The job search can be a daunting task. You need to get your resume in front of the right people, prepare for the interview, and then, of course, make the right impression during the said interview. But even after you’ve forged through those stages of the job hunt, there’s still one important thing left to […]
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The age-old question: Should you prioritize paying off debt or investing?
Or, if you’re ambitiously trying to do both: To what extent should you prioritize each?
The answer isn’t the same for everyone. It’s easy from the outside to say, “Don’t invest until you’re debt-free.” Or, “The market has higher returns than your loan interest, so why would you pay it off?”
However, it comes down to what you feel comfortable with. (I know — lame answer, right?)
But if you’re a numbers person — and because my editor won’t let me end this post right here — let’s dive into some specific figures to help you decide whether to prioritize investing while paying off debt.
There are a lot of factors to consider: interest rates, amount of debt, income, expenses, etc.
But to put money toward either, you must have a surplus after your monthly expenses that you can put toward retirement or debt.
The quickest way to do that is to lower your expenses and/or increase your income. But even after that, people will have differing surpluses based on where they live, their life situations, etc.
Someone who has enough surplus to pay off $50,000 in two years should think about investing differently than someone who plans to take 10 years to pay it off.
So let’s look at the fictional examples of Adam and Sharon. Both are 25. Both have $50,000 of debt and are paying an average interest rate of 6.45%.
Adam has a sizable surplus. He plans pay off $50,000 in two years with the help of his wife’s income, side hustling and cutting back expenses.
But Sharon has very little surplus. So she plans to pay off her $50,000 in 10 years.
If Adam sticks with his plan to put his entire surplus toward paying off his debt rather than investing, he’ll make 24 payments of about $2,226 and pay just over $3,400 in interest.
But suppose Adam opts to use part of his surplus to max out his Roth IRA by investing $6,000 a year. He’ll end up making 32 payments of $1,726, rather than 24 payments of $2,226. He’ll pay an extra $1,000 in interest.
But he’ll have an extra two years of Roth IRA contributions — $12,000 — invested.
That $12,000 alone compounded over 35 years in a market seeing 6% return will turn into $92,000 by the time Adam is 62.
Even though he’ll pay an extra $1,000 in interest, because Adam is paying off his loans so fast, taking advantage of some investing while paying off his debt would net him an extra $90,000 in the long run.
If Sharon pays back her $50,000 debt over 10 years, she’ll make 120 payments of about $570. She’ll pay a total of around $18,000 in interest.
If she starts maxing out her Roth when she becomes debt-free — in 10 years at age 35 — she’ll have contributed $30,000 by age 40. If she continues contributing $500 per month from age 36 to 60, assuming 6% growth, she’ll have $304,000 at age 60.
If Sharon decides she doesn’t want to wait to invest and puts $50 per month toward her Roth IRA, she’d end up making 137 payments of $520 and paying over $2,700 extra in interest on her debt. She’ll have contributed $6,850 in her Roth over that time. At 6% growth, the balance would be $8,357 by the time she’s debt-free.
That’s a growth of $1,507 in her Roth at the expense of an extra $2,700 in interest paid on debt.
If she then starts contributing $500 per month to her Roth at age 38 through age 60, she’d have $290,000 at that point — $14,000 less than if she’d focused on paying off her debt instead of investing during that time.
Of course, no financial situations will be the same as Adam and Sharon’s are.
The most valuable lesson from these scenarios is that you have to run the numbers for your own situation.
You might not stick with the strategy you begin with. If you’re not investing, you might spend a few months refining your budget and getting used to going out less. Maybe you’ll then find that you have extra money to invest or that you can pay off your debt much quicker than you anticipated.
Alternatively, you might invest for a while and then encounter something that cuts your income. So it might make sense to take a break from investing in the short term.
As a rule of thumb, if you can max out an IRA and still be debt-free in four years or less, it may be worth paying a little extra in interest to start investing. If your budget is too tight, or your interest rates are hovering at or above the average rate of return we use to calculate retirement savings — 6%-8% — then don’t stress about your IRA.
But remember: As long as you’re doing wise things like saving, paying off debt and investing, you’re already on the right track.
This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can’t personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.
Jen Smith is a staff writer at The Penny Hoarder. She and her husband paid off $78,000 of debt in less than two years on two less-than-average salaries. She gives money saving and debt payoff tips on Instagram at @modernfrugality.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Banking is a relationship, and its breakups are as logistically difficult as any other.
Consumers may not feel emotionally connected to their banks, but they are tied to financial institutions in other ways that can make it hard to walk away. For more than a decade, I’ve been in just such a banking relationship with Bank of America, and I’m finding it far easier to stay than to go.
Back in 2007, I moved to Boston and discovered that Bank of America was basically everywhere I looked. It had acquired local bank FleetBoston just three years earlier and had outposts all over the city. There was one near my apartment, a Bank of America ATM at my subway station, a branch near my job, a branch near my next job, and a branch just down the street from the apartment I later moved into with my wife.
It was incredibly convenient for me to stop in and withdraw cash from ATMs without fees, deposit checks when a direct-deposit option wasn’t available, and to simply hand them bags of change I’d been collecting for the better part of the prior two decades (it was a different time, clearly). In the meantime, I used my account to automatically pay my phone and credit card bills, as well as other utilities.
In 2007, I moved across country to Portland, Ore., and found that Bank of America hadn’t exactly moved with me. There were locations here, sure, but they weren’t as abundant as, say, U.S. Bank or Wells Fargo (which has a large white tower downtown) or the myriad smaller banks and credit unions. However, we lived close to the Portland State University campus at the time, and there was a location close enough to make me think twice about switching.
It was only after my wife an I bought our farmhouse in unincorporated Washington County, Oregon, that things became complicated. The nearest Bank of America branch, in the town directly to our south, closed within a few months of us moving in – forcing me to upgrade from my cheap, dumb keyboard phone to a smartphone just to deposit checks. By that time, all of my direct deposits, mortgage payments, auto lease payment, and utility payments were tied into that account.
While there’s no real need for me to go to a location anymore, Bank of America made changes to my account last year that tacked on some considerable fees. While I’ve been fortunate enough to avoid the $12 monthly fee for not making direct deposits or having a monthly account balance under $1,500, the dearth of Bank of America ATMs in my area means I’m charged $2.50 by Bank of America each time I use an outside ATM. That doesn’t even count the fee charged by the ATM’s operator.
There are independent banks and credit unions closer to home that won’t charge me ATM fees, and online banks that reimburse such charges. But after more than a decade of wrapping my life into this account, how could I get out?
The answer? Not easily.
Bank of America requires customers who want to close an account to visit one of their financial centers. If it was too far for me to use its ATMs or deposit checks, it doesn’t get closer when you have to spend an afternoon explaining to a staffer why you want to quit the bank. My other options are to either call Bank of America (800-432-1000) or mail them a request in writing. (Bank of America, FL1-300-01-29, PO Box 25118, Tampa, FL 33622-5118). Closing an account online isn’t an option.
However, as Consumer Reports points out, closing your account really shouldn’t be the first step toward breaking up with your bank anyway. The consumer watchdog suggests opening a new account at a bank, credit union, online bank, or smaller regional or community bank first, without closing your existing account. Online banks don’t require any mail or face time, but the others may require 30 minutes to an hour of your time and a $50 minimum deposit or less to get the ball rolling.
Consumer Reports notes that online banks like Ally and Synchrony tend to reward customers with higher interest rates, but smaller, regional financial institutions tend to rate better overall for customer service, teller wait times, website and mobile app use, and convenience of hours and locations. Consider that CR’s highest-rated banks were First Republic in San Francisco, Frost Bank in San Antonio, First National Bank of Omaha, and Third Federal in Cleveland. This doesn’t mean that all of the above are better picks than big banks – Chase’s ATM and branch network, mobile and online services, and financial advice also scored well – but it does give consumers a lot to consider.
Once you’ve made that switch, contact your employer (or, in my case, employers) and change the direct deposit of your paycheck to go into the new account. As a freelancer, this has been one of the more daunting obstacles to switching banks, given how many employers and human resources departments are involved. While it’s easier to open a new account by transferring money in from an existing account, direct deposit (as we saw with Bank of America) often makes you eligible for free checking.
Another key hurdle involves stopping your automatic bill payments. If you’re simply making those payments through a bank’s online bill-pay feature, that’s going to be easy enough to stop and switch. However, if you’ve simply allowed a utility, credit card issuer, or mortgage holder to pull payments from your account – as I did in several cases – you’re going to have to contact each company and find out how to both stop the automatic payment and set up new ones. That also means you’re going to have to keep your old account open until you can sort everything out, to make sure you don’t miss any payments.
Meanwhile, undo some of the mistakes you made with your old account. Look into online bill pay options, mobile banking, money transfers, and alerts. Once all of your payments and direct deposits are switched over, it’s time to close your old account. In my case, that would involve asking Bank of America for written confirmation that the account is closed and determining how to transfer any remaining balance out of the account. That will likely come in the form of a check, as Bank of America limits just how much customers can transfer in a day.
I’ll admit, none of the above hassles makes me more keen to start the process. I’ve had this account through multiple changes in banking technology, and many of the features that would’ve made it easier for me to switch accounts just didn’t exist at the time I needed them. However, now that I know what lies ahead, it should be easier for me to open an account I’m more comfortable with and start the transfer process.
It may be a long, drawn-out breakup, but acknowledging there’s a problem and finding a way out of it is better than staying in an unhealthy banking relationship.
Read more:
The post How Hard Is It to Quit Your Big Bank? I’m About to Find Out appeared first on The Simple Dollar.
This is the sixth entry in an eight part series exploring the connections between your finances and other areas of your life.
A few weeks ago, I started a series exploring the connections between personal finance and the other “spheres” of my life. The first entry covered the connections between one’s physical life and financial life, the second entry covered the connections between one’s mental and spiritual life and financial life, the third entry covered the connections between one’s intellectual life and financial life, the fourth entry covered the connections between one’s marital life and financial life, the fifth entry covered the connections between one’s parental life and financial life, and today we’re looking at one’s professional life and financial life.
As noted in the first entry, I tend to view life as a bunch of “spheres,” or areas of focus. I really like Michael Hyatt’s list of nine such “spheres”: physical, mental/spiritual, intellectual, social, marital, parental, avocational (hobbies), vocational, and financial – they cover much of what life is all about. I’ve come to view these spheres as deeply interconnected, in that success in one sphere is usually linked in some significant ways to success in other spheres (and failures are similarly connected) and that knowing the connections can help people figure out how to succeed in both areas at once.
Today, we’re going to look at the professional sphere and how it connects to one’s financial life.
One’s professional life is simply what one does with their time and energy in an effort to earn money. (Things you do outside of earning money tend to fall into the other spheres of life.)
My professional life is centered around being a freelance writer, with a few other side gigs here and there. My wife’s professional life is that of a teacher. My father’s professional life was commercial fishing and factory work.
Professional life encompasses both the day to day work that you have to do to fulfill the requirements of your job and get paid as well as the additional efforts you take on to discover new and better moneymaking opportunities, like furthering your education or getting a certification or going to professional conferences.
Obviously, the connections between one’s professional life and financial life are many. After all, for most people, their professional life is the source of income in their life.
Yet that’s just the start of the connections between your financial life and your professional life. Here are several more.
Often, your professional life comes with costs. Maybe you have to buy a particular wardrobe for work. Maybe you have to take classes in order to maintain certain certifications. Many people have some sort of commuting cost that’s required to get them to and from work. Those costs add up and they drain away from your income.
In fact, you’re usually better off working for a dollar or two per hour less if the extra costs (like commuting and clothing) are significantly lower or nonexistent. You’ll pay fewer taxes and have fewer expenses, which will recoup the salary difference.
Stressful jobs often require “unwinding,” which also has financial implications. Many people gravitate toward expensive ways to unwind after a busy day, or else they gravitate toward simply resting to unwind and that ends up bringing on other expenses.
I used to unwind by playing a lot of video games. I would often buy a new video game twice a month, which added up to $100 a month just to unwind from my job. I would often stop for a “snack” after work as well, because I would often eat to de-stress, and sometimes I’d hit a bookstore as well. Those costs can add up. The stress of work can really add to your life.
Your job benefits have a profound impact on your overall financial picture. A job with a strong 401(k) or 403(b) match, a continuing education program, and a great health care plan is well worth a lower salary than a job without any of those benefits. Jobs need to be considered in terms of the total value of their benefits and salary, not just the dollar amount on your paycheck.
No job is completely stable, and treating your job as permanent and untouchable is a huge financial risk. Your eyes should always be peering ahead at what your next gig is going to be. An unexpected job loss would be financially devastating to the majority of American households. Don’t leave your own household at risk.
This list could go on and on, of course. The core message here is that the connection between your financial life and your professional life is much deeper than your next paycheck.
Here are five low cost strategies I use for maintaining and improving my own professional life.
If you are genuinely unhappy going to work each morning, substantially beyond the mere preference of a day of leisure that we all have, then you should not stick around at that job. It is likely damaging you in a number of long term ways and making your daily life miserable. Stress and worry and unhappiness have tremendous negative long term health impacts. No job is worth that.
Your focus in that situation shouldn’t be on perfect job performance, but rather on doing enough to maintain that job while you work on an exit strategy. You should be doing everything you can to open a new door for you to walk through in your career.
What does that mean in practical terms?
Change your perspective and look at your work solely as a tool to get ready for your next job. Everything you do there should be oriented toward keeping the job in the short term and preparing yourself for your next career step. If your task isn’t doing either, then it should be a very, very low priority.
Figure out what kind of job you want when you leave, then start building the resume to get that job. I’ll cover this in more detail with strategy #2, but you should identify what the requirements and preferred skills and attributes are for the job that you are aiming for next. A good place to start is to go look at job listings for the job you want.
Tap your professional relationships for leads. Again, I’ll touch on this with strategy #3, but the key idea here is to reach out to your professional network to find out if there are any appropriate jobs available for you. Just ask around with professional colleagues who are employed elsewhere about the existence of jobs that you might be able to apply for and, ideally, those colleagues will help you get your foot in the door for those jobs.
It is never worthwhile to stick around at a job that you truly hate. There is always another job that you can do that will earn a similar income. Leave behind poisonous situations and move to pleasant ones.
Even if you’re reasonably happy at your current job, it’s still a good idea to have a plan in place for whatever your next professional step might be. It might even be something as simple as a raise at your current job. You might be aiming at a promotion at your current workplace. You might be aiming for a big promotion at another employer, or maybe you’re even considering moving to another career path entirely.
Whatever you might have in mind, you should move that daydream into reality, setting it as a goal and developing a plan to get there.
The first step, of course, is identifying where you want to go with your next professional step in a very concrete manner. Think seriously about where you want to be in a few years. It might be your current job with a bit more pay. It might be a promotion at work, or a move elsewhere. Whatever it is, give it serious thought and figure out what your goal is. Where do you really want to go next?
Once you’ve figured that out, you need to develop a plan for achieving that next step. This is going to vary widely depending on what your aim is.
If your aim is simply to get a raise at your current job or earn a small promotion at work, the best place to start is with your supervisor. Sit down with your supervisor and simply explain your goal to him or her, then ask for your supervisor’s help in developing a plan that will get you there.
If your aim is a major promotion or a move outside of your current employer, you will have to develop such a plan on your own. I would highly suggest finding a mentor (see the next strategy) to help you do this.
Regardless of how you develop a plan for your next career step, you need to be taking daily concrete action on it. This should not be just a fun exercise, but a very clear set of steps you should be following daily to move forward on your professional path.
Ideally, you can synergize some of these steps with the work you’re already doing by choosing tasks that will really help build you for what’s next. If not, you should do your best to block off some time each day for taking that next step, whether it’s within your workplace or outside of it.
If you’re not moving forward, you’re moving backward. The river of professional life is always flowing against you.
Having a lot of positive professional relationships is a boon for any career. They can give you resources to draw on when things are difficult. They can give you a strong positive reputation in your field, one that will often precede you (and a negative reputation will precede you as well if you don’t have positive relationships or have a lot of negative ones). They can give you people to swap stories with and connect with in a professional setting. They can give you powerful guidance in terms of what to do next. Occasionally, these relationships can develop into lifelong ones.
Building a lot of good professional relationships requires a lot of effort, however. Here are some useful strategies I’ve found for doing just that.
Don’t speak negatively about others, even when they’re not around. If you do speak negatively about others, not only do you establish a reputation for being a person who will trash other people, the word often gets back to the people you trash. The safest rule of thumb is to just avoid it entirely. Don’t speak negatively about others, even when they’re not around. If you must criticize someone, do it to their face in a one-on-one session and do it in a constructive way so that they can move forward in a more positive direction. Speaking negatively just damages relationships.
Don’t burn bridges. If you step down from a position, do it with as much grace as possible. Don’t destroy things or say negative things about people on your way out. It doesn’t help you; all it does is close doors that you might want to have open in the future.
Build positive relationships with everyone you work with. You should have some level of positive relationship with everyone you work with, if that’s possible (obviously, there may be a few people who are difficult, but if you’re finding most people to be difficult, you may want to look at yourself). Get to know everyone, even the quiet people, and have some things with which you can relate to them. Try to spend at least some time with everyone in your office and be a generally helpful and positive person.
Get involved in local professional groups as well as conferences, and use those situations as an opportunity to make yourself known and to get to know others. Beyond your workplace, get involved in every situation you can where you will get to know professional colleagues in your field. Join any local professional groups you can find. Go to conferences. Look for any opportunity you can to present your work to people. Use social media in the same way.
Give abundant credit to others and minimize the credit you take for yourself. This is one of the best things you can do for your own reputation. When you’re discussing a work project, give as much credit as possible to the other people on the team and don’t even mention your own efforts, and if they’re brought up, be humble about them. Talk about what other people contributed to the work in a very positive way. Your own efforts will be known anyway, you’ll be seen as humble, the reputation of those who helped you will be raised, and they’ll think more of you, too. It’s one of the best things you can do to build relationships while also building your own reputation.
Check in with those people with whom you have a positive professional relationship regularly to maintain that relationship. One of the best strategies I’ve actually found is to simply keep a list of people with whom I really want to keep a good professional relationship, split them into three groups basically at random, and then each month, check in and touch base with everyone in one of those groups, then rotate to the next group the following month. So, let’s say you have 99 professional relationships. You split them into three groups of 33 each and then you touch base with everyone in one of those groups in January, then another group in February, then another in March. I do this simply to make sure that someone I care about doesn’t fall through the cracks. I do it with both professional and personal relationships.
When you can do a favor for someone without too much cost to yourself, do it without expecting reciprocation. To me, this is just a natural extension of the golden rule – do unto others as you would have them do unto you. What you’ll find is that if you have a reputation of being helpful without expecting a tit-for-tat, when you actually do need help, a lot of those people you helped will be right there to help you if you ask.
Find a “mentor,” but don’t use that word and be careful with it. A mentor is someone many years ahead of you on a career path that you hope to follow. A good professional mentor is incredibly helpful to have, but there are a few challenges, the biggest being the fact that most of the people you would want to have as a mentor are incredibly busy and view a formal “mentor” relationship as yet another commitment that they don’t have time for. It can also be difficult to be on their radar in a positive way – if you go in trying to garner attention to yourself, it won’t go well.
A good approach is to not be formal about it. Rather, simply look for an opportunity to help someone that you would like to be your mentor figure. Then, when you have that opportunity, knock it out of the park without expecting reciprocation. Just nail whatever it is you’ve agreed to do. Do it so well that they notice your effort above all else, not your hand-waving.
This usually opens a door, at least a little. In that situation, don’t ask for a formal mentor relationship then, either. Instead, simply ask them that if you are ever in a very difficult situation and you’ve tried everything you can think of, if it would be okay to contact them once and ask for advice. They’ll likely say yes. Then, wait until you actually are in that situation and ask for that advice. List out all of the things you’ve already done, and then just ask what they would do.
Don’t try to schedule a lunch. Don’t try to schedule any meeting. Do this by email. If the mentor is engaged and wants to help, they’ll schedule a meeting; most likely, they’ll just give you a good response by email. Leave it at that and don’t make a pest of yourself. Rather, look for another opportunity to volunteer and wow that person.
The most valuable thing that will happen here, however, is when you’re not around. You will be thought of as a person that your mentor can use for an opportunity or recommend to someone else, and that will happen when you’re not in the room.
If you’re in a situation where there’s a big professional challenge on the offer at work and you’re scared of taking it on… that’s a sure sign that you should take it on. Take that opportunity and give it your genuine best shot.
Sure, maybe you’ll fail. That’s okay. You’ll likely learn a ton from failure and that failure likely won’t be the end of your career.
Or, maybe you’ll succeed and you’ll find yourself in a much better professional position than you could have ever dreamed.
In either case, you’ll push your limits and learn a ton along the way. You’ll probably have experiences that will burnish your resume for whatever comes next.
Remember, in these situations, a professional network is helpful. If you’re really challenged by something, ask for help. If you happen to have a mentor, ask for help (in the hands-off way mentioned above).
Don’t back down from a challenge. It will open doors for you whether you succeed or fail, as long as you give it your genuine best shot.
No matter how great your job seems, no matter how stable it seems, no matter how good your career seems to be going, unexpected events can and will happen. The government might shut down for a couple of months. Your boss that’s your biggest advocate might suddenly die. The owner of your business might be secretly bankrupting the company and then one day it’s just out of business.
Those things can and will happen, and you owe it to yourself and your family to be prepared. Here are a few things you can always do.
One, have an emergency fund in a savings account that has at least a month or two of living expenses in it. That way, if you’re suddenly out of a job, your financial situation doesn’t immediately collapse. You have some breathing room and can immediately focus on finding a new job without worrying about paying the bills next week.
Two, have your resume ready to go at all times. Have a well-formatted one you can send out, as well as at least one or two online where they can be found. Keep those resumes updated all the time.
Three, know who you can immediately talk to in your professional network. If you lose your job, who might be able to help you quickly find more work? If you don’t have those kinds of relationships, start building them.
You should have those things in hand at all times.
Your professional life is a vital source of income that you’ll use to support the rest of your life. Your financial life is mostly about processing the income earned by your professional life.
Thus, if you want to get ahead financially, you should focus on getting the most value possible out of your career.
If you want to get ahead and build your income, you can’t just go to work, clock in, and go home. That will help you keep your job, but it won’t help you get ahead in your career and make more money. Hard work is a key ingredient, but so is smart work – building relationships, working toward the skills you need for the next step, and making sure that a setback isn’t devastating.
Good luck!
The post Exploring the Connections Between Your Professional Life and Your Financial Life appeared first on The Simple Dollar.
Two major methods dominate the debt repayment sphere: the debt snowball and the debt avalanche.
One says you should pay off debts with the highest interest rate first. That’s the debt avalanche method.
The other says to pay off your smallest balances first so that you can enjoy quick victories and build confidence.
That one’s called the debt snowball method, and that’s what we’ll explain in this post.
Popularized by money guru Dave Ramsey, the debt snowball method involves paying off one credit card or loan balance at a time, starting with the smallest balance first.
It’s perfect for people who are motivated by quick wins, but this method has a downside: Those who choose it end up paying more interest long term.
Many people disagree with the concept of paying more interest for quicker wins. Why would you pay off smaller balances and let those interest mongers sit?
Because you’re not an algorithm; you’re a human being. Behavioral economics has shown us that human beings don’t behave like math equations.
When you stare at your credit report and see a list of lenders and credit card companies staring back at you, it should be enough for you to cut up your credit cards, take the UberEats app off your phone and put all of your discretionary income toward paying off debt.
But even with the knowledge, we find ourselves sitting with a $5 latte wondering how we even ended up in the Starbucks drive-thru.
The debt snowball method helps you take the first step… and the next. And the one after that.
If you’re skeptical about paying a little extra interest but know you need quick wins, give the debt snowball a try. Once the plan is in action, you’ll see how negligible that extra interest really is.
Here’s how to conquer your debt with the snowball method in five simple steps.
Start by listing all your debts. Then, order them from the smallest balance to the largest. This can be done on paper, a spreadsheet, an app or in a handy-dandy debt snowball calculator.
Include all the debts you want to pay off quickly. We recommend:
You can use a site like Credit Sesame to see a full list of what you owe and to whom.
Don’t include debts that are outside of (or approaching) the statute of limitations for responsibility. After a certain amount of time has passed — usually at least three years, but it varies by state — creditors can’t sue you for unpaid debt.
Well, they can attempt to sue you… but the case will be dismissed.
Next, you’ll figure out the minimum due to each debt. A rough estimate will be on your credit report at Credit Sesame, but you’ll want to confirm by checking individual accounts and paper statements.
To start the snowball, you’ll ideally pay the minimum balance across all your debts. If you’re struggling to make those payments, take a look at your budget and see where you can cut back your discretionary spending. Look for ways to earn money on the side.
Try every month to lower your spending and increase your income, because you’ll need that extra money for our next step.
Once you’ve budgeted in minimum payments for all or most of your debt, put any extra toward the first loan on the list — the one with the lowest balance.
That means you’ll be paying the minimum plus your designated extra on that debt.
By starting with your smallest debt, you’ll theoretically finish paying the balance off faster than you could have paid any other. But don’t stress if it feels like even the tiniest debt is taking forever to pay off; there’s a learning curve to this, and most people start off slow.
Once you do pay off that smallest debt, take every penny you were putting toward that debt and add it to the monthly payment for your next debt — the second smallest.
That means you’ll be paying the first debt’s minimum payment, the second debt’s minimum payment and your designated extra all toward the second debt.
Pay that amount until the second debt is paid off. Depending on the size and interest rate of your second smallest debt, you could see that debt dry up even quicker than the first.
Once your second debt is paid off, continue the process with all other debts.
For the third debt, pay the total of the first debt’s minimum payment, the second debt’s minimum payment, the third debt’s minimum payment and the designated extra every month.
It’s a simple concept, but it’s not easy. That’s why little wins along the way are so helpful.
Sometimes it’s easier to see concepts like this played out in numbers. So let’s try an example. Let’s say you have:
You’ve cut your expenses and taken on overtime at work, so you have $1,000 each month to put toward debt.
Your minimum payments add up to $600 each month. This means you’ve got $400 extra to put toward your snowball.
The first debt you’ll tackle is the $2,000 Visa. You’ll make the monthly minimum payment of $40 and an additional $400 payment — for a total of $440 each month — while making minimum payments to everything else.
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Visa | $2,000 | $40 | $440 |
| Mastercard | $7,000 | $150 | $150 |
| Car loan | $8,000 | $285 | $285 |
| Student loans | $10,000 | $125 | $125 |
By putting $440 toward the Visa every month, you can pay that baby off in five months and still have extra to throw to debt No. 2 in month five. One down, three to go!
Since you’ve been paying the minimum on the other three debts, some interest has accrued on them, but not much. After five months, you’re left with approximately:
Your monthly minimum payments for those debts will total $560. You still have $1,000 budgeted for debt payments, so your extra will now equal $440. (See how it snowballs?)
The next debt to tackle is the Mastercard.
You’ll make the monthly minimum payment of $150 and the additional $440 payment toward your Mastercard — for a total of $590 per month — while continuing to make minimum payments to the other two.
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Mastercard | $6,950 | $150 | $590 |
| Car loan | $6,700 | $285 | $285 |
| Student loans | $9,530 | $125 | $125 |
At this pace, you’ll have your next debt knocked out 14 months after your first! A total of 19 months is way better than the 137 months Mastercard wanted you to spend making minimum payments.
Nineteen months may not seem that long in the grand scheme of things, but it is when you’re funneling $400 to a credit card company every month instead of taking trips or buying the latest gadgets.
That’s why having that first win after five months is so powerful.
There may have been a lag in the last year, but this is where the snowball picks up momentum.
Assuming you haven’t found more ways to cut costs and haven’t increased your income with any raises or side hustles, you still have $1,000 to put toward your car and student loans each month. Your minimum monthly payments are now $410, leaving you with an extra $590.
You’ll make the monthly minimum payment of $285 plus the additional $590 payment on your car, while continuing to make minimum payments to your student loans.
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Car loan | $3,000 | $285 | $875 |
| Student loans | $8,200 | $125 | $125 |
And just like that, in four months, your car is paid off. Remember when it took five months to pay off a $2,000 credit card? Now you can pay off a $3,000 car in four!
Finally, you’ll hit the student loans with the full $1,000 per month until they’re paid off.
| Debt Account | Balance | Monthly Minimum | You Pay |
|---|---|---|---|
| Student loans | $7,800 | $125 | $1,000 |
And in eight months, 31 months from when you began, you’ll be completely debt-free! That’s $27,000 of debt in two and a half years.
At first, it probably felt like it was going to take 12 years. And if you’d stuck with minimum payments, it would have. But now you’re debt-free with a budget that has an extra $1,000 of discretionary income each month.
Time for a vacation.
You’ll see that the debt in the above example accrued $2,962 in interest.
The same debt portfolio paid off with the debt avalanche method would be paid off in the same number of payments, but you’d pay approximately $2,797 in interest. This means using the debt snowball method will cost you an extra $165.
However, with the debt avalanche, you’d have to wait over a year for your first debt to be paid off.
So, why choose the debt snowball? It’s about motivation.
If you tackle debt with the avalanche method, you might be paying on that high-interest stuff for a while before you can knock it off your list. It can feel like you’ll never be done paying off debt.
The snowball method lets you see results more quickly — and your list of debts gets shorter. If you’re like many people who have trouble staying focused, those wins can be the boost you need to keep you going.
Dana Sitar is the branded content editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.
Former staff writer Jen Smith contributed to this post.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
If you’re a guy, you’ve probably heard that you’re paying more for car insurance. You see, auto insurance companies often use your gender when calculating your rates.
And just two years ago, men were paying more for car insurance nationally. That’s because statistically, male drivers are more likely to crash their cars or get busted for DUI. Male drivers die at a rate of 2.5 deaths per 100 million miles traveled, compared to 1.7 deaths for women, according to the Insurance Institute for Highway Safety.
(And speaking as a dude, I can confirm that men are more dangerous behind the wheel. #sorrybutitstrue)
But in the last two years, the statistics have shifted. According to The Zebra, a car insurance comparison site, women are paying more than men for the same car insurance coverage in 25 states.
Perhaps the inconsistent nature of gender as a rating factor is why some states are putting a stop to this practice. California just joined five other states — Hawaii, Massachusetts, Montana, North Carolina, Pennsylvania — in banning the use of gender to set auto insurance rates.
So what does that mean for you? It means that car insurance pricing is changing, so no matter your gender, you should get a new (and free) quote through a site like The Zebra.
When auto insurance companies are deciding how much money to charge you for coverage, they look at lots of different factors. The big ones include your driving record (watch out for those speeding tickets), your history of filing insurance claims, the value of your vehicle and the amount of coverage you want to buy.
They also look at a bunch of other factors, such as your age, location, education, occupation, marital status, how much you drive and even your credit history, according to the National Association of Insurance Commissioners.
In 44 states and in Washington, D.C., they can also consider your gender.
But when California officials examined this practice, they concluded the insurance industry was “inconsistently” weighing gender, officials found.
Some companies were charging men more. Others were charging women more. With some companies, there wasn’t much difference between the genders. With other companies, there was a big difference.
And that’s exactly the point. Different auto insurance companies will assess your driving risk factors in different ways. That’s why it’s important to regularly shop around.
A smart way to save money on car insurance is to shop and compare rates twice a year.
“Not only can a lot of circumstances in your life and your car (mileage, age) change in that time, but insurance companies may be changing their pricing as well, and you want to be sure you’re getting the right coverage, service and, of course, pricing to suit your changing needs,” says Alyssa Connolly, the director of market insights at The Zebra.
An online car insurance search engine, The Zebra, offers “insurance in black and white.” It compares your options from more than 200 insurance providers in less than 60 seconds.
Just enter information about your car and your coverage needs, and The Zebra shows dozens of side-by-side quotes from top insurance companies for free.
Most consumers really don’t bother to shop around. According to The Zebra’s 2019 State of Auto Insurance Report, car insurance rates keep increasing, with the average American paying nearly $1,500 a year for coverage.
Out of all the states, Michigan, Nevada and Oregon have the biggest difference in rates between the sexes, with the gender gap ranging up to 6%, according to Connolly.
The takeaway? No matter what state you live in — or how you identify — compare rates regularly.
Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. He pays for auto insurance on two vehicles.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
The start of a new tax year is the perfect time to spring-clean your finances. Check out these tax changes to see whether you’ll be better or worse off in the year ahead
From a state pension rise that will boost retirees’ incomes to a rise in tax for car owners, we list the tax changes that will make a difference to the money you have in your wallet from 6 April onwards.
From 6 April, most people will pay less income tax. The tax-free personal allowance is set to rise to £12,500 (from £11,850 in the 2018/19 tax year). This is the amount that most people will be able to earn before they pay any income tax. The rise should give basic-rate taxpayers a £130 boost.
The amount people earn before they pay higher-rate tax at 40% is also rising from £46,350 to £50,000. This will give higher-rate taxpayers an extra £860 a year and means there will be nearly one million fewer higher-rate taxpayers.
Additional-rate taxpayers will be taxed at 40% for any income between £50,000 and £150,000 and will still be taxed at 45% for income above £150,000. They will be £600 better off over the year.
The government says the changes will give 32 million people in England, Wales and Northern Ireland a tax cut. Visit Gov.scot/publications/scottish-income-tax-2019-2020 for details of income tax bands in Scotland. However, national insurance contribution (NIC) limits have also moved in line with the change in the income tax threshold.
As a consequence, higher earners will lose half their new-found tax gains as a result of the personal tax allowance rise.
People earning more than £46,350 currently pay 12% NICs on earnings up to that level but only 2% on higher amounts.
From 6 April, they will pay the full 12% rate of NICs on everything up to £50,000, as the upper earnings limit is hiked up. The 2% rate will only kick in on earnings above £50,000.
As a consequence, while tax payable on that slice will be reduced by 20%, NICs will go up by 10%, so the net gain is only 10%.
Come April, you are likely to see a fall in your wage packet, but don’t worry as the money will go towards your pension.
Under auto-enrolment legislation, minimum contributions employers and staff pay must increase to bring the total minimum contribution to 8%.
Currently, contributions are 2% from the employer and 3% from the employee. This is now set to go up to 3% from the employer and 5% from the employee.
According to Hargreaves Lansdown, this means that someone on an average salary of £30,000 will see their take-home pay fall by £253 a year, while someone on £20,000 will see their net pay drop by £117 a year.
Under auto-enrolment, all eligible employees are signed up to their workplace pensions. Contributions are automatically deducted from their salary and are topped up by an employer contribution and tax relief unless they opt out of the scheme.
Those on a new state pension – which covers people who reached the state pension age from 6 April 2016 onwards – will see an increase of £4.25 a week or £220 a year. This means the full state pension will be worth £168.60 a week – or £8,767.20 a year – after rising from £164.35 a week, above the rate of inflation.
Those receiving the basic state pension – which applies to those who reached state pension age before 6 April 2016 – will get an increase of £3.25 a week, taking their pension up to £129.10 a week. This means they will get an extra £169 a year, giving them an annual income of £6,718.40.
The level of the state pension rises every year by 2.5%, the growth in average earnings or by inflation – whichever is higher. Known as the triple lock, it gives retirees a guaranteed rise in income every year.
The lifetime allowance will rise in line with inflation to £1,055,000 from April.
This is a limit on the amount of money you can hold in a pension without paying an extra tax charge.
Your pension benefits are tested against the lifetime allowance when you start to draw them from the scheme.
You will only start to pay tax charges when your pension savings go above it. This is 55% if you take the money as a lump sum or 25% if you take it as income. These figures have been set so that the tax paid is broadly the same however you take the money.
Inheritance tax is paid on an estate – property, money and other assets after any debts or funeral expenses – when someone dies.
It is payable when the assets of an estate total more than £325,000. This is known as the nil-rate band. Any assets above £325,000 are liable to a tax of 40%.
In the new tax year, the main £325,000 allowance along with the 40% tax rate is set to stay the same.
However, the property nil-rate band is set to rise from £125,000 to £150,000 per person when they leave their home to a direct descendant who can be their child, grandchild, adopted or foster child, or stepchild. This means that in the 2019/20 tax year, your inheritance tax threshold will be £475,000 (£325,000 plus £150,000) if you plan to leave property to your descendants.
On properties worth over £2 million, homeowners will lose the allowance by £1 for every £2 they are over the limit.
Grieving families could be hit with bills of up to £6,000 when probate fees go up in April.
Probate fees give legal control to the family over the estate of someone when they pass away.
Currently, a flat fee of £215 applies in England and Wales – or £155 if you use a solicitor – on estates above £5,000.
The threshold is set to be lifted to £50,000 from April – lifting 25,000 estates out of fees a year, according to the Ministry of Justice. However, if the estate is above this you will see a rise in probate fees. Estates valued between £50,000 to £300,000 will be charged £250, going up to a maximum £6,000 for estates worth more than £2 million.
Those with larger estates could see costs soar. According to figures from wealth management firm Quilter, a £500,000 estate would pay more than 10 times the current fee at £2,500 while those in the top tier will pay 3,771% more.
The government says that for those who do pay, around 80% of estates will pay £750 or less.
The changes will not apply in Scotland and Northern Ireland, which have their own probate fees.
The national living wage, the statutory minimum for workers aged 25 and over, will increase by 4.9% to £8.21 an hour from April. This 38p rise means workers on the minimum wage will see their wages rise faster than the rate of inflation – boosting wages by around £700 a year on average.
Rates for younger workers will also increase above inflation and average earnings. Those aged 21 to 24 will see the minimum wage climb from £7.38 to £7.70, while 18- to 20-year-olds will see a rise of 25p to £6.15 an hour. For people aged 18 and below their money will go up by 15p to £4.25. The minimum wage for apprentices is also increasing from £3.70 to £3.90.
Isa limits are set to remain the same in the 2019/20 tax year at £20,000. The good news is that the Junior Isa (Jisa) limit is going up in line with CPI inflation from £4,260 to £4,368.
If you have a child, or grandchild, aged under 16 they can have a Jisa. All gains are tax-free, but any money paid in cannot be accessed until the child turns 18.
The bad news for drivers is that car tax will go up in April.
The amount of car tax you pay in the UK depends on when you bought your car and the specific emission levels.
Vehicle Excise Duty (VED) was first introduced in 2017 as a replacement for the flat-rate tax system and is based on CO2 emissions. Cars registered before April 2017 will see an increase of up to £15 a year if they produce emissions over 150g/km, bringing the total tax paid to £530 a year. Only electric vehicles and those producing less than 120g/km of CO2 will not have to pay more.
However, for new cars registered after 1 April 2019 the VED rate will rise by up to £65 if the vehicle has CO2 emissions over 255g/km, bringing their annual car tax to £2,135.
Cars registered after 2017 will also have to pay a higher VED. For petrol and diesel cars the standard rate is going up from £140 to £145, while for hybrids its going up from £130 to £135.
You can find out more about how much you should pay for car tax at Gov.uk/vehicle-tax-rate-tables.
Mortgage tax relief for buy-to-let landlords is gradually being phased out since new rules were introduced in the 2017-18 tax year.
From 6 April, landlords can only deduct 25% mortgage interest payments from their rental income – down from 50% in the previous tax year.
The changes are being introduced gradually year by year and by April 2020 landlords won’t be able to deduct any mortgage interest payments from their rental income. After this, landlords will only be able to claim a 20% tax credit on mortgage interest.
I’m almost positive that if you met me on a typical day, your idea of my net worth based on your first impression wouldn’t be a high one. Most of the time, in the late fall through early spring, I’m wearing a hooded sweatshirt and blue jeans. They’re usually fresh and clean and in pretty good shape (I save my raggedy clothes for wear around the house), but they’re pretty plain and unassuming. On cold days, I usually wear a fairly worn Carhartt coat, something that’s pretty standard for adult men near where I live.
I usually drive a used minivan, about five years old, so you wouldn’t pick that out as a car driven by someone making a lot of money. It’s not a fancy model and has an unassuming grey color.
You won’t find me at the local country club or anything like that.
In short, I don’t really do anything at all to give off any signs of financial security or wealth in my day to day life. Rather, if anything, I give off signs of the opposite. I don’t wish to appear offensive in public, but I genuinely don’t want to appear as though I’m in good financial shape, either. Rather, I just try to appear clean and comfortable and approachable.
I call this “stealth wealth,” and it’s a tactic I really picked up on early in my financial turnaround, mostly from reading the book The Millionaire Next Door by Thomas Stanley and William Danko. One of the big themes of that book is that actually being a millionaire – in other words, having financial security – is often not associated with appearing like a millionaire. In other words, there’s a lot of value in being more stealthy regarding your financial situation.
The core underlying principle behind “stealth wealth” is to stop worrying about what other people think. Rather than aiming to impress others, you simply aim to be comfortable around others and encourage them to be comfortable around you. I don’t worry about whether I’m going to impress them with what I’m wearing or driving or my hairstyle or the gadget in my pocket. Rather, I figure they’ll make up their own mind about me, and I’d rather they make up their mind based on my actual personality than about some pretense that I’m holding up.
This “stealth wealth” strategy offers a ton of benefits.
First of all, “stealth wealth” means you’re not spending much money at all on keeping up appearances. I don’t buy expensive clothes, just comfortable ones that are well made and fit me well and that are clean when I go out in public. I don’t spend a whole lot on personal grooming aside from soap and shampoo and a razor blade to keep clean shaven (because I find a beard that doesn’t end up being a tangled nasty mess is more work than being clean shaven). I keep my hair cut quite short, so I don’t have to deal with hair care costs. I drive a used car that I keep clean, but it’s nothing fancy. I just don’t spend a whole lot of money on appearances.
Another factor for me is that “stealth wealth” means I spend a lot less time on such things, too. I don’t spend time shopping for clothes – rather, I have a couple of default outfits that I just replace items with regularly. My hair is short, so I don’t spend time on hair grooming. I usually shave while showering and it takes less than a minute a day. I buy cars for reliability so I know they’re just going to work, and when I stop feeling utterly confident in my car, I’m usually shopping for a new one because it’s about to become very expensive in terms of repair bills.
Another notable factor is that I find that I’m most likely to actually be received well in social situations if I feel comfortable, and when I’m aiming to impress, I don’t feel comfortable. I find the most success if I dress comfortably and cleanly in unassuming but comfortable clothes, I’m clean and reasonably well groomed, and I feel good (meaning I’ve been eating well lately and have been getting adequate sleep). Social success happens when you truly feel comfortable, and I feel most comfortable when I’m unassuming.
Yet another big factor in the “stealth wealth” strategy is that I don’t appear to be a person with a lot of money, so I’m not typically targeted for things like “investment opportunities.” Back when I did dress nice all the time, I didn’t have any more real social success (in fact, I probably had less), but I found that people would sometimes come up to me and want to discuss “investment opportunities” which were mostly scams. I’m not sure whether it was being more unassuming and comfortable or what, but I find that such situations occur far less frequently than before. I guess I must not look like an Amway salesperson (or target) these days. I also haven’t been approached by family members for loans in many years – again, I think that part of the reason is that I don’t dress to impress any more.
It’s worth noting, of course, that if part of your career path involves being “dressed for success” in the community you live in, this may not work for you. However, many people in many career paths do not need to “dress for success” in the community (though they may need to in the workplace).
Here are some of the principles I live by when it comes to “stealth wealth.”
First of all, I buy items based entirely on what’s genuinely useful to me, not what others might think of it. I don’t worry about what they think of it. Rather, if someone asks, I can just give a genuine and honest answer – I have this item because it’s useful to me, and I can list the honest reasons for that. That type of honestly leads to lots of meaningful conversations and interactions. I don’t feel like someone is digging into a “false front” with me, ever.
My wardrobe consists mostly of clothes that are comfortable and well made. I don’t dress in rags, but I don’t dress up, either. Most of the time, in the summer, I’m either wearing a plain cotton t-shirt and blue jeans or khaki shorts, depending on the weather. In the winter, I’m usually wearing jeans and a hooded sweatshirt. All of those are well-made items, with good stitching and sturdy, and they largely fit me well (some of my clothes are a little big because of recent weight loss). I have nicer clothes depending on the occasion, but those are my default clothes.
My goal is to wear comfortable clothes that wear very well so I can get lots of use out of them. I want to wear clothes that I feel good in, not to impress other people, but just to feel genuinely comfortable. I don’t feel comfortable in dress clothes. I feel comfortable in a clean well-made cotton shirt and jeans, so that’s what I wear.
Since I’m buying relatively inexpensive garments that last for a lot of washes, my wardrobe is really inexpensive, but I feel comfortable in public. I’m never overdressed, but I’m never really underdressed, either. I’m comfortable, and that makes me feel better about being social.
I drive a used car, but not a rusty beater. Again, I value having a reliable car, and when a car starts to turn toward the “rusty beater” end of the spectrum, it’s time to replace it. At the same time, I don’t drive anything showy. It’s a typical car, one that really isn’t noticed, and that’s how I want it. It does not give off vibes of wealth, but it doesn’t really give off any other impression, either.
I keep my appearance low maintenance, but clean. I keep a short hairstyle – very little day to day maintenance – and don’t have a beard, as I just shave daily in the shower. I practice normal hygiene so that I appear clean and smell fine. This doesn’t require a lot of hygiene products.
We live in a modest home. We could afford a nicer home, but our current home perfectly fits our needs and it would attract attention to our financial state that I don’t want. Our home is decorated and furnished using a similar mindset – simple and comfortable. I want people to feel comfortable coming over and feel completely comfortable when they’re here, not afraid they’re going to commit some social faux pas but not feel disgusted either.
In short, we buy things that meet our own needs, and our only consideration of what others might think is in line with the “golden rule.” I want people I meet in public to be clean and comfortable, so I aim for that myself. I want guests in my home or in my car to feel comfortable, not uncomfortable due to the niceness nor the shabbiness, because that’s how I want to feel when I’m a guest. In the end, what impresses me about people is character and friendliness and ability, not the clothes they wear or the house they have or the car they drive.
The end result? I probably have the healthiest social network I’ve had in my entire life. I feel like I have a place in my local community and in several smaller subgroups. I’m not approached for “investment opportunities” or other such nonsense. People don’t ask me for loans because they think I have wealth.
Things are right where I want them to be.
Good luck!
The post The Advantages of Stealth Wealth and How to Practice It appeared first on The Simple Dollar.
Dear J.,
This scooter sounds like more work than it’s worth. But let’s explore it.
On paper, a scooter may sound like the perfect way to zip around town. In many areas, you can easily and comfortably get away with being car-free thanks to the advent of ride-hailing services, public transit and the increased prevalence of bike lanes.
But you’ll still have to lug groceries, take the dog to the vet or travel with additional humans on occasion.
Once you add up the cost of the scooter, scooter insurance and those additional trips that must be made by traditional car, does it make more sense to just get another car? A car with four wheels that can go on the highway without topping out at 35 mph?
If this was a solution to needing wheels but not being able to afford an entire car, I’d say go for the scooter. Estimates for the cost of car ownership range from $8,000 to $12,000 per year when you add up payments, insurance, gas and all the rest, which means anything less than that is a win.
But you’re playing with the idea of getting a shiny new scooter for just a few months of use. If you were committed to a lifestyle change for the long term, you’d buy the new scooter and love the heck out of it. You never would have thought about writing in to ask about it.
You’re talking about the temporary. And the temporary sounds like novelty more than practicality.
Let’s say you are thinking about scooter life as your forever life. I’d still advocate for the used one to start out as you get your scooter legs and build up your confidence on the road. With a new scooter, you’ll likely want collision insurance, which can dramatically drive up the cost of insuring it.
I commend the toe-dip into a car-free lifestyle, but a yearlong stopgap does not a lifestyle make.
So start low (on price and engine size), start slow (wear a helmet, my friend) and build up to a shiny new two-wheeler if you find it truly suits your lifestyle.
Have a tricky money question? Write to Dear Penny and you might see your question answered in an upcoming column.
Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
One of my favorite ways to monetize my blog is through affiliate marketing. In fact, it was the first method I utilized when I launched this site back in 2009. The great thing about affiliate marketing is you can start it at any time (you don't need to have a ton of traffic) and over […]
The post How Bloggers Can Make Money With Affiliate Marketing appeared first on The Work at Home Woman.
Did you know that 90% of the information your brain receives is visual? Or that blog posts with images tend to get 94% more views?
Using images isn’t the only strategy you can employ to get more traffic. Increasing your word count can help too. Blog posts that contain 3,000 to 10,000 words, on average, get 8,859 social shares.
To show you how you can gain more traffic through content creation, I’ve created an infographic that breaks down all the strategies you need to follow. From increasing readability to gaining more social shares, the steps in this infographic will help you increase your traffic.
Click on the image below to see a larger view:
Click here to view an enlarged version of this infographic.
If you don’t have the time to follow all the strategies in the infographic, at least try two main ones: list posts and infographic-related posts. These types of posts tend to get more social shares.
How long do you think your attention span is? Maybe a minute or even two, right? Sadly, your attention span is 8 seconds. That’s one second shorter than that of a goldfish. So, when you show people paragraphs of text, don’t expect them to read it all.
But did you know visualizations such as infographics are thirty times more likely to be read than text? And if that’s not enough to convince you to start using visualizations within your marketing, maybe this infographic will change your mind:
Click on the image below to enlarge:
Click here to view an enlarged version of this infographic.
You should consider creating infographics because they drive 250% more traffic than ordinary blog posts do. If you don’t believe me, just look at Mashable… they get three times more tweets when a post includes an infographic than when it doesn’t. Plus, 65% of people are visual learners, which means showing data in a visual format will make it easier for your readers to learn.
Once you create an infographic, make sure you check out this post as it will teach you how to make it go viral.
The headline is the most important part of your content.
That’s a fact.
What’s the second most important part?
That would be your introduction.
Think of it this way: Your headline compels people to click on your post, but your intro draws them in to actually read the post.
And if you’re sick of not getting a high level of engagement on your posts, this is likely one of the main causes.
Here’s the simplest way to illustrate the effect of introductions on your content’s performance:
Always aim for that third scenario.
The sad fact is that most bloggers put very little effort into their introductions. They either quickly say what they’re writing about, or they end up going on about things that don’t entice the reader to read on.
It doesn’t matter whether or not you fall into that category. What matters is that just about all bloggers could benefit from improving their introductions.
To help you do that, I’m going to show you 4 of the best types of openings that you can use in your content. You can always use at least one of these for any post you create.
A great introduction needs to connect with the reader emotionally.
As any copywriter knows, emotions drive action. In this case, the action we want is for the reader to continue down the page.
Fear is one of the strongest motivating emotions, and people are willing to go to great lengths to prevent that fear from coming true.
Let’s look at a few examples, and then I’ll show you how to come up with your own.
Example #1 – Use a common fear: Here’s one of my own introductions:
The first 4 paragraphs focus on a common scenario: putting in a lot of work on a project (like a product or piece of content) and then finally releasing it.
If you’re an entrepreneur, you know how terrifying this can be. Entrepreneurs have sleepless nights worrying about failing.
What if they hear “crickets” when they release their project? What if no one cares?
Anyone in, or nearing, this sort of situation is going to read the rest of the introduction at the very least.
Quickly look at that final line in the screenshot: “there is a solution…”
You use fear to grab your readers’ attention, but then you need to transition that into a solution that they will achieve by taking action.
Example #2 – Does your reader feel like a failure? This one is going to sound kind of mean, but it’s effective.
If your reader already feels like a failure, all you need to do is describe their biggest problem, evoking their fear of failure.
Here’s an example from a Smart Blogger post:
Here, Carol Tice starts by calling out bloggers with low traffic and loyal subscribers.
If you’re a reader of that post in that situation, it hurts to read it.
You start thinking about your low number of readers and get a sinking feeling that you will never get many more.
But you feel that only until Tice offers a solution, which is the whole point of her post.
How to write your own fear-inspired introduction: This type of opening is not only effective but also fairly simple to write.
Create it in three steps:
That’s all there is to it. You can start with a few notes for each part and then combine them together.
There are many ways to incorporate fear into your openings.
Fear of failure is a big one, but there’s another big fear you should be aware of: the fear of missing out.
It’s why many people buy lottery tickets, especially as a group. They don’t want to be the one who misses out if the group miraculously wins.
When it comes to most content, the fear of missing out can be applied in a few ways:
Here’s an example (note the two parts boxed in red):
Just like in type #1, we use a similar 3-step process.
The first step is prompting the fear, which the first box begins to do. It mentions that some types of content are better than others.
In this case, marketers don’t want to miss out on the best tactics because it means they won’t get great results.
In the following two paragraphs, I amplify that fear. I explain that the content that most marketers produce isn’t as great as they think it is and that they might be closer to an average marketer.
The second box alludes to the solution—certain types of content that are guaranteed to outperform what average marketers are making. I go on to expand on my solution before starting the post.
Again, it’s the same 3-step process:
You may have heard of AIDA before.
It’s one of the most famous copywriting formulas there is because it just plain works. It’s incredibly versatile, and we can apply it to our openings as well.
First, what does AIDA stand for?
Typically, you’ll address each point in that order.
To start off, you need to grab the attention of your readers. How do you do that? Typically with a bold or surprising claim.
For example, in a post on Backlinko, Brian Dean said that he analyzed over 1 million search results. That’s a lot and pretty intriguing to most SEOs reading the post.
If you can use numbers—great, but they’re not required. The only goal here is to catch the attention of your reader. It may be a sentence or two that seem unrelated at first to your topic.
Check out this intro from one of Jon Morrow’s best posts:
The post is about being a better blogger, but you wouldn’t know it from that opening.
However, he grabs your attention by doing something out of the ordinary: telling you (in great detail) that he’s going to tell you something you’re not going to like.
Even though I know what’s coming (since I’ve read it before), I still have that feeling of needing to know what comes next.
Then, we move on to interest.
Interest is similar to attention, and you certainly need to maintain attention, but this is where you tie your attention-grabbing introduction to the subject of the post.
In Brian’s article about SEO ranking factors, he included two parts to accomplish this:
Which factors correlate with first page search engine rankings?
And…
With the help of Eric Van Buskirk and our data partners, we uncovered some interesting findings.
Brian knows that his readers want to know which ranking factors are most important. However, he doesn’t give away all the answers quite yet, saying instead they uncovered some “interesting findings.”
Next, it’s time to move on to desire.
This is where you make it really clear why your reader should care about your content, if they didn’t already know that.
Here’s an example from one of my posts:
Here, I make it clear that if a reader follows my advice in the post, they could double their writing speed.
Remember that your reader is already interested at this point. To induce desire, all you need to do is make the benefits of your content clear.
Now, what about action—the last part of the formula?
You can interpret and use it in two ways.
First, you could get a reader to take an action right at the end of your introduction. Maybe you want them to get a pen and paper or open a spreadsheet. Or maybe you want them to answer a question and come back to it at the end.
If this applies, go for it.
The action in this formula typically refers to the end of the content, though. So, in your conclusion, you should make it clear how a reader is supposed to apply what you just taught them.
Some readers just absolutely hate stories of any kind.
They want you to get to the point and do it fast.
If your audience has a lot of readers like that, consider starting off with the benefit of your content. But not just any benefit—the biggest one.
This is how you will attract attention, and if the benefit you promise is big enough, they will invest their time to read through your content.
For example, you could start an article about SEO basics by saying:
If you learn the basics of SEO, you could be making $3,000+ per month within 6 months.
Assuming you’ve got your audience right, they’ll be glad to dig a bit deeper to find out if your claim is true.
After that opening claim, you then want to expand on and back up your claim. To continue the example:
I know this because I’ve taught multiple students to do so. I myself am an SEO who makes over $XXX,000 per month.
Now you have some credibility behind your solution.
Finally, you should close off your introduction by explaining how the reader will get to the solution.
In this case, something like this would work:
I’m going to show you the X SEO basics you need to know and then a step-by-step process to follow to start generating revenue.
At that point, most readers will be hooked.
To recap, the 3-step process for this type of opening is:
Keep in mind that it doesn’t necessarily have to look exactly like that as long as all the elements are covered.
Here’s an example of this type of opening from one of my posts:
The sentence in the first box only implies the benefit (ranking as well as Quick Sprout). I’m counting on the reader to be familiar with my site.
Shortly after, I say that I’ll show the reader what they need to do if they want to rank like Quick Sprout. This is actually the 2nd and 3rd step all in one.
The claim is credible because I state that I’ll personally show them the solution. Of course, I’m credible in this situation since I’m the one who built the site up.
At the same time, I’ve explained that I’m going to show them what they need to do. I explain a bit more right after that part.
Don’t get hung up having a clear distinction between all parts of the opening—just make sure they are all covered in the right order.
Don’t put tons of hours into writing an amazing post and then just slap on a weak introduction.
If you do that, too many of your readers will never make it down to the content that has the value.
Use these 4 types of openings to craft introductions that basically force readers to give your content a chance.
From there, I hope your content delivers.
