Tag: Money Myths


8 Incorrect Ways You Might Be Managing Your Money

By Lindsay VanSomeren
April 10, 2019

It’s easy to understand why we fall into habits.

We don’t have the mental bandwidth to make conscious choices about every little aspect of our lives, especially when it comes to money. So, we revert to our habits and save the big decisions in life for things like whether to watch Game of Thrones or The Good Place.

Habits can either be a good thing or a bad thing, depending on the habit. If you fall into good habits, you’ll essentially set yourself up on autopilot for a bright financial future. But bad financial habits? Over time, these can push you further away from your money goals.

Here are eight bad financial habits to stay away from.

1. Allowing Entertainment to Drive Your Spending

There are just so many entertaining ways to spend your money. Whether you go out for drinks with friends every Friday or purchase outdoor recreation gear on the regular, your paycheck can be entirely swallowed before you can say the word budget.

Yet, while spending on what makes you happy is important (it’s not an entirely unnecessary expense, after all), you do run the risk of overspending. This can bleed money away from your long-term goals, like saving for retirement. After all, you still want to be able to afford drinks with friends once you’re retired, right?

2. Living the “High Life” Without the Means

Ah, keeping up with the Joneses. This one is especially hard to resist as you start moving up in your career. As you get each new pay raise, it’s easy to upgrade your lifestyle. After all, you worked hard and you deserve it, right?

But it’s easy to get out of control if you don’t watch things. Sure, that BMW might be nice today and you may even be able to afford it, no problem. But what about when you also upgrade your lifestyle with a fancy new apartment, HBO, and yearly exotic vacations? Before you know it, you could end up in a mountain of debt.

3. Emotional Spending

There’s a lot of weird psychological science going on when it comes to shopping. It’s a hobby, for sure. Many people spend a lot of time and money on it, especially when they’re stressed-out, feeling down, or celebrating a lot of wins.

The unfortunate thing about emotional spending is that while it does lead to quick little boosts of happiness, in the long term it’ll dump you like a bad ex. That’s because it makes you more likely to spend past your limits, sucking money away from other goals and potentially putting you further in debt.

4. Not Saving for Emergencies

This is one of the biggest mistakes of all. If you’ve gotten this far in your life, you know that it’s not a question of if something bad will happen, it’s a question of when. An emergency fund is your best protection against a future bad event, whether it’s a job loss, a pet getting sick, a car breaking down, or an infestation of bees.

The biggest threat from not having an emergency fund is that you may go into debt to pay for whatever bad thing happens. But, by saving money in advance, not only can you gain some peace of mind, but you’ll also be able to afford those unexpected expenses without going into credit card debt.

5. Not Paying Off Your Credit Card Bill Each Month

Did you know that paying off your credit card bill in full each month means that you won’t have to pay any interest? It’s true. This is especially helpful when it comes to playing the credit card rewards game, because then you can truly earn your rewards without turning it into a losing proposition.

Furthermore, if you don’t pay off your credit card bill in full each month, it’s easy to put it off and rack up even more charges on your card. After all, you’re already in debt, so what’s a few more dollars? Over time, though, this mentality can land you in a whopping pile of credit card debt — not a fun prospect.

6. Not Saving for Smaller Goals

Sure, everyone is always stressing the importance of saving for emergencies and for retirement. They are two of the most important savings goals for most people.

But another mistake is not saving up for all of your other micro-goals. We’re talking about things like saving up for a new car, summer vacation costs, health care expenses, a down payment on a house, or holiday gifts. You know these expenses may be coming up (for better or worse), so why not start saving now?

7. Not Tracking Your Expenses

One way to guarantee that your dollars fly out of your wallet faster than Flash Gordon is to not track them.

You don’t necessarily need to create an elaborate budget or enter in every last purchase by hand each day. But it is a good idea to at least sign up for spending alerts through various apps like Mint or Personal Capital. This way, you’ll at least be warned when you’re spending too much money.

8. Letting Autopilot Run for Too Long

When it comes to your finances, it’s best to reassess your goals every six to 12 months and take a good, honest look at your financial goals. Then, you can dial into your expenses to see if your spending is matching up with your priorities.

It’s a good idea to shop around for new products at this time too. Can you get cheaper car insurance rates elsewhere? Are you still using your Amazon Prime subscription? Can you lower your dining out budget by just a tad, or are you happy with where it’s currently at? Should you shop for a new bank account if you’re currently paying fees?

Are You Ready to Drop Those Bad Habits?

If you’re ready to change your money habits, you can start by referring to this list of risky habits that aren’t doing you any favors. Then, re-evaluate your goals and adjust them accordingly. From here, you can tweak your bad financial habits and drop them like…well…a bad habit.


A Point for Buying in the Buy vs. Rent Debate

By Due.com
September 11, 2018

Buyers and renters have long argued about which housing strategy is best. Buyers love building equity in their homes and the idea of owning an asset, even if that asset comes with a big heap of mortgage debt. Renters, on the other hand, love the freedom that comes with no mortgage, no responsibility (or cost) for repairs, and an option to move without selling. But which really comes out on top when it comes to the dollars and cents? A new report gives us insights into the better financial option when deciding whether to buy or rent your next home. Let’s dive in with a detailed look at when buying makes the most sense and when you might prefer to rent.

The cheapest option: buying a home

A new report from Trulia, the results found that nationwide you are better off buying if you plan to keep a home for at least six years. The July 2018 result found that buyers save 26.3% on average compared to renters. The result actually dropped from the previous period in renting’s favor due to flattening or lower rents in over 80% of the biggest real estate markets.

The savings from renting only vanish in the two most expensive housing markets, San Francisco and San Jose. In The City By the Bay, you save a narrow 5.8% from renting over six years. In Silicon Valley hub San Jose, the savings from renting came in at 12.2% on average. But in those expensive markets, many would-be buyers can’t afford the million dollar price tags Bay Area homes demand anyway. But in the low-cost cities like Detroit, you can save a whopping 48.9% over six years if you choose to buy!

Advantages of buying over renting

Buyers have some compelling reasons to pick ownership over renting. Here are some of the major benefits of buying a home instead of renting:

  • Build equity – While renting, you just pay an expense each month for a place to live. When you buy, a portion of your mortgage payment goes to growing your ownership value in the home. When you move out of an apartment, you get nothing back outside of a deposit return if you are lucky. When you sell a home you own, you get to pull that equity out for a future home purchase or any other use you choose.
  • Control of your home – Do you want to paint a wall red? Do you want to replace an ugly light fixture? If you rent, you might be stuck. If you own, you can do any upgrades you want. And even better, you can build the value of your home when you choose the right upgrades.
  • Capture value from the market – Home prices go up and down, but the general tide takes up them over time. You just might have to wait a while if a bubble bursts for your home value to recover, as we saw in the years following the 2007-2008 housing bubble. But if you own a property and the neighborhood improves, you won’t face eviction. You’ll face a more valuable home.

Of course, there are downsides to buying a home as well. But if you plan to keep the home long enough, the dollars and cents should come out in your favor.

Renting still makes sense for many

If you live in the Bay Area, you may be financially better off renting. Elsewhere, the benefits of renting are more focused on the lifestyle freedoms and low responsibility over a property when you rent. As a renter, you don’t have to budget for repairs or maintenance. That’s all taken care of for you. Further, you are not tied down to the location for the long-run. While you can sell a house at any time, there are real estate agent fees and closing costs, and it takes some time to sell and close.

As a renter, you can just move when your lease ends or as allowed by your rental agreement. You are not tied down to anything, and the only major costs when moving are the moving expenses you would have anyway and a new deposit and first/last month rents. Closing costs for a home can easily reach into the tens of thousands of dollars, so if you plan on moving within a few years renting is the way to go!

Choose the housing option that makes the most sense for you

When it comes to buying versus renting, there is no absolute right or wrong. Like all things in personal finance, the answer is personal. Choose the housing option that makes the most sense for your unique needs. If you do, you should end up with the best long-term results.


Over 60% of Americans Don’t Know What They Need to Retire

By Due.com
July 31, 2018

A recent study found that 61% of Americans don’t know how much money they need to retire. This concerning statistic highlights a major problem with retirement savings in the United States. A huge number of Americans have little to no retirement savings despite advice to stash away cash for a comfortable future. Let’s look at some important retirement savings rules to make sure you are not part of this scary statistic.

Americans don’t know how much money they need for retirement

A new study from Bankrate found that six in ten Americans do not know how much money they need to retire. With a large wave of Baby Boomers reaching their golden years and preparing to leave the workforce, millions of Americans may be in for a big surprise when the regular paychecks stop flowing in.

While Social Security or an increasingly rare pension plan can offer a safety net to aging Americans, most of us need much more than we will get from the government to maintain the same standard of living in retirement.

The study went beyond asking what people need to retire. Older Americans fared slightly better than Millennials in the survey and fewer than 2 in 5 non-retirees indicated that they feel their retirement savings are not on track.

Using the 15% rule to save for retirement

To avoid a ramen diet in retirement, you should follow best practices for retirement savings today. That may include contributing the maximum allowed amount to an IRA or Roth IRA in addition to participating in an employer-sponsored retirement plan like a 401(k).

One quick and easy option to meet your retirement needs is to save at minimum 10% to 15% of your gross income (that’s your income before taxes and deductions). This is easy to do automatically in most employer retirement plans.

To reach the maximum $5,500 per year in an Individual Retirement Account (IRA) or Roth IRA, you should save $211 per pay period if paid every other week to reach the target savings rate at the end of each calendar year.

If you make $50,000 per year, that means you should save $7,500 per year, or $625 per month, at the very least to maintain the same quality of life in retirement. But remember that this is just a minimum. You can save far more for retirement if you choose!

Calculate your actual retirement needs

While saving 15% or more for retirement is a good estimate on how much to save, you should do better and estimate your actual financial need in retirement. This is a tricky thing to calculate with a ton of accuracy, as you have to estimate your retirement date, how long you will live, and how much you need per month to get your total number.

Lucky for you, a Ph.D. is not necessary to calculate your retirement need. There are a handful of useful tools that make it easy and quick to estimate your financial requirements for retirement.

This in-depth calculator from AARP gives you detailed results on your retirement readiness. The Kiplinger calculator gives you a quicker result in estimating your retirement needs, but with a little less detail.

You control your retirement destiny

If you are behind on saving for retirement, there is no one to blame but yourself. But don’t dwell on the past and savings that have yet to take place. Instead, focus on the future and boosting your retirement savings starting today. That is the only way you will get on track to reach your retirement goals.

It may seem like a long way off, but your retirement is just around the corner in the scheme of things. Take the steps you need now so you don’t end up in a difficult situation in retirement. Many older Americans find themselves stuck working in retirement or skimping at home to make ends meet. Even if you can’t start by saving a full 15% of your income, you can start with something. Some retirement savings apps let you start with as little as $1 or $5!

Start saving and get yourself on track for your dream retirement. Your future self will thank you.

This article originally appeared on Due.com.


6 Times Frugality Can Cost You Money

By Holly Johnson
June 28, 2018

Most of us work hard for the money we earn, so why not work hard to keep more of it? This is the ethos many frugal people live by whether they realize it or not. By spending less than we have to, we can make the most of our labor — and make sure we have a little something left.

But, is frugality always the answer? Not by a long shot.

Then there are times in life when frugality will cost you more, even if that’s the opposite of what you intend. Here are six times frugality can backfire.

1. When buying cheap means buying more often

If you keep buying the same cheapo model, you could replace it endlessly to the point that you could have bought a fancier, nicer version for less than you’ve ultimately paid over time. This goes for everything from stereo equipment to clothes that fall apart after a few washes.

2. When you’re skipping important maintenance

Ignoring regular maintenance may feel like you’re saving, but it can be a costly move. For example, you’re supposed to get your furnace serviced every spring and fall. If you skip it, your equipment might get dirty, clog up and quit working, resulting in an expensive bill.

The same is true for dental check-ups and exams. If you opt not to get regular checkups, you could wind up spend a lot more on fillings and root canals. (Plus, preventative care is usually covered by dental insurance anyway!)

3. You’re skimping on insurance

While we’re on the subject of insurance, this is a bill you shouldn’t skip. While there are plenty of ways to save on insurance, you must ensure you have proper coverage limits. And this goes for all types, from auto insurance to disability insurance.

If you were to opt for the cheapest auto insurance policy money can buy and end up hitting someone, the victim could sue you personally for damages not covered by your policy.

When it comes to insurance, don’t risk it. Make sure you’re not being so frugal that you’re not adequately protecting yourself.

4. You’re not taking care of your health

Now imagine you’re so frugal you’re not even taking care of your health. Maybe you’re living on quick eats from the dollar menu, snubbing fruits and vegetables because they’re more expensive. Maybe you dropped your gym membership and took on a sedentary lifestyle because you felt paying that monthly fee for a place to work out just wasn’t worth it.

Your health can change at the drop of a hat. If you don’t take care of yourself due to poor nutrition, a lack of exercise or any other blunders, you could wind up paying higher expenses for healthcare down the line.

5. You’re buying things you don’t really need

Are you someone who enjoys discovering a good deal? Maybe you love a good garage sale or perhaps you’re keen on couponing. Maybe you’ve signed up for every savings app so you find out about the best deals first.

Whatever your tactic, just remember you’re not saving money if you’re buying things you don’t need simply because they’re on sale. That item at 70% off still costs money, even if it’s discounted, and that’s money wasted if you didn’t need the item in the first place.

6. You’re wasteful with your time

Don’t forget your time is worth something, too. If you are constantly wasting time because you’re trying to save money in unfruitful ways, you could be making a poor tradeoff.

For example, driving across town to a grocery store with cheaper prices may ultimately cost you more in the long run. Same goes for taking on a longer commute just to save a few dollars each month in rent. Sure there are some instances when living further from work makes sense — just make sure you’re considering all the financial angles before doing so.

Looking for ideas on how to pad your budget? Check out these 14 fees you should never pay — and how to avoid them.

This article originally appeared on Policygenius


What Rappers Get Wrong About Money

By Jackie Lam
June 24, 2018

Livin’ large, cavorting around town in fancy cars, and spending the Benjamins on hot chicks and flashy rags. Do rappers in general give the wrong message about moola? You bet.

Granted, these songs stem from personal experience, creative expression, and an individual perspective. And there are plenty of rap songs that give a nuanced look at money and what it represents to the artists. That being said, rappers oftentimes do give the wrong message on how wealth is built. They also tend to exude unrealistic money habits (note: cool money management apps are not included.)

Here are some songs that reveal what rappers get wrong about money, as well as some #truthbombs. Warning: song lyrics may be explicit.

“Money Bag” by Cardi B

What It Says About Money: To appear like a wealthy “money bag,” one must be driving Bentleys, Maybachs and Ferraris. To be blingy is to be wealthy.

#MoneyTruthBomb: Sure, you may look like a million bucks, but the truth is: you could be swimming in deep debt. And, depending on your values and life goals, true wealth is expressed differently. For some, this means having the option to take some time off work to see the world. Others may decide to live out of an RV. There are times when wealth simply means enjoying financial freedom, and not having to stress out about money.

At the end of the day, money is a tool – nothing more, nothing less. Like modest types like Warren Buffet and Dave Grohl, some real-deal money bags prefer not to flaunt it.

“1st of tha Month” by Bone Thugs and Harmony

What It Says About Money:  Now that you got paid, you should blow it on dope, booze, and other vices.

#MoneyTruthBomb: Waiting on your paycheck sucks. Whether it’s the first of the month or the 15th, we’ve all been there. You shouldn’t have to wait to get paid to treat yoself. In fact, if you’re a Chime bank member and set up direct deposit, you can get paid up to two days early.

To boot, spending it all on your vices is just plain irresponsible. A smarter way to spend on those guilty pleasures is to save for them. This way you won’t feel like you’re missing out on life too much while also keeping an eye toward the future.

“It’s All About the Benjamins” by Puff Daddy

What It Says About Money: We should aim to have massive wealth so we can achieve big baller status and flaunt our wealth. Wads of cash are to be spent on flashy rides, swimming in hot women, and donning five-carat diamond rings.

#MoneyTruthBomb: Blowing your cash and living entirely in the here and now will only lead to destitution. Before you know it, you’ll be in the poorhouse.

I consider this a half-truth. In my humble opinion, money is – in many ways – everything. It affects our physical and emotional well-being in profound ways. If kept unchecked, money woes can create stress and prevent you from living life to its fullest.

There’s nothing wrong with being money-hungry. By all means you should focus on building your wealth. But, it’s best not to blow it. Instead, practice a bit of prudence. While you should certainly enjoy life, you should save for the future, too.

“I Get Money” by 50 Cent

What It Says About Money: If you have a lot of money, you should try to spend all of it on the high life.

#MoneyTruthBomb: Instead of blowing your hard-earned money to appear rich, you’ll want to spend it in line with your values. You should also set some aside some cash for emergencies, and prioritize your other saving goals such as retirement, a house and your kids’ college fund.

“$ave Dat Money” by Lil Dicky

What It Says About Money: I thought I’d end things on a positive note and include a rap song that revealed a money truth. Granted, this is a tongue-in-cheek rap song that goes against the mainstream, but it makes a point to preach good money habits. Yes, save that money, don’t charge on credit and buy off-brand at Walgreens. Build your savings as soon as you can, and purchase your flights for travel well ahead of time.

#MoneyTruthBomb: Chances are that true wealth isn’t going to come from an unexpected windfall of cash or inheritance. If you want to enjoy high net worth, “slow and steady” wins the race. It’s those everyday habits that will help you build that stash of cash.

Keep It Real By Focusing on Developing Solid Habits

These rap songs may spread unrealistic ideas about financial habits and how to make money, but this doesn’t mean you have to live your life this way. Instead, try focusing on the nuts and bolts of financial wellness, such as understanding spending triggers and automating your savings. This will set you on the right path to a financially fit you.


Gender Pay Gap: What Jobs Really Offer Equal Pay?

By Due.com
June 5, 2018

Most logical people would argue that two people doing the same job should earn equal pay, but we know that is not always the case. In many roles at many companies, women are paid less than men for doing the exact same thing, which is known as the gender pay gap. While we know this is wrong, a number of professions actually do offer gender pay equality. If you want to know what jobs have successfully removed the gender pay gap, follow along to learn more.

How bad is the gender pay gap?

The Bureau of Labor Statistics reports that, on average, women make 83 percent of what men do across all industries. The worst profession for women is in the legal industry, where women make a little over half of what men earn. Sales, security, production, and personal care professions all offer women 25 percent of what men earn, or worse.

In fact, according to the 2016 report (based on 2014 data), there was no industry where women made as much as men for the same job. The best was construction and extraction related jobs, which offer women 91.3 cents for every dollar male counterparts bring in.

But it is not all doom and gloom. Researchers are working on understanding causes of the gender pay gap and identifying solutions. But in the meantime, there are some great opportunities out there where women do get their fair share, according to BLS data from 2016.

Industries with equal gender pay

The 2016 BLS study found that on average, women make 82 percent of what men do on average. But a few jobs stood out where women make equal or more than their male counterparts. Women workers for the win! Here is a list of professions where women can expect equal pay, with data from the Bureau of Labor Statistics:

Occupation Women’s earnings compared to men’s
Sewing machine operators 111%
Combined food preparation and serving workers 106
Teacher assistants 105
Counselors 102
Transportation, storage, and distribution managers 100
Stock clerks and order fillers 99
Physical therapists 97
Shipping, receiving, and traffic clerks 97
Receptionists and information clerks 97
Advertising sales agents 97

While these jobs may not all be the most desired in the world, there are some great professions on here with solid earning potential. For example, the average physical therapist makes $85,400 per year (2016 BLS data). That is a great income level no matter your gender. If you are trying to overcome a gender wage gap, the small 3 percent gap isn’t a huge hurdle to overcome.

Combat the gender pay gap in your business

If you are a male and lead an organization, do your part to promote gender pay equality. You have access to all data and have the power to instantly solve the gender pay gap in your business. Of course, that does come with some costs. But these are costs that should have been happening all along! If you already offer fair and equal pay among your employees, kudos. You are doing the right thing.

If you really want to make a difference as a man in business, start a business and ensure fair pay practices across genders. If you are a woman, consider starting your own business, as women-owned businesses are often quite successful! And if you are not a business owner, be an outspoken advocate for equality in the workplace. Rome wasn’t built in a day, and this problem won’t be solved in one. But with a long-term focus on fixing the gender pay gap, a solution is attainable.

This article originally appeared on Due.com


Does the 20% Savings Rule Actually Work?

By Sean Bryant
May 19, 2018

When it comes to saving money, experts often suggest saving at least 20% of your income. While this may be a good financial rule of thumb, it doesn’t work for everyone.

To figure out whether the 20% savings rule is the best option for you, it’s first important to understand more about this method of saving money. From there, you can decide whether it’s right for you. To learn more, read on.

A Quick Review of the 50/20/30 Rule 

The 50/20/30 rule is a minimalist-style budgeting tool that refers to how much of your take-home pay you should save and how much you need to allocate for expenses and other goals.

The rule simply states that 50% of your income should be devoted to essential expenses like housing, food, and utilities. Another 30% should go toward discretionary spending on the fun stuff. This leaves 20% for your savings, which can be earmarked into a savings account,  an emergency fund, and a retirement account.

Is 20% Always the Right Amount to Save?

I know what you may be thinking. While it sounds pretty simple, saving 20% of your income can be unreasonable it you’re just starting out or trying to make ends meet.

For this reason, 20% isn’t always the magic number. If saving this amount is out of your reach, then start with a lesser amount. The most important thing is that you start somewhere and save a set amount of money that works for you.

I can remember how awful I felt when I was laid off from my job during the Great Recession and was forced to stop contributing to my retirement accounts. At the time, I had no other choice. I could either continue to invest for my future or I use that money to buy groceries. Fortunately, I knew that this time in my life would pass, and that I would be able to get a handle on my finances and start saving again. I was right. As time went by, I was able to increase my savings rate until it exceeded my original savings goals.

With this in mind, remember that the 20% savings rule is really just a rule of thumb.

Does the 20% Savings Rule Work?

Yes, the 20% rule works – at least for the most part. If it didn’t work, financial experts would not continue to praise its simplicity. So, if possible for you, it’s a good idea to start saving 20% of your income today.

The bottom line: if you can consistently devote 20% of your income to savings over the long-term (think: decades), you’ll have a better shot of retiring comfortably.

But, just because the 20% rule works, keep in mind what was discussed above: it may not work for you. If your financial situation is less than stellar due to debt or other unfortunate circumstances, you may need to find an alternate route to a healthy financial future. If you think you need another savings method, take a look at the helpful tips below:

  • Create a budget. To start saving whatever you can, it’s a smart idea to first figure out how much money is coming in and going out each month. To do this effectively, we suggest tracking your expenses and creating a budget. This way you can identify areas where you can trim the financial fat, freeing up funds to save. For instance, if you track your expenses and realize you’ve been spending an average of $400 in restaurants for the past three months, you’ve just identified something you can significantly cut back on. Not only is cooking at home good for your waistline, but it’s good for your bottom line. And that’s a win-win.
  • Automate your savings. Life can easily get in the way when it comes to saving money. Too often than not, the end of the month rolls around and you realize you didn’t set anything aside for savings. To help get around this, try making saving money automatic. In fact, Chime makes it simple with its Automatic Savings feature. Here’s how it works: each time you use your Chime debit card, your transaction is rounded up to the nearest dollar and the round up amount is deposited into your Chime Savings account. Plus, you can set up your account to automatically transfer 10% of each paycheck into your savings account. This makes saving money a no brainer!

Start Saving Money Now

There you have it: an explanation of the 20% savings rule, why it’s so popular, and what you can do if you need other savings options. Remember, there is more than one route to a healthy financial future. Are you ready to start saving more money today?


The Hidden Dangers of Credit Card Rewards

By Ben Luthi
May 9, 2018

So, you’re tempted by that offer you received in the mail: 50,000 airline miles and all you have to do is spend a few thousand bucks.

While you may not need another credit card, a reward card may be a great option for you, especially if you’re responsible with your money. For starters, earning credit card rewards can be a great way to get a little extra cash or save on your next vacation.

On the other hand, credit cards can also cost you, especially if you overspend and tend to maintain a balance. To help you avoid the hidden dangers of rewards cards, take a look at three common pitfalls of these popular credit cards.

1. You can be tempted to overspend

Some of the best credit cards out there come with huge sign-up bonuses. But beware: you typically have to spend between $3,000 and $5,000 in a short time to get those perks. And, if you don’t usually spend thousands in the span of just a few months, you may end spending beyond your means simply to get those air miles and other bonuses.

What’s more, credit card holders obsessed with racking up rewards often want to use their cards as much as possible. Yet, for some expenses, like a mortgage or utility payment, the financial institution or utility company often assesses a fee for credit card payments. For example, you may be paying a three percent fee to get two percent back on your credit card. Although the rewards seem exciting, it’s important to understand that you’re spending more than you’re getting back.

2. You may rack up more debt

If you’re not careful, overspending to earn credit card rewards can land you in debt. Why? Because if you spend more than you can pay off monthly, you’ll end up paying interest on the amount you carry from month to month.

Case in point: the average credit card interest rate is 14.99%, according to Federal Reserve data for the fourth quarter of 2017. This is much higher than any rewards rate. For example, you may get two percent cash back for using a particular card. Whereas this gives you some extra cash, it’s a lot less than the almost 15% interest rate you may be paying on your credit card balance.

Another reason you can end up in debt: credit card issuers require low minimum monthly payments and if you only pay the minimum amount each month, you can stay in debt for a long time. For example, cards typically require that you pay only one to two percent of your balance plus interest. So, if you have a credit card with a balance of $10,000, your monthly payment is just $200. If your interest rate is 14.99%, it will take you roughly six-and-a-half years to pay off your debt, assuming you don’t continue to use the card. Plus, you’ll pay $5,784 in interest along the way.

3. You may take risks with your credit

The credit card rewards game can get addicting, and there are several hobbyists who sign up for multiple credit cards to earn more sign-up bonuses. If your credit is in stellar shape and you do this responsibly, the negative impact to your credit history can be minimal.

I’ve applied for and used almost 50 different credit cards over the past few years to get big travel sign-up bonuses. And while my credit report does show several new accounts over that time, it didn’t stop me from getting a low interest rate on a mortgage last year. Yet, it takes skill to know how to play the rewards game.

As a result, most people shouldn’t engage in this “credit card churning” hobby, especially if you tend to overspend or you’re not well organized.

Three ways to benefit from credit card rewards

If you do want to earn credit card rewards, it’s important to have a responsible plan. To get started, here are three ways to reap the rewards without paying a price.

1. Pay off your balance each month

If you’re going to use a credit card, make sure that you pay off your balance on time and in full every month to avoid interest charges and other fees.

This can get tricky if you have multiple credit card accounts. If you fall into this camp, set up email or text alerts to remind you when your payments are due. You can also set an alert for your statement date, which is typically a few weeks before you due date. This way you can pay early.

2. Get on a budget

If you haven’t already created a budget, now is a good time to do so. This basic financial planning tool can help you set goals in various spending categories.

Also, when it comes to taking advantage of new credit card promotions, a budget will help you determine whether you can qualify for big sign-up bonuses without spending more money than you have.

3. Use a debit card

If you’re not sure whether credit card rewards are worth the potential pitfalls, use a debit card instead. With a debit card, your transactions will be deducted from your checking account immediately, so you don’t have to worry about trying to figure out whether you have enough money to pay off a credit card balance.

Plus, some debit cards come with extra features. For example, the Chime Visa® Debit Card offers:

And, of course, there’s no interest rate on debit cards and for you, this may be the most important feature.

Don’t sacrifice financial security for credit card rewards

If you use credit cards regularly, the rewards should be considered an added benefit and nothing more. If you find yourself tempted by credit card rewards, take a step back and consider how to earn these perks in a responsible way. Remember: put your financial security first and you’ll be on your way to reaching your money goals.


Does Job Hopping Increase Your Long-Term Salary?

By Ben Luthi
May 7, 2018

Millennials are considered the job-hopping generation, according to a recent Gallup poll. This is no surprise as millennials are three times more likely to change jobs as older generations. Not only that but six in 10 millennials are open to taking on a new job opportunity.

We get it. Switching jobs often leads to a bigger paycheck. But does leaving your current employer for a higher paying job actually stunt your long-term salary growth? In other words, should you stay put?

The data suggests that millenials’ habit of job hopping can actually improve their long-term career and salary aspirations. With this said, it’s important that you weigh the pros and cons when deciding whether to stay or go. Read on to learn more.

Is job hopping the best way to make more money?

Over the past 20 years, switching jobs has almost always been more lucrative than staying at your current employer, according to data from the Federal Reserve of Atlanta.

Based on the latest numbers from February 2018, job hopping can almost double your salary increase. In fact, the last time sticking around netted a higher wage growth was in 2011. This suggests that job hopping can be good for your long-term salary too.

With this said, make sure you consider your full benefits package, as well as other costs incurred by switching jobs. Just because your salary is higher doesn’t necessarily mean your bottom line is better off.

Consider all the costs of switching

As easy as it would be to focus solely on salary increases, the decision to switch jobs isn’t always so simple. In fact, reduced benefits at a new job can often negate a salary increase. In addition, here are some other factors to consider.

1. Retirement contributions

If your current employer matches 401(k) contributions on a vesting schedule, you may lose some or all of those contributions if you leave too soon. In fact, roughly 71% of employers have a vesting schedule of at least three years, according to 2016 data from T. Rowe Price.

This means that the money your employer contributes to your retirement account isn’t yours for the taking, at least not at first. Rather, you gain ownership of the funds over time based on your employer’s vesting schedule. If you’re fortunate, you may be working for an employer that offers immediate vesting. In this case, you have nothing to worry about.

That said, you can still lose money if your new employer requires that you wait before you can contribute to a 401(k). Employers are allowed to have a waiting period for as long as a year. The point here: make sure you do your research on your current and future employer-sponsored retirement plans.

2. Bonuses

Depending on when you leave your job, you can potentially miss out on a bonus. This can even be the case if you’ve already had your performance review and the promised bonus hasn’t been paid out yet.

Also, depending on the new employer and when you switch jobs, you may not be eligible for a bonus your first year. Either that or your bonus may be prorated for the year, based on when you joined the company. So, make sure you inquire about bonuses before you leave your job and start a new one.

3. Health insurance

Even if your health insurance premiums stay the same from one job to another, switching jobs and health insurance plans can reset your deductible and out-of-pocket spending to zero.

If you don’t visit the doctor often or haven’t had a lot of medical expenses this year, this won’t matter much. But if you’ve almost reached your deductible with your current plan and expect more medical costs before the year is over, starting from scratch with a new plan can cost you hundreds, if not thousands of dollars.

4. Retirement plan loans

If you’ve borrowed money from your 401(k), leaving your job is one of the worst things you can do. That’s because your termination cancels the original repayment plan on the loan and you may have to repay the debt within 60 days.

If you default, the loan amount would be treated as an early withdrawal and could be subject to taxes plus a 10% penalty. For example, if your loan was for $10,000 and your effective tax rate is 25%, you could be on the hook for $3,500 in taxes and penalties.

And for what it’s worth, the National Bureau of Economic Research found that 86% of 401(k) loan borrowers who leave their employer end up defaulting. You certainly don’t want to be part of this percentage.

5. Moving costs

If you get a new job that requires you to move to a different city or state, there’s no guarantee that your new employer will foot the bill for your move.

Sure, you may be able to deduct some of your moving expenses when you file your taxes. But the tax break may not make up for all the costs you’ll incur when you relocate to a new city or state.

Consider your opportunities carefully

If you’re confronted with an opportunity to earn more by switching jobs, consider all the factors involved, including wage growth and other costs. And, don’t forget to take into account your current situation. If you love your job and don’t really want to leave, you can always brush up on your negotiation skills and ask for a raise.

Regardless of what you decide to do, make sure you weigh all of your options. Money is important, we get it. But money isn’t everything. Taking a new job for more money can leave you depressed and unmotivated, especially if you just left a job you loved. On the flip-side, a new higher-paying opportunity can open new doors and help you climb your career ladder.


Should You Switch Jobs for the Money?

By Jackie Lam
April 28, 2018

Most of us don’t go to work because it’s awesome and fun. Most of us work because we need the paycheck.

There’s no denying that monetary compensation is a major part of whether you should stay put at your job or seek “greener” pastures. But, if you are able to land a higher-paying gig, should you job-hop just for the money? While the easy answer may be “yes,” the real answer is: it depends.

To help you decide whether you should switch jobs for the Benjamins, here are 6 things to consider:

1. The Entire Benefits Package 

How much you’re getting paid is just one slice of the compensation pie. The whole compensation caboodle includes your paid sick and vacation time, matching contributions on employer-sponsored retirement plans, and benefits such as health and dental insurance. If your new job offers more pay but fewer benefits, it may not be the best “deal” after all.

2. The Cost of Living

If the new job offer requires that you uproot and move to another city, think about how that may affect your quality of life and cost of living. Will your potential new employer foot the bill for relocation costs? And depending on your life situation, don’t forget to consider the added stress of moving. You’ll need to assess whether the relocation is worth it.

3. The Big Picture

Sometimes switching jobs for the money could end up hurting you down the road, points out Steve Wang, a seasoned hiring manager and recruiter.

“Making more money now doesn’t always correlate with making more money in the future,” says Wang. “And jobs with less benefits to start may come with intangible benefits like training, career opportunities, and connections that can end up leading to a far more lucrative career path than the one that pays more today.”

In my experience, I’ve known people to take a job that pays less than what they can ideally make because it would offer more growth opportunities in the long-run. Early in my own career, I took a pay cut because I was in a dead-end job. There were zero growth opportunities and the environment proved to be a toxic one. Within a year into my new job, I was promoted and got a bump in pay.

4. Competitive Pay

When evaluating job offers, always do your research to know the current competitive pay range for the position, says Lydia Frank, vice president of content strategy at PayScale.

“Sometimes people make the mistake of accepting an offer because it sounds like a lot more than they’re currently making, even if it’s not a competitive offer for that role,” says Frank.

When doing your homework, check to see what someone with similar qualifications and years of experience are making in your field in similar roles. You’ll also want to take into consideration your location, the size of the company, and the industry. Pay ranges can be significantly different based on those factors, says Frank.

5. The New Job Expectations

If you’re considering a job offer for significantly more money, make sure you understand what comes along with that higher paycheck, points out Frank. For example, what are the expectations when working more than 40 hours per week? If you’re switching from an hourly job to a salaried one, will you still be making more per hour? And what’s the company culture like?

You can poke around company review sites like Glassdoor, PayScale, and Comparably to get a feel for a company’s compensation and culture.

6. Can You Get Higher Pay at Your Current Role

Let’s say you love your job, but the pay is something left to be desired. If that’s the case, see if your employer is willing to bump up your salary.

“Don’t be afraid to ask for higher pay,” says Frank.

If your boss isn’t able to accommodate your request for a raise, see if the company can throw in more comp time, or greater flexibility in your work schedule. Make it known what’s most important to you, and see if your employer can meet you halfway.

“Money isn’t the be-all end-all. Remember to take into consideration whether you actually like the job,” says Wang.

Be Aware: Job Hopping Doesn’t Always Equate to More Money

It turns out that switching jobs doesn’t always mean you’ll rake in more dough. In a recent PayScale study on whether job-hopping always led to higher pay, it was revealed that it depends on the job.

For more competitive roles, like a software developer, switching jobs on the regular can be beneficial for a bump in pay. But for jobs where the market isn’t changing quite so rapidly, like an operations manager or administrative assistant, employees can earn more by staying at their current company.

All told, Frank cautions against job-hopping simply for a pay increase.

“Pay certainly matters, but doing work you love does as well,” she says.


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