Everyone knows that raising kids can put a serious squeeze on your budget. Beyond covering day-to-day living expenses, there are all of those extras to considerâsports, after-school activities, braces, a first car. Oh, and don’t forget about college.
Add caring for elderly parents to the mix, and balancing your financial and family obligations could become even more difficult.
“It can be an emotional and financial roller coaster, being pushed and pulled in multiple directions at the same time,” says financial life planner and author Michael F. Kay.
The “sandwich generation”âwhich describes people that are raising children and taking care of aging parentsâis growing as Baby Boomers continue to age.
According to the Center for Retirement Research at Boston College, 17 percent of adult children serve as caregivers for their parents at some point in their lives. Aside from a time commitment, you may also be committing part of your budget to caregiving expenses like food, medications and doctor’s appointments.
When you’re caught in the caregiving crunch, you might be wondering: How do I take care of my parents and kids without going broke?
The answer lies in how you approach budgeting and saving. These money strategies for the sandwich generation and budgeting tips for the sandwich generation can help you balance your financial and family priorities:
Communicate with parents
Quentara Costa, a certified financial planner and founder of investment advisory service POWWOW, LLC, served as caregiver for her father, who was diagnosed with Alzheimer’s disease, while also managing a career and starting a family. That experience taught her two very important budgeting tips for the sandwich generation.
First, communication is key, and a money strategy for the sandwich generation is to talk with your parents about what they need in terms of care. “It should all start with a frank discussion and plan, preferably prior to any significant health crisis,” Costa says.
Second, run the numbers so you have a realistic understanding of caregiving costs, including how much parents will cover financially and what you can afford to contribute.
17 percent of adult children serve as caregivers for their parents at some point in their lives.
Involve kids in financial discussions
While you’re talking over expectations with your parents, take time to do the same with your kids. Caregiving for your parents may be part of the discussion, but these talks can also be an opportunity for you and your children to talk about your family’s bigger financial picture.
With younger kids, for example, that might involve talking about how an allowance can be earned and used. You could teach kids about money using a savings account and discuss the difference between needs and wants. These lessons can help lay a solid money foundation as they as move into their tween and teen years when discussions might become more complex.
If your teen is on the verge of getting their driver’s license, for example, their expectation might be that you’ll help them buy a car or help with insurance and registration costs. Communicating about who will be contributing to these types of large expenses is a good money strategy for the sandwich generation.
The same goes for college, which can easily be one of the biggest expenses for parents and important when learning how to budget for the sandwich generation. If your budget as a caregiver can’t also accommodate full college tuition, your kids need to know that early on to help with their educational choices.
Talking over expectationsâyours and theirsâcan help you determine which schools are within reach financially, what scholarship or grant options may be available and whether your student is able to contribute to their education costs through work-study or a part-time job.
Consider the impact of caregiving on your income
When thinking about how to budget for the sandwich generation, consider that caring for aging parents can directly affect your earning potential if you have to cut back on the number of hours you work. The impact to your income will be more significant if you are the primary caregiver and not leveraging other care options, such as an in-home nurse, senior care facility or help from another adult child.
Costa says taking time away from work can be difficult if you’re the primary breadwinner or if your family is dual-income dependent. Losing some or all of your income, even temporarily, could make it challenging to meet your everyday expenses.
“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement.”
When you’re facing a reduced income, how to budget for the sandwich generation is really about getting clear on needs versus wants. Start with a thorough spending review.
Are there expenses you might be able to reduce or eliminate while you’re providing care? How much do you need to earn each month to maintain your family’s standard of living? Keeping your family’s needs in focus and shaping your budget around them is a money strategy for the sandwich generation that can keep you from overextending yourself financially.
“Protect your capital from poor decisions made from emotions,” financial life planner Kay says. “It’s too easy when you’re stretched beyond reason to make in-the-heat-of-the-moment decisions that ultimately are not in anyone’s best interest.”
Keep saving in sight
One of the most important money strategies for the sandwich generation is continuing to save for short- and long-term financial goals.
“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement,” financial planner Costa says. “While the intention to put others before ourselves is noble, you may actually be pulling the next generation backwards due to your lack of self-planning.”
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Making regular contributions to your 401(k), an individual retirement account or an IRA CD should still be a priority. Adding to your emergency savings each monthâeven if you have to reduce the amount you normally save to fit new caregiving expenses into your budgetâcan help prepare you for unexpected expenses or the occasional cash flow shortfall. Contributing to a 529 college savings plan or a Coverdell ESA is a budgeting tip for the sandwich generation that can help you build a cushion for your children once they’re ready for college life.
When you are learning how to budget for the sandwich generation, don’t forget about your children’s savings goals. If there’s something specific they want to save for, help them figure out how much they need to save and a timeline for reaching their goal.
Ask for help if you need it
A big part of learning how to budget for the sandwich generation is finding resources you can leverage to help balance your family commitments. In the case of aging parents, there may be state or federal programs that can help with the cost of care.
Remember to also loop in your siblings or other family members when researching budgeting tips for the sandwich generation. If you have siblings or relatives, engage them in an open discussion about what they can contribute, financially or in terms of caregiving assistance, to your parents. Getting them involved and asking them to share some of the load can help you balance caregiving for parents while still making sure that you and your family’s financial outlook remains bright.
The post Budgeting Tips for the Sandwich Generation: How to Care for Kids and Parents appeared first on Discover Bank – Banking Topics Blog.
Deia Schlosberg had been working as an environmental educator, teaching students about issues concerning conservation and sustainability. While she loved teaching, she wanted to reach people on a larger scale about the importance of protecting the environment. So she decided to follow her dream of becoming a filmmakerâa dream that would require her to return to school for a graduate degree. She had no idea at the time that it would lead to becoming an award-winning documentarian.
While Schlosberg’s choice may have paid off, learning how to pay for grad school as a working adult can be a challenge. There are various benefits to getting an advanced degree: You can learn more, you can earn more, you can further advance in your current job or prepare for a career change. However, you might also find yourself stressed by the expense and resulting debt of it all, especially if you have kids, a home or other financial commitments. So a big question on your mind could be, “How much should I save for grad school?”
Below are some lessons on how to financially prepare for grad school to help you determine if and when you should go back to school. If you haven’t yet decided if graduate school is right for you, see section 1 for tips on how to decide. If you already know you want to go back to school, skip to section 2.
1. Decide if going back to school is right for you
Getting an advanced degree may seem like a ticket to success, but depending on your chosen area of study, the outcome may vary. For Schlosberg, it was a bit of a risk. It can be difficult to get a break in the film industry, and going to grad school could mean carrying around debt for a long time. Is this the type of outcome you would be willing to accept?
According to Emma Johnson, best-selling author, career consultant and founder of Wealthysinglemommy.com, there are a few things you can do to help you decide whether or not going back to school is right for you:
Do your homework. When considering how to pay for grad school as a working adult, research your degree options and the jobs to which they might lead. Compare cost and compatibilityâfor instance, will classes for the program align with your work schedule? Once you’ve determined what kind of occupation you may pursue after grad school, search online for information about that occupation’s average earnings.
Solidify your goals. You may find clarity in writing out your goals for going back to school. Some benefits are tangible, like earning more money, building a professional network and gaining skills. Others might be less tangible, such as finding personal fulfillment. Once you know your goals, it will be easier to determine if a graduate degree makes personal and professional sense.
“Your savings should not only depend on tuition but also what the degree isâi.e., how easy it will be to repay once you are working in the desired field.”
Give your degree program a test run. Consider taking classes that relate to the degree you are interested in getting in grad school. These classes can give you a taste of the subject matter you’ll be studying and help you meet people involved in the field. Also, if prerequisites are required for your advanced degree, they often cost less online or at a community college, which is important to remember when thinking about how to prepare your finances before grad school. Make sure the course credits will be accepted at the graduate school you plan to attend.
Take a hands-on approach. To level up in your existing career or find out what it’s like in a new field before making the change, get some work-related experience first. For instance, to learn more about moving up in your own field, get out and meet those higher level professionals by attending conferences and networking events. The same tactic applies if you want to change careers.
2. Know how much you need to save
How to pay for grad school as a working adult can be complicated, but you’ve decided you’re ready for it. Plus, hitting the books at a time when saving for retirement or your child’s education could be at the forefront makes the task of how to prepare your finances before grad school even more critical.
Figuring out how much to save for grad school begins with determining the cost of attendance. Here are a couple ways to do that, according to Johnson:
Do the research. Once you have found a school and degree that you like, visit the school’s web site. Some schools may provide the cost of tuition, fees and estimated costs for books, supplies and transportation. Costs can vary tremendously, depending on various factors: whether you attend full or part time, whether you attend a public or private school, whether you are an in-state or out-of-state resident and the time it takes to get your degree.
Determine your budget. Once you have a handle on the school-related costs, build a spreadsheet that accounts for these costs and projects monthly income and living expenses. Working through a savings plan beforehand can help you financially prepare for grad school by showing just how much you’ll need to budget for monthly on tuition plus living expenses. Once you determine these factors, you’ll get a better idea of what you need to save up.
Create a savings buffer. After you determine your monthly costs, pad that number. “Your savings should not only depend on tuition but also what the degree isâi.e., how easy it will be to repay once you are working in the desired field,” Schlosberg says. She saved a little more than she estimated, giving herself an extra cushion to cover some of the potential risk to her finances.
“You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources.”
3. Allow yourself a flexible timeline
One key factor in planning the timeline for earning your graduate degree: Don’t be in a rush. If you need to, create the time to save. It may not be necessary to go back to school full time or finish on a particular schedule, Johnson says. She mentions these possible paths to earning your degree when planning how to pay for grad school as a working adult:
Consider a side hustle. One option is to go to school full time and take on a side hustle. You may not make as much as you did as a full-time employee, but the income can complement your savings. It may also allow you to concentrate more on your degree and finish faster.
Attend part time. Go to school part time (nights and weekends) while working. It will take longer, but it will also minimize your debt, which could be better in the long run.
Take it slowly. Only sign up for a class or twoâwhatever you can affordâand continue to work. This part-time “lite” approach may take even longer, but could help you avoid overextending yourself financially or sliding into debt.
Take online classes. Consider online programs that could lower the cost of tuition and allow you to continue working full time.
4. Take advantage of potential cost-saving benefits
So you’ve done your research on how much you need to save while determining how to prepare your finances before grad school. But there are ways to potentially cut or eliminate some of those costs. What comes next are some solutions that may help pay your grad school bills:
Consider loans, financial aid and scholarships. “I took out some student loans for living expenses, but I tried to pay off my tuition as I went by working through school,” Schlosberg says. Graduate students may also be eligible for different types of scholarships and grants, which is aid that does not need to be paid back. Depending on your area of study, scholarships and grants can also be obtained through federal and state organizations, private foundations, public companies and professional organizations.
Ask your employer to pay the tuition. One way to financially prepare for grad school is to talk to your manager or human resources representative to find out if your current employer would help pay for, or fully fund, your degree through tuition reimbursement. This is most likely if you plan to move up the ladder and use your new skills on behalf of the company.
Take advantage of in-state tuition. Some people move to the same state as their desired school to try to get a break on tuition. “I moved to Montana and worked a couple jobs for a year before applying so I could get in-state tuition,” says Schlosberg. Whether you are already a resident or you move to a new state, be sure to determine how long you need to be a resident to qualify for in-state tuition at your desired university.
Cut back on discretionary expenses. Seemingly small things like adjusting your lifestyle to lower your monthly costs, which could mean fewer lattes and dinners out, might go a long way in resolving how to prepare your finances before grad school. “You may have to downscale your career and current lifestyle to go back to school, which may be a worthwhile investment of time and resources,” Johnson says.
Financially prepare for grad school and get a new start
Answering the question of how to pay for grad school as a working adult requires significant research and preparation, but some say it’s worth it, including Schlosberg. It not only gave her a whole new start, but a wealth of knowledge going forward to nurture her future endeavors. “Getting a graduate degree gave me the confidence to jump into a new career. I met an amazing network of people,” Schlosberg says.
But an advanced degree may not be a necessity. While it could look impressive on a resume, for many employers, a master’s degree is not a requirement. “Whatever you do, don’t go back to school just for the sake of getting a degree,” Johnson says. When thinking about how to financially prepare for graduate school, make sure it fits into your financial picture and that you’re able to âweigh your sacrifices against future gains,” she says.
The post Hitting the Books Again? Here’s How to Financially Prepare for Grad School appeared first on Discover Bank – Banking Topics Blog.
If youâve been to the pharmacy lately, you may have found yourself wondering how much pharmacists make. Being a pharmacist, at least at the retail level, involves a lot of standing, long shifts and dealing with customers. In other words, it might not be for everyone. On the plus side, salaries in the field are on the high side, with an average annual salary of $123,670.
The Average Salary of a Pharmacist: The Basics
The Bureau of Labor Statistics (BLS) reports that the mean annual salary of a pharmacist in May 2018 was $123,670 per year. The highest-paid 10% of pharmacists earn a mean annual wage of $161,250. The lowest-paid 10% of pharmacists make an average of $87,790. So, no matter where you end up on the pharmacist income scale your annual wage is likely to be much higher than the annual income of the average American.
The BLS also provides a job outlook for the professions it studies. The job outlook shows the percent by which a field will grow (or shrink) between 2016 and 2026. The job outlook for pharmacists is 6%, which is just shy of the 7% average across all fields. Between 2016 and 2026, the BLS projects the field will add 17,400 jobs.
Where Pharmacists Make the Most
The BLS also looks at state and metro-area data on the jobs the Bureau studies. So where does it pay the most to be a pharmacist? The top-paying state for pharmacists is Alaska, with a mean annual wage for pharmacists of $139,880. Other high-paying states are California ($139,690), Vermont ($135,420), Maine ($133,050) and Wisconsin ($132,400).
The top-paying metro area for pharmacists is Tyler, TX, with an annual mean wage of $174,870. Other high-paying metro areas are Santa Cruz-Watsonville, CA ($155,330); Vallejo-Fairfield, CA ($153,820); Santa Maria-Santa Barbara, CA ($151,590) and San Jose-Sunnyvale-Santa Clara, CA ($149,790).
Becoming a Pharmacist
In order to get a job as a pharmacist, you first have to get a Doctor of Pharmacy degree, also known as a Pharm.D. A Pharm.D. is a postgraduate degree, but most programs only require applicants to have two years of undergraduate education under their belts. Many future pharmacists will spend two years taking prerequisite courses like chemistry, biology and physics. Then, theyâll matriculate and spend the next four years in pharmacy school.
Once you have your degree, youâll need to pass two exams to receive your license. The first is The North American Pharmacist Licensure Exam (NAPLEX), which assesses your knowledge and skills. The second is either a state specific test or the Multistate Pharmacy Jurisprudence Exam (MPJE). This tests your knowledge of pharmacy law specific to the state youâll be practicing in.
The Cost of Becoming a Pharmacist
Becoming a pharmacist requires years of study and, for most people, taking on student debt. According to the American Association of Colleges of Pharmacy Graduating Student Survey, 84.8% of pharmacists-in-training borrowed money to complete their Pharm.D. degree program. Of the survey respondents who borrowed money, the median amount borrowed (across public and private institutions) was $160,000.
While pharmacists have an advanced degree and a high salary, they are often working in a retail setting. And retail, with its heavy emphasis on customer service, isnât for everyone. Still, the high pay and job security, along with the intellectual and public-service aspects of working as a pharmacist, might make it worth it. If youâre thinking of becoming a pharmacist, itâs a good idea to talk to some professionals in the field before you commit to an expensive course of study.
Tips for Forging a Career Path
Your salary dictates a lot of your financial life, such as how much you can afford to pay in rent and the slice of your paycheck that goes to taxes. However, there are some principles that apply no matter your income bracket, like having an emergency fund and saving for retirement.
Need help managing your money and growing your nest egg? You should probably be working with a financial advisor. Finding the right financial advisor that fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in 5 minutes. If youâre ready to be matched with local advisors that will help you achieve your financial goals, get started now.
To make sure they were financially on the mark, Hynd, a marketing executive for HR software company Youmanage, decided to do some research on how to afford a dog on a budget, shortly after Chewie settled in. He was glad he did: He found that the costs of dog ownership added up to much more than he originally anticipated. Fortunately, there was still time for him to adjust.
But Hynd’s foresight is not always top of mind for new dog owners. Getting a dog can be an emotional, knee-jerk decision, and you may not think about the expenses that go along with it or how to budget for a dog. The cost of owning a dog over the average lifespan of 12 years ranges from $5,000 to $20,000. The majority of dog owners underestimate this figure.1 That’s the kind of misunderstanding that can leave you short on funds for things such as vaccinations and preventative careâeven food and toys.
So when asking yourself the question, “How much money should I budget for a dog?” you’ll be glad to know that a little financial preparation can go a long way toward making sure you’re ready for the responsibilities that come with pet ownership. The information that follows can help you and your new pooch share a happy, healthy friendship for years to come.
Welcome home: First-year costs for your pup
“Before getting my dog, I made sure to save as much money as possible,” says Danielle MÃ¼hlenberg, a professional dog trainer and blogger at PawLeaks, a site that focuses on dog training and dog behavior. MÃ¼hlenberg paid $1,300 for her 115-pound rottweiler Amalia. A safe approach when thinking about how to budget for a dog is to “always put away more money than you’ve calculated in your budget, so you won’t be overwhelmed by any surprise costs,” she adds.
MÃ¼hlenberg outlines the first-year expenses new dog owners should expect as they resolve how to afford a dog on a budget and some suggestions on managing costs:
Purchase/adoption fees and dog license
The purchase of a purebred puppy from a breeder can cost anywhere from $800 to $1,500 or moreâwhich makes a pure-blooded hound the most expensive type of dog to own. At the other end of the spectrum are the many shelter or rescue dogs in need of a home; they can generally be adopted for as little as a few hundred dollars. You will also need a dog license to bring home your pup, which runs from $10 to $20 on average (and needs to be renewed annually).
Pro Tip: Once you bring your tail-wagger home from the shelter or breeder, research local vets. Offices in one neighborhood or town can be much pricier than what you’d find if you’re open to a commute.
Upfront medical costs
It can cost between $200 and $800 to spay or neuter a dog at a veterinary clinic. You can typically pay less at a shelter or humane society, where such procedures are often subsidized by donations. In other costs, puppies need an initial exam and special vaccinations that typically run between $75 and $100 (rabies is the only shot required by law, however). Microchipping, while not mandatory, is recommended to help identify your pet if it’s lost or stolen. This procedure costs around $40.
Pro Tip: Plan to have your dog spayed or neutered. Otherwise, you may pay higher boarding fees and license fees, as well as release fees if your pup is taken in by animal control.
Comfort, training and grooming supplies
Expect to spend another few hundred dollars for a collar and leash ($6 to $50), food bowls ($10 to $50), waste bags ($6 to $20), a crate and bed ($25 to $250), doggie shampoo and brushes ($5 to $10), training pads ($16 to $35), toys ($10 to $200) and the first month’s supply of food ($40 to $60).
Pro Tip: Supplies like a dog crate or bowl can be found secondhand for a lower cost, sometimes for free. Check online listings for yard sales and giveaway events, where used or unwanted items are given away instead of being sold or thrown away.
Lost time at work
A new puppy needs a lot of attention, which can add to the cost of owning a dog. One in five dog owners took time off from work to care for a new puppy.2 Some puppies have a harder time on their own and can chew up your home and belongings, so it’s worth knowing this upfront in case your pup needs a sitter.
Pro Tip: Prepare for “puppydom” ahead of time by banking extra personal days or asking about short-term, work-from-home opportunities.
Ongoing expenses for your furry companion
Annual, ongoing costs of owning a dog can vary widely depending on your situation. Why the disparity? It’s due mainly to dog size. For instance, larger dogs eat more food, and if you’re the type of owner that chooses premium kibble over a lower-cost option, that can really add up. Groomers also charge more for larger dogs because of the extra time and care needed to handle them.
MÃ¼hlenberg spends about $1,200 per year on her Rottweiler’s high-end food and another $600 annually for twice-weekly social training sessions. A pricey diet and puppy play camp may fall in the “nice to have” category of dog ownership for some. Dog owners worried about how to afford a dog on a budget can minimize these costs by choosing less expensive canned food and kibble or by making their own dog food. To save on other expenses, MÃ¼ehlenberg grooms her dog at home, makes her own toys and treats and buys pet supplies in bulk.
To get a handle on how to budget for a dog, here are some of the biggest costs annually that dog owners need to plan for:
To help relieve the financial burden of how to afford a dog on a budget, you may want to open a savings account for emergencies. MÃ¼hlenberg puts a few hundred dollars aside each month, which can be tapped for unplanned household repairs due to any damage the dog may cause, dog sitting for unexpected travel or illness or other pup-related surprises. The Discover Online Savings Account is one place to hold cash for a dog-only emergency fund and grow your savings.
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Invest in keeping your pooch healthy
As you can see, there are a lot of annual costs to consider when determining how to afford a dog on a budgetâand they can really add up, particularly when a pooch gets sick or is involved in an accident. Preventative care such as flea, tick and heartworm medication, which can cost a total of $64 to $320 monthly, and regular vet visits can decrease the risk of an expensive health condition.3
For larger or recurring costs, consider pet insurance (an annual policy costs about $360 to $600).2 Some unexpected expenses can be offset by a pet insurance policy, which “is kind of like a forced savings account,” says Sara Ochoa, DVM, veterinary consultant for product review site DogLab. “You pay the insurance company, and they will pay for most of your pet’s medical bills.” This might go a long way in resolving how to budget for a dog.
For example, a typical pet insurance policy may cover accidents, illness and conditions that are genetic, congenital and chronic, as long as these conditions were not present at the time the policy was purchased.5
âAlways put away more money than you’ve calculated in your budget, so you won’t be overwhelmed by any surprise costs.”
Ochoa is often able to witness the financial benefits of pet insurance firsthand. She cites one example of a client whose dog had emergency surgery and spent a few nights in the hospital. According to Ochoa, the bill would have cost the owner around $7,000. With their pet insurance, they paid somewhere around $1,000.
Create a happy home for your four-legged friend
In the end, how to budget for a dog just takes some advance planning and preparation, which can help manage the upfront costs and monthly cash cushion required to ensure a happy and healthy dog. By understanding the cost of owning a dog as much as possible, you’ll have less financial stress and more time to focus on play time with your pup.
“Even with the associated costs,” Hynd says, “I don’t for one moment regret our decision [to bring Chewie home].” MÃ¼hlenberg agrees: “Bringing a dog into my life has always been a goal and dream of mine. The love and affection you receive back from a dog are priceless.”
1“The True Cost of Owning a Dog or Cat,” Credit.com 2“The True Cost of Getting a Puppy in 2019,” Rover.com 3“The True Cost of Getting a Dog,” Rover.com 4“5 Reasons to Get Your Dog Licensed,” Cesar’s Way 5“Pet Insurance Coverage: What You Need to Know,” ConsumersAdvocate.org
The post Fido-Proofing Your Budget: Managing the High Cost of Owning a Dog appeared first on Discover Bank – Banking Topics Blog.
If you’re looking for a new bank account that allows you to easily store as well as access your cash, you might be thinking about opening a money market account or checking account. But how do you know which to choose? Decisions, decisions. Both types of accounts have unique advantages, depending on your savings and spending goals.
âThink about how you will be using the money within the account,” says Jill Emanuel, lead financial coach at Fiscal Fitness. “Is this money for daily, weekly or monthly use? Or is it money that will not be needed regularly?”
You’ll probably need a little more to go on before answering the question, “How do I decide between a money market account or checking account?” No worries. Our roundup delves into the features of both types of accounts to help you determine which one could be right for your financial plans, or if there’s room for both in your money mix.
Get easy access to your funds with a checking account
In simple terms, a checking account allows you to write checks and make purchases with a debit card from the money you deposit into the account. That debit card can also be used to withdraw cash from the account via an ATM.
When deciding between a money market account or checking account, Emanuel says most people use a checking account for the primary management of their monthly income (i.e., where a portion of your paycheck is deposited) and daily expenses (often small and frequent transactions). âA checking account makes the most sense as the account where the majority of your transactions occur,” she adds. This is because a checking account typically comes with an unlimited number of transactionsâwhether you’re withdrawing cash from an ATM, transferring money to a savings account or swiping your debit card.
While a checking account is a good home base for your finances and a go-to if you need to easily and quickly access your funds, this account type typically earns little to no interest. Spoiler: This is one key difference when you compare a money market account vs. a checking account.
âIf you plan to use your account for monthly bill payments and day-to-day transactions, you would be better suited with a checking account, as these support daily and frequent use.â
Grow your balance with a money market account
When you’re comparing a money market account vs. a checking account, think of a money market account as a savings vehicle that allows you to earn interest on the balance you keep in the account.
“A money market account is an interest-bearing bank account that typically has a higher interest rate than a checking account,” says Bola Sokunbi, certified financial education instructor and founder of Clever Girl Finance.
With some money market accounts, you can even earn more interest with a higher balance. Thanks to its interest-earning potential, a money market account can be the way to go if you’re looking for an account to help you reach your savings goals and priorities.
If you’re deciding between a money market account or checking account, you may think that a money market account seems like a typical savings account with your ability to earn, but it also has some features similar to a checking account. With a money market account, for example, you can withdraw cash from an ATM and use a debit card or checks to access money from the account. There are no limits on ATM withdrawals or official checks mailed to you.
Before you decide to use this account for your regular bills and your morning caffeine habit, know that federal law limits certain types of withdrawals and transfers from money market accounts to a combined total of six per calendar month per account. If you go over these limitations on more than an occasional basis, your financial institution may choose to close the account.
Don’t need regular access to your funds and want your money to grow until you do need it? Then the benefits of a money market account could be for you.
Deciding between a money market account or checking account
Still debating money market account or checking account? Here are some financial scenarios to help you determine which account may best suit your current needs and goals:
Go with a checking account if…
You want to keep your funds liquid. If you’re thinking money market account or checking account, know that a checking account is built for very regular access to your funds. âIf you plan to use your account for monthly bill payments and day-to-day transactions, you would be better suited with a checking account, as these support daily and frequent use,” Sokunbi says. Think rent, cable, utilities, groceries, gas, maybe that morning caffeine craving. You get the idea.
You want to earn rewards for your spending. When you’re comparing money market account vs. checking account, consider that with some checking accountsâlike Discover Cashback Debitâyou can earn cash back for your debit card purchases. The best part is you are earning cash back as you keep up with your regular expensesâno hoops to jump through or extra account activity needed. Then put that cashback toward fun things like date night, lunch at your favorite spot or a savings fund dedicated to something special.
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You want to deposit and withdraw without the stress of a balance requirement. If you do your research when comparing money market accounts vs. checking accounts, you’ll find that some checking accounts don’t require a minimum balance (or much of one). However, you may be required to maintain a minimum balance (and potentially a higher one) with a money market account in order to avoid a fee. If you’re accessing your money frequently and need to make large withdrawals, a checking account with no minimum balance requirement is a convenient option.
Go with a money market account if…
You want to earn interest. âIf your money is just sitting there, it should be earning money,” Emanuel says of the money market account or checking account question. âI spoke with a woman recently who told me she’d had around $50,000 sitting in her checking account for at least the last 10 years, if not longer. If that money had been in a money market account for the same period of time, she would have earned thousands of dollars on it. Instead she earned nothing,” Emanuel says.
You want to put short-term savings in a different account. If you have some short-term savings goals in mind (way to go!), you may benefit from keeping your savings separate from your more transactional checking account so you don’t dip into them for a different purpose. That whole out of sight, out of mind thing. âA money market account is the perfect place for money that will be accessed less frequently, such as an emergency fund [a.k.a. rainy day fund], a vacation fund or a place to park money after you’ve received an inheritance or proceeds from selling a home,” Emanuel says.
You need an account to fund your overdraft protection. If you’re comparing money market account vs. checking account, consider that a money market account could also cross over to support spending goals. One way is in the form of overdraft protection. If you enroll in overdraft protection for your checking account, for example, you could designate that funds be pulled from your money market account to cover a balance shortfall.
âA money market account is the perfect place for money that will be accessed less frequently, such as an emergency fund [a.k.a. rainy day fund], a vacation fund or a place to park money after you’ve received an inheritanceÂ or proceeds from selling a home.â
Using both accounts to achieve your financial goals
Speaking of crossover. Both spending and saving are vying for your attention, right? Consider leveraging both types of accounts if you have needs from the checking and money market account lists above.
“Personally, I use my checking account for bill payments, my day-to-day spending, writing checks and for any automatic debits I have each month,” Sokunbi says. She’s added a money market account to the mix “because of the higher interest rateâto store my savings for short-term goals, for investing or for money I’ll be needing soon,” she explains. Maybe it’s not about deciding between a money market account or a checking account, but getting the best of both worlds.
Before opening a money market account or checking account, do your research and compare your options to see which bank offers the best package of low or no fees and customer service, in addition to what you need from an interest and access to cash perspective.
The post Money Market Account or Checking Account: Which Is Best For You? appeared first on Discover Bank – Banking Topics Blog.
The post The No-Cash Envelope System That Works appeared first on Penny Pinchin' Mom.
I am a strong believer in the cash envelope system. It works great for our family. But I also know that is not the case for everyone.Â You may not want to use cash but love the envelope system concept.Â Fortunately, there is a program you can use that marries your desire to use plastic with the discipline of a cash envelope budget.
When it comes to managing your money, spending and trying to get out of debt, there are many programs and apps out there. But, not all of them can do everything.Â That means one app for your budget, another for trying to get out of debt and then yet another for managing your spending.
ProActive does it all.Â You can manage your money, spending, budgeting, and debt payoff – all from one simple to manage app! But, before you jump in and download it, make sure you read this honest review.Â That way, you’ll know what to expect!
What is ProActive?
ProActive combines the beauty of shopping with plastic and the discipline of cash envelopes.Â The system ensures that you never overspend – ever!Â Just like with cash, when the envelope is empty, you are done shopping!
What is the cash envelope budget?
A cash envelope budget is what it sounds like. Rather than using plastic to shop you get cash and place the budgeted amounts into envelopes.Â For example, if your budget for food is $200 a paycheck, then you get cash and place $200 in an envelope earmarked for groceries.
When you grocery shop, you use only the cash in the envelope. That is all you have available to spend. It is impossible to overspend.Â If there is only $20 left then that means you can’t spend $22.Â There is not enough money there.
It is a system that works very well for people who want to better manage and control spending.
How does it work?
Once you sign up and create your account, you will get a ProActive branded debit card.Â When you are ready to spend, you use the ProActive card.Â But, before you can swipe, you have to let the app know which envelope the money needs to come from.Â That way, you always stay on budget and don’t spend more than you should.
Add funds to your account
When you get paid, review your budget.Â Pay the bills that are due.Â What you have left over is what you have left to spend on everything else on your budget.Â It will include items such as clothing, household items, personal care and beauty, groceries, entertainment, dues, etc.
You will go into the app and click the “+” icon.Â That starts the transfer from your bank account to your ProActive debit card.
Allocate the money to your virtual envelopes
Once the funds are deposited, you have to assign an amount to each category (a.k.a. envelope).Â Review the budget to see what you have available to spend.
Shop as usual (but pay with the ProActive card)
You can’t swipe your card until you have told the card which category (or envelope) the money should come from.Â Simply open the app and click the spend category.Â Then you can swipe.
If there is not enough money left in the category to cover your purchase, it will be declined.Â That makes it impossible to overspend.
The smart way to use ProActive
As parents, we teach our kids.Â They need to know how to take care of themselves, cook, clean and do other things around the house.Â But, it seems that financial responsibility is one that gets overlooked.
One thing that ProActive allows is for you to add your kids and teach them how to manage their own money.Â You can put funds on their account and they too can set up categories.Â And, just like mom and dad, they have to select the category before they spend so they are not spending more than they should either.
ProActive not only teaches your kids how to use a debit card, but also the financial responsibilities that go along with it.Â And, it is in an environment that both mom and dad can see (and control).
Who is ProActive a fit for?
Just like with every other app or budget system there is never a one-size-fits-all system. That means this may not work for you.Â If you love your credit card for the rewards then this will not work for you.Â You can’t attach a credit card and use this program.
But, if you struggle to try to manage your money and spending then you really need to get this app. It makes it impossible to overspend and helps you learn how to think about every purchase you make.Â You may not need to use it forever as you will become disciplined.
What does it cost?
When you sign up, ProActive will give you a 15-day trial.Â They want to make sure it is a fit for you before they make you pay.Â Then, if you love it, you continue at $5.75 a month (paid annually, so $69).Â You can add a second user for $29 a year and even add your kids for just $24 each.
What happens if I forget my phone?
It happens.Â We leave our phones behind. In that case, it is important that you always have an alternative payment method handy, such as your bank debit card, credit card or cash.
If your goal is to get out of debt, you have to first start with your budget and spending. If you don’t do that, you will never achieve your goals.Â ProActive is one tool that helps you every step of the way.
The post The No-Cash Envelope System That Works appeared first on Penny Pinchin' Mom.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
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An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
The post 4 Tricks for Budgeting on a Fluctuating Income appeared first on Discover Bank – Banking Topics Blog.
The job of an airline pilot has a certain glamour to it. However, unconventional working hours and plenty of time away from home can be a recipe for stress and burnout. This could be why airline and commercial pilots are compensated fairly well, earning a median annual salary of $115,670. That one number doesnât tell the whole story, though, as it varies depending on whom you fly for and where youâre based.
The Average Salary of a Pilot
According to the Bureau of Labor Statistics (BLS), the median salary of the group the BLS calls airline and commercial pilots was $115,670 per year in May 2018. The BLS also tracks the job outlook for the careers it studies, measuring how many jobs the career will add between 2016 and 2026. The BLS job outlook for Airline and Commercial Pilots is 4%, which is about as fast as the average across all careers. According to the BLS, the U.S. will add 4,400 airline and commercial pilots between 2016 and 2026.
Where Pilots Earn the Most
When it comes to tracking state- and city-level earnings data, the BLS looks at commercial pilots and âairline pilots, copilots and flight engineersâ separately. Letâs take a look at where commercial pilots earn the most.
The mean annual wage for commercial pilots is $96,530 per year. According to BLS data, the top-paying state for commercial pilots is Georgia, where commercial pilots earn a mean annual wage of $130,760. Other high-paying states for commercial pilots are Connecticut, New York, Florida and Maryland. The top-paying metro area for commercial pilots is Hilton Head Island-Bluffton-Beaufort, SC, where the annual mean wage for commercial pilots is $128,600. Other high-paying metro areas for commercial pilots are Savannah, GA; Seattle-Tacoma-Bellevue, WA; Bakersfield, CA; Fayetteville-Springdale-Rogers, AR-MO and Spartanburg, SC.
Now letâs take a look at where airline pilots, copilots, and flight engineers earn the most. The top-paying state in this field is Washington, with a mean annual wage of $237,150. Other high-paying states for this profession are Michigan, Nevada, Oregon and California. Of the metro areas for which the BLS has data, the top-paying metro area for airline pilots, copilots and flight engineers is San Francisco-Oakland-Hayward, CA, with a mean annual wage of $247,120. Other high-paying metro areas for this field are Seattle-Tacoma-Bellevue, WA; Las Vegas-Henderson-Paradise, NV; Denver-Aurora-Lakewood, CO; Tampa-St. Petersburg-Clearwater, FL and Chicago-Naperville-Elgin, IL-IN-WI.
Becoming a Pilot
Typically, itâs easier to become a commercial pilot than an airline pilot. Because of this, many airline pilots start their career as commercial pilots. To be a pilot of any kind, youâll need to have a commercial pilotâs license from the Federal Aviation Administration (FAA). To be an airline pilot, youâll need an additional document known as a Airline Transport Pilot (ATP) certificate. This is also issued by the FAA.
In terms of education, you will need a high school diploma and a commercial pilotâs license to become a commercial pilot. To become an airline pilot, you will likely need a bachelorâs degree, although it can be in any subject.
The typical path to becoming a commercial pilot is to complete an FAA-certified flight training program. These are held both at independent flight schools and through colleges and universities. Once youâve assembled enough flying hours, you can get a job as a commercial pilot.
Regional and major airlines typically require significantly more flight experience for new hires. This is another reason why many people start out as commercial pilots and then move on to working for an airline. According to the BLS, many commercial pilot jobs require a minimum of 500 flying hours, whereas entry-level airline jobs require somewhere around 1,500.
Have you ever flown out of an airport and wondered what it would be like to be a pilot? With an average annual salary of $102,520, pilots earn a good living. Not just anyone can become a pilot, however. Commercial pilots must earn a commercial pilot certificate, while airline pilots, copilots and flight engineers must earn the Federal Air Transport certificate and rating for the specific aircraft type they fly. Being a pilot is also a dangerous job, so itâs not surprising that pilotsâ compensation is high.
Tips for Saving Responsibly
The median pilot salary is enough to live comfortably in most areas of the country, but itâs still important to make sure youâre saving some of that money for emergencies and retirement.
A financial advisor can be a big help in managing your money and choosing smart investments that grow your nest egg. Finding the right financial advisor that fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in 5 minutes. If youâre ready to be matched with local advisors that will help you achieve your financial goals, get started now.
A pay cut, whether big or small, can catch you off guardâand throw your finances into disarray. While a salary cut is different than a layoff, it can leave you feeling just as uncertain.
How do you deal with a pay cut and deal with this uncertainty?
There are strategies to help you navigate both the emotional and financial challenges of this situation. One key element? A budget. Whether you need to create a budget from scratch or adjust the budget you already have, doing so can help you get back on your feet and set yourself up for success.
Hereâs a rundown of budgeting tips to survive a pay cut to keep your finances intact:
Ask your employer for the parameters of the income reduction or salary cut
First, keep in mind that a pay cut typically isnât personal. According to Scott Bishop, an executive vice president of financial planning at a wealth management firm, businesses often cut salaries to preserve their cash reserves while they stabilize their cash flow or weather some larger economic impact, like the coronavirus pandemic.
Secondly, make sure you understand the full scope of the salary cut. Bishop suggests you ask your employer questions like:
What is the amount of pay being cut?
Why is pay being cut?
When will the reduction begin, and how long will it last?
Will any of the following be affected?
Healthcare or insurance costs
Employer-sponsored training or continuing education opportunities
Hours or job responsibilities
What are the long-term plans to improve the companyâs financial situation?
Once youâve painted the full scope of what and why, you can determine how to handle the pay cut.
âFor some people who are big savers, it might not be a big deal,â Bishop says. âBut for some people who live paycheck to paycheck, itâs going to be significant.â
Settle any anxieties that might come with a salary cut
If you are dealing with financial stress, try settling your mind and emotions so you can make decisions with a clear head.
âThe emotional and mental toll can be one of the hardest parts,â says Lindsay Dell Cook, president and founder of Budget Babble LLC, which provides personal finance and small business financial counseling. âIt gets even harder if there are others depending on your income who are also financially stressed.â
When sharing the news with family members who may also be impacted, Cook suggests the following:
Find the right time. Pick a time of day during which everyone will have the highest mental capacity for the conversation. âFor instance, I am a morning person, so if my husband told me at bedtime about a pay cut, I would have a much harder time processing that information,â Cook says.
Frame it as a brainstorming session. Bring ideas of what you can do to handle the pay cut, such as a list of expenses you can cut or a plan for how you can make extra income.
Empathize with the other person. âReduced income is not easy for anyone. Everyone responds to financial anxiety differently,â Cook says.
“If youâre unable to maintain your previous level of saving after a pay cut, try to save at a smaller scale for goals like retirement and your emergency fund.”
Create or adjust your budget to handle a pay cut
Once you understand the salary cut and have informed your family or roommates, itâs time to crunch the numbers. Thatâs the first step to figuring out how to save money after a pay cut.
If you donât have a budget, find a budgeting system that fits your needs. Learning how to effectively budget takes time and practice, so be patient with yourself if youâre new to this. Cook suggests reading up on how to create a budget.
One system to consider is the 50-20-30 budget rule, which has you break your spending into three simple categories. If you prefer the aid of technology when determining how to handle a pay cut, there are many budgeting and spending apps that can help you manage your money.
Whether youâre handling a pay cut by creating a new plan or modifying an existing budget, Bishop suggests taking the following steps:
Add up your income. Combine your new salary with your partnerâs pay, and factor in any additional income streams like from dividends or savings account interest. Tally up the total.
List your expenses. Be sure to include essential expenses (e.g., housing, food, clothing, transportation) and nonessential expenses (e.g., entertainment, takeout, hobbies).
Look through your bank statement online and your past receipts so all expenses are included.
Account for infrequent expenses such as gifts, car maintenance or home repairs.
Track the amount you save. Note any regular savings contributions you make, such as to an emergency fund or retirement account.
Get your partnerâs buy-in. What needs do they have, and what is nonnegotiable in the budget for each of you?
Cut expenses with budgeting tips to survive a pay cut
If youâve crunched the numbers and found that your expenses add up to more than your new income, youâll need to find ways to cut back. Here are some tips on trimming your spending to survive a salary cut:
Cut back on takeout meals and stick to a strict grocery list or food budget, Cook suggests.
Avoid large discretionary purchases like a car during the duration of your pay cut, Bishop says.
Negotiate with your utility companies or ask if theyâre providing forbearance options, Bankrate suggests. You can also ask your car insurance provider if it has additional savings for customers who are driving less, according to Bankrate.
If you think you might fall behind on rent or mortgage payments as youâre handling a pay cut, both Cook and Bishop agree that early, proactive communication is key. Be honest with your landlord or mortgage company. âDonât wait until youâre past due,â Bishop says.
The same applies for other financial obligations, such as your credit card bill. Youâll likely find those companies are willing to work with you through the rough patch.
Cook also suggests you look into municipal assistance programs as a budgeting tip to survive a pay cut. âMany cities have established rental assistance funds to help taxpayers meet their obligations during the pandemic,â she says.
Continue to save money after a pay cut
As you consider how to cut costs, take time to think about your long-term savings goals and how to save money after a pay cut. By cutting discretionary spending through your new budgetâwhat Bishop calls âcutting the fatââyou may have freed up income to maintain your good saving habits during this time. He says itâs important to do that before slowing down on savings.
If youâre unable to maintain your previous level of saving after a pay cut, Bishop suggests you try to save at a smaller scale for goals like retirement and your emergency fund.
As you work to save money after a pay cut, Cook recommends setting up automatic transfers to your savings account every payday based on the amount youâre able to put towards savings in your new budget.
âIf your savings account is at the same bank as your checking account, you can transfer those funds fairly easily,â she says. âSo the worst-case scenario is that you put too much money in savings and have to bring some back to checking. The hope, however, is that some or all of those funds transferred to savings remain there since that money is no longer in your checking account just waiting to be spent.â
Seek extra income sources after a salary cut
You should explore additional sources of income if you need more cash to cover essential expenses or if youâre looking for ways to save money after a pay cut.
Determine if youâre eligible for benefits based on the reason for your pay cut. Cook recommends applying for unemployment if you think you may qualify. For example, some workers who experienced pay cuts due to the coronavirus pandemic were eligible for unemployment benefits. The details vary by state, so visit your stateâs unemployment insurance program website to learn what benefits may apply to you.
If you or your partner have some extra time on your hands, you can consider bringing in income through a side hustle to help you handle your pay cut. Bishop suggests using free or low-cost online video tutorials to boost your existing skills to make your side hustle more effective.
Cook also recommends getting creative. âAre there things you could sell to make some extra cash?â she says.
If you are unable to find additional sources of income, but you have an emergency fund, consider whether you should dip into that. “Your savings are there for a reason, and sometimes you need to use it,” Cook says. “That is okay.”
Stick to your updated budget to navigate how to handle a pay cut
Making your budget part of your daily routine is a budgeting tip to survive a pay cut, and it will help you save money after a pay cut.
âBuild rewards into your budget, such as ordering out every other week if you successfully saved money after your pay cut.â
âIf youâre checking it daily, there are no surprises,â Cook says. You can do this by logging into your bank account and making sure your spending and expenses align with your digital or written budget document.
âIf you see that your spending is high, your mind will typically start thinking through [future] transactions more thoroughly to vet if those expenses are really necessary,â Cook says.
Donât forget the fun side of accountability: rewards for meeting your goals. Build rewards into your budget, Bishop says, such as ordering out every other week if you successfully saved money after your pay cut.
Lastly, donât try to go it alone. Enlist others in your budgeting journey, Cook suggests. Make up a monthly challenge to cut spending from a specific category in your new budget and ask your partner or a friend to do it with you. For example, see if you and the other participants can go a full month without buying clothes or ordering takeout. Compare notes at the end of the month and see how much youâve saved.
Another idea? Try connecting with a budget-minded community on social media to get inspired.
Take these steps after the salary cut is over
Once youâve handled the pay cut and your regular pay is restored, donât give up on your newfound budgeting discipline. Instead, focus on building up emergency savings before you go back to your normal spending.
Bishop recommends starting with enough savings to cover three to six months of expenses. âIf you spend $3,000 a month, that means you need to have $9,000 to $18,000 saved.â
This might also be the time to revisit your budget and build a more extensive financial plan with a CPA or financial advisor to account for all of your future goals. Bishop says that these can include a target retirement date and lifestyle; your estate planning, such as a will, trust and power of attorney; saving for a childâs college; and purchasing a home.
Bishop says reminding yourself why youâre budgeting and focusing on your financial goals can be similar to motivating yourself to stay physically fit. Goal-based motivation can keep you accountable.
Remember: You can survive a salary cut
Handling a pay cut is never easy, but you can get through this time. While youâre in the thick of it, focus on budgeting tips to survive a pay cut and staying positive. Seek help from others and follow up with your employer to make sure you are aware of any changing details regarding the pay cut.
Most of all, try to keep a long-term outlook. âRemember that it will not always be this way,â Cook says.
If youâre considering whether or not to tap into your savings to handle a pay cut, read on to determine when to use your emergency fund.
The post How to Handle a Pay Cut: Budgeting in Uncertain Times appeared first on Discover Bank – Banking Topics Blog.
So youâre at the point in your life where buying a home is not a question of if, but when. Youâre scrimping. Youâre saving. Youâre dreaming of walking through the front door of your very own home.
But as the decision draws near, you start questioning everything. Is now a good time to buy a house? Or is this the worst time? Is it more financially responsible to buy a house right now or wait? And what if you mistime the market, buying too soon or too late, and miss out on lower home prices?
Ultimately, the experts say the answer is less about economies, markets and pandemics and more about you.
So, how do you think through this decision? Youâll want to take time to thoroughly review your personal financial situation and life goals. At the same time, youâll need to gain some understanding of the market dynamics that impact home costs.
This process will take some time, but itâs well worth the effort. With a firm grasp on your personal situation and some context on the housing market, youâll be able to confidently go forth knowing youâre making a fiscally informed decision about whether to buy a house right now.
Honestly assess these aspects of your finances
Financial security is always important if youâre trying to determine when youâre ready to buy a home. To decide if now is a good time to buy a house, ask yourself the following questions about your finances:
How secure is your income?
Job or income stability is an important factor if you are buying a home in a rocky economy, such as the one triggered by the coronavirus pandemic, says real estate economist Gay Cororaton. Even in a robust economy, your income security should be top of mind when youâre thinking of buying a house right now.
If you have any inkling that your position may be eliminated or that youâll be making a career change, you may want to delay buying a home. Even a recent break in employment that caused you to draw down some of your savings may raise a red flag with lenders, says Kate Ziegler, a real estate agent with Arborview Realty in the Boston area.
If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home.
Do you have enough money saved?
After income stability, savings is the next-most-important financial factor youâll want to consider to determine if now is a good time to buy a house, Ziegler says. The old rule of thumb was to save 20% of the price of the home for your down payment. While that is ideal, itâs not necessaryâfar from it, Ziegler says. In fact, it has become more common for first-time buyers to put down much less than 20%.
How much house can you afford?
The down payment is one side of the affordability coin. Your monthly mortgage payment is the other side. You need to know how much you can spend on both to determine if you can afford to buy a house right now, says Jeff Tucker, a senior economist at Zillow. Aim for a monthly mortgage payment that doesnât stretch you too thinâexperts typically put this at around 28% of your monthly gross income, according to Bankrate.
With those guidelines, you can determine what you can afford. For example, if you make $4,000 a month, you should typically spend no more than $1,120 on your monthly mortgage payment in total.
How much house that buys you depends on multiple factors: mortgage rates, property tax rates, homeowners insurance andâif you donât have the savings to put down 20%âprimary mortgage insurance, or PMI. To get a rough estimate, plug your income details into an online calculator. For a more specific figure, talk to a local lender and get pre-approved for a mortgage, Ziegler says.
Once you know your price range, you can determine how much savings you need in the bank to buy a house right now. Youâll also need to have money saved for closing costs, which vary but typically run 2% to 5% of the loan amount, according to Bankrate.
Again, Ziegler recommends talking to a lender to really understand what your individual down payment and closing costs would be. Finally, be sure to add a line item in your budget for home maintenance that will inevitably pop up after you move in. Whether itâs a dishwasher on the fritz or a leaky roof, you donât want to be caught off guard, so be sure to save money for emergency home repairs.
How is your credit?
Your credit profile is also important to lenders, and it will likely be a factor in what interest rate youâre offered. Given that, you should be checking your credit report and know your credit score before investing in a home. If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home, Tucker says.
What is your debt-to-income ratio?
Another factor lenders check is your debt-to-income ratio, or DTI, Tucker says. This is the percentage of your gross monthly income that goes to paying monthly debt payments, plus your new mortgage. Lenders typically require this ratio to be 45% or less but prefer it even lowerâin the 33% to 36% range.
Have you considered the opportunity cost?
Another financial consideration when deciding if now is a good time to buy a house is the opportunity cost of delaying a home purchase, Ziegler says. If youâre renting in a market where the rent is higher than your would-be monthly mortgage payment, you may be spending a lot more money each month than if you were to purchase a home. And of course, with a mortgage, your monthly payment increases your equity.
After taking a clear-eyed look at your income, savings and these other financial factors, you will have a better sense of when youâre ready to buy a home and whether nowâs the time for you to dip into the market.
Consider key market factors
Next, take a look at factors that are outside of your control, but still influence your purchase: prices, interest rates and national employment trends.
Where are housing prices?
As youâre looking at the market, one of the biggest considerations when you are ready to buy a home will be housing prices and availability. Research your local market by talking to real estate agents who work specifically in the area where you want to buy and asking them about market trends, Ziegler says.
Track current listings and recently sold prices to get a sense of how prices look today. Generally, the tighter the inventoryâmeaning the fewer houses availableâthe higher prices will be, Tucker says.
Whatâs going on with interest rates?
When youâre ready to buy a home could also depend on another major economic factor: interest rates. When interest rates are low, your housing budget is effectively supercharged, Tucker says, and you can afford a more expensive house because youâre spending less on interest. When they are high, the opposite is true.
This is what compels people to buy when interest rates are lowâyou get more for your money. If you get a 30- or 15-year fixed-rate mortgage, you lock in that rate for the entire life of the loan, which could save you money now and into the future, Tucker says.
How does employment look nationally?
Finally, if you want to get a general idea of where the housing market may be headedâif prices will drop or rise soonâcheck out the national employment trends, Cororaton says. Low unemployment means prices will generally trend upward because more people can afford houses, boosting competition and prices, she says.
But if unemployment is inching up, then people are losing jobs and will be more likely to remain in their current homes. As a result, there tends to be less competition for them, lowering prices.
You donât need to be an expert in the market to determine if now is a good time to buy a house, but a baseline understanding of these big-picture forces can give you the confidence you need to embark on your home-buying journey.
Think about your future plans
After reviewing your savings and income and assessing the market conditions, take a step back and think about your life plans over the next few years. Your lifestyle and goals will help determine whether now is a good time to buy a house.
âFor buyers who are not certain whether they will still be living in the same place in three or five years, I would caution against locking themselves into a certain location,â Ziegler says. âIf theyâre just not sure what the future holds, it may be better to have that flexibility.â
Itâs unlikely in many markets that you will see substantial financial gain from homeownership if you move within five years, Ziegler says. Your equity gains will likely be offset by the transaction costs of buying and selling your home.
That goes for remote workers, too. Are you working from a home office these days? While widespread remote work may allow buyers to consider homes farther from their offices, ask yourself: Is my company going to permanently allow employees to work from home? Do I think there will be other remote opportunities in the future?
While youâre thinking about the next three to five years of your career, also consider the next three to five years of your personal life. Will you have a family? Will that family grow?
These can be weighty topics, so be sure to think them through on your own schedule. Buying a house is a big decision, and itâs not one to be rushed. By taking the time to assess your life, from your job security to your financial health to your lifestyle, and considering the impact of market factors, youâll have a clearer sense of when you are ready to buy a home.
If youâve decided that buying a house right now is the best decision for you, itâs time to learn more about how it will impact your budget. Get started by reading up on these eight unexpected expenses when buying a home.
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