7 Money Rules Freelancers Should Live By

For years, Russell Wild was one of millions of Americans who didn’t know from where or when his next check was coming. The former freelance journalist says he’s very familiar with living with volatile income, some months raking in far more than he needed and other months scraping by while waiting for the next check to arrive.

“Both the income side is volatile, and the expense side, especially where health care is concerned, because freelancers don’t have corporate coverage,” says Wild.

Nearly one-third (34%) of Americans said they faced large swings in income from 2014 to 2015, according to a recent analysis by PEW Charitable Trusts. The research group defines a “volatile” income change to be an increase or decrease of at least 25%. Among households whose earnings declined, the median loss was 49%.

In 2004, Wild dropped his freelance writing career for something more stable. He’s now a registered financial adviser and author based in Philadelphia, Pa. He says he watched fellow freelancers “go into panic when they saw that there was little chance of covering the next month’s rent, or the latest doctor’s bill.”

Year over year fluctuations in household income occur for a number of reasons. A worker might get an annual bonus or promotion. On the flip side, a worker could experience a sudden illness or job loss. Those in contract or freelance occupations are especially vulnerable to income volatility. Researchers also found Hispanic, less-educated, and low-income American households are most susceptible to income volatility.

Households experiencing inconsistent or irregular income may be able to leverage the following tips to better manage financially and get prepared in case of a financial emergency.

  1. Base your budget on your lowest grossing month

Your household’s income might be volatile, but your goal should be to make sure your lifestyle is as predictable as possible. You can add some stability to your life by establishing a budget.

“Try to live within a fixed income — the lowest point of your fluctuating annual or monthly household income,” says Arlington,Va.-based financial planner Hui-chin Chen. Those with volatile income should also try to limit debt and unnecessary spending.

Monitor your household’s cash flow carefully to see what you’re spending money on, then cut out the unnecessary expenses until you are left with your fixed costs, such as housing or monthly bills.

“Without being aware of what you’re spending and where, you can overspend your sometimes low income without realizing it, or treat yourself to more than you should when there’s a big month,” says Stephen Fletcher, an adviser at BlueSky Wealth Advisors in New Bern, N.C.

Keeping record of your spending might be tough to do at first, but budgeting apps like EveryDollar, Level Money, and Mint can help you keep an eye on yourself or your household.

“Volatile incomes require discipline, otherwise you can end up feeling like you are living paycheck to paycheck,” says Fletcher.

  1. Set your lifestyle now

Once you’ve got your budget together, don’t fall prey to lifestyle inflation when you have a couple of months of steady work or receive a large influx of cash. Try to develop regular spending and saving patterns.

“If you know what you need to keep the lights on and you know what you need to pay yourself (save), it’s much easier to plan for influxes of cash that need to be set aside,” says Chicago-based financial planner Nick Cosky. He says households can get started by setting monthly and annual spending and savings goals.

Try to make as many monthly and annual expenses as possible predictable and planned. For example, if you know your expenses totaled about $5,000 last month, then you should plan to spend no more than $5,000 this month and the following month.

“Live below your means, especially until you have achieved sufficient cash reserves and savings,” says Anne C. Chernish, president and managing member of Anchor Capital Management in Ithaca, N.Y.

Once you’ve maintained a certain level of monthly cash flow and your emergency stash is all set, you can adjust your quality of life accordingly. If you can afford to, Patrick Amey, a financial planner at KHC Wealth Management in Overland Park, Kan., suggests those who experience regular volatility keep one to two years of living expenses available — just in case you need to maintain your lifestyle without a paycheck for a while.

  1. Anticipate large expenditures

If you are aware of a large expense coming up — maybe your car needs repair or you’re aware of necessary medical services or even paying your taxes each year — you should plan to save as much as you can before the bill comes.

Create a separate savings account and allocate funds toward it periodically for the upcoming expense. Make sure your savings goal considers all of associated costs, so you won’t get caught off guard.

“With purchases like cars, homes, and other large items, these types of purchases require insurance, property taxes, etc., so buying when you have just enough cash to make the purchase can have serious and crippling long-term effects,” says Fletcher.

  1. Always plan ahead for taxes

If your income varies because you’re a contractor or work for yourself, you’ll need to budget for tax withholding. You can plan ahead and pay your taxes quarterly. You’ll get the payment out of the way, plus you won’t feel it as much as you would if you pay when you file your taxes.

Unfortunately, if you experience income volatility, you might pay a different amount in taxes if you have a particularly good — or bad — year and enter a different tax bracket.

“Higher taxes follow good earnings years and, if one has insufficient reserves for tax, can deliver a double whammy. Just as the income turns down, the tax from the previous year is due,” says Chernish.

For that reason, Cosky recommends you get 6 to 12 months ahead of the tax liability and keep your CPA or tax preparer in the loop so they can help you plan tax withholding.

If you’re doing your taxes on your own, you can use this IRS form to estimate your taxes owed each quarter.

  1. Have multiple income streams

When your main income stream is inconsistent, it might help to pick up a second job to help cover expenses during economic downswings or simply to ensure your expenses will be covered.

As an added benefit, you might also feel more financially stable, as you could possibly put more money into your savings.

Wild, a former president of the American Society of Journalists and Authors, says for most freelancers that might mean accepting a corporate contract and working on your more creative projects in-between the corporate job’s deadlines.

“When I was writing full time, before I started financial planning, I always had a steady gig. I was for years a regular contributor to various magazines, and later I had book contracts with decent advances,” says Wild.

  1. Save at least a year’s worth of expenses

Lynn Dunston, Senior Wealth Manager at Dunston Financial Group in Denver, Colo., suggests those with volatile income have enough money saved in an emergency account to cover a year’s worth of expenses, instead of the usual 3- to 6-month savings recommendation for those with stable income.

“It is critical that if there is a down month, they are not having to accumulate credit card debt or take out loans in order to continue their standard of living,” says Fletcher.

  1. Make sure your money is working for you

After you have your emergency savings funded, it might not make as much sense to continue to put ALL of your extra savings there. Since interest rates on savings accounts currently lag behind inflation, your money would actually lose value in the typical savings account today.

You can stash “near cash” in higher-yield savings options like short-term bonds or CDs. Mark R. Morley, president of Warburton Capital Management in Tulsa, Okla., tells his clients to create a “currency escrow” or a safe bond portfolio that can be liquidated as needed for currency needs. The escrow ideally holds at least one year of expenses in short-term investment bonds. Morley says it can be used to supplement income or added to when income is high.

Fletcher says to avoid tying up all of your cash savings in retirement accounts like a 401(k) or IRA to avoid penalty charges in case you need to withdraw the funds early. Instead, he suggests you invest excess funds in a brokerage account, since you can take money out of that with little or no tax implications.

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12 million people are about to get a credit score boost — Here’s why

Some serious tax liens and civil judgments will soon disappear from millions of credit reports, the Consumer Data Industry Association announced this week. As a result, millions of consumers could see their FICO scores improve dramatically.

The CDIA, the trade organization that represents all three major credit bureaus — Equifax, Experian, and TransUnion — says they have agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information. That information can include the consumer’s full name, address, Social Security number, or date of birth. The changes are set to take effect July 1.

Roughly 12 million U.S. consumers should expect to see their FICO scores rise as a result of the change says Ethan Dornhelm, vice president of scores and analytics at FICO. The vast majority will see a boost of 20 points or so, he added, while some 700,000 consumers will see a 40-point boost or higher.

Even a small 20-point increase could improve access to lower rates on financial products for these consumers.

“For consumers, the news is all good,” says credit expert John Ulzheimer. “Your score can’t go down because of the removal of a lien or a judgment.”

The change will apply to all new tax lien and civil-judgment information that’s added to consumers’ credit reports as well as data already on the reports. Ulzheimer says consumers who currently have tax liens or judgments on their credit reports that are weighing down their credit scores will be able to reap the rewards of removal almost immediately

“The minute the stuff is gone, your score will adjust and you’re going to find yourself in a better position to leverage that better score,” says Ulzheimer.

But, importantly, he notes that just because credit reporting bureaus will no longer count tax liens or civil judgments against you, it does not mean they no longer exist at all. Consumers could still be impacted by wage garnishment and other punishments associated with the liens and judgments.

“This is the equivalent of taking white-out and whiting it out on your credit report. You can’t see it any longer, but you still have a lien, you still a have a judgment,” Ulzheimer says.

Solution to a longstanding problem

Many tax liens and most civil judgments have incomplete consumer information.

The changes are part of the CDIA’s National Consumer Assistance program that has already removed non-loan-related items sent to collections firms, such as past-due accounts for gym memberships or libraries. The program also has set a 2018 goal to remove from credit reports medical debt that consumers have already paid off.

“Some creditors may have liked having inaccurate credit reports, as long as they were skewed in their favor. That’s not the way the system is supposed to work. This action is just one more proof that the CFPB [Consumer Financial Protection Bureau] works, and works well, and shouldn’t be weakened by special interest influence over Congress,” says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The move is likely the result of several state settlements and pressure from the Consumer Financial Protection Bureau, the federal financial industry watchdog.  Beginning in 2015, the reporting agencies reached settlements with 32 different state Attorneys General over several practices, including how they handle errors. The CFPB also released a report earlier this month that examined credit bureaus and recommended they raise their standards for recording public record data.


Time to start shopping for better loan rates?

High credit scores can lead to long-term savings. Borrowers who expect their scores to improve as a result of these changes may find better deals if they can wait a few months to buy a new house, refinance a mortgage, or purchase a new car. Even a 10-point difference can lead to lower rates on loans.

If you expect the credit reporting changes might benefit you, Ulzheimer suggests holding off on taking out new loans or shopping for refi deals, such as student loan refinancing.
“Let it happen, pull your own credit reports to verify the information is gone, then take advantage of the higher scores,” Ulzheimer says.

Ulzheimer also says the changes may not be permanent. “There is a possibility that if the credit reporting bureau is able to find the missing information, the negative information could reappear on consumer credit reports,” he says.

There isn’t anything in the law that forbids the reporting of liens and judgments anymore, and lenders can still check public records on their own to find missing information.

Ulzheimer says if he were the CEO of a reporting agency, that’s exactly what he would do.

“I would embark on a project to get this information immediately back in the credit reporting system,” he says, then adds all he’d need to do is find an economic way to populate the missing data.

“From a business perspective, I would do it in a New York minute. Because I would immediately have a competitive advantage over my two competitors,” says Ulzheimer.

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The 3 Secrets to Retiring Early

You’ve likely read articles about people retiring early. Is it possible for you, and if so what will it really take? First let’s establish the age at which most people retire. According to a 2016 Smart Asset survey, most people retire between the ages of 62 and 65. By age 63, half of adults are no longer working.

The definition of early retirement can be pretty subjective. You cannot draw from Social Security until age 62, but under certain circumstances you can begin withdrawing from your 401(k) at age 55 (age 50 if you’re a public safety employee like a firefighter). So for the purposes of this conversation we’ll peg early retirement as any age before 50.

The key to retiring early? Low expenses, no debt, and high income.

Retiring early is no easy feat, and in most situations it will require several events to occur, some of which you may not have control over. In the vast majority of cases you will need to keep your current cost of living extremely low, earn a high salary, and have little to no debt. These barriers automatically make it harder for the 44 million Americans with student loan debt; the class of 2016 alone had an average of about $37,000 in loans.

Though debt always plays a factor, cost of living may be the biggest hurdle to overcome on your path to early retirement. Peter Adeney, who runs a very popular financial blog called Mr. Money Mustache, retired at 30 and has become one of the most popular names behind the FIRE (Financial Independence Retire Early) movement. (Pete does not reveal his last name to media to protect his family’s privacy).

But he is hardly kicking back at an island villa sipping cocktails all day. According to an interview in MarketWatch, his family of three subsists on $25,000 per year in Longmont, Colo. Not everyone is able (or willing) to cut back their expenses to fit under such a low threshold. Where you choose to live can determine how much of your income you can save. MagnifyMoney recently analyzed over 200 U.S. cities to find the best and worst places to retire early.

Choosing the right career with a high salary on the front end can be a huge boost, Travis and Amanda of the blog Freedom with Bruno saved $1 million by 30 and retired to Asheville, N.C., according to Forbes. Thanks to a career in tech they were earning a combined income of $200,000. Jeremy of Go Curry Cracker, who made nearly $140,000 per year at Microsoft, saved 70% of his income, and lived on less than $2,000 per month, also retired at 30. It is also important to know that Pete and his wife (mentioned earlier) were also in the tech industry.

Not everyone can relocate to an inexpensive region of the country due to their job or the need to be close to their family, nor do most Americans have the privilege of a six-figure salary, but there are some great lessons that can be applied to your situation, no matter your income or age.

What you would need to retire early

Regardless of salary, debt, or cost of living, having a clear and defined goal is what gives people the confidence to retire early. Without it, they wouldn’t know the amount needed to leave their jobs. You will need to know how much you should be saving toward retirement each year and how much you will need while in retirement. Bankrate has a free retirement calculator here to help you visualize your retirement savings.

The typical rule of thumb is to live off of 4% of your total retirement savings. If you can live comfortably off of $40,000 per year in retirement, you would need about $1 million by the time you retire. If you could live comfortably off of about $25,000, you would only need about $600,000; this is what Pete from Mr. Money Mustache saved when he retired. Another easy way to get to that number is by multiplying your ideal retirement income by 25. So someone needing $55,000 in retirement would need $1,375,000. Once you figure out what you would be comfortable living on, you’ll need to select quality, low-cost investments. For many early retirees this comes in the form of index funds.

If you’re looking into cutting your cost and putting more toward retirement, you may have to get creative or put some serious efforts into increasing your income. This may include keeping a car on the road that’s 19 years old, cooking for every single meal, or moving in with your adult siblings to pay off your debts. Early retirement will require serious commitment and discipline. If you’re in the right position to do it, then this may be the path for you.

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3 Strategies to Teach Your Child to Invest

Chicago, Ill.-based actor Mike Wollner says at ages 7 and 10 his daughters are already learning how to invest.

Three years ago, Wollner opened custodial brokerage accounts for the girls through Monetta Mutual Funds, which has a Young Investor Fund specifically for young people to invest for the future. Through the fund, parents can open custodial brokerage accounts or 529 college savings accounts on behalf of their children, as well as get access to financial education and a tuition rewards program.

Wollner decided to open the accounts once his daughters began to nab acting gigs and earn an income. They’re already beginning to understand what it means to own a part of the world’s largest companies. “They will ask me to drive past Wendy’s to go to McDonald’s and say, ‘well, we own part of McDonald’s,’” he says.

Wollner hopes his daughters will have saved enough for college by the time they graduate high school. His 10-year-old’s account balance already hovers around $13,000, while his 7-year-old has a little less than $10,000 saved for college in her account.

The contents of the package a child receives in the mail when an adult opens a Monetta Mutual Young Investor Fund custodial account on their behalf.

The Value of Starting Young

The Monetta Fund is only one example of a way to invest on a child’s behalf. The downside to using an actively managed investment account like the one Monetta offers is that it comes with higher fees — the fund’s expense ratio of 1.18% in 2016 is higher than the 0.10% – 0.70% fees typically charged by state-administered 529 college savings plans.

In addition to 529 plans, parents can open Coverdell Education Savings Accounts, or other custodial brokerage or IRA accounts through most financial institutions like Fidelity, Vanguard, or TD Ameritrade.

A college fund serves as a great way to teach kids a little about the time-value of money, but they’ll need to know more than that to manage their finances as well as adults.

“There’s no guarantee that they are going to be financially successful because anything can happen in life, but you’ll be better off with those skills and have a better chance of being successful with those skills than without them,” says Frank Park, founder of Future Investor Clubs of America. The organization operates a financial education program for kids and teens as young as 8 years old about financial management and investing.

He says FICA begins teaching financial concepts at an early age with hopes that the kids who start out with good money management habits now will continue to build on them as they age.

“If they fail to get that type of training now, it may be years into their late 20s, 30s, or 40s before they start. By then it could be too late. It could take 20 years to undo the mistakes they’ve made,” says Park.

3 Ways to Teach Young Kids About Money

Use real-world experiences

Wollner has each daughter cash and physically count out each check they receive from acting gigs.

“They just see a big stack of green bills, but that to a child is cool. It’s like what they see in a suitcase in the movies,” says Wollner.

He then uses the opportunity to teach how taxes work as he has his daughters set aside part of the stack of cash to pay taxes, union fees, and their agent.

“They start to see their big old pile of money diminish and get smaller and smaller,” says Wollner, who says the practice teaches his daughters “everything you make isn’t all yours, and I truly believe that that’s a lesson not many in our society learn.”

Kids don’t need to earn their own money to start learning. Simply getting a child involved with the household’s budgeting process or taking the opportunity to teach how to save with deals when shopping helps teach foundational money management skills.

Park urges parents to also share financial failures and struggles in addition to successes.

“They need to prepare their kids for the ups and downs of financial life so that they don’t panic if they lose their job, have an accident, or [their] identity [is] stolen,” says Park.

Gamify investing

Gamified learning through apps or online games can be a fun way to spark or keep younger kids’ interest in a “boring” topic like investing.

There are a number of free resources for games online like those offered through Monetta, Education.com, or the federal government that aim to teach kids about different financial concepts.
Wollner says his youngest daughter benefited from playing a coin game online. He says the 7-year-old is ahead of her peers in fractions and learning about the monetary values of dollars and coins.

“This is how the kids learn. It’s the fun of doing it. They don’t think of it as learning about money, they think of it as a game,” says Bob Monetta, founder of Monetta Mutual Fund. The games Monetta has developed on its website are often used in classrooms.

When kids get a little older and can understand more complicated financial concepts, they can try out a virtual stock market game available for free online such as the SIFMA Foundation’s stock market game, the Knowledge@Wharton High School’s annual investment competition, or MarketWatch’s stock market game.

“The prospect of winning is what makes them leave the classroom still talking about their portfolios and their games,” says Melanie Mortimer, president of the SIFMA Foundation.

Anyone can play the simulation games, including full classrooms of students.

Aaron Greberman teaches personal finance and International Baccalaureate-level business management at Bodine High School for International Affairs in Philadelphia Penn. He says he uses Knowledge@Wharton High School’s annual investment competition in addition to online games like VISA’s websites, financialsoccer.com, and practicalmoneyskills.com, to help teach his high school students financial concepts.

Adults should play the games with children so that they can help when they struggle with a concept or have questions. Adults might even learn something about money in the process. Consider also leveraging mobile apps like Savings Spree and Unleash the Loot to gamify financial learning on the go.

Reinforce with clubs or programs

For more formal reinforcement, try signing kids up for a club or other financial education program targeting kids and teens.

FICA, the Future Investors Clubs of America, provides educational materials and other support to a network of clubs, chapters, and centers sponsored by schools, parents, and other groups across the nation.

When looking at financial education programs, it’s important to recognize all programs are not equal, says FICA founder, Frank Park.

“Generally speaking, you’re going to go with the company that has a good reputation of providing these services, especially if your kid is considering going into business in the future,” says Park.

The National Financial Educators Council says a financial literacy youth program should cover the key lessons on budgeting, credit and debt, savings, financial psychology, skill development, income, risk management, investing, and long-term planning.

Mortimer suggests parents also try getting involved at the child’s school by offering to start or sponsor an after-school investing club. She says many after-school youth financial education or investing organizations nationwide use SIFMA’s stock market simulation to place virtual trades and compete against other teams.

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Stash Wealth Financial Planning Review – The Planner for HENRYs

Millennials are a lot more interested in their personal financial well-being at a younger age than the members of the two generational cohorts that came before them. But what else would you expect of the kids that came of age during the financial crisis and saddled with an average $30,000 student loan debt?

Luckily, millennials also came of age during the digital revolution, and a number of the cohort’s members have created platforms designed specifically to help millennials handle their finances.

Online financial planner, Stash Wealth, is one of those resources.

What Is Stash Wealth?

Stash Wealth is the online financial planner dedicated to serving the HENRYs (High Earners, Not Rich Yet) of the world. The startup was founded in 2013 by former Wall Street executives Priya Malani and Rob Kovalesky to serve millennial high earners they felt had been ignored by traditional firms or who may be fearful of financial management.

Stash Wealth’s services include personalized financial planning and investment management. Clients can also get personalized advice from Stash’s in-house experts — dubbed “rebels” — on topics like estate planning, investing, taxes, and accounting. For additional assistance, the company provides financial information to the general public through articles on its blog.

This review only covers Stash Wealth’s financial planning offerings, but we briefly touch on their investment management services at the end of this post.

How Do You Know If You’re a HENRY?

Stash Wealth defines a HENRY as an individual — or couple — who’s already earning about six figures annually. That’s a tough bracket to reach considering only 2.7% of millennials earned $100,000 or more in 2015, according to data from the U.S. Census Bureau. But becoming a HENRY isn’t all about income.

Stash has created a quiz to help potential clients figure out if they qualify as a HENRY. If you’re not quite there yet, Stash Wealth has a partnership with invibed, which runs a low-cost Wealth Coaching program for about $450.

How Much Does Stash Wealth Cost?

Stash Wealth’s pricing makes it clear HENRYs are their target audience. You — or you and your partner — can complete a Stash Plan for a one-time fee of $997. The Stash Plan is a financial plan for your life that will address how and when you can reach all of your financial goals.

After your plan is created, you’ll graduate to Stash Management, a full wealth management service, which you’ll be charged for based on how much money Stash is investing for you. It has two payment tiers:

  • $50 per month for those with less than $50,000 in assets managed by Stash
  • 1.2% of the assets Stash manages for you annually ($100,000 invested = $1,200 annually) if Stash is managing more than $50,000 worth of assets

If you’re an entrepreneur, you can build a Stash Plan for Entrepreneurs for $1,597, but you’ll need to call to learn more about the entrepreneur’s plan.

What Do You Get for $997?

Stash Wealth will create a customized Stash Plan, which is a financial plan customized to your current and future needs. You’ll be prompted via email to fill out two documents that will help establish your “baseline,” then you’ll have two meetings with a certified financial planning duo who will create your Stash Plan.

Even at close to $1,000 plus ongoing management fees, Stash’s completely digital service is a cheaper alternative to paying $1,100 to $5,600 a year for the average personal financial adviser.

Unlike some other online financial advisory firms, Stash Wealth doesn’t offer a payment plan. In the FAQ on the website, the company explains the reasoning is because they want to be sure they are attracting clients who truly can afford the service and qualify as HENRYs.

Stash Wealth has a particular client in mind, so their pricing isn’t comparable to competitors like LearnVest, which will run you about a third of the cost at $299 for the initial financial planning fee, and they will charge $19 for ongoing financial planning, although the LearnVest program doesn’t include investment brokerage.

How the Stash Wealth Financial Planning Process Works

Every Stash Wealth client will receive a comprehensive financial plan. MagnifyMoney reviewed the process over the course of several weeks.

Your baseline paperwork

Shortly after you make your online payment to get started, you’ll receive an email from Stash asking you to do three things:

  1. Fill out your profile.

This is one of the two PDF forms that will be attached to the email. It will ask you to fill in basic information about yourself like your name, address, employment, and income. It will also have you enter basics related to your finances such as which banks you have relationships with, who you already use for money-related items like taxes, and how much you have in your emergency fund. This form will also ask for the same information about your significant other if you’re completing the Stash Plan as a couple.

  1. Schedule your baseline meeting.

In the email, you’ll see a link to book a meeting using the online scheduler, TimeTrade. Once it’s booked, you’ll get an email confirmation in your inbox.

  1. Complete and return the Baseline Workbook.

The final thing Stash asks of you before your meeting is to fill out your Baseline Workbook. Your workbook is an 8-page document that will dive deep into your financial business. You will trace where your money goes after you get paid, check off whether you use cash or credit more often, explain what your savings are consist of, and list your debts and assets, in addition to providing other information.

Stash understands this may take a while, so they give you some time and ask that you email the document back at least a couple of days before your scheduled baseline meeting.

Your baseline meeting

This will be your very first meeting with your Stash advisers. It will take place over video chat and recap all of the information you entered into your Baseline paperwork. The meeting should take no longer than an hour. Your planners will share a screen with you during the call to show you a Baseline Results document, which was created from your information. It will show, with charts and diagrams, how you spend your money, what your money map should look like, and how you’re doing so far saving for retirement.

The Stash program is intended to be educational as well, so your advisers may sound very similar to your finance professors in college. They will spend a good portion of the time explaining things like a money map (see above) or how different kinds of retirement accounts work. They’ll also make sure to ask if you understood everything and will re-explain if necessary.

The “reverse budget”

Stash will create what they call a “reverse budget.” The reverse budget calculates how much you can spend guilt-free each month after subtracting your fixed and flexible expenses. They will show you a budget with and without debt, so you’ll be able to imagine how much extra cash you’ll have on hand once your debts are settled.

The homework assignments

After this call, you’ll get some more homework to complete before your second meeting. The second meeting is meant to help align your life to your reverse budget. I was advised to open up an online savings account with Capital One 360 and nickname it “emergency fund” and to keep a checking account open at a brick-and-mortar bank. I had just closed my checking and savings account with my brick-and-mortar bank, Wells Fargo, and opened checking and savings accounts with Ally, so I didn’t take this advice. I was earning 1% on my savings account with Ally anyway, which was slightly more than the 0.75% I would have earned at Capital One.

I did, however, set up multiple savings accounts for emergency, travel, and moving costs to correspond with my savings goals.

My other homework was to find my most-recent monthly statements for my credit card, my retirement accounts, and student loans and send this information to them as soon as I could.

The follow-up email includes a link to schedule your second call, which should take place in about three weeks, and will have a final workbook attached to it. A PDF copy of your Baseline Results will be attached to the email for your use.

Your Stash Plan Workbook: goal setting

Your Stash Plan Workbook will come attached to the follow-up email for your first call. It’s intended to make you think about your financial goals and how you’ll reach them. A major part of this workbook requires you to think of what you want your life to look like in retirement.

You might already keep a few basic goals in mind like saving for retirement (check) or an emergency fund (double check), but your workbook will force you to consider savings goals to which you may not have given any thought. Some examples: traveling twice a year, returning to school for a post-bachelor’s degree, taking a six-month hiatus from work in Europe, remodeling your home, or saving to care for your parents in their old age.

You’ll rate each goal from 1 to 10 based on its importance to you, and make note of how much you think you’ll need and when you’ll need the money. For example, going back to school for a graduate or doctorate degree is about a 7 in importance to me, and I want to have about $25,000 saved for it and (ideally) start my post-college education in 2020. I also want to travel to see family members, who live in Ghana, every few years. I set that travel goal at about a 9 and allocated about $2,000 for a trip every two years.

The workbook continues to a section called “Retirement Lifestyle Goals,” which addresses any big dreams or goals you have for your life in retirement (think: buy a yacht) and asks you to put them down even if you’re not sure if you’ll be able to afford them. You’ll move on to a “Retirement Living Expense” section that asks you important questions like when you plan to retire, what your retirement income will be, and if you’re willing to delay retirement to reach all of your goals.

You’ll finish the workbook by filling out detailed information about all of your current assets, investments, and liabilities. While you’re doing all of this, be sure to gather any supplemental financial documents to send back digitally with your completed workbook. Examples include:

  • Bank and investment statements
  • Retirement account statements
  • College fund account statements
  • Employer benefits
  • Social Security Administration Statement
  • Liability statements
  • Insurance policies

Stash asks that you send in your completed Stash Plan Workbook and documents via email 10 to 14 days before your second call.

Filling out the workbook was a lot of work, but it was worth it. It took about an hour for me, and I only use one bank and one credit card and my only other debt is in student loans. Most of my time went to setting financial goals for the long life ahead of me. It was eye-opening as there were a lot of things I knew I wanted in life — like rental property — that I had yet to set a deadline or budget to. Completing the workbook helped me realize I should start saving now for almost any larger purchases I wanted to make within the next decade like a possible wedding or owning rental property. I was a little confused when it came to the investing and retirement parts of the document like retirement income but was able to complete the form using context clues.

I did have to fill out the form three times, as it had trouble saving some of the information I had input. I’m still unsure whether the problem was the way I was saving it to my computer or the form itself. In the end, it was no big deal. I typed up some of my goals in an email to supplement what the form had held onto.

Your Stash Plan meeting: how to execute your Stash Plan

Your final meeting with your advisers will explain to you exactly how to make your Stash Plan a success. During this meeting, your advisers will first check in with you to ask if anything about your financial situation has changed since you sent in your workbook. For example, I decided within the month to move to a significantly cheaper apartment, so my monthly budget had to be adjusted. My planner made note of that and sent me an updated Stash Plan with the follow-up email at no additional charge.

After your touch base, your advisers should walk you through the details of your new financial plan, which they will have up on a shared screen for you to see. They’ll speak with you about how you should budget for your savings goals and when you’ll likely reach them.

My advisers emphasized making the most of automation for my savings goals and any recurring expenses. This takes some element of human error out of the picture. I’d used automation before and found it would bite me in the ass when I forgot which date I’d set a service to credit my checking accounts. To avoid my unfortunate recurring lapse of memory, I set my automated payments for the day right after payday, and if I couldn’t change the due date, I used the budgeting app Mint, which has a bill reminder feature.

They will also give you a few suggestions for managing your new financial plan. My advisers suggested I open up a 0% balance transfer card (they recommended I use Chase Slate or Citi Simplicity) to help pay down my credit faster. They also recommended an app called Debitize, that lets you use your credit card like a debit card. The app pays off charges to your credit card with money from your checking account so you can build credit without overspending.

They also advised me to channel any extra funds I had to paying down my credit card debt faster, as it’s the highest interest debt I have. After my credit card was paid down, I was to use the extra money to build up my emergency fund.

In addition, the advisers suggested I consider adding a disability insurance policy and some estate planning documents to my life. I was told to ask my employer’s human resources department about disability insurance. For estate planning documents, they included a recommendation to a Stash Expert in the follow-up email. Finally, they explained to me what my next steps would be should I choose to graduate to Stash Management.

Next Steps: Investing with Stash Management

Once you have your financial plan set up, you’ll make the decision to either stop there or continue to Stash Management. This review only covers Stash Wealth’s financial planning offerings, but we did dig a bit deeper to look into their investment management services.

After your plan is created, you can choose to graduate to Stash Management, a full wealth management service, which you’ll be charged for based on how much money Stash is investing for you.

It has two payment tiers:

  • $50 per month for those with less than $50,000 in assets managed by Stash
  • 1.2% of the assets Stash manages for you annually ($100,000 invested = $1,200 annually) if Stash is managing more than $50,000 worth of assets

With Management, you’ll get ongoing help with financial planning. That includes your taxes, purchases, budgeting, combining finances with a significant other, planning for a baby, buying your first home, or anything else. You’ll have access to monitor your accounts and investments through an online portal, but you likely won’t have to do anything.

Stash gives you a unique ID so you can log on to the company’s online platform. You’ll grant Stash’s team permission to implement their suggestions for you like automating your savings and investing your money in the stock market. When you have a question, you can call, email, text, or even use Facebook’s messenger 24/7 to communicate with Stash.

Stash isn’t a robo-adviser like Hedgeable, Wealthfront, or Betterment. A human being will actually invest your money and communicate with you as needed.

Pros and Cons of Stash Wealth for Financial Planning

Pro: Quick responses

I was impressed with Stash’s response time. If I had any problems filling out the PDFs or any questions, I could expect an answer to my email on the same day or within 24 hours at the latest.

Pro: Some face time

Both meetings with your financial planner will take place over a video chat, which adds a personal layer to the totally digital process. You won’t awkwardly stare at your adviser the entire time since they’ll be showing you your results or plan for most of the conversation, but I thought it was nice to put a face (and a smile) to who was handling my sensitive information.

Con: No mobile app

Stash Wealth is only accessible to you on a desktop, which can present an issue if you want to check on your plan or investment on the go. However, you do have the option to download your plan as a PDF, which most smartphones will allow you to pull up without cellular data or Wi-Fi.

Con: No budgeting software

Your Stash plan will lay out what you need to do, but it’s up to you to implement and track your progress — unless you pay for Stash Management. You can use other platforms such as the free version of competitor LearnVest or budgeting services YNAB or Mint to manage your financial information, goals, and more, but it would be convenient to have a budgeting platform to show you your awesome new plan right away.

Con: No credit score information

You’ll need to download a separate app it you want to monitor your credit score. Unlike other popular budgeting apps like Mint, or a credit monitoring service like Credit Karma, you won’t be able to see any information related to credit score or credit report information with Stash Wealth.

Other Financial Planning Platforms to Consider

There are a host of other robo-advisers and online financial planning tools that target millennials cropping up to choose from that you may prefer over Stash Wealth.

LearnVest

LearnVest Premium is a more-affordable alternative for those looking for personalized financial advice from an expert. If you sign up for LearnVest’s premium service, you’ll complete a process similar to Stash’s, where you’ll meet twice with an adviser who will create a plan for you and then have the option to pay for ongoing support. LearnVest costs $299 for the initial setup, then $19 a month for email access to a personal financial planner, in addition to the budgeting and goal setting features online dashboard features. With LearnVest, you won’t get investment advice.

XY Planning Network

The XY Planning Network is a network of fee-only financial advisers who focus specifically on Gen X and Gen Y clients. There are no minimums required to get started as a client, and advisers in the XY Planning Network are not permitted to accept commissions, referral fees, or kickbacks. In other words, no high-pressure sales pitches or hidden agendas. Just practical financial advice doled out at a flat monthly rate. The organization is location independent, offering virtual services that enable any client to connect with any adviser regardless of where the client resides.

Garrett Planning Network

A national network featuring hundreds of financial planners, the Garrett Planning Network checks many key boxes for millennials. All members of the Garrett Planning Network charge for their services by the hour on a fee-only basis. They do not accept commissions, and clients pay only for the time spent working with their adviser. Just as important for millennials, advisers in the Garrett Planning Network require no income or investment account minimums for their hourly services.

Mvelopes

Mvelopes is an app that provides a spinoff of the cash envelope budgeting system popularized by Dave Ramsey. Like Stash Wealth, its basic version is free and allows you to link up to four bank accounts or credit cards. Mvelopes has a second tier called Mvelopes Premier. It costs $95 a year, and you can link an unlimited number of bank accounts and credit cards, among other features. Mvelopes’ top tier, Money4Life Coaching, adds one-on-one coaching tailored to your financial needs, as Stash Wealth Premier does. However, there is no price for this tier specified on the website.

The Final Verdict

Stash Wealth is a great deal if you’re a HENRY, but it’s definitely not a program for everyone. It forces you, as a young high earner, to swiftly exit any present hedonist mindset you may have and consider your future seriously.

For me, it demonstrates how important it is to take advantage of extra funds and invest them into your future while you’re young, handsome, wealthy, and only have yourself to think about. But if you’re not making enough to have an extra $1,000 stashed away for financial planning, there are less-expensive alternatives you can use on your way to HENRY status.

The post Stash Wealth Financial Planning Review – The Planner for HENRYs appeared first on MagnifyMoney.

Should You Take Social Security Benefits at 62?

The vast majority of workers choose to receive their Social Security benefits as soon as they turn 62. And they could be leaving a lot of money on the table. In fact, nearly three-quarters of the 39 million retirees in the U.S. are receiving reduced benefits because they began taking Social Security before they reached full retirement age, according to the Social Security Administration’s 2015 Annual Statistical Supplement.

In fact, you’ll only receive 75% of your benefits if you start taking Social Security at 62. For every year until you reach “full retirement age” (66), the greater your benefit check will be. The chart below shows you exactly how much your benefit will be affected by electing your benefits early.

Age Percentage of Benefit
62 75%
63 80%
64 86.7%
65 93.3 %
66 100%

 

But decisions like this are rarely cut and dried. If you’re younger than 62 and contemplating when you should elect your Social Security benefits, we’re going to discuss the factors you should consider first.

3 Reasons You Should Take Social Security Benefits at 62

The Social Security retirement benefit is a bit of misnomer because you don’t actually have to be retired to receive the benefit. Under certain circumstances, electing your Social Security benefit at 62, or any other time before full retirement age (66), could be the right decision for you.

  1. You need the income to meet your basic daily needs. When considering whether or not you should begin receiving Social Security benefits at age 62, look at your budget. Since Social Security will effectively serve as a paycheck, think about whether or not you actually need the additional income.
  2. You don’t have longevity in your family. Nobody wants to leave money on the table. If you don’t have longevity in your family or simply expect your lifespan to be shorter than average, it is worth considering taking your benefits early. Just keep in mind that upon your death, however, your spouse will receive a lower survivor’s benefit than he or she would have if you had waited.
  3. You need to be retired. There are a host of indications that it is time to retire. If you’re realizing one or more of them, but your retirement savings are not enough to sustain your lifestyle, electing your benefits at 62 could be a wise decision.

3 Reasons to Wait to Take Social Security Benefits Until After Age 62

The most common reason someone will tell you to wait until full retirement age is that your annual benefit is reduced if you take it sooner. If you elect benefits at age 62, expect to receive a 25% smaller benefit that you would receive at age 66, for the rest of your life. In addition to the downside of a reduced benefit, think about how these factors apply to your life:

  1. You can afford to wait. If your budget does not rely on the additional income that will be provided by Social Security, your patience will be handsomely rewarded. Your benefit amount increases with each year you wait, up until you turn 70.
  2. You’re still working and making too much money. “Too much money” sounds quite relative, but in terms of Social Security, individuals who elect benefits before full retirement age will have their benefits reduced by $1 for every $2 earned over $16,920. For people older than full retirement age, but younger than age 70, benefits will be reduced $1 for every $3 earned over $44,880.
  3. You will get a larger benefit if you wait.
  1. You’re rewarded for your patience in two ways, and the first is through earnings alone. Your Social Security benefit is determined by the 40 highest-earning quarters of your work history. So, if you’re 62 or older and earning more money each quarter, it could mean a larger monthly benefit when you eventually elect Social Security.
  2. Whether or not your earnings increase during the final quarters of your working years, the Social Security Administration will also reward you for waiting to take your benefit until age 66 or later.
Age Percentage of Benefit
66 100%
67 108%
68 116%
69 124%
70 132%

3 Ways to Boost Income and Avoid Taking Social Security Benefits Early

The Annual Statistical Supplement does not discuss why so many people elect benefits before full retirement age, but if you are considering an early election of your benefits due to an income need, judge the following first:

  1. Your budget
  1. Can you generate enough monthly savings to offset your Social Security benefit before full retirement age? The benefits of waiting to take your Social Security benefit far outweigh the costs, so if you’re able to apply a short-term solution for a larger, long-term benefit, it could be in your best interest.
  1. If retired, take a part-time job
  • . According to the 2015 Annual Statistical Supplement, the average monthly benefit for a retired worker was $1,329. If after assessing your monthly budget, and the deficit you hoped to fill with Social Security is close to or below what your monthly benefit would be, think about a part-time job. Your annual income will likely fall below the threshold for a reduced benefit, and you will avoid a lifelong reduction in Social Security benefits.
  1. Consider adjusting your portfolio to a more income-oriented allocation
  • . Disclaimer: This approach should be discussed with a professional. If you have retirement or investment accounts, you have two strategies at your disposal to help generate income:
    1. Take dividends in cash, rather than reinvesting. While this may provide a stream of income, it could also slow the growth of your investments.
    2. Adjust your asset allocation to one that is income-oriented. Then, take the dividends in cash.
  1. Acknowledging that this approach is more complicated than the previous two, it is also a prudent one because it is reversible. The last thing you want to do, as you approach what could be decades in retirement, is permanently reduce any stream of income.

The Bottom Line

Think about the timing of your Social Security like a tattoo. Both can act like a double-edged sword in your life and, for discussion’s sake, are irreversible. Deciding to get a tattoo is not always a good decision; similarly, electing to take Social Security at 62 is not always a smart choice either. However, the reverse is also true, and the only way to know if this choice is right or wrong is to weigh the factors at play in your life against the consequences of your decision.

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Best Places to Retire Early 2017

The rise of the FIRE (Financial Independence and Retiring Early) movement has given way to a new emphasis on retiring early. Rather than leaving the workforce at the typical age of 62, FIRE retirees aim to retire in their 40s or 50s. This lofty goal typically requires an aggressive savings plan, as early retirees must live off their savings until they can expect to withdraw benefits like Social Security or dip into their 401(k) or IRA savings without facing a penalty.

In a new study, MagnifyMoney ranked 217 U.S. cities to find the best and worst places to retire early.

Methodology:

We sought to find cities that had a combination of a low cost of living (highest priority), a great quality of life and access to employment if needed to supplement income.

Each city was given a final composite score out of 100 possible points. The composite score was based on those three factors, each weighted differently: cost of living (50%), quality of life (30%), and employability (20%).

Within each of these three categories, we looked at specific elements that play a key role in determining the best city to retire early.

Cost of Living: The cost of groceries, housing, utilities, transportation, health care and other goods and services.

Quality of Life: Weather (average annual temperature and number of sunny days); access to arts and entertainment services; walkability.

Employability: Early retirees may choose to incorporate part-time work into their lives even after they retire to stay active and supplement their existing savings. We looked at the minimum wage, unemployment rate, average commute time and state income tax for each metro.

Key Findings:

Looking for a low cost of living? Move South or Midwest

Cities in the South and Midwest dominated the list of best places to retire early, mostly due to a lower average cost of living than any of the four regions studied. Southern and Midwestern cities boasted an average cost of living score of 63 —13 points higher than the average score across all 216 cities studied of (50).

The South and Midwest also boasted the two highest overall early retirement scores (57 and 56, respectively).

The South may be the best bet for early retirees looking for the option of part-time work to supplement their income as well. The region scored the highest employability score of any other area. The employability score was based on the unemployment rate, minimum wage, average commute time and state income tax.

Favor quality of life over low cost of living? Head Northeast

-Early retirees will need to save a pretty penny to retire in the Northeast, but they may find retirement more entertaining at least. Although the Northeast earned the highest score of any region for quality of life (67, well above the national average of 50), the region suffered due to its relatively high cost of living. It earned the lowest cost of living score of any region with a paltry 17.

Western cities had a poor showing in all three categories, barely eeking out a higher final score than the Northeast. But whereas the expensive Northeast was buoyed by its relatively high quality of life score, the West was dragged down on all three fronts.

The 10 Best Cities to Retire Early

The 10 Worst Cities to Retire Early

10-Worst-Cities

 

RANKINGS BY REGION

Region-Wise

MIDWEST: The 10 best cities to retire early

MIDWEST-10-Best-Cities

MIDWEST: The 10 worst cities to retire early

MIDWEST-10-Worst-Cities

NORTHEAST: The 10 best cities to retire early

NORTHEAST-10-Best-Cities

NORTHEAST: The 10 worst cities to retire early

NORTHEAST-10-Worst-Cities

SOUTH: The 10 best cities to retire early

SOUTH-10-Best-Cities

SOUTH: The 10 worst cities to retire early

SOUTH-10-Worst-Cities

WEST: The 10 best cities to retire early

WEST: The 10 worst cities to retire early

Sources:

Cost of living:

http://coli.org

Quality of life:

Employability:

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Costco is Raising the Cost of Membership Fees — Here’s How Much More You’ll Pay

 

For the first time in six years, Costco will hike the cost of its annual membership fee for individuals and businesses. The increased prices will go into effect June 1, 2017, the wholesale retailer announced on Thursday.

The raise will affect about 35 million members.

Here’s how much more you’ll be paying for your Costco membership:

Primary Costco Members

“Primary” Costco members (both individuals and businesses) pay $5 more, bringing the cost of an annual membership to $60.

Executive Costco Members

Members at the “Executive” tier, who earn 2% cashback on their purchases for the year, among other perks, will see their annual membership fee rise by $10 to $120. Executive members also receive discounts on Costco Services such as check printing, identity theft services and roadside assistance.

Perhaps to dull the sting of the higher membership fee, Costco has decided to raise the cap on the amount of cashback executive members can earn each year — from a maximum of $750 to $1000.

How to save on Costco shopping

Costco membership fees might be going up soon, but Costco members can recoup some extra funds and save money by using certain credit cards.

Costo’s Anywhere Visa card is a good option for frequent shoppers. The card has no annual fee and earns better rewards than its predecessor, including 2% back on Costco purchases, 4% on gas, 3% on restaurants and 1% on everything else.

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New Study Shows Number of Americans with Past-Due Medical Debt Down 6%

Fewer Americans are struggling to pay back medical debt.

The rate of American adults aged 18 to 64 with past-due medical debt dropped from 29.6% to 23.8% between 2012 and 2015, according to new study released by researchers at the Urban Institute.

Not surprisingly, people who did not have insurance were more likely to say that they currently had unpaid bills from a health care or medical service provider (a rate of 30.5%). But with the rise of high-deductible health plans, even people who have insurance find themselves in medical debt — 22.8% of insured consumers had past-due medical debt, according to the study.

When researchers looked at past-due debt by region, the differences were particularly staggering. There was “enormous variation across states,” according to Senior Research Associates Kyle Caswell and Michael Karpman, who authored the study.

Eight of the 10 states with the highest rates of past-due medical debt were in the South, including Mississippi, Arkansas, West Virginia, South Carolina, Kentucky, Oklahoma, Alabama, and Georgia. The other two were midwestern states Indiana and Missouri.

The researchers could not point to a solid conclusion as to why Southerners were harder hit by medical expenses.

“Of course we would like to understand better why, but it does give us a starting point for asking questions as to why the population differs from state to state,” said Caswell.

Why are rates of past-due medical debt dropping? It would be easy to conclude that the drop is due to the implementation of the Affordable Care Act. People today are simply more likely to have insurance, as the rate of uninsured Americans has fallen from 16.6% to 10.5% since the implementation of ACA in 2013, according to the Kaiser Family Foundation.

But Caswell and Karpman said it would be a stretch to give all the credit to the expansion of health care under the Affordable Care Act. The steady drop in unemployment and a general improvement of the U.S. economy over the last few years could also play a role, making it more likely that people can afford to cover out-of-pocket medical expenses.

As the Urban Institute’s report found, simply carrying health insurance isn’t enough to protect consumers against unexpected medical bills. Their findings are bolstered by a recent report by the Kaiser Family Foundation, which found 70% of people with medical debt also have insurance, mostly through employer-provided plans.

How to Tackle Unpaid Medical Debt

In just moments, an unexpected medical emergency can put the average American family in thousands of dollars of medical debt. That can pose a burden, considering about of 47% Americans would struggle to scrape together $400 in case of an emergency according to the Federal Reserve’s 2016 Report on the Economic Well-Being of U.S. Households.

Families with medical debt say the debt undercut their ability to save and afford basic household needs, the Urban Institute’s study found. To cope, families may rely more on credit cards and other forms of debt to make ends meet.

According to the Consumer Financial Protection Bureau, outstanding medical debt makes up more than half of all collection notices on credit reports. Past-due medical debt can seriously harm your credit score. If bills go unpaid for long enough, consumers may wind up facing a lawsuit or even bankruptcy.

To help avoid these types of consequences, follow these tips to tackle medical debt you can’t afford to pay:

Ask for a detailed billing statement and check for errors

You may receive a billing statement from your insurer or medical provider, but it may not give the full picture of services you received. Request a detailed, line item statement and review it carefully for any errors. It’s possible you could have received treatment from an out-of-network doctor without your knowledge. Or, there may be duplicate charges or charges for care you didn’t receive. If you find errors, contact the provider directly and have them corrected and a new statement sent.

Negotiate with your medical provider directly

You might be able to negotiate down your medical debt or arrange a payment plan with the medical provider, whether it’s your doctor’s office, a hospital, or your insurer. Along the way, keep careful records of who you talk to and what was said. Here’s a step-by-step guide on how to negotiate a medical bill with a health insurance company.

Try a 0% APR credit card

If your bill isn’t overwhelmingly large, you could try paying the debt off with a credit card with an introductory 0% interest period. Since you won’t be charged interest, you’ll pay less over the period. Before you apply, make sure you’ll be able pay off the balance before the 0% interest introductory period expires.

Pay off medical debt with a personal loan

If you’ve been unable to negotiate or you are struggling to find a 0% APR credit card deal, a personal loan may be another option. Depending on your credit history, rates on personal loans range from 4.7% to 36%. We’ve pulled together a list of six great personal loan options here.

Negotiate a settlement with a collection agency

Past-due medical debt eventually gets charged off and sold to a collection agency. But that doesn’t mean your window to negotiate has totally closed. If you have access to enough cash, ask if you can settle the debt for a lesser amount and forgive the remaining balance. Just be aware that forgiven debts can be treated as taxable income in some cases.

Seek help from a medical billing advocate

If you’ve been unsuccessful in trying to negotiate down your medical debt, the debt has significantly damaged your credit, or you are on the brink of filing bankruptcy, consider reaching out to a medical billing advocate. Don’t confuse these advocates with debt settlement or repair firms, which should be treated with caution.

You can find a medical billing advocate through the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals. These services aren’t free, and whether or not it makes financial sense to hire a pro depends on how much money you stand to save by lowering your debts. Advocates typically charge either a flat fee or a percentage of your savings.

Look for a charitable foundation that can help

You may want to consider reaching out to a nonprofit for assistance. If you were diagnosed with a particular condition, look toward organizations such as the Lupus Foundation of America for individuals with lupus or the American Kidney Fund for those with kidney disease. You can also apply for grants from nonprofits that provide more general assistance such as the Patient Access Network and the HealthWell Foundation, which may be able to grant funds toward medication assistance or other medical costs. With these foundations, limits for assistance may depend on your diagnosis and other factors.

Consider bankruptcy as a last resort

If the debt is more than 50 percent of your annual income, bankruptcy might be a viable move to make. Let the hospital know you’re considering bankruptcy first, as they may then be open to negotiation. Be aware the filing bankruptcy can adversely impact your credit for years after the fact.

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Trump’s Congressional Speech Debrief: 5 Changes He Has in Store for Obamacare

In his first speech to Congress Tuesday night, President Donald Trump outlined the overhaul he and his administration plan to make to the Affordable Care Act, known as Obamacare.

The proposed new health care plan now heads to the Congressional Budget Office and could face more changes as Democrats and Republicans battle over it in the House and Senate.

Trump urged Congress “to save Americans from this imploding Obamacare disaster.”

The president promised to repeal and replace Obamacare. Here are five key ways he plans to dismantle the current health care system.

You could be in a high-risk pool if you have a pre-existing condition

“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the health care exchanges,” Trump said in his speech Tuesday night.

A draft of revisions to the Affordable Care Act leaked to Politico on Feb. 24 references high-risk pools, although Trump did not discuss them in his speech.

States would have the ability to create high-risk pools for people with pre-existing conditions who are searching for health care. According to the draft, states would receive $100 billion over nine years in “innovation grants” that would be used to fund high-risk participants, news outlets such as CNN reported.

“High-risk pools would need a lot of taxpayer funding to work properly, experts say,” the Commonwealth Fund, a private nonpartisan foundation that supports independent research on health and social issues, tweeted after Trump’s speech.

You could receive a tax credit — even if you don’t deserve one

Tax credits and expanded health savings accounts could help Americans purchase their own coverage. It should be “the plan they want, not the plan forced on them by our government,” Trump told Congress.

Tax credits based on age, with the elderly receiving higher tax credits, would take the place of Obamacare’s income-based subsidies.

“For a person under age 30, the credit would be $2,000. That amount would double for beneficiaries over the age of 60, according to the proposal,” reported Politico prior to the speech.

The credits were also heavily criticized by some GOP members.

“So the headline is that the GOP is reducing subsidies to needy individuals when in fact, the growth of the taxpayer-subsidized reimbursements will actually increase,” Rep. Mark Meadows (R-N.C.) told CNN. “The total dollars that we spend on subsidies will be far greater. So you can be a millionaire and not have employer-based health care and you’re going to get a check from the federal government — I’ve got a problem with that.”

“What are tax credits & savings accounts going to do for those who don’t have money to spend on healthcare in the first place?” tweeted Advancement Project, a national civil rights organization.

Chris Rylands, a partner in the Atlanta office of Bryan Cave LLP, says many people are worried that the tax credits will make it difficult for low-income participants to afford coverage.

Under the current system, many individuals eligible for a subsidy are immune to price hikes in insurance because the government picks up such a large portion of the cost. The proposed Republican system might make them better consumers, says Rylands, whose practice focuses on employee benefits.

“However, given the complexity of health insurance plans and the opacity of the pricing of health care services, it’s not clear whether individuals can really become well-informed consumers,” Rylands says.

You could lose Medicaid

Trump said his changes would give governors the resources and flexibility they need with Medicaid “to make sure no one is left out.”

Under the Trump administration’s revisions, Medicaid would be phased out within the next few years. Instead, states would receive a specific dollar amount per citizen covered by the program. States would also receive the ability to choose whether or not to cover mental health and substance abuse treatment.

“Medicaid is the nation’s largest health insurer, providing coverage to nearly 73 million Americans,” tweeted the Commonwealth Fund after Trump’s speech. In a follow-up tweet, it said capping spending for Medicaid will reduce coverage rates and increase consumer costs and the federal deficit.

However, the Center for Health and Economy, a nonpartisan research organization, reported in 2016 that block-granting Medicaid in the states will lead to additional savings. H&E projects that the decrease in the use of Medicaid funds, by block-granting Medicaid in the states and the repeal of the Medicaid expansion, would be an estimated $488 billion from 2017 to 2026.

Rylands points out that this will not be a popular provision in Congress.

“What I heard here — although [Trump] didn’t say so in so many words — is that they want to try to turn Medicaid into a block grant program, similar to what was done with welfare reform in the 90s,” Rylands says. “However, I suspect many governors from both parties will not like this because it could mean states will pick up more of the tab for Medicaid.”

You could pay less for drugs

Trump proposes legal reforms to protect patients and doctors from unnecessary costs that make insurance more expensive and bring down the “artificially high price of drugs.”

Alongside medical device manufacturers and insurers, the pharmaceutical manufacturing industry is obligated by the Affordable Care Act to pay a yearly fee. It was determined the industry would pay $4 billion in 2017, $4.1 billion in 2018, and $2.8 billion each year after. However, proposed revisions to the Affordable Care Act include repealing the tax.

Some consumer advocacy groups are hopeful that repealing the taxes will reduce drug prices.

“From life-saving cancer drugs to EpiPens, high Rx prices push critical care out of reach for those who need it,” tweeted AARP Advocates, a nonprofit advocacy group for senior citizens.

You could purchase cheaper health insurance across state lines

“Finally, the time has come to give Americans the freedom to purchase health insurance across state lines — creating a truly competitive national marketplace that will bring costs way down and provide far better care,” Trump told Congress.

Under the current law, many states have the choice whether or not to allow insurers to sells plans between states. However, even when allowed, there isn’t much incentive for health care providers to do so.

Difficulty building a network and attracting enough customers to create a large enough risk pool makes this option unappealing to insurers, the Center for Health and Economy reported.

Whether this proposed change will result in a healthy competition in the industry or in a race to the cheapest offer remains to be seen, says Rylands.

“This has the potential to undermine traditional state regulation of insurance … since it would allow insurance companies to sell into a state without having to comply with that state’s particular insurance laws,” Rylands says.

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