Anna’s email requesting help with her finances began with a unique confession.
“Farnoosh, my money problem garners little sympathy,” the 32-year-old wrote. “My issue is that I make too much of it.”
Now, THIS is interesting, I thought. I immediately followed up with many questions.
Here’s what I learned through our conversation:
The Denver-based Mint user earns $220,000 per year as an engineer. Anna’s also benefited from years of big bonuses and her net worth, not including her home equity, is close to a million dollars.
After paying taxes and health benefits and maxing out her 401(k), Anna takes home between $8,000 and $10,000 each month. Her expenses mainly consist of a $1,200 mortgage payment, car insurance, gas, food and utilities, amounting to maybe a few thousand dollars per month.
The rest either goes into savings where she stashes about $5,000 to $10,000 for unexpected expenses or into a brokerage account where she has roughly $800,000 invested. A wealth management firm manages that portfolio and charges, she says, an annual 1% fee.
Anna has no consumer debt, besides her mortgage, which amounts to about $338,000. It’s a 30-year fixed rate loan with a 2.85% interest rate. The home has appreciated in recent years with about $100,000 in equity (including Anna’s initial 20% down payment).
So, what is the problem, exactly?
“My big worry is that I don’t have the habits to manage money well,” Anna told me. Her sizeable bank balance has her feeling financially free, although she worries about getting carried away with spending sometimes.
“When I see money in my bank account I rationalize that ‘yea, that vacation is doable. I don’t hold back on the things that may seem frivolous,’” she says. But It seems she wants more financial grounding and to be able to evaluate expenditures and price tags more critically.
Anna’s situation may be unique, but I think relatable in the sense that we all would like to feel more thoughtful with how we spend, save and invest. And while some may do well with earning money, it should not be assumed that they can also manage that money well.
I applaud Anna for wanting to be sure that, even with an impressive net worth, she is actually making wise financial decisions.
Here’s my advice.
Take a Deep Breath
No need to panic when spending on things and experiences that you enjoy. From what I can tell Anna’s prioritizing the serious financial stuff first like contributing the max to her 401(k) and saving all of her annual bonuses in a brokerage account. She has no credit card debt and pays all her bills on time. That’s terrific.
Sometimes we just want to hear that we’re on the right track with our money and I have a very simple way to measure this:
If you manage each paycheck by saving, investing and paying all your bills first, then by all means, you’re entitled to have fun with whatever is left without any fear or regret. Am I right?
If you’ve done the good work of taking care of your future with your money, then don’t hesitate treating yourself and others with the remaining funds today. Splurge away and enjoy your hard-earned money. And remember to enjoy the moment.
Ditch Your Money Managers
I do think Anna could find a better home for her investments.
Paying one percent of her managed assets to this firm may not seem that high of an annual fee. But when you think about Anna’s balance of $800,000, that’s $8,000 this year. What about next year and the decades after that as she contributes more to the account? That fee, compounded over the next 30 years, will amount to – conservatively – over one million dollars. Ouch.
That doesn’t even factor in the expense ratios for each mutual fund that’s in her portfolio.
If all Anna seeks is investment assistance, she may be better suited stationing her money with an automated wealth platform or robo-advisor where her money is largely invested in low-fee index funds or exchange-traded funds (ETF) and the portfolio management fee is typically 0.50% or less.
Of course, breaking up with your financial advisor is not always so simple. It’s especially hard for Anna, as she equated her money managers to “father figures.”
If I were Anna, I would just explain to my advisors over email something like, “I want be more conservative with my money and that includes being extra mindful of the various fees that I’m paying. To that end, I’ve decided to manage my money more independently. I’m sure you can understand. I appreciate your help over the years. Please let me know next steps.”
Planners know the drill and are used to having clients end relationships. Stay strong. Nobody can really argue with the fact that saving money is a good thing!
Establish Short and Long Term Goals
Anna wants to spend and save with more conviction. I think having some concrete, tangible goals can help.
For example, she shared that she’d like to get married, have a family and own two homes – one near her office downtown and another in the mountains as a getaway.
So, the next step is to understand what these goals cost. What are, say, the going prices on a vacation home in her state? How much might she want to stash in a separate account for the future down payment on this property? Knowing the underlying costs of her goals can better direct how much to spend elsewhere.
Next time she’s planning a vacation, she may be more inclined to price compare or hunt down better deals, as opposed to just judge whether the trip is financially “doable” by the amount of money in her bank account. Now she’ll have the image of that second home and its costs and will make a more informed choice.
Contribute to a Cause
Last but not least, when you feel you make more than enough, like Anna does, this is a great opportunity to be extra charitable. If she’s seeking a way to give her money more meaning and feel purposeful in her financial life, this is a truly wonderful way to go about it. Discover a cause that you’re passionate about and make an impact as a volunteer and donor.
Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at farnoosh@farnoosh.tv (please note “Mint Blog” in the subject line).
Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.
Are you stressed by an income reduction? Try these budgeting tips to survive a pay cut and thrive during this challenging time.
A pay cut, whether big or small, can catch you off guard—and throw your finances into disarray. While a salary cut is different than a layoff, it can leave you feeling just as uncertain.
How do you deal with a pay cut and deal with this uncertainty?
There are strategies to help you navigate both the emotional and financial challenges of this situation. One key element? A budget. Whether you need to create a budget from scratch or adjust the budget you already have, doing so can help you get back on your feet and set yourself up for success.
Here’s a rundown of budgeting tips to survive a pay cut to keep your finances intact:
Ask your employer for the parameters of the income reduction or salary cut
First, keep in mind that a pay cut typically isn’t personal. According to Scott Bishop, an executive vice president of financial planning at a wealth management firm, businesses often cut salaries to preserve their cash reserves while they stabilize their cash flow or weather some larger economic impact, like the coronavirus pandemic.
Secondly, make sure you understand the full scope of the salary cut. Bishop suggests you ask your employer questions like:
What is the amount of pay being cut?
Why is pay being cut?
When will the reduction begin, and how long will it last?
Will any of the following be affected?
What are the long-term plans to improve the company’s financial situation?
Once you’ve painted the full scope of what and why, you can determine how to handle the pay cut.
“For some people who are big savers, it might not be a big deal,” Bishop says. “But for some people who live paycheck to paycheck, it’s going to be significant.”
Settle any anxieties that might come with a salary cut
If you are dealing with financial stress, try settling your mind and emotions so you can make decisions with a clear head.
“The emotional and mental toll can be one of the hardest parts,” says Lindsay Dell Cook, president and founder of Budget Babble LLC, which provides personal finance and small business financial counseling. “It gets even harder if there are others depending on your income who are also financially stressed.”
When sharing the news with family members who may also be impacted, Cook suggests the following:
Find the right time. Pick a time of day during which everyone will have the highest mental capacity for the conversation. “For instance, I am a morning person, so if my husband told me at bedtime about a pay cut, I would have a much harder time processing that information,” Cook says.
Frame it as a brainstorming session. Bring ideas of what you can do to handle the pay cut, such as a list of expenses you can cut or a plan for how you can make extra income.
Empathize with the other person. “Reduced income is not easy for anyone. Everyone responds to financial anxiety differently,” Cook says.
“If you’re unable to maintain your previous level of saving after a pay cut, try to save at a smaller scale for goals like retirement and your emergency fund.”
Create or adjust your budget to handle a pay cut
Once you understand the salary cut and have informed your family or roommates, it’s time to crunch the numbers. That’s the first step to figuring out how to save money after a pay cut.
If you don’t have a budget, find a budgeting system that fits your needs. Learning how to effectively budget takes time and practice, so be patient with yourself if you’re new to this. Cook suggests reading up on how to create a budget.
One system to consider is the 50-20-30 budget rule, which has you break your spending into three simple categories. If you prefer the aid of technology when determining how to handle a pay cut, there are many budgeting and spending apps that can help you manage your money.
Whether you’re handling a pay cut by creating a new plan or modifying an existing budget, Bishop suggests taking the following steps:
Add up your income. Combine your new salary with your partner’s pay, and factor in any additional income streams like from dividends or savings account interest. Tally up the total.
List your expenses. Be sure to include essential expenses (e.g., housing, food, clothing, transportation) and nonessential expenses (e.g., entertainment, takeout, hobbies).
Look through your bank statement online and your past receipts so all expenses are included.
Account for infrequent expenses such as gifts, car maintenance or home repairs.
Track the amount you save. Note any regular savings contributions you make, such as to an emergency fund or retirement account.
Get your partner’s buy-in. What needs do they have, and what is nonnegotiable in the budget for each of you?
Cut expenses with budgeting tips to survive a pay cut
If you’ve crunched the numbers and found that your expenses add up to more than your new income, you’ll need to find ways to cut back. Here are some tips on trimming your spending to survive a salary cut:
Cut back on takeout meals and stick to a strict grocery list or food budget, Cook suggests.
Avoid large discretionary purchases like a car during the duration of your pay cut, Bishop says.
Negotiate with your utility companies or ask if they’re providing forbearance options, Bankrate suggests. You can also ask your car insurance provider if it has additional savings for customers who are driving less, according to Bankrate.
If you think you might fall behind on rent or mortgage payments as you’re handling a pay cut, both Cook and Bishop agree that early, proactive communication is key. Be honest with your landlord or mortgage company. “Don’t wait until you’re past due,” Bishop says.
The same applies for other financial obligations, such as your credit card bill. You’ll likely find those companies are willing to work with you through the rough patch.
Cook also suggests you look into municipal assistance programs as a budgeting tip to survive a pay cut. “Many cities have established rental assistance funds to help taxpayers meet their obligations during the pandemic,” she says.
Continue to save money after a pay cut
As you consider how to cut costs, take time to think about your long-term savings goals and how to save money after a pay cut. By cutting discretionary spending through your new budget—what Bishop calls “cutting the fat”—you may have freed up income to maintain your good saving habits during this time. He says it’s important to do that before slowing down on savings.
If you’re unable to maintain your previous level of saving after a pay cut, Bishop suggests you try to save at a smaller scale for goals like retirement and your emergency fund.
As you work to save money after a pay cut, Cook recommends setting up automatic transfers to your savings account every payday based on the amount you’re able to put towards savings in your new budget.
“If your savings account is at the same bank as your checking account, you can transfer those funds fairly easily,” she says. “So the worst-case scenario is that you put too much money in savings and have to bring some back to checking. The hope, however, is that some or all of those funds transferred to savings remain there since that money is no longer in your checking account just waiting to be spent.”
Seek extra income sources after a salary cut
You should explore additional sources of income if you need more cash to cover essential expenses or if you’re looking for ways to save money after a pay cut.
Determine if you’re eligible for benefits based on the reason for your pay cut. Cook recommends applying for unemployment if you think you may qualify. For example, some workers who experienced pay cuts due to the coronavirus pandemic were eligible for unemployment benefits. The details vary by state, so visit your state’s unemployment insurance program website to learn what benefits may apply to you.
If you or your partner have some extra time on your hands, you can consider bringing in income through a side hustle to help you handle your pay cut. Bishop suggests using free or low-cost online video tutorials to boost your existing skills to make your side hustle more effective.
Cook also recommends getting creative. “Are there things you could sell to make some extra cash?” she says.
If you are unable to find additional sources of income, but you have an emergency fund, consider whether you should dip into that. “Your savings are there for a reason, and sometimes you need to use it,” Cook says. “That is okay.”
Stick to your updated budget to navigate how to handle a pay cut
Making your budget part of your daily routine is a budgeting tip to survive a pay cut, and it will help you save money after a pay cut.
“Build rewards into your budget, such as ordering out every other week if you successfully saved money after your pay cut.”
“If you’re checking it daily, there are no surprises,” Cook says. You can do this by logging into your bank account and making sure your spending and expenses align with your digital or written budget document.
“If you see that your spending is high, your mind will typically start thinking through [future] transactions more thoroughly to vet if those expenses are really necessary,” Cook says.
Don’t forget the fun side of accountability: rewards for meeting your goals. Build rewards into your budget, Bishop says, such as ordering out every other week if you successfully saved money after your pay cut.
Lastly, don’t try to go it alone. Enlist others in your budgeting journey, Cook suggests. Make up a monthly challenge to cut spending from a specific category in your new budget and ask your partner or a friend to do it with you. For example, see if you and the other participants can go a full month without buying clothes or ordering takeout. Compare notes at the end of the month and see how much you’ve saved.
Another idea? Try connecting with a budget-minded community on social media to get inspired.
Take these steps after the salary cut is over
Once you’ve handled the pay cut and your regular pay is restored, don’t give up on your newfound budgeting discipline. Instead, focus on building up emergency savings before you go back to your normal spending.
Bishop recommends starting with enough savings to cover three to six months of expenses. “If you spend $3,000 a month, that means you need to have $9,000 to $18,000 saved.”
This might also be the time to revisit your budget and build a more extensive financial plan with a CPA or financial advisor to account for all of your future goals. Bishop says that these can include a target retirement date and lifestyle; your estate planning, such as a will, trust and power of attorney; saving for a child’s college; and purchasing a home.
Bishop says reminding yourself why you’re budgeting and focusing on your financial goals can be similar to motivating yourself to stay physically fit. Goal-based motivation can keep you accountable.
Remember: You can survive a salary cut
Handling a pay cut is never easy, but you can get through this time. While you’re in the thick of it, focus on budgeting tips to survive a pay cut and staying positive. Seek help from others and follow up with your employer to make sure you are aware of any changing details regarding the pay cut.
Most of all, try to keep a long-term outlook. “Remember that it will not always be this way,” Cook says.
If you’re considering whether or not to tap into your savings to handle a pay cut, read on to determine when to use your emergency fund.
Take a moment. Think about being your best self — living your best life.
You’re probably asking yourself, “How much should I save?”
Here are five different budgeting methods. We can’t tell you which one to choose. Be honest with yourself, and choose the one you think is most likely to work for you. This is how to save money on a tight budget.
To help you save money and navigate this complicated industry, modern companies are updating the old model:
Table of Contents
You can also sell nearly anything through the Letgo app. Just snap a photo of your item and set up a listing in about 30 seconds. If you have more free time, try selling items on Craigslist or eBay.
Here Are Our Best Tips to Save Money
This one was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her business-executive daughter Amelia Warren Tyagi. *https://www.fdic.gov/regulations/resources/rates/
Step 1: Develop Savings Goals and Strategies
Chris Zuppa/The Penny Hoarder
Your priciest purchases — like appliances and furniture — are a natural place to look for savings. Try repairing your appliances instead of replacing them. And here’s a good list of other tricks for saving on furniture and appliances. Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He’s slowly getting better about saving money.
Think Long Term and Short Term
Here are the blunt facts about how to get lower car insurance premiums: Have fewer accidents, get fewer traffic tickets and boost your credit score.
Short-term: Save for a real vacation or nice holiday gifts. But first, save enough to have a decent emergency fund — three to six months’ worth of living expenses, in case you run into an unexpected car-repair bill or lose your job, for example.
Long-term: This involves big-picture thinking. Here, you’re saving money for things like your children’s college fund or for your retirement plan.
Analyze Your Income
The best ways to save include automation. You’ll save time, and time is money. Here are a few money-management steps you can take today to ensure you won’t have to think about money for more than a few minutes every month.
Get the Penny Hoarder Daily
An easy way to automate this process is to use Trim, a little bot that’ll keep track of all your transactions. Source: thepennyhoarder.com
Check in on Your Credit
Groceries are a huge part of everyone’s budget, so they’re a big target for savings. Next time you’re putting together your shopping list, make sure to check out our favorite tricks to save money at the grocery store:
The FDIC reports that the average savings account pays a paltry .08% APY*, but when you open an online checking and savings account with Varo, it will pay you more than 20 times that amount on your savings account.
Your first move is to set specific savings goals for yourself — emphasis on specific. Naming your goals will make them more real to you. It’ll help you resist the temptation to spend your money on other stuff.
Step 2: Pick Budgeting and Debt Repayment Methods
Tina Russell/The Penny Hoarder
Life insurance pays your dependents a set amount of money if you die. Whether to buy it is a judgment call.
We know opening a new bank account isn’t exactly everyone’s idea of fun, but Varo makes it easy. You can open an account with just a penny, and more than 750,000 people have already signed up.
You don’t have to be Warren Buffett to be an investor. You don’t even have to follow the stock market, read The Wall Street Journal or watch CNBC.
The 50/30/20 Rule
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How much can you realistically save for these goals, now that you’re making them a priority?
That’s right. We’re deep into the 21st century, here, so make technology do the work for you.
Envelope Budgeting
You won’t get rich taking surveys, but if you’re just vegging out on the couch, why not click a couple buttons and earn a few bucks? We’ve tried a lot of paid survey sites, and two of the best we’ve found are My Points and InboxDollars.
How can you increase your income? It’s easier to save money if you’re bringing in more money to begin with.
If you’re going to stay in, cut the cord. More and more people are doing this, because their cable bill has gotten so expensive.
Zero-Based Budget
Do your own credit check. Keeping tabs on your credit score and your credit reports can help guide you to a financially healthier life — especially if you use a free credit-monitoring service like Credit Sesame. It gives you personalized suggestions for improving your credit.
Oh, and there are no monthly fees.
Debt Avalanche
Your home is your castle. But castles are so, like, expensive. Fortunately, there are lots of ways to save money around the house. Here’s how: Go to your bank’s online bill-pay feature. Enter all the companies that bill you, and the account numbers for each. Arrange to receive e-bills from whichever billers will do that.
Debt Snowball
Maybe it’s time to try another financial institution. We’ve found some great online bank accounts to help you avoid fees and get features you won’t find with the brick-and-mortar banks.
These days, credit card interest rates often climb north of 20%. How can you avoid paying all that interest? Your best bet is to cut back on your expenses and pay off your balance as soon as you realistically can.
Step 3: Choose a Financial Institution and Accounts
Tina Russell/The Penny Hoarder
Good for: People who worry they won’t have a life if they’re on a budget. Here’s our complete guide to 50/30/20 budgeting.
What exactly do you want to save money for? How much will you need to save? And what do you need to save for first? Think short- and long-term:
What to Look for in a Bank Account
Did you know the biggest U.S. banks are collecting more than billion a year in overdraft and ATM fees?
Ready to stop worrying about money?
Entertainment can cost an arm and a leg. But hey, we have to live, right? So do it for free! Next time you’re planning a night out, take advantage of one of these free date nights or group outings.
Connect your checking account, credit card and savings account for a big-picture look at your spending habits. Then, take a closer look by checking out each of your transactions. Set alerts that’ll let you know when bills are due, when you’ve hit a spending cap or when you’ve (hopefully not) overdrafted. This will help you stick with your savings plan.
Let’s face it: Health insurance can be confusing and intimidating.
Here’s how to find affordable insurance:
You can also have your bank send digital payments to individuals (like a landlord).
Split your income into three spending categories: 50% goes to essential bills and monthly expenses, 20% toward financial goals and 30% to personal spending (all the stuff you like to spend money on but don’t really need). Put the money earmarked for your financial goals into a separate savings account.
Unfortunately, Americans are bad at saving money, and we’re getting worse. Thanks to rising costs, stagnant salaries and student loan debt, we’re saving less than ever.
Pay Less in Credit Card Interest
You’ll probably be asked to choose between two options: term or universal life insurance. If you’re like most of us, you’ll choose term — the simplest, cheapest and most popular kind of life insurance policy.
Most people don’t give this a second thought. They figure it’s too inconvenient to switch. But it’s worth shopping around for a better option, because where you bank can make a real difference in how much you save. Good for: People who need a simple, straightforward method that accounts for every dollar. Here’s our guide to the zero-based budget.
Start by using the right credit card for you, based on your situation and needs. Would you prefer a card that gives you cash back or travel incentives, a balance-transfer card, or a card that’ll help you build credit?
AmOneallows you to compare rates side-by-side from multiple lenders who are competing against each other for your business. It’s best for borrowers who have good credit scores and just want to consolidate their debt.
Fiona is also a marketplace but allows you to borrow more money and borrow it for a longer period of time — if that’s what you want to do.
Upstart tends to be helpful for recent grads, who have a young credit history and a mound of student debt. It can help you find a loan without relying on only your conventional credit score.
Step 4: Automate Your Finances
Chris Zuppa/The Penny Hoarder.
You might be thinking, I already have a bank. And of course you do. If you’re like most of us, you’ve had the same bank for years.
Are you ready to actually start saving money? What you’re reading is a step-by-step guide on how to do it — how to come up with savings strategies, choose a budgeting method, pick the right financial institution, automate your finances and live a budget-conscious lifestyle.
Automate Bill Pay
Does your checking account pay you interest? What are the fees like? What other perks does it offer?
Good for: People who know they need help with self-control. If there’s nothing left in one envelope toward the end of the month, there’s no more money to spend on that category, period.
Digit is an automated savings platform that calculates how much money you can save. Here’s our review of Digit.
Stash lets you start investing with as little as $5 and for just a $1 monthly fee for balances under $5,000. Bonus: Penny Hoarders get $5 just for signing up!
Acorns connects to your checking account, credit and debit cards to save your digital change. It automatically rounds up purchases with your connected cards and invests the digital change into your chosen portfolio. Bonus: Penny Hoarders get $5 just for signing up! Read our full review of Acorns here.
Blooom is a company that offers a free “health check-up” for your 401(k). Then, for only $10 a month (Penny Hoarders get the first month free!), it’ll optimize and manage your retirement savings for you. See how Blooom helped one Penny Hoarder make the most of her 401(k).
Automate Budgeting
Good for: People with a lot of credit card debt. Credit cards generally charge you higher interest than other lenders do. Learn more about the debt avalanche method here.
You just have to be smart and strategic. Here are some of our best tips to help you spend less:
If you’re buying insurance for yourself, start with the federal health insurance marketplace at Healthcare.gov to see whether you qualify for any discounts or assistance.
Finding affordable health care coverage is a huge challenge for freelancers. Here’s how to get covered if you’re self-employed.
Not loving the supermarket? Nearly 70% of us say we spend too much on take-out or going out to eat. Here’s how to save money at restaurants, too.
Step 5: Establish a Budget-Conscious Lifestyle
Carmen Mandato/ The Penny Hoarder
That doesn’t mean you have to live like a monk. Nor do you have to survive on ramen noodles and the dollar menu, wear scuffed shoes and patchy clothes, or cut your own hair with hedge clippers.
So-called envelope budgeting is traditionally a cash-only budget. Every month, you use cash for different categories of spending, and you keep that cash for each category in separate envelopes — labeled for groceries, housing, phone, etc.
Most bills are paid online now, reports the Credit Union Times. But you can take it a step further. Set it up so you’ll receive and pay all of your bills online through your bank. That simplifies things so you’ll never miss a payment.
Save Money Around the House
Mint lets you see all your accounts, cards, bills and investments in one place.
Charlie is a money-saving penguin who lives in your SMS text messages or Facebook Messenger (your choice, though Charlie is more fun and reliable on Messenger). He helps you save money through things like making sure you’re getting the best deals around (ahem, overpaying a month on that cell phone bill?).
Here are a couple of simple ways to make extra cash at home:
Find Free Entertainment
This way, you can put savings right into your budget. It’s never an afterthought.
Sell your old stuff! Use the Decluttr app to get paid for your old DVDs, Blu-Rays, CDs, video games, gaming consoles and phones.
Automotive experts also gave us the following tips:
Money management guru Dave Ramsey champions the debt snowball method of debt repayment. Pay off your debts with the smallest balances first. This allows you to eliminate debts from your list faster, which can motivate you to keep going.
Cut Your Food Budget
You can take advantage of these apps offering easy, automatic ways to start investing — the “set it and forget it” method. They’re useful for tricking your brain into saving more. You’ll do it without even realizing you’re doing it. The cost of cooling, heating and lighting your home is massive. Try installing thermal curtains and a programmable thermostat. Or check out these creative, energy-saving ways to slash your utility bills.
Find out If You’re Wasting Money on Insurance
Also consider paying off your high-interest debt with a low-interest personal loan. It’s easier than you might think. Go window-shopping at an online marketplace for personal loans. Here are some we’ve test-driven for you:
Reality check: To accomplish any of those things, you’re going to need to know how to save money.
For Your Car: Auto Insurance
Prefer plastic? Here’s our review of Mvelopes, an app that lets you digitize this method.
This debt-repayment method helps you budget when you have debt. Pay off your debts with the highest interest rates first — most likely your credit cards. Doing that can save you a lot of money over time.
Participate in your insurer’s safe-driving program.
Shop around for better rates. One easy way is The Zebra, a car insurance search engine that compares your options from more than 200 providers in less than 60 seconds. Here’s how one guy is saving $360 this year on car insurance because of The Zebra.
For Yourself: Health Insurance
Good for: People who owe a lot of different kinds of debts — credit cards, student loans, etc. — and who need motivation. Here’s how to use the debt snowball method to eliminate debt.
Pour yourself a cup of coffee and buckle up. It’s time to get serious about this. Privacy Policy
For Your Family: Life Insurance
Buying insurance can be confusing and overwhelming, because there are so many options.
Here’s how you draw up this budget: Your income minus your expenses (including savings) equals zero. This way, you have to justify every expense. MoneyLion offers rewards to help you develop healthy financial habits and will literally pay you for logging onto the app. You can earn points in the rewards program by paying bills on time, connecting your bank account or downloading the mobile app. To free up more money for savings, try to spend less paying interest on your debts — especially if you have high-interest credit card debt.
Policygenius is an online-only platform that offers instant quotes from top carriers to help you make a quicker decision. Once you choose a life insurance company, you can apply right online, and a Policygenius rep will give you a quick call to ask a few follow-up questions.
Haven Life can insure you quickly based just on the health information you provide online.
Ethos can get you term life insurance in less than 10 minutes — with no medical exam — for coverage up to $1 million. Ethos offers a digital application, and customer service is available if you have questions.
Step 6: Make More Money
Tina Russell/The Penny Hoarder
Life insurance is considered more important if you’re married or have children. You might also want a basic policy that would pay off your funeral, mortgage or other debt.
Here’s the harsh reality: To save more money, you’ll need to spend less money. (Or make more money, but we’ll get to that next.)
Share Your Opinion
Whatever you need done financially, there’s an app for that. We’ve put several to the test.
Clear Your Closets
What do you really want to do with your life? Raise a happy family? Travel the world? Buy a nice house? Start your own business?
Here’s one example: There’s a mobile baking app called Varo Money.
Write down your income and expenses — all of your expenses, from utility bills to your Netflix subscription. There are probably more ways to save money than you realize. Don’t forget your student loans or credit card debt. Make sure you know what you’re spending in every budget category. Pay special attention to what you’re spending on non-essentials, such as eating out.
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You also should reconsider that gym membership if you’re not really using it. Medean for iOS ranks your finances based on how they stack up to those of people of similar age, income, location and gender. It calls itself a “health index for your finances,” and helps assess your situation and find ways to save money. For our best ideas to boost your bottom line, check out the following:
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According to the Consumer Financial Protection Bureau, around 2.3 million car loans originate every year. Car loans can take years to pay off. So when you finally pay it off, you might be wondering—now what?
What happens when you pay off your car? What should you do with the money you were previously putting towards your monthly payments? We’ve got a few ideas, but keep in mind that everyone’s finances are different. So while our suggestions might work for some people, they probably won’t work for everyone.
What to Do When You Pay Off Your Car
Firstly, paying off your car loan is a huge accomplishment. So congratulations! Paying off any loan isn’t always easy. And now you finally own your car, which is a pretty big deal.
Luckily for you, the hard part is over. But there are still a few steps you should take after you pay off your car.
1. Get Your Car Title
You usually don’t have to take action for this step. In most states, your lender notifies the Department of Motor Vehicles—or BMV or other equivalent entity in your state—of the title change. Once the paperwork clears, the title is mailed to you.
There’s not much for you to do except keep an eye on the mail. If you don’t get your title a few weeks after paying off your loan, call your lender. You’ll need the title if you ever want to sell your car or use it for collateral when applying for credit.
2. Reconsider Your Finances
If you’re paying off a vehicle and not planning to buy another with a new loan, you’ll have a little more extra room in your budget. In 2019, new car buyers committed to an average monthly payment of around $550. So when you pay off your car loan, there’s a good chance you’ll have an extra $300 (or more) per month.
You might be tempted to splurge on fun stuff or to make large purchases you’ve been putting off. But unless your transportation situation is radically changing soon, you’ll always need a car. And that means you’ll eventually need to pay for the next one.
Plus, owning a car is expensive—even if you’ve completely paid it off. You’ll have to your oil changed, new tires and much more. And that’s just regular maintenance. If you get in even a minor accident, you could have a major repair expense on your hands.
That’s why it’s a good idea to put that some of that extra money in savings. If you end up getting a new car eventually, you can pay for all or part of your next vehicle with cash. That reduces how much you have to finance, which can significantly reduce the total cost of your next vehicle. Another option is to use the money to continue to pay down other debt to put yourself in a better financial situation in the future.
It’s also worth putting part of that cash in your short-term savings. You could easily dip into those funds if you need to get any work done on your car. But whatever you plan to do with the money, take the time to look at your personal budget. That gives you a chance to see exactly where this extra money might make the most difference.
3. Notify Your Car Insurance Company
Notify your car insurance company when you’ve paid off your loan so you can remove the lien holder from your policy. You don’t need to wait until you have the title in your hand to make the call.
This step is important because if your financed vehicle were totaled in a wreck, the insurance payment would go to the lender. Once you’ve paid off the car and own it outright, the payment goes to you.
Most states have requirements for what type of coverage you must carry on your car. At minimum in most states, you need bodily injury and property damage liability that will cover the losses of other people if it’s caused in a wreck that is deemed your fault. There are some exceptions to those requirements, though.
But your lender will likely require additional insurance coverage until you pay off the loan. Many lenders require you to also carry comp and collision coverage. This is the part of your insurance policy that pays for damage to yourvehicle if you get into an accident that is deemed your fault.
Lenders require this extra coverage to protect their investment. They want to know that if your car is totaled, they can recover the value that you owe them. Once you pay off the loan, whether or not you carry this level of coverage might be your choice.
Talk to your insurance agent to find out what your options are and if you can save money by changing your insurance coverage. Just remember that if you drop this coverage and get into an accident, you may have to cover the costs of repairs or a new vehicle on your own.
You can also check rates for auto insurance online. In addition to saving money on your monthly vehicle payment, you may be able to save a lot on your insurance coverage.
Does Paying Off Your Car Loan Early Hurt Your Credit?
To get out of debt or change your current car, you might decide to pay off your car loan early. Your credit isn’t penalized by making early payments on debt. However, paying off an entire account can cause a small dip in your credit score temporarily. That’s because open accounts with a positive payment history impact your score more than closed accounts with positive payment histories.
Your wallet might also take a small hit depending on how your loan is structured. Find out if your loan includes any penalties for paying off the principle early before you make a decision to go this route.
You’re involved in an accident, your car is wrecked, and your insurer has stepped in to cover the damages. All is well, and you only have the deductible to worry about, but what happens before the car is fixed? How do you continue to get to work every day and take the kids to school when your car is in the repair shop for the next few days or weeks?
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That’s where rental car reimbursement coverage steps in. If you have this optional coverage on your car insurance policy, you won’t need to worry.
Keep reading to learn how this coverage option works.
Rental Car Reimbursement vs Rental Car Insurance
Before we go any further, it’s worth clarifying the potential confusion surrounding rental car coverage and rental car reimbursement coverage. The former includes damage waivers, property insurance, and liability coverage and protects you when you are driving a rental car.
You will be offered this type of insurance when you rent a car and can also get it through your current insurance policy or through your credit card, bank account or travel insurance.
As for rental car reimbursement, it is designed to cover the costs of renting a vehicle when your car is in the shop or has been stolen.
Rental car reimbursement only applies if your insurance company is paying for the repairs and those repairs are covered by your insurance policy. It is a coverage option that is typically only available to policyholders who have collision coverage or comprehensive coverage insurance.
What Does Rental Car Reimbursement Cover?
Rental car reimbursement is designed to cover the cost of a rental car, but there are limits. Most insurance companies will only cover you for 30 days and many also set a daily limit, often between $50 and $100. This means that you can’t claim for costs above this or for a rental period that extends beyond it.
In some states and in some situations, you may not even need to add rental reimbursement coverage to your policy as the at-fault driver could be responsible for your rental costs. In the event of a car accident caused by a fully-insured driver, their liability insurance may cover you for transportation costs, while also paying for the damage done to you and your vehicle.
However, there is a coverage limit that means they may not be liable for all the costs you pay to the rental car company. In such cases, having rental car reimbursement coverage on your policy will cover the difference and ensure you’re not out of pocket.
How Much Does it Cost?
The cost of rental reimbursement insurance differs from state to state and provider to provider. Your costs will also be higher if you are deemed to be a high-risk driver and have a history of at-fault accidents and insurance claims. Generally, however, you can expect to pay anywhere from $3 or $4 a month extra to $15 or $20 a month extra.
It’s not a huge amount because the cover provided is very limited. For instance, at $50 a day over 30 days, the insurer’s liability is just $1,500, which is a fraction of the amount they can expect to lose with other coverage options.
How Does the Process Work?
You’re involved in a minor accident and your car is taken to the body shop, now what? If you have rental coverage, you can do one of the following:
1. Pay for it Yourself
When you pay for the vehicle yourself, you have more choice about what car you rent and from where you rent it, and you can also get it as soon as you need it. If you choose this option, just make sure you keep a record of all the costs so you can report these to the insurer and get your money back.
By choosing this method, you have more control and providing you have cover, you shouldn’t encounter any issues when seeking reimbursement. Get the rental vehicle you want, drive it off the lot, and wait for your car to be fixed and your expenses to be covered.
2. Let Your Insurance Company Do It
The second option, and the best option, is to go through your insurance company. They will contact the rental company on your behalf and deal with all of the red tape, ensuring you only get a car that you are fully covered for and providing you with all the necessary details at the same time.
By going through your insurer, you can avoid the hassle and they may even help you to get a better deal.
It’s worth noting, however, that your insurer will not pay for additional rental car coverage like damage waivers. But as noted already, your auto policy may already provide you with the cover that you need.
Should You Get Additional Car Rental Reimbursement Coverage?
On average, you will use rental car coverage just once in a 10-year period, and you may only need it for a few days at a time. To determine whether this additional coverage option is right for you, simply calculate how much it will cost you on a monthly basis and then compare this to how much it is likely to offer you.
For instance, let’s assume that you are charged $10 a month for this additional option. This means you will pay $120 a year or $1,200 over ten years. Assuming you’re being offered a maximum of $50 per day for 30 days, this means the benefits are capped at $1,500.
If you’re paying $15 a month instead, that’s $180 a year, $1,800 a decade, and more than you will get back. And, in both cases, we’re assuming that you rent a car for the full 30 days at the maximum allowed price, which is somewhat rare. As a result, you can probably overlook this additional coverage option when those are the prices quoted.
Bottom Line: Choosing Insurance Coverage
From car rental coverage and rental car reimbursement to roadside assistance, new car replacement and more, there is no shortage of options for the average driver.
But as tempting as it is to add all of these options to your auto insurance policy in the knowledge that you’ll be fully covered, the costs can spiral out of control very quickly. You could find yourself spending an excessive amount of money unnecessarily, and at a time when everyone is watching their budgets, that’s never a good thing.
Think about rental car reimbursement carefully and reject it if you don’t need it, even if it is only $10 or $20 extra a month.
What Is Uninsured Motorist Insurance? – SmartAsset
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If you buy or lease a car, you’ll need to arrange for insurance coverage. Not only is it the law in most states, it will also protect your bank account in the event of an accident. However, if you’re involved in an accident and the other driver doesn’t have car insurance, you could run into problems. That’s the thinking behind uninsured motorist insurance.
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Uninsured Motorist Insurance Basics
If two people who both have car insurance get in a car crash, they exchange insurance information. The other driver’s insurance company generally pays your expenses if you’re in a crash. So what happens if the other driver doesn’t have insurance? There’s no one to pay you, cover your car repair or replacement or foot your medical bills if you’re injured. Your own car insurance may cover those costs, but it depends on the plan.
That’s where uninsured motorist insurance comes in. Uninsured motorist insurance policies offer protection against property damage or personal injury resulting from a run-in with an uninsured driver. There are a lot of bad drivers out there, and plenty of people who drive regularly but can’t afford car insurance. Have a run-in with one of them and you could end up covering your own medical and car repair bills.
In 22 states and the District of Columbia, drivers are required to have uninsured motorist insurance, so if you have vehicle insurance you’re covered in the event of a crash with an uninsured driver. But if you live in a state that doesn’t require uninsured motorist coverage, your regular car insurance policy may not protect you from bills if you’re in a crash with a driver who doesn’t have car insurance.
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Is Uninsured Motorist Insurance Necessary?
If you live in a state that requires uninsured motorist coverage as part of the minimum coverage requirement for all auto insurance policies, you have at least some protection from uninsured drivers. You can always call your insurance company to check on the kind of coverage you have and discuss your coverage options.
If you live in a state that doesn’t require uninsured motorist coverage, the question becomes: Should you buy uninsured motorist insurance as an add-on policy to your regular car insurance? Before you decide, it’s worth pricing it out.
First, you can call your car insurance provider and check what level of coverage you already have against uninsured motorists. Your existing plan may provide some level of protection against medical bills and/or car repair bills resulting from a crash with an uninsured motorist.
If you don’t have any coverage or if you think your coverage levels are insufficient, you can ask your insurance provider how much it would cost you to add uninsured motorist insurance to your coverage package. You can also get quotes from other car insurance companies and opt for the policy that provides the best coverage for the lowest price.
Uninsured motorist insurance can give you some extra protections, too, such as coverage in the event that a hit-and-run driver crashes into your car or in the event that you’re struck by a vehicle as a pedestrian. So even those with built-in protection against uninsured motorists through their regular car insurance may be tempted to add extra coverage.
Related Article: All About Car Loan Amortization
Bottom Line
Just because you have car insurance that you’re paying for every month doesn’t mean you’re protected in all eventualities. If reading this article has made you nervous that you might not have enough – or any – protection against uninsured motorists, this could be a good time to get your insurance company on the phone, particularly if you live in a state with a high percentage of uninsured drivers.
Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
