How to Budget Without Regular Paychecks

Successful budgeting tends to depend on two things: careful planning and a steady income. The first, anyone can do. The second may not be so simple.

If you’re self-employed, you might be asking yourself, “But I don’t have a regular paycheck coming in — can I even set up a budget? Should I bother?”

You can. And, yes, you definitely should.

A budget is simply a way of figuring out how much money you need to go about your daily life, and arranging things so that you don’t exceed that number. Whether you track every penny and every expense, or just keep on eye on a few problem areas, a budget helps you succeed financially.

Budgeting when your income isn’t predictable can be tough. But, actually, it’s especially important if you have an irregular income. Who might have an irregular income? If you fit into one of these categories, I’m talking to you:

  • freelancers,
  • temp workers,
  • consultants,
  • artists,
  • permanent employees with fluctuating hours,
  • commissioned salespeople,
  • those doing seasonal work,
  • people will tip-dependent income,
  • owners of a small or startup business,
  • on-call employees,
  • or simply odd-jobbers.

If any of the above apply, this article is for you. Keeping track of your incoming funds and knowing where your money then goes are incredibly important to maintaining financial security when you don’t get a predictable paycheck from your 9-to-5. Below is one three-step method to creating a budget when your income isn’t predictable.

Related: Managing Your Cash Flow With Google Docs

Step One: Know Your Baseline

When you have a steady paycheck and a predictable income, can make a zero-based budget by allocating spending categories within that predictable limit. But those with unpredictable incomes must work backward — starting with the amount of money you’ll spend, in order to figure out how much you need. If your income is unstable, then it is your expenditures that must be stable, predictable, and repeatable. According to the 50/20/30 rule, there are three categories of expenditures: Essentials, Priorities, and Lifestyle.

Your baseline expenditures are those in the Essentials category — those that must be paid every month, without which you can’t live. Of these, the first costs you’ll want to estimate are:

1. Groceries

For your baseline, include the lowest food cost that is reasonable for your circumstances. Plan your grocery expenditures without any extras, like restaurants, coffee shops (unless you must use them to have business meetings or to avoid paying for internet at home), wine, or fast-food pit stops. If you’ll be couponing and cutting back your food costs, take that into account. However, if you know you won’t actually clip a single square, be realistic about your cost estimates. One of the best ways to get an estimate is to track your spending for a few weeks to get an idea of how much you spend.

Read More: Your Spending Reflects Your Priorities

2. Housing and utilities

For almost everyone, essential expenses include rent or mortgage. If you’re responsible for either — even if you house-share, live rent-free, or have a sliding rent arrangement — include your minimum monthly housing cost in your baseline. Make sure to include the monthly amount for homeowner’s or renter’s insurance and property tax bills in your total.

If you live in a geographic region in which heating or air conditioning is essential, include these average monthly bills in your baseline. In moderate regions, utility costs are a lifestyle choice. But heat isn’t optional in January in Vermont!

The same goes for internet and phone costs. If you work from home, they’re most likely a necessity and should be included in your housing and utility estimate.

Cut the Cord: Reducing Your Costs for Cable and Cell Phone Services

3. Medical costs

A note about health insurance: The number-one reason people go bankrupt is because of medical costs, so it could not be more important that you have some form of health insurance. You should include these costs in your baseline estimate, as well as payments for any outstanding medical bills. Also, look at how much your basic medical care, including annual check ups and standing prescriptions, cost on an annual basis. Divide that out by 12, and you’ll see how much you should add to your monthly medical costs.

4. Transportation

Do you need to include transportation to work in your baseline? If you rely on a car or even the public bus system to get you to and from work, you definitely do. Consider the lowest possible transportation cost given your job or jobs. Do you absolutely need a car, auto insurance, maintenance, garaging costs, and gas expenses? Or is there great public transportation in your city? Can you walk to work? Telecommute? Can you infrequently taxi, Uber, ride-share, Zipcar, or call for delivery?

Again: Be realistic with your estimate. If you’re actually going to drive your SUV alone, round-trip, every day, factor that into the costs.

5. Childcare

This expense is rather like transportation. If you must have childcare to be able to work, then you need to factor it into your budget. If you can work without having childcare (like if you can work from home on a flexible schedule), you may not need to budget for full-time childcare — or any childcare at all. Again, be realistic with this figure, though.

For instance, maybe you run your own business and could get away without paying for childcare if you had to. But if you stopped paying for your part-time slot at a local daycare, you’d lose your spot. Then you’d risk paying much more for childcare, or, worse, not being able to find a quality replacement, when your business picks up. In this case, the minimum you pay for part-time childcare should be part of your baseline budget.

How to Save Money On Childcare Costs (Our 32 Favorite Ways!)

Add up the baseline numbers, and you have the amount of the essential monthly “paycheck” you’ll write to yourself.

Step Two: Set Your Income Target

This step is easy (well… sort of). Once you know your monthly baseline expenditures — and thus the paycheck you’ll have write to yourself each month — use an online tax calculator to get a rough idea of how much you’ll owe in taxes.

Your base income plus taxes makes up your bare-bones monthly income requirement. The tricky part, of course, is guaranteeing you have enough income to meet your expenses.

Anything above this bare-bones income target goes to your financial priorities: first savings and/or paying off debt, and then additional lifestyle costs.

Step Three: Set Up Separate Bank Accounts

To make this plan most effective, you’ll want to set up separate bank accounts. Most banks will let you have as many accounts as you need, and you can often get these accounts without fees. Or ask your bank about its policy for maintaining a combined minimum account balance in order to avoid fees.

Related: The Four Accounts Types That Everyone Needs to Have

If your current bank won’t waive fees, consider switching banks to one that offers free checking and savings accounts. Otherwise you could have to add a hefty amount of bank fees to your monthly baseline budget, which is not a good thing.

1. Business checking

Here, you’ll have your checks auto-deposited. You’ll plunk your daily cash from tips, if you get them, and you’ll deposit your invoice payments from clients. You’ll make only three transfers from this account each month: one to each of the below accounts.

2. Personal checking

From this account, you’ll pay all your bills — essentials, priorities, and lifestyle — but you won’t spend more than you’ve paid yourself any month. This account will also receive any monthly “bonus” you might want to pay yourself when your income exceeds your target, and you have money left to spend beyond your savings (which is technically a fourth transfer).

3. Emergency savings

Every month, after you’ve paid yourself your baseline and transferred amounts for financial priorities, you’ll put money into your emergency fund.

You should be aiming to save at least six months’ worth of expenses in this account, to be used in the following situations only:

  1. You’ve lost your job and need to continue paying rent, bills, and other living expenses.
  2. You have a medical or dental emergency.
  3. Your car breaks down, and it’s your primary form of transportation.
  4. You have emergency home expenses — e.g., your AC breaks down in 100°F-plus weather, your roof is leaking, your basement is flooded, your toilet is overflowing, etc.
  5. You have bereavement-related expenses, like travel costs for a family funeral.

Related: How to Determine If an Expense Is Emergency Fund-Worthy

4. Priority savings

This account holds money for annual or semiannual payments (income taxes, property taxes, home insurance) and for important goals — payments on student loans, the down payment for a house, contributions to your retirement accounts, or college savings for your child.

Learn More About Renter’s Insurance… and Whether You Need It

That’s it! You now have a basic budget, your income target, and where exactly your money should go… no matter how it comes in.

This isn’t the only way to budget if your income is variable, especially if you have a steady paycheck plus an unsteady income from a side gig. But this is one way to make sure that your basic expenses are covered, and that you don’t out-spend your earnings when you have an unsteady income.

Do any of these methods work for you? What’s your biggest financial struggle with unsteady paychecks?


Should You Spend Less or Make More?

The most sound financial advice you’ll ever read is also the most basic: Spend less than you make.

Sure, a successful financial life is a bit more complicated than that. After all, you have to decide just how to make that extra money work for you. But it all starts with this basic principle. If your outlay is greater than your income each month, you’ll dig yourself into an impossible financial hole. But if you’re spending even $10 less than you make each month, you’ve got a place to start for saving, investing, and becoming financially free.

But there’s another saying that applies here: There’s more than one way to skin a cat.

In other words, there’s more than one way to do what you need to get done. In the case of staying out of the red each month, you’ve got two options: spend less money or earn more money.

But which is best? Which should you focus on first? As with most things in the world of personal finance, the answer is less straightforward than you might hope!

The Pros and Cons of Spending Less

Spending less is the tack many of today’s personal finance blogs take. Just look for money-related pins on Pinterest, and you’ll find thousands (maybe millions!) of frugal living posts focused on how you can spend less money.

Cutting your expenses is great. But, at the same time, it can only take you so far. Here’s what you need to consider when strategizing to spend less:

Pros

  • Its effects are immediate. You can start spending less right now and immediately feel an impact on your financial situation. Every dollar you don’t spend is a dollar that can be dedicated to another financial goal, like getting out of debt.
  • It creates discipline and ingenuity. Just take a look at those aforementioned posts on Pinterest, and you’ll see all the discipline and ingenuity that can be a product of learning to spend less.
  • It simplifies your life. Spending less money often results in having less stuff, which reduces clutter in your life. Plus, if you become organized enough to spend less, that organization is likely to flow into other areas of your life, as well.
  • It magnifies your efforts to earn more. We’ll talk more in a moment about combining spending less with earning more. For now, remember that when you get into frugal habits, you’re much less likely to succumb to hedonic adaptation, or the tendency to adjust your lifestyle upwards as you increase your income.

Cons

  • It’s limited. Many of us could find ways to cut a lot out of the monthly budget. Depending on your current expenses, you may be able to cut your spending by 50% or more. That’s powerful, but it’s also limited. At some point, you won’t be able to cut your spending any further. You have to meet your basic needs, after all.
  • It can go too far. Being frugal is great. But if you become a miser who never enjoys life, you completely miss the point of money management. If you end up so obsessed with frugality that you don’t take advantage of your financial freedom, you’re doing it wrong.
  • It may not be enough. There are plenty of powerful stories of families who paid off massive amounts of debt and now live comfortably on a relatively low income. But let’s be honest: in some cases, cutting expenses may not be enough. This is especially true when you’re trying to snowball your debt, but your monthly minimum payments are almost more than you can handle. Even after trimming the fat from your budget, you may need more money to start your snowball.

The Pros and Cons of Earning More

For every finance blog that focuses on spending less, there’s probably a counterpart that focuses on earning more. Side gigs. Career development. Blogging for income. These are all great ways to earn more money, which can also solve the problem of spending less than you make.

But, like spending less, earning more has its upsides and downsides.

Pros

  • It’s practically limitless. Once you start finding creative ways to earn more money, your earning potential is basically limitless. It may not feel that way at times, but there’s truly nothing holding you back if you’re willing to hustle.
  • It creates discipline and ingenuity. Working a side gig when you have a full-time job takes discipline (just ask me how I know!). And finding new ways to earn money takes ingenuity. Just like spending less, learning to earn more can create healthy habits of mind and time management that you keep for life.
  • It’s more effective over the long run. Because you can only cut your spending to a certain basic level, the impact of spending less will be less over time. But if you earn more, especially if you continue leveraging your efforts to earn even more, the long-term effects will multiply.
  • It can be fun. Most people don’t like cutting spending (though for some people this can be an exciting exercise). But earning more money — especially if you’re able to earn it doing something you love —  is almost always enjoyable. Plus, let’s be honest, seeing those bigger numbers hitting your bank account every month is a rush!

Cons

  • It usually takes time to get started. Despite the plethora of blogs-on-blogging that say you can earn thousands overnight, that’s usually not the case. Starting a side gig or reaching your day job’s earning potential usually takes time and effort. You may not notice an impact on your finances for several months.
  • It takes work. Yes, living frugally does take some work. But many people have systems in place that allow them to keep saving without spending loads of time clipping coupons. Earning more, on the other hand, takes time. Whether you earn hourly with a regular side gig or spend a ton of time up front creating a passive income stream, you have to put work into earning more money.
  • It can go too far. Anything taken to an extreme can be bad. This is true of working harder to earn more money, too. If too much work is damaging your family or personal life, you may need to cut back.

Related: How to Make Money With Your Blog

So, Which is Best?

Is it better to earn more or spend less? It really depends on your situation.

For instance, let’s say you’re in dire financial straits right now. You’re drowning in debt. Or you just lost a job. Maybe you have zero emergency savings.

In these instances, spending less will likely serve you better. As I mentioned above, spending less can have immediate effects, which is important if you’re in a financial emergency. Cut back on your expenses right away, and use what you save to stabilize your situation.

Another instance where saving more would probably be most helpful: if you’re already a high income-earner. If you’re making six figures but still feeling the crunch every month, where could you cut back? Are you eating out multiple times a week? Living in a house that’s bigger than you need? Driving a nice car with a huge monthly payment? Cutting back on these types of expenses could seriously boost your ability to save.

Learn More: So, You Want to Buy a Car from the Dealership…

But what if you’re already living fairly modestly? Maybe you have a few extra expenses you could cut back on, but you’d really rather not. In this case, you might focus on earning more to throw more money into savings or investments. Especially if you can find a side gig you love, or can develop your current career to earn more.

Or what if you’re already on a stripped-to-the-bone budget because your income is very low? In this case, focusing on earning more is almost essential. If you want to build wealth and work towards financial freedom, adding a side hustle or stepping into a higher-earning career may be essential.

Of course, for many of those with average financial circumstances, the right key will be both of these things working in tandem. Cut expenses where it makes sense, and find a way to get a raise or start a side hustle. Pulling both levers at the same time can make a huge difference in your personal finances.

If you decide to pull both of these financial levers at once, you’ll have to find a good balance. Sometimes in order to make money, you’ll have to spend money. For instance, I have a small monthly coffee shop budget. Do I really need to spend money at coffee shops? No. But with two small children at home, sometimes spending $5 on a Saturday morning at a local coffee shop nets me my most productive hours all week!

This goes the other way, too. If you get yourself so busy trying to earn extra money that you don’t have time to cook at home, you may wind up spending more dining out. If meals at home are important to you — and saves you significant amounts of money — it might be better to cut back a few hours a week so you can enjoy cooking in your own kitchen.

Related: 8 Ways to Save Money When Dining Out

As you can see, this is a complicated issue that doesn’t have a single straightforward answer. Whether you decide to spend less or earn more may even change during different seasons of your life. The key is to consider how you can have the most financial impact while still enjoying your life and making progress financially.

So, which do you choose? Spend less? Earn more? A little of both? Tell us in the comments!


How Automation Has Helped Me Reduce Debt and Save

Readers often e-mail me for tips on how to keep their finances manageable. There are so many options out there that it can be overwhelming. I was speaking with my mom about this some time ago, and she felt the same way.

My mom has been responsible with her money over the years, but she felt that she could be doing better. After chatting with her, we decided that she should switch banks and automate some of her bills. It would free up some of her time and take a few things off of the to-do list… wins all around. I was talking with her the other week, after she had implemented the new system, and she said she’s really happy with her decision. She has saved both time and money with her new bank and online bill pay.

Why do I love automating my finances? Well, why wouldn’t I? Automating your finances can be a wonderful process, if done correctly. For one thing, it puts me in control of my bills without having to deal with paper, stamps, envelopes, and checks. But there are plenty of other reasons to love automating my finances, too. Here are my favorites.

I don’t pay late fees

I used to occasionally lose bills or forgot to send checks whenever I had a very busy week. Late fees definitely add up, and can be as high as $29 to $39 for credit cards! Sometimes I can pay my credit card accounts online for a same-day payment, but if I’m a day late, I may still get a fee imposed.

With online bill pay, you don’t have to worry about late fees because your bills will get paid on time every month, without any added work on your end. We’ll talk more below about different options for setting up automatic bill pay. But for now, just know that in exchange for a little effort up front, you can reap the benefits of avoiding late payments… forever.

Late payments don’t hurt my credit score

Getting rid of late payments isn’t just good for saving money by avoiding late fees. It also helps keep my credit score high. Payment history makes up the lion’s share of most credit scoring algorithms, and even a single late payment can quickly tank an otherwise excellent credit score.

Again, there are several options available for automating payments. But any of these options can keep you from having late payments recorded on your credit file, which helps you build your credit score or keep it high.

Resource: How to Check Your Credit for Free (and Avoid the Scams Out There)

I’m saving money, and I barely notice

In the past, I would save money for a few weeks and then have an emergency. After getting through the trouble, I’d neglect to re-start my savings. This cycle would repeat over and over. I felt like I couldn’t possibly save more money without cutting my budget to the bone.

How did I fix this issue? Automation, of course!

Now, I have a portion of my pay automatically transferred to a high-yield savings account each time my check hits my account. The trick to making this work is to make sure the transfer happens before you can even check your account balance on payday. It’s hard to miss money that you never had a chance to see!

But don’t be a hero. Start out with just a small transfer. Then, as you get used to that slightly thinner paycheck, increase the amount slowly over time. Just be sure you’re transferring those funds to a savings account with as decent a yield as you can find.

Retirement savings is a cinch

I started saving for retirement early on, while still in college. Unfortunately, I got distracted, and my savings became sporadic as I got into debt. Getting back on the wagon was tougher than I thought.

Saving for retirement automatically is easiest if you have an employer-sponsored retirement plan. But you can do it even if you primarily invest in an IRA or another individual account.

If you have an employer-sponsored plan, call your company’s Human Resources department and sign up to have 401(k) contributions automatically deducted from your account. You should especially do this if your company offers matching contributions. Even if you’re trying to get out of debt, contribute at least enough to maximize that matching contribution. Otherwise you’re just leaving free money on the table!

Related: How Much Should You Have Saved, Based On Your Income?

Want to increase your investments even more? Consider sending a small portion of your paycheck to a traditional or Roth IRA.

My bank account stays steadier

If you have plenty of padding in your checking account, this may not matter. But if you’re living paycheck-to-paycheck or just a bit beyond that, it can be a boon. By making automatic payments around payday, I keep my checking account balance from skyrocketing and then plummeting.

In fact, you can smooth things out even more by paying some of your larger bills twice a month if you’re paid bi-weekly.

Pay half the mortgage with your first paycheck, and half with your second paycheck. This keeps your account from taking a big hit when you pay the full mortgage. And it has the added bonus of paying off your mortgage more quickly, since you’ll make an extra full payment by the end of the year.

This doesn’t just work with your mortgage, though. Bi-weekly payments can smooth out your bank account balance and pay off just about any debt more quickly and efficiently — without making it feel like you’re paying extra.

Read More: How to Use the Debt Snowball to Pay Off Balances

Some drawbacks to automation

Even though I love automating my finances and the effect that this strategy has had, it’s not the be all, end all of budgeting and financial management. It does have some drawbacks to consider, including:

  • Possible overdrafts — If you’re on a tight budget or have an unsteady paycheck, you run the risk of having a payment drafted when you don’t have enough money in your account to cover it. Overdraft fees can be even worse than late fees! If your cash flow is really tight, you may want to find some breathing room (by cutting expenses, paying down debts, etc.) before you automate all of your finances.
  • Time to set up — Automation does take some significant time to set up on the front end. However, once it’s set up, you’re good to go unless you need to tweak something — which doesn’t take much time.
  • Missing problems with your bills — It’s much easier to miss being over-billed for certain services if you’re automating the payment. One way to avoid this is to only automate those bills that don’t change, like your mortgage or car payment. Or you can use a platform that gives you advance notice of the amount that will come out of your account. If you notice a bill is suddenly much higher than it should be, you can look into the issue as needed.

How to automate

There are loads of ways now to automate everything from bills to savings to retirement investments. Here are a few options you might consider:

  • Paycheck deductions — For accounts like your employer-sponsored 401(k) or HSA, your easiest option is probably to set up automatic paycheck deductions. Talk to your HR department to get this done.
  • Bank bill payment — Many banks offer automatic bill payment services where they’ll cut a check or send an wireless transfer to cover your bills. You can normally set this service up online through your bank account management tool.
  • Third party services — Services like Mint.com offer automatic bill payment that works similarly to your bank’s service.
  • Through the creditor or utility’s website — You can often set up automatic payments through your creditor’s or utility’s website. Log into your account, and set up automatic payments to recur on a set day of each month. Often times, new creditors, insurance policies, or other entities give you the option to set up automatic payments when you first open your account.
  • Automatic transfers — For automatic savings or investing, you can often set up automatic transfers from one bank account to another bank account or investment account. This is super simple when you’re transferring money from a checking account to a savings account at the same bank. But it’s not difficult to set up automatic ACH transfers to accounts at another bank, either.

Learn More: 15 Ways to Supercharge Your Finances This Year

How about you? Do you automate your finances? Let us know what works for you, and how it has improved your day-to-day finances, in the comments!

 


Unpaid Internships: A Graduate’s Dream… or a Nightmare?

It’s the ultimate catch-22: in order to get a job after graduation, you’ll need experience. In order to get experience? Well, you need a job.

The solution for many students is to look for intern experience, which can be made to fit in around a demanding college schedule. This might mean working through summer or winter breaks, even for several years. But it’s definitely worth it in the end, to gain the variety of exposure needed in a competitive job market… right?

Employers do demand that graduate applicants have more on their resume than a strong GPA, but the truth is, not all internships are made equal. You have to be clear on what experience you will get from the work being offered. Especially when it comes to internships that don’t offer any remuneration, check the small print very closely.

Read More: When It Makes Sense to Work for Free

So when considering an unpaid internship, even with the company of your dreams, should you really donate your time? To help you decide, here are some common arguments for–and against–taking the job:

The arguments against unpaid internships

As expected, there are quite a few reasons to turn down a non-paying job, even beyond the hit to your bank account.

Unpaid internships are elitist

Not all students can afford to work without pay. This is especially true if money is tight and you don’t want to rack up more student loam debt. In that case, working over the winter and summer breaks — which add up to several months — is a great way to put some cash in the bank.

Turning down these periods of money-earning opportunity in favor of working for free is a difficult decision for many. This leads to the accusation that the entire concept is elitist.

How to Make Extra Cash With a Side Hustle

Employing interns for free limits paid opportunities

A further challenge to the concept of unpaid internships is that employing students for free effectively reduces the number of paid jobs being offered on the market. Unethical companies may even take advantage of the situation. They could effectively bring down their overheads by taking on more free workers, without even having the intention of offering permanent positions at the end of the internship program. As long as people seek to trade their time for experience, these questionable companies have no incentive to change their practices, either.

Having people work for free might not be strictly legal

Finally, among the high-level challenges to the concept of unpaid internships is the issue that they might fall afoul of the law. In regions where there is minimum wage legislation, employers have to pay careful attention to the way intern programs are structured. That way, they can ensure that they are in line with the rules.

Should You Be a Full-Time Employee or a Freelancer?

The arguments for unpaid internships

Though there are many reasons to avoid taking on an unpaid internship, there are also plenty of reasons to consider one.

There are valuable, non-monetary benefits of an internship

Getting paid for your internship is the optimal outcome. However, don’t forget that there are a huge number of non-financial benefits to be had from an internship, too.

Certainly, you will gain great skills and experience. You could get access to training which others may only be able to access for a fee. You get to meet people working in the field you’re interested in moving into and can begin building an enviable network. And in the case of many unpaid or voluntary internships, you might also be offered other benefits which are not direct pay. These could include free food, lodging, or even travel.

Related: How to Budget Without a Regular Paycheck

Employers expect grads to have work experience

In the US and most of Europe, graduate recruiters want to see that their candidates have had hands-on experience of some sort. Over 30% of recruiters who took part in the High Fliers 2017 research (a look into the UK graduate market) said that those who had no previous work experience at all were unlikely to be selected for their organizations’ graduate programs.

That unpaid internship might mean you have to turn down a few weeks of minimum wage work elsewhere, but it might be enough to get your foot in the door in your dream job.

In a competitive field, specific experience is invaluable

An internship doesn’t just look good on your resume, though. You might even be able to convert it directly into a job offer at the same employer. According to NACE, in 2016, 72.7% of people who completed an internship were subsequently offered a position with that company upon graduation. That’s pretty compelling! Of course, keep in mind that there are always variations in stats (and other reports have shown that unpaid internships are significantly less likely to convert to job offers than paid intern opportunities).

Thinking About Those Student Loans: Why You Should Remove Your Cosigners ASAP

Make your internship work for you

If you have been offered an unpaid internship, it’s worth taking a long, hard look. However, don’t dismiss it off the bat.

Each situation is unique, and in some hyper-competitive fields — such as fashion or journalism — unpaid internships are absolutely the norm. Really evaluate the opportunity at hand and ask how you can make the experience pay back for you… even if there’s no cash in the offer.

  • Be clear what you can get out of the opportunity. Think through how the internship can work for you. Ask the manager what support is offered, including on-the-job training and professional development in both ‘hard’ and ‘soft’ skills.
  • Build your contact book, and ask for help. Any internship, paid or unpaid, is a golden chance to build your network. With so many jobs being filled before they’re even advertised, who you know might be the key to getting your perfect job.
  • Record your achievements and build your resume. If you’re writing your first resume, you need to really sell your skills and experience. Write down what you do as you do it, and you will also find it much easier to articulate your achievements in an interview later.
  • Develop your soft skills, in addition to gaining business experience. Use this chance to push yourself a bit on ‘soft’ skills. Volunteer to lead a project. Make proposals for changes that might improve the business. Ask others for feedback as you go. These are all things which feel uncomfortable, but which will be expected of you throughout your future career.
  • Find a mentor, and develop an ongoing relationship. Ask your boss if he or she would consider mentoring you after the internship has ended. If you don’t hit it off with your direct manager, think about who else might play that role and would also retain a real interest in your progress after you return to school.
  • Use the opportunities for reflection. There’s a chance you will hate some, or all, of your internship (whether paid or unpaid). Think carefully about what worked for you and what did not — the boost in self-awareness will serve you well.

Related: 5 Personal Finance Resources Every College Grad Should Read

Unpaid internships are controversial. On one hand, they offer invaluable experience to students in a competitive job market. Having one on your resume can really make the difference between getting that next interview or not. On the other hand, unscrupulous employers might use unpaid internships to simply avoid offering paid roles. This results in no benefit to the student and reduces the number of paying jobs out there.

If you’re considering taking an unpaid internship, proceed with your eyes open to the risks. Use these ideas as a starting point to make sure you get the most from the experience. Think about what you want to gain from the internship and be prepared to negotiate a little — with the right approach, even an unpaid opportunity can really give you a great return on your investment!

Have you ever worked for free, in exchange for the experience? How did it benefit you and the career path that followed?


How to Remove a Cosigner from a Student Loan

Adding a cosigner to a student loan has become common practice. After all, very few students can qualify for a loan based on their own income and credit profile. A cosigner is usually needed in order to get the loan approved, particularly with private student loans.

But given that student loan repayments can run as long as 25 years, does it make sense to keep your cosigner on the loan for the entire duration of the term? There are risks to your cosigner, and that’s why you should remove them from your student loan as soon as possible.

Why You Should Remove Your Cosigner

Cosigning a loan isn’t a casual arrangement. There are implications for the cosigner, which could affect his or her credit standing. It could even impair their overall financial situation.

For example, your payment history on the loan will affect your cosigner’s credit. If you make any late payments, they will show up as derogatory entries on your cosigner’s credit report, in addition to yours. Naturally, should you default on the loan, your cosigner will be called upon to satisfy the obligation. That can cause serious distress to your cosigner, particularly since student loans are typically large.

Read More: How to Refinance Your Student Loans

There’s one other factor that’s seldom considered in regard to cosigner arrangements. When your cosigner applies for a loan for themselves, the cosigned student loan will likely show up on their credit report. Most lenders will consider this an obligation of your cosigner. That being the case, it’s possible that your cosigner will be declined for their own loan application, even if you have assumed full responsibility for your student loan’s repayment. When adding the student loan payment to their other obligations, the new lender may decide that your cosigner’s total debt ratio is too high to justify approval.

When you remove a cosigner from a student loan, you not only protect their credit, but you also free them up to borrow for their own purposes in the future. For that reason, you should actively pursue a cosigner release as soon as you are eligible.

Federal Student Loans

Most federal student loans will enable you to qualify even without a cosigner. Federal student loan programs recognize that you are in fact a student and lack the income and credit profile typically required to support the loan. Repayment is based on your securing employment after graduation.

However, there is one federal student loan type, a Direct PLUS Loan, that does permit cosigners. This is because Direct PLUS Loans require credit qualification, and very few students can qualify on their own. However, the news in regards to cosigner release is all bad: Federal student loans do not provide for cosigner release. Your cosigner will remain on the loan until it is fully paid.

If you’re dealing with a federal Direct PLUS Loan, your only option for removing the cosigner is to refinance the loan. Refinancing can be a good option for reasons beyond removing the cosigner, too. So if this is your situation, consider refinancing your loans and removing your cosigner in the process.

Related: Should You Consolidate Your Federal Student Loans?

Private Student Loans

Fortunately, most private student loan lenders do permit cosigner release. There are certain requirements, however, in order for it to happen… which is to say that the release is not automatic.

Lenders who permit cosigner release typically require that you have made on-time payments for certain amount of time. In addition, you will also be required to document that you are capable of making the payments out of your own financial resources.

Related: Best Budget Resources

For the most part, this process is similar to reapplying for the loan. You have to make a formal application for cosigner release, and then provide documentation that supports your ability to pay. This will usually include an acceptable credit history and sufficient income to carry the student loan debt, as well as your other financial obligations, on your own.

However, not all private student loan lenders permit cosigner release. For example, Discover Student Loans stopped permitting cosigner release back in February 2012. For this reason, you need to be aware if a lender does or does not permit cosigner release before accepting the loan. Once you accept the loan, there is no way to add the release provision after the fact.

On-Time Payment Requirement

This is a virtually universal requirement for cosigner release on all private student loan lenders that permit them. The on-time payment requirement usually ranges between 24 and 48 months.

For example, Wells Fargo will allow a cosigner release after the most recent 24 consecutive monthly payments have been made on time, including the first required payment. If the first required payment was not made on time, then you must make the most recent 48 consecutive on-time monthly payments. In addition, the loan cannot have involved any forbearances or modifications for hardship reasons during the required repayment term.

Citizens Bank allows your cosigner to be released after 36 on-time monthly payments. If you have exercised either the deferment or the forbearance options, you will need to show 36 on-time monthly payments from that time on.

DCU Credit Union requires that you make 48 consecutive on-time monthly payments in order to qualify for cosigner release. Only after you have made those payments will the lender consider the release.

Though none of the lenders specifically indicate this, it is highly likely that they will require that you personally have made the payments on your student loan… not the cosigner.

Evidence that You are Able to Qualify for the Loan on Your Own Credit and Income

Once you have made the consecutive on-time monthly payments, you will likely qualify for a cosigner release. But you’ll still have to meet the other requirements, which typically include:

  • Complete a cosigner release application, which is essentially an application for the loan in your own name and including your own financial resources
  • Be a US citizen or a permanent resident alien
  • Show a history of stable employment
  • Provide an acceptable credit history
  • Have an income that supports repayment of the student loan debt, which will sometimes require a certain minimum dollar amount of income
  • Meet acceptable debt-to-income ratio requirements, indicating that you are able to meet all of your fixed financial obligations on the income that you have

In the event that your initial application is denied, some lenders will allow you to reapply for the cosigner release after the passing of a certain amount of time. Oftentimes, this is a period of one year.

Related: 3 Lesser-Known Ways to Improve Your Credit

What if You’re Denied?

If you’re denied your application to remove the cosigner from your own, or if you don’t have the option to take this step, what’s next? As mentioned above with certain federal loans, refinancing is another option. Refinancing can have strict requirements as well, though. If you have the option to remove a cosigner on your private student loan but don’t quality, it’s likely you won’t qualify for refinancing, either.

But if you’re in good financial shape and simply don’t have the option to remove the cosigner from your current loan, consider refinancing without a cosigner. This could get you a better interest rate and get your parents or other cosigner off of your student loan!

If you are using a cosigner to get a student loan, be sure that you investigate whether or not that lender permits a cosigner release. And if they do, you should actively pursue the release as soon as you are in a financial position to do so.


Extra Cash? How to Decide Whether to Pay Off Debt or Invest

If you have extra cash or come into a sudden windfall, is it smarter to pay off your debts or invest the money?

A woman came into my office the other day wondering this exact thing. Well, she didn’t ask the actual question… I did.

She had a mound of credit card debt, clicking away at 12% interest. What surprised me, though, was that she already had the $50,000 needed to clear out the credit card debt. Interestingly enough, she didn’t plan on using any of it to pay off the card! She wanted to invest the money instead. She estimated that she could earn much more than the 12% she was paying on the credit card, so she concluded that paying it off was a silly thing to do. Her money was best served elsewhere.

It turns out that this woman was in debt all over town, even though she had substantial assets. Never mind that her credit score was in the dumpster, she wanted to invest. I had to convince her to reconsider.

Could She Have Been Right?

To you and me, the answer in the above woman’s case might be a no-brainer. But other situations aren’t so clear-cut. In order to really address this issue, you have to understand all the components of the question.

First, there’s the basic financial question, which is rather simple. Ask yourself which number is greater, the return on your investment or the interest you are paying. If you’re paying more interest than you could earn, pay down that debt!

For example: assume you owe $10,000 on a credit card. Let’s say that you actually have the $10,000 in the bank, which you could use today to get out of debt completely. The credit card interest rate is 10%, and the bank is paying you 1%. At first, this seems like a slam dunk. Pay off the credit card. Right? Not so fast…

Assume that you also have an opportunity to invest $10,000 in your brother’s “can’t lose” vending machine business. He tells you investments are earning 30%, which is quite a bit more than the 10% you’d save paying off the credit card. Now the choice becomes more complicated.

If you pay off the credit card, you’ll make a guaranteed 10% return. Why? Because that’s money that you’ll keep in your pocket rather than sending it off to Visa or Mastercard.

If you invest in the vending machine business, you’re guaranteed nothing. You might earn 30%… or even more! But you could also lose everything. It’s happened once or twice in the past when people invest in small businesses.

So, which is greater? A guaranteed 10% or a possible 30%? The only way to approach this is to estimate the likelihood of earning that 30% on your investment. If the chances are high, you might go for it. If not, you might pass.

But there are other scenarios. What if the cost of that credit card debt was only 5%, and your alternative to paying it off is to invest in some mutual funds? What if your timeframe was 5 years for those mutual funds? Assume you estimate that the average return of the funds over that period of time will be at least 8%. Now, which do you choose?

While you still have to do the above calculation of estimating the likelihood of achieving those results, you have the added element of time to consider. What is the expected return of the alternatives over the given time horizon?

This is also especially true with mortgages. If you come into a sudden windfall, you could theoretically pay off your home loan early, clearing up a very large debt. But is that (likely) 3-5% interest rate really your best option, given that you could invest that cash and earn a 7-8%+ return? You need to ask yourself some big questions.

What Other Value Does That Money Hold?

So, from a financial standpoint, you must consider all the alternatives: the cost of the debt, the likelihood of potential alternatives coming about, and the downside risks over a given time frame. It’s a lot to consider.

Beyond these financial considerations, though, there are also the emotional points. How would you feel if you paid off the debt? How would you feel if you don’t invest? How would you feel if the investment doesn’t work out?

Related: Sweat In Up Markets So You Don’t Bleed In Down Markets

I have found that these emotional questions are just as important as the financial questions. What good is it to make an otherwise smart financial decision if, at the end of the day, you are left feeling miserable?

In most cases, you can simply ask yourself a few questions and come up with a really solid decision. This should allow you to address both the financial and the emotional issues:

1. What happens if you pay off the debt and the other investment does well?

Your answer will be unique depending on the situation. If the investment turns out great, how might it change your life? Are you giving up your chance of a lifetime? Or are the upsides of the investment actually very limited? What are you giving up in order to pay off the debt? Does it make sense to make that decision?

2. What happens if you pay off the debt and the other investment does poorly?

If this happens, you’ll probably feel like a genius. No problem here. (My apologies to your brother on his vending machines, though.)

3. What happens if you don’t pay off the debt, make the investment, and it turns out well?

What is a reasonable expectation for a “good” outcome, and what does that look like? Can your money double? Triple? Or is the upside, even in the best case, so limited that it just isn’t worth it? What is a reasonable expectation?

4. What happens if you hold the debt, make the investment and it turns out badly?

Can you afford to lose the money and be stuck with the debt?

A man I know borrowed money to invest in the stock market. Not only that, but he invested very aggressively and lost 30% in 3 months. At the end of the day, he was $150,000 underwater and needed to pay 10% to his lender. This bad decision forced him to sell his business and declare bankruptcy. Clearly, he never thought about the downside before choosing the investment over staying out of debt. He was an optimist who never considered the risk.

Read More: Rebuilding Your Credit After Bankruptcy

I have found that by asking myself these four big questions (and really thinking about the answers), I make better financial decisions between two competing alternatives.The answer isn’t always as cut and dry as it was for the woman in the beginning example, but that doesn’t mean you can’t still figure out the best, smartest option for your money.

So, how do YOU decide between paying down debt or investing?


Can You Take Time Off to Raise a Family Without Ruining Your Career?

In an ideal world, you would really be able to “have it all.” You know, the perfect parent with a model career, which fits neatly alongside family life.

The reality is, though, parents often feel like they’re under pressure from all directions. Naturally, you want to do the best for your children and support your family unit. Oftentimes, this means one parent taking a break from their career, dedicating their time instead to raising a family. Many of us worry about the impact this decision will have on our long term career, and whether we’ll ever be able to pick up where we left off.

Taking time out for family doesn’t have to negatively affect your career path. But there are some considerations–and some smart steps to take–to ensure that you can still access the roles you want when you’re ready to reenter the workforce.

Here are some ideas to get you thinking:

Plan your time out or risk resenting it

There are pros and cons to taking time out of your career to raise your family. You might worry about slowing your career progression, but it’s also common to find yourself missing adult company when you’re at home with tiny humans most of the day. Of course, that’s without even considering the financial impact of losing pay, pension contributions, and other benefits.

Whatever you do, time out will have some impact on your career. For many people, the benefits of spending time at home far outweigh the potential pitfalls. However, it’s a big decision and more likely to pay off if you plan for the time in advance.

You should think through the financial impacts. Also plan how you’ll balance your varied roles as a parent, a partner, and an adult in your own right. Keep a flexible mindset if you can. Each individual and family unit will have a unique way of organizing life. If you decide to take time off work, but ultimately the arrangement doesn’t suit you, have a backup plan so you don’t feel trapped.

Prepare for the Unexpected With a Flexible Career Plan

You risk long-term damage–not only of your career, but of your personal confidence–if you end up resenting your time spent out of the workforce.

Avoid missing professional development opportunities

Time out of work can cause you to fall behind your peers in terms of professional development or lose track of the latest changes in your field of work. As well as making it more difficult to reintegrate into your previous job, this can damage your confidence… you may feel like the world is moving on without you.

However, it’s not inevitable. You can still take advantage of professional development opportunities when you’re staying home if you plan carefully. In some cases, you might be able to formally arrange to spend some time in the office to maintain relationships and undergo any necessary training. In the UK, these (paid) days are known as “keep in touch” days. However, even if there is no formal arrangement for doing this, it’s worth talking to your boss about setting something similar up if you can afford to take the time away from your child.

Related: How to Decide If Your Salary Is Worth the Cost of Childcare

If that’s impossible, keep up by reading industry news or taking online courses. Follow your business and its competitors on Twitter and Facebook to get the latest updates. Listen to podcasts presented by industry insiders. If you enjoy writing, you could even consider contributing to industry press, which has the added benefit of giving you an online footprint during your time off.

You’re building new (marketable!) career skills

Don’t underestimate the skills you’re building while you’re out of the workforce. The “soft” skills of parenthood can be hugely valuable, and deserve a place on your resume. Parents who return to work tend to have developed better prioritization and planning skills–of course, these are needed to ensure you can deliver at work while still holding home life together. Working parents also have strong drive and resilience. Their renewed focus can make for a big leap in productivity, which is an asset for management.

Periodically review your resume and update the skills section to remind yourself of how you’re developing as an individual and reflect your growing list of transferable skills.

Aside from better organization and planning, it’s also common to have more empathy (and find that you’re better at building relationships), once you return to work from having a family. Having kids is a life experience many people share. You can make this shared experience a way to build new and deepen existing, relationships, taking your work connections to another level.

Isolation can damage your confidence

Being home with children can be an isolating experience if you’ve always been part of a strong work team. You can easily go from being with other people day in and day out–those you know well, and with whom you share goals and purpose–to rarely seeing other adults outside of family. While this is inevitable to a degree, especially with very young children, it’s important to find ways to be involved with other adults. Isolation has a way of denting your confidence.

Related: Can You Afford to Stay Home With Your Kids?

With parenthood, your friendship groups might naturally change. Get to know other parents by joining local groups and clubs, but also keep in touch with work colleagues when possible. Simply meeting colleagues on a social basis is an important link to your professional life.

Even better, if you are able, is to find opportunities through a site like Meetup.com. That way, you can get to know other professionals and grow your network, even while you’re out of work. If you really can’t make time to get out and meet people face to face, try joining professional groups on LinkedIn. There, you can get involved in discussions and stay up-to-date with industry developments.

Feel free to think ‘outside the box’ if adjusting your goals

Although taking time out of the workforce might impact the long-term future of your career, becoming a parent will also make a significant difference. You may even find that your ambitions change. This is actually very common; having family commitments could be the catalyst that makes you think creatively about your working future. While you might choose to adjust your career goals, though, you certainly don’t need to ditch them.

Maybe you decide you don’t want to work full time after taking a period of time off. Think differently: how about part-time, flex, contract, or even online work? You might stay at your current workplace but ask to work from home or to take on more family-friendly hours. You could also set up your own business or exploit a hobby in order to make some cash. A side hustle has the ability to not only bring in additional income, but also be a segue into a career you didn’t even realize you wanted. The increased autonomy and flexibility may be just what your new family needs, too!

Making a dramatic career pivot is fairly common these days, as the popularity of online/remote working has brought with it many new opportunities. Taking time to reassess your career options when a baby comes along can make you see ideas you never thought existed.

Extra Income: Could Airbnb Pay Your Family’s Mortgage?

Although taking time out of the workforce to raise a family might signal the start of a new chapter in your career, there is no need for it to be the beginning of the end. Combining your new skills as a parent with your professional experience can give your career a real boost. You never know… it might even be the springboard to starting something new and incredibly rewarding.

What’s something you (or your spouse) learned from taking time away from a career to focus on family? Would you choose the same path if you could do it all over again?

 


How to Invest in Yourself (Without Spending a Lot of Money)

No matter your current stage of life, there are always opportunities to spend money on bettering yourself. These include things like continued education, vocational qualifications, or professional certifications. We pursue these despite the (often high) costs — through careful planning and smart student lending — in hopes that the money spent will pay dividends in the long run.

However, it’s important to remember that cash is not the only resource at your disposal when it comes to self-development. You don’t need to spend a ton of money in order to “invest” in yourself. In fact, any action you take that will result in better health, happiness, or financial well-being is an investment in your future self. Whether your focus is on eating well, increasing activity, organizing your home, or getting smart about your spending, it’s all beneficial.

invest

One impactful area to consider is your future career. You can also make great gains here for free, or at a low cost. If you’re looking for ideas to help you invest in your future career, without spending a bunch of cash, here are a few to start.

Know yourself

Do you handle stress by simply avoiding your approaching deadlines, browsing Facebook or YouTube pages endlessly? Procrastinating eats valuable time like nothing else, and recognizing that you have a problem allows you to begin fixing it. Perhaps you’re miserable in your job, but the fear of jumping into something new keeps you from even exploring your options. If you only knew what you could be good at doing, you might make that leap — advancing your career and your happiness.

Really, truly getting to know yourself is a valuable way to plot your course to self improvement. By understanding your strengths and weaknesses, your preferences, and the environments in which you work best, you can make sure that you’re on the right course professionally.

The great news is that getting to know yourself is completely free. Aside from “real world” opportunities, there are a number of ways you can use the internet to gather ideas and make some informed decisions about what your future career options might be.

The investment:

  • Get to know yourself better with an online tool, such as 16 Personalities or Predictive Index.
  • Check out what you think you know about yourself by actively seeking feedback from others.
  • Use a tool like My Next Move to generate ideas about how your personal interests might overlay into your working life.
  • If a new career is a real consideration, try an online assessment to see what might work for you.

Expect good things to happen

It might sound a bit abstract, but would you behave any differently if you really, truly expected to get a lucky break in your career sometime soon?

If you don’t think good things are going to happen to you in your career, then chances are, even if they do, you won’t be ready to take the initiative. In the world of work, success tends to attract success. So being ready to grab the chances that come up is a great outlook. Plus, it’s an investment in yourself that you can manage with zero outlay.

Imagine you meet your dream job’s boss at a party. Or you discover a friend of a friend is the manager at a company you love. You’re itching to find out more about their work, maybe even ask outright if they would consider you for a job. Would you be ready to introduce yourself in a way that creates a great impression and lays the foundation for you to ask for what you want?

The investment:

Read more

The benefits of reading include stronger analytical skills, improved concentration, a better memory, and a broader vocabulary. Since you’re here reading this article, though, you probably know that already.

Reading is one of the best investments you can make in yourself, bringing direct benefits and reducing stress. Even better news is that this applies across the board, regardless of the type of reading matter you choose. Devote just a little time to reading about the professional topics that interest you, and you ramp up the impact.

Related: The Top Personal Finance Books

What’s more, you can read in your “dead time,” which would otherwise be wasted, using a tool like Instapaper. Simply bookmark interesting articles to read later, and tackle them when you would otherwise be idling, such as standing in line at the grocery store or sitting on the train to work.

The investment:

  • Visit your local library to (literally) check out ways to stretch your mind.
  • Read online issues of quality magazines covering topics like world politics, economics, personal finance, and business.
  • Access condensed versions of non-fiction books with Blinkist or Four Minute Books.
  • Follow people who inspire you, as well as the key voices in your industry on platforms like Twitter and Medium.

Learn online

The internet is good for a lot of things, but the ease of access to ideas and information make it a perfect place to learn.

Whether you want to speak a new language, crochet a scarf, or pick up a new professional skill or qualification, you’re going to find what you need. In many cases, the courses you want will even be free, as long as you know where to look.

Learning new things can be a direct benefit to your professional career if you choose courses that apply to your field. But even if you feel like tackling something just for fun, the simple act of challenging yourself to develop a new skill is good for your brain.

The investment:

  • Listen to podcasts or watch TED talks online to broaden your horizons from your own home.
  • Get clued up on coding with nothing more than your home computer with Codecademy.
  • If you’re interested in managing your money better, try Learnvest courses or listen to podcasts like those from Dough Roller.
  • Learn like you’re at MIT with their free online courses covering topics such as business and entrepreneurship.

Network with purpose

To get the most from this investment, learn to network with purpose. (With that said, remember to occasionally connect with others without any end goal, too!)

Networking with purpose means making it a priority to seek out and contact people who share your interests and ideas, or are working in areas which you aspire to join. You do not need to ask them for anything in particular, other than to share their experiences over a coffee.

You would be surprised how flattered people can get from receiving an email or a call — especially from a stranger — simply saying, “I think what you do is really interesting, and I would love to hear more about it.” If you are open and honest, people are likely to respond well to your requests. Even if they don’t make time to see you, you know you have made their day by asking. But you miss 100% of the shots you don’t take, so at least give it a chance.

The investment:

  • Find local Meetup groups, community gatherings, and industry associations that are relevant to you. Go along and make new friends.
  • Try to find a mentor in your professional field or the one to which you aspire to move.
  • Consider volunteering to improve your network, either in a local business organization (such as a chamber of commerce) or a charity operating in your industry.
  • Remember to really listen to others. The purpose of networking isn’t to get people to do things for you but to learn from them and build a community.

Find your creative outlet

Happy people have a creative outlet. Getting creative is known to help balance stress and improve overall wellbeing, leading to a better quality of life and maybe even lower healthcare costs.

Learn More: How to Easily Save Money on Healthcare Costs

Of course, happy people are also more productive. So finding a way to get creative is also a great investment in yourself.

If you happen to have a craft or creative skill you can then use to build a side hustle, you can double down on the impact of this investment. You’re not only bettering yourself with an outlet, but selling your products will give your finances a boost. Think about craft fairs and online outlets like Etsy, or use your personal network to gift and sell your crafts to others.

The investment:

  • Use YouTube to challenge yourself to learn something new or further develop an existing, crafty skill.
  • Ask friends who attend creative classes or clubs to take you along to sample their activities (something which is usually free).
  • Think about ways you can use your creations — sell, donate, or use as gifts for friends and family, among others.
  • Reflect on how you feel during and after creative activities. Does it help to clear your mind and relax you? Are you then more productive with work and in the home or happier with your family?

Get a time management system

Finally, the investment that might actually be the most valuable of all.

Time is — as we know — our only truly finite resource. And yet, it can feel like you actually have more of it by putting in place a time management system that works.

Remember: the disciplines that work for one person will not necessarily fit the needs of another. Getting the perfect time management process for you can take some adjustment. But once you have it in place, it has a multiplying effect on all the other strategies above.

Simply put, you will have more time to implement any of the other ideas you like. Therefore, you’ll increase your overall return on investment.

The investment:

  • Use an app like Wunderlist to keep track of the “To-Do List.”
  • Be realistic about what you can achieve every day. Set an intention in the morning to do no more than three or five key activities, and then do them well.
  • An app like 24 Me is the online equivalent of a personal assistant, reminding you about key dates, activities, and even bills you need to pay. It has the ability to win you back hours over the course of the week.
  • Look for slivers of “dead time” you can use better, such as your daily commute.

Now, Put It All to Work

For many of us, the hardest part is starting. It can be difficult to invest time into coming up with the tools and habits that promote good time management. However, putting this in place is the key to unlocking all of the other personal development ideas above.

There are plenty of ways to seek personal and professional growth without breaking the bank. Plus, when the payoff can come in the form of better balance, a more satisfying job, a healthier paycheck, and stronger all-around well being? Well, there’s every reason to give it a go.

Try these ideas as a starter, and let us know your own tips in the comments.

 


Tax Day is Here! Now, What Should You Do With That Money?

Well, April 18 has finally arrived, which means that we should all have our taxes filed, signed, and sealed by midnight tonight (unless, of course, you’ve filed for an extension). Whew! What a relief to have that done, right?

While there’s quite a bit to be said for adjusting your withholdings to avoid a tax return altogether (goodbye to the government’s 0% interest loan on your money each year!), many folks are grinning ear-to-ear as they eagerly await that direct deposit in their checking accounts. So, what should they do with all that money?

tax day2

This wouldn’t be a personal finance website if we didn’t at least encourage you to think very carefully about your plans for that windfall. With the average American receiving about $3,000 back from the IRS each year, there are a number of options for your tax season cash boost. Plus, it’s not like it’s “bonus money” anyway… that cash was yours all along. The government has just been holding onto it all year – interest-free, of course – so you should really make the best possible use of it now.

Related: What to Do About a Tax Bill You Can’t Afford?

Here are a few of our favorite ideas, and reasons why you should choose one of them before going on a shopping spree or buying a new car:

Build (or boost) your emergency fund

Another statistic for you: more than half of Americans don’t have enough cash on hand to cover an unexpected $500 expense. A whopping 63% of them said that they would have to take out a loan, charge to credit cards, or significantly cut back on spending if their car broke down or the dryer went kaput.tax day save

What does this really mean? Not only does it say that most Americans are only one broken arm or blown transmission away from digging a debt hole, but it is clear that less than half have a solid emergency fund.

Taking your IRS refund check and putting it into a high-yield savings account is one of the smartest things you can do. Aim first at tucking away $1,000 for emergencies. If you can save more, do it… but try to get at least a grand in that account, in case of the unexpected. Then, only dip into it when something is a true emergency!

Related: How to Save for One-Off Expenses (Hint: They’re Not Emergency Fund-Worthy)

Save up a few months’ expenses

Once you have that emergency account funded, it’s time to think a bit bigger. In case of a really big circumstance – such as losing your job or getting ill – you’ll want to save up a few months of expenses. The end goal is to have between three and six months’ worth saved up, which will give you a nice buffer in case of the truly unexpected.

If you already have an emergency fund in place, it’s time to start thinking about funding this account.

Learn More: Where to Put Your Emergency Fund

Pay off credit card or student loan debt

Debt-free. It’s something we all should strive for but many Americans can’t comprehend. Considering that the average household carries over $16,000 in credit card debt alone, it’s easy to see why the black cloud of debt hangs so thick. There is a way out, and it starts with a single dollar (or IRS refund check, as the case may be).

tax day ccIf you have credit card or private student loan debt, the next place you should be putting your money (after the aforementioned emergency fund) is toward paying down these account balances.

The average private student loan balance carried with it an interest rate between 9-12%. Credit cards are considerably higher, with an average of 16.2%. Throw in a late payment or two, and these rates can shoot up closer to 30%.

If you were to put your tax return to good use and pay off a credit card with an average 16% APR, you would not only be improving your credit score, building your net worth, and working toward a debt-free life…. You would essentially be “earning” a 16% return on that cash this year versus letting it sit in your checking account. And that’s one guaranteed investment that you should definitely jump on.

Fund your IRA or 401(k)

If you don’t have any high-interest debt and have a solid emergency fund, it’s time to start looking at retirement options for your IRS refund.

No matter how much you think you need to save for your latter years, taking full advantage of your retirement accounts is a smart move. Traditional IRAs and 401(k)s are tax-advantaged, meaning that as long as you stay within your annual contribution limits, these pre-tax dollars will work for you now. Your Roth IRA, on the other hand (assuming your income qualifies), will work for you later, especially if you are in a higher tax bracket further down the line.

Related: What to Do When Your Employer’s Retirement Plan Sucks

Take that tax return, and use the extra cash to increase your work-sponsored 401(k) – especially if you have an employer match – or IRA contributions. Or, do what I did: front-load your Roth IRA, up to the $5,500 maximum, and don’t worry about it for the rest of the year.

Invest it!

Only go the investment route if you’ve already taken care of your debt priorities, have an emergency cushion in place, and are on track to max out your retirement accounts for the year. But if those are in place, look into investing that windfall.tax return invest

Regardless of your asset allocation, you can generally plan to earn around 7% on your investment each year. (Of course, this varies greatly, but that’s a general rule of thumb.) This means that if you take your $3,000 average tax return and invest it, you could expect to end up with about $3,200 come next tax season.

Of course, investments have varying degrees of risk and return involved. You could wind up with a 0.25% return or a 40% return this year… that’s the name of the game. However, adding to your portfolio when you can is a great idea, especially if you’re in for the long game.

Pay down your mortgage

One of the more important ideas for a successful retirement is the elimination of your monthly mortgage payment. This not only builds your net worth with a substantial asset, but it also minimizes your monthly expenses and allows for a home equity line of credit, which can be called upon if ever needed.

tax day houseUse your tax return to make an extra mortgage payment this year, and every year thereafter, and and watch the principal dwindle. For example: on a $200,000 home with a 30-year fixed mortgage at 5%, you are paying $186,512 in interest over the life of the loan. Well, that’s if you’re making 12 monthly payments a year.

Take your IRS check, and use it to pay a 13th payment each year, then watch the interest tower crumble. Imagine that you make just one extra monthly payment every 12 months on that same mortgage loan. You’ll instead pay off the home in only 26 years and you’ll only be paying $153,813 in interest over the life of the loan. That’s a substantial savings of  $32,699!

What could you do with an extra $33k in retirement?

Contribute to the kids’ education fund

College isn’t cheap, and student loans aren’t something most of us want to see our children struggle with. If you’re able to set money aside now for your kids’ future education expenses, you’ll be grateful down the line.tax day education

Whether putting the cash in a 529 account or starting an IRA, you are able to save up cash tax-free. Not only does this save you as much as 35% (depending on your tax bracket), but it will also grow and earn interest over the years. Plus, of course, you won’t be hit with a tuition bill tens of thousands of dollars high. When your high schooler comes home with applications to a private university, you’ll be thankful you thought ahead.

Schedule a consultation with a CPA

Do you feel like you’re in a good place with your finances? Maybe you don’t have children and your home is paid off – where would your money be best served?

Take part of that tax return and put it to good use by scheduling a consultation with a financial advisor. They can take an objective look at your money situation and let you know exactly where you stand, as well as whether you’re on the right track to financial freedom. They will have suggestions as to where you should focus your efforts first, especially if you are aiming for a higher goal, like early retirement.

Donate to charity

tax day charityTax return time is a great opportunity to give back to your community through causes you support. You could donate canned goods to your local food bank, take bags of kibble to an animal shelter, clear out the closet for Goodwill, or add a little extra to your church tithe. No matter where your heart and passions lie, having a tax refund boost can allow you to do a little more without feeling the usual pinch.

Be sure to save your receipts on charitable contributions, too, for when next tax season comes along!

How will you be putting your tax return to work this year? Let us know how smart you’re being with your money below.

 


Get a Better Mortgage Rate Without Refinancing

For several years before 2017, mortgage interest rates just kept falling. Just when you thought they couldn’t go any lower, they did. But with the Fed’s recent announcement of an increased benchmark rate, banks are bumping up their prime lending rates.

Even still, rates are quite low. Freddie Mac puts the average mortgage rate for 30-year mortgages at 4.17% in February of this year, and banks aren’t likely to majorly hike that number immediately. Even with numbers beginning to climb, many homeowners are considering refinancing while the rates are still so low.

mortgage wo refi2

Are you thinking about refinancing your mortgage? It’s not terribly difficult, but it is enough of a hassle that some people don’t even bother. While you should at least consider running the numbers to see how much a refinance could save you, there are other money-saving options available.

Option 1: Ask for a Lower Rate

One potential option is simply asking your lender for a better mortgage rate. This doesn’t involve all the cost and paperwork of a full-scale refinance, but could still lead to a lower percentage. Of course, a better rate means that you can reduce your mortgage payment and/or pay it off even faster.

Don’t believe me? One blogger at NoCreditNeeded did this, and shaved 1.525% off the rate on his 15-year mortgage. Here’s how it went down:

NCN and his wife had been considering a refinance, as rates are significantly lower than they were three years before when they bought their home. However, they didn’t want to deal with all the paperwork. They also didn’t want to start over with a new 15-year mortgage, and they didn’t want to pay a bunch of closing costs.

Related: How to Save on Closing Costs When Buying a Home

Inspired by our earlier article on recasting your mortgage, he decided to contact his lender and ask if they could reduce his rate without changing the other terms of his mortgage. Amazingly, they agreed, and he had a new offer shortly thereafter.

I’ve heard of this happening quite often with distressed loans (wherein the rate is adjusted to help the borrower stay afloat). However, it’s less common for borrowers who are in good standing. Apparently, the lender decided it was better to give up a bit of interest income in order to retain NCN as a reliable customer.

The change required filling out just a few documents, and, while there was a processing fee involved, they’ll earn that money back on interest savings within just seven months. Going forward, they’ll continue making their “old” payment, with the difference being applied as an extra payment toward principal.

While you may only be able to pull this off if your loan servicer actually owns your mortgage (and many don’t), it can’t hurt to ask. The worst they can do is say “no.” On the upside, you might just wind up saving a ton.

Note that you might still be better off with a refinance. That way, you can play the field and get the best mortgage rates available — perhaps lower than your current lender will offer (assuming they’re willing to play ball). But if you’d rather not go to that trouble, you should at least consider asking your lender for a better deal.

Option 2: Prepay Your Mortgage

If your goal with refinancing isn’t necessarily to cut your monthly payment, prepaying your mortgage can help you save money over the life of your loan. Paying just a little bit extra each month can seriously reduce the amount of interest you pay over the life of your loan.

Prepayment can be particularly helpful if you have only a few years left on your mortgage, or if you have a relatively small mortgage. In this case, refinancing could cost more than it’s worth. This calculator can help you determine how much prepayment can save you.

Option 3: Get Rid of PMI

If you’re paying PMI — or Private Mortgage Insurance — on your mortgage, you could seriously reduce your monthly payments by getting rid of this extra payment. PMI can cost several hundred dollars a month. You’re entitled to get rid of PMI as soon as you have an 80% loan-to-value ratio.

What does that actually mean? If you originally bought a house worth $100,000 with a $90,000 mortgage, you can get rid of PMI after you pay off $10,000 of mortgage principal. Or, let’s say real estate explodes in your area, and your home’s value increases to $105,000 while you pay off $6,000 in principal. In either case, you have at least an 80% loan-to-value ratio, so you can get rid of PMI.

Getting rid of PMI involves some of the steps of refinancing your mortgage. You may need to pay for an appraisal if your loan-to-value ratio hinges on an increase in real estate prices. But it’s not nearly as expensive, since you don’t have to pay closing costs. Paying for an appraisal will likely cost less than paying for a few months’ worth of PMI, so it’s definitely worth the cost.

When you get rid of the PMI, you have a couple of different options. You can reduce your monthly mortgage payment and devote the saved cash to something else. Or you can continue paying the same payment, but pay down the principal more quickly.

Option 4: Try a Streamline Refinance

If you have an FHA-insured mortgage currently, you can take advantage of lower interest rates with a streamline refinance. Some banks also offer streamline refinances on conventional mortgages. Streamline refinances don’t necessarily reduce the costs of a refinance, but they do reduce the paperwork and hassle. If you have enough money to pay closing costs on a refinance but want to avoid the additional paperwork, check out streamline refinance options.

Learn More About FHA Streamline Refinancing

Option 5: Just Refinance, Already

These options are all great, and can make your life easier while saving you some money. But refinancing your mortgage can save you some serious cash.

If you’re planning to stay in your house for a while, you should at least run the numbers to see how much a refinance could save you. Do it today — before those interest rates start climbing!