It’s that time of year again! While experts agree you should avoid getting a large tax refund (which is essentially an interest-free loan to Uncle Sam), it’s hard not to feel giddy when you know extra money is coming your way. Many people look forward to getting a refund each year and use it as an excuse to splurge on themselves.
Before you buy that new TV, however, it’s important to take a close look at your finances and determine if that’s really the best idea. While putting that money toward a more practical purpose may not be as much fun, it can pay off in the long run.
Here are a few smart ways you can use your tax refund:
- Pay off debt. This is a no-brainer. If you’re carrying around credit card or other high-interest debt, you want to get rid of it as quickly as possible. Before that cash has a chance to get comfortable in your bank account, use it to pay down your debt and lessen some of the anxiety hanging over your head.
- Put it in savings. It never hurts to pad your savings. This could be the year that your hot water heater breaks down or your car decides to bite the dust. Set that money aside in a high-yield savings account so it’s there when you need it.
- Prepay your mortgage. Your home is probably your biggest investment—and your mortgage payment is probably your biggest debt. Putting a little extra toward your mortgage regularly can save you thousands of dollars and shave years off your loan.
- Fund your retirement. You don’t have any debt. You have a fully funded emergency fund. Does that mean you’re free to book that plane ticket to Cancun? Not necessarily. How are your retirement accounts doing? If you’re behind on your retirement savings, it’s not too late to catch up.
- Invest in yourself. It’s easy to let your career get stuck in a rut. Your tax refund can help you make a career change or take your skills to the next level. Use it to enroll in continuing education courses or certification programs and earn that promotion you’ve been waiting for.
- Upgrade your life. Sometimes you simply need to make a major purchase. If you’re a freelance writer and your computer is slow as molasses, you probably need a new one so your business doesn’t suffer. If your energy bill is sky-high and you live in an older house, it might be a good idea to replace your windows. Making smart purchases now can save you a lot of money down the road.
Whatever you do with your extra cash, make sure you keep track of it. The last thing you want to do is slowly spend it on a frozen treat here or a pack of gum there, only to discover it’s gone before you know it. You should regularly monitor your banking statements and other financial documents to ensure you know where your money is going. Don’t forget to store these and all your other important documents on InsureYouKnow.org. It’s part of being a knowledgeable, financially responsible consumer.
Are you thinking of buying a house? Maybe you’re tired of your landlord raising the rent on you. Maybe you want to paint every room in your home a different color of the rainbow. Or maybe you’re simply ready to settle down and start a family.
Whatever your reason, buying a house can be a smart and rewarding decision—but you need to go into it with your eyes wide open. Homeownership is a serious financial commitment, and it’s important you understand just what you’re getting into. Unlike renting, owning a home comes with a variety of regular costs you may not have anticipated.
Before you sign on the dotted line, take the time to add up all the related costs and make sure homeownership is right for you. Here’s a quick look at a few of the expenses you’ll be responsible for as a homeowner:
- Your mortgage. Your monthly payment involves more than the principal and interest of your loan. It also includes homeowner’s insurance and property taxes, which can add a significant amount to your payment each month. If you can’t put down 20 percent and have to pay private mortgage insurance, be sure to include that in your calculations.
- Utilities. You probably already pay for some of your utilities as a renter, but as a homeowner, you’re responsible for them all. This includes electricity, water, wastewater, natural gas, garbage collection and recycling. You also will pay for your own internet and cable service.
HOA dues. If your new home is part of a neighborhood or complex with a homeowners association, you’ll be required to pay regular dues. These can range from just a few dollars a month to several hundred, so make sure you know what the dues are before you commit to buying a property.
Landscaping. Someone has to mow that huge backyard. Even if you decide to take care of it yourself, you’ll have to purchase a lawnmower and other equipment. Don’t forget to consider that time is money; the time you spend mowing and raking could be better spent doing other activities.
Maintenance and repairs. Things can—and will—break. You need to have money set aside for emergencies such as a plumbing leak or broken appliance. In addition, you should plan on spending 1–2% of your home’s value each year on general maintenance to ensure your home remains in good shape.
Once you know have a good idea of how much it will cost you each month to own a home, take a look at your other monthly expenses, such as groceries, gas, entertainment, and debt payments, as well as your total monthly income. Most experts recommend you spend 28% or less of your monthly income on housing.
If homeownership still makes sense after you run the numbers, congratulations! You’re in for a fun ride. After you’re done signing the reams of paperwork involved and close on your new home, don’t forget to upload all the documents onto InsureYouKnow.org. It’s a safe place to store all the information on one of the most important transactions you’ll ever make.
You’re more than a number. But when it comes time to getting a loan, it may not feel like it.
Your credit score is a numeric representation of your creditworthiness. Lenders use it to determine whether to loan you money for a major purchase or approve you for a new line of credit. It takes into consideration a variety of factors, including whether you pay your bills on time, the amount of credit you’re using, and how long you’ve been using credit.
There are a number of different scoring models, but the two major ones are the FICO Score and the VantageScore. Ninety of the top 100 largest financial institutions in the United States use the FICO Score to make credit decisions. FICO Scores fall into the following ranges:
- 800–850: Exceptional
- 740–799: Very Good
- 670–739: Good
- 580–669: Fair
- 300–579: Poor
The higher your score, the lower the interest rate on your loan will be. Generally speaking, if your score is 760 or above, you’ll get the best rates. This can make a difference of hundreds of dollars a month and tens of thousands of dollars over the life of the loan. For example, someone with a FICO score of 620 could pay over $200 more each month for a $216,000 30-year, fixed-rate mortgage than someone with a score of 760.
So what do you do if your score is on the lower end of the scale? Fortunately, it is possible to improve your credit score, although it takes time and patience. Here are three things you can start doing today to help boost your score:
- Pay your bills on time. Considering payment history accounts for 35% of your FICO Score, paying your bills on time is one of the most important things you can do if you want to improve your credit score. After all, if lenders don’t think you’ll pay them back, they aren’t going to loan you the money in the first place. If you tend to be on the forgetful side, don’t panic: Set up payment reminders or, even better, automatic payments.
- Keep your balances low. The amount you owe on your current accounts determines 30% of your FICO Score. Lenders figure that if you owe too much money to creditors, you may have trouble making your payments and are at risk of defaulting on your loans. They look carefully at your credit utilization ratio, or the amount you owe versus the amount of credit you have available. Because revolving debt such as credit cards carry more weight than installment debt such as mortgages, it’s important to keep your credit card balances as low as possible.
- Make more than one payment a month. Even if you pay off your credit cards in full each month, you may want to consider making payments throughout the month instead of waiting until the end of your payment cycle. Your credit score is a snapshot in time; if it is calculated right after you pay off your balance, your credit utilization ratio will probably look great, but if it is calculated right after you make a big purchase like a new couch, it might look too high. Making multiple payments a month will ensure your balances remain low and you won’t look like a risky bet to lenders.
Just like any other important financial documents, your loan agreements should be stored in a secure place. When you upload them to InsureYouKnow.org, you and your loved ones will be able to access them should the need arise. It’s just one part of maintaining a fiscally responsible lifestyle.
Let’s face it: Insurance is confusing. And we’re not just talking about figuring out how to file a claim. With all the different types of insurance out there, it’s hard to determine what insurance you need in the first place.
While your particular needs will vary depending on your unique circumstances, here are four types of insurance you definitely should have:
- Health insurance. The federal tax penalty for not having health insurance will go away in 2019, but that was never the main reason you needed it. With medical costs continuing to rise, health insurance is an absolute must-have. Even if you are young and healthy, you never know when you might get in an accident; an unexpected hospital visit can easily cost you thousands of dollars. Luckily, your job may be able to help you get coverage. According to the most recent report from the U.S. Census Bureau, more than half of Americans (56 percent) receive health insurance through their employer. Only 8.8 percent of Americans have no health insurance at all.
- Car insurance. If you have a car, you’re already very familiar with car insurance. Even if you’ve been fortunate enough to never use it, you better be paying for it considering it’s required by law (unless you live in New Hampshire or Virginia, where it isn’t required but most drivers have it). The Insurance Information Institute has found that the average loss per claim is more than $5,500, so this is one type of insurance that can pay off quickly. Tip: Don’t file a claim for a minor incident. While you might think you should considering the amount of money you’ve paid for your policy over the years, your insurance company may raise your rates in the future.
- Homeowners/renters insurance. If you own your home, having homeowners insurance is a no-brainer, and not just because you can’t get a mortgage without it. Your house is probably your single most valuable asset, and you want to protect it. Homeowners insurance will help cover your losses in the event of a fire, burglary, or other event (you may need to purchase a separate policy if you live in an area prone to floods or earthquakes). If you’re a renter, you still need insurance of your own so you can replace your personal belongings in the event of a disaster.
- Life insurance. Life insurance is more of a benefit for your loved ones than for yourself; if you should die, this will help protect them. Ask yourself: What would happen to your family if you died tomorrow? Would they still be able to pay the bills? Even if you’re single, someone will have to pay for your funeral and sort through your estate. Many experts recommend you buy a policy equal to 10 times your salary. Of course, your particular situation may require more or less. If you have no children, for example you won’t need as much as someone with three kids, and if you’re a stay-at-home parent with no income, you still need life insurance to help your partner cover childcare costs should the worst occur.
Once these four policies are in place, you might want to look into other types of insurance that could be beneficial to you, such as disability insurance and long-term care insurance. No matter what you end up with, you’ll want to store all the related paperwork on InsureYouKnow.org. Dealing with a disaster is stressful enough; the last thing you and your loved ones will want to do is dig through piles of papers to find the appropriate policy.
Ah, January 1: a day of fresh starts, new beginnings, and big dreams. According to Fidelity’s Tenth Annual New Year Financial Resolutions Study, 32 percent of survey respondents are considering making a financial resolution for the year ahead. The top three financial resolutions are to save more (48 percent), pay down debt (29 percent) and spend less (15 percent).
While those are great resolutions, they also are broad and lack detail. How much do you want to save? Which debts will you pay down first? How exactly will you spend less? Without a firm plan in mind, these resolutions easily may be forgotten by the time Valentine’s Day rolls around.
When it comes to New Year’s resolutions, it’s important to set specific, measurable, and achievable goals. In other words, you want to create a detailed plan with milestones that can be met. That way you will see the progress you’re making throughout the year and maintain the motivation to keep going.
With that in mind, here are a few smart money moves you can make in the coming year.
- Check your credit report. This one should be a no-brainer, but many people put it off until trouble arises. Don’t wait until you’re ready to apply for a car loan or home mortgage; get your free copy of your credit report at AnnualCreditReport.com months in advance so you can address any discrepancies. You can request a free copy of your report once a year from each of the three major credit reporting companies. Keep in mind that you can order the three reports one at a time, allowing you to check your report multiple times throughout the year. Once you get your copy, review it and make sure all the information is accurate and up-to-date.
- Make sure your insurance meets your needs. How much life insurance do you need? Do you need disability insurance? What about long-term care insurance? These aren’t easy questions to answer, and the answers generally depend on your individual situation. While determining the type and amount of insurance you need can be overwhelming, it’s a vital part of protecting you and your family. Generally speaking, it’s easier to pay a little bit each month in premiums than to come up with a large sum in the event of an emergency.
- Get the best credit card for you. Whether you use your credit card only for major purchases or put everything on it and pay it off each month, it’s important to make sure the card in your wallet is the best one for your needs. If you have to carry a balance sometimes, you want to make sure you use a card with the lowest rate possible; if you travel a lot, you’ll want to look for a card that’ll make your vacations a little more affordable. Sites like NerdWallet and WalletHub can help you find the credit card that best meets your lifestyle.
- Fully fund your emergency fund. Make this the year you build your emergency fund to the recommended six to eight months of living expenses. It sounds difficult, but remember, we’re talking about your monthly expenses, not your monthly salary. Calculate the amount based on your true necessities: mortgage/rent, utilities, food, insurance, and the like. If it helps keep you going, break this goal down into smaller milestones you can meet throughout the year, and celebrate each accomplishment along the way.
- Put all your financial documents in one safe place. Last but not least, take the time to gather together all your important financial documents and store them in a secure place. InsureYouKnow.org is the ideal location. Think of it as an easy-to-use electronic safe deposit box; you upload your documents, and only you and anyone you share your password with can access them. Thanks to Amazon’s cloud encryption, you can rest easy knowing your documents are safe and easy to access whenever and wherever they’re needed.