5 Reminders to Keep In Your Wallet

 

Your purse or wallet can be more than just a place to pull your money out of so you can spend it. It can also store a few things to remind you to use less money, or at least use it well.

Here are five things to keep in your wallet that can help you use your money well:

Cash
If you follow the rule of only spending the amount of cash you have on you, then you’ll never have to pay credit card late fees or interest rates on charges, or pay to withdraw your money from an ATM not connected to your bank.

Studies have shown that people spend less money when using cash instead of a credit card. Cash is tangible with value attached to it, while a plastic credit card may not seem like actual money.

That said, using only cash should be a reminder to keep within your budget and not to return to the ATM to withdraw money again and again.

Reward credit cards
Credit cards can get you to focus less on the cost of what you’re buying, which isn’t a good thing. But if you can control your spending and pay off your credit card balance off every month, then a card that offers rewards or discounts can be worthwhile.

Some credit cards reward more points for certain purchases, so using one card at a grocery store and another at a gas station can pay off with more rewards at the end of the month.

Coupons
Carrying around an envelope full of coupons can be cumbersome. If you can’t remember to take specific coupons with you on a shopping trip, then always carry coupons for your favorite department store or restaurant so that you’ll have them whenever you need them.

Loyalty cards
Smartphones are making store loyalty cards easier to carry by opening an app. They can lead to cash discounts or free items by swiping your loyalty card at checkout.

If you go to some stores regularly that only have the physical loyalty cards, be sure to keep those in your wallet. Some stores tie your card number to your phone number, so all you have to do is recite your phone number to collect reward points.

At the very least, seeing a loyalty card is a reminder that you should shop around for the best deal, regardless of if you have a loyalty card at the store offering the best price.

Health Savings Account card
A card for a Health Savings Account, or HSA, is a reminder to use the card’s pre-tax dollars that you’ve saved for medical services and prescriptions. Without the card you may forget to use the money, which can save you 35 percent by not taxing income put into an HSA.

Benefits of Opening a Health Savings Account

 

Healthcare can be expensive. If you have an insurance plan with a high deductible, you’ll need to pay that amount before coverage kicks in. Opening a health savings account can help you prepare for medical costs and enjoy significant tax advantages.

How Does an HSA Work?
An HSA is similar to a personal savings account, but funds in it can only be used to pay for qualified health expenses. The Internal Revenue Service allows money in an HSA to be used for a wide range of medical, dental and mental health treatments.

To open a health savings account, you must be enrolled in an insurance plan with a high deductible. You can contribute money to an HSA yourself, and your employer and others can contribute on your behalf to help you save money for health expenses. The IRS limits the total amount of money that can be contributed to an HSA each calendar year.

In most cases, contributions to an HSA are deducted from an employee’s earnings each pay period. Since payroll contributions are made with pre-tax funds, they aren’t included in gross income, which means they’re not subject to federal income taxes, or to state taxes in most cases. You can also contribute to your HSA with after-tax dollars and deduct those contributions on your tax return. Interest and dividends earned on money in an HSA are tax-free.

HSAs typically provide account holders with a debit card that makes it easy to make purchases for qualified health expenses or to pay bills by phone. Some institutions that offer HSAs charge maintenance fees or a fee for each transaction, which can reduce the amount of money available for health expenses.

If you withdraw money from an HSA and use it for qualified medical expenses, you won’t have to pay federal taxes, or state taxes in most cases. If you withdraw money and use it for non-qualified expenses before you’re 65 years old, you’ll have to pay taxes and a penalty. Once you turn 65, you will be taxed but won’t have to pay a penalty on non-qualified expenses.

If you don’t use all the money in your HSA for health expenses by the end of the year, you can roll it over to cover expenses in future years. If you change jobs or insurance plans or retire, you can take your HSA with you. As a long-term strategy, you can let money in an HSA grow over time to help you prepare for higher healthcare costs you’ll likely face in retirement.

Enjoy Tax Benefits and Peace of Mind
An unexpected illness or injury can be financially devastating. With an HSA, you can set aside money to be prepared for unanticipated medical costs, while enjoying tax advantages and the flexibility to use your savings at any time for a wide range of expenses. If you have a high-deductible insurance plan, explore the benefits of opening an HSA.

This article is intended for informational purposes only and should not be construed as professional or legal advice.

8 Signs You're Headed Toward Financial Disaster

 

Most everyone deals with money troubles at some point. However, according to American Consumer Credit Counseling (ACCC), a non-profit group, many people may be headed toward financial disaster without even knowing it.

To help determine if you’re in danger of serious financial problems, ACCC offers eight telltale signs:

1. Not paying your bills on time (or at all). Paying your bills late leads to extra charges and can have a significant impact on your credit score. Some companies will even increase your interest rate after just one late payment. Missing bill payments altogether is a big problem–it’ll kill your credit score. Additionally, after three missed mortgage payments, some lenders will start the foreclosure procedure.

2. Struggling to make minimum payments. In most cases, the minimum monthly payment goes toward interest, not principal. Moreover, if you’re struggling to pay the minimum, you probably have way more debt than you can handle.

3. Relying on credit cards too much. Credit scores are partially calculated by your credit utilization. Consequently, being at or over your credit card limit will have a serious impact on your credit score and could lead to denied loans. If you use your credit card to make payments on other bills, you’re playing a high-risk game. Plus, you’ll end up paying more overall because of the credit card interest you accrue.

4. Taking cash advances out on your credit cards. While it may seem like an easy way to get fast cash, taking out a cash advance on your credit cards is a bad idea. Cash advances on your credit card usually come with a transaction fee and are typically subject to significantly higher interest rates.

5. Getting denied credit. Being refused credit is a red flag that you’re on the verge of a personal finance emergency. If you’re denied, it most often means your credit score is extremely low and the company views you as too high of a risk.

6. Living beyond your means. We all know that we should be saving a little each month, and there’s no way you can save if you’re living paycheck to paycheck or, worse, spending more than you earn. Struggling to make ends meet or being in the red month after month is very stressful and can cause major financial problems, especially if an emergency occurs.

7. Dipping into savings or retirement. People dip into their savings and retirement funds for a number of reasons ranging from medical expenses to mortgage loan distress. While pulling from these sources may seem like a good option in the short term, the long-term impacts can potentially be devastating.

8. Tossing out bills. They say ignorance is bliss, but ignoring bills will only lead to heartache. Throwing your bills away before opening them is a clear sign that you’ve given up. While opening the bills may cause you stress, it’s not too late to get a handle on your finances.

By catching these warning signs now, you may be able to avoid serious financial trouble. You can also research and find trustworthy resources available to help you get back on track.

This article is intended for informational purposes only and should not be construed as professional or legal advice

How to Save for Retirement If You're Self-Employed

 

Working for yourself comes with a lot of responsibilities—and funding a retirement plan should be one of them. After all, if you don’t think ahead to your retirement, who will?

Payroll deductions and 401(k) retirement plans set up by employers make it easy for workers at 9-to-5 jobs to contribute to retirement plans. But for the self-employed, it can be more of a challenge simply because there’s no one to do it for you.

Here are some ways to take the process of funding a retirement plan into your own hands:

Traditional or Roth IRAs
If you’re just starting out or saving less than $55,000 a year, a traditional or Roth IRA is a good option. If you’re leaving a job to start a business, you can roll your old 401(k) into an IRA.

As of 2018, the annual IRA contribution limit is $5,500, plus $1,000 catch-up contribution if you’re 50 or older. The Roth IRA has income limits for eligibility, meaning that those who earn too much can’t contribute.

With a variety of differences between the two, depending on your situation, one may prove to be a better choice for you.

For example, a Roth IRA might be best if your business isn’t making much money. While there’s no immediate tax deduction for a Roth IRA, withdrawals are tax-free in retirement when your tax rate is likely to be higher. In addition, a Roth IRA doesn’t require withdrawals at a specific retirement age.

On the other hand, a traditional IRA offers immediate tax deductions on contributions, and ordinary income taxes on withdrawals at retirement must be paid. You must start withdrawing from a traditional IRA when you retire or reach age 70-and-a-half.

Solo 401(k)
For the self-employed or a business owner with no employees, except a spouse, a solo 401(k) plan is a good way to save a lot more money for retirement than through an IRA. A solo 401(k) is like the 401(k) retirement plan you may have had when you worked full-time for someone else but is operated and used by a single person.

As of 2018, the contribution limit is up to $55,000 (plus $6,000 in catch-up contributions if you’re 50 or older), or 100 percent of earned income, whichever is less. Being self-employed basically allows you to contribute to the plan twice, or double the limits in a traditional 401(k) plan, as both an employee and employer.

As an employee to yourself, a solo 401(k) allows you to contribute up to all of your compensation or $18,500, whichever is less. As the employer who administers the plan, you can match contributions of up to 25 percent of compensation.

The tax advantages are the same as a standard, employer-offered 401(k). Contributions are made pre-tax, and distributions after age 50-and-a-half are taxed.

SEP IRA
A Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) is best if you have few employees or none altogether.

The 2018 contribution limit is the lesser of two options: $55,000 or up to 25 percent of compensation or net self-employment earnings, with a $275,000 limit on compensation that can be used to factor the contribution. Net self-employment income is net profit less half your self-employment taxes paid and your SEP contribution. No catch-up contributions are allowed.

For tax purposes, either the contributions can be deducted from your taxes, or 25 percent of the net self-employment earnings or compensation can be deducted. Distributions in retirement are taxed as income.

This article is intended for informational purposes only and should not be construed as professional or legal advice.