The VA cash-out refinance program enables veterans and active-duty service members to tap into their homeâs equity and, depending on current refinance interest rates, lower their interest rate at the […]Read More
If youâre looking for ways to put some extra cash in your pocket, make sure to take advantage of credit card rewards programs. Credit card companies and banks make some of their money from the merchant interchange fees that are charged when you use your card. As an incentive for you to use their cards, [â¦]
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.Read More
Those ubiquitous checklists of âdorm room essentialsâ for college freshmen are filled with items that will be ditched by the end of first semester.
Some parents âgo to the store and grab a list like they did when their kids were in elementary and high school and just go straight down the list,â says Lisa Heffernan, mother of three sons and a college-shopping veteran. Or they buy things they only wish their students will use (looking at you, cleaning products).
You can safely skip about 70% of things on those lists, estimates Asha Dornfest, the author of Parent Hacks and mother of a rising college sophomore whoâs home for the summer.
A consumer loan is a loan or line of credit that you receive from a lender. Consumer loans can be auto loans, home mortgages, student loans, credit cards, equity loans, refinance loans, and personal loans. This article will address each type of consumer loans. Get Approved for personal loan today. Types of consumer loans: Consumer …
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I received a great email from Magen L., who says:
I no longer have any retirement savings because I cashed it all out to pay my debt. We also sold our home and moved into an apartment just as the pandemic was hitting. With the sale of our house, the fact that my husband is working overtime, and the stimulus money, we've saved nearly $10,000 and should have more by the end of the year. My primary question is, what should we do with it?
Right now, I have our extra money in a low-interest bank savings [account], and I'm considering moving it to a high-yield savings [account] as our emergency fund. Is that a good idea? For additional money we save, I intend to use it as a down payment on a new house. However, should I be investing in Roth IRAs instead? What is the best option?
Another question comes from Bianca G., who says:
I have zero credit card debt, but I have a car loan and a student loan. I will be receiving a large amount of money sometime next year. If my fiancÃ© and I want to buy a home, is it better to pay off my car first and then my student loan, or should I just pay down a big portion of my student loan?
Thanks Megan and Bianca for your questions. I'll answer them and give you a three-step plan to prioritize your extra money and make your finances more secure. No matter if you're a good saver or you get a cash windfall from a tax refund, an inheritance, or the sale of a home, extra money should never be squandered.
What to do with extra cash
Maybe you're like Magen and have extra cash that could be working harder for you, but you're not sure what to do with it. You may even be paralyzed and do nothing because you have a deep-seated fear of making a big mistake with your cash.
In some cases, having your money sit idle is precisely the right financial move. But it depends on whether or not you've accomplished three fundamental financial goals, which we'll cover.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life. Consider what you're doing right and where you're vulnerable.
Try using a three-pronged approach that I call the PIP plan, which stands for:
- Prepare for the unexpected
- Invest for the future
- Pay off high-interest debt
Let's examine each one to understand how to use the PIP (prepare, invest, and pay off) approach for your situation.
How to prepare for the unexpected
The first fundamental goal you should have is to prepare for the unexpected. As you know, life is full of surprises. Some of them bring happiness, but there's an infinite number of devastating events that could hurt you financially.
In an instant, you could get fired from your job, experience a natural disaster, get a severe illness, or lose a spouse. If 2020 has taught us anything, it's that we have to be as mentally, physically, and financially prepared as possible for what may be around the corner.
While no amount of money can reverse a tragedy, having safety nets can protect your finances. That makes coping with a tragedy easier.
Getting equipped for the unexpected is an ongoing challenge. Your approach should change over time because it depends on your income, debt, number of dependents, and breadwinners in a family.
While no amount of money can reverse a tragedy, having safety nets—such as an emergency fund and various types of insurance—can protect your finances. That makes coping with a tragedy easier.
Everyone should accumulate an emergency fund equal to at least three to six months' worth of their living expenses. For instance, if you spend $3,000 a month on essentials—such as housing, utilities, food, and debt payments—make a goal to keep at least $9,000 in an FDIC-insured bank savings account.
While keeping that much in savings may sound boring, the goal for an emergency fund is safety, not growth. The idea is to have immediate access to your cash when you need it. That's why I don't recommend investing your emergency money unless you have more than a six-month reserve.
The goal for an emergency fund is safety, not growth.
If you don't have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.
Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.
Insurance protects your finances
Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:
- Auto insurance if you drive your own or someone else's vehicle
- Homeowners insurance, which is typically required when you have a mortgage
- Renters insurance if you rent a home or apartment
- Health insurance, which pays a portion of your medical bills
- Disability insurance replaces a percentage of income if you get sick or injured and can no longer work
- Life insurance if you have dependents or debt co-signers who would suffer financial hardship if you died
RELATED: How to Create Foolproof Safety Nets
How to invest for your future
Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.
Investments can go down in value—you should never invest money you can’t live without.
While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:
Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.
Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.
In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.
Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.
For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.
RELATED: A 5-Point Checklist for How to Invest Money Wisely
How to pay off high-interest debt
Once you're working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you're in a perfect position also to pay off high-interest debt, the final "P."
Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don't even think about paying them down before implementing your PIP plan.
Getting back to Bianca's situation, she didn't mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.
Let's say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn't come with any tax advantages, it's wise to pay it down first.
Once you've put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have.
Questions to ask when you have extra money
Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.
1. Do I have emergency savings?
Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.
Without emergency money to fall back on, you're living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.
2. Do I contribute to a retirement account at work?
Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It's wise to invest at least 10% to 15% of your gross income for retirement.
Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You'll build wealth for the future, cut your taxes, and maybe even get some employer matching.
3. Do I have an IRA?
Don't have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.
4. Do I have high-interest debt?
If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future.
5. Do I have other financial goals?
After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?
How to manage a cash windfall
Review your financial situation at least once a year to make sure you’re still on track.
When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.
Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.
When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.
And here's another important quick and dirty tip: when you make more money, don't let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you'll be able to reach your financial goals faster.Read More
As of early 2020, student loan debt in the nation had reached more than $1.5 trillion. More than 44 million individuals have student loan debt, and the average person with student loans owes a bit over $32,000âwhich is more than half of the average household income in the United States. As a new school year… Read More
The post Student Loans vs. Financial Aid appeared first on Credit.com.Read More
Your guide to understanding how a Fed rate cut could impact your mortgage as a homeowner or prospective buyer.*
The post What Happens to Mortgage Rates When the Fed Cuts Rates? appeared first on Discover Bank – Banking Topics Blog.Read More
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
In response to the ongoing coronavirus emergency, the Internal Revenue Service (IRS) is offering federal tax relief to Americans. It’s part of emergency declarations that were enacted due to the Stafford Act. This response will undoubtedly help citizens and businesses cope with the crisis.
But what you may not know is that changes to the tax deadline affect several aspects of your financial life. In this post, I’ll explain what coronavirus tax relief is and 10 ways it affects your finances.
1. Your federal income tax deadline is postponed
The central feature of tax relief during the coronavirus pandemic is that the due date for filing and paying your 2019 federal taxes is postposed from April 15, 2020 to July 15, 2020.
You don’t have to be sick or negatively impacted by COVID-19 to qualify for this federal tax postponement. It applies to any person or entity, such as those who are self-employed, an unincorporated business, a corporation, estate, or trust that has 2019 taxes due on April 15. It doesn’t matter if April 15 is the original date for your return on an extension date you previously filed for—your new due date is still July 15.
There’s absolutely nothing that taxpayers need to do to take advantage of this relief.
There’s absolutely nothing that taxpayers need to do to take advantage of this relief. The postponement will happen automatically for any amount you owe or any installment payment you were asked to make on April 15.
Of course, many Americans are expecting a tax refund. When you overpay taxes during the year, the IRS settles up with you during tax season by issuing a refund.
If you’re owed a tax refund, never wait to file your tax return. The sooner you send it in, the faster you’ll receive your money back. Getting a direct deposit is always faster and safer than a paper check. So, be sure to include your banking information with your return, so you receive your refund electronically.
2. Interest and penalties begin to accrue on July 16, 2020
As a result of the postponement of the due date for filing and paying federal income taxes until July 15, 2020, you’ll get a pass on interest and penalties if you pay up by then. However, the extra fees will begin to accrue on July 16, 2020.
3. Your state income tax deadline hasn’t changed
Depending on where you live, you may have to pay state income taxes, which have not been postponed. However, it’s possible that the states affected the most by the coronavirus could enact relief measures of their own.
Depending on where you live, you may have to pay state income taxes, which have not been postponed.
Seven states don’t charge income tax, including Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, New Hampshire and Tennessee don’t tax earned income, but they do tax your investment income.
If you live in any of the remaining 41 states, plan on filing and paying your state taxes as usual. Check with your state’s tax agency or Department of Revenue to learn more and stay as up to date as possible.
4. You can still file a tax extension
But what if July 15 comes and you need more time? Individuals and businesses can request an automatic extension to delay filing federal taxes. However, this doesn’t give you more time to pay what you owe, only more time to submit your tax form.
To get a federal extension, individuals must submit IRS Form 4868 on IRS.gov, using tax software, or through your tax professional, before the July 15 deadline. Most incorporated businesses must file IRS Form 7004.
If you choose to file an extension request, that would give you until October 15, 2020, to file your 2019 return.
If you choose to file an extension request, that would give you until October 15, 2020, to file your 2019 return. But again, to avoid interest and penalties on any outstanding tax liability, you must pay an amount you estimate is due with your extension request.
If you need a state tax filing extension, check with your state’s tax agency to see what’s possible.
5. Taxes you already scheduled payment for can be canceled
If you’re ahead of the game and already filed your 2019 taxes and scheduled payment to occur on April 15, you have options. If you don’t want your payment to go through, you can reschedule or cancel it until two business days before the payment date.
In other words, April 10 would be the last day to make a tax payment change. However, I wouldn’t wait until the last minute if you plan to reverse or modify it.
To make a change, visit the tax payment portal you initially used and follow the instructions. If you authorized an electronic funds withdrawal from your bank account, contact a U.S. Treasury Financial Agent at 888-353-4537 to request a cancellation. And if you scheduled a tax payment using a credit card, contact the issuer to cancel the card payment.
6. Only one estimated tax deadline for businesses is postposed
Most businesses make estimated tax payments each quarter. The 2020 schedule is:
- First quarter is due on July 15, 2020, which changed from April 15, 2020
- Second quarter is due on June 15, 2020
- Third quarter is due on September 15, 2020
- Fourth quarter is due on January 15, 2021
So, the first estimated payment that businesses need to make this year will be due on June 15, 2020.
7. Other tax filing deadlines have not been postponed
What about information returns that must be filed by certain types of businesses, or taxes that are due on other dates, such as May 15 or June 15? Unfortunately, individuals and businesses that have filing or payment due dates other than April 15 don’t get any relief at this time.
Again, the assistance only applies to federal income tax returns or payments due on April 15, 2020.
8. Relief doesn’t apply to other types of taxes
If you or your business owe tax other than income tax, such as sales tax, excise tax, payroll tax, gift tax, or estate tax, you must file and pay them as usual.
9. You have more time to make HSA contributions
You typically have until April 15 to make health savings account (HSA) contributions for the prior year. Under this relief, you can now make HSA contributions for 2019 at any time until July 15, 2020.
To qualify for an HSA, you must be covered by a qualifying high-deductible health plan that you get through work or on your own. In early March, the IRS issued a notice that a high-deductible health plan may cover the cost of COVID-19 testing and treatment before your deductibles are met. Also, just as before the coronavirus, you can pay for medical testing and treatment using funds in your HSA.
10. You have more time to make retirement contributions
Just like with an HSA, you typically have until April 15 to make contributions to a traditional IRA or a Roth IRA. Because the tax filing date is postponed to July 15, you can make IRA contributions for 2019 at any time until July 15, 2020.
However, for most workplace retirement plans, such as a 401(k) or 403(b), the deadline corresponds to the calendar year. So, December 31, 2019, was the last day to make 2019 contributions for accounts offered by an employer.
While this tax relief may not be enough to buoy many people and businesses that have been affected most by the coronavirus pandemic, it’s just one measure. There will be broader fiscal relief enacted to minimize the economic impact of this ongoing health crisis.Read More
Weâre all looking for ways to cut down on expenses â especially fixed expenses that lock us into a contracted bill month after month. One common way to spare your budget is to decrease your living expenses, including your house…
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