Personal Finance

Pay-Over-Time: Worthwhile or Waste?

Personal Finance /

Pay-Over-Time (also known as Buy Now Pay Later, or BNPL for short) has become popular in recent years. Each purchase is split into smaller chunks so people don’t have to immediately pay the full amount. Consumers are financing everything from pizza deliveries to luxury goods. The industry is already worth billions and expected to continue growing at a rapid pace. Sources generally seem to believe the market will grow 20-30% over the next decade.

But does it make sense to use such services?

In general, no. You should never spend beyond your means. Many people aren’t using credit responsibly, and it’s easy to overspend when even small purchases are financed. The video game concept of “microtransactions” has entered retail. Many BNPL purchases are another form of accumulating consumer debt. The majority of people should treat credit cards as debit cards and ignore pay-over-time services. Don’t purchase things unless you can afford them. The best form of financial responsibility is usually to set a budget and stick by it. BNPL should only be used (1) when absolutely necessary to get through hard times, and (2) with zero fees and zero interest whenever possible.

We do acknowledge that pay-over-time makes sense in certain circumstances. Credit cards have high rates. Interest can be a killer if credit cards aren’t paid off in full each month. If it’s possible to avoid credit card APR and BNPL is a legitimate help for a particular purchase, then BNPL may work out in the end.

…

Pay-Over-Time: Worthwhile or Waste?Read More »

What Is An Emergency Fund and How Much Should Be In It?

Personal Finance /

An emergency fund is usually in a High Yield Savings Account (HYSA) that doesn’t have any fees. The “fund” is a set amount of money you never touch, except in emergencies.

The minimum is considered $1,000 since that will cover most things. A sudden dentist visit, a flat tire, or any other unexpected expense. There’s also extra peace of mind. An accident won’t immediately send you into debt. Backup cash is always useful.

Ideally, you already know what your budget is, and what your monthly expenses are. A “normal” emergency fund is 3 to 6 months worth of expenses. In case something major happens, like losing your job, the emergency fund will keep you stable for a while. A typical job search might take up to 6 months before your first new paycheck arrives. Job hunting, interviews, multiple-round interviews, onboarding, and other factors take time.

What’s best should be tailored to your individual situation. There isn’t a one-size-fits-all solution or dollar amount. An emergency fund could also be your annual health insurance deductible. This is typically $6,000 or so and varies by plan/region.

…

What Is An Emergency Fund and How Much Should Be In It?Read More »

Several Ways To Immediately Get Interest Free Capital

Personal Finance /

Sometimes you need extra cash and don’t want to have a loan. Here are nearly a dozen ways to get immediate access to interest-free capital and/or earn easy money from banks. If you have a high risk tolerance, some of these might work in lieu of an emergency fund. It’s hard to keep cash around in a high-inflation environment like we’re currently in.

 

1. Open a new bank account

Banks offer sign-up bonuses to try and gain new customers. Some offers are aggressive and can exceed $1,000. There’s generally a direct deposit requirement (checking accounts) or cash deposit requirement (savings or brokerage accounts). This is still a low-effort way to get some extra money. Especially if you have a large cash balance in an existing checking/savings account. The size of your bonus is likely to exceed whatever you’re earning in interest (generally 1% APY at most, as of early 2022).

Opening new bank accounts doesn’t impact your credit score either. There is a pseudo-credit system (ChexSystems) which may flag you if you open several bank accounts each year. It doesn’t however affect your ability to get loans or credit cards.

Many banks don’t have minimum balance requirements or significant fees. These are ideal considerations when looking for a new account.

 

2. Open a new credit card account

Like the above option, banks have aggressive offers for credit cards too. If you’re able to get a 0% APR deal on top of that, it’s even better. There are 15+ credit cards with long interest-free periods. Although there are minimum spending requirements, it’s generally not a high bar to clear, especially if you have a large purchase coming up. Different cards have different requirements.

Imagine being paid a couple hundred dollars to get an interest-free loan for 12+ months, plus earning ongoing cash back rewards. If you have a high enough credit score to qualify for a 0% APR card, it can be a better deal than a personal loan.

For “free debt” you can “float” your balances. Open a 0% APR card, earn its bonuses, and put your living expenses on that card until you’re near the limit. Then, before the 0% APR period expires, open another 0% APR card and repeat. This may affect your credit score, so this isn’t a solution for everyone. If it works for you though, you can repeat this infinitely to enjoy a large amount of “free” money. The main downside is that this isn’t immediate, when it comes to personal expenses. The card is likely to fill up over time. Still useful, but not the fastest injection of cash into your life.

 

…

Several Ways To Immediately Get Interest Free CapitalRead More »

Should You Carry A Balance On Your Credit Cards? No.

Personal Finance /

Whenever you receive a credit card bill, pay it in full. On time, every time.

An unfounded rumor claims that people should carry a balance on their cards from month-to-month to improve their credit. Unfortunately, this is factually and morally incorrect. The “advice” can potentially damage your credit score. Plus, you’ll pay hundreds or thousands of dollars in interest each year. Credit card interest is higher than other types of common debt.

It’s true that there are small tips to “optimize” your credit score. However, they’re often unimportant. Your credit score will be good enough if you manage credit responsibly, and it’s unnecessary to achieve perfect scores. Small amounts of effort may have the greatest impact.

The “carry a balance” rumor may be a misinterpretation of the “all zero except one” (AZEO) strategy.

…

Should You Carry A Balance On Your Credit Cards? No.Read More »

10+ Banking Solutions Without Fees or Minimum Balance Requirements

Personal Finance, Reference /

Checking accounts aren’t always cheap or easy to use, despite their importance. We’ve compiled a quick list of popular solutions. Americans lose billions every year through monthly maintenance fees, overdraft fees, or miscellaneous charges. Banks are starting to eliminate or reduce fees yet it can still add up. The Consumer Financial Protection Bureau (CFPB) reported a couple of months ago that “Banks continue to rely heavily on overdraft and non-sufficient funds (NSF) revenue, which reached an estimated $15.47 billion in 2019.” The middle class and lower class are losing out on opportunities. The FDIC says that over 7 million American adults don’t have a bank account. The most-cited reason why: because they can’t afford minimum balance requirements.

The below list has some no-fee options, which can help you avoid the worst outcomes; these accounts don’t require minimum balances either. Some are banks while others are fintechs (financial technology companies) who partner with banks. Note that this isn’t a top 10; it’s a somewhat subjective list, which may change in the future. The below options are in alphabetical order and we don’t recommend or endorse any specific product(s) here. Also be sure to opt out of “overdraft protection” when opening an account, if the option pops up during registration.

And check your local area for alternatives to big banks. Smaller credit unions typically don’t have big fees. This can save a lot of money in the long run.

…

10+ Banking Solutions Without Fees or Minimum Balance RequirementsRead More »

Why Budgeting Is Important and How To Create A Financial Plan

Personal Finance /

Creating a budget means tracking your income and expenses. How much money do you make each month, and how do you spend or save that money? Is there room for improvement? A budget puts you on a path to achieving financial goals. Budgets can be flexible, since they’re meant to keep people on track, and not set in stone. The important part is cash flow: being able to afford expenses as needed.

  • Short-term goals: Don’t overspend your money. Make sure it’s allocated properly so you don’t run out of cash.
  • Medium-term goals: Save money for large expenses or unforeseen major emergencies within the next couple of years.
  • Long-term goals: Properly manage debt, save money toward retirement, or other future goals.

Everyone needs a budget, from individuals to large corporations. Proper accounting can be game-changing or even life-saving. And it’s easier and faster to set up than most people believe. There are different ways to create a budget. Some people like to do it manually (Excel Spreadsheets, written notes, etc.) while others prefer budgeting apps to automatically do the heavy lifting. We have a list of potential tools at the bottom of this article.

Many finance experts currently advocate a “50-30-20 rule” for budgeting.

  • 50% of your income toward essentials/needs (rent or mortgage, bills and utilities, transportation, insurance, groceries, etc.)
  • 30% of your income toward “wants” (dining out, shopping, subscriptions, travel, hobbies, etc.)
  • 20% of your income toward debt repayment, savings, or investments

If you’re doing very well, you want increasing percentages of money to go into savings/investments/assets. At basic levels though: When it comes to savings, first aim for a $1,000 emergency fund. It’ll give you some breathing room if something bad happens. After that, aim for having 3 months of expenses covered. The most common recommendation for an emergency fund is 3-6 months of expenses. This is another reason to create a budget. If you don’t know what your expenses are, then it’s impossible to accurately determine the size of your emergency fund.

Overall, these budgeting guidelines are to help people get started. There aren’t strict rules and you probably don’t need to micromanage funds. You’ll have to create a budget based on your unique situation. Specifics are always subjective. After reading this entire article, you should know exactly what to do.

…

Why Budgeting Is Important and How To Create A Financial PlanRead More »