employer, you have the option to take your vested retirement funds with you. You can do a tax-free rollover to a new employer's retirement plan or into your own IRA. However, be aware that depending on your home state, assets in an IRA may not have the same legal protections as a workplace plan.

RELATED: 5 Options for Your Retirement Account When Leaving a Job

2. Getting matching funds

Many employers that offer a retirement plan also pay matching contributions. Those are additional funds that boost your account value.

Always set your 401(k) contributions to maximize an employer’s match so you never leave easy money on the table.

For example, your company might match 100% of what you contribute to your retirement plan up to 3% of your income. If you earn $50,000 per year and contribute 3% or $1,500, your employer would also contribute $1,500 on your behalf. You’d have $3,000 in total contributions and receive a 100% return on your $1,500 investment, which is fantastic!

Always set your 401(k) contributions to maximize an employer’s match, so you never leave easy money on the table.

3. Having a high annual contribution limit

Once you contribute enough to take advantage of any 401(k) matching, consider setting your sights higher by raising your savings rate every year. For 2021, the allowable limit remains $19,500, or $26,000 if you’re over age 50. A good rule of thumb is to save at least 10% to 15% of your gross income for retirement.

Most retirement plans have an automatic escalation feature that kicks up your contribution percentage at the beginning of each year. You might set it to increase your contributions by 1% per year until you reach 15%. That’s a simple way to set yourself up for a happy and secure retirement.

4. Getting free investing advice

After you enroll in a workplace retirement plan, you must choose from a menu of savings and investment options. Most plan providers are major brokerages (such as Fidelity or Vanguard) and have helpful resources, such as online assessments and free advisors. Take advantage of the opportunity to get customized advice for choosing the best investments for your financial situation, age, and risk tolerance.

In general, the more time you have until retirement, or the higher your risk tolerance, the more stock funds you should own. Likewise, having less time or a low tolerance for risk means you should own more conservative and stable investments, such as bonds or money market funds.

RELATED: A Beginner's Guide to Investing in Stocks

Cons of investing in a 401(k) retirement plan at work

While there are terrific advantages of investing in a retirement plan at work, here are three cons to consider.

1. You may have limited investment options

Compared to other types of retirement accounts, such as an IRA, or a taxable brokerage account, your 401(k) or 403 (b) may have fewer investment options. You won’t find any exotic choices, just basic asset classes, including stock, bond, and cash funds.

However, having a limited investment menu streamlines your investment choices and minimizes complexity.

2. You may have higher account fees

Due to the administrative responsibilities required by employer-sponsored retirement plans, they may charge high fees. And as a plan participant, you have little control over the fees you must pay.

One way to keep your workplace retirement account fees as low as possible is selecting low-cost index funds or exchange-traded funds (ETFs) when possible.

One way to keep your workplace retirement account fees as low as possible is selecting low-cost index funds or exchange-traded funds (ETFs) when possible.

3.  You must pay fees on early withdrawals

One of the inherent disadvantages of putting money in a retirement account is that you’re typically penalized 10% for early withdrawals before the official retirement age of 59½. Plus, you typically can’t tap a 401(k) or 403(b) unless you have a qualifying hardship. That discourages participants from tapping accounts, so they keep growing.

The takeaway is that you should only contribute funds to a retirement account that you won’t need for everyday living expenses. If you avoid expensive early withdrawals, the advantages of using a workplace retirement account far outweigh the downsides.

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