A Comprehensive Guide to the Solo 401(k) for Business Owners

If you run your own business, one of the difficulties in saving for retirement is that you don’t necessarily have easy access to a 401(k).

Enter the solo 401(k). This is a retirement savings option for self-employed business owners who have no employees and their spouses. Read on to find out how it works, who is eligible, and how you can open an account.

The Solo 401(k): Explained

What Is a Solo 401(k)?

Also known as a one-participant or individual 401(k), a solo 401(k) works just like a company-sponsored 401(k) would, except it’s for self-employed individuals who don’t have any other employees other than their spouses and themselves.

Just like a traditional 401(k), you can control how your money is invested. There are different plans, with most comprising stocks, bonds, and money market funds. These are considered “free” prototype plans offered by brokerages, and you’re typically limited to investments offered by that brokerage.

However, there are options for those looking to participate in alternative investments, such as precious metals or even real estate. There are companies that help you open what’s called a self-directed 401(k) and that sponsor “checkbook control” solo 401(k) plans, meaning that individuals can control the type of investments they want to make, whether it’s stocks, bonds, foreign currency, real estate, or commodities. You do so by writing a check for investment purchases, from a bank account dedicated specifically for that purpose.

Who Is Eligible for a Solo 401(k)

Only self-employed individuals and their spouses are eligible for a solo 401(k). This plan is ideal for consultants, independent contractors, or sole proprietors. If you hire part-time workers or contractors, then you’re still safe. However, if they work for you for more than 1,000 hours a year, you cannot participate in a solo 401(k).

Furthermore, you need to have the presence of self-employment activity to be eligible, which includes ownership and operation of an LLC, C, or S corporation, a sole proprietorship, or a limited partnership where the business intends to make a profit. There are no criteria as to how much profit a business needs to generate, as long as you run a legitimate business with the intention to generate a profit.

If you are currently employed elsewhere, you can still open a solo 401(k) account if you’re serious about maximizing your pre-tax savings. If you work for an employer that offers a 401(k) plan, you can still participate in their plan alongside a solo 401(k) plan, as long as you don’t exceed the contribution limits.

Where to Open a Solo 401(k)

You can open a solo 401(k) with most major brokerages. For those looking for a custom plan, there are companies that specialize in providing those plans. Some insurance companies also offer solo 401(k) plans but only if your goal is to invest solely in annuities.

Below are some of the most popular companies offering solo 401(k) plans:

Vanguard – The individual 401(k) offers all Vanguard mutual funds. However, you cannot purchase exchange-traded funds (ETFs) or mutual funds from other companies and cannot take out a loan. There is no setup fee, but there is a $20 fee per account per year to maintain your solo 401(k).

SunAmerica – The SunAmerica Individual(k) offers mainly annuities as part of their plan. You can take out a loan (for a fee). It costs $35 to set up your account, and there is an annual maintenance fee of $75.

E-Trade – The E-Trade Individual 401(k) Plan allows Roth contributions and has a brokerage option with $9.99 trades for any ETF. They accept IRA rollovers and allow for loans. They also will pay you if you transfer your current solo 401(k) to them: $200 for $25,000-$99,000, $300 for $100,000-$249,000, and $600 for a $250,000+ plan.

How to Establish a Solo 401(k)

When opening a solo 401(k) plan, you want to choose the option best for your needs. Once you’ve selected your brokerage, you’ll need to have the necessary documents:

  • 401(k) plan adoption agreement
  • Designation of successor plan administrator, which requires a notary or a witness
  • Brokerage account application
  • Designation of beneficiary form
  • Power of attorney (optional)

If you plan on opening one for your spouse, you’ll need to do twice the paperwork (one form for each person).

Remember, you need to open a solo 401(k) account by December 31 of the tax year. You don’t need to actually fund it until the April 15 filing deadline. If you miss opening an account, you’ll have to wait until the next tax year to do so.

How Much You Can Contribute to a Solo 401(k)

Participants in a solo 401(k) plan can make contributions both as an employee and an employer.

For elective (employee) contributions, you can contribute up to 100% of your earned income, up to the annual contribution limit, which is $18,000 in 2017. Those age 50 or older can contribute an additional $6,000, depending on the type of plan, according to the IRS.

When making a contribution as an employer, you can contribute up to 25% of your earned income as an employee. Your total contributions cannot exceed $54,000 in 2017 ($53,000 for 2016), not counting extra contributions for those 50 or older.

For example, Mary earned $40,000 from her freelance business in 2016. She put $18,000 in this plan as an employee. As an employer, she contributed 25% of earnings, which is $10,000. In total, she contributed $28,000, which is the maximum she can contribute.

Remember, contribution limits are for each person, not each plan. If you are working full time for another employer and participate in that company’s 401(k) plan, combined contributions to your traditional 401(k) and solo 401(k) cannot exceed the annual limit.

To figure out the maximum contributions you can make, check the IRS website on how to calculate a more accurate amount.

Read more: 9 Essential Tax Tips for Entrepreneurs >

Learn More About Solo 401(k)s

The Pros of a Solo 401(k)

The solo 401(k) has higher contribution limits compared to other retirement savings plans. You can contribute up to $18,000 plus 25% of earned income, compared to a maximum of $54,000 or only 20% your earnings (whichever is less) with a SEP IRA. Your employer contributions are also tax deductible.

You also have the option to borrow up to 50% of your account’s value or $50,000, whichever amount is less.

The Cons of a Solo 401(k)

A solo 401(k) can get complicated to set up and maintain, particularly if you intend on opening a customized plan. Depending on the company you go with, fees can cost you at least a few hundred dollars to set up an account, not including fees to maintain the plan annually.

Even if you open a prototype plan, it can cost you. Yes, it’s free to set up, but they put many requirements on you as the owner. These requirements include filing tax return documents once a year if your plan has more than $250,000 in assets and keeping up to date with all records and transactions.

Alternatives to a Solo 401(k) Plan

There are two alternatives to a solo 401(k) plan — a SIMPLE IRA and a SEP IRA. The main difference between each is the maximum amount you can contribute to each year.

SIMPLE IRA – A Simple IRA plan is for those who as an employee (including those who are self-employed) have earned a minimum of $5,000 any two years before the current calendar year and expect to receive at least $5,000 for the current calendar year. You can contribute up to $12,500, plus an employer match of 3% of employee compensation. Those 50 or older can also contribute up to an extra $3,000. You can find more information about the simple IRA on the IRS website.

SEP IRA – A Simplified Employee Pension (SEP) plan only allows employers to contribute to the plan, unlike a solo 401(k). Employers can contribute a maximum of $53,000 or 20% of their net self-employment earnings, whichever amount is less.

Even with all its benefits, there may be a few reasons why someone is better off not opening a solo 401(k). “If you’re concerned about doing additional paperwork, a SEP IRA might also be a better choice,” advises Robert Farrington, founder of the College Investor. “If you’re working a side hustle and have a regular 401(k) at your day job, the alternatives might be easier.”

Who Solo 401(k) Plans Are Best For

While any of the above options are helpful for self-employed individuals, the solo 401(k) is best for those who are looking to invest heavily in their savings. “The solo 401(k) is best suited for a self-employed individual who wants to maximize their retirement savings,” says Farrington.

“Furthermore, if you’re a husband/wife/spouse team, your spouse can also contribute to the solo 401(k) with the same percentage of ownership, so you can get even more in tax savings and retirement contributions.”

The post A Comprehensive Guide to the Solo 401(k) for Business Owners appeared first on MagnifyMoney.

17 Questions Every College Graduate Has (But Is Afraid to Ask)

If you're graduating from college, your work is only beginning. Here are some of life's questions for which you'll need answers.

May is a big month for college graduates. There’s all the last-minute details with finishing school – finals, papers, moving, selling stuff. There’s the family, the cap and gown, the parties, the sad farewells. Then after all that, there are the questions. What now? Where will I go? What will I do? We can’t answer all of them for you (you’ll have to decide to keep or dump that college sweetheart on your own). But here’s a good start at answering some of the questions you may have when it comes to money.

1. What Should I do With Graduation Money I Get From my Family?

Lucky you! Resist the urge to spend it all upgrading your hostels to hotels on that summer trip to Europe. Instead, use half of it to pay down debt or pay for your move to a new city, and the other half to invest for the future, preferably, retirement. Really. Read the parable of the Two Twins. In short, it shows that people who put away money for retirement in their twenties — and stop by age 30 — end up with more money than those who save nothing in their twenties but save from age 30-65. It seems impossible, but it’s true. Those who invest in their early twenties have an amazing advantage over everyone else.

2. When do I Have to Start Making Student Loan Payments?

Most student loans come with a six-month grace period, meaning the first payment is due seven months after graduation. For most of you, that means this November, unless you’re headed to graduate school.

3. Should I Go to Graduate School?

That depends. While it’s tempting to put off “real life” (and student loan payments) for a few more years, many people can benefit from working for a few years before returning to school. Studies can be more focused when students are sure they are studying a field they plan to pursue. A few years working as a paralegal in a law firm can disavow you of the notion you want to be a lawyer, which will save you a lot of money and strife through law school. Of course, in some fields, like medicine, graduate school is a prerequisite, so attending right away can make more sense. But it’s important to remember: The majority of folks who are drowning in excessive student loan debt incur that debt in graduate school, not during undergraduate studies, so poorly-planned grad school can become a real problem.

4. If I Must Start Repaying my Loans, Can I Lower my Payments?

Yes. There are many ways to do this, but all of them can have negative consequences. With federal loans, the simplest way is to select a “graduated repayment plan.” This allows borrowers to pay less now, and more later – payments usually go up every two years —  with the assumption that recent grads will earn more as time goes on. All borrowers are eligible, but it means borrowing more money for longer, which means more interest paid. Beyond that, the Department of Education has numerous plans available to borrowers. Consolidation loans can extend payment terms for up to 25 years – but of course the interest paid will soar. There are also various income-based repayment or loan forgiveness programs. These can be reviewed at the Department of Education websites. You can learn more about what happens if you do default on your student loans here.

5. What Should I Do to Prepare for a Job Interview?

Google yourself. Clean up your social media accounts. Erase, or at least make private, those keg stand pictures.  Then, prepare, prepare, prepare. Learn everything you can about the company you are about to interview with (and even the person if that information is available to you). Read the job description carefully and at least appear to be excited about the specific tasks that will be required of you. Know that while the ad may say “Join an exciting team and help build a life-changing product,” you could be spending nine hours a day composing social media posts. At least, at first. Embrace that. And, maybe get a new suit. You can find 50 more steps grads can take to find their first job here.

6. It’s my First Job, What Salary Should I Ask for?

The average starting salary for college grads this year is $49,785, according to advisory firm Korn Ferry. That’s not a bad starting reference point. And it’s up 3% from last year. Some professions get more, some less. Software developers earn 31% above average; customer service reps, 28% below. Check out more numbers from the Korn Ferry analysis.

7. How do I Make a Budget?

Budgets don’t have to be complicated. Type into a spreadsheet the costs you know (or guess) for rent, utilities, TV/video, Internet, car, phone, student loan repayments, food, entertainment and whatever else applies. Add it all up, then compare it to your take-home pay. If the first number is higher than the second, you’re going to have to make some cuts, so start figuring out what you can live without. At the end of the month, take out the credit card bill and see how realistic your projections were. Then add lines where you missed things – lines for travel, or savings, or emergencies (they happen, sometimes monthly). Then repeat, every month. You’ll get it. It might be painful, but keep at it.

8. Should I Put Money in a 401K or Pay Down Debt Instead?

Yes! You should do both —save and pay down debt at the same time. It’s a BIG mistake to pay extra to lower your student loan balance at the expense of contributing enough to your 401K to at least maximize your company match. That’s free money you should never leave on the table.

9. Should I Live With Roommates?

For most people, housing is the biggest monthly expense. Ideally, rent will cost no more than one-third of your income. Keep in mind, though, that it’s essentially impossible to afford an average-priced two-bedroom apartment one a single average income anywhere in the U.S. One bedrooms also can be are expensive, so while you may be tired of living with roommates, your best strategy is to live like you are in college for a few more years and save your money. Living with roommates can be the quickest route to owning a home in your thirties.

10. How Much Money Do I Need to Buy a House?

The median home price in the U.S. right now is $189,000. To make a traditional 20% down payment on that would be $37,800. A 5% down payment, accepted in many situations with higher fees, would be about $9,500. Of course, in many populous cities, prices are much, much higher. For example, the median home price in Washington, D.C., is $549,000 – a 20% down payment there is $109,000, and 5% down is $27,500. Some mortgage programs, like FHA loans, allow first-time home buyers to have even less money down, but those come with other fees, and of course, the monthly payment will be higher. Speaking of monthly payments, would-be buyers need to remember house payments also come with insurance and property taxes. Then, there’s maintenance and surprise repair costs. So, save while you can.

11. How Much Does a Wedding Cost?

From $100 to $100,000, or more. Seriously. You can Google the cost of an average wedding, and you’ll quickly find averages in the range of $25,000 to $30,000. But these numbers are based on online surveys, which are self-selecting. Averages are skewed by extremes, plus an “average” wedding in New York will cost more than one in St. Louis. You, you can spend as little or as much on your nuptials as you choose, but guess which one is financially smarter. You can go simple and put that cash toward a down payment instead.

12. How Much Money do I Need to Start a Family?

That’s not an easy question to answer, but here are a few data points. It costs $233,610 to raise a single child through age 17 (not including college), according to the U.S. Department of Agriculture. That’s just one child. Of course, you don’t need it all at once. A kid costs about $12,000-$14,000 annually. Costs will vary regionally, and on your taste in clothes and schools, and on your health insurance plan. Kids are expensive – the average cost of just having a baby in the U.S. is about $10,000, and that’s without any complications.

13. OK, Then. How do I Make More Money?

The easiest way is moonlighting in the gig economy. Drive an Uber one night per week (do it on a weekend night and you’ll save by not spending!) Rent out your place on AirBNB. Sell things on eBay or Etsy. Volunteer for overtime.  Most of all, hone a skill that’s desirable, like software coding. And don’t forget the most obvious: Ask for a raise at your current job …

14. How Do I Ask for a Raise?

Never forget that how much compensation you get from a company is a simple business negotiation. You don’t get to ask for more money because you need it. You have to ask for more money because you are worth it. Do your research. Go to places like Salary.com, Indeed, or Glassdoor and learn if you are paid commensurate with others in your profession. If you aren’t, that’s a good starting point. Chiefly, do a quiet job hunt and see what others in the market might pay you. The best way to get a raise is to get a counter-offer.

Also, note these two disturbing trends in many salary surveys: Workers often don’t get raises any more, they get bonuses, which help corporations keep down their long-term liabilities (it’s easier to kill a bonus than lower salaries when times get hard). And many workers today find the only way to get a real raise is to change jobs.

15. There Are no Jobs in my Major. What Should I Do?

Don’t give up your first love, but be realistic. Right now, the best-paid American workers and the most plentiful jobs are in software, engineering, and health care. Can you switch to one of those fields, and pursue your love of music or the arts on the side? Can you sell what you make on Etsy, but still have a day job? Could you write code during the day, and tutor children at night to fulfill your love of teaching? Creative thinking is your friend here.

16. What Do I Do if I Can’t Find a Job?

Start with part-time work. Research professions that offer piecework which might be similar to the field you wish to enter. FlexJobs maintains a list of jobs you can do from home. Consider joining the gig economy for a while.

17. I Don’t Know What I Want to Do. What Should I Do?

Read. Read a lot. Read books like What Color is Your Parachute. Talk to people. Talk a lot. Most important – DO SOMETHING. Anything. Work in fast food, or work at a Walmart. You can learn something at any job. Even if you hate it, that’s one thing you can cross off your list. And just maybe, you won’t hate it. But above all, don’t do nothing.  Wracking up credit card debt and student loan interest during your twentiess can haunt you for the rest of your adult life. Whatever you do, earn money and tread water. You’ll figure it out.

Image: pixelfit

The post 17 Questions Every College Graduate Has (But Is Afraid to Ask) appeared first on Credit.com.

What To Do if Your Insurance Doesn’t Cover a Health Care Provider

Smiling senior man having measured blood pressure

It’s a pretty common scenario: you’re looking to book a medical appointment, so you go to your insurance company’s website to find an in-network doctor. You book the appointment, see the doctor, and all seems well — until you get a whopping bill. Apparently, that doctor wasn’t in your network after all, and now you’re faced with out-of-network charges.

This happens more often than we think. Unfortunately, insurance company websites are notoriously fallible. Not only that, but they change so frequently that it can be difficult to nail down just who is and isn’t covered. At some point or another, just about everyone will have to deal with a situation where their insurance doesn’t cover a provider.

It’s easy to feel duped in this scenario. Navigating the ins and outs of insurance is hard enough, but there’s nothing more frustrating than being fed incorrect information.

So what should you do?

What to Do If You’ve Already Gotten the Bill

Call the doctor

Doctors don’t usually consider themselves responsible for significant out-of-pocket costs resulting from a lack of research on the part of the patient.

But if you asked the doctor or their representative about insurance coverage beforehand, you should contact them immediately if that information ends up being false. Many physicians will honor the price they initially told you or at least give a hefty discount. Don’t get discouraged if they don’t get back to you right away. Keep calling to see if you can get a lower price.

Negotiate and ask for a better rate

Most doctors have two different rates: one for insurance companies and one for self-pay individuals. If your doctor’s visit isn’t going to be covered by your insurance, call the doctor’s billing department to ask for the self-pay cost.

“Most physician offices will accept a lesser amount, especially if they know the service is not going toward a deductible,” said health insurance agent Natalie Cooper of Best Quote Insurance of Ohio.

Ask about a payment plan if you can’t afford to pay the bill in one go. Most medical offices would rather get the money a little bit at a time than not at all.

“Most physician and hospital groups will accept a small payment of $25 or $50 per month until it’s paid off,” Cooper said.

Use a health savings account

If you’re struggling to pay a medical bill out of pocket, see if you can open an HSA and use those funds to pay for it. If you owe $2,000, you can transfer $2,000 to an HSA and then pay the doctor directly from that account.

What’s the benefit? HSA contributions are deductible on your taxes. Unfortunately, only people with high-deductible plans are eligible to start an HSA. Individuals can only contribute up to $3,400 a year or $6,750 in an HSA. You can start an HSA anytime if you have an eligible healthcare plan.

The IRS says you can only use your HSA to pay for qualified medical expenses, a list of which you can find here. Funds in an HSA roll over from year to year, and you can contribute up to $3,400 annually or $6,750 for families.

You can also open a Flex Spending Account, which works similarly to an HSA. However, funds don’t roll over to the next year and users can only contribute $2,550 a year.

How to Prevent Out-of-Pocket Expenses

Ask beforehand

Many people use the insurance company’s website to find a doctor, but those lists are often out of date. Insurance information can even change daily. The only way to confirm a doctor’s status with an insurance company is to call them directly and ask if they’re a network provider — not just if they accept your insurance.

“When they are a network provider, they are contractually required to accept no more than the negotiated contracted rate as payment in full, which is usually less than the billed rate,” said human resources expert Laurie A. Brednich. “When they say they ‘accept xyz insurance,’ they are usually not a network provider, but will file the claims on your behalf, and you are responsible for the full billed charges.”

It can also be helpful to give them your insurance group and account numbers beforehand so there’s no question about your specific policy. The more specific you can be, the more accurately you’ll be able to navigate the insurance labyrinth.

Find out if all procedures and doctors are covered

Have you ever been to a doctor who’s recommended you see a specialist for a certain procedure — only to find out that the specialist isn’t covered by your insurance, even though they’re in the same building?

When a doctor recommends you to a colleague, they’re not confirming that the other physician is covered in-network. Before you make the appointment, talk to the billing department to see what their policies are. You can request an estimate in writing beforehand so you’ll have an idea of what the costs will be.

Some procedures might not be covered even if they’re being ordered by your in-network doctor. If your doctor sends your results to a lab, that lab might be out of network, even if your insurance covers the doctor who ordered them.

Confirm the lab’s status before you go in. If it’s too late, call your insurance and ask if they can bill the service as in-network. Cite the fact that you weren’t aware the lab would not be covered.

If they refuse, contact the doctor’s office and explain your situation. Ask them why they used an out-of-network provider and see if they’re willing to write off the bill. Be polite, but firm.

Ask the doctor to apply

When Julie Rains’ insurance changed to a preferred provider plan, she discovered her trusted doctor was now going to be out of network. Instead of searching for a replacement, she asked if her physician would apply to the insurance company to be covered by her new plan. He agreed.

It took almost two months for him to be accepted, Rains said. If you’re going this route, it’s best to start as soon as you find out your insurance company has changed policies. Rains said between the time she found out about the changes and when they went into effect, her doctor had already been approved.

You might have less luck with a doctor you’ve only been seeing for a short time, but most medical professionals take long-term patient relationships seriously — especially if your whole family goes to the same office. As always, it doesn’t hurt to ask.

The post What To Do if Your Insurance Doesn’t Cover a Health Care Provider appeared first on MagnifyMoney.

How to Use Truebill to Identify & Cancel Recurring Subscriptions

 

Have you ever forgotten to cancel a subscription that charges you automatically each month? Me, too.

Thanks to Apple Music album exclusives, I’ve racked up quite a few charges from a subscription that I initially planned to cancel right after the free trial.

Truebill is an app that wants to make you aware of all the seemingly low-cost subscriptions that can add up to a lot of money spent. Truebill uses an algorithm to help you identify and cancel recurring payments made from your credit cards and bank accounts so you can find savings.

We tried out the app to see whether or not using it to cut costs is worthwhile. In this post, we’ll cover:

  • How it works
  • Truebill extra features
  • The cost
  • Pros and cons

How Truebill Works

You need to download the Truebill app from iTunes or GooglePlay to get started. The app lets you sign up for a Truebill account by email or Facebook.

Truebill mobile interface

After you create an account, the next step is signing into your credit card and bank accounts through Truebill so that it can review your account data. I signed into one bank account and one credit card account for this trial.

Truebill mobile interface connect accounts

The results of the Truebill statement scan

Truebill scan of bills

The results of the account scan will appear in your app dashboard within a few minutes.

Recurring transactions found are broken down into three categories — subscriptions, recurring bills, and miscellaneous recurring payments.

Here’s what Truebill found from my accounts:

For subscriptions:

  • A recurring Express Scripts prescription charge
  • Payments for monthly services I use to run a business including:
    • ConvertKit
    • FreshBooks
    • Grammarly
    • GoDaddy

For recurring bills and utilities:

  • An annual credit card membership fee
  • A Comcast bill
  • An insurance bill

For recurring miscellaneous payments: 

  • A Bluehost monthly service charge
  • An iTunes (Hulu) monthly subscription

All of the above are current recurring payments that I’m making periodically.

Truebill also has a section that lists your inactive recurring payments.

Inactive payments are for past recurring items that are no longer posting to your account regularly.

In my inactive section, Truebill has recurring transactions and subscriptions from as far back as 2013, including old student loan payments, car note payments, and more.

If you discover that Truebill is missing a subscription, there’s an option to enter the service name, and Truebill will perform another search on your account.

Truebill no results screen show

You can reach out to a customer service representative for extra help if Truebill still can’t locate a subscription after doing this search.

Does Truebill Find All the Sneaky Costs?

The current auto-payments that show up for me are ones I already know about. I’m also someone who pays pretty close attention to every account transaction so I didn’t expect any surprises.

Despite being aware of these auto-payments, I still find it impressive how many past and present recurring transactions the algorithm picked up on. I can see how this tool can be a shortcut for catching pesky auto-payments in one fell swoop for someone who monitors their statements a little less frequently.

I did learn something new related to very old charges.

Truebill found a questionable Home Depot Project Loan transaction from 2013 and was unsure whether or not to mark it as an old inactive recurring payment.

Truebill Home Depot loan

I’ve never taken out a Home Depot Project Loan, so that’s a charge I plan on researching.

How to Cancel Recurring Payments

The second key feature of Truebill is that it helps you cancel these services.

You’re able to terminate many subscriptions within the app itself. When you click on a specific subscription, there’s an “Options” link, and then a red button to “cancel” the subscription appears.

Truebill cancel ConvertKit

However, the option to cancel isn’t available for all services on auto-payment. This is the case for my Express Scripts recurring payment below.

Truebill cancel subscription

If cancellation isn’t an option, you can head over to the Truebill cancellation page for additional instructions.

On this page, there’s a mega list of companies with directions on how to cancel services from each one. The list includes insurance companies, telephone companies, music streaming services, gyms, and more.

You need to fill out more information about yourself for Truebill to move forward with the cancellation of Express Scripts. The site gives a phone number you can call to cancel on your own. For some companies, Truebill even has video instructions on how to cancel a service.

Truebill form to cancel subscriptions

Truebill Extras to Lower Your Bills

Canceling isn’t the only action you can take to cut costs. The app also notifies you of opportunities to renegotiate contract terms for bills like cable, internet, and insurance to save money.

According to the app, my Comcast bill is high, and it recommends using the BillShark service to negotiate a lower bill. BillShark is a partner of Truebill and renegotiates contracts for consumers. If BillShark can lower your bill, it takes a 40% cut of the savings as a service fee. You do not have to pay a dime if BillShark isn’t able to reduce your bill.

I got a notification that my insurance bill seems high as well. The app refers me to a third party called SolidQuote to shop for competitive insurance rates.

We’ll talk a little bit more about these recommendations in the next section.

The Cost of Truebill

The Truebill app is entirely free to download and use. The one extra service that you may have to pay for is BillShark if you choose to use it to renegotiate your bill contracts. Technically, you’re not paying out of pocket for this service either. You will only pay if BillShark is able to find you savings.

How Does Truebill Make Money?

On the terms and conditions page, there’s mention of Truebill having sponsored links to third parties and advertisements. Truebill may receive compensation from recommending other companies to you.

For example, under the suggestion to shop for competitive insurance quotes with SolidQuote, there’s a link to an advertiser disclosure stating Truebill can get paid for the referral.

Truebill advertiser disclosure

You do not have to sign up for any of these third-party offers to use the service for free. You can simply avoid offers throughout the app and still benefit from using it.

Truebill Security

Truebill uses 256-bit encryption and bank-level security to protect your information. The account history used from your financial institutions to manage auto-payments is read-only, and your information is not stored by Truebill servers. Find out more about Truebill security here.

Pros and Cons

Pros:

  • Truebill is free for users.
  • The app is simple to use and reviews your accounts for subscription information quickly.
  • It shows you both active and inactive recurring payments.
  • You may be able to cancel bills with one click on the app. If you can’t cancel through the app, there are instructions on how you can terminate contracts with many companies on the website. Some cancellation instructions even include step-by-step video tutorials.

Cons:

  • There are advertisements to special offers on the app. These offers are not too distracting, but you should be aware that recommendations may be from paid affiliates.
  • The Truebill algorithm works by analyzing your account data. You need to sign in to your financial accounts for it to do its magic. If that’s a turnoff, you won’t get much use from this app.

The Final Verdict

The Truebill app is easy to use and definitely one to consider if you might be flushing money down the toilet with random subscriptions and services. The fact that it shows both current and past subscriptions is a highlight because it’s also helpful to review how much you’ve spent on these recurring payments in the past few years.

The post How to Use Truebill to Identify & Cancel Recurring Subscriptions appeared first on MagnifyMoney.

Clever Ways to Reduce or Eliminate Your Housing Costs

We all know that aiming to live well below your means will help you save more money, get out of debt, and get ahead financially overall. To supercharge this process, you may want to consider attacking your largest expense: housing.

Just being able to save $200, $500, or more each month on housing could put a large dent in your debt repayment or help you seriously pad your savings. Reducing or eliminating your housing expenses might sound difficult, but there are so many different strategies, at least one could work for you.

What’s more is that these options don’t have to be permanent. You can always go back to a more traditional housing situation once you feel like the arrangement has run its course.

See if one of these ways of cutting your housing costs might work for you.

Be Energy Efficient

The eco-revolution is here, and as a result, there are so many ways to save on utilities. A bonus is that some energy-efficient modifications and products can help you earn federal tax credits.

The list of things you can do is long and can get expensive, but there’s some low-hanging fruit when it comes to reducing your energy consumption:

  • Stop air leaks with caulk, insulation, or weatherstripping
  • Swap out incandescent lights for LED lights
  • Turn down your water heater and get a jacket for it
  • Plug your devices into powerstrips that minimize idle current usage (or unplug devices altogether)
  • Use rainwater barrels for your outdoor water needs
  • Air-dry your clothing
  • Choose light colors on flooring and walls to minimize artificial light use during daylight hours
  • Program your thermostat
  • Get alerts for higher priced kilowatt rates during certain hours of the day

You get the point. The more you can minimize your energy use, obviously the more money you’ll save on these costs. Pick a few that work for you, then use the money saved to get ahead in your finances.

Put Your Bills on Autopay

Not only will this small gesture save your sanity, it could potentially save you fees and penalties connected with late payments. You can set up automatic payments to be deducted from your bank account or a credit card account. If you choose the latter, be sure to avoid carrying a balance from month to month and pay your credit card bill on time as well. Otherwise, the interest and late fees from missing your credit card payment could cancel out the benefits of your autopay set-up.

Appeal Your Property Taxes

If you’ve ever gotten those solicitations in the mail from companies that claim to reduce your property tax bill, don’t put it in the junk pile quite yet. According to the National Taxpayers Union, up to 60% of U.S. properties are over-assessed. This means that 60% of Americans could be paying inflated property tax bills.

Many property owners don’t even know that they can get their property tax bill reduced via an appeal process. Because of this, it’s very possible that you are paying too much for your property taxes.

The appeal process to get your taxes can seem daunting, but it’s usually a string of paperwork and deadlines. Of course, you’ll be dealing with government entities so that could add a layer of complexity to the whole ordeal, but it’s not insurmountable.

If you have the time and ambition, it’s a process you could easily undertake yourself. If not, it may be worth hiring help to file and follow up through the property-tax appeal process. If the appeal is successful and your property taxes are reduced, you’d fork over a portion of the savings to the firm or person you hire.

Shop Around for Insurance

If you’ve got home insurance, you are likely to have other policies for vehicles, and perhaps you also have coverage for health and life insurance benefits, too. If you’ve got insurance needs that require multiple policies, you can leverage your buying power to shop around for better rates.

Shopping around for insurance can seem straightforward, but be ready to use your brain to the utmost in this endeavor. Not only will you need to compare prices, but you’ll also want to compare things like coverage amounts, premiums, deductibles, and available riders at the quoted prices.

Fortunately, there are comparison sites and independent insurance agents that can make this task a little easier. Either way you do it, it’s a good idea to check around every once in a while to make sure your current insurance provider is being competitive and offering you the best rate.

Become a DIYer

One of the most costly expenses of owning a home can be maintenance, repairs, and upgrades. Save money by learning to do some things around the house yourself. There are many resources to help you with anything you don’t know much about, from books, to websites, to YouTube. Though it can take more time, you might come out ahead by cutting your own grass or installing your own kitchen backsplash.

If you’ve got complicated jobs that require special expertise and equipment, consider a partial DIY approach. For example, if you’re redoing your bathroom, you might ask the contractor about things you can do yourself to shave the bill down some. Demolition and cleanup of existing fixtures might be the type of work you can handle.

Don’t be afraid to experiment, but definitely be wise about the projects you decide to take on yourself. Finding the right balance between hiring and DIYing can save you time, money, and headaches as a homeowner.

Rethink Your Home Purchase Plan

Getting a conventional mortgage with vanilla terms that include a 10%-20% down payment and a 30-year loan period are all too familiar to the home-buying public. But if you really want to save on the single largest expense in your life, you might have to be a little more flexible than the standard terms accepted on most home loans.

Larger Down Payment

One approach to consider is putting down at least 20% on your home purchase. This will allow you to skip private mortgage insurance (PMI), which can amount to thousands of dollars over the life of your home loan. PMI can eventually go away over the life of the loan when certain criteria is met, but you can save more money by dumping it sooner than later.

Refinance Your Mortgage

Many people refinance their homes in hopes of getting a lower monthly payment or locking in a lower interest rate. Adjusting these numbers downward can definitely save money for some homeowners over the long run.

However, refinancing your home loan is not a silver-bullet solution that will work in every scenario. In some cases, it makes perfect sense to refinance, and in others, it wouldn’t be a good idea. The best thing to do is run the refinance numbers and make a decision. After doing the math, you might actually find that fees and extended loan terms could cause you to lose money rather than save it.

Make sure you fully understand the terms of your refinanced mortgage along with the potential impact on your entire financial outlook. Most definitely, confirm your assumptions about this move with math. If you need help running the numbers, check out this refinance calculator from myFICO.

Pay Cash for Your Home

While not an option for the average American, paying cash for your home is not unheard of. Paying cash for a home would eliminate tens, maybe hundreds of thousands of dollars in interest, mortgage fees, and PMI. If you think you’d like to go for the gusto and pay cash for a home, consider ways to make this feat possible:

Drastically Change Your Lifestyle

Though these options aren’t for everyone, they are still worth a mention. These suggestions are for those who might be willing to change their lifestyle in order to garner the most savings possible when it comes to housing.

Get a Roommate (or Two)

The home-sharing revolution has caught on, and everyone from young professionals to empty nesters are finding boarders on places like Craigslist and Airbnb. If it works out, it can truly be a good solution to help lower your housing costs. Plus, having a roommate can be temporary or longer term, based on your living preferences.

Again, this option is not for the faint of heart. Adding a roommate to your living equation could be utterly disastrous or surprisingly pleasant, so choose your housemates wisely.

Buy a Multifamily Unit, Rent One Unit Out

Depending on the location and property type in these situations, homeowners can often cover their entire mortgage amount with their renters’ payments. It can definitely have its benefits, but don’t buy that two-flat just yet.

Remember, with this arrangement, you’ll be swimming deep in the waters of landlordship. How it all pans out can be based on so many variables: the landlord, tenant, property, location, and a host of other factors can make this arrangement easy income or a nightmarish headache.

If things go wrong with your property, your tenant doesn’t share the burden of fixing things though they live there just the same. There can be costs associated with maintenance and repairs that go well beyond the monthly income your rented unit brings in. You’ll want to have a comfortable cash cushion for incidentals before starting your homeownership journey as a landlord.

Downsize

You don’t have to join the tiny home revolution to downsize (though it’s not a terrible idea). Downsizing can look different for different people. Downsizing for one person might be moving from the lake-view two-bedroom apartment to a studio in a less ritzy location. You’ll have to decide what downsizing looks like for you and if it will be worth the effort.

While you might not be game for all of these suggestions, you can probably adopt a few that could change your financial situation significantly. Whatever measures you choose to save or eliminate your housing costs, make sure you are ready to deal with the consequences. These consequences can be both beneficial and somewhat inconvenient for your quality of life and your financial health. In the end, you’ll have to determine if it’s worth it.

The post Clever Ways to Reduce or Eliminate Your Housing Costs appeared first on MagnifyMoney.

The One Thing Everyone Should Do (But No One Does) Before Buying a House

If you’re thinking about buying a home or making a similar large purchase, consider playing house first.

Sometime in my mid-twenties, I decided I wanted to stay in the Maryland area and buy a home.

I could afford a mortgage around $1,500 per month based on my expenses—mostly student loan payments—and salary. If I found the perfect home, I could stretch to afford around $1,750 per month.

As I searched for my future home, I played a financial game with myself. I’d soon be saddled with a $1,500 mortgage, so why not spend like I had one already? Why not pay a “pretend mortgage” before my real one so I had a better idea of what it would feel like?

When I was looking for a home, I was sharing a two-bedroom apartment with a friend and paying $600 a month, plus utilities. It was a steep jump to go from $600 to $1,500 a month, so playing this game was important.

At the time, I was budgeting using an app, so I knew I could handle the increase.

I could maintain one of my key money ratios, paying less than 30% of my salary to housing. But I still needed to know how it felt. It’s one thing to see it in an app and another to feel it.

How ‘Playing House’ Worked for Me

Every month, I paid my $600 for rent and set aside $900 in savings. As you’d expect, I didn’t just transfer money from one account to the other, because who has $900 sitting around? If I did, I wouldn’t need to play house!

I had to make adjustments. I contacted my human resources representative to reduce my 401K contributions so I’d have more in my paycheck. I had to adjust my other savings goals as well because I wouldn’t be saving as aggressively.

I also started going out to dinner and bars less often. Instead of going out for drinks a few times a week, I limited myself to two nights, on the weekends.

Making those trade-offs became easier — and easier to explain to friends without having to deal with grumbling, because I was making a clear choice. I was cutting some social time because I wanted to buy a house. I wasn’t saving money for the sake of it. I had a very good reason: to buy a house.

The housing search took about 18 months and I played house for only 12 of them, so I had an extra $10,000 or so saved up in my mortgage account. I took that money and put it toward the down payment.

The house ended up having a mortgage that was a little less than $1,500, and after living with the mortgage payment for a year and a half, I had no trouble adjusting to it.

If you’re thinking about buying a home or making a similar large purchase, consider playing house first.

Image: Geber86

The post The One Thing Everyone Should Do (But No One Does) Before Buying a House appeared first on Credit.com.

50 Things Millennials Can Do Now So They Can Retire at 65

Want to retire at 65 but don't know how? We're here to help.

It seems like you’ll be punching a clock forever, right? Well, one day, you’ll likely stop spending 9 to 5 at a desk and will enjoy your golden years in retirement. But that’s assuming everything plays out nicely and you have enough money set aside to do so. Stressful, right?

Well, according to a 2016 Retirement Income Strategies and Expectations survey by Franklin Templeton Investments, 70% of millennials are stressed and anxious about saving for retirement. So if you’re one of the millennials who gets anxiety every time mom or dad brings up the importance of your retirement funds, take a deep breath.

We’ve got 50 easy-to-digest ways that can get you on the right track today so you’re ready to celebrate in style once your 65th birthday rolls around.

1. Start Now

“It’s never too late, and it’s never too early, to start saving for retirement,” Ty J. Young, CEO of Ty J. Young, Inc., a nationwide wealth management firm, said.

2. Don’t Fear Your Finances

“A healthy relationship with money is absolutely crucial,” Attila Morgan, Nuvision Credit Union’s manager of community engagement and public relations, said. If you shy away from planning for retirement, you’ll pay the consequences down the line.

3. Think About How Much You’ll Need

“It’s crucial that you know how much money you will need in retirement,” Roger Cowen, a retirement planner and owner of Cowen Tax Advisory Group in Hartford, Connecticut, said. This way, you’ll have an easier time figuring out an amount to save or invest. Don’t forget about inflation.

4. Pay Your Savings Account

There are bills that must be paid but you also need to pay yourself. This doesn’t mean buy something new — it means putting money aside for your future. As Warren Buffett said, “Don’t save what’s left after spending — spend what’s left after saving.”

5. Avoid the Couch Cushions

You won’t gain anything from hiding money under the mattress or in the couch cushion. Take that money to the bank. Sure, interest rates may not be high, but it’s still extra money you wouldn’t have had otherwise.

6. Make Sure You Have a Rainy Day Fund … 

Experts generally recommend having at least three months worth of expenses socked away for emergencies. The amount you’ll need will change over time, so make sure it stays at the level you’d need.

7. … & Only Withdraw in Emergencies

You’ll want to use your emergency fund for “unexpected events, rather than dipping into your retirement savings,” Chad Smith, wealth management strategist at HD Vest, a financial services firm in Irving, Texas, said.

8. Set Up Automatic Transfers

Having the money directly transferred will make [saving] easier,” Cowen said.

9. Avoid Duplicates

If you’re paying for multiple streaming services as well as cable, decide what you can cut. Same goes for multiple magazine subscriptions that you read online. Anywhere you’re doubling up, try to cut back.

10. Maintain Good Credit Card Habits

“Start small. Pay on time and pay of the balance in full at the end of each month,” Cowen said. This can help you maintain good credit.

11. Monitor Your Credit Scores

“Know your credit score and monitor it often,” Marc Cenedella, CEO of career website Ladders, said. Having good credit can help you get better terms and conditions “when it comes to taking out a line of credit or mortgage, which will make a big difference in your ability to retire at 65.” (Not sure where your credit stands? Find out right here on Credit.com.)

12. Invest in the Stock Market

“I think millennials are making a big mistake by not investing,” James Goodnow, an attorney at Fennemore Craig in Phoenix, Arizona, said. “If you take a long-term horizon, the market is still a safe bet.”

13. Don’t Shy Away Entirely From Risks

“We as millennials are in a fortunate position,” Goodnow said. “Because of our age, we are able to weather storms in ways that investors from other generations cannot. If there is another dip or crash, we have time on our side to help us recover.”

14. Utilize Your Company Matching

“If you aren’t contributing enough to get the free match from your employer, you are throwing money away,” Cowen said.

15. Consider a Roth IRA

Roth accounts are not taxed if you make withdrawals after retiring. “Starting young is the key to retiring rich and the Roth account is the best way to accomplish this,” according to Adam Bergman, the president of IRA Financial Group.

16. A Little in Column A, a Little in Column B

“Do not put all of your eggs in one basket — diversification is key, ” Richard W. Rausser, senior vice president of client services at Pentegra Retirement Services in White Plains, New York, said.

17. Adjust When You Get a Raise

“Increase your 401K savings every time you get a pay raise, no matter what,” Rausser said.

18. Evaluate Your Portfolio Over Time

“As you accrue a larger portfolio, take your winnings off the table often,” Young said. This way, you aren’t leaving all you earn at risk.

19. Review Your Budget

Just like you check in on your portfolio, you’ll want to look at your personal finances. Young recommends you “review your finances every three months to determine where you can save.”

20. Avoid Early Withdrawals 

If you withdraw from your retirement plan before you’re at the qualifying age to do so, you’ll face a penalty and won’t benefit from this account the way you could.

21. Live Within Your Means

It’s important that you write down a budget to help you spend only what you can afford and prevent you from racking up credit card debt,” Cowen said.

22. Consider Heading Home

“If a new grad chooses to live at home for two years after graduation and puts the money that he/she saves on rent toward retirement, this grad could retire five years earlier,” Cowen said.

23. Move Somewhere New

There are plenty of big cities that are affordable (you can find a list of them here), so if you’re spending too much now that prevents you from saving for your future, you may want to consider relocating.

24. Don’t Buy a McMansion

The big house with all the bedrooms may seem like a nice idea, but if it’s out of your price range, you’ll find yourself in hot water. You can go here to learn how to decipher how much house you can truly afford.

25. Let Technology Help You

Use savings and financial planning software … so you can manage how much you save, spend, invest and donate,” Cenedella said.

26. Ask for Advice

Garner experience from those who have “been there, done that.” You never know what gems of wisdom they may have.

27. Set Goals

“Work to create a goals-based plan,” Smith said. “This will show you how saving over time can lead to retirement.”

28. Negotiate Your Salary                    

“Even an extra $5,000 can help at each stage,” Cenedella said. “The compounding effect is enormous, and there’s always room to negotiate.”

29. Always Have a Plan B

If your company downsizes, what will you do? It’s important to have a fallback plan at any age in case your current one doesn’t work out.

30. Don’t Rely on Your Credit Cards

Racking up a lot of credit card debt means additional interest fees and serious stress. Only charge what you can truly afford.

31. Make Money From Your Hobbies

“Teach guitar lessons, buy items at a garage sale and then resell them online or pet sit for a family,” Cowen suggested. “These are just examples of personal hobbies that could turn into extra cash.”

32. Sell Things You Don’t Need

Whether you post your items on eBay or have a garage sale, it’s better to profit from what you don’t use than to have it lying around taking up space. The money you get can go toward your IRA, savings or even paying off debt. (Want more ideas? Here are 50 ways to help you stay out of debt.)

33. Keep Your Old Car

The shiny new cars on the lot may be alluring, but if your car still runs fine and doesn’t require a lot of repairs, it may be smart to hang on to it.

34. Shop Around for Better Rates

Whether it’s how much you pay for cable or your car insurance policy, make sure you’re getting the best deal.

35. Say Goodbye to Annual Fees

If you’re carrying a credit card with an annual fee that you rarely use or that doesn’t offer perks that truly benefit you, consider cutting ties and getting a credit card with no annual fee. Just make sure your credit can handle the ding of canceling a credit card before doing so.

36. Be Careful with Co-Signing

“Co-signers are on the hook for timely loan repayment, so any missed payments — even for someone else’s loan — can hurt a credit score,” according to credit bureau TransUnion.

37. Pay Off Student Loans as Early as Possible …

The sooner you get these off your back, the less you will pay in interest over the years.

38. … But Don’t Put All Your Extra Money Toward Debts

It’s good to focus on paying off your loans and other debts, but you still want to set money aside for retirement — even if it’s just $1 every day, or $10 every pay check. Something is better than nothing.

39. Go for the Health Benefits

Health Savings Accounts (HSAs) help you save to cover healthcare costs with contributions that are tax-deductible (or pretax, if made through payroll deduction) and any interest earned is tax-free.

40. Consider the Protection You Get from Insurance

“You’ll save a lot of money over the next 30 – 40 years as you ready for retirement,” Dan Green, CEO of Growella, said. “All it takes is one accident, though, to clear those savings out. That’s the point of insurance … you get protection from loss.”

41. Establish Healthy Habits

Because unhealthy ones are expensive.

42. Turn Savings Into Investments

“Take advantage of transportation savings or flexible spending accounts that can save you money,” Cenedella said. “Invest the amount you save.”

43. Find Ways to Lower Your Bills

Whether it’s energy-efficient light bulbs or a smart thermostat, cutting costs on bills you have to pay can really help fatten up your wallet.

44. Invest Your Tax Refund

Getting money back from Uncle Sam may be just the ticket to increasing your investments.

45. Do the Same with a Bonus

If your boss rewards you for a job well done, consider taking part of that money and putting it toward your retirement savings or investments.

46. Strategize When You’ll Take Social Security

Even if you retire at 65, you may opt to wait until you’re at least 70 to start collecting on Social Security to make sure you get the most out of these monthly payments.

47. Prioritize

You may want to save more for your child’s education, but remember: They can take out a student loan or work a part-time job to pay for school. You can’t take out a retirement loan.

48. See If You Qualify for an IDA

Some people qualify for an Individual Development Account (IDA), where contributed amounts are matched.

49. Consider Meeting with a Financial Adviser

If you want more guidance from a professional, it’s a good idea to find one who is certified by the Certified Financial Planner Board of Standards.

50. Get Educated

“Invest in the stock market and the Forex market, but first get educated in both types of investments and do the math,” said Robyn Mancell, partner at Girls Gone Forex, a company that teaches women how to trade in the market.

Image: monkeybusinessimages

The post 50 Things Millennials Can Do Now So They Can Retire at 65 appeared first on Credit.com.

4 Money Excuses You Need to Stop Making

Managing your money can be a challenge, but it can be done successfully — especially if you stop making these common excuses.

If saving more money is on your to-do list, but you just haven’t gotten around to it, it’s time to stop making excuses. We’ve all told little white lies to ourselves about why we’ve yet to open a Roth IRA, save for a down payment on a home, or stop living paycheck to paycheck. But have we actually sat down and come up with solutions? Probably not.

To help you get out of this habit — and on the right financial footing — we’ve come up with a list of common excuses money managers often make. If you find yourself using one of them, you’re doing your money no favors.

I Don’t Have the Time

Saying you don’t have time to manage your finances is like saying you’re too busy to hit the gym. There may be some truth to your reasoning, but you probably refuse to make it a priority for another reason. Perhaps you’re dreading what you’ll actually find when you check your credit scores (you can do this for free on Credit.com). Or you’re afraid not making ends meet will mean having to change your behavior. Whatever the fear, avoiding the problem won’t solve it, and you’ll have to face up to it sometime. Start being honest with yourself so you can stop the shame cycle for good.

I’m Bad at Math

Not everyone loves crunching numbers as much as your algebra teacher. But that doesn’t mean you can’t come up with a system to better manage your finances. Plenty of free smartphone apps make budgeting a cinch for right-brain types, and if you don’t like using an app, then there’s always old-fashioned pencil and paper. Excel or other spreadsheet applications can be useful for those who like keeping tabs on their progress.

I Don’t Earn Enough Money

It’s rare to find someone who’s truly content with their take-home salary. But that shouldn’t hold you back from managing what you do have coming in. While it’s reasonable and even advisable to think about a raise, you owe it to yourself to make your current paycheck work for you. That means living within your limits — excessive debt is a no-go for building good credit, as how much you have (in relation to your overall credit) impacts a chunk of your score — setting aside what you can, and rewarding yourself for a job well done when you can afford it.

I Can’t Give Up My Lifestyle

If living a life of luxury now matters more than saving for the future, it’s time to assess your priorities. This starts with understanding a need versus a want — something you need, like food and shelter, versus something you want in the moment, like the latest eyeshadow kit. The latter may be a fun splurge, but it certainly won’t pay for your house or fund your retirement. It also won’t feel so hot when you get a hefty credit card bill or a dreaded phone call from debt collector wondering why you haven’t paid what you owe. Worse still: Being rejected for credit when you really need it to buy a house, get a job or help out a relative.

Remember, staying on top of your finances is often easier said than done. But you can make it easier for yourself by doing away with the excuses and getting proactive. Reaching your goals won’t happen overnight, but you’ll be well on your way to financial success if you start being honest with yourself.

Image: Rawpixel

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3 Investing Strategies to Save for a New Home

Buying a home is one of the most significant financial decisions you will make in your lifetime. For many Americans, saving for a purchase of that magnitude can feel impossible. The good news is there is no shortage of strategies you can choose from. The number one factor to consider (apart from your income) is how much time you have to save. Depending on when you plan on buying, some options may be better than others.

Here’s a guide to saving for a new home with various timelines in mind.

If you want to buy a home in the next 3 years…

Every investment option comes with a degree of risk, and with only a few short years to save, it’s likely not a wise idea to take big risks with your savings. The last thing you want is for the money to lose value without enough time to recover.

In this case, you should be looking for savings options that offer safety rather than growth, like a high-yield savings account and certificates of deposit (CDs). These are very low risk and, best of all, come with guaranteed returns on investment. If you’re looking for the highest paying savings accounts in your area, you can use our free comparison tool. We also have a list of the best CDs for the month.

If you want to buy a new home in 4 to 7 years…

The longer you have to save for a home, the more creative you can be with your investing strategy. The key is to strike the right mix between safety and growth. You want your money to grow at a comfortable enough pace to beat inflation but maintain enough conservative investments to offset any potential losses you might experience in the market.

You may be able to achieve this with a 25/75 portfolio.

The 25/75 portfolio strategy is pretty simple — no more than 25% of your money is invested in stocks, and the remaining 75% are in bonds. This blend of stocks and bonds should allow your money to grow modestly while keeping safety top of mind. You can start this process by opening a brokerage account and choosing your own mutual funds to reach the right mix. But do your research first. For example, U.S. News & World Report maintains a list of funds that are ranked for their allocation, fees, and performance. 

If you want to buy a home in 8 to 10 years…

Time is certainly on your side if you’ve got nearly a decade to save for your dream home. The key is taking on the right amount of risk. Because you have so much time to save, you can afford to take riskier investment bets, which can potentially reap much higher rewards in the long run.

Consider a 50/50 investment strategy: You’ll invest 50% of your savings in stocks and 50% in bonds. You should have just enough risk to ensure you’ll beat inflation and then some, but still be conservative enough to be able to weather any downturns in the market. To achieve the perfect 50/50 mix, you could split your money evenly between your own selection of stocks and bonds. For those who like a more hands-off approach, U.S. News & World Report has a ranking of mutual funds that are preset to give you the 50/50 allocation. There you can select the fund you feel suits you best. 

Deciding where to invest 

Where you invest your money matters. Save your money in the wrong place and taxes could eat up a portion of your gains each year. You could also be in a situation where taking the money out to buy a home could cause a penalty as well.

If you plan on buying a home in five years or more, strategically using a Roth IRA could be your best option. With a Roth IRA you can withdraw all of your contributions without penalty; additionally, you can withdraw $10,000 of the earnings without tax or penalty for a first-time home purchase. 

Lastly, a plain brokerage account may suit you. There are no tax advantages to investing here, but if you’re using the account to buy a home in the future, there may be more benefits in other areas. You can only contribute $5,500 ($6,500 after age 50) in a Traditional IRA or Roth IRA, and withdrawals are subject to strict rules. A regular brokerage account, on the other hand, has no limits to what you can put in or take out for home purchases or any other purchases. Take a look at your situation and see which options fit you best.

What about my 401(k)?

A common question most people ask is whether they should use their 401(k) to grow the money and then use it to buy a home. This is usually a bad idea. If you withdraw the money before age 59½, you would be subject to a 10% penalty, plus income taxes on top of that amount. In addition, the amount that you withdraw could severely alter your retirement goals. This is called an opportunity cost.

A better idea, though still not one we recommend, is taking a loan from your 401(k). You are allowed to take a loan of up to $50,000 or half the value of the account balance, whichever amount is less. This is still a loan, however, meaning it could affect your ability to qualify for a mortgage. You also have to pay this loan back. Depending on your company’s 401(k) rules, if you leave the company, the entire balance of the loan might come due within 60 to 90 days after you leave. If you stay with the company, you could be required to pay the loan back within five years.

Thankfully, your 401(k) isn’t your only option. Taking money from a Traditional IRA is a bit better. You are allowed to withdraw $10,000 without penalty for a first-time home purchase. This may change your tax situation as any withdrawal would have to be counted as part of your regular income. For most people this still isn’t the best option but certainly better than dipping into your 401(k).

Making a clear goal

Do some research to see what home prices are like in your desired area. Then make a clear savings goal. An easy way to do this is to take 10 to 20% of the average home value in your area to estimate your downpayment. Use this calculator to see how long it will take you to reach your goal.

The post 3 Investing Strategies to Save for a New Home appeared first on MagnifyMoney.

Review: You Need a Bugdet (YNAB) — The Budgeting Tool That Makes Every Dollar Count

YNAB app-spread

You Need a Budget (YNAB) is subscription-based budgeting software available both on desktop and mobile devices. Its trademark mantra is, “Give every dollar a job.” That means as you have money coming in, you assign it a budget category. Once you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.

How Does ‘You Need a Budget’ Work?

When you first sign up for You Need a Budget, you will be asked to link your checking, savings, and credit card accounts. This allows the app to see exactly how much money you have at this very moment.

Next, you’ll add upcoming transactions like rent, utilities, and groceries. As you add these expenses, you’ll also be prioritizing them. The ones that are most important (generally rent or mortgage payments) will go on top, and the ones that are a little more frivolous like entertainment spending will go at the bottom.

After you’ve set up transactions you know are coming, you’ll be able to establish goals. You can set up goals by a date, in which case the app will tell you how much you have to save per month to meet your objective. You can also set them up by how many dollars you’d like to allocate toward them per month, in which case the app will tell you how long it will be until they are fully funded (or in the case of debt repayment goals, paid off).

YNAB direct-import-setup

You’ve linked accounts. You’ve accounted for bills and upcoming spending. You’ve set goals. Now it’s time to fund all of those things! You start with the money you have, and not a penny more. You assign each dollar to a certain line item, again, starting with the most important items at the top. Once you reach the end of your current funds, you won’t be able to budget any more until you get more cash in your hands.

If you are able to fully fund one whole month, then you can use any excess funds on hand to start funding the next month. The more you do this, the happier the founders of YNAB get. Their entire philosophy is that you should “age your dollars,” meaning the further in advance you can fund a transaction or goal, the more financial stability you will have.

How Much Does ‘You Need a Budget’ Cost?

Currently, You Need a Budget offers a 34-day free trial — no credit card required. After that, you will have to pay either $5 per month or $50 per year. Students get twelve months free, after which they’ll be eligible for a 10% discount for one year. If you have a previous version of YNAB, you’ll be able to score a 10% lifetime discount on the latest version.

Fine Print

ynab-app-icon-1024YNAB is extremely transparent and seemingly ethical in their practices. They do not sell information to third parties, but may give others access to it in the course of business as they work to facilitate the software through companies such as Amazon Web Services and Finicity, which are two trusted names in the Fintech industry as far as security is concerned. Your data is always encrypted, and will be completely and irreversibly deleted upon request should you ever choose to close your account.

Pros and Cons

You Need a Budget is commonly recognized as one of the best budgeting apps around. That doesn’t mean that it’s perfect for everyone, though. Think through the pros and cons before downloading.

Pros

  • Transparent company.
  • Committed to security and positive user experience.
  • Helps you change your financial habits through a simple, yet revolutionary, process.
  • Prioritizes your expenses each month.
  • Forces you to address overspending.
  • Allows you to set goals.
  • Can be used by those who get paid regularly and receive W-2s or by freelancers.
  • There are user guides and lessons accessible to members to deepen your understanding of common personal finance principles and concepts.
  • There is a community where you can get support.

Cons

  • There is a price for your subscription.
  • This won’t be good software for you if you’re a percentage budgeter as the interface makes no allowance for that method.
  • At this point in time, there are no reports or analyses to help you disseminate your habits. They are promised on the horizon, though.

How Does ‘You Need a Budget’ Stack Up against the Competition?

YNAB is an extremely useful and user-friendly app. However, it does come with a fee and is far from the only budgeting software on the market. Here are some other options you may want to check out if the YNAB $50 annual subscription is getting you down:

Mint.com

While it may not use the “give every dollar a job” philosophy, Mint.com solves very similar budgeting problems in a very free way. It allows you to link accounts, plan for upcoming expenses, and set goals. It also provides charts and graphs to analyze your past behavior and provides your FICO score at no charge — two things YNAB doesn’t do. The biggest con to this no-cost application is that it is laden with ads.

Wally

If you don’t like the idea of your financial accounts being linked to a third-party app, another free option is Wally. When you use this app, you’ll have to be a lot more diligent at inputting your income and expense as none of it will be automated, but that’s the price you pay for keeping your bank account info completely separate.

Level Money

Level Money is a free app that allows you to link accounts, gives you insights into how much you have left to spend in any given category on any given day, and comes 100% ad-free. This app isn’t the best for the self-employed or those with variable income, and also isn’t as useful for those who make a lot of cash purchases.

Who Should Use You Need a Budget?

You Need a Budget is great for anyone who wants to get a hold on their money today, but doesn’t necessarily want to analyze their past spending. It’s developed for people who prefer budgeting by dollars rather than percentages, and comes with extra savings for students who are trying to establish good money habits at a younger age. It is time-tested, and is created by a company that has continually shown it cares for its customers.

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