For some reason, there is a myth out there that living a frugal life means you are living a boring life. Some even believe that if you are frugal then you are a bad parent, a bad person, and a bad friend.
If you don’t believe that, I recommend you read the comments on the next frugal living-related article on a major website such as Forbes, YahooFinance, or something similar. One thing that will be in common with most of the comments is the negativeness from many of the commenters.
I’ve even overheard conversations myself where people think I’m missing out on life because they assume that all frugal people just sit at home all day and do nothing with their lives.
That is FAR from the truth. I know many who are taking part in frugal living and I think they are some of the best 🙂
Sadly, many aren’t interested in frugal living because they believe the myth above.
There are many reasons to live a frugal life, though. Continue reading below to see the reasons for why many choose to take part in frugal living.
1. You want to be comfortable in your financial situation.
Seeking financial freedom is something that many are aiming for by living frugally. Being frugal may give you a better chance at reaching this since you are most likely honest with yourself about how much money you earn, how much you spend, and how much you need in order to survive.
Knowing that you are in control of your financial situation is a great benefit of living a frugal life!
Not being comfortable may even lead to debt, which I discuss in the next reason…
2. You want to avoid debt.
No one actually wants debt, right? By choosing to live the frugal life, you may be able to avoid debt much more than the average person.
By avoiding debt, you will have less stress due to the fact that you won’t be worried about the next bill you have to pay and the amount of interest that is building up.
You will also be more likely to retire earlier, buy the things that you actually do want to buy, and more.
Related article: How To Live On One Income
3. You want a simpler life.
Bigger isn’t always better. More isn’t always better either.
By living a frugal life, you are most likely making do with what you have, buying and using quality items that will last, and so on.
By having less stuff and less clutter in your life, you will live a more simple life that you can truly enjoy. Material items do not always equal happiness. Sometimes they just add stress, debt, and more. Think about it – the more stuff you have, the more likely that something will break, something will get lost or tossed to the side, and so on.
4. You know that you can still have fun while being frugal.
Anyone who thinks you can’t have fun while being frugal is crazy. You don’t need to spend a ton of money or be rich in order to enjoy life.
Yes, you can still go on vacations, buy your dream home, have a family, spend time with friends and family, and more. Being frugal doesn’t mean that you are giving up fun things in life.
Side note: I recommend looking into Digit if you want to trick yourself into saving more money. Digit is a FREE service that looks at your spending and transfers money to a savings account for you. Digit makes everything easy so that you can start saving money with very little effort. Read Digit Review – A New Way To Save Money.
5. You want to appreciate everything and anything around you.
When we were spending more due to lifestyle inflation, we realized we weren’t really appreciating the things we were spending our money on.
We were buying things, not enjoying them, and just being a little lazy because we weren’t in the right mindset. I didn’t like feeling this way because I felt wasteful and even guilty of the way I was behaving.
Life is great and you don’t need to be rich in order to enjoy it. By living a frugal life, you are more likely to appreciate what you have.
Would you rather enjoy each meal you eat, each item you buy, and more? Life is a great thing and appreciating the little things can be a great feeling.
Are you interested in frugal living? Why or why not? Why do you believe some are so negative about frugality?
The post Why Would A Person Choose To Live A Frugal Life? appeared first on Making Sense Of Cents.
Since the outbreak of the coronavirus pandemic in March 2020, life and business certainly have changed. If you’re self-employed full-time or earn business income on the side of a day job, you may be wondering what economic relief applies to you.
Let's review what relief Congress passed to help self-employed Americans cope with financial challenges. I’ll review ten key stimulus benefits that apply to solopreneurs and small businesses.
If you're experiencing economic hardship due to the coronavirus, using some of these new regulations may be the ticket to managing your personal and business finances better.
10 ways the self-employed can get financial relief
The Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27 as the largest stimulus legislation in American history since the New Deal in the 1930s. Here are ten ways it provides relief for individual solopreneurs and small business owners.
1. Getting lower interest rates
On March 3, the central U.S. bank, also known as the Federal Reserve or Fed, made a surprising emergency interest rate cut of half a percentage point. That’s the largest single rate cut since the financial crisis of 2008. While this move wasn’t part of a coronavirus stimulus package, it was an aggressive cut meant to prepare the economy for problems the pandemic was expected to cause.
An economic recovery could take a few years, which likely means the Fed rate will stay near zero through 2023.
In mid-September, the Fed reiterated its promise to keep interest rates near zero until the economy improves and the unemployment rate declines. They indicated that a recovery could take a few years, which likely means the Fed rate stays near zero through 2023.
While savers never celebrate low interest rates, they're beneficial to borrowers. In general, the financing charge on variable-rate credit cards and lines of credit goes down in lockstep with interest rates. Carrying a balance on your personal and business credit cards may be slightly less expensive, depending on your card issuer and type. For instance, if your card’s annual percentage rate or APR is 20%, your adjusted rate could go down to 19.5%.
If you have a fixed-rate credit card, the APR doesn’t change no matter what happens in the economy or with federal interest rates. Also, note that if you pay off your balance in full each month, a credit card’s APR is irrelevant because you don’t pay interest on purchases.
2. Having more time to file taxes
Earlier this year, the due date for filing and paying 2019 federal taxes was postponed from April 15, 2020, to July 15, 2020. You didn't have to be sick or negatively impacted by COVID-19 to qualify for this federal tax delay. It applied to any person or business entity with taxes due on April 15, 2020.
If you missed the tax filing deadline, be sure to request an extension.
Most businesses make estimated tax payments each quarter. Those payment dates have shifted, too. The 2020 schedule gives you more time as follows:
The first quarter was due on July 15, 2020, which changed from April 15, 2020
The second quarter was due on July 15, 2020, which changed from April 15, 2020
The third quarter was due on September 15, 2020
The fourth quarter is due on January 15, 2021
Individuals and businesses can request an automatic extension to delay filing federal taxes. But it doesn’t give you more time to pay what you owe for 2019, only more time to submit your tax form—until October 15, 2020.
If you missed the tax filing deadline, be sure to request an extension. Individuals must file IRS Form 4868, and most incorporated businesses use IRS Form 7004.
However, depending on where you live, you may have to pay state income taxes, which have not been postponed. If you need a state tax filing extension, check with your state’s tax agency to determine what’s possible.
Taxes due on any date other than April 15, 2020—such as sales tax, payroll tax, or estate tax—don’t qualify for relief.
3. Getting more time to contribute to retirement accounts
You typically have until April 15 or the date of a tax extension to make traditional IRA or Roth IRA contributions for the prior year. But since the CARES Act postponed the federal tax filing deadline, you also have until July 15 or October 15, 2020 (if you requested an extension) to make IRA contributions for 2019.
However, this deadline doesn't apply to retirement accounts you may have with an employer, such as a 401(k). Nor does it apply to self-employed accounts, such as a solo 401(k) or SEP-IRA, which correspond to the calendar year.
4. Getting more time to contribute to an HSA
Like with an IRA, you typically have until April 15 or the date of a tax extension to make HSA contributions for the prior year. Under the CARES Act, you now have until July 15 or October 15, 2020, to make HSA contributions for 2019.
To qualify for an HSA, you must be covered by a qualifying high-deductible health plan. In early March, the IRS issued a notice that a high-deductible health plan may cover COVID-19 testing and treatment and telehealth services before meeting your deductible. And just as before the coronavirus, you can pay for medical testing and treatment using funds in your HSA.
5. Delaying tax on retirement withdrawals
While you typically must pay income tax on retirement account withdrawals that weren’t previously taxed, the good news is that for a period, you can delay or avoid tax altogether. The CARES Act gives you two options for withdrawals made in 2020:
Repay a hardship distribution within three years to your retirement account. You can replace the funds slowly or all at once, with no change to your annual contribution limit. If you take money out but return it within three years, it’s like you never took a distribution.
Pay taxes on a hardship distribution from your retirement account evenly over three years. If you can’t pay back your distribution, you can ease your tax burden by paying one-third of your liability for three years.
Since withdrawing contributions from a Roth retirement account doesn’t trigger income taxes, it’s a good idea to tap a Roth before a traditional retirement account when you have the option.
6. Skipping early withdrawal penalties
Most retirement accounts impose a 10% early withdrawal penalty if you take make withdrawals before age 59.5. Under the CARES Act, if you have a coronavirus-related hardship, the penalty is waived.
Under the CARES Act, if you have a coronavirus-related hardship, the penalty is waived.
For instance, if you, your spouse, or a child gets diagnosed with COVID-19 or have financial challenges due to being laid off, quarantined, or closing a business, you qualify for this penalty exemption. You can withdraw up to $100,000 of your retirement account balance during 2020 without penalty. However, income taxes would still be due in most cases.
The no-penalty rule applies to workplace retirement plans, such as 401(k)s and 403(b)s. It also applies to IRAs, such as traditional IRAs, Roth IRAs, and SEP-IRAs.
Since you make after-tax contributions to Roth accounts, you can withdraw them at any time (which was also the case before the CARES Act). However, the earnings portion of a Roth is subject to income tax if you withdraw it before age 59.5.
7. Getting larger retirement plan loans
Some workplace retirement plans, such as 401(k)s and 403(b)s, permit loans. Typically, you can borrow 50% of your vested account balance up to $50,000 and repay it with interest over five years.
You can delay the repayment period for a retirement plan loan for up to one year.
For retirement plans that allow loans, the CARES Act doubles the limit to 100% of your vested balance in the plan up to $100,000. It applies to loans you take from your account until late September 2020, for coronavirus-related financial needs.
You can delay the repayment period for a retirement plan loan for up to one year. For example, if you have $20,000 vested in your 401(k), you could take a $20,000 loan on September 30, 2020, and delay the repayment term until September 30, 2021. You’d have payments stretched over five years, ending on September 30, 2026. Any amount not repaid by the deadline would be subject to tax and a 10 percent early withdrawal penalty.
Note that individual retirement accounts—such as traditional IRAs, Roth IRAs, and SEP-IRAs—don’t allow participants to take loans, only hardship distributions.
8. Suspending student loan payments.
Starting on March 13, 2020, most federal student loans went into automatic forbearance until September 30, 2020, due to the CARES Act. On August 8, the suspension of student loan payments was extended through December 31, 2020.
On August 8, the suspension of student loan payments was extended through December 31, 2020.
The suspension covers the following types of loans:
Direct Loans that are unsubsidized or subsidized
Direct PLUS Loans
Direct Consolidation Loans
Federal Family Education Loans (FFEL)
Federal Perkins Loans
Note that FFEL loans owned by a private lender or Perkins loans held by your education institution don’t qualify for automatic forbearance. However, you may have the option to consolidate them into a Direct Loan, which would be eligible for forbearance. Just make sure that once the suspension ends, your new consolidated interest rate wouldn’t rise significantly.
During forbearance, qualifying loans don’t accrue additional interest. Even if you have federal student loans in default because you haven’t made payments, zero percent interest applies during the suspension period.
Additionally, missed payments during the suspension don’t get reported to the credit bureaus and can’t hurt your credit. Qualifying payments you skip also count toward any federal loan repayment or forgiveness plan you’re enrolled in.
However, if you want to continue making student loan payments during the suspension period, you can. With zero percent interest, the amount you pay gets applied to your principal student loan balance, enabling you to get out of debt faster.
With zero percent interest, the amount you pay gets applied to your principal student loan balance, enabling you to get out of debt faster.
If you’re not sure what type of student loan you have or the pros and cons of consolidation, contact your loan servicer. Even if your student loans are with private lenders or schools, they may offer relief if you request it.
9. Having Paycheck Protection Program (PPP) loans forgiven
The PPP is part of the CARES Act, and it supports small businesses, organizations, and solopreneurs facing economic hardship created by the pandemic. The program began providing relief in early April 2020, and the application window ended in early August 2020.
Participating PPP lenders coordinated with the Small Business Administration (SBA) to offer loans to businesses in operation by February 15, 2020, with fewer than 500 employees. Loan amounts could be up to 2.5 times the average monthly payroll up to $10 million; however, annual salaries were capped at $100,000.
For a solopreneur, the maximum PPP loan was $20,833 if your 2019 net profit was at least $100,000. The calculation is: $100,000 / 12 months x 2.5 = $20,833.
When you spend at least 60% on payroll and 40% on rent, mortgage interest, and utilities, you can have those amounts forgiven from repayment. Payroll includes payments to yourself, but you can’t cover benefit costs, such as retirement contributions, or payments to independent contractors.
In other words, a solopreneur could have received a PPP loan for up to $20,833, paid the entire amount to themselves, and not repaid it by having the load forgiven. Using a PPP loan for qualifying expenses turns it into a grant.
The best part about PPP loan forgiveness is that it won’t qualify as federal taxable income. Some states that charge income tax have indicated that they won’t tax forgiven amounts.
However, if you have employees, the PPP forgiveness calculations and requirements are more complex. For example, you must maintain reasonable salaries and wages. If you decrease them by more than 25% for any employee (including yourself) who made less than $100,000 in 2019, your forgiveness amount will be reduced.
PPP loan forgiveness also depends on keeping any full-time employees on your payroll. But if you had employees who left your company voluntarily, requested a cut in hours, or got fired for cause during the pandemic, your loan forgiveness amount won’t be reduced for those situations.
The best part about PPP loan forgiveness is that it won’t qualify as federal taxable income. Some states that charge income tax have indicated that they won’t tax forgiven amounts.
However, not all states have issued their rules on taxing PPP forgiveness. So be sure to get guidance if you live in a state with income tax.
You must complete a PPP Loan Forgiveness Application and get approved by your lender to qualify for forgiveness. The paperwork should come from your lender, or you can download it from the SBA website at SBA.gov. Most PPP borrowers have from six months after loan disbursement or until the end of 2020 to spend the funds.
The forgiveness application explains what documents you must include, and they vary depending on whether you have employees. Once you submit your paperwork, your lender has 60 days to decide how much of your PPP loan can be forgiven.
If some or all of a PPP loan isn't forgiven, you typically must repay it within five years at a 1 percent fixed interest rate. You don't have to start making payments for ten months after loan disbursement, but interest will accrue during a deferral period.
10. Getting SBA loans
In addition to PPP loans, the Small Business Administration (SBA) offers several loans for businesses and solopreneurs facing economic hardship caused by a disaster, including the COVID-19 pandemic.
Economic Injury Disaster Loan (EIDL) can be up to $2 million and repaid over 30 years at an interest rate of 3.75 percent. You can use these funds for payroll and other operating expenses.
SBA Express Bridge Loans gives borrowers up to $25,000 for help overcoming a temporary loss of revenue. However, you must have an existing relationship with an SBA Express lender.
SBA Debt Relief is a program that helps you make payments on existing SBA loans for up to six months.
Depending on your state, you may qualify for unemployment assistance, which allows self-employed people, who typically are ineligible for unemployment benefits to get them for a period.
This isn’t a complete list of all the economic relief available for small businesses and solopreneurs. There are federal tax initiatives, funds from local and state governments, and help from private organizations that you may find by doing a search online.
How to manage money in uncertain times
When it comes to surviving uncertainty, such as how COVID-19 will affect the economy, those who have emergency savings will feel much less financial stress than those who don’t. That’s why it’s essential to maintain a cash reserve of at least three to six months’ worth of living expenses in an FDIC-insured bank savings account.
If you don’t need to dip into your emergency fund, continue shoring it up when possible. If you don’t have a cash reserve, accumulate savings by cutting non-essential expenses, and even temporarily pausing contributions to retirement accounts. That’s a better option than succumbing to panic and tapping your retirement funds early.
If you don’t need to dip into your emergency fund, continue shoring it up when possible.
If you find yourself in a cash crunch, contact your creditors before dipping into any retirement accounts you have. Many lenders will be willing to work with you to suspend payments or modify existing loan terms temporarily.
RELATED: How to Reduce Money Anxiety—Compassionate Advice from a Finance Pro
My new book, Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers, covers many strategies to earn more, manage variable income, and create an automatic money system so you can strengthen your financial future. It’s a great resource if you’re thinking about earning side income or have already started a business.
Many economic factors that affect your personal and business finances aren’t under your control. Instead of worrying, look around, and figure out how you can create more income or cut unnecessary expenses. Working on tasks that you can control gives you more clarity and helps manage stress in uncertain times.
Itâs amazing how things change when you have kids. Before kids, weekend getaways and trips were fairly easy. When we needed to take a break, I remember we could look at the calendar and twenty minutes later, have a few dates to run by work for time off.Â Even the destinations would already be top of mind and after looking for deals on travel sites and asking around, weâd settle with whatever had the best price. Pretty easy.
Fast forward a few years and now weâre parents of an eight-year-old and a four-year-old.Â Â
Those first few years with our little ones were honestly rough. Weâre trying to coordinate between two jobs and one school schedule. It was tough finding the perfect time to take a week or so off.Â Once we had our dates, weâd then have to make sure that we could find a deal.Â Thankfully, weâve gotten a little bit wiser. We found our footing and came up with our little system for timing our vacations and snagging some good savings.Â Weâve also found some spots that allow us to unwind without breaking the budget.Â Â
Affordable Family Vacations to Take This FallÂ
While school is back in season, that doesnât mean you have to write off the rest of the year.Â You still have time to take one last getaway to recharge your battery, have some fun, and connect as a family.Â Â
To make things easy for you, I want to share a few of our favorite spots that both we and the kids enjoyed. The cherry on top? Theyâre also affordable spots!Â Â
Daytona Beach, FloridaÂ
If youâre looking to escape and have some beach time, then Florida is the way to go. However, staying in Orlando is not on the list if youâre looking for a chance to relax and actually save money.Â Instead, soak up some beach time before the weather gets too cold and hang out for a bit in Daytona Beach.Â Â
When we did our trip last October in Florida, it couldnât have been more perfect. The weather was still warm, the large crowds of tourists were gone (along with the overpriced hotels), and there were plenty of things to do around.Â Â
Racing fans can enjoy the Daytona International Speedway or if youâre in the mood for stars, you can head over to MOAâs planetarium.Â Â And if your kids really want to visit the Magic Kingdom or Universal Studios, you can make it a more affordable day trip rather than blow your budget by spending your whole time there.Â Â We once went to Universal right after Thanksgiving and were able to skip waiting in line because it was so quiet.Â Â
Charleston, South CarolinaÂ
We took trips to Charleston for the last few Decembers and I have to say, weâve enjoyed every one.Â While the temperatures have cooled down a bit, making beach time minimal, we still managed to be out and about.Â Throw on a jacket, wear your fall layers, and youâre all set to hit the town and enjoy some history and food.Â Â
You have to visit The Tavern at Rainbow Row. Besides being the oldest liquor store in the country, the vibe there is incredible. Itâs small, but the selection is wide.Â Want to have an incredible lunch thatâs still cheap? Try out The Blind Tiger. The truffle duck, bourbon bread pudding, buffalo cheese curds are delicious.Â Â
Asheville, North CarolinaÂ
One of our favorite low-key trips weâve taken was a camping adventure with some friends just outside of Asheville. Being able to see the mountains shift into autumn colors was incredible.Â If youâre a photographer or love being outdoors, you have to take a trip here. Itâs so peaceful and the views are amazing.Â For the parents, Asheville is the hot spot for fantastic food and a wide array of awesome breweries.Â Â Â
After spending your days enjoying the parks and maybe getting some tubing in, treat yourself and the kids to Double Dâs Coffee and Dessert. Itâs a cool double-decker bus in the city thatâs also nearby Wicked Weed brewery.Â Â
Tuxedo, New YorkÂ
If you absolutely love New York City but also relish some peace and relaxation that a more rural spot gives, then you should check out some of the small towns upstate.Â Â Â
I may be a little biased since I lived here for a few years, but fall is pretty much the best time to visit.Â You can truly have the best of both worlds with renting a spot in a town just outside the city.Â Â The Metro-North Railroad means you can take a train to New York City, allowing you to enjoy a scenic ride and skip put on the nightmare of driving in Manhattan.Â Â
Have your day trips to shop, visit the museums, and explore some of the best restaurants. You can then head back to your affordable getaway spot and enjoy some of the local events including celebrating autumn with exquisite apple cider.Â Â
Saving Up for Family TripsÂ
While you hunt for the deals, you can start now saving up for your trip. You can create a vacation fund as separate savings to keep you motivated.Â Â
Using a tool like Mint makes it easy to track your progress and help you find ways to trim your budget a smidge so you have more money for fun during your trip.Â Knowing our money leaks allowed us to try some fun monthly challenges to sock away an extra couple hundred dollars.Â Â Keep your vacations debt-free also means thereâs less stress as you donât have to worry about a bill afterward. Double win in my book!Â Â
If youâre looking for tips, please check out my post on how to shift gears and become a savvy saver.Â Â Itâs much easier than you think and youâll be surprised at what you can accomplish in one month.Â Â
Your Take on Family GetawaysÂ
Wherever you go, I hope you have a wonderful time together. Now that you know my favorites, Iâd love to hear about your spots.Â Â What have been some of your best vacations together?Â Â
The post 4 Inexpensive East Coast Destinations to Travel to With Your Family appeared first on MintLife Blog.
Although enduring the pandemic has been stressful to say the least, I have learned a multitude of lessons Iâll never forget. One of the biggest is that, like it or not, Iâm not cut out to homeschool four kids while trying to work at home. Most of all, though, the pandemic has reinforced my feeling of gratitude for the life I live â and the life my family lives.
For example, when schools began shutting down and the whole country went into lockdown, neither my wife, Mandy, or I had to miss work or struggle to find childcare. When I work on my blog, my podcast, and other ventures in my home office, my wife already stays home with the kids and has done so for several years.
And when the economy stalled and the stock market dropped like a rock, we never had to wonder how weâd pay our bills or what the future might hold. After all, we have a fully stocked emergency fund, and have plenty of passive income streams that aren’t tied to an employer or the stock market on any given day.
The bottom line: The pandemic has reminded me all I have to be grateful for, including the peace of mind that comes with financial independence.
Teaching My Kids About Financial Independence
Anyway, part of me has always worried that my kids wouldn’t get to learn the same financial lessons I did â at least, not in the same way. Because of the situation we’re in, my kids have never really lived in a modest home, and they have never had to go without. They have never been in a situation where we are trying to stretch the groceries for another week until payday, and in fact, the pandemic has made us rely a lot more on takeout and food delivery than we normally do.
Regardless, I recently took some time on one of our homeschool days to map out what it takes to run and pay for a household for my kids.
Writing It All Out
On a giant whiteboard in my office, I created a list of most of our household bills â our mortgage payment, transportation expenses, phones, gas, insurance, utilities, and all of the taxes we pay. In another column, I wrote out a rough example of the amount of income it would actually take to cover those bills.
From there, I talked with the kids about our household wants, or stuff they prefer to have. My kids went ahead and added shoes to the list, an Xbox and some dolls.
At one point, the kids started asking questions about where the money for our bills actually comes from. I explained that, while I continue working on my podcast and blog and other business ventures, the majority of our income is mostly passive â as in, I am not actually working for it and I am no longer getting paid by an employer.
And in that moment, I began explaining to them my thoughts on financial independence â what it means to me, and how we actually got to that point.
While my kids were sick of dad teaching and barely listening by then, they did have some thoughts on financial independence. I explained to them that, if they could save a ton of their income in their early working years, they could invest in passive income streams they could rely on for decades after that.
We also talked about how secure it can feel to have enough money stashed away to get by, and to not have to rely on the whims of an employer or a J-O-B to stay alive.
How I Realized We Were Financially Independent
All of this got me thinking about when I knew we were financially independent, and the “aha moments” I had along the way. After all, our journey to financial security didnât happen overnight, even though sometimes it does feel that way.
But before I share how I knew we didn’t need to worry about money, I want to explain what I think financial freedom really is, based on a note I wrote on my whiteboard for our kids.
What Financial Independence Is (and What It Isnât)
For me, financial independence is not about making the most money you absolutely can, and it’s not about how much is in your bank account, the car you drive, or the size of your home.
Instead, financial independence is about choice.
Based on the way I interpret the FIRE movement, financial independence is about being able to choose where you work and what you work on, having the ability to spend your free time how you want, and living life on your own terms. It’s about not having to go to a job you hate, and to still have the money you need to pay bills and live comfortably, regardless.
Further, financial independence means being able to have the freedom of choice without any worry, without any stress, and without any anxiety â at least when it comes to paying bills.
My Aha Moments
So, what are the “aha moments” that helped me realize we had been blessed with all we need â that we are financially independent?
In reality, it has been a lot of small things over the last decade or so â things like being able to rent two hotel rooms or a large Airbnb each time we travel, and not having to worry whether we can afford it. After all, I have four kids, and my wife and I donât want to sleep in a hotel room stuffed six-people deep.
Another big moment we had was the first time my wife and I maxed out our old Roth IRA accounts while also fully funding our 401(k)s, which happened early in our marriage.
Then there was the year we started building our first “dream house,” which we lived in before the one we live in now. Our “starter home” was around 1,900 square feet and we lived there for quite a while. But we started building our 5,000 square foot dream house right before the birth of our second son â we even put in a pool shortly after that.
This was when we were in our early 30’s, and building at that time just seemed like a dream come true. We even started building our new home before we sold our old one, which was only possible because we had our financial ducks in a row.
Other key “aha” moments along our journey to financial independence included:
The many times I turned down lucrative job offers and opportunities so I could continue pursuing my own dreams
When I realized I could take two weeks off to drive my family to the Grand Canyon in an RV â and I did it!
When Iâve made more money in a month than my parents used to earn in a whole year (since my parents topped out at around $40,000 to $50,000 per year during their working years)
Realizing I had the cash savings to purchase my childhood dream car (a yellow Lamborghini!), if I really wanted to
The time I sold a minority stake in one of my businesses and was handed the largest check I have ever received to date
The first time I paid $400 for a pair of Jordan shoes with no regrets or stress, which actually happened just a few years ago!
Funny enough, I sent my wife Mandy a text, for research purposes, asking when she first felt financially independent. Her answer was totally different than mine.
Mandy says that she felt like she no longer needed to worry about money when we reached one year of expenses in our emergency savings account.
I have to agree with her, because that milestone did give me a lot of peace of mind. After all, having 12 months of expenses in an emergency fund means a lot could go wrong with our finances and we would still have the time and space to figure it all out.
3 Key FIRE Principles and How You Know You’re On Track
If you’re pursuing financial independence but progress feels slow, know that your path to financial freedom will have a lot of bumps along the way. If you’re like me, you might also find that you’re inching toward financial freedom in spurts, and that it doesn’t all hit you at once.
The key for those seeking FIRE is being on the lookout for those “aha moments” that tell you you’re on the right path. No matter what anyone says, you won’t become financially independent overnight. Instead, you’ll probably hit several different stages over the months and years it takes to get there.
Not only that, but you should strive to adopt the right mindset for FIRE. For the most part, this means being willing to think differently about how the world works and how it should work, and being open to going your own way.
What are the key principles of FIRE â or the key mindset changes that can get you there? Based on my personal experience, here’s what I think they are.
Key Principle #1: Gratitude for What You Have
In my opinion, being grateful for what you have (and what God has provided) is one of the most important steps anyone can take. Even if things aren’t really going your way, and if life seems bleak and miserable at times, there is always something we can be grateful for.
With that said, I recommend being grateful and hungry â as in, don’t be so grateful that you become complacent and stop pushing for more in your life.
Continue to entertain the idea that there is always something else you can learn, more experiences you can have, and more wisdom to obtain by trying new things. And if you try something and fail, look for the lessons you can find in that failure and be grateful you had the chance to learn them.
Key Principle #2: Flexing Your Bold Intentions
Another key principle of achieving financial independence is being willing to share your goals with the world â loudly and without hesitation.
In your own life, you mightâve noticed that people who are pursuing FIRE can’t stop talking about it. This is because FIRE enthusiasts usually have one important thing in common: theyâre brave enough to put their bold intentions on display no matter what anyone thinks.
Let’s say you have the bold intention of achieving financial independence and retiring at 35. Why not take that goal and post it to your Facebook page? Start sharing it with your family, and don’t forget to tell your friends.
Chances are good that you’re probably going to get a lot more criticism than support from your peers, but who really cares?
Most people who pursue FIRE actually don’t care at all what other people think. That’s part of the reason theyâre able to live differently, save a large percentage of their income, and stop trying to keep up with the Joneses in the first place.
Key Principle #3: Full Release of the Past
Finally, you have to make sure your future is bigger than your past â as in, don’t let your past mistakes define who you are today and who you can become.
I know from experience that it’s far too easy to focus on all of the mistakes you’ve made and opportunities you’ve missed out on. Trust me, Iâve made more than my share of bone-headed mistakes that couldâve easily derailed me, yet here I am.
The key for anyone pursuing FIRE is having some humility for the situation while never letting your past mistakes hold you back. You have to be willing to put yourself out there again and again, knowing you might fail. The thing is, every failure has a lesson, and sometimes those lessons lead you to something great right around the corner.
Maybe you skipped saving for retirement early in your career, and you feel behind from where you should be. Although you definitely missed out by not getting started early, you can only control the steps you take to reach your goal right now.
Perhaps you made a poor investment and lost money at one point, which is something most investors have done at least a few times. Instead of dwelling on that mistake, you have to learn to cut your losses, find the lesson in the mess, and move on.
Why? Because the alternative isnât moving forward, and that won’t get where you want to be.
The bottom line: Let go of the past and take stock of where you’re at now. From there, figure out a plan to reach your goals, and don’t stop until you get there.
The post FIRE: How to Find Your Aha Moments and the Key to Achieving FIRE appeared first on Good Financial CentsÂ®.
Working remotely or online is a rapidly growing trend. Whether youâre out of work and need a new career, or you need a convenient way to make extra cash, find out how to make money online with this guide. Youâll discover the top industries, statistics about the rise of remote work and all the tips and tricks you need to get started today.
The Rise of Online Work
The dramatic increase of communication technologies has caused rapid growth in the number of remote workers. Currently, 70% of all professionals have worked remotelyÂ at least one day. Another survey by AND Co and Remote Year found that 55% of remote workers work full-time.
Many people who work online prefer it to traditional work. If you want to know how to make money online and want a happy, more productive work life, online work may be for you.
Who Works Online?
People who choose remote work come from many different industries and backgrounds. Online work can be performed from any location. These are just a few of the types of individuals who enjoy the freedom and flexibility of online work:
People who canât drive
Residents of rural locations
Many online jobs offer part-time or full-time options. Freelancers, in particular, have a great deal of flexibility when it comes to choosing the number of hours they want to work. Whether you need a full-time alternative career or are simply looking for an easy way to make additional income, there are ways to make money online for your particular situation.
Best Industries for Working Online
You may be surprised at the variety of jobs available for online workers. The latest platforms, like Slack, are designed to help connect remote workers. And you donât have to be a software developer to find a great online career.
Some industries use jobs boards. These websites host diverse career, job and gig opportunities for nearly any skill level or experience set. You can browse these websites to find odd jobs whenever you need additional income. You can also look for a dedicated career and full-time employment on a site like FlexJobs.comÂ or by simply adding âremoteâ to a search on any job site. While there are many careers available, here are some common industries with online andremote work opportunities.
Web development is a career that easily transitions to an online position. Because all of the work is done via the Internet, itâs easy to conduct your work from home or any location. Youâll need experience developing websites to be successful.
Choose to start your own company and begin advertising immediately, or search for jobs in web development with an established business for a more stable and immediate paycheck.
Although this industry isnât necessarily online, itâs gained popularity in the past decade thanks to social media. Social media has made it far easier to market your business. These jobs rely on people to sell products or services to their friends, family and neighbors.
This career doesnât require any specialized experience, so itâs a great option for getting started with online work. Those who are most successful know how to create engaging social media posts, vlogs and other promotional materials. It may not begin paying immediately and is usually a part-time income source.
Writing is a popular way to earn income on your own time. If youâre a skilled writer who is excited about exploring new topics and writing dynamic blogs and web pages, youâll love a career as a content writer.
Finding a high-paying job can require some digging, but there are many content-writing job boards, companies and gig opportunities online. Content writers can also choose to launch their own business, which requires some patience, persistence and marketing skills.
Editing and Proofreading
Do you have an eye for grammar mistakes? Editing is a popular way to earn online for anyone with experience proofreading, correcting mistakes and refining content. Depending on your experience, editing positions typically pay better than writers. However, many editors are required to have previous experience or a degree in English or a related field.
Teaching and Tutoring
Perhaps the most popular and trending industry is online teaching. Most of these positions are teaching English as a second language, but someone with a teaching certificate or experience can also find a position teaching another subject.
Check out companies that operate out of countries all around the world. Whether teaching adults or children in China, Brazil, South Korea, Russia or any other country, this field can be very rewarding. Prepare to plan around time zones and teach at odd hours.
Interested in sharing your opinions online? There isÂ aÂ diverse range of survey-taking positions that pay a small amount for every survey. The work may not pay as high as others, but it requires no experience and is easy to find. Testing apps, shopping surveys or surveys about website experiences are all available for anyone interested in filling out forms for some extra cash.
Just like traditional investmentÂ options, there is a diverse range of online investing opportunities. Use affiliate marketing, make online investments or shop for real estate online. Itâs a great way to flex your financial muscles, or you can take out a loanÂ to get started. Not only will you be working online, but you can also generate passive income.
Benefits of Online Work
Working online offers many great benefits compared to traditional careers. Whether youâre feeling stuck in an office or looking for a way to make some extra money in the evenings, here are some of the common benefitsÂ reported by online workers:
Ability to travel while working
Working beyond retirement age
Flexible work/life balance
More environmentally friendly
Lower stress and higher morale
Increased efficiency and productivity
Of course, remote work isnât for everyone. There are some disadvantages to online work that can cause some people to feel less fulfilled with this career option. Some remote workers experience higher levels of stress, loneliness or an inability to meet personal deadlines. Without a community to keep you accountable, it can be difficult to stay productive.
Successful online workers are able to set their own schedules, be proactive when finding work and manage multiple schedules easily. If you have these skills, even a basic understanding of computers is all you need to start your new and exciting career.
Start Making Money Today
Start your online job today. Itâs easy to get started, and most gigs donât require any additional equipment or software. Once youâve started earning additional income, leverage your savings with a high-yield savings account. With high interest, youâll see a greater return on your savings and can take advantage of your extra income today.
The post How to Make Money Online appeared first on Credit.com.
Your utility bills likely make up a significant part of your monthly budget, so itâs important to keep a close eye on them. But while your rent or mortgage stays the same month to month, your utilities donât.
Sweltering summer days and icy winter nights can lead to budget-blowing spikes in your utility bills, and no matter how hard you try to budget and plan, you canât predict the total each month. Or can you?
Budget billing may offer the consistency you crave. Here, personal finance experts describe how budget billing works and explain who may benefit from it, empowering you to answer this question for yourself: Does budget billing save money?
What is budget billing and how does it work?
As you consider this option, your first question might be: What is budget billing? Budget billing is a service offered by some utility companies that provides a set monthly bill for services like gas or electricity.
How does budget billing work? To calculate your monthly budget billing amount, a utility company will look at your past usage, typically over the last year, and average it to determine your monthly charge, says Sara Rathner, financial author and credit cards expert at NerdWallet. This will give you a predictable bill to pay each month, rather than one that fluctuates.
Keep in mind that if you recently moved into your home, the charges used to calculate your budget billing amount may be based on the previous ownersâ or rentersâ usage, says Rathner. Your actual usage may end up being more or less than theirs.
Another point to remember on how budget billing works: While budget billing gives you a steady amount to pay each month, this amount can, and likely will, change over time. Some providers update bill amounts quarterly, some annually. Thereâs no universal timeline for these updates, so be sure to ask your utility provider about its specific process, says Lance Cothern, CPA and founder of personal finance blog Money Manifesto.
These changes are made to capture your actual usage, whether that usage has decreased (a mild summer allowed you to keep the AC off more often) or increased (a brutally cold winter forced you to blast the heat). Typically, you will be notified in advance of the change.
Now that you know how budget billing works, you may be wondering: Could it save me cash?
Does budget billing save money?
âBudget billing won’t save you money; it just evens your bill out over time,â Cothern says.
How does budget billing work if you end up using less energy and overpay? You may be reimbursed for the amount you paid above your actual energy usage, or the amount overpaid will be applied to next year.
âAnyone who sticks to a strict, detailed monthly budget may prefer the predictability of budget billing.â
How does budget billing work if you underpay? Youâll have to pay the extra amount to make up the difference. These payments or credits happen in addition to any adjustments your provider makes to your monthly bill if your usage changes over time, Cothern says.
What are the benefits of budget billing?
Overall, thereâs a fairly straightforward answer to what budget billing is, and the benefits are clear, too. While it doesnât save you money per se, it may allow you to more easily manage your monthly budget.
For example, if you know your monthly electricity bill will be $100, you can account for this expense in your budget and more precisely allocate funds into other expenses or savings.
âAnyone who sticks to a strict, detailed monthly budget may prefer the predictability of budget billing,â Rathner says. âYou know exactly how much your utility bill will be each month and can plan your other spending around it.â
Combine budget billing with autopay and you can set and forget your utility bills, ensuring theyâre paid on time and in full, making money management a lot simpler. This could also help you deal with financial stress.
While budget billing has its pros, it also comes with cons. Does budget billing save you money? To help answer that question, consider the following:
You may face extra fees. Some utility companies charge a fee for budget billing. In Cothernâs view, this negates the benefit since thereâs no reason to pay tacked-on fees for this service. Itâs important to find out whether there are fees before signing up when youâre researching how budget billing works.
You may ignore your utility usage. Budget billing puts your monthly utility charges, as well as your actual usage, out of sight and out of mind. Without the threat of a higher bill or the reward of a lower one based on your energy habits, some people get complacent, Rathner says. They leave lights on or turn up the heat instead of grabbing a blanket. If this sounds like you, budget billing may actually cost you money in the long run.
âAlways keep an eye on your monthly bill even though you pay a level amount for months at a time,â Cothern says. Most utility companies provide your usage information right on your bill.
If you can financially handle the seasonal swings of each bill, budget billing may not be much of a benefit for you, Cothern says. Paying the full amount also means youâre paying attention to the full amount, he says, which may motivate you to reduce your energy consumption. And thatâs where the real opportunity to save money lies.
By considering potential fees and the impact on your energy usage, youâll have a good sense of whether budget billing saves you money in the long run.
Make the most of how budget billing works with this hack
After scrutinizing how budget billing works, the potential downsides have led some financial pros, Cothern among them, to develop a new hack for paying utility bills.
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Instead of signing up for budget billing, open a savings account online specifically for utilities, Cothern suggests. Youâll also want to sign up for a rewards credit card, if you donât have one already.
Next, grab your last 12 months of utility bills, total them up and divide by 12 to get your monthly average. Youâll then want to set up an automatic transfer of that amount from your checking account into the utility savings account each month.
When the utility bill comes, pay it with your rewards credit card and then pay that bill with the money in your savings. You reap the benefits of maintaining a consistent amount coming out of your budget, as well as credit card rewards and any interest earned on that money from your savings account.
Do your homework before signing up for budget billing
After weighing your options and considering your personal budgeting style, you may decide that budget billing is right for you.
If thatâs the case, itâs important to read your utilityâs program rules in detail. Yes, that means digging into the fine print to understand how budget billing works at the specific company, Cothern says, because budget billing is a general term for a wide variety of utility company programs. Budget billing may be called something else, like flat billing or balanced billing, and it may carry different nuances and terms.
Before signing up for budget billing, Rathner suggests calling your provider and asking the following questions:
Are there startup or maintenance fees?
How is the monthly amount calculated? How often is it updated?
What happens if you overpay or underpay?
What happens when you move or end service?
With the answers to these questions, youâll have a better idea of how budget billing works for your provider. Armed with that info, you can determine whether budget billing saves you money and make the call on whether enrolling is right for you.
Whether you opt for budget billing or not, small adjustments to your home can result in major savings on your energy bills. For starters, check out these four ways to save energy by going green.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post What Is Budget Billing and Is It Right for You? appeared first on Discover Bank – Banking Topics Blog.
One of the most common questions I receive from readers like you—especially since Grow (Acorns + CNBC) published my story last week—asks me how I invest.
All this theoretical investing information is fine, Jesse. But can you please just tell me what you do with your money.
That’s what I’ll do today. Here’s a complete breakdown of how I invest, how the numbers line up, and why I make the choices I make.
Of course, please take my advice with a grain of salt. Why?
My strategy is based upon my financial situation. It is not intended to be prescriptive of your financial situation.
I’ve hesitated writing this before because it feels one step removed from “How I Vote” and “How I Pray.” It’s personal. I don’t want to lead you down a path that’s wrong for you. And I don’t want to “show off” my own choices.
I’m an engineer and a writer, not a Wall Street professional. And even if I was a Wall Street pro, I hope my prior articles on stock picking and luck vs. skill in the stock market have convinced you that they aren’t as skilled as you might think.
All I can promise you today is transparency. I’ll be clear with you. I’ll answer any follow-up questions you have. And then you can decide for yourself what to do with that information.
Are we clear? Let’s get to the good stuff.
How I Invest, and In What Accounts…?
In this section, I’ll detail how much I save for investing. Then the next two sections will describe why I use the investing accounts I use (e.g. 401(k), Roth IRA) and which investment choices I make (e.g. stocks, bonds).
How much I save, and in what accounts:
401(k)—The U.S. government has placed a limit of $19,500 on employee-deferred contributions in 2020 (for my age group). I aim to hit the full $19,500 limit.
401(k) matching—My employer will match 100% of my 401(k) contributions until they’ve contributed 6% of my total salary. For the sake of round numbers, that equates to about $6,000.
Roth IRA—The U.S. government has placed a limit of $6,000 on Roth IRA contributions (for my earnings range) in 2020. I am aiming to hit the full $6,000 limit.
Health Savings Account—The U.S. government gives tremendous tax benefits for saving in Health Savings Accounts. And if you don’t use that money for medical reasons, you can use it like an investment account later in life. I aim to hit the full $3,500 limit in 2020.
Taxable brokerage account—After I achieved my emergency fund goal (about 6 months’ of living expenses saved in a high-yield savings account), I started putting some extra money towards my taxable brokerage account. My goal is to set aside about $500 per month in that brokerage account.
That’s $41,000 of investing per year. But a lot of that money is actually “free.” I’ll explain that below.
Why Those Accounts?
The 401(k) Account
First, let’s talk about why and how I invest using a 401(k) account. There are three huge reasons.
First, I pay less tax—and so can you. Based on federal tax brackets and state tax brackets, my marginal tax rate is about 30%. For each additional dollar I earn, about 30 cents go directly to various government bodies. But by contributing to my 401(k), I get to save those dollars before taxes are removed. So I save about 30% of $19,500 = $5,850 off my tax bill.
Editor’s Note: The original version of this article incorrectly stated that 401(k) contributions are taken out prior to OASDI (a.k.a. social security) taxes. That claim was incorrect. 401(k) contributions occur only after OASDI taxes are assessed.
Many thanks to regular reader Nick for catching that error.
Second, the 401(k) contributions are removed before I ever see them. I’m never tempted to spend that money because I never see it in my bank account. This simple psychological trick makes saving easy to adhere to.
Third, I get 401(k) matching. This is free money from my employer. As I mentioned above, this equates to about $6,000 of free money for me.
Roth Individual Retirement Account (IRA)
Why do I also use a Roth IRA?
Unlike a 401(k), a Roth IRA is funded using post-tax dollars. I’ve already paid my 30% plus OASDI taxes, and then I put money into my Roth. But the Roth money grows tax-free.
Let’s fast-forward 30 years to when I want to access those Roth IRA savings and profits. I won’t pay any income tax (~30%) on any dividends. I won’t pay capital gains tax (~15%) if I sell the investments at a profit.
I’m hoping my 30-year investment might grow by 8x (that’s based on historical market returns). That would grow this year’s $6000 contribution up to $48000—or about $42000 in profit. And what’s ~15% of $42000? About $6,300 in future tax savings.
Health Savings Account (H.S.A.)
The H.S.A. account has tax-breaks on the front (36.7%, for me) and on the back (15%, for me). I’m netting about $1300 up-front via an H.S.A, and $4,200 in the future (similar logic to the Roth IRA).
Taxable Brokerage Account
And finally, there’s the brokerage account, or taxable account. This is a “normal” investing account (mine is with Fidelity). There are no tax incentives, no matching funds from my employer. I pay normal taxes up front, and I’ll pay taxes on all the profits way out in the future. But I’d rather have money grow and be taxed than not grow at all.
Summary of How I Invest—Money Invested = Money Saved
In summary, I use 401(k) plus employer matching, Roth IRA, and H.S.A. accounts to save:
About $7,100 in tax dollars today
About $6,000 of free money today
And about $10,500 in future tax dollars, using reasonable investment growth assumptions
Don’t forget, I still get to access the investing principal of $41,000 and whatever returns those investments produce! That’s on top of the roughly $25,000 of savings mentioned above.
I choose to invest a lot today because I know it saves me money both today and tomorrow. That’s a high-level thought-process behind how I invest.
How I Invest: Which Investment Choices Do I Make?
We’ve now discussed 401(k) accounts, Roth IRAs, H.S.A. accounts, and taxable brokerage accounts. These accounts differ in their tax rules and withdrawal rules.
But within any of these accounts, one usually has different choices of investment assets. Typical assets include:
Stocks, like shares of Apple or General Electric.
Bonds, which are where someone else borrows your money and you earn interest on their debt. Common bonds give you access to Federal debt, state or municipality debt, or corporate debt.
Real estate, typically via real estate investment trusts (REITs)
Commodities, like gold, beef, oil or orange juice
Here are the asset choices that I have access to in my various accounts:
401(k)—my employer works with Fidelity to provide me with about 20 different mutual funds and index funds to invest in.
Roth IRA—this account is something that I set up. I can invest in just about anything I want to. Individual stocks, index funds, pork belly futures etc.
H.S.A.—this is through my employer, too. As such, I have limited options. But thankfully I have low-cost index fund options.
Taxable brokerage account—I set this account up. As such, I can invest in just about any asset I want to.
How I invest and my personal choices involve two layers of diversification. A diverse investing portfolio aims to decrease risk while maintaining long-term investing profits.
The first level of diversification is that I utilize index funds. Regular readers will be intimately familiar with my feelings for index funds (here 28 unique articles where I’ve mentioned them).
By nature, an index fund reduces the investor’s exposure to “too many eggs in one basket.” For example, my S&P 500 index fund invests in all S&P 500 companies, whether they have been performing well or not. One stellar or terrible company won’t have a drastic impact on my portfolio.
But, investing only in an S&P 500 index fund still carries risk. Namely, it’s the risk that that S&P 500 is full of “large” companies’ stocks—and history has proven that “large” companies tend to rise and fall together. They’re correlated to one another. That’s not diverse!
To battle this anti-diversity, how I invest is to choose a few different index funds. Specifically, my investments are split between:
Large U.S. stock index fund—about 40% of my portfolio
Mid and small U.S. stock index fund—about 20% of my portfolio
Bond index fund—about 20%
International stocks fund—about 20%
This is my “lazy portfolio.” I spread my money around four different asset class index funds, and let the economy take care of the rest.
Each year will likely see some asset classes doing great. Others doing poorly. Overall, the goal is to create a steady net increase.
Twice a year, I “re-balance” my portfolio. I adjust my assets’ percentages back to 40/20/20/20. This negates the potential for one “egg” in my basket growing too large. Re-balancing also acts as a natural mechanism to “sell high” and “buy low,” since I sell some of my “hottest” asset classes in order to purchase some of the “coldest” asset classes.
Any Other Investments?
In June 2019, I wrote a quick piece with some thoughts on cryptocurrency. As I stated then, I hold about $1000 worth of cryptocurrency, as a holdover from some—ahem—experimentation in 2016. I don’t include this in my long-term investing plans.
I am paying off a mortgage on my house. But I don’t consider my house to be an investment. I didn’t buy it to make money and won’t sell it in order to retire.
On the side, I own about $2000 worth of collectible cards. I am not planning my retirement around this. I do not include it in my portfolio. In my opinion, it’s like owning a classic car, old coins, or stamps. It’s fun. I like it. And if I can sell them in the future for profit, that’s just gravy on top.
Summary of How I Invest
Let’s summarize some of the numbers from above.
Each year, I aim to save and invest about $41,000. But of that $41K, about $15K is completely free—that’s due to tax benefits and employer matching. And using reasonable investment growth, I think these investments can save me $15,000 per year in future tax dollars.
Plus, I eventually get access to the $41K itself and any investment profits that accrue.
I take that money and invest in index funds, via the following allocations:
40% into a large-cap U.S. stock index fund
20% into a medium- and small-cap U.S. stock index fund
20% into an international stock index fund
And 20% into a bond index fund
The goal is to achieve long-term growth while spreading my eggs across a few different baskets.
And that’s it! That’s how I invest. If you have any questions, please leave a comment below or drop me an email.
If you enjoyed this article and want to read more, Iâd suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This articleâjust like every otherâis supported by readers like you.
If you don’t have the time, the money or the expertise to buy individual stocks or bonds to build your investment portfolio, then consider the best Vanguard index funds.
Index funds are a good way to start saving and investing for retirement.
One reason is because the chance of making more money investing in index funds is far higher than it is investing in individual stocks, especially if you are a beginner investor.
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As the master of value investing, Warren Buffett, once said “a low-cost index fund is the most sensible equity investment for the great majority of investors.” “By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.”
But how do you find and choose among the best Vanguard index funds? Don’t worry, GrowthRapidly can help make your choice easier.
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Index funds vs mutual funds
Index funds are one of the easiest and cheapest ways to invest in the stock market. As opposed to a mutual fund, which is actively managed by a fund manager, index funds are passive.
This means that index funds attempt to track the performance of a particular index, such as the Standard & Poor’s 500 index of 500 large U.S. company stocks or the CRSP US Small Cap Index.
So, when you invest in the Vanguard S&P 500 Index fund (which we’ll discuss in more detail below), you’re essentially buying a piece of the 500 largest publicly traded US companies.
Index funds don’t jump around; they stayed invested in the market. Again, they simply track the performance of the stock index.
Related: What is a mutual fund?
Whereas with a mutual fund, fund managers might make mistake by not being invested when the market goes up or by being too aggressive when the market goes down.
That doesn’t mean mutual funds are not good investments. In fact, they are great investment vehicles. But when it comes to long term investments, index funds are the best. However, these 8 mutual funds are great for long term investing.
Like a mutual fund, you can buy an index fund through a fund company like Vanguard.
The main advantage of a Vanguard index fund is its low-cost, which is usually less than 1% annually. Another benefit of Vanguard index funds is that they are diversified. Like mutual funds, they invest to multiple companies, thus spreading out the risk.
One of the downside with index funds, however, is that they won’t outperform the market they track.
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Why choosing the best Vanguard index funds to invest your money?
There are thousands of fund companies (such as Fidelity, Schwab, JP Morgan) where you can buy index funds. Different companies have different experiences and expertise with different type of funds. So, it can be difficult to know which one is the best.
Here are four main factors to consider when looking to buy the best index funds for long term investments:
The company: Is it a reputable and well-known company with a great track record?
Fees: Another major factor to consider in picking a fund company is its cost. Excessive fees have a negative effect on your investment return. These fees are deducted from your index fund’s balance every year. Other fees can apply as well. So always find a company with a low fee.
Reasonable minimum investment: Will you be able to invest with as little as $1000?
Performance: Although past performance does not guarantee future performance, look for a fund company with a strong record of performing well against its competitors over the short and long term as well.
If you are an intelligent investor who has done his or her research, you will conclude that among the various fund companies out there, Vanguard comes out on top.
Jack Bogle, who recently died and who founded the firm Vanguard Group, invented the index fund in 1976.
Today, Vanguard is one of the World’s biggest and the best investment funds with approximately $5.6 trillion in assets.
Moreover, Vanguard has the best index funds because of their ability to keep their operating fees so low. Vanguard has all types of stock and bond index funds and their fees are the lowest.
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The advantages and disadvantages of Vanguard Index funds.
Pros of the best vanguard index funds
By now, you know that an index fund is well diversified. But you might know these two other pros that make Vanguard index funds the best:
Good return: Vanguard index funds generally delivers a good return because their expenses are relatively low. The average Vanguard Index fund has an expense ratio of 0.2% per year (compare that to the average index fund operating expenses of 1.4% per year.) A 1.2% difference can be a significant difference on your return. Operating expenses are also lower because ongoing research is not needed to identify companies to invest in.
Tax-friendly: not only Vanguard index funds have lower operating expenses, which help increase your returns, they are also tax-friendlier when you invest outside of retirement accounts. Because a mutual fund is actively managed, they tend to jump around by selling and buying stocks more frequently. By doing that, it increases a fund’s taxable capital gains distribution. Whereas an index fund stays invested and not trying to jump around.
Cons of the best Vanguard index funds
Despite their low costs and tax-friendliness, their minimum investment while seem reasonable, might not be for the beginner investor with little money to invest.
Most Vanguard index funds requires a $3,000 minimum initial investment. Retirement account investors who plan on starting with less might be at a disadvantage.
Moreover, Vanguard has an overwhelming number of index funds to choose from. That can make it tedious for an investor to decide which ones are the best. But that’s why we have compiled the top Vanguard index funds for you.
The 10 Best Vanguard Index Funds to Buy in August 2020:
Now that you know what an index fund is and why investing Vanguard index funds makes good sense, in no particular order, below are 10 of the best Vanguard index funds to add to your investment portfolio.
Vanguard S&P 500 Index Admiral (VFIAX)
Of all the Vanguard index funds in this list, the Vanguard S&P index fund, which tracks the Standard & Poor’s 500, is perhaps the best Vanguard index fund. One reason is that the fund invest in 500 of largest U.S. companies with a few a midsize stocks.
Some of the big name stocks in this index fund includes Apple (AAPL), Microsoft (MSFT), and Google/Alphabet (GOOGL). Another reason to select this fund is that the cost is pretty low, (0.04%) if not the lowest of all the index funds.
Index fund cost is an important factor in choosing an index fund to invest in, because fees are deducted from your balance and thus reduced your rate of returns. The last reason to invest in the VFIAX is because the initial minimum investment is also low ($3,000).
So if you’re looking for an index fund that maintains low operating expenses while enjoying a good rate of return, the Vanguard S&P 500 Index Admiral is for you.
Vanguard Developed Market Stock Index Admiral
For diversification, you should consider in your investment portfolio some index funds that invests in foreign countries. International funds are diversified because they invest in countries around the world. If so, the Vanguard Developed Market Stock Index Admiral fund (VTMGX) is a fine choice.
This Vanguard index fund tracks the performance of the FTSE Developed All Cap ex US Index. It invests in large cap stocks in 24 developed countries. Some of its several blue-chip multinational companies include the Toyota Motor Corp (7203), Royal Dutch Shell (RDS.A.), Nestle SA (NESN), making it one of the best Vanguard index funds.
This index fund has a minimum investment of $3,000 and an expense ratio of 0.07%.
Vanguard Emerging Markets Stock Index Admiral
While Vanguard index funds invested in U.S. stocks tend to perform better than Vanguard index funds invested in emerging markets, emerging markets in Latin America, Asia, and Eastern Europe should not be overlooked.
If you don’t mind investing in emerging economies, consider checking out the Vanguard Emerging Markets Stock Index Admiral (VEMAX), which is currently one of the best Vanguard index funds to buy now.
In fact, some of the big name foreign companies included in this index fund are Alibaba Group Holding Ltd ADR (BABA), Tencent Holdings Ltd (TCEHY), Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), and China Construction Bank Corp Class H (00939).
This investment attempts to track the performance of the FTSE Emerging Markets All Cap China Inclusion Index.
One of the downside of this index fund is that it has an expense ratio of 0.14%, but it still has a low minimum initial investment of $3,000.
Vanguard Total Stock Market Index (VTSAX)
The Vanguard Total Stock Market Index (VTSAX) is one of the best Vanguard index funds. It captures the total market.
That means it gives investors broad exposure to the entire U.S. equity market including large cap, mid cap and small cap growth and value stocks.
Some of the big name companies included in this Vanguard fund are: Facebook, Alphabet, JPMorgan Chase, Apple, and Microsoft.
This Vanguard index fund has an expense ratio of 0.04% and a minimum initial investment of $3,000.
So, if you’re looking for a well diversified Vanguard fund and don’t mind a little volatility, this index fund is for you.
Note that you can purchase this index fund as an ETF as well. It start at the price of one share.
Vanguard Mid-Cap Index Admiral
The Vanguard Mid-Cap Index Admiral fund (VIMAX), which tracks the CRSP U.S. Midcap Index, may be appropriate for you if you have a long term perspective.
That is because the index fund, which consists of midsize and smaller stocks, performs better in the long term rather than the short term, making it one of the best Vanguard index funds to include in your investment portfolio.
The fund targets midsize companies. The minimum investment is $3,000 with an operating expense of 0.05%.
So if you’re looking for a Vanguard index fund to use for retirement investingand you don’t expect to tap into your investment money for 10 years or more, the Vanguard Mid-Cap Index Admiral fund is for you.
Vanguard Small-Cap Index Admiral
The Vanguard Small-Cap Index Admiral (VSMAX), as the name suggests invests in stocks of smaller companies.
This index fund tracks the CRSP U.S. Small Cap Index. Some of its holdings include DocuSign, Inc (DOCU), Leidos Holdings Inc (LDOS), Tyler Technologies, Inc (TDY), Equity Lifestyle Properties, Inc (ELS), etc…
This index fund, just like the Vanguard Mid-Cap Index Admiral fund, tends to perform better in the long term. Therefore, invest in this Vanguard fund if you don’t plan to use your money within the next five years.
So if you’re looking for a broadly diversified index of stocks of small U.S. companies, the Vanguard Small-Cap Index Admiral is a good choice. This index fund has a minimum initial investment of $3,000 and an expense ratio of 0.05%.
Vanguard Short-Term Corporate Index Admiral
If you want to invest in short term bonds to use your money in the next five years to buy a house, or if you plan to withdraw the money from your retirement account, then the Vanguard Short-Term Corporate Index Admiral fund (VSCSX) is for you.
This bond index fund tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
While you shouldn’t expect a return of no more than 2 to 3% annually on this bond index fund, corporate bonds in general are safe, and this fund is pretty stable.
Because of this stability, this short-term bond index fund makes it an appropriate investment. The Vanguard Short-Term Corporate Index Admiral has an expense ratio of 0.07% expense and a minimum initial investment of $3000, making it one of the best Vanguard index funds around.
Vanguard High Dividend Yield ETF
The Vanguard High Dividend Yield ETF (VYM), as the name suggests, is a “dividend” fund. It attempts to track the performance of the FTSE High Dividend Yield Index.
This index ETF allows investors to earn dividend through growth companies. Some of the big companies with a strong record of paying dividends are AT&T, Intel, and Exxon Mobil.
As of 2/27/2020, this ETF has an expense ratio of 0.06%, making it one of the best Vanguard index funds for income. It starts at the price of one share.
So, if you’re looking for an index fund with the best long term investments growth potential, and you don’t mind the stock market volatility, this income-focused fund is appropriate for you.
Note that the Vanguard High Dividend Yield is also available as an Admiral share with a minimum investment of $3,000.
Vanguard Information Technology
Vanguard Information Technology Index Fund Admiral Shares (VITAX) is a sector fund. This investment attempts to track the performance of the MSCI US Investable Market/Information Technology 25/50.
Sector funds invest in stocks and/or bonds in specific industries. And the Vanguard Information Technology Index Fund, as the name suggests, focuses only on technology.
Generally, you should avoid sector funds mainly because they lack diversification. However, there is an exception with this Vanguard index fund. It focuses on technology, which makes it one of the best Vanguard funds.
In addition, this index is made up of stocks of large, mid-size, and small U.S. companies within the technology sector.
Nowadays, technology has shaped our daily lives. From computers, TVs, tablets, etc, everything is connected to the internet. Therefore, this means that there is and there will be continued growth in the years ahead.
The top companies included in this Vanguard fund are Apple, Microsoft, Visa, Adobe, PayPal, etc.
This index fund has an expense ratio of 0.10 %, but a minimum investment of $100,000. This can be high for the beginner investor.
However, this Vanguard index fund is available as an ETF, starting at the price of one share.
Vanguard Real Estate
The Vanguard Real Estate Index Fund Admiral Shares (VGSLX) is another sector fund. It focuses on real estate investment trusts (REITs), which are companies that buy office buildings, hotels and other real estate properties.
This Vanguard fund seeks to track the performance of the MSCI US Investable Market Real Estate 25/50 index.
Just as any other sector funds, this Vanguard real estate index fund may lack diversification. So, it makes sense to have this index fund in conjunction with another a more broadly diversified Vanguard fund.
Despite the lack of diversification, however, this fund distributes higher dividend income than other funds, allowing it to be among the best Vanguard index funds for income.
This Vanguard fund has an expense ratio of 0.12%. It has a minimum initial investment of $3,000.
Note that this Vanguard fund is also available as an ETF, starting at the price of one share.
Final tips for buying the best Vanguard index funds
In general, index funds are a good investment vehicle to use. So whether you’re looking to invest money for retirement, or you’re looking to add diversification to your investment portfolio, these Vanguard index funds are a great choice for you. They are great quality funds. They produce superior returns comparing to other similar funds.
Indeed, the best Vanguard Index funds will not only save you money in fees throughout the years. But also, these low-cost index mutual funds and exchange-traded funds (ETFs) will give you a wide exposure to different asset classes.
Speak with the Right Financial Advisor
If you have questions beyond knowing which of the best Vanguard index funds to invest, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
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The post The 10 Best Vanguard Index Funds to Buy appeared first on GrowthRapidly.
I love making things automatic. Whether it is bill-paying, direct deposit, prescription renewals, or investing, making things automatic makes life easier, and that is where our Betterment investing review comes in.
When it comes to retirement planning, an overwhelming number of online tools and websites promise to help you create a dynamic and profitable portfolio while minimizing fees.
This growing list of services includes robo-advisors, a class of financial websites that offer to manage your portfolio with minimal in-person interaction and a heavy reliance on the latest investing tools and software.
One of the most popular robo-advisors by far is Betterment. Conceptualized by its founders in 2008, Betterment has since grown to help its customers invest billions of dollars of their hard-earned dollars. This is an investment platform that puts your investing on cruise control, and even allows you to make money watching TV! You can open an account with no money at all, and get the benefit of professional, low-cost investment management that enables you to invest in thousands of securities with as little as a few hundred dollars.
It hasnât been easy. With other competitors like Wealthfront and Personal Capital always a few steps behind them, Betterment has struggled to find a way to stand out. Even with the competition, Betterment has emerged as one of the top online brokerage accounts and continues to grow its market share.
Open an account
0.25% to 0.40% annual management fee, depending on the plan
No trade, transfer or rebalancing fees
No minimum balance
Hands-off investing tailored to your goals and risk preference
Betterment is an online, automated investment manager that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and individual needs.
The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. Unless you email or call in, your communication with an individual advisor will be very minimal.
But, there is some good news to counteract the lack of individual service. Because of lower operating costs, Betterment is able to charge lower fees than traditional financial advisors. This can be huge for individuals who want to take a hands-off approach to their retirement accounts, yet donât want to pay top dollar for access to a top-tier financial advisor in their area.
Using complex investment software, Betterment allocates your investment portfolio based on your individual circumstances, investment time horizon, and thirst for risk.
In the meantime, they keep fees at a minimum by using ETFs (exchange-traded fund) that let you have a diversified portfolio, like mutual funds, but are tradeable much like stocks.
Since ETFs come with very low expense ratios, Betterment is able to pass those savings along to the consumer. Although the program already manages over $16 billion for their clients, they are still growing at a rapid pace.
Because the service is able and willing to deal with investors at all stages of wealth accumulation, it has become a go-to for both experienced and novice investors with various investing goals.
Further, Bettermentâs portfolio strategy isnât geared just for retirement savings; the service can also improve your returns on dollars you invest for short-term and medium-term goals like saving for college, taking an annual vacation, or building up a cash reserve.
How Betterment Works
Like post other robo-advisors, Betterment provides complete, automated investment management of your portfolio. When you sign up for the service, youâll complete a questionnaire that will determine your risk tolerance, investment goals, and time horizon. From that information, Betterment determines your portfolio will be designed as conservatives, aggressive, or some level in between.
Over time however, Betterment may adjust your portfolio to become gradually more conservative. For example, as you move closer to retirement, your asset allocation will be gradually shifted more heavily in favor of safe investments, like bonds.
Your portfolio will be constructed of exchange traded funds (ETFs), which are low-cost investment funds designed to track the performance of an underlying index. In this way, Betterment attempts to match the performance of the underlying indexes, rather than to outperform them. For this reason, investing with Betterment â and most other robo-advisors â is considered to be passive investing. (Active investing involves frequent trading of stocks and other securities in an attempt to outperform the market.)
Betterment also uses allocations based on broad investment categories. There are three in total:
Safety Net â These are funds allocated for near-term needs, such as an emergency fund.
Retirement â This will naturally be your long-term investment account and held in tax-sheltered IRAs.
General Investing â This allocation is dedicated to intermediate goals, maybe saving for the down payment on a house or even for your childrenâs education.
Given that each of the three broad goals has a different time horizon, the specific portfolio allocation in each will be a little bit different. For example, the Safety Net will be invested in cash type accounts for safety and liquidity.
Betterment Advantages And Disadvantages
Thereâs no minimum investment required.
The low annual fee of 0.25% on the Digital plan can allow you to have a $20,000 account managed for just $50 per year, or a $100,000 account for just $250.
Tax-loss harvesting is available at all taxable accounts.
Betterment Premium provides unlimited access to certified financial planners, providing a service similar to traditional investment advisors, but at a fraction of the cost.
The No-fee Checking and Cash Reserve give you cash management options to go with your investing activities.
Betterment offers several portfolio options, including Smart Beta, Socially Responsible Investing, and the BlackRock Targeted Income Portfolio.
The use of value funds also adds the potential for your investment accounts to outperform the general market, since value stocks tend to be underpriced relative to their competitors.
Flexible Portfolio will give you some control over your investment allocations, which is a feature absent from most robo-advisors.
Bettermentâs annual advisory fee is on the low end of the robo-advisor range. But there are some robo-advisors charging no fees at all.
Betterment doesnât offer alternative investments. These include natural resources and real estate, which are offered by some of their competitors.
External account syncing is available only with Betterment Premium.
The Betterment Investment Methodology
Like most other robo-advisors, Betterment manages your investment account using Modern Portfolio Theory, or MPT. The theory emphasizes proper allocations into various asset classes over individual security selection.
Your portfolio is divided between six stock asset allocations and eight bond asset allocations. Each allocation is represented by a single ETF thatâs tied to an index specific to that asset class. The single ETF will provide exposure to scores or even hundreds of securities in each asset class. That means collectively your investment will be spread across thousands of securities in the US and internationally.
The six stock asset allocations are as follows:
US Total Stock Market
US Value Stocks â Large Cap
US Value Stocks â Mid Cap
US Value Stocks â Small Cap
International Developed Market Stocks
International Emerging Markets Stocks
The eight bond asset allocations are as follows:
US High Quality Bonds
US Municipal Bonds (will be held in taxable investment accounts only)
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-Term Treasury Bonds
US Short-Term Investment Grade Bonds
International Developed Market Bonds
International Emerging Markets Bonds
Since Betterment offers tax-loss harvesting with taxable investment accounts, most asset classes will have two or three very similar ETFs. This will enable Betterment to sell a losing position in one ETF to reduce capital gains in winning asset classes. Alternative ETFs are then purchased to replace the sold funds to maintain the target asset allocations in your account.
Tax-loss harvesting is becoming an increasingly popular investment strategy because it effectively defers capital gains taxes into future years. Itâs available only for taxable accounts, since tax-sheltered accounts have no immediate tax consequences.
How Betterment Compares
Here’s how Betterment compares to the previously mentioned companies, Wealthfront and Personal Capital.
Minimum Initial Investment
0.25% on Digital; 0.40% on Premium (account balance over $100k)
0.25% on all account balances
0.89% on most account balances; reduced fee on balances > $1 million
On Premium Plan only
Yes, on all taxable accounts
Yes, on all taxable accounts
Yes, on all taxable accounts
Yes, on Premium Plan only
Betterment Accounts and Options
For the first few years of Bettermentâs existence they offered a single investment account serving as a one-size-fits-all plan. But thatâs all changed. They still offer basic investment accounts, but they now give you a choice of multiple investment options.
This is Bettermentâs basic investment plan. There is no minimum initial investment required, nor is there a minimum ongoing balance requirement. Betterment charges a single fee of 0.25% on all account balances.
You can also add any other portfolio variations, except the Goldman Sachs Smart Beta portfolio, which has a $100,000 minimum account balance requirement.
Betterment Premium works similar to the Digital plan, but it delivers a higher level of service. The plan provides external account synching, giving Betterment a high altitude view of you your entire financial situation. External investment accounts can help in enabling Betterment to better coordinate your portfolio allocations with assets held in outside accounts. They can also make recommendations out to better manage those external accounts.
And perhaps the biggest advantage of the Premium plan is that it comes with unlimited access to Bettermentâs certified financial planners. In this way, Betterment is competing more directly with traditional investment advisors, but doing it with a robo-advisor component.
Youâll need a minimum of $100,000 to invest in the Premium plan, and the annual advisory fee is 0.40%. Thatâs just a fraction of the usual 1% to 2% typically charged by traditional investment advisory services.
Betterment Cash Reserve
The account pays a variable interest rate, currently set at 0.40% APY. Betterment doesnât actually hold these funds directly, but rather invest them through participating program banks.
Thereâs no fee for this account, and you can move money as often as you want. And for those with very high cash balances, the account is FDIC insured for up to $1 million through the program banks.
Betterment Socially Responsible Investing (SRI)
SRI portfolios are becoming increasingly popular in the robo-advisor space. It involves investing in companies that meet certain standards for social, environmental, and governance guidelines. Betterment indicates that the ETFs they use in their SRI portfolio have produced a 42% increase in their social responsibility scores.
SRI portfolios work with both the Digital and Premium plans, using a similar investment methodology. But they make certain modifications, holding ETFs based on SRI in place of the ETFs used in non-SRI portfolios.
SRI portfolios do not require a minimum balance and charge no additional fees. And like their Digital and Premium plans, taxable SRI investment accounts take advantage of tax-loss harvesting.
Betterment Flexible Portfolios
The key word in the name is âflexibleâ because the main feature is adding personal options to your portfolio allocations.
This is done by adjusting the individual asset class weights in your portfolio. For example, if you have a 7% allocation in emerging markets, you may choose to increase it to 10% if you believe that sector is likely to outperform others. But you can also decrease the allocation if it makes you feel uncomfortable.
Betterment Tax-Coordinated Portfolio
This is less of a formal portfolio and more of an investment strategy. It must be used in combination with a taxable investment account and a tax-sheltered retirement account. Betterment will then allocate investments based on their tax impact.
For example, income generating assets â that produce high dividend and interest income â are held in a tax-sheltered account. Investments likely to generate long-term capital gains are held in a taxable investment account, since you will be able to take advantage of lower long-term capital gains tax rates.
Goldman Sachs Smart Beta
This option is for more sophisticated investors, and requires a minimum account balance of $100,000. And since it is a high risk/high reward type of investing, it also requires a higher risk tolerance.
Betterment uses the same basic investment strategy as they do in other portfolios. But itâs an actively managed portfolio that will be adjusted in an attempt to outperform the general market. Securities will be bought and sold within the portfolio and can include either individual securities or Smart Beta ETFs.
The portfolio has many variations, including a wide range of allocations. Stocks are chosen based on four qualities: good value, strong momentum, high quality, and low volatility.
And like other portfolio variations Betterment offers, there is no additional fee for this option.
BlackRock Target Income Portfolio
Betterment recognizes that some investors are more interested in income than growth. This will particularly apply to retirees. The BlackRock Target Income Portfolio invests in portfolios based on your risk tolerance. This can mean low, moderate, high, or even aggressive.
Those categories may seem unusual for an income generating portfolio. But while the portfolio attempts to minimize risk of principal, it also recognizes that some investors are willing to add risk to their portfolio in exchange for higher returns.
A low-risk portfolio may have a higher allocation in US Treasury securities. An aggressive portfolio may center primarily on high-yield corporate bonds or even emerging-market bonds that have higher interest rates due to greater risk.
Betterment No-fee Checking
Provided by Betterment Financial LLC in partnership with NBKC Bank, this is a true no-fee checking account. Not only are there no monthly maintenance fees, but there are also no overdraft or other fees. Theyâll even reimburse all ATM fees and foreign transaction fees you incur. And thereâs not even a minimum balance requirement.
Youâll be provided with a Betterment Visa Debit Card with tap-to-pay technology, that you can use anywhere Visa is accepted. All account balances are FDIC insured for up to $250,000. And as you might expect from a company on the technological cutting edge, you can deposit checks into the account using your smartphone.
Check out our full Betterment checking review.
Betterment Key Features
Minimum initial investment: Betterment requires no funds to open an account. But you can begin funding your account with monthly deposits, like $100 per month. This method will make it easier to use dollar-cost averaging to gradually move into your portfolio positions.
Available account types: Joint and individual taxable investment accounts, as well as traditional, Roth, rollover and SEP IRAs. Betterment can also accommodate trusts and nonprofit accounts.
Portfolio rebalancing: Comes with all account types. Your portfolio will be rebalanced when your asset allocations significantly depart from their targets.
Automatic dividend reinvestment: Betterment will reinvest dividends received in your portfolio according to your target asset allocations.
Betterment Mobile App: You can access your Betterment account on your smartphone. The app is available for both iOS and Android devices.
Customer contact: Available by phone and email, Monday through Friday, from 9:00 am to 8:00 pm, Eastern time.
Account protection: All Betterment accounts are protected by SIPC insurance for up to $500,000 in cash and securities, including up to $250,000 in cash. SIPC covers losses due to broker failure, not those caused by market value declines.
Financial Advice packages: Betterment offers one-hour phone conferences with live financial advisors on various personal financial topics. Five topics are covered:
Getting Started package: This package gives new users the professional vote of confidence they need as a professional will assess their account setup. $199
Financial Checkup package: This package takes it a step further, providing the customer with a professional opinion on their portfolio and financial circumstances. $299
College Planning package: As its name implies, this package helps parents who are investing with the goal of paying for their childrenâs college education in the next 5-18 years. $299
Marriage Planning package: Merging finances can be tricky, so Betterment created this plan to help engaged couples and newlyweds to succeed as they unite their lives and assets. $299
Retirement Planning package: Your investment goals and strategies change as you near retirement. This particular package helps keep you on target to meet them. $299
Retirement Savings Calculator: Robo-advisors are popular choices for retirement accounts. For this reason, Betterment offers the Calculator to help you project your retirement needs. By entering basic information in the calculator (it will sync external accounts if you have a Premium account â including employer-sponsored retirement plans) it will let you know if you are on track to meet your goals or if you need to make adjustments.
How To Sign Up For A Betterment Account
The Betterment sign up process is one of the most user-friendly out there for any brokerage. It comes with easy-to-follow instructions and as streamlined registration process which users can navigate through in a matter of minutes.
First get the process started by clicking the button below.
Sign up for a Betterment Account
After the initial sign up process, users can expect a simple transaction as they transfer funds into the account, much like moving money from a checking to savings account.
When you begin the sign-up process, youâll be given a choice of four different investment goals:
I chose âInvest for retirementâ. It will ask your current age, your annual income, then give you a choice of accounts to use. That includes a traditional, Roth, or SEP IRA, or even an individual taxable account. I selected a traditional IRA.
Based on a 30-year-old with a $100,000 income, Betterment return the following recommendation:
You even have the option to have the specific asset allocations listed. After clicking âContinueâ, youâll be asked to provide your email address and create a password. Youâll then be taken to the application, which will ask for general information, including your name, address, phone number, and how you heard about Betterment.
Once your account has been set up, you can fund it immediately, by connecting your bank account, or by setting up recurring deposits.
You can also set up other accounts, such as âManage spending with Checkingâ or âInvest for a long-term goalâ.
Why You Should Open An Account With Betterment
While nearly anyone who invests could benefit from the online portfolio management and advising, this service is definitely geared to certain types of investors. In most cases, Betterment will work best for:
Hands-off investors who have some investing knowledge â Since it takes care of the heavy lifting for you, it works best for investors who want to take a hands-off approach to their investment portfolio. Passive investors can let Betterment handle the logistics while using online account management to keep a close eye on their accounts.
Novice investors who need help â Beginning investors who are just learning the ropes can turn to Betterment for online portfolio management with low fees. The many online tools and user-friendly interface make it easy for beginners to get a grasp on basic financial concepts and investing strategies.
Robo-advisors are growing in popularity and could easily replace in-person advisors in the near future. With lower fees and advanced software that can maximize results, online investing is certainly gaining an edge.
Whether Betterment is right for you depends on your individual needs and investing goals. If youâre a hands-off investor who wants to grow your retirement funds without paying a lot of fees, then Betterment might be ideal. Additionally, beginning investors can benefit handsomely from the online tools and investing education offered through the Betterment website.
If you think Betterment investing might be exactly what your portfolio needs, sign up for a new account today.
However, if you determine that you would be better served by a more hands-on approach, check out the other online brokerage account options. Being a certified financial planner, I have had a chance to work with several of these platforms and have done the following reviews:
Motif Investing Review
Lending Club Review
Ally Invest Review
The post Betterment Investing Review: Make Investing Automatic appeared first on Good Financial CentsÂ®.
When it comes to making a 401k early withdrawal, there are a number of reasons why it might be tempting. With millions still unemployed due to the pandemic, unexpected expenses are taking a particularly hard toll. One reason why early withdrawal isnât uncommon in the U.S. might be because itâs easy to assume youâll have time to rebuild your 401k nest egg.
However, is the benefit of withdrawing your retirement savings early truly worth the cost? For many people, their 401k is their primary method of investing in their financial future. Before making a decision about early withdrawal, itâs important to consider the penalties and fees that could impact you. Read on to learn exactly what happens when you decide to dip into your 401k so you wonât be surprised by the repercussions.
How Much Are You Penalized for a 401k Early Withdrawal?
On the surface, withdrawing funds from your 401k might not seem like a bad option under extenuating circumstances, but you could face penalties. Young adults are especially prone to early withdrawals because they figure they have plenty of time to replace lost funds.
If youâre not experiencing a significant hardship, 401k early withdrawal probably isnât the right choice for you. Ultimately, you could lose a substantial portion of your retirement savings if you choose to withdraw your 401k early to use the money to make other risky financial moves. Below, letâs delve further into the penalties that usually apply when you withdraw early.
1) Your Taxes Are Withheld
When you prematurely withdraw from your retirement account, your first consideration should be that youâll have to pay normal income taxes on that money first. This means youâre losing at least roughly 30 percent of your savings to federal and state taxes before additional penalties.
Even if you only have $10,000 you want to withdraw, consider that youâre automatically giving $3,000 of your cash to the government. In the best case scenario, you might receive some money back in the form of a tax refund if your withholding exceeds your actual tax liability.
2) You Are Penalized by the IRS
If you withdraw money from your 401k before youâre 59 Â½ , the IRS penalizes you with an extra 10 percent on those funds when you file your tax return. If we use the example above, an additional $1,000 would be taken by the government from your $10,000 â leaving you with just $6,000. If youâre 55 or older, you could try to get this penalty lifted by the IRS through the Rule of 55, which is designed for people retiring early.
Also, there are exceptions under the CARES Act, which is designed to help people affected by the pandemic. There are provisions under the act that state individuals under the age of 59 Â½ can take up to $100,000 in Coronavirus-related early distributions from their retirement plans without facing the 10 percent early withdrawal penalty under certain conditions.
3) You Lose Thousands in Potential Growth
Even if youâre not deterred by tax penalties, think twice before you sabotage your long-term retirement savings goals. When you withdraw money early, youâll miss out on potential future savings growth because you wonât gain the perks of compound interest. Compounding is the snowball effect resulting from your savings generating more earnings â not only on your principal investment but also on your accrued interest.
Also, if you make a 401k early withdrawal while the market is down, youâre doing yourself a disservice because youâll be leaving thousands on the table. Itâs unlikely youâll fully recover the lost years of compound interest you would have benefited from. You might need to get creative with a passive income stream to help support you later in life.
When Does a 401k Early Withdrawal Make Sense?
In certain cases, it actually might be strategic to move forward with 401k early withdrawal. For example, it could be smart to cash out some of your 401k to pay off a loan with a high-interest rate, like 18â20 percent. You might be better off using alternative methods to pay off debt such as acquiring a 401k loan rather than actually withdrawing the money.
Always weigh the cost of interest against tax penalties before making your decision. Some 401k plans do allow for penalty-free early withdrawals due to a layoff, major medical expenses, home-related costs, college tuition, and more. Regardless of your strategy to withdraw with the least penalties, your retirement savings are still taking a significant hit.
401k Early Withdrawal, Hardship, or Loan: Whatâs the Difference?
Knowing the differences between a 401k early withdrawal, a hardship withdrawal, and a 401k loan is crucial. Due to the many obstacles to make a 401k early withdrawal, you may find you want to keep it untouched. If youâre convinced you still need to use your 401k for financial assistance, consult with a trusted financial advisor to figure out the best option.
When Does ThisÂ Apply?
Your funds are withdrawn to pay off large debts or finance large projects.
Your 401k fund is typically subject to taxes and penalties.
Youâre only eligible for this type of withdrawal under circumstances such as a pandemic or natural disasters.
Withdrawals canât exceed the amount of the need and the funds are still subject to taxes and penalties.
The loan must be paid back to the borrowerâs retirement account under the plan.
The money isnât taxed if the loan meets the rules and the repayment schedule is followed.
If youâve left a job and donât know what to do with your Roth IRA, a 401k transfer is a good option. Most likely, you will save money and have a wider range of investment options when you transfer your funds. 401k fees can be high, and rolling over your funds to a Roth IRA account could be wise in the long run. Also, be aware that the process is more complicated for indirect rollovers.Â
If youâre one of the millions of Americans who rely on workplace retirement savings, early 401k withdrawal may jeopardize your future financial stability.
There are very few instances when cashing out a portion of your 401k is a smart move.
In most cases, any kind of early 401k withdrawal is detrimental to your retirement plans.
Stick to your budget and bulk up your emergency fund to stay one step ahead.
In short, 401k early withdrawals are usually counterproductive. Prevent compromising your hard-earned savings by using a free budgeting tool that will set you up for success. After all, being prepared and informed are two of the most important parts of maintaining financial health.
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