RANKED: The 10 Best Options When You Need Cash Fast

What happens when your emergency fund isn’t enough?

Long-term unemployment or a medical emergency can easily dry up a once-healthy rainy day fund, leaving consumers wondering where to turn next. According to a recent consumer expectations survey by the New York Federal Reserve, only one in three Americans say they wouldn’t be able come up with $2,000 within a month to cover an unexpected expense.

It’s during times of vulnerability like this that it’s easy to jump at seemingly quick and easy sources of cash, like payday lenders, credit cards, or even your 401(k).

Unfortunately, practically every potential source of cash that doesn’t come from your own piggy bank is going to cost you in some way.

But at this point, it’s all about choosing the lesser of all evils — when all you have are crummy options, how do you decide which one is the best of the worst?

We’ve ranked common sources of emergency short-term cash from best to worst, which can help you sort through your borrowing options when your savings dry up.

#1 Personal loan from family and friends

It’s an uncomfortable conversation to have with a loved one, but asking a friend or relative for a small loan can be a far better idea than turning to high-interest credit debt, or worse, payday lenders. Unless they’re offering, it doesn’t have to be an interest-free loan. Agree on an interest rate that seems fair and is lower than what you’d find through a bank or other lender.

Because you have a relationship already, you may have an easier time convincing them to lend you money versus a bank that would make the decision after doing a credit check and evaluating other financial information.

#2 (tie) Lender-backed personal loan

A personal loan can be a solid borrowing option if you need money in a pinch or you’re looking to consolidate other debt. The process to apply for a personal loan is similar to applying for a credit card or auto loan, in that the lender will run your credit and offer you a certain rate based on your creditworthiness.

If your credit is poor, that doesn’t necessarily mean you’re out of the running for a personal loan, but it will cost you in the form of much higher interest charges. For example, Lending Club offers loans with APRs from 5.99% to 35.85%, but it’s willing to lend to people with a credit score as low as 600.

Why choose a personal loan over a credit card? It really comes down to math. If you can find a personal loan that will cost less in the long term than using a credit card, then go for it. Use this personal loan calculator to estimate how much a loan will cost you over time. Then, run the same figures through this credit card payoff calculator.

#2 (tie) Credit cards

If your need for cash is truly short-term and you have enough income to pay it off quickly, then credit card debt can be a decent option. This option gets even better if you can qualify for a card with a 0% interest offer. The card will let you buy some time by allowing you to cover your essentials while you work on paying off the balance.

Because the debt is unsecured, unlike an auto title loan, you aren’t putting your assets at risk if you can’t pay. Westlake, Ohio-based certified financial planner Edward Vargo says he would recommend using credit card debt first.

#3 Home equity line of credit (HELOC)

You may be able to leverage the equity in your home to cover short-term emergency needs. A HELOC, or home equity line of credit, is a revolving credit line extended to a homeowner using your home as collateral. How much you can take out will depend on your home’s value, your remaining mortgage balance, your household income, and your credit score. A home equity line of credit may allow you to borrow the maximum amount, or only as much as you need. You will also be responsible for the costs of establishing and maintaining the home equity line of credit. You can learn more about these here.

You’ll choose the repayment schedule and can set that for less than 10 years or more than 20 years, but the entire balance must be paid in full by the end of the loan term. You’ll pay interest on what you borrow, but you may be able to deduct it from your income taxes. Keep in mind that if you are unemployed, it will be unlikely that you’ll be approved for a HELOC.

HELOC vs. Personal loans

Because home equity lines of credit are secured against the borrower’s home, if you default on your home equity line of credit, your lender can foreclose on your home. Personal loans, on the other hand, are usually unsecured, so, while failure to make your payments on time will adversely impact your credit, none of your personal property is at risk.

#4 A 401(k) loan

A 401(k) loan may be a good borrowing option if you’re in a financial pinch and are still employed. And it is a far better bet than turning to a payday lender or pawn shop for a loan. Because you’re in effect borrowing from yourself, any interest you pay back to the account is money put back in your retirement fund. You are allowed to borrow up to $50,000 or half of the total amount of money in your account, whichever is less. Typically, 401(k) loans have to be repaid within five years, and you’ll need to make payments at least quarterly.

But there are some cons to consider. If you get laid off or change jobs, a 401(k) loan immediately becomes due, and you’ll have 60 days to repay the full loan amount or put the loan funds into an IRA or other eligible retirement plan. If you don’t make the deadline, the loan becomes taxable income and the IRS will charge you another 10% early withdrawal penalty.

#5 Roth IRA or Roth 401(k) withdrawal

Generally, withdrawing funds from your retirement savings is a big no-no, because you’re going to miss out on any gains you might have enjoyed had you kept your money in the market. On top of that, there are fees and tax penalties, which we’ll cover in the next section.

But there is an exception: the Roth IRA or Roth 401(k).

Because funds contributed to Roth accounts are taxed right away, you won’t face any additional tax or penalties for making a withdrawal early. The caveat is that you can only withdraw from the principal amount you’ve contributed — you’re not allowed to withdraw any of the investment gains your contributions have earned without facing taxes and penalties.

However, it is still true that any money you take out is money that will not have a chance to grow over time, so you will still miss out on those earnings.

#6 Traditional 401(k) or IRA withdrawal

Experts typically recommend against borrowing from your 401(K) or IRA, but when you’re in desperate need of cash, it may be your best option.

Just understand the risks.

If you withdraw funds from a traditional retirement account before age 59 1/2 , the money will be taxed as income, and you’ll be charged a 10% early distribution penalty tax by the IRS. You may want to speak with a tax professional to estimate how much you’ll have to pay in taxes and take out more than you need to compensate for that loss. There’s no exception to the income tax, but there are a number of exceptions to the 10% penalty, such as qualified education expenses or separation from service — when you leave a company, whether by retirement, quitting, or getting fired or laid off — at 55 years or older.

When you take that money out, not only will you lose out on potential tax-deferred investment growth, but you’ll also lose a huge chunk of your retirement savings to taxes and penalties.

#7 Reverse mortgage

Homeowners 62 years old and older have another option for cash in a pinch: a reverse mortgage. With a reverse mortgage, your property’s equity is converted into (usually) tax-free payments for you. You can take the money up front as a line of credit, receive monthly payments for a fixed term or for as long as you live in the home, or choose a mix of the options. You keep the title, but the lender pays you each month to buy your home over time.

In most cases, you won’t be required to repay the loan as long as you’re still living in your home. You’ll also need to stay current on obligations like homeowners insurance, real estate taxes, and basic maintenance. If you don’t take care of those things, the lender may require you to pay back the loan.

The loan becomes due when you pass away or move out, and the home must be sold to repay the loan. If you pass away, and your spouse is still living in the home but didn’t sign the loan agreement, they’ll be allowed to continue living on the property, but won’t receive any more monthly payments. When they pass away or move out, the home will be sold to repay the loan.

The reverse mortgage may take a month or longer to set up, but once you get the paperwork set you can choose to take a line of credit, which could serve as an emergency fund, advises Columbus, Ohio-based certified financial planner Tom Davison.

He says the reverse mortgage’s advantages lie in the fact that it doesn’t need to be paid back until the homeowner permanently leaves the house, and it can be paid down whenever the homeowner is able. You can also borrow more money later if you need it, as the line of credit will grow at the loan’s borrowing rate.

Take care to look at the fine print before you sign. Under current federal law, you’ll only have three days, called a right of rescission, to cancel the loan. Reverse mortgage lenders also usually charge fees for origination, closing, and servicing over the life of the mortgage. Some even charge mortgage insurance premiums. Also, if you pass away before the loan is paid back, your heirs will have to handle it.

#8 Payday loan alternatives

While regulators work to reign in the payday lending industry, a new crop of payday loan alternatives is beginning to crop up.

Services like Activehours or DailyPay allow hourly wage earners to get paid early based on the hours they’ve already worked. Activehours allows you to withdraw up to $100 each day and $500 per pay period, while DailyPay, which caters to delivery workers, has no cap. DailyPay tracks the hours logged by workers and sends a single payment with the day’s earnings, minus a fee ranging from 99 cents to $1.49.

Another alternative could be the Build Card by FS Card. The product targets customers with subprime credit scores and offers an initial low, unsecured $500 credit limit to borrowers, which increases as they prove creditworthiness. The card will cost you a $72 annual membership fee, a one-time account setup fee of $53, plus $6 per month just to keep it in your wallet. It also comes with a steep interest rate — 29.9%. After all of the initial fees, your initial available limit should be about $375.

#9 Pawn shop loans

Pawn shop loan interest charges can get up to 36% in some states and there are other fees you’ll have to pay on top of the original loan.

Pawn shops get a shady rap, but they are a safer bet than payday lenders and auto title loans. Here’s why: Because you are putting up an item as collateral for a payday loan, the worst that can happen is that they take possession of the item if you skip out on payments. That can be devastating, especially if you’ve pawned something of sentimental value. But that’s the end of the ordeal — no debt collectors chasing you (payday loans) and no getting locked out of your car and losing your only mode of transportation (title loans).

#10 Payday loans and auto title loans

We have, of course, saved the worst of the worst options for last.

When you borrow with a payday loan but can’t afford to pay it back within the standard two-week time frame, it can quickly become a debt trap thanks to triple-digit interest rates. According to a recent study by the Pew Charitable Trusts, only 14% of payday loan borrowers can afford enough out of their monthly budgets to repay an average payday loan. Some payday lenders offer installment loans, which require a link to your bank account and gives them access to your funds if you don’t pay.

Some payday lenders today require access to a checking account, meaning they can dip in and take money from your bank account if you miss a payment. Also, your payday loan will be reflected on your credit report. So if things end badly, your credit will suffer as well. They have no collateral, so payday lenders will continue to hound you if you miss payments.

And, of course, auto title lenders require you to put up your wheels as collateral for a loan. And if you rely heavily on your car to get to and from work, having it repossessed by a title lender could hurt you financially in more ways than one. The loans are usually short-term — less than 30 days — so this might not be a good option for you if you don’t foresee a quick turnaround time for repayment. If your household depends on your car for transportation, you may not want to try this option as there is a chance you could lose your car. If you don’t repay the loan, the lender can take your vehicle and sell it to cover the loan amount.

One more thing to watch out for is the advertised interest rate. Auto title lenders will often advertise the monthly rate, not the annualized one. So a 20% interest rate for the month is actually 240% APR.

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6 Common Money Traps That Are Draining Your Wallet

Perhaps you, too, have fallen victim to one of these money traps.

Sometimes, when I look back on the way I handled money in my 20s, I want to smack myself. During that time, I built up a lot of debt — so much it led me to declare bankruptcy. My poor money management almost ruined my life.

When I really think about my attitudes toward money in my 20s versus my 30s and now my 40s, they are so different. My 20s were about spending, my 30s were focused on building up my finances and now in my 40s I’m busy enjoying them. As I look back, I noticed that I fell into some pretty common money traps.

Perhaps you, too, have fallen victim to one of these money traps. Here, I’ll share the most common ones to avoid before it’s too late.

1. Instant Gratification

We often decide we want things because they work in the moment. Look at dinner out. If you don’t feel like cooking, you go out to dinner. But the convenience of letting someone else cook for you is a trap.

To learn your own money traps, you need to create a spending plan. A spending plan can help you identify where you every cent of your money is going. Once you’ve learned how you spend, you can better determine what to cut back. (Here are 50 things to stop wasting your money on.)

2. Not Having (Or Ignoring) Your Budget

Some buy into the myth that if you have a budget, you won’t get to spend your money as you’d like. Don’t fall for this trap. Your budget is your money road map, and you get to plan your route every payday. That means you can determine the exits and detours your money will take. If you want to go out to dinner this week, no problem — just include it in your budget.

However, a budget is never “one and done” — it should be evaluated every month. The reason to look at your budget is that your spending and circumstances may change. Perhaps the cost of food went up or you received a raise. That will affect how well your budget is working.

Once a month, try to set aside time to go through your budget and make sure it still works. Update the bills and your income as needed. Make sure you still account for every single penny. If your salary has gone up, now is the time to increase your debt payments or your savings account. (Here are some quick ways to boost your emergency cash cushion.)

3. Falling for Sales Gimmicks

You see something on sale and feel you should get it. After all, it’s on sale, so you’ll be saving money. Right?

Not so fast. When you purchase something simply because it’s on sale, you’re often spending money you would not have otherwise. Before you buy the item, ask yourself if it’s something you’ll need in the next three to four weeks. If not, it might be best to pass.

While you’re at it, avoid store sales tactics such as two-for-one offers, purchase limits and quantity discounts, which encourage you to spend more.

4. You Love the Word Free

Free is one of those words that many find hard to ignore. It makes you feel as if you are getting something special. However, free does not always mean free.

For example, stores often offer free financing offers. These are tempting because you can either make no payments on your new furniture for six months or get your new television set interest-free for 12 months. The truth is, for most, that “free” period will cost more than they realize. Let’s look at both scenarios.

If you purchase something with no payments for any period, you can make the purchase and not have to worry about your budget. But what you may not realize is that you will still accrue interest on that outstanding balance.

Let’s say your loan is $500 and the interest rate is 18%. The store offers no payments for a year. Each month, you will add at least $7 to your outstanding balance. That means your $500 item will now cost you nearly $600. Not such a good deal, is it?

The same is true with 0% financing. Even though you pay no interest, your interest will still accumulate. So, if you have a 0% interest rate for 24 months, you better make sure to pay it in full before the end of the term. Otherwise, the store may revert back to the original balance and calculate your interest based on the outstanding balance, which can make the loan cost even more.

Before you make any large purchase, make sure you can really afford it. A deal is only a deal if it doesn’t cost you more than the ticket price.

5. You Can’t Walk Away

Sometimes it’s best to give up. If you have a vehicle costing you money in repairs every month or two, it might be more cost effective to get rid of it and put that money toward something newer and more reliable.

It might also be the right time to upgrade (or even downsize) your home. If you have added two kids to the family and now live on top of one another, is it worth trying to find ways to add more space? Are you paying to rent a storage unit because you can’t fit everything into your home? It might be better to move or even sell items you can’t use.

You might be trying to keep up with your friends and family. As much fun as it is to take vacations, go shopping every weekend and have the latest electronic gadgets, it may not be feasible, given your budget. Your envy could be forcing you into debt. (Debt can also be rough on your credit. You can see how by viewing two of your credit scores for free on Credit.com.)

Changing your lifestyle is not easy. However, it is a change you must make to get out from spending more than you should.

6. You Don’t Track Your Purchases

When I ask people why they don’t use cash, they usually say it’s because it’s too easy to spend. But the real reason is because they’re probably not tracking their spending. They don’t see where their money goes, so they spend without thinking about it.

Look at the $1 to $5 purchases you make. They don’t seem like much in the moment. But what if you make seven $3 purchases a week? That’s $21. And it’s not just $21, but $21 for which you can’t account.

When you start to keep track of every penny you spend, you force yourself to be more accountable. You become more aware of where you spend and how you spend it. Once you do that, you’ll begin to think twice before buying a second latte.

Money traps don’t have to trip you up while you’re working to achieve your financial goals. Recognize them and do what you can to avoid falling for them.

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3 Simple Steps to Starting an Emergency Fund

Buying a fancy dress for the big party on Saturday night is not an emergency (even though it feels like one). Here's how to prepare for the real fiascos in your life.

What will you do when faced with an unexpected expense of, say, $400? A 2016 study from the Federal Reserve found 46% of Americans didn’t have enough funds to cover an unexpected expense of that amount. So, how did they manage to pay for it? Possibly by using their credit card or doing the unthinkable and asking for money from friends and family, which is never fun.

The issue here is that emergencies are bound to happen, as they do to all of us. So, it’s best to be prepared because one of the easiest ways to get into debt unexpectedly, and damage your credit score in the process, is by paying for an emergency car repair or medical expense with plastic — and no plan to pay it off quickly.

If you have been working hard to repair, maintain and improve your credit score, one of the best ways to avoid destroying all your hard work is to have an emergency fund you can use for unexpected expenses. (You can see how your debt may be affecting your credit by viewing two of your credit scores for free on Credit.com.) Remember, it’s best to only use your revolving credit, or credit card, for planned expenses you know you can pay off.

With that in mind, here are three simple steps to get you started on building an emergency fund.

1. Know the Difference Between an Expense & an Emergency

Buying a fancy dress for the big party on Saturday night is not an emergency (even though it feels like one). So make sure you are budgeting correctly and planning for expenses that you know are coming up. For example, you should have your car tuned every year or your home painted every five years. These can be major expenses, but, again, they are not emergencies. So, you need to have a savings plan for them. Imagine how much less stress you will feel if you plan ahead and save accordingly, and when the time comes to paint the house, you can just write the check and be done!

2. Save Up $1,000

Most Americans can’t scrape together enough cash to cover an emergency, however, they all know emergencies will happen, because they have in the past. So, it’s key to have an emergency fund. To start, do everything you can to sell, scrape and cut from your budget so you can save $1,000 as quickly as possible that you keep in a separate account from all of your other funds. Truth be told, most emergencies — not all! — will cost you $1,000 or less, so it’s a good benchmark to work toward. With that $1,000 in the bank, you’ll be surprised how much better you sleep at night.

3. Build a Bigger Cash Cushion

Once you’ve got your $1,000 saved up, just keep going! Keep saving up and adding to your emergency fund until you have three months of your household expenses saved up. Once you’ve done that, make it your goal to save six months’ worth of expenses. Just imagine the relief you’ll feel at not having to worry if something happens to your job, or your child needs special medical care, or you get hurt and can’t work for a few months. You’ll be covered without getting yourself into deep debt or having to beg your friends and family for money.

Remember, start today on building your rainy day fund. Aim to save $1,000 first, then keep going. It’s the smartest, safest thing you can do for your family, your finances and your credit score.

Struggling to get your emergency fund started? There are some places where you may be able to cut back. For instance, here are 50 things you should probably just stop spending money on

Image: Geber86

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How Millennial Parents Can Improve Their Life Insurance

Life insurance startup Haven Life recently conducted a survey to see what millennial parents value most in terms of finances. Not on their agenda: life insurance.

With about 9,000 millennials becoming parents every day, it’s fair to ask, How are they doing so far? Life insurance startup Haven Life recently conducted a survey of parents with children ages 0 to 5 to better understand what this new generation prioritizes when it comes to raising their kids. (Full Disclosure: I’m the marketing and communications director for Haven Life.)

The findings paint a fascinating picture of parents who are invested in raising smart, compassionate children, but who are financially unprepared for their family’s future. We’ll look at three areas with room for improvement.

1. Saving for College

According to the study, only 13% of millennial parents identified college savings as one of their top child-related financial priorities. Maybe it’s because college seems so far off for their young children. Still, tax-saving programs can (and should) be taken advantage of now. Even an early, small contribution has the ability to compound and grow over time.

“By making college savings such a low priority, parents are missing out on the benefits of compounding investment returns from tax-advantaged programs like 529 Plans or even minimally aggressive investment accounts,” said Bobbi Rebell, author of How to Be a Financial Grownup. “That is more money potentially left on the table that isn’t being tapped.”

With the average total cost of a four-year public university degree expected to balloon to more than $205,000 by the year 2030, parents need as much time as possible to save if they plan to cover this expense.

2. Saving for Emergencies

Unforeseen expenses like car maintenance, home repairs or medical emergencies can be costly. If you’re not financially prepared, the effects can result in high-interest debt. (You can see how your debt is affecting your credit by viewing two of your scores for free on Credit.com.)

About 53% of millennial parents have $5,000 or less in savings, and 34% have $1,000 or less. According to AAA, the average car repair bill is between $500 and $600, so a high-end repair could deplete a savings account almost instantly.

One of the best ways to avoid this is by having a nest egg that serves as a backup plan for the unexpected. Most experts recommend building an emergency fund that can cover at least six months worth of expenses, and possibly more if you have several children. Budgeting services like Mint and You Need a Budget can help identify opportunities to free up more cash for emergency savings.

3. Life Insurance

If the risk of a sudden and significant emergency isn’t scary enough, consider this: Few emergencies are costlier or more unpredictable than death. A recent Parting.com article indicated that a funeral and related burial services for the average family can cost between $8,000 and $10,000. And that’s on top of the mortgage, child care, debt repayments and other expenses survivors might have to pay.

Haven Life’s study found that just 15% of millennial parents consider life insurance a financial priority. Of those who have life insurance, 70% have less than $250,000 in life insurance, and 20% have none at all. With an average household income of about $81,000, the majority of millennial parents surveyed were underinsured.

Life insurance needs vary from family to family, but typically experts recommend coverage that’s at least five to 10 times your annual salary. An online life insurance calculator can help you determine what the right amount of coverage looks like for your family.

Stay-at-home parents should consider obtaining life insurance as well. While they don’t technically take home a salary, it’s estimated that the work they do accomplish can equate to an annual salary of $113,000.

If providing a comfortable upbringing is a primary concern, a life insurance policy is virtually a necessity to help protect loved ones. The proceeds of a life insurance policy can help your spouse or the guardian of your children cover day-to-day bills, future schooling expenses, child care, debts you leave behind and more. (You can learn how much debt is too much by going here.)

Millennial Parents Have Good Intentions but Need Financial Discipline

Haven Life’s survey shows millennial parents have good intentions when it comes to raising their children. They dedicate the majority of their time and resources to raising kind, well-rounded little ones.

College savings, emergency savings and life insurance coverage are three important components of a financial plan that helps provide stability in children’s lives. Without improvement in those areas, parents risk falling short on what most consider to be the ultimate goal: to provide their children with more — more education, more money, more love and more time.

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6 Things Everyone Should Be Doing to Build Wealth

The idea of “building wealth” isn’t just for rich people.

In fact, if the word “wealth” has you envisioning fancy people spending summers in Cinque Terre on their private yachts, it might be time to reconsider what wealth really means. Wealth, in general, can mean ensuring that you have enough to adequately cover what you need and to keep you happy while also possibly providing you with a little extra on the side for what you just plain want.

The best part is you don’t have to be a financial planner to build wealth — there are some easy things everyone can start doing.

1. Know Your Net Worth

To build wealth, you need to start at the beginning. If you haven’t already, take stock of your net worth (your assets minus your liabilities) and try tracking it for at least a couple months (the longer, the better) to see how it’s trending. (You can view two of your credit scores for free on Credit.com.) Obviously, it’s ideal for your net worth to be getting larger rather than smaller, but if it isn’t, step two will be important.

2. Keep Track of Your Spending

You can’t really build wealth if you aren’t sure where you’re spending your money. Whether you use an aggregate site to track where your money goes out, an Excel spreadsheet, an old-fashioned checkbook or regular old pen and paper, it might seem silly to pay attention to every purchase you make, but only when you start to notice patterns in your spending can you really make cuts where and when you might need to.

For example, if you determine you’re spending more than you’re making, look for adjustable costs you could potentially reduce or eliminate immediately (cable, gym memberships, extraneous spending, etc.). If the problem is your larger costs — student loans, how much you pay in rent or your car payment — it could be time to consider reconsolidating your loans or potentially moving to a more affordable apartment, getting a cheaper car or opting for public transportation, if possible.

3. Make the Most of Free Money

Very few things in life are free, so when something is, it’s foolish not to take advantage. If your company offers a 401K match that you aren’t taking advantage of, you are leaving free money on the table. Talk to your human resources representative about your company’s policy, and adjust your allocations if there is a match you aren’t currently getting.

It also might be worth making sure your savings and checking accounts are the best options for you. If you’re paying extraneous fees or think you could be earning more interest elsewhere, it’s worth researching the best place to help your assets grow.

4. Get a Card With Rewards That Suit You

If your current credit card isn’t cutting it, find one that is. There are great options out there for any type of reward that would be best for your lifestyle, whether for travel, groceries or cash back. Use this guide to help find a credit card that’s right for you, or check out our roundup of the best credit cards to help you build credit.

5. Think Ahead

It’s not always easy to plan for the future when you’re trying to scrape by day by day, but if you can think of any large expenses that might be happening later this year or next, you’ll be ahead of the game. When you start planning for large expenses with enough time to save up, you’ll be less likely to put them on your credit card and potentially have to pay interest on them.

You might want to consider any upcoming travel plans, plans to potentially buy a house or get married, health insurance deductibles for any planned medical procedures, potential taxes you’ll owe, etc. (See more about paying taxes here.)

6. Save, Save & Save Some More

You need to have an emergency savings account. Experts recommend keeping three to six months of expenses in an easy-to-access account, just in case something pops up.

If you have started saving and you’re serious about increasing your net worth, consider putting any tax refunds or pay raises directly into savings, or split them between savings and retirement accounts. If you already did your research from step three and found a good savings account, your pay raise will be even more meaningful when it’s compounded daily with interest.

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How to Create a Financial Emergency Plan

You may have an emergency fund, but you probably don’t have an emergency plan. And it’s time you created one.

My son recently brought home a homework assignment. He was supposed to write down a plan for what to do if there was a fire in our house. He’s not even 6.

That same week, our daughter told us about a fire drill in her daycare. She’s only 3.

Even at that age, it’s important to have a plan for the direst of circumstances. Fires are chaotic. To help cut through the confusion and the stress, we come up with plans and practice them. Without confusion, there will be less chaos and fear.

If we plan and practice a response to a fire emergency, why don’t we do the same for other emergencies?

Do you have plans for a car accident or a medical emergency that could leave you with four- or five-figure debt? You may have an emergency fund, but you probably don’t have an emergency plan. And it’s time you created one.

The key to a successful financial emergency plan is that it outlines the steps you would take if you ever had to face that emergency. It means you’ll walk through what you would do if the emergency were actually happening.

For example, the biggest financial emergency I can think of is losing my job.

In my emergency plan, here’s what I would do:

• Lower (or cancel) all nonessential expenses. I would immediately cancel Amazon Prime, my Netflix account and all the recurring costs that are completely discretionary. For services I couldn’t cut immediately, such as my two-year cable internet subscription, I’d downgrade the service to the lowest possible tier.

• Adjust my budget. Since I’d need to live off my emergency fund, I’d need to adjust my budget to be deliberate in my spending.

• Learn how to apply for unemployment benefits. I’d need to know the process for getting unemployment from my local state unemployment office. Learning it now would be easier than under duress.

• Decide how to tell my family. This can be one of the hardest things to do, but preparing for it in advance could make it far less painful.

• Establish a plan for finding a new job. Whether it’s setting up profiles on relevant job search sites or reaching out to my network, I’d establish that plan now so I could execute it later.

• Consider how to spend my downtime. Maintaining a positive attitude during a negative experience — one that could persist for many weeks — is crucial. So is planning for the greater abundance of downtime during the week. I’d need to find projects that would give me a sense of purpose to combat the frustrations I’d experience during a job search.

This is just a subset of the things I’d do if I was laid off. As you build your plan, you’ll want to expand on this list, but I wanted to provide a starting point. (Another good starting point: Checking your credit scores, which can impact your finances. You can view two of them for free, with updates every two weeks, on Credit.com.)

What Events Should You Plan For?

The big ones are a death in the family (including yourself), loss of your job or ability to do your job and catastrophic loss of a major asset like your home or vehicle.

Once those major emergencies are covered, you can expand to less-significant but important emergencies. What if your furnace or HVAC system fails? What if your oven, washer, dryer or other major appliance stops working? These are not as financially painful as losing a job or your car, but they’re still inconvenient and require research.

As you build out your plan, don’t be afraid to add to it. No emergency is too small, and taking the time now will pay off in the long run.

Hopefully you’ll get lucky and never need your plan at all.

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5 Signs You’re Not Ready to Be a Stay-at-Home Parent

It's a big decision to stay home after having a baby — but doing so isn't an option that is right for every mother.

Sometimes new mothers have a hard time deciding if they want to return to work after their baby is born, especially after bonding with their child during maternity leave. Sometimes there is no choice — like if you’re a single parent or your family can’t afford to live solely on your partner’s salary — and there’s not much left to do but head back to the office.

Women who have the option to stay home with a baby may have trouble weighing the pros and cons. As hard as it is to decide, there might be some fairly obvious signs that you’re actually not ready to be a stay-at-home mom. Of course, these tip offs apply to all those prospective stay-at-home dads, too.

Here are a few signs you’re not ready to be a stay-at-home parent.

1. You Have a Budget But Don’t Follow It 

Having a budget is one thing, but following it is something entirely different. Just because it looks like you have your finances under control on paper, if your credit card statements tell a different story, you might need to reconsider staying home, at least until you can get your spending under control. (Curious how your credit card debt is affecting your credit? You can see a free snapshot of your credit report here.)

Having a baby is bound to bring in even more expenses (according to the Department of Agriculture, the current cost of raising a child through age 17 is a whopping $233,610), so if you already have trouble following a budget — or you haven’t updated your budget yet to include everything your baby will need — you may want to consider seeing what following an updated budget would be like for at least a month before deciding if you can afford to live on one salary.

2. You Haven’t Saved for Retirement Yet/You Have No Retirement Savings Plan if You Quit

It’s no secret that Americans are worried about retirement. In fact, one recent survey found that 56% of Americans lose sleep over saving for retirement, while another found that 38% of millennials find retirement to be a significant financial stressor. Even if you have started saving but it’s been a few years since you’ve checked in on your progress, it may be time for a bump in how much you put away … something that will be much more difficult to do if you decide to leave your job.

Of course parents who decide to stay at home do have options when it comes to retirement (spousal IRAs, self-employed retirement funds and rollover accounts, to name a few). But if you don’t qualify for them, don’t care to look into them or can’t afford to put anything else away if you leave your job, it’s probably best to reconsider leaving until you can. You can read this guide to learn more about IRAs.

3. Your Partner’s Health Insurance Options for You & Your Baby Are Subpar at Best

While the future of healthcare is a little shaky right now, there’s one thing you can safely assume no matter what happens — you and your baby will need some. Newborns spend the first six months of their lives visiting a pediatrician at least once a month (often much more frequently in their first few weeks), and new moms, in particular, will have plenty of check-ups with their OB as well. These aren’t things you’ll want to do without health insurance, so if your partner’s options for you and your child don’t stack up, staying on yours until something better comes along is a good idea.

4. Your Emergency Savings Account Is Minimal

You might think having three months worth of bills covered in an emergency account is great — and it is — but it might not be enough if you’re considering leaving your job. Experts recommend having at least three to six months’ worth of bills covered in an emergency savings account, and that doesn’t really take into account all the extras that come along with having a baby. If you’ll be moving into a house from an apartment for more space, assume that you’ll have random projects pop up that will start draining that emergency fund quickly. If your partner can afford to keep funding the account to cover for any withdrawals you take or to provide you with more of a cushion that’s one thing, but if the account has been stagnant for a while and your family can’t afford to put anything else away right now, maybe a better idea is to stay at your job and slowly build up the emergency account a bit more so that when/if the time comes that you leave your job, you’ll feel more secure knowing your emergency funds are all there.

(And, if you don’t have a savings account at all, you’ll want to start socking away dollars ASAP. No need to panic, though: This piece will help you create an emergency fund in 30 days or less.)

5. You Struggle Spending All Day Alone with the Baby During Work Leave

Let’s be honest — babies are tough to take care of. So if you find it difficult to stay positive while on maternity or paternity leave, that might be a sign that you’re not quite ready stay home full time with a baby. Working is about a lot more than just a paycheck — it’s about having some time to yourself (funny how commutes suddenly become a wonderful thing) and with other adults, and it’s about having a job to do that both stimulates and fulfills you. If you don’t think staying at home with a baby will do all of those things for you, it’s probably best for you, and your family, if you head back to work.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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6 Tips for Managing Money in a Same-Sex Marriage

Here's what same-sex couples need to know about financial planning.

Like Cinderella before midnight, in June 2015, when same-sex marriage was finally legalized in the U.S., many in our queer community tied the knot without knowing if our wedding shoes fit.

It wasn’t until these couples said, “I do,” that many asked, “And what about money, retirement, children, career and life goals?” Unlike in fairytales, happily ever after isn’t the end of the story.

If there’s anything we learned from The Knot’s 2016 LGBTQ Weddings Study, it’s that between June 2015 and June 2016, Prince Charming and Prince Charming’s marriage looked similar to Snow White’s.

By avoiding the money talk like a poisonous apple, are same-sex couples casting their marriage in a spell destined to “mirror mirror” their straight peers? Will money be a main cause of divorce?

By following these six steps, same-sex couples can make their marriage a fairytale.

1. Hope for Fairy God Mothers, Plan for Big Bad Wolves

It’s an unfortunate fact that in 28 states, queer people can be fired for being queer. While it’s legal for us to get married in all 50 states, those who live in these 28 states without LGBT workplace protections risk losing their jobs if they put a picture of their spouse on display.

This risk reaffirms the age-old advice of having an emergency savings account of enough cash to cover between three to six months’ worth of living expenses. When we were living paycheck to paycheck, this seemed impossible. What’s more impossible is surviving without a paycheck when you’re living paycheck to paycheck.

Even by putting just $10 of each paycheck into an emergency savings account, you’re replacing a house of straw with a house of bricks.

2. Be Transparent Like a Glass Slipper

Before two become one, make sure the math works. With escalating student loan and consumer debt, it’s important that each person knows the financial benefits and burdens they’ll adopt when they get hitched.

Not until we talked honestly about each of our financial situations did we have clarity on where we stood. When we learned that we had $51,000 in credit card debt between the two of us, it made sense why we were living in a friend’s basement apartment.

Both people should disclose the good, bad and ugly about their pre-marriage financial condition. This includes student loan debt, credit card debt, bankruptcies, liens and other financial infractions. This also includes credit scores and credit history, annual income and tax brackets. (You can view two of your credit scores, updated every 14 days, on Credit.com.) Don’t forget health and life insurance coverage, retirement and other savings.

With a clear picture of what each party brings to the marriage, both ensure they’re making wise decisions. The likelihood that either would terminate an engagement because of the other’s financial situation is low, but at least neither will feel they were deceptively given a poisonous apple.

The best scenario is that with clarity they can come up with a plan to fix their financial problems.

3. Whistle While You Work … Together

Successful marriages are a team effort. It’s helpful to divide and conquer in some parts of marriage. Money is not one of them. The best reason of all to talk about money is because couples that talk about it are often happier.

We’ve tried dividing and conquering our money management, but we’re never as successful as when we collaborate on it. Even just a 15-minute monthly meeting to assess income and expenses keeps both parties aware of their financial progress. As they make progress, they’ll see the value and the fun.

As Mary Poppins said, “In every job that must be done, there is an element of fun.”

4. Learn From Your Past

Unlike the future of cars, it’s never good to put one’s finances completely on auto-pilot. All too often, most people avoid ensuring they’re staying within budget or their retirement contributions and investments are keeping up with their goals.

With our own finances, we usually feel these emotions of avoidance when we think we’re off track. When we know we’re off track, we feel compelled to make corrections.

As with many in the queer community, we were afraid that adjusting our financial plan meant we couldn’t maintain the appearance of having a fabulous life. Many of us grew up in a time and a place when it wasn’t OK to be queer. Therefore, we spend our adult lives making up for lost time and seeking validation through outward appearances.

The most memorable movies have great endings. Make sure you have one with frequent checks and balances on your financial progress.

5. Be Like Ohana

Ohana means family, and family means no one gets left behind or forgotten.” — Lilo and Stich

Family members, even same-sex partners, don’t need to have the same financial goals, but they do need to support each other.

If one partner tries to save money while the other spends, it won’t be long before a disagreement happens. Likewise, it shouldn’t be the sole responsibility of one partner to achieve a mutually beneficial goal.

The fact that we can support each other’s financial goals has made all the difference in our ability to pay off our credit card debt and achieve our mutual and individual financial and life goals. Neither of us antagonizes the other.

6. Plan for a Visit From the Stork

Unlike our straight peers, having children in same-sex relationships is never a surprise. Building a family in a same-sex relationship can be exorbitant. Because the cost of having a child can range from free (foster adoption) to the hundreds of thousands (gestational surrogacy), it’s important to determine why you and your spouse want children. With this information and your budget, you can then determine how you want to have children. When planning a visit from the stork, it’s never wise to bury your head in the sand like the proverbial ostrich.

With same-sex marriage being relatively new, many of us are only just now learning of the unique financial nuances of our same-sex marriages, such as employment protections and family planning. Our advice is to understand the nuances before walking down the aisle, otherwise you’ll just be happy for the moment.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Image: svetikd

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These Americans Are Still Having a Hard Time Saving for an Emergency

saving-for-an-emergency

Americans are doing a little bit better at saving money in an emergency fund — but women, some minorities, young adults, and the less educated are still woefully unprepared for a financial emergency, according to a new study.

Overall, there have been marginal gains in the number of Americans who say they could come up with $2,000 to cover a surprise expense “in the next month,” according to the study published by the Financial Industry Regulatory Authority (FINRA), the financial industry’s self-regulatory board.

In 2012, 40% said they probably or certainly could not so do. In 2015, that number had fallen to 34%, FINRA says. Similarly, in 2012 some 35% said they were certain they “could come up with the full $2,000.” That number is now 39%. The improvements, while narrow, suggest the “financial fragility” of Americans is slowly easing.

Wide gaps among different demographic groups tell a far more pessimistic story, however. Here are some of the findings.

  • Gender: Women are in a much more fragile position. While 28% of men said they probably or definitely could NOT cover a $2,000 expense, fully 39% of women said they could not.
  • Age: Those over 55 are in a far stronger position. While only a quarter of that group said they probably/certainly could not raise $2,000 in a month, 43% of those under 34 said they couldn’t.
  • Ethnicity: Whites are better off than Blacks or Hispanics, but Asians are most prepared. While 30% of Whites said they probably/certainly could not come up with $2,000, only 24% of Asians said so. Hispanics (39%) fared worse than both groups. Most alarming however, is that nearly half of African Americans (48%) said they probably/certainly could not, making them the most fragile ethnicity. In fact, among demographic groups of all kinds, only those with incomes under $25,000 fared worse.
  • Income: Not surprisingly, income levels tracked tightly with financial fragility. Still, 11% of those earning more than $75,000 annually said they probably/certainly could not deal with a $2,000 emergency. One-third of those earning between $25,000-$75,000 said they could not, while 63% of those earning less than $25,000 said they couldn’t.
  • Education: School attainment levels were also a solid predictor of financial fragility. Only 18% of those with a college degree or more probably/certainly could not deal with a $2,000 emergency; but 45% of those with only a high school degree or less said they could not.

“Consistent with previous years, the 2015 NFCS finds that measures of financial capability continue to be much lower among younger Americans, those with household incomes below $25,000 per year, and those with no post-secondary educational experience,” FINRA said in its report. “African Americans and Hispanics, who are disproportionately represented among these demographic segments, also show signs of lower financial capability, making them more vulnerable.”

It’s important to note many of the demographics that appear to be having a harder time saving for emergencies have been found in various studies to earn less income than their counterparts.

Overall, the findings are consistent with plenty of other studies showing Americans are poorly prepared for financial emergencies. In March, for example, the Associate Press-NORC Center for Public Affairs released poll data with even bleaker numbers. Two-thirds of consumers in that study told the center they would have trouble coming up with funds to cover a $1,000 emergency.

Analysts have long wrestled with the problem of understanding Americans’ lack of savings. While the recession clearly made it harder for Americans to save, Americans weren’t great savers back in the boom years, either. In fact, by some measures, America’s overall savings rate fell below zero — the nation was spending more than it was earning — back in 2005.

Saving isn’t sexy, and it isn’t lucrative, either. Most traditional savings accounts offer barely perceptible interest rates, and even most Internet-only banks offer less than 1% returns.

The tax code is at least partly to blame, too. While tax-advantaged retirement accounts like 401K plans heavily encourage saving for the long term, there is no similar nudge to convince U.S. consumers to save for the short or medium term. Both Canada and the U.K. permit 401K-like accounts that encourage saving money to be used before retirement.  Lower-income Americans can participate in “Individual Development Accounts” designed to encourage savings, but no such tax-advantaged plan is available to the general public. The idea has been floated several times in the U.S – President George W. Bush proposed something similar, called Lifetime Savings Accounts, back in 2003 — but the idea has not taken hold.

Remember, spending more than you’re saving — or, worse, earning — could ultimately land you in debt, which can wind up further taxing your bank account and damaging your credit score. You can see how your current debt levels are affecting your credit by viewing two of your credit scores, updated each month, for free on Credit.com. You can also find some tips for getting out of debt here.

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5 Things to Do on New Year’s Day to Start Your Financial Year Right

happy_resolution

For many, New Year’s Day is time to take stock in the year that was and focus on how to make the coming 12 months even better. One way to do that is take a few minutes from the day and examine your finances. Here are five tips that can help you do the most to ensure a happier financial new year.

1. Make a Plan Pay Down Debt

If you’re among those carrying a balance on your credit cards, you may want to increase the amount you pay each month — especially if you’re only paying the minimum amount due. Credit card interest can add up quickly.For example, if you’re carrying a $5,000 balance on a credit card with a 16% annual rate and make only the minimum payment required to get out of debt eventually ($117 in this case), you will be debt-free in April 2021, paying $7,541 over the life of the debt. But by kicking in an additional $25 a month to that payment, you can be debt-free 1 year and 4 months earlier and pay roughly $750 less in interest (a total of $6,802 vs. the aforementioned $7,541). You can see how your current credit balances are affecting your credit scores by viewing your free credit report summary updated each month on Credit.com.

2. Review Your Retirement Savings Plan

If you have a 401(k) plan through your employer, consider increasing the percentage of your income you’re setting aside each pay period — especially if you recently received a raise. A 1% increase could help speed you toward your savings goal, and you won’t likely miss the funds. Also, take a look at how your funds are invested. If they’re in mutual funds with a high expense ratio, consider a lower cost option, such as an index fund or target date fund. If your employer doesn’t sponsor a 401(k) plan, consider opening a traditional or Roth IRA through a low cost provider. If you contribute to a traditional IRA before April 15, you may be able to deduct the amount of the contribution from your 2015 taxes.

3. Boost Your Emergency Savings

Scrambling to find cash when your car breaks down or the roof springs a leak is no one’s idea of fun. One way to alleviate the stress is to automate your savings. Ideally, you should have about six months’ worth of household expenses set aside, but, at first, you can start with a less lofty goal, say, $1,000. Then, set up an automatic transfer from the account where your paycheck is deposited into a savings account specially designated for emergencies. Alternatively, many employers allow you to deposit your pay into different accounts on payday, eliminating the need to set up a transfer. However you do it, you can start small and then increase the amount incrementally as you’re able.

4. Assess Your Regrets

Have a few? While it doesn’t pay to dwell in the past, taking few minutes to see how you could’ve better managed your money in the past year can help you think about better ways to manage your money in 2016. Changes could be something as simple as being better organized when you go grocery shopping. Compiling a list and searching for coupons, for instance, could help eliminate needless trips that waste both time and money.

5. Plan, Plan, Plan

We all have projects we’d like to complete in the new year, and now’s the time to think about which ones to get done. The beginning of the year can be a good time to find deals on any Do-It-Yourself supplies you may need for spring or summer projects. And it’s also a great time to reach out to home-improvement contractors for those plans that are beyond your skills — in a few months, they may be too busy to return your calls.

More Money-Saving Reads:

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