Roth IRA vs. 401(k): A Guide for Anyone Who Wants to Retire Someday

When you’re trying to decide between a Roth IRA vs. 401(k), the personal finance gods often have an easy answer for you: Do both, they decree.

Well, that’s easy if you’re swimming in so much cash that you can go on a retirement savings binge — yet don’t earn enough to disqualify you from contributing to a Roth IRA.

In 2019, someone under age 50 would need to contribute $25,000 to reach the limits for both retirement accounts. Mere chump change, right?

We get it: Most of us don’t have the resources to max out both a Roth IRA and a 401(k).

So when you decide how to allocate your retirement dollars, you have to make tough choices.

What Is a Roth IRA?

A Roth IRA is a type of individual retirement account. That means you, Dear Reader, as an individual, open the account — whether it’s a Roth IRA or a traditional IRA — and decide how to allocate your investments.

What makes a Roth IRA unique compared with traditional IRAs and most 401(k)s is that you fund it with money you’ve already paid taxes on. That means that when you withdraw it, typically once you’ve reached age 59 ½ and have had the account for at least five years, the money is yours tax-free.

Another sweet feature of Roth IRAs: While you generally have to wait to access your earnings, your contributions are yours to take at any time. While we’d never recommend taking money out of a retirement account unless absolutely necessary — and no, a dream wedding or vacation doesn’t count — your Roth IRA contributions can be a source you tap in an emergency.

What Is a 401(k)?

A 401(k) is a retirement account that’s sponsored by an employer. You can’t open a 401(k) on your own.

Unlike a Roth IRA, a traditional 401(k) is tax-deferred. That means you invest part of your paycheck before you’ve paid taxes on it and then pay taxes when you withdraw money in retirement.

A growing number of companies are now offering a Roth 401(k) option, which shares most of the same rules as a traditional 401(k) but is funded like a Roth IRA, with money that’s already been taxed.

What makes a 401(k) — either kind — especially attractive is that many employers will match your contributions — in whole or in part  — up to a certain percentage of your earnings.

Whatever the amount, it’s basically free money to pad your retirement savings.

Roth IRA vs. 401(k): The Ultimate Showdown

At this point, the Roth IRA vs. 401(k) question is probably sounding complicated, because they both have some pretty sweet features. Now let’s see how they compare across six categories.

1. Who’s Eligible?

While anyone can open a regular old investment account, not everyone can open a Roth IRA or 401(k). Here are the requirements.

Roth IRA

You don’t need a traditional job to contribute to any type of IRA, but you do need taxable income. A salary, wages, tips, bonuses, and freelance and self-employment income all count. If you’re married but don’t work, your spouse can also set up a spousal Roth IRA for you.

While you can fund a traditional IRA no matter how much you earn, a Roth IRA has income limits. (We’ll get to the contribution limits next.)

For single people, or if you’re head of household or married filing separately:

• If your income is under $122,000, you can contribute the maximum amount.
• If your income is between $122,000 and $136,999, you can contribute an amount that becomes gradually less the higher your income.
• If your income is $137,000 or higher, you’re not eligible.

If you’re married filing jointly:

• If your combined income is under $193,000, you can contribute the maximum amount.
• If your combined income is between $193,000 and $202,999, you can contribute an amount that becomes gradually less the higher your income.
• If your income is $203,000 or higher, you’re not eligible.

401(k)

To contribute to a 401(k), you have to work for an employer that offers a 401(k). However, your employer can exclude you from participating in its 401(k) for certain reasons, such as if you’re under 21 or have worked for the company for less than a year.

Unlike a Roth IRA, a 401(k) has no income limits.

2. How Much Can You Contribute?

Both a Roth IRA and a 401(k) have limits on how much you can contribute — but the limits are much higher for a 401(k).

Roth IRA

The maximum contribution for 2019 is $6,000 if you’re under age 50, or $7,000 if you’re 50 or older. The limits are the same for traditional IRAs. Note that if you have both a Roth and traditional IRA, your total contributions to both accounts can’t be higher than $6,000, or $7,000 if you’re over 50.

401(k)

You can contribute up to $19,000 to your 401(k) if you’re under 50, or $25,000 if you’re 50 or older.

Your employer can contribute up to $37,000 or 100% of your salary, whichever is less. But hold up, money bags: The most common employer match is 50% of your contributions up to 6% of your salary.

Your employer may also make you wait to access the money it’s putting in your account, which is known as vesting. The money you contribute will always be yours, but if you leave your job before the vesting period is up, you may not be able to take the money your employer matched with you.

3. How Do the Tax Breaks Compare?

Taxes are a major factor when you’re considering a Roth IRA vs. 401(k). Here are some key differences in how the accounts are taxed.

Roth IRA

If you were hoping to beef up your tax refund, a Roth IRA will leave you disappointed. But remember: Once you withdraw that money at age 59 ½, as long as you’ve had the account for at least five years, it’s all yours tax-free.

401(k)

Suppose you earn $50,000 and contribute $5,000 to a traditional 401(k). Your taxable income for the year is now $45,000. Because you get the tax break upfront with most 401(k)s, you’ll pay taxes when you withdraw your money.

Because you fund a Roth 401(k) with after-tax dollars, it won’t change your taxable income, but you can withdraw your money tax-free when you retire.

Pro Tip

If you expect to pay taxes in a higher bracket once you reach age 59 ½ or if you think tax rates in general will increase, maxing out your Roth IRA is smart because you lock in a lower tax rate.

4. How Do You Invest?

A Roth IRA will give you more flexibility to choose your own investments, but a 401(k) gets points for convenience.

Roth IRA

You can open a Roth IRA through a brokerage firm or a robo-advising service. You could set it up in person if you opt for a brokerage with a brick-and-mortar location or by applying online.

You can invest your Roth IRA money however you want — in mutual funds, individual stocks, bonds and annuities.

If you prefer to choose your own investments, you’ll want to open a brokerage account. Consult with a financial adviser if you aren’t sure what investments to choose. If you prefer a set-it-and-forget-it approach, you’ll probably prefer a robo-adviser, which uses super-smart software, instead of humans, to manage your investments.

You can set up automatic transfers from your bank to make investing more convenient.

401(k)

If your employer offers a 401(k), you may have to sign up for it or you may be automatically enrolled. Most companies let you enroll when you’re hired, though some smaller companies will make you wait as much as a year.

Once you’ve signed up, you’ll have to decide how much to invest and what you want to invest in. Your investment options will be limited compared with your options for a Roth IRA, but you can usually choose from several categories of mutual funds.

You can change the amount you’re contributing and your investment allocations at any time.

Pro Tip

Find lower-cost mutual fund options by checking the fee disclosure statement, which your 401(k) plan is required to send you every year.

5. When Can You Withdraw Your Money?

Your retirement accounts aren’t supposed to be a source of quick cash, so the rules around withdrawing money can get complicated.

In general, the IRS lets you withdraw from both plans without penalty if you experience certain hardships, such as if you become permanently and totally disabled, or if you have out-of-pocket medical expenses that are more than 10% of your gross adjusted income.

Roth IRA

As we said earlier, one of the biggest benefits of a Roth IRA is that you can withdraw your contributions at any time. That can make a Roth IRA a good safety net in case of an emergency.

That said, you’ll typically have to wait until you’re age 59 ½ and you’ve had your account for five years to withdraw your earnings. Otherwise, you’d typically owe ordinary income taxes on your earnings and pay a 10% penalty.

You may be able to withdraw up to $10,000 from your Roth IRA for a down payment or other expenses related to a home purchase if your account is at least 5 years old.

You can withdraw your Roth IRA earnings early and use them for educational expenses for you, your spouse or your child, but you’ll still owe income tax.

401(k)

If you leave your job for any reason between ages 55 and 59 ½, you can withdraw money from that employer’s 401(k) — but not 401(k)s from past jobs — without penalty. But remember: Unless it’s a Roth 401(k), you’ll always pay taxes on 401(k) withdrawals.

After age 59 ½, you can start making 401(k) withdrawals without paying penalties, though most employers won’t allow you to make withdrawals while you’re currently working there.

Early 401(k) withdrawals usually come with a 10% penalty, along with income taxes.

6. Do You Have to Take Distributions?

A required minimum distribution is IRS lingo for when you’re required to withdraw money.

We know it sounds weird that you’re required to withdraw your own money. But remember: Traditional IRAs and 401(k)s are funded with pre-tax money. The government wants to make sure it gets its cut.

Here are the basics for Roth IRAs and 401(k)s.

Roth IRA

While 401(k)s and traditional IRAs have mandatory withdrawals called required minimum distributions (RMDs), you’ll never have to take money out of your own Roth IRA. After you die, however, your beneficiaries will probably have to take RMDs on the account.

401(k)

The IRS typically requires that you take distributions starting at age 70 ½, although if you’re still working, you may not have to. The exact amount depends on your account balance and life expectancy.

Recap: Roth IRA Pros and Cons

Now that you know the basics of Roth IRAs, it’s quiz time. Kidding. But let’s review the basic pros and cons of a Roth IRA.

Roth IRA Advantages

• You get a tax-free source of income in retirement.
• You have control over how your money is invested.
• You can access your Roth IRA contributions at any time, making it a good safety net.
• It’s a convenient way to save for retirement if you don’t have access to a 401(k) or another employer-sponsored retirement plan.
• You can withdraw up to $10,000 of earnings for a home purchase.
• You may be able to withdraw your earnings early for certain medical or education expenses.
• There are no RMDs.

Roth IRA Disadvantages

• You don’t get a tax break upfront.
• You’ll pay income taxes and a 10% penalty in most cases if you withdraw your earnings before age 59 ½ and if your account is less than 5 years old.
• It isn’t an option for many people with high incomes.
• You can only contribute $6,000 for the year, or $7,000 if you’re over age 50.
• It’s less convenient than a 401(k) because you’re responsible for managing the account.

Recap: 401(k) Pros and Cons

Now, let’s summarize the good and the bad for 401(k)s.

401(k) Advantages

• You get an upfront tax break if you have a traditional 401(k).
• Many employers will match your contributions.
• You can contribute regardless of your income.
• The contribution limits are higher than Roth IRA limits.
• It’s a convenient way to invest because your employer manages the account.

401(k) Disadvantages

• You’ll owe income taxes when you withdraw your money.
• You have fewer investment options.
• You can’t open a 401(k) if your employer doesn’t offer one, and things can get tricky if you leave your job.
• You can’t access your contributions at any time.
• You’re required to take distributions at age 70 ½.

Which Retirement Account Is Right for You?

If your employer offers a 401(k) and offers a match of any kind, your No. 1 priority should be to contribute enough to max out your employer match. Otherwise, you’re missing out on free money.

Once you’ve contributed that amount, putting any excess retirement funds into a Roth IRA could be a better bet because you’ll get the certainty of knowing how much you’re paying in taxes. There’s a good chance you’ll need the tax break even more when you’re on a retiree’s fixed income than you do now.

If you have even more to contribute after maxing out your Roth IRA, you can put it in your employer’s 401(k) to contribute beyond the matched amount.

If you don’t have access to a 401(k) or your employer doesn’t match funds, maxing out your Roth IRA should be your top goal. If you can invest more than the max, you can put your excess funds in your unmatched 401(k) or a regular investment account.

Regardless of whether you prioritize a Roth IRA or 401(k), these are the most important rules for saving for retirement: Start early. Don’t stop. And watch that money grow.

Robin Hartill is a senior editor at The Penny Hoarder.

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.

source The Penny Hoarder http://bit.ly/2WvuEa1

Hobbies and Hustles

I recently read this great little article by Molly Conway entitled The Trap of Turning Hobbies Into Hustles. In it, she makes the astute point that when you attempt to start earning money from something that’s a hobby, it ceases to be a hobby any more – rather, it starts to seem like work:

I have a friend who is living her dream. She makes and sells leather pocket belts, holsters and ruffle tops for the steampunk/Renaissance Faire/Burning Man crowd. Her designs are worn and enjoyed by thousands of people; she’s created more jobs for Bay Area artists; she’s her own boss — and she hasn’t taken a real day off in roughly eight years. Because that’s what it takes to do what she loves. I admire […] her, but every time I’m tempted to listen to someone who says I should open a restaurant just because I throw a good dinner party, I think of her, and remember that admiration is not the same as envy.

That’s not to say there isn’t joy to be found in turning something you love into your life’s work — it’s just to say that it’s okay to love a hobby the same way you’d love a pet; for its ability to enrich your life without any expectation that it will help you pay the rent.

This hit home for me.

One of the cornerstone elements of our financial turnaround was that I was able to find a side gig that I was eventually able to turn into full time work – and you’re reading it. The Simple Dollar started out as a pet project I did in the evenings in our tiny apartment as I wrote through some of the ideas I was discovering and working through in order to turn our financial life around. It became reasonably popular and, while it never earned enough to make us wealthy, it did earn enough that switching to writing it full time was a real option because it also reduced our child care burden (since I was at home and had a super flexible schedule).

Writing has always been a hobby of mine, and while I was in the “honeymoon period” of my financial turnaround where everything was new and exciting and I was trying all kinds of new (to me) things, it was purely fun to write about those experiences. As time went on, though, I found that what Molly describes above as purely accurate. Suddenly, something that was a hobby to me was making money – which was great – but now it was burdened with deadlines and responsibilities and expectations – which wasn’t good.

Yet, here I am, still writing about personal finance. How did I make that work? How can I still keep writing about personal finance and earning an income at something that was my hobby without being miserable?

I think that what I learned from that transition serves as some powerful advice for anyone looking to turn a hobby into a side gig.

First of all, I had to accept that writing was no longer a hobby, but a profession. Prior to that point, writing was something I purely did for personal fulfillment. I have always loved taking my ideas and putting them down on paper, much like how other people love and are fulfilled by woodworking or crafting or fishing or cooking or whatever. However, it was never something I had to do in order to produce an income for my family. I did it when I had the time and when I had burning ideas inside of me and I did it solely because it fulfilled me.

When you choose to do something for money, particularly when it becomes a source of money that you or your family relies on, that relationship changes. You can no longer do those things when you feel like them. You have to keep at it, regardless of how you might feel at the moment.

Leisure activities are enjoyable because they’re things you want to do and you can do them at whatever level feels right for you. When you have to do those things for a living, that choice of what to do and when to do it goes away. It’s no longer your choice. Even the most successful writers out there, like Stephen King, sign contracts and have obligations for their craft. They can’t simply choose when to write and not do it if they don’t feel like it.

That’s the difference between a hobby and a profession. With a hobby, you want to do it and, if you happen to not want to do it today, that’s okay. With a profession, you have to do it, regardless of whether you want to do it today.

There are days when I wake up and the last thing I want to do is write. I have all kinds of other things I’d love to fill my days with. However, I have an obligation to write, a freelance agreement that I signed that provides income for my family (good) but has stiff consequences if I don’t write (bad).

That change from wanting to do something to having to do something is a serious change and requires a far different approach. It means that it’s no longer your hobby, but your profession, and you have to approach it professionally. You have a set schedule and requirements and it’s no longer the free thing that you used to do.

In the early days, when I did The Simple Dollar for fun, I wrote about whatever I wanted pretty much whenever I wanted. If I didn’t feel like writing, it was fine. Today, I spend several hours a day most weekdays doing some sort of personal finance writing-related activity. There are times when it’s purely fun, but there are a lot of times when I have to do it even though I don’t want to.

So, how do you make that change?

The first thing I figured out was that on the days when I’m feeling in the groove, I need to get as much work done as I possibly can. If there’s a day when the writing comes easy and feels good, I do everything I can to stick with it all day long and all night long, if need be. Once every few weeks, I’ll just tell Sarah that I’m in a groove and I need to ride that groove for as long as it lasts. I often talk about “flow state” on The Simple Dollar, and that’s exactly what I’m talking about here – if I have days where I can get deeply into a flow state and just keep writing and writing and writing, I do it.

What this does is that it gives me breathing room for the days when it’s not working quite so well, when I’m dreading writing or when I can’t get anything to come out. On those days, I can walk away and professionally recharge.

Without that ebb and flow, this whole thing wouldn’t work. If I simply stopped on those good days when I had two or three things completed, I wouldn’t be able to do this. On those days when I really feel motivated and engaged and excited, I have to get as much value out of them as possible.

Why? Nothing makes a hobby-turned-side-gig miserable faster than the days when you’re not engaged at all with your gig but you still have to produce work. You’re going to be miserable and you’re going to not be very productive at all. You are far better off those days simply walking away and recharging or finding other aspects of your work to do. In fact, if you keep doing this, if you keep grinding when the passion is zero, it’s going to become miserable and your quality is going to fall off a cliff and you’re going to lose the whole thing anyway. Trust me – I’ve been there.

if you try to turn a hobby into a hustle, be aware that you’re going to lose a hobby. When you start doing something for money, there starts to be expectations involved with it and you can’t simply pick it up when it feels fun and let it sit when it doesn’t. You have to pick it up every time, and that’s work, not leisure.

There’s nothing whatsoever wrong with that, and work can most definitely bring you joy, but there are times when you have to do it even when you don’t want to. That’s the difference between a hustle and a hobby – a hobby can be put down, while a hustle can’t.

Make absolutely sure that this is something you want to give up as a hobby. If it’s something you genuinely value as a way to escape, as something you can pick up when you want and leave alone when you’re not feeling it, you should think very carefully about whether you want to convert it into a hustle.

Thus, if you do go down this path, you have to find a new hobby. Your old hobby is no longer a hobby. It fills more of your time than you would ever like. That doesn’t mean it no longer brings joy, but what it means is that it no longer serves as a hobby, as something that provides leisure and escape from the routines of your life.

Ten or fifteen years ago, my main hobby was writing. When that went from hobby to side hustle, it no longer fulfilled and refreshed me. It was the thing that sometimes made me need to feel fulfilled and refreshed. I discovered cooking. I discovered hiking. I (re)discovered tabletop gaming. I (re)discovered reading. Those are my hobbies.

Writing, although I still love it, is my work. It is not a hobby. It is not an escape. It is not something I can pick up when I’m excited about it and put down when something else is more compelling at the moment.

I’m lucky in that most days I’m excited about it, but there are most definitely days when I have writing commitments and it’s the last thing in the world I want to do. That’s what makes it work and not leisure.

Finally, turning a hobby into a side hustle generally only works well if you’re utilizing skills and talents you have. If you love to knit, for example, but you’re a mediocre knitter who can turn out good stuff but slowly or bad stuff quickly, it’s probably not a good choice to try to turn knitting into a side hustle. It’s a great hobby, but not a great source of income.

Writing happened to work well for me because I can write reasonably good material (I don’t claim my writing to be great in any way, but I do think I can lay out points and tell a decent story) in large quantity and fairly quickly. That’s a skill, one that I utilize every day.

It’s my belief that turning a hobby into a hustle works best if you have several hobbies, you see a clear path to income with one of them, and you can apply strong skills you already have to that path. That way, you’re not turning your main passion into work and you’re able to do something of value that others will want and appreciate, thus ensuring at least some chance of success.

Good luck!

The post Hobbies and Hustles appeared first on The Simple Dollar.

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Dear Penny: We Want to Buy a House, but We Have $60K in Debt

Dear C.,

First, you don’t have to decide on paying down debt OR saving for a down payment on a house. You can absolutely split your monthly excess between extra debt payments and your down payment fund.

But based on what you’ve told me, I’m inclined to think that paying down your debt will get you on the path to homeownership faster than saving for a down payment would. My reasoning is twofold.

When you apply for a mortgage, lenders look at your debt-to-income ratio — that is, the percentage of your gross household income that goes toward debt, including a future mortgage payment. Typically, lenders want this number to be 43% or lower, so by paying down debt, you’ll free up more money to use toward a mortgage payment.

The second reason is your credit scores. If you both have scores below 680, you could find it difficult to get approved for a mortgage. A 2016-17 Credit Sesame survey of 600 people who applied for a $150,000 mortgage found that 62% of those with a credit score between 650 and 700 were denied.

Considering that the average down payment assistance amounts to about $12,000, improving your credit to the magic 680 number you need to qualify could give you a huge boost in your goal of becoming homeowners.

Paying down your debt is likely to increase your score because your credit utilization ratio, or the amount of your overall revolving credit you’re using, accounts for 30% of your FICO score. The only factor that’s weighted more heavily is your payment history, which determines 35%.

Because revolving credit is what determines your credit utilization ratio, focus first on paying off your credit cards. Not only will that help you improve your scores, but it will probably save you money, since the average credit card interest rate is above 17%.

Once you’ve paid down high-interest debt and increased your credit scores, it might make sense to focus more on saving for a down payment.

There are a lot of advantages to having a larger down payment, the most obvious being lower interest rates and monthly payments. But the truth is, people are generally putting less money down than in the past. The median down payment for first-time homebuyers is just 6%, according to the National Association of Realtors.

Regardless of how you decide to prioritize paying down your debt vs. saving for a down payment, you’re smart to think about down payment assistance programs now, rather than when you’re in the frenzy of the approval process. If you haven’t already, talk to a lender now. They can make sure you know all your down payment assistance options and help you clear whatever hurdles stand between you and homeownership.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Write Dear Penny and you might see your question answered in an upcoming column.

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.

source The Penny Hoarder http://bit.ly/2WndUS4

"It’s cool to have a letters page": Moneywise readers best comments and letters in April 2019

Each month we publish the best comments, emails and letters from our readers the star of which will win a £50 M&S giftcard. Here are the best of April 2019

It’s cool to have a letters page

I picked up Moneywise for the first time recently (March 2019 issue) and I found the magazine to be a great read. It was also very timely, given that I have been considering an Isa recently.

The article on cinema savings was interesting. I did have a Cineworld card, but I just wasn’t finding compelling films to watch on a regular basis. However, with the savings mentioned in the article, such as the Vue savings every Monday, I imagine I’ll save a lot for some time to come (I only really like watching superhero and/or ghost films at the cinema).

The energy-saving article was informative, too. Little things like that really do matter, and I would never have considered those ideas.

And it’s always great to see a letters page in a publication. So many magazines now don’t bother to have letters columns. I think even in the age of internet forums and social media chat, it’s pretty cool to see a letters page. Long may it continue. Overall, a very accessible read, I only wish I had discovered the magazine sooner. Always the way, eh? Finance can risk being a dry subject, but there was absolutely nothing dry about the Moneywise articles. Quite the reverse, in fact.

Very happy to be on board as a new reader.

SP/via email

No time for Cash Isas

Ahead of the end of the last tax year, Moneywise highlighted eight tips to help you avoid losing out on the annual Isa allowance.

In response to this a reader wrote:

I would suggest avoiding all that unnecessary ‘administration’ by simply saying sign up with an investment platform.

That way, you can do it online, no form to fill in every year, no cheques, no messing with banks and a wide range of investments.

Save by regular instalments and you can completely ignore the so-called ‘Isa season’ and all the silly hype around it, as well as gaining from pound cost averaging.

I have no time for Cash Isas either.

DH/via site comments

Moneywise says: We agree with DH, investing online is a simple and effective way to build up a nest egg for the future. However, there is still a place for Cash Isas and savings accounts, especially for shorter-term savings plans.

Why did it take so long to ban exit fees?

In mid-March, the financial regulator the Financial Conduct Authority announced plans to ban the fees on leaving an investment platform.

One reader took issue:

Why do these regulators take years to do the right thing? It should have been done and dusted years ago, including reducing management fees for safe, non-volatile investments that, by definition, don’t get moved around.

How do these managers justify charging the same amount as the more strictly managed ones?

Maybe the regulators will look at this issue, after the current tranche of managers have made their kill at investors’ expense, in 50 years’ time!

MA/via site comments

Cheaper bills – but only for new-build owners

In March, Chancellor Philip Hammond announced plans to ban the use of carbon fuel boilers in new homes after 2025. This drew the ire of many readers. One commented:

So they plan to reduce the bills for those people who can afford shiny new homes…

Meanwhile the existing gas-supply grid will have fewer people using it, but will still need maintaining. The cost of heating and cooking will soar beyond belief for the rest of the population who are unable to buy a new home and are struggling to pay rent and mortgages on properties they cannot afford to retrofit.

If the government has their way, we won’t even be able to cook a meal at a reasonable cost.

LJ/via site comments

Not another firm with a credit card

On 25 March, tech firm Apple announced it was entering the financial services market with the introduction of a credit card that it said would “help customers lead a healthier financial life”.

One reader commented:

I’m sick of hearing the phrase “helping customers take control of their financial lives”.

I am in control of my financial life already and I don’t need apps or an Apple credit card dedicated to a mobile phone.

Come to think of it, that includes any other credit card linked to a phone!

HD/via site comments

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Can we cut capital gains tax on our parents’ house?

Question

After inheriting our father’s half of my parent’s estate in 2009, my sister and I then became co-owners of our mother’s house (they were tenants-in-common). Sadly, she died in October, which means we have inherited her half of the house and plan to sell the property. Both my sister and I own our own homes with our spouses, so are we presuming we will have to pay capital gains tax (CGT) on the gain from 2009 to 2019, taking out the first inheritance of 25% each in 2009 and the second inheritance in 2018 of 50% of its present value?

Is it possible to gift 50% of our share to our respective spouses to double the CGT allowance and reduce CGT liability?

You are correct on all counts. You would incur CGT on the increase between 50% of the house sale proceeds and the initial inherited value in 2009, and then on any increase between the other 50% of the sale proceeds and the inherited value in 2018.

The tax charge would be split equally between you, but the amount you each pay would depend on your respective tax status. You could certainly reduce the CGT by utilising your spouses’ allowances as suggested.

My only proviso would be to ensure that both you and your sister are comfortable with dividing the inherited asset this way. What happens, for instance, if the property does not sell and you are left with four owners who may have differing views on what should happen to it? Are you also comfortable with dividing the sale proceeds four ways?

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Ask Experts Blurb Top

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

Source Moneywise http://bit.ly/2WYdG0N

Make your home a clutter-free zone

If you find it hard to part with items, then why not enlist the help of a declutterer? You may even be able to recoup the cost – and more – by finding long-lost valuables or by selling big-ticket items on eBay. And if you prefer to do it yourself, pick up a few tips from the professionals

Tidying expert Marie Kondo has captured the imagination of millions around the world with her method for decluttering, known as KonMari. In her Netflix series Tidying Up with Marie Kondo on Netflix and bestselling books, she helps people sort out everything from clothes, books and paperwork to ‘komono’ – miscellaneous items such as make-up and toys – before tackling items of sentimental value, discarding possessions that don’t ‘spark joy’.

But while Marie Kondo is perhaps the best-known declutterer, she is not alone: professionals can be found busily tidying homes across the UK.

What are the advantages of hiring a declutterer?

Professional home organiser Jo Jacob says that sometimes people need the detachment of an outsider to get started.

“Most clients say they don’t know where to start – they’re overwhelmed and strapped for time. I think it comes down to our experience and the fact that we’re not emotionally attached to a person’s things and can encourage them to let go. You can photograph and scan items rather than keep the tangible things,” Jo says.

Jo, who covers the Hampshire, Surrey and Sussex areas, first trained as an interior designer, learning the ropes from Ann Maurice, who presented Channel 5’s House Doctor. She then worked with Dawna Walter, presenter of BBC2’s The Life Laundry, before setting up her own company, Benella.co.uk, in 2005.

She qualified last year as a certified photograph organiser with the Association of Professional Declutterers & Organisers (APDO), and finds this service helpful for relationship break-ups where both people want to keep shared photographs.

“I can digitally scan the couple’s photographs and then present them each with a memory stick,” she adds.

Jane Fern (pictured below), a KonMari consultant in the Manchester area who trained with Marie Kondo in New York, says: “I work with a lot of people who’ve become stuck in their lives, so it’s difficult for them to do the process. I’m there for them, encouraging them and helping them to decide what to keep.

“There is a lot of decision-making during the process but the plan is that by the end, life will be a lot simpler.”

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How a declutterer works

A typical decluttering session involves discussing your goals and which area to start, and coming up with a plan, followed by hands-on clearing. Some declutterers will supply bags for charity or provide storage boxes and will remove a car-load for an additional fee.

While the Netflix series shows Marie Kondo instructing clients to pile their clothes on their beds to sort through before she leaves them to it for a week, in reality consultants declutter with you.

There are currently 19 KonMari consultants in the UK, who will have attended seminars and taken practice sessions and an exam before they can set up shop.

While they follow the KonMari method – a system of organising your home and discarding tangible items that do not spark joy in your life – consultants will adapt to individual clients.

Jane says: “You get to know your clients before you start working with them. It may not mean every client taking everything out; some people might need to do it in sections, in smaller chunks, depending on their stamina and the time they’ve got.

“I will always talk to clients about doing the whole process because what generally happens is that they’ll sort out a room or a cupboard and in a very short time it’s back to how it was because there is no real change [in behaviour]. It’s that lifetime change, making that big leap to knowing that everything has a home.”

Consultants may also have their own take on organising. Jo says that while she credits Marie Kondo for making tidying more popular, she feels the decluttering guru’s KonMari method sometimes goes too far. For example, while the method rules out keeping clothes you won’t wear again, she believes sometimes it’s OK to store some clothes in the attic.

“If you have a girl aged nine or 10, for example, what about when she gets older? She may like to have some of your clothes or wear them for a fancy-dress party.”

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“I found £125 worth of gift vouchers and cash”

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Jo Jacob (pictured right) was asked to help tidy a chest of drawers in the hallway for a single mum with three young children in Hampshire.

“She’d recently started her own business, so things were busy. It was a ‘mess mountain’, with the kids dumping things on it whenever they went through the front door,” Jo explains.

As well as finding £125 worth of gift vouchers and cash, Jo helped sort out the paperwork, getting the information her client needed to make a claim for mis-sold PPI.

How can it save you money?

One way declutterers can save you money is by finding valuables among the mess. For example, Jo has found cash and important paperwork for one client (see box below) and has sold items on eBay.

“I once found three shipwreck coins in their original packaging, which the owner wanted to give away. But I said: ‘Do you think it could be worth something? Let’s look it up.’ I eventually sold the coins for £400 on behalf of my client. They couldn’t believe it,” she says.

Beverly Wade of Cluttergone.co.uk, which covers most of England and north Wales, says: “We can give advice on what you want to sell. I would suggest getting a box together of expensive items [over £100] and see what price they are achieving on eBay. Always try to sell big-ticket items that are in demand first in case you run out of steam.”

You may also find once things are in order you are less likely to waste money buying items you don’t need .“I had a client who had seven rolls of Sellotape," says Jane. “You buy a present, want to wrap it, but can’t find the Sellotape so you buy a new one. It’s like that with many items – we tend to overbuy because we can’t find the things we need.”

One of the most difficult areas to declutter is paperwork – but organising documents can pay off.

Beverly adds: “I know the deadline for making PPI claims is approaching, but this is an area where we can help. If I notice that a client is paying a lot of insurance on their credit cards, I will suggest that they phone their bank to make a claim. I’ve worked with someone who claimed back a few thousand pounds.”

Choosing the right person

When choosing an organiser, you need to feel comfortable about someone going through personal, and often sentimental, items. Phone them first to find out how they work and whether you have a rapport. To hire someone with the right experience, a good starting point is APDO’s search tool (Apdo.co.uk/find-an-organiser)or Konmari.com/pages/consultants. APDO members will hold professional indemnity and public liability insurance. KonMari consultants work as individual business owners, so check first.

How much it costs depends on where you live and the declutterer’s level of experience but expect to pay at least £35 an hour for a minimum three-hour session.

Storage solutions

While it is tempting to buy boxes, the aim is to reduce clutter rather than store it. Make use of old shoe-boxes, and if you do need to buy containers, these can be found fairly cheaply at Ikea, Lakeland and Dunelm.

Do it yourself

If you don’t want to hire a consultant, you can always have a go yourself. If you need inspiration, you could try some background research. If you have Netflix, Tidying Up with Marie Kondo will inspire you (Netflix has a free 30-day trial), while her book Spark Joy (£7.41, Amazon) offers a more in-depth guide. You can also listen to free podcasts – such as Declutterhub.com in the UK and Sparkjoypodcast.com, which is produced by two KonMari consultants in the US.

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5 tips to make cash from your clutter

• Sell items on eBay or hire a professional eBay seller, such as Cleanupyourclutter.co.uk and Stuffusell.co.uk, to list it for you.
• Trade in old mobile phones and tablets – check out sites such as musicMagpie.co.uk or Mazumamobile.com.
• Sell unwanted gift cards and vouchers for cash at online sites such as Cardyard.co.uk or Zapper.co.uk (gift cards only).
• Trade in old books, CDs, DVDs, LEGO and electronic games for cash at Zapper or musicMagpie.
• Sell broken or unwanted gold jewellery – take it into a reputable jeweller for a valuation and check online reviews before selling it via a cash-for-gold company or on eBay.

 

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Source Moneywise http://bit.ly/2EtiSTa

Who’s In Control of Your Life?

Let me tell you three stories. The first comes from my own life, while the other two are things that I’ve observed recently.

* * *

For my own tale, let’s roll back several years.

At that time, I worked as a research assistant focusing on data mining. My job mostly revolved around writing tools for researchers to explore a very large data set in a simple fashion, essentially enabling them to make connections within the data at a click of the mouse, and I also spent a significant amount of my time digging through the data myself, looking for useful patterns and trying to make sense of it all.

I really loved the work I was doing. When I was actually doing the data mining, or when I was working with researchers to come up with ways to help them explore the data on their own, I deeply enjoyed the work. It was intellectually challenging, interesting, and meaningful. I also dearly loved the small team I worked with at the time.

What I didn’t enjoy was the bureaucratic end of it. I didn’t enjoy the travel. I didn’t enjoy the many bureaucratic meetings. I didn’t enjoy the constant filling out of forms that seemed to be largely purposeless. I didn’t enjoy the constant change in how we filed our travel receipts, the constant changes in our email services, and many other aspects of the job that were purely bureaucratic.

I was also frustrated by how there were constant promises of more resources that were sorely needed to actually improve our offerings, but those resources seemed to never actually materialize. Because of that lack of resources, I felt my work slowly turning from creating useful new things and discovering new data connections to just maintaining tools so that they wouldn’t break when other people changed things. I gradually became more and more responsible for IT management, fixing servers and things when they had problems, and that caused me to have to go into work on more and more weekends and spend more and more time effectively on call.

Over time, my feelings on this job began to shift. I went from feeling great about going to work each day to dreading going to work, particularly on days when there were meetings and particularly on days leading up to travel.

For the last year or two that I worked at this job, I felt miserable. Travel was causing me to miss several big moments with my children, including my son’s first steps. Most days were filled with bureaucracy and maintenance. I felt deeply unhappy.

So, why did I stick around for that last year or two? The big reason was that I felt like I needed the job. I didn’t have strong financial control over my life yet and thus I really needed the stability that the job provided. In short, that job and that situation had control over my life. I couldn’t walk away without putting my wife and my young children in a very precarious place.

* * *

The second story comes from a reader who I’ll call Jeff, who wrote in with a long story for the reader mailbag. After some back and forth conversation with him, he wanted me to share his story in a post.

Jeff grew up in an upper middle class family. In college, he fell in love with Suzanne, who he thought was also upper middle class until, shortly before the wedding, he learned that Suzanne’s family was rather wealthy thanks to her grandfather. Suzanne has a large trust in place for her that’s controlled by Suzanne’s mother. Suzanne and Jeff have been married for several years and apparently they’ve spent much of this time jousting with Suzanne’s mother, sometimes even in court, to gain access to the trust. It is apparently up to Suzanne’s mother as to when the money can be released to Suzanne and Jeff. He wrote in asking for advice on some other means to try to gain access to that money.

My response to Jeff was simple: try to live your life for a while as though that trust does not exist. What would your life be like if there was no trust that was ever going to appear? What would you do? Live your life that way. If the trust money comes, then it’s a boon. Right now, the lack of a trust is a bust.

After some back and forth emails with Jeff, it seems as though he and Suzanne have had a lot of conversations about the situation and have decided to do just that – to stop worrying about the trust at all and start living as though it doesn’t exist.

* * *

Here’s a third story that might seem unrelated at first, but it’s well worth discussing.

My wife went on a very long-planned trip with her sisters this spring. They had been planning the trip for almost a decade and this spring was the culmination of those plans.

During their trip, they had the opportunity to visit Chichen Itza, the Mayan ruins in southern Mexico. While there, Sarah took a ton of photographs and short videos. They were all focused on the view, a view that she wanted to always be able to remember even when her memory of it faded a little.

One thing I couldn’t help but notice is that in many of the video clips and photographs, there was a young woman who had an elaborate selfie setup that involved tripods and lighting poles and so on. She was backed up right against the edge of where she could walk and, in every video clip and picture, she was either taking selfies with Chicken Itza in the background or checking the selfies. This was going on over a long period of time.

Not once, in any of the photographs, did the young woman seem to be paying any attention to Chichen Itza. She had traveled so far to see one of the wonders of the world, and yet her full attention was on getting a great selfie or two, ostensibly to post to Instagram or some other social media service.

* * *

These three stories all have something in common. They all depict people living their lives under the control of others, not themselves.

In my own situation, I lived my life under the control of my supervisors and the bureaucracy of my workplace. I absolutely loathed it, but I persisted under it for years. Why? I had chosen a lifestyle that required the income and stability provided by that bureaucracy. I had ceded control of my time and energy over to them.

In Jeff’s situation, he and Suzanne lived their life obsessed with the money sitting in that trust and constantly battling Suzanne’s mother for that money. That battle absorbed tons of their time, energy, and focus, and although he didn’t get into it, it seemed clear that the relationship with Suzanne’s mother was weakened by the fight. In that case, Jeff and Suzanne had ceded control of their time, energy, thought, and focus over to their mother-in-law simply out of a desire for more money.

In the story of the woman at Chichen Itza, her focus was solely on producing an amazing selfie, ostensibly to share with others. This took her attention away from the destination of a long trip and the grandeur of a wonder of the world. Instead, she focused on the lighting on her face and the camera she was using. I suppose she may have been a professional photographer and a model at the same time, but it seems far more likely in our modern era that she was simply trying to get the perfect shot for Instagram. In other words, she ceded control over her own time and focus to her Instagram followers, causing her to miss out completely on the amazing opportunity before her.

In all three of those stories, someone else is in control of a person’s life and decisions. I wasn’t in control of my professional decisions or their own financial destiny. Jeff and Suzanne weren’t in control of their familial decisions or their own financial destiny. The woman taking the selfie was ceding control over her time and focus in one of the most amazing places on Earth to anonymous Instagram followers and other social media “friends.”

* * *

If there’s a lesson I’ve learned throughout my adult life, it’s this: there are few surer routes to unhappiness than ceding control of your life over to the whims of someone else.

When you cede power over your life to your boss out of financial need, you give your boss the power to take away your free time and all of your energy. Even if your boss doesn’t do that, that power still rests in their hands.

When you cede power over your life to someone who might give you money, you give that person power over your attention and your thought and your time and your destiny. Even if that person is very giving in terms of that money, they still retain that power and can use it as they please.

When you cede power in your life to social media followers and constantly do things that you think will impress them or interest them or make them envious, you give those anonymous followers the power to shape your decisions and shape how you use your time. You’re no longer doing the things you want to do; you’re doing the things they want you to do and hoping for their approval.

Those situations bring unhappiness. I’m speaking from my own experience and the experiences of many people in my life and many readers. Whenever you feel like you don’t have control over your life and you’re forced to bend your life over and over to the whim of those who do have control, it brings about sadness and serious dissatisfaction with life.

What about situations that come with responsibility, like becoming a parent? In those situations, there are definitely moments where you feel trapped and out of control, and those times do bring bad feelings. However, they’re typically counterbalanced by the good moments and the fact that you chose this responsibility. Also, responsibility often leaves some level of control over the situation – you do control how you choose to parent your child.

On the other hand, you don’t have control over the fickle nature of social media followers or the whims of your boss or to those who can turn off the spigot of money you’re relying on or the organizations to which you owe money… this list goes on and on.

It’s that lack of control that brings unhappiness, and making financial and lifestyle missteps is one of the surest ways to lose financial and professional control and freedom in your life.

This doesn’t just manifest itself in terms of personal unhappiness – that’s just the start. It has negative physical and mental implications due to the stress of the situation. It has negative financial implications because many people drown themselves in “treats,” giving themselves little bursts of pleasure so that they can temporarily feel a burst of joy.

What can you do? It’s easy. Start taking control back. Even if you can’t fully wrest control of the situation back immediately (sometimes you can, but often the situation is deep and complex enough that you can’t), you need to start down that path.

Here are some strategies for doing just that.

Spend a lot less than you earn and bank the difference, so that you can make changes to your life if they’re warranted. Walking away from a miserable job is a lot easier if you’re already living on less than you earn and have been doing so for a while and you’ve put away the extra money for the future. In essence, it was the start of our financial turnaround that gave me the ability to try new things and then eventually have the financial freedom to walk away from a job that was leaving me feeling crushed.

The power of this strategy is that it frees you from being under the control of anyone who can turn the spigots of money in your life on and off. Before long, you’ll have the freedom to be able to move to another opportunity (like moving to a new job) or to just start ignoring a particularly troublesome one (like Jeff and Suzanne’s family issue). Eventually, you won’t need to think about a spigot at all – it’s a convenience, but not a need, and you can walk away if you don’t like the relationship without needing to just jump to another opportunity.

This can be challenging because one of the most obvious places to start is to cut out the stream of low-value “treats” that many people who feel unhappy and trapped use as a stream of happiness bursts in your life. You have to seek out other sources for those moments of bliss that don’t require spending money.

Spend less than you earn. Make that gap as big as you can without introducing new misery into your life. Use that gap to get rid of debt and start saving for the future, whether it’s retirement or any other significant life change. That’s the recipe.

Focus on building relationships with people who enjoy doing the things you would do on your own (or with an army of clones of you). One of my favorite questions to ask myself is “what would I do if I had to live the rest of my life on an island with 100 clones of myself?” Meaning, in other words, that they all had the same internal desires that I do.

What would I do? I’d read a lot and have conversations about those books. I’d go on lots of hikes and explore every inch of the island. I’d play a lot of long, complex board games. I’d make amazing meals and a lot of fermented foods and craft beer.

Thus, this advice tells me to find other people who like to read a lot and talk about the books that they read. This advice suggests that I find people who like to do easy and moderate difficulty hikes (I don’t like rock climbing and my balance isn’t superb) and go on hikes with them. This advice suggests I find people who like to play long strategic board games. This advice suggests that I make a lot of meals and good food and beer and share them with people who appreciate them, and maybe find people who like to make them, too.

Those are my people. I need to find them and build friendships with them. That way, I find companionship and friendship and affirmation by doing the things I naturally want to do anyway, rather than having to mold myself to appease others. This gives me much greater control over my free time and my hobby time.

Who are your people? What are the things you would do on an island by yourself and 100 clones of yourself? Figure that out, then find people who like that, too, and make friends with them. That way, you don’t have to change who you are or spend time or energy or money on things that you don’t really care about in order to feel friendship and acceptance.

Learn how to say “no.” Many people find themselves eventually trapped by a mountain of commitments and arrangements they brought on themselves by being unable to say “no” to others when they’re asked for something. This often leaves them feeling overwhelmed and unhappy and typically not performing at their best at any of those commitments.

Here’s something to consider if you’re in this camp: if you feel overwhelmed with commitment – or will feel overwhelmed if you take on something someone’s asking of you – remember that you will not perform at your best on this commitment or on the other commitments you have if you say “yes.” In fact, by committing to more, you’re likely going to end up with that other person in a worse position than if you had simply said “no” right now.

I often turn things down by saying some variation on this: “I really appreciate that you asked me to help, but I have to say no. My plate is already really full right now and if I took on that thing as well, not only would I not be able to give it my full effort and attention, I would also be letting down the things I’m already committed to.” I usually then follow it up with a suggestion of other people who might be able to help.

Saying “no” in that way is more valuable than saying “yes” to something that overwhelms you and that you can’t live up to in a quality fashion. It is far better to say “no” than to let someone down when they’re relying on you or to deliver a bad result. Plus, saying “no” preserves your sanity and also gives you the space you need to excel at the things that you do choose to keep on your plate.

Give yourself the power to have control over what’s on your agenda, so that you can fill it with just things you can excel at without being overwhelmed.

Finally, be very wary of long term commitments you can’t easily back out of. I absolutely love being a parent and it’s a role that fulfills me deeply, but if someone is asking me if they should have kids and they’re really unsure about it, I’ll usually advise them to not have kids. Don’t commit to having children unless it is a full-bore full-throated deep commitment, because a child deserves that from their parents.

This is true with any long term commitment you may face in life. For example, don’t get married if you don’t think you can live up to those vows or you’re not sure you can live your life with this person. It’s better to say “no” than to say “yes” and fail that commitment and that other person who put their trust in you.

If you’re agreeing to something over the long term, you’re ceding some control over your life and breaking that commitment is likely to be painful. Be very careful when doing this, and make absolutely sure that this is something you truly want. Don’t walk into a huge commitment without high confidence.

The message in all of this is simple: most of us feel happiest when we have maximum control over our lives. When we cede control over our decisions to others, by allowing things like our boss to push us into unpaid overtime or unethical tasks, by allowing ourselves to become financially dependent on things other people control, by allowing our emotions to be controlled by the approval of others, by committing to things and then growing to regret them, we bring unhappiness into our lives, and that unhappiness is often temporarily dealt with by overspending.

Take control. Cut those patterns out of your life. You’ll be happier for it.

Good luck.

The post Who’s In Control of Your Life? appeared first on The Simple Dollar.

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How to Pay Off Student Loans

Graduating college is one of the most exciting moments in life, a milestone that opens the door to your future.

All the late night study sessions, painstaking papers, and student loans have paid off as you proudly receive your diploma.

As you walk across the stage and into the real world, you’ll be faced with the task of paying for your hard-earned education.

Student loan repayment can seem daunting, but it doesn’t have to be. 

With an understanding of how the student loan repayment process works and a strategy in place, you can pay your student loans off with ease. Ready to get started?

The Student Loan Process

To effectively pay off your loans, you need to understand how student loans work. Here are a few key parts of the process to get you started.

The Grace Period

If you’re frantically scrambling to figure out how to make payments on your federal student loans as you search for jobs, relax. Lenders understand that it might take you a little time to get on your feet after graduation. 

Federal student loans, barring PLUS loans, come with the advantage of a six-month grace period from the day you graduate or fall below half-time status onward.

That means you don’t have to start making payments until your 6 months are up. During that time, interest will accumulate on any unsubsidized loans.

The grace period can be extended if you enter active duty in the military or decide to go back to school full-time.

Private loans function differently, with some lenders offering grace periods comparable to federal student loans. Others might require you to make payments while you’re in school or as soon as you graduate, so be sure you understand the terms of your agreement.

Contacting Your Loan Servicer

While you may have obtained your federal student loans through a government website, you don’t repay them there.

The government utilizes a handful of loan servicers to process your payments and manage your repayment plans. 

The loan servicer, an institution like Nelnet, Great Lakes, or Navient, will contact you about setting up your account with your Federal Aid Student ID, which you can find or set up with the National Student Loan Data System.

You can also find the name of your servicer there if you’d like to get the ball rolling and address any questions. They’ll be able to help you land on the best repayment plan for your needs.

Setting Up Payments

Making payments on your student loans is a simple process.

You’ll have the option to make manual electronic payments each month or enroll in autopay, which helps to guarantee you never make a late payment that could damage your credit score.

Federal services and banks and credit unions should offer automatic payments as an option.

Another way to ensure your payments are made on time is to schedule the payment for a week prior to the due date to allow any delays or issues with payment processing to be resolved.

How Payments Work

If you’ve taken a look at your loans, you’ll notice they’re broken down into two amounts: principal and interest.

Each of your payments, likewise, are applied to both principal and interest. When you’re making your payments on time on a standard repayment plan, most of your payment will be applied to the principal.

If you’re behind on your payments, however, more of your monthly payment will go towards interest and fees and less to paying down the principal. 

With a basic understanding of how student loan repayment works, let’s take a look at some alternate repayment options and tips to pay down your student loans quickly.

Student Loan Repayment Alternatives

Sadly, you can’t wish away your student debt. Most likely, you’ll have to repay your student loans in full over time.

There are, however, a number of repayment plans. And in some cases, your student loans can be forgiven altogether. 

If you’re struggling to stay on top of your payments, you may be able to make them more manageable with the strategies below.

Change Your Repayment Plan

If the amount due on your student loan payment each month exceeds your budget, you could benefit from an income-driven repayment plan.

This plan uses your income as the basis for setting more manageable payments. You can apply for an income-driven repayment plan through your servicer, and you’ll need to submit your tax records or a recent pay stub along with the application.

Refinance Your Student Loans

If you have a private student loan, you won’t be able to use an income-driven repayment plan. You can, however, benefit from refinancing your student loans.

College Ave can help you refinance your loans quickly and easily, lowering the amount you pay each month. They can even lower your interest rates if you enroll in autopay. 

You can apply for free on their website and get instant access to the rates you’re eligible for, with low fixed and variable interest rates.

Consolidate Your Federal Loans

Likewise, the federal government offers a Direct Consolidation Loan to help make your loan repayments more bearable. This particular loan reduces rates by merging all of your federal student loans into one.

It can also work to simplify your repayments if you have more than one servicer. By making one singular payment each month, you avoid the risk of letting any individual payments slip through the cracks. 

Request a Deferment

If you plan to be able to make your payments but need a breather due to a job loss or other unexpected event, you can request a deferment or a forbearance on your federal student loan.

You may incur interest during the deferment, but it can provide you with a few months’ time to get your finances on track.

Adjust Your Due Date

While student loan repayment dates are set to accommodate common payroll schedules, many individuals get paid on different timelines.

If your student loan payment is always due before you get paid, you may be able to change the monthly due date to fit your schedule. 

Once again, you should contact your student loan servicer to see if adjusting your due date is a possibility.

Seek Out Student Loan Forgiveness

There are a handful of circumstances that can lead to the discharge, forgiveness, or cancellation of your federal student loans. Here’s a brief overview of each type of loan dismissal.

• Teacher Loan Forgiveness: After teaching for 5 years at a school or institution serving low-income families, you could be eligible for forgiveness of your federal student loans up to $17,500.
• Public Service Loan Forgiveness: If you are a full-time employee of a nonprofit or the government, your student loans could be forgiven after you complete 120 monthly payments.
• Perkins Loan Cancellation: If you are a teacher or work in a number of public service-related positions, your Perkins Loans could be forgiven. The longer you serve, the larger the portion of your loan that is forgiven.
• Bankruptcy Discharge: In some cases, when you declare chapter 7 or 13 bankruptcy, you may be able to have your loan discharged in an adversary proceeding.
• Closed School Discharge: If your college or university closes its doors while you’re in school or within 120 days of your withdrawal, your Direct Loans and FEEL Loans may be forgiven.
• Death Discharge: If you pass away, your student loans will be discharged completely. Likewise, if your parents pass away, their PLUS Loan will be dismissed as well. 
• TPD Discharge: If you become permanently disabled, your federal student loans may be forgiven with proof from the VA, SSA, or a doctor.

You may also be able to get an unpaid refund discharge if you withdrew from school early, or a false certification discharge in cases of identity theft or unauthorized signatures and payments.

Check with your servicers to see if you’re eligible for any of the options above.

Tips for Paying Off Your Student Loans

While student loan forgiveness is an option for some people, most individuals will have to pay back their student loans.

In addition to consolidating your student loans or enrolling in an income-driven repayment plan, consider some of the following tips to pay off your student loans faster.

• Use your grace period: If you’re able to, take advantage of the grace period by paying down the interest on your loan for a few months. Your future self will appreciate it.
• Pay in school: If you’re serious about getting out of student debt quickly, start making payments before graduation, whether it’s a private or federal loan.
• Pay more than the minimum: If you have the means to pay above the minimum due, go for it. The more aggressively you attack your student debt, the better.
• Make bi-weekly payments: Split your monthly payment in half, paying twice a month. You’ll make one extra payment a year (hardly noticeable) and shave time off your repayment.
• Set aside money for payments: Whether it’s an unexpected inheritance, a raise, or a birthday gift, put that windfall of money towards your student loans.
• Automate payments: This one can’t be emphasized enough. Autopay streamlines your repayment and keeps you on track, taking the stress out of student loans.

Bottom Line

Paying off your student loans is only stressful if you let it be. It’s easy to let yourself get overwhelmed by the total amount of your student loans, but there’s no reason to.

Instead, think of the relief you’ll feel when your loans are paid off and set out to accomplish that goal.

By getting ahead of your student loans, understanding all of your options, and planning payments strategically, you can pay off your loans as painlessly as possible.

The post How to Pay Off Student Loans appeared first on Good Financial Cents®.

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Bills Got You Feeling Pinched? Try the Half Payment Budgeting Method

In a perfect world, bills would be evenly distributed so you wouldn’t pay so much at the beginning of the month and be left eating ramen until the next payday rolls around.

But if that’s not the case for you, there’s a way to hack your budget so you end up paying the same amount for fixed bills with each paycheck. It’s called the half payment budgeting method.

Managing Money Using the Half Payment Method

The half payment method splits the cost of your fixed bills in two so one paycheck covers one half your expenses and the next paycheck covers the other half.

This method is great for budgeters who get paid every other week or twice a month.

During the pay period prior to when a bill is due, you’ll set aside half the cost of the payment. When it’s time to pay, you won’t be struggling to come up with the entire amount from  your most recent paycheck. You’ll only need half, which you’ll add to the money you previously set aside.

Saving the advance half payments in a separate checking account strictly for bills or withdrawing the money to save in a cash envelope will help you avoid spending it before the bill is due.

If your landlord, service provider or creditor accepts partial payments, you can pay half your bill directly to the company during the prior pay period and pay the remaining half on the due date.

Let’s compare the differences between traditional budgeting and half payment budgeting. In this example, your monthly take-home pay is $3,200. You get paid twice a month, on the 1st and the 15th, and your monthly fixed bills are as followed:

• Rent: $925 due on the 1st
• Child care: $600 due on the 1st
• Water bill: $50 due on the 5th
• Student loan: $150 due on the 15th
• Phone: $75 due on the 17th
• Car note: $300 due on the 20th
• Internet: $75 due on the 20th
• Credit card: $200 due on the 22nd
• TV streaming service: $15 due on the 25th
• Car insurance: $100 due on the 30th

Budgeting traditionally would look like this:

Paycheck #1: $1,600

• $925 for rent
• $600 for child care
• $50 for the water bill

You’d have just $25 left over  during this pay period.

Paycheck #2: $1,600

• $150 for student loan repayment
• $75 for phone
• $300 for car note
• $75 for internet
• $200 for credit card payment
• $15 for TV streaming service
• $100 for car insurance

You’d have $685 left over.

(Since the half payment method focuses only on splitting fixed expenses, this hypothetical budget doesn’t reflect variable expenses, like groceries, gas, electricity and discretionary spending.)

It’s not easy to stretch $25. This scenario often lands people in a continuous debt cycle, turning to credit cards each month to pay for basics like food or fuel.

Having more money to spend in the second half of the month doesn’t guarantee there will be plenty to roll around to the next month. You might get a little spendthrift after eating all that ramen, and anything you charged will have to be paid for.

The half payment budgeting method looks considerably different.

Paycheck #1: $1,600

• $462.50 for rent
• $300 for child care
• $25 for the water bill
• $75 for student loan repayment
• $37.50 for phone
• $150 for car note
• $37.50 for internet
• $100 for credit card payment
• $7.50 for TV streaming service
• $50 for car insurance

You’d have $355 in excess during this pay period.

Paycheck #2: $1,600

• $462.50 for rent
• $300 for child care
• $25 for the water bill
• $75 for student loan repayment
• $37.50 for phone service
• $150 for the car note
• $37.50 for internet
• $100 for credit card repayment
• $7.50 for TV streaming service
• $50 for car insurance

You’d have the same amount — $355 — left over.

Your leftover money is more evenly distributed to cover all those variable expenses, and you might even realize you have extra money to toss into a savings account.

Pro Tip

If you’re paid weekly, tweak the half payment method to become the quarter payment method, and use each paycheck to cover one-fourth of your regular fixed expenses.

How to Be Successful With the Half Payment Method

In order to make this money management strategy work, you’re going to need a little wiggle room in your budget.

Having a half-month worth of bill payments sitting in your checking account is good. Having enough money to cover an entire month of payments is even better.

If you don’t have excess money in your account, try a slow transition to the half payment method. Take it one bill at a time.

Using our hypothetical example above, you might find it easiest to start with the smallest bill — the $15 monthly charge for TV streaming service. Set aside $7.50 in the beginning of the month (or at the end of the previous month when you have a greater surplus of income).

Once you’ve gotten in the habit of dividing your smallest bill in two, tackle your next lowest expense — the $50 water bill. Follow this pattern until you’ve got all your monthly fixed bills under this system.

Pro Tip

Funnel any financial windfalls, like a bonus, toward your advance half payments. Or if you’re paid biweekly and land in a month with three paychecks, set aside that third check.

These tips on breaking the paycheck-to-paycheck cycle and saving money fast will help you reach that ideal situation where your bill payments are evenly spread and you don’t feel that financial pinch.

Nicole Dow is a senior writer at The Penny Hoarder.

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.

source The Penny Hoarder http://bit.ly/2QkNevE