How I Saved Money on My Car Insurance

When was the last time you compared your car insurance options? If you have to think about it, it’s been too long.

If you’re like me, you prepay the amount on your bill every 6 months to get it out of sight and mind and never look back. Staying on top of your bills is great, but not shopping around for a better deal could be costing you thousands of dollars.

The average person is overpaying $720 per year on their car insurance. That’s an extra $60/month that you could put into a savings account, which has the potential to grow up to $4,000 in 5 years, $9,300 in 10 years, and a whopping $69,000 in 35 years, depending on your interest rate. Just think about that for a minute.

I know what you’re thinking – getting rates from all the different providers in your area seems overwhelming – there’s so many! But it doesn’t have to be.

Fortunately, Rate Fetcher is a new service that will do all the hard work for you. Simply answer a few questions on the type of coverage you’re looking for, if you are a homeowner or not, and your zip code so they can pull the best prices available to you. The best part is, this service is free of cost to you!

You’ll get an apples-to-apples comparison of your current coverage, and an easy to read chart which shows the differences between your new options, so you can make the most informed decision for you.

3 People Who Saved Big with Rate Fetcher

Louisa Hernandez, a single mom in Louisville, Kentucky was able to save a whopping $1169/ year by using Rate Fetcher to compare insurance rates. She decided to combine her car and homeowners insurance rates for an even bigger savings.

“I couldn’t believe it. A friend sent me the link and my jaw dropped when I saw how much I was overpaying. I didn’t think I would ever be able to start a college fund for my son. I immediately found the best savings account with high interest and have started to invest the difference for his future. I am truly amazed.”

Mark Sutherland, a bachelor in San Francisco found an $898 savings/ year on his car insurance by comparing rates with Rate Fetcher.

“I live outside of the city, as most homeowners in San Francisco do, so I need a car to commute to work every day. I saw an ad for Rate Fetcher on Facebook saying I could save $720/year and living in such an expensive city, I thought – why not, let’s just see. I still can’t believe I was overpaying so much. It’s definitely eased my financial concerns a bit.”

Tara Evans, a recent college grad, moved from Louisana to Arizona for her first job and was forced to re-register her car and find new car insurance. She ended up saving $987 by using Rate Fetcher to compare insurance rates. While she moved from a state that tends to have higher insurance rates, to a state that averages a bit lower, the savings are still drastic.

“I had just moved to Scottsdale and was scrolling on Facebook when I came across a Rate Fetcher ad that said I could save almost $720. Getting new car insurance was on my to-do list so I gave it a shot and answered the 3 questions and was shocked at the rates they gave me. I have almost $26,000 of student loans that I need to pay off so this was the best thing I could have done! So happy!”

To see how much you can save, visit Rate Fetcher today!

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What The Banks Don’t Want You To Know: Secret Financial Tricks Of Higher Finance

All of us are aware of the fact that banks and customers share a mutual relationship with one another. Just the way we need banks so does the bank need us.

But the problem is even if we think that our banks are looking out for us, they are not as transparent as we think them to be – we all remember those infamous words regarding the ACA health care law when we were told we could keep our doctor and we know how that turned out – that is not being transparent. Banks do not have a golden record here either.

In fact, there are numerous aspects of banking that is neither much known nor advertised and most customers are not aware of these banking secrets. Not even the NSA knows these secrets and they are supposedly everywhere right?

You will not always get the rate that is advertised

You might be feel that banks are offering a stellar rate but the truth is that not all customers get the rate that has been advertised. In fact, only a small percentage of customers are offered a low rate and the others are offered a higher rate of interest so that they can compensate for the low rate that was offered to certain other customers.

Banks make more money the more you swipe your card

Did you know every time you swipe your credit or debit card the bank is making money by charging the merchant some fees? There are promotional credit cards which will require you to spend a certain amount of money within a particular time frame so that you are eligible for a financial reward. You do not want to get a card like this. Why deal with it? Just stick with a debit card and watch the impulse buying.

Another aspect of using your credit card is that banks know for sure if the amount is around $1,000 or more you may not be able to pay off that purchase at that time. The result is that you will end up accruing some interest which in turn is a way for the bank to make more money.

This is another reason you want to pay in cash for most items. A car or a home is an exception (but if you buy a car with cash that is the way to go) but you certainly do not want to borrow money to pay for a flat screen, furniture, or some appliance unless it is an emergency. But this is not an ideal way to do things. You do not want to be paying more for items and you will be paying more if you do not pay in cash and buy the item you want outright.

If you cannot buy that item outright then wait until you can.

A closed checking account can be a salient and clever way for your bank to make some extra money

When you close a checking account you might feel that it is over. But that is not the case. It may so happen that you forget to switch over your auto-pay transactions. The result is that the closed account is charged anyway. The result is not at all pleasant because there are instances where customers end up paying heavy penalties, fees, and some of the cases are even turned over to collection agencies.

Banks have a tendency to make deposits last which many customers may not be aware of

For example, if you ever schedule a few payments (or one large payment) to go out on the same day you expect some money to come into your account to cover this expenditure your bank may do something that is slightly unethical. The bank will actually issue those payments before the money is deposited into your account. The result is you end up using the overdraft feature of the bank which in turn allows your bank to charge you overdraft fees.

Banks make money by selling insurance

When banks try to sell insurance to customers in lieu of some credit you take from them, it is actually a way to extract more money out of you. This is because if you go through the fine print of those insurance policies you will realize that it will not cover all the debt that you owe. Something you need to think about!

Lastly, we should consider what Bill Gates (who has had some positive discussions with Trump in 2017 but this is another subject) once said, “Banking is necessary; banks are not.”

Should You Pay-off Your Mortgage or Invest the Money?

You are faced with a Hobson’s choice: Whether to pay off your mortgage or invest that money instead. A double-edged sword that works both ways. However, it’s truly a tricky problem to handle and to make a decision quickly becomes difficult and perhaps treacherous.

Benefits of Paying Off Your Mortgage Early

When you start making regular payments on your mortgage, you stand to save money – probably to the tune of thousands of dollars by way of interest costs. You also buy mental peace as you get to be the real owner of your home without any further liabilities. You are now confident that there’s a secure place for you to live in and won’t have to hit the streets if you suddenly find yourself unemployed which happened a lot for years because of the Barney Frank and Alan Greenspan recession which was continued by Obamanomics.

Moreover, you also reduce your living costs because in many cases, mortgage payments are the largest monthly expense post deduction of taxes. Without the liability of a mortgage payment, you save more, can work less, or take up that dream job you couldn’t afford but always wanted because of the lower pay. You also bid adieu to PMI or private mortgage insurance by accelerating the process of paying off your principal amount.

Your home equity reaches a point where PMI is no longer required. This helps you save money long before you pay off your mortgage and enhances chances of accelerating the principal pay-down while you continue to make the same payment on a month to month basis.

Then there is the added advantage of asset protection also. Many states have their own laws protecting home equity should there be a lawsuit or any other legal procedure.

Homestead rules provide substantial protection to home equity. Retirees sometimes use their home equity as a strategy for estate planning to protect their assets for a surviving spouse should one member use up all resources available due to an illness or by way of prolonged nursing care. In sum, there are numerous situations where home equity represents a more secured asset having its own special legal privileges as compared with other investments.

A home with a clear and free title is greatly significant for those on the verge of retirement. When you retire with a fixed income from your pension, social security, and fixed annuity, it can truly work to your benefit if you pay off all outstanding debt rather than investing your money in investments that fluctuate.

This enables you to substantially reduce your financial variables and reliably match forecasted income to expenses.

After retiring, moreover, the mortgage payment may require shifting funds from accounts that have been tax deferred when those funds would have been better off if left to grow on their own. Finally, should your taxable income get reduced after retirement, it may reduce the benefit of the tax deduction on the mortgage interest and tilt the equation in favor of the payoff.

Since the stock and real estate markets fluctuate, it’s more secure to invest in your home, knowing with certainty what your ultimate ROI is likely to be. You stand to get the imputed rental value of a living space as also the instant return of interest expense that has been eliminated.

The sureness of this particular return is a salient benefit for investors who may be disappointed with the unreliable returns from the financial markets. Last but not least, when you pay off your mortgage, it is a serious confidence boost that you did things right.

The Cons

On the flip side of the coin, however, even though the mortgage interest that you pay is deductible from your tax return, there are certain “caveats” to such deductions: The rules guiding deductions are somewhat complicated and you may receive a lower deduction than you thought of getting; in certain cases, your payments of mortgage interest merely replace the standard deduction and don’t provide for any real savings; even when you get a deduction, you’re still having to pay $1 to get 35 cents worth of tax breaks, which isn’t very lucrative; and the deduction’s effective value diminishes over time with the loan maturing and you end up a paying a lesser amount of interest with every payment.

Final Thoughts

You can invest in the market and pay off your home simultaneously. You can do both. It is not a zero-sum game. So perhaps you can breathe a little easier now. You do not have to pick and choose.

If you understand the stock market or have a prudent financial advisor (if there is such a thing – almost all of them missed the call on the tech bubble during the turn of this century) then invest some of your money (check out dollar cost averaging). You can have the best of both worlds but continue to make your monthly mortgage payments.

True Cost of Owning a Car in the US

As a car owner, you are perhaps aware that the sticker price of your car doesn’t give out the accurate figure about its ownership cost. Buying a relatively less expensive car is likely to save you a penny initially but may burn a huge hole in your pocket later by way of expensive repairs.

On the slip side, buying an expensive SUV could make your gas bill spiral. That’s why you need to keep the sticker price in abeyance to identify a truly reasonable car.

Factors on which owning a car in the US and its cost depend

To begin with, you have a sticker price, which of course, is not the prime factor. However, it affects the overall ownership cost, particularly insurance rates and sales taxes (and all working Americans know that taxes are too high but this is another topic) which you need to pay. If the car is financed, you’ll have to work out the interest rate. This again will vary on your individual credit score.

For instance, new cars come with reduced interest rates and long-term loan will always have lower interest rates but do not let that fool you since this means it will take you longer to pay off that car so that means a $28,000 car will perhaps cost you $33,000 by paying it off over the years to the financing company. Something to think about!

Depreciation in cars happens at an average of 15%-20% per annum for the first 5 years. The more expensive vehicles, however, tend to depreciate faster as do sub-compacts.

In addition, while it’s almost impossible to predict how much you will be spending on repairs in the future, you can scour its reliability scores through consumer reports or locate common problems with the car to work out the repair costs.

With repair costs come insurance costs, which again can vary largely for competing models even. The insurance premium payable and the coverage that comes with it is fully dependent on your driving skills and habits, history, your own age, and personal credit score (it does not depend on whether or not you have seen Transformers 5 but you should since that movie is amazing with an incredible submarine scene to boot, but this is another topic!). Older cars usually attract lower premiums, while the newer models with state-of-the-art safety features could get you some hefty discounts which you should consider too.

Fuel costs matter and the less you drive, obviously the less you spend on fuel. That’s why taking your car’s MPG into account is essential when deciding which car to buy.

There are also characteristics that reduce car prices. For instance, while most cars come with 3-year warranties for 36,000 miles, carmakers like Kia and Hyundai offer 5-year warranties for 60,000 miles with other benefits such as roadside assistance. Some eco-friendly models also qualify for tax credits that offset higher purchase prices.

Calculating the cost

The calculation for owning your own car is simple. The operations cost of an average American vehicle is around $0.60 a mile. A new car in the US costs about $33,000 on average, making buying one an important financial exercise.

Another crucial aspect to consider and remember is not to go by the sticker price or monthly payment but take other costs in to account as well. This will give you a fairly accurate figure about the real cost involved in owning a vehicle; the components that in their totality go into the total ownership cost; and comparison costs with various models that also includes the standard five-year cost.

Going by published statistics, the average loan payment per month for a new car in 2014 was around $482. If you drive your vehicle over 15,000 miles per annum, the total ownership costs comes to about $8,698 per annum, according to the American Automobile Association’s study on driving costs in 2015. That works out to about $725 every month.

Further studies have revealed that operational costs also vary by vehicle types. Small sedans recorded an average cost of $6,729 a year or $561 on a monthly basis. An SUV four-wheel-drive, costs around $10,624 yearly ($885 monthly), making the cost spiral by almost 58%.

Since the real cost of owning and driving a car includes fuel, maintenance & repairs, tires, license & registration fees, taxes, depreciation, insurance premium & interest on financing, figures recorded by the American Automobile Association show that average fuel costs amount to $1,682 per annum depending on premium or regular gasoline used and the mileage achieved by the vehicle. Over a five-year period, the fuel costs for an SUV could be $18,000 as compared to $11,000 for a sedan.

Your new tires could cost you around $147 along with installation charges ranging from $60 to $100 or even more. Similarly, repairs and maintenance comprising of tire rotations, oil changes, testing and battery inspection cost about $767 per year. Your fees and taxes amount to $665 every year, says the AAA report.

In order to own a cost effective vehicle, you need to work all of this out. Moreover, you also need to look at a higher resale value. So it’s essential that you look beyond the sticker price and also at the EMI or equated monthly installment. Your research on the ongoing costs of operating and maintaining a particular model will give you a true picture of its affordability.

Saving Money on Health and Dental Insurance

There’s a basic problem in choosing a wrong or inappropriate health and/or dental insurance: you may end up paying a hefty premium for both without actually getting broad coverage or protection for a specific purpose, should you become sick.

This would add to your financial woes substantially if you have to foot the bill from your own pocket despite having medical and/or dental insurance. You can save on health and dental insurance in the following ways.

Stick to the family’s existing health plan: Should you be less than 26 years of age, it would be cheaper to stick with your existing family plan for health insurance. It’s a viable option for many young people who live close to their parent’s homes with access to doctors in the insurer’s network. Though when the ACA law goes away and taxes and regulations are lowered America’s economy will shoot upward creating more opportunities for college graduates. One of the themes of the movie The Internship will then no longer be true!

On the flip side, however, when you’re living in a separate state, without access to your normal network, you could be paying more and getting less coverage. Thus, it would make more sense to secure affordable medical coverage by yourself. Work out the math to see what saves some serious expenses.

Start exploring the non-government health insurance sector: Nowadays, the average health insurance seeker has the privilege of choosing insurers operating in the private sector, including certain major players which have opted out of government control recently. Surf sites like eHealth.com to get an idea of who all are the major private operators and what they are offering. You can also go through an online agent who is licensed at no extra cost and he may guide you to more affordable choices. Yes, we know, the Affordable Care Act has made health insurance not so affordable and turned millions of jobs into part time jobs which is horrendous. Hopefully this is fixed in the next year or so.

Optimize coverage on prescription drugs: All leading plans for health insurance provide full reimbursement for prescribed drugs. However, this can significantly vary from plan to plan. If you regularly use prescription drugs, you stand to save a substantial amount of money potentially by knowing beforehand which plan covers your regular needs for prescription drugs at the maximum level. This could lead to a median saving of more than $1,600 when compared with over-the-counter prices.

Catastrophic plans for health insurance: Another viable option for the young. For those under 30, buying a major catastrophic medical insurance plan makes sense. These are designed especially for the young, who generally are healthy and don’t need medical attention that frequently. The plan, however, will keep you covered with notable health benefits and cater to your requirements if and when they arise. It cuts your premium payment by nearly 50%.

Go for short-term coverage: If a major plan for health insurance is unaffordable to you, a short-term plan may provide temporary coverage for any unexpected injuries or illness. The average monthly premium is around $110. In addition, packaged products on medical insurance are also viable. These combine short-term coverage along with other items such as critical illness or accident insurance, vision or dental insurance and even telemedicine benefits.

Finding the Right Dental Insurance

Ask your dentist: Many dentists nowadays offer insurance plans. For instance, one such plan could get you dental scaling for $10 that can last an entire year, free consultations, and also x-rays for a $200 annual premium. Moreover, hefty discounts are available for dental implants and/or crowns.

Start comparing: In order to acquire a clear picture of what’s available in terms of dental insurance, check out sites like eHealthinsurance.com or Dentalplans.com to make a clear comparative analysis. Then make a shortlist of the finest options and finally zero in on one that suits your purpose the best.

Working part time: Many employers offer suitable coverage at reasonable costs for employees working part-time. Even if the employer doesn’t pay your premium, the available group discount could help you save quite a bit.

Enroll with your alma mater or association’s group insurance: If your ex-school offers you a membership of a dental group insurance plan, you may want to put pen to paper. It could cut your premium payments significantly while also offering you some salient discounts. Similarly, as a member of a professional association, group discounts could be available.

Explore the new marketplace for health and dental care: Since dental insurance isn’t mandatory, not all states offer it. Among those that do, some consider it to be a part of health insurance while others offer dental insurance as standalone products. Study this carefully before selecting your policy to extract the most savings.

Of course you do not even need dental insurance. If you eat right, brush, and floss, you should be good to go! You may not want to play basketball or some sports though. Also, if you travel to Mexico such as Cabo San Lucas once in a while you can take care of your dental needs there. The dentists in Mexico are as good as they are in America and you can utilize their services at a much cheaper cost.

For whatever reason, dental costs in America are outrageously high. You can get excellent eye care in Mexico as well.

It pays to pay attention to this for a variety of reasons or else you could be become bankrupt while facing huge medical bills. Choose your policy with care so you can handle a medical emergency which can happen at any time!

How to Save Money on Auto Insurance

The amount you pay for your auto insurance premium varies by a few hundred dollars. This principally depends on the type of vehicle you own and who your insurer is. However, you can certainly increase you savings when paying your auto insurance in the following ways.

Before buying the car, study insurance costs:  Before you buy a used or new car, check out its insurance cost. The premium will be based on the vehicle’s price, costs of repair, its overall past safety record, and its likelihood of getting stolen. And if you live in San Francisco, that could be even higher since that city leads the country in property crimes and it seems the people there do not even care but this is another topic!

You may also get discounts from insurers for any special feature that the vehicle has to reduce the risk of injury or theft. Safety rankings for certain models may be checked using the rating tool for top safety picks of the IIHS or Insurance Institute for Highway Safety.

Look before you leap: That in other words means shop around. Premiums vary from insurer to insurer, so make a comparative study, getting at least four price quotes. Searching online is the best way to do it as you get all the quotes on a single Excel sheet and making a choice becomes easier and faster. Or else, call insurers directly or even the insurance department of your state which may give you some comparative premiums payable to the major auto insurers.

Prices, however, shouldn’t be your only deciding factor. Consult relatives and friends and take their advice, too. Working with an insurance agent or professional dealing in auto insurance will also get you the answers to all your questions.

Older cars can do with lesser coverage: Make sure to thoroughly review the total coverage you receive during the insurance renewal time to ensure that your insurance is in perfect sync with your specific and total requirements. For instance, if your vehicle’s worth is less than ten times the payable premium, turning the ignition (pun intended) for such coverage is not a sensible thing to do. In such cases, simply do away with comprehensive and/or collision coverage. The value of your vehicle is easily calculable online through various free sites such as Kelley, NADA, and TrueCar.

They will not count those nice rims on your car or the new paint job so these numbers may not be the full truth.

Higher deductibles lead to lower premiums: You pay a deductible before the insurance policy becomes officially operational. When you choose an enhanced deductible, you stand to lower costs significantly. However, if you select a higher deductible, be sure to keep enough cash aside to pay it out should a claim arise.

Reliable credit history: Anyone with a decent credit history gets many benefits, and this includes reduced insurance costs. The bulk of insurers uses your credit information to price their auto insurance premiums. Research, in fact, reveals that those who manage their personal credit levels effectively, also make fewer claims. To ensure that you get the deserved good credit, check your personal credit record regularly to be absolutely sure that all information contained therein is accurate.

If you are that rare cash payer and do not play the credit game, then do not worry about this aspect on saving money on auto insurance.

Let there be one insurer for your home and car: You could obtain a discount on the premium when you combine your home and auto insurance together or get more than one car insured with the same insurer. This multi-policy offer comes from many insurers for loyal customers and shopping around for such deals makes sense. Even if you buy from different insurers, these discounts may be available. So look around by all means.

You do not need to look around to see a movie when a Transformers movie is out though, they are all awesome!

Group insurance: Certain major insurers also offer premiums at reduced rates to drivers who take out insurance by way of a group plan, usually from their employers, business, professional, and alumni groups or any such associations. If you can get a group to take out a common insurance policy, you stand to gain yourself on this based on economies of scale.

Discounts pertaining to low mileage: Some insurers offer special premium discounts to vehicle owners whose total annual driving is less than the annual average miles driven per year. Such discounts for low mileage is also available for these types of drivers. So if you are one such carpooler, look around for these types of opportunities.

Look for other discounts: As a policyholder, you may also get special discounts when you have never been in any accidents (or an accident that was pinned on you) or have faced charges of moving violations for a specified period; drive less annually as compared to other average motorists, or have undergone a defensive driving course.

The critical aspect to remember, however, is that discounts are not the main key to your savings. Rather, the final net price is. That’s why any company offering fewer discounts may have a lower overall price still compared to its counterparts.

First Time Home Buyers Guide

It’s your dream come true. A permanent roof over your head, an asset for life and you very, very own – the first house that you buy. A home that allows you the unparalleled and sheer freedom to live the way you want to.

However, do keep in mind that buying the first home of your life is a somewhat time consuming and tedious process and takes about a year from the time you think of buying one to finally closing the deal and taking possession. The first time home buyer’s guide will tell you how to sidestep mistakes, such as paying excessive interest on your home loan or picking the wrong home.

Your personal credit score needs checking: Most of us buy our first home on a loan. That’s why our credit reports matter. Moreover, it’s also seen that almost 25% of credit reports contain errors, which could possibly lead to your paying higher interest rates on the loan you take. Thus, take ample time to check your score before you take out a loan. Also ensure that the credit report is absolutely error free unlike the movies Meet the Parents II and III which were horrendous and prone with all sorts of errors but this is another topic.

Budget: Your final selection of your first house will obviously depend on your budget. That’s why you need to take a hard look at what you can actually afford. A lender will usually consider a full debt load of a maximum of 43% of the gross income per month and will also include all future mortgages, car & student loans, or credit card outstanding debts.

Therefore, first work out what is affordable to you and reduce your debt-income ratio to the furthest extent possible. Making a down payment of at least 20% will also reduce your loan cost substantially, also getting you a lower interest rate. Additionally, try and keep stable funds in your personal bank account for sixty to ninety days before you apply for the loan. This will increase the banker’s confidence in you.

Prioritize: Every first time home owner has certain expectations from his new home. Therefore you need to very clearly ask yourself what you need from it most. Is it a closer proximity to the workplace or a large backyard that you want to develop as a garden later?

Do you want it designed on open floor planning? Do you prefer a quiet neighborhood? Once you’ve prioritized these demands, it’ll be much easier for you to start short listing. Another vital issue is to know beforehand what trade-offs you can make.

Research: Based on your shortlist, start visiting neighborhoods and prospective open houses or even start gathering information about them. You can use sites that list properties so that you get some idea of the neighborhood and public transport available. Visits to open houses will give you some ideas about homes within your affordable price range and the neighborhoods that appeal to you strongly. This will also help you reduce your debts & save for the down payment.

Budget for home acquiring expenses: When you buy a house, you also have to pay for certain miscellaneous expenses upfront. These could be for title search, home inspection, and property surveys as also home insurance. Costs may vary according to where you live, but a couple of hundred dollars is almost certain. So start saving for that if you haven’t already.

Start organizing the paperwork for your loan: Banks are indeed most particular about mortgage loans and demand all sorts of documentation. These would include W-2 forms or tax returns over the preceding 2-3 years; recent pay slips; credit card statements; recent statements for brokerage accounts; personal bank statements; all past addresses; and statements pertaining to retirement accounts. Start organizing all of this paperwork. You do not want to have your paperwork tossed around in your closet like Peter Le Fleur from Dodgeball did.

Consult a buyer’s agent: The buyer’s agent’s job is to get you the appropriate property, negotiate the deal with the agent of the seller while also guiding you during the deal closing time. Even mortgage brokers will secure for you a more competitive rate on your loan.

Start home hunting: Once the pre-approval on your loan comes through, start visiting prospective properties with your buyer’s agent so that you don’t waste time on unaffordable houses. Once the selection is finally made, put in your formal offer. If accepted, employ a home inspector to look into the property’s physical conditions and drawbacks, if any.

Closing the deal: Keep all financial documents and down payment amount in perfect order before closing. Make an objective review of all mortgage documents and get home insurance, which should be secure before closing. You may pay off the buyer through a cashier’s check or wire transfer, so keep this ready too. Sign on the dotted line of the property transfer form, hand over the money, and be the proud owner of your first home!

And hopefully you get along better with your neighbor than Mike and Phil did in the average comedy Kicking and Screaming!

What is an emergency fund?

An emergency fund is essentially the money that you’ve been setting aside to take care of unexpected expenses arising out of unforeseen events in life such as when a politician like Barney Frank passes laws that devastates your home’s value. When this happens, and it did too many people on a colossal scale in and around 2008, you want to have some money set aside.

You can call this a rainy day fund too!

An emergency fund allows you to survive at least for a few months just in case you suddenly receive the pink slip (job growth will soon be picking up with lower taxes and less regulations but sometimes companies still lay people off regardless) or get into an accident that prevents you from earning for a substantial period of time.

It could also be a leaking roof or a major car breakdown that needs immediate attention. In other words, it’s like an insurance policy, where instead of paying premiums to your insurer, you’re setting aside some money to be used later should any of the following circumstances suddenly arise:

  • Emergency medical bills
  • Mortgage payments
  • Credit card bills
  • Pending taxes
  • Emergency home repairs (we have all seen Transformers 4; some robot called Lockdown may blow up your home!)
  • Unexpected car damage and repairs

The whole objective is not to borrow for these expenses thereby increasing your debts.

Creating an Emergency Fund

The amount that should be kept as an emergency fund depends on your income and status; thus differing from person to person (you may not need as much money as Katy Perry who lives in her bubble land!). The thumb rule is to save about 3 to 6 months’ worth of funds that are required for all non-discretionary expenses. This fund will help you manage any financial crunch if you suddenly find yourself unemployed. With the aid of this fund, you should still be able to pay your household bills till you find employment again.

You may have to find a job though that is different than what you were doing before. You have to be able to pivot in life.

So how much money there should be in an emergency fund? It will vary. For instance, for a couple with kids, around six months of income is sufficient for an emergency fund. If you are single, have a mortgage, auto loan, and no school going children, you may only need three months since single people tend to be able to relocate easier and they do not have children to clothe and feed.

Automate the Process

One of the best methods for creating an emergency fund is a 401(k); buying a new Lexus is not part of this plan! Do not take financial advice from your neighbor unless they are credible! And if your neighbor is Charlie or Alan Harper, do not do what they say! If your employer offers you a 401(k) plan, sign up for it so that the money you earn is automatically funneled out of your paycheck into a separate account. These contributions are pre-tax and you will soon realize you do not have to sacrifice much to make this financial decision.

For instance, if your yearly earnings are $60,000, increasing your 401k contribution from 2% to 5% will reduce your weekly paycheck by $27. That is it! Also make sure to contribute enough to equal your employer’s “match,” because leaving “free money” on the table is unwise.

You can schedule when you want the money taken out of your pay check as well.

Also, a majority of 401(k) plans come with an auto-escalation feature. This enables you to automatically increase the savings rate by any amount of your choice, which is usually between 1 to 3% every year. For external accounts, create your personal semi-automatic-escalation system: keep a calendar alert that reminds you to spike up contributions by one percentage point or two on an annual basis, maybe every time you get a pay increase or on your birthday.

Pay yourself!

What to do After You Reach the Goal?

If you have accumulated the amount that is suitable for you, you can then pat yourself on the back. Now that you are in control of your finances, you can start investing. The point is, you need to keep on investing a part of your income and create another source of income from it. For instance, if you invest in stocks, every year you will earn some money in the form of dividends. But be careful, stock prices can go down.

You can read about the tech bubble during the turn of the century and know all about that!

In conclusion, having an emergency fund is having extra security. You might have life insurance coverage, health insurance, auto insurance, home insurance, dental insurance, and critical illness insurance to cover you in case you experience some sort of calamity. But none of these will help you if you lose your job. Well, just not as easily has having a 401(k) or a savings account with money saved away for a rainy day.

Life and critical illness insurance are for most people a waste of time and money but that is another topic!

How to Stop Living Paycheck to Paycheck and Start Saving

Are aware that around 38 million American households live paycheck to paycheck? And no, these are not low-income families. Families even with salaries above $100K per year are caught in this vicious lifecycle. The moment the paycheck arrives, most of it goes in settling the bills and couple of days of respite followed by a zero bank balance.

This is not impressive and it does help that electrical prices rose higher in the years from 2009 to 2016 which is another reason household income growth did not rise at all in those same years as well. Hopefully that changes in the next couple of years. This will mean less people will be living paycheck to paycheck.

So why even are wealthy people failing to save money or take control of their finances? Irrespective of the income bracket that you are in, there is always a way to save some portion of your income for investment and savings, you just need to start somewhere.

Prepare a Budget

The first and most vital aspect that needs to be done to improve your finances is to understand how you are spending your money. Start whenever you want, but religiously track every penny you spend for a month. Ideally, it should be the start of the month when all your bills are due.

This will help you in covering the entire month and track your expenses accurately. If you do not have time to do expense tracking at the micro level, smartphone apps can make this job easier. Remember, the first thing to do is to understand the root cause of the problem, which in this case are unchecked expenditures.

Find Expenses that You can Cut

Tracking your expenses will enable you to identify the expenses that you can do away with. For example, the expensive cable plan you have subscribed to can be trimmed down to a bare minimum (do you really Direct TV for instance?). Switch to online streaming service providers. Scourge the Internet for discount coupons while buying anything, you may be surprised how much money you can save this way.

Check your credit card bill for subscriptions and memberships you no longer use or do without (how often do you attend that gym; can you not exercise in your home or run around the block a few times?). There is no need to walk into Starbucks every day for that caffeine dose either. Stop or cut down going to fancy restaurants or restaurants at all. You can buy TGI Friday’s frozen food at supermarkets, for example. You would be surprised how making these small changes to your spending habits can help you save money.

Do you really need life insurance? You know that is one of the biggest scams in America. Well, unless you are afraid of dying broke and we here are trying to get you in a better financial place so that does not happen.

Moreover, the savings then can be channelized towards investments or savings. That is making those spending decisions compound for you. If you are a smoker, cut down on those cancer sticks (that is what they are!). Not only you will be healthier, but also save hundreds of dollars a year.

Do Side Gigs

The Internet has made it easier to find side gigs that pay well or pay something. There are numerous dedicated platforms out there which you can use to find gigs such a web design, online accounting work, virtual assisting, consulting, research work, and so on. If you are not proficient in any of these, try something simpler like dog walking. Your home is full of things you don’t need or do not use any longer. Sell these on Craigslist or eBay. Extra cash you earn this way can be utilized in a productive way.

Consolidate Debt

If your debts are unmanageable and that is one of the primary reasons you live paycheck to paycheck, it’s time to think about debt consolidation.

In debt consolidation, all your debts are paid off by a debt consolidation firm. Then you have a single payment to make towards your debt that is optimized based on your financial profile. Though it may be an extreme measure, nevertheless it’s a percipient and prudent strategy to get out of debt trap and start fresh.

Create an Emergency Fund 

Life is full of uncertainties and you should be prepared for anything that life throws yours way. Research indicates that you need at least six months of expenditures saved up just in case the you know what hits the fan. The emergency fund should be sufficient enough cover all your bills for six months should you be out of work or in bed due to an accident or an illness.

The emergency fund should be impenetrable so do not dip your hands into it (have more discipline than most politicians!). If your emergency fund is piled up high, simply channelize it towards other purposes that are vital, such as a nice mutual fund. And no, going out to Pizza Hut is not wise. Do not sink back into bad habits!

6 Practical Tips for Financial Success

Despite every single individual trying to attain financial freedom and stability, the subject is not yet taught in our schools. Thus, it is not uncommon for young people to be clueless about personal financial planning.

It is also not uncommon for a high school student to graduate in an American inner city and barely be able to read because of political correctness in public schools but this is another topic. See The Wire – the 5th season on this! That was junior high school students in Baltimore but the high schools are just as rough.

Moreover, if you are one of those people who are just stepping into this hyper-competitive, time-strapped world, or someone who has been working for a couple of years without any concrete financial goals, the following tips will come in handy.

Self-Control is the Key

Credit cards make it so easy to purchase anything on impulse. And if you are an impulsive buyer, like most Americans, you might be carrying a debt of $15,000 just on credit cards. Not good but this is not uncommon either!

Most of this can be avoided. Avoid eating at fancy restaurants, buying that expensive pair of jeans, or that new smartphone. Learn what delayed gratification is. Always save and purchase anything you wish with cash. Do not buy a couch you cannot afford and make monthly payments on it, for instance. You have to pay interest on that couch so handling your money this way is nonsensical. Pay in cash or do not buy. Go buy some cheap chairs for temporary use and save up to buy the couch.

Emergency Fund

One of the most neglected principles of personal financial planning is emergency funds. No matter the amount of debt you are carrying in the form of student loans, mortgage, credit cards, car loan or a personal loan, ensure you set a certain amount aside for emergencies.

Also, just forget that that the money exists. Treat it as a non-negotiable monthly expense, like your credit card bill. And use a high-interest saving account, money market account, or a CD for building up an emergency fund, or else inflation will erode the value of your savings.

Start Retirement Planning, NOW

If you have nothing saved for retirement, now is the time to start on that. Ideally, you should start your retirement planning the moment you start earning. The sooner you start investing in retirement products; the bigger your retirement kitty will be as long as you do not invest in Solyndra! Company-sponsored retirement plans are one of the most effective tools. Mutual funds, equities, and what not are other options to consider. Again, the mantra is to start early.

Keep the Tax Monster at Bay

Taxes seem to be omnipresent. Even before you get your first paycheck, learn how much of it will go into taxes or what will be your take-home pay. An increase in pay due to promotion or job hopping does not mean you will have extra disposable income like you are hoping. Trump will cut taxes but taxes will still be a part of our lives.

Furthermore, it might happen that you have moved from a low tax bracket to a higher tax bracket which increases your tax liabilities significantly making your increased pay not as impressive as you were hoping it would be.

You should also work with an accountant that can give you concrete tax advice or educate yourself on this topic if you do your taxes by yourself.

Never Ignore Health Insurance

A single emergency room visit can set you back by thousands of dollars, and without health insurance, it would be difficult to manage healthcare costs. Just like an emergency fund, it’s essential to have suitable health insurance for you, and if applicable, for you family too.

Yes, because of the ACA America’s health care picture is not impressive (it will hopefully get better in the years ahead but that is another topic) but you still need insurance regardless.

Also, unlike your wealth, your health will erode as your age progresses thus ensure you exercise regularly to keep yourself fit. As they say, “Health is wealth.”

Guard Your Assets

Guarding your wealth is as vital as acquiring it. A simple mistake can cost you your entire life’s savings. For instance, driving without car insurance and then you cause a wreck can be financially painful.

Similarly, if you rent your property, having renters insurance is of paramount importance. Any damage to the property due to burglary or fire will mean substantial losses to you. If you employ a financial planner, choose fee-only rather than commissioned based financial planner. It will help ensure that you will invest into financial products that are beneficial to you.

It is not difficult to plan your financial life, a little effort in educating yourself will reap rich dividends. Never invest in complex financial products if you do not understand them and if your name is Napoleon Dynamite, do not invest in anything! Protect yourself and your assets with the necessary insurance and avoid impulsive buying.

Follow these six principles to come closer to enjoying a stress free financial life.