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Saturday, October 22, 2016

What Is Investing? How Do I Start?

Tell me if this sounds familiar.

At some point earlier in your life, you had no sense whatsoever about your finances. For whatever reason – maybe a life change or maybe just a growing sense of maturity – you “woke up” and began figuring thing out.

You buckled down, got smarter about your spending, and perhaps got some debt collectors off your back. You started paying off some debt, too, and it felt good. Really good.

You have some goals in life. Maybe it’s to buy a house. Maybe it’s to have children. Maybe it’s to start a business. Maybe it’s to retire early.

Speaking of retirement, even if early retirement isn’t your goal, the idea of retirement in general is out there hanging over your head.

How do people achieve these things? They “invest.” At least, that’s the word you can’t help but hear if you visit mainstream financial sites or pick up a financial magazine. You’ve got to “invest” for your future.

But what does that even mean? And does it make sense in your life?

That little story probably seems familiar in at least a few ways – and probably in a lot of ways. It’s a very common story for people who made it through school without any real grounding or education in personal finance, but then find that their real experience in adult life makes it clear that they need to be making some smarter choices, only to find that trying to figure out those smarter choices is about as clear as mud.

Trust me, I was in the same boat not all that long ago. In fact, I started this site because I was trying to figure out everything about personal finance at once and I wanted to share what I was learning as I applied it to my own life. When I started The Simple Dollar back in 2006, that story sounded almost exactly like the situation and mindset I found myself in.

I wanted to make changes in my life. I’d made a few smaller changes and I found those changes to be incredibly empowering. I had some goals in mind, but I didn’t really know how to approach them other than “investing” – but I honestly didn’t know what that word meant.

Now? I’m well along the road to retiring early and I’m able to do it with a flexible career that gives me plenty of time to spend with my children. A big part of that change came from figuring out what “investing” is and then actually doing it.

What Does “Investing” Mean?

Here’s a very simple definition of investment: putting aside or spending something so that thing – or the item you bought with it – will be more valuable in the future. When you put money into a savings account, that’s an investment – you’re putting money aside with the idea that it will increase in value over time. Buying a home is an investment – you’re using your money to buy that home wit the hopes that it will increase in value over time, too.

Quite often, when you read about “investments,” the idea is that you’re investing money. However, you can invest other things, too – your time, your energy, your skills. For example, putting aside hours to study a subject that might help you in your career path is an investment of your time and your energy in the hopes that you’ll earn more money over the long run.

However, for the purposes of this article, we’re going to focus on a more specific definition. Investing means putting aside money or buying something with the purpose of selling or withdrawing it later when it has increased in value. Putting money in a savings account, even if it earns 0.1% interest, is an investment, in other words. Buying a share of stock is an investment. Buying a house is an investment. Putting money away for retirement is an investment.

Whenever you buy something with the intent of selling it later to make some money, you’re investing. Whenever you buy something with the intent of it earning money for you while you own it, you’re investing. Whenever you put aside money in an account that has the potential to earn any return, you’re investing.

Pretty simple, right?

Why Does Investing Seem Scary, Then?

There are a number of reasons.

First of all, there are many, many ways to invest. The sheer number of things you can invest in is almost limitless. You can buy shares of a company’s stock. You can buy sports memorabilia. You can put money in a savings account. You can buy a house to rent out to someone. It goes on and on and on. It’s kind of like walking through the freezer section of the grocery store and looking at the hundreds of varieties and flavors when the only thing you’re familiar with at all is vanilla ice cream. It can feel overwhelming.

Second, there’s an entire industry out there that tries to make money off of “helping” you to invest, and the only way they make money is if you’re confused and intimidated by it. Investing is actually really easy, but if everyone thinks it’s easy, no one would pay for financial services. Thus, the people in the investment world have a financial stake in making it seem complicated. They want to make it sound like you need to invest, but that investing is really confusing, so you need their help. (Frankly, it’s a load of crap. Anyone who isn’t a billionaire can easily invest for themselves.)

Third, humans are hard wired in many ways to be scared of investing. For one, people are extremely risk averse when it comes to their money. They’ll almost always take a dollar today over the promise of a couple dollars down the road. We spend a lot of our daily lives minimizing and avoiding risk, so the mere idea of putting our money at risk and not having it to spend right now seems far worse at first glance than it actually is.

All of these things combine to convince us that investing is a scary thing, something that we want to avoid until the last minute and something that we want help with when we do decide to do it.

What’s So Bad About an Investment Advisor?

There’s nothing strictly bad about most investment advisors. They’re just merely providing a service that we can provide for ourselves without having to pay their fees.

As I mentioned above, investment advisors are simply there to help people navigate a world that, for the most part, investment firms have worked to make appear as scary and confusing as possible. The truth is that, for most people, many forms of investing really are pretty simple. They’re only slightly more complicated than going to the bank and opening a savings account.

There are times where it does make sense to talk to a financial advisor – for example, when you have a large or complicated inheritance. I’d call an advisor myself in those situations. Financial advisors are good people who can be really useful in challenging situations; it’s just that your first steps into investment are not challenging.

What Do I Really Need to Know?

There are three things to think about with any investment that you make.

First, risk. Whenever you put money into an investment, there’s going to be at least a little risk that it might lose value instead of gaining value. That risk might be extremely tiny – to lose value in a savings account or a treasury note, for example, the United States government would have to collapse – but it’s always there. (It’s there even if you just hold cash in your hand, too.) Other investments have more risk – you’re risking that the company whose stocks you’re buying will continue to be a successful business, for example. You’re risking that the house you buy will continue to grow in value because it’s located in a nice neighborhood and is well cared for by the people living in it.

Second, liquidity. Whenever you want to get money out of an investment, either by withdrawing it from an account or by selling something, it’s going to take some amount of time. Some things are very liquid, like savings accounts – you can basically take out your money whenever you please. Stocks are also fairly liquid as the company through which you invest in stocks (your investment house) will help you find a buyer for those shares quite quickly. Other things, like a house, are less liquid – it will take you some time to prepare a house for sale and then sell it. Generally, lower liquidity is seen as a disadvantage if you assume that you’re going to want to sell it in the future.

Finally, return. How much money do you expect to earn on this investment each year? A savings account can be expected to return about 0.1% to 1% per year. An investment in stocks returns, on average, 7% per year – but that’s an average (remember the “risk” part – there are years when it is going to be above that and years where it’s going to be below that). An investment in a house is going to vary depending on the local real estate market – anywhere from 0-1% to 10% or more depending on what’s happening there. This is the part that usually requires some homework and a little bit of guesswork.

Most investments succeed in two out of three of these areas.

Savings accounts, for example, are great in the risk department (very low risk) and the liquidity department (very high liquidity), but aren’t good in the return department (very low return).

Stocks, for example, are great in the liquidity department (pretty high liquidity) and the return department (a very nice return on average), but are pretty bad in the risk department (you can lose money in individual years and even over multi-year stretches, while other years are really good).

Buying a house is great in the risk department (pretty low risk – they will go up in value) and the return department (usually a solid return on investment), but are pretty bad in the liquidity department (if you’re trying to get a decent return, it can take quite a while to sell a house).

So, which of the three factors should be the one you care about the least? Well… onwards to the next question!

I Understand That I Should Invest… But Why?

There are big things coming down the road for you in life. You might be saving up to buy a house. You might be planning for the college education of your kids. Retirement is always hanging out there on the horizon of life. You might simply want to be prepared for an emergency or a rainy day.

The first step of investing is figuring out your goals. A goal shouldn’t really be a pure investment goal. It should be a life goal. What do you want to do – or need to do – in your life? That’s where everything starts with investing.

Once you figure out what your goals are, unless you’re really wealthy, you probably need to focus on just one or two of them. Spreading out among a lot of goals means that you probably won’t reach any of them. You’re better off pushing hard toward one or two goals than pushing softly toward a bunch of goals.

I usually suggest that people choose to have an emergency fund as one of their goals and, unless there’s a pressing need to have something else, save for retirement as their other goal. Since saving for an emergency fund won’t take that long, you can replace it with something else not too far down the road.

What If I Am Scared of Losing Money?

The thing to remember about losing money in an investment is that unless you are taking a ton of risk, you should have many years to make up for that loss. You shouldn’t be investing in anything that has enough risk for you to lose money unless it’s a very long term investment, meaning that you’re not going to even touch that money for many more years.

What if you’re scared of losing everything? The only way to lose everything is to have all of your eggs in one basket and the bottom rips out of that basket. For example, if you put all of your money into the stock of one company and that company collapses, then you would lose everything. That’s a bad idea. You should never have all of your money in one thing. Ever. If you avoid doing that, the only way you could lose everything is if we had a global disaster of some kind, in which case you’ve got bigger problems than your long-term investments.

In general, if an investment is set up appropriately for the long term (and we’ll get to that below), you shouldn’t even need to look at it until that destination starts to get close. It might go way up one year or go down one year and it shouldn’t matter if you have plenty of years left.

What If I Am Scared of Having My Money All Tied Up?

Another worry that people have with investing is that it means yet another drain on their budget. Many Americans already live paycheck to paycheck, so what happens if another 10% of their pay (or so) is taken away? It looks painful.

First of all, the money you invest actually comes from the least important parts of your spending. If you invest 10% of your income (for example), the 10% of your purchases that are the most useless and forgettable are the ones that will disappear. Go look through your credit card statements, delete the worst 10% of those purchases, and ask yourself whether or not your life is really any worse for it.

Second, the money you invest is still accessible if you really need it (though you should avoid it if at all possible). It’s not as if the money is disappearing. You’re just passing it on to yourself down the road. You can access it if necessary.

Finally, if you automate it, you won’t even notice it. If you sign up to have money automatically transferred out of your paycheck or out of your checking account, you’ll honestly barely notice the difference. You might notice a slight financial pinch if you’re looking for it, but it won’t last very long. In fact, this is how I recommend that everyone invests – figure out your goal, set up an investment plan for it, make it automatic, and then sit back and don’t think about it.

How Do I Invest in an Emergency Fund?

The first question you should ask yourself about any investment goal is whether it is a long term goal or a short term goal. Is there a significant chance that you’ll use the money in this goal in the next ten years? If the answer is yes, think of it as a short term goal. Clearly, the answer here is yes.

The second question you should ask yourself is whether or not you will need to pull out the money quickly. If there’s an emergency, you’ll need the money quickly, so the answer here is yes.

Right away, you know that you’ll need an investment with almost zero risk and very high liquidity. The best place for that is a savings account. So, go to a bank – I encourage you to actually use a separate bank for your emergency fund so it’s not as easy to tap it on a whim – and open a savings account there. Then, set up an automatic regular transfer each week from your checking to your savings account. Just ask the bank teller if that’s possible to do before you open the account. Most banks can easily do this. Then, just set up a transfer of $10 or $20 a week from your checking into your savings.

Each week, $10 or $20 will move automatically from your checking account to your emergency fund savings account. You don’t even have to think about it. All you have to remember is that if a real emergency comes up, like a car that won’t start or an emergency plane ticket needs to be bought, you can just go to that bank and tap it for the cash you need to make it through.

How Do I Invest for Retirement?

The thing to know about retirement savings is that, even though lots of options get thrown at you, they’re actually all pretty similar. The entire point of both 401(k)s and Roth IRAs is to help you with taxes. In the case of a normal 401(k), when you put money into that account today, you take it straight out of your paycheck without having to pay income taxes on it. You’ll pay income taxes later, when you take money out of that account.

With a Roth IRA, you have to put money from your checking account into that account, but if you don’t withdraw from your Roth IRA account until retirement, you don’t have to pay any taxes at all, not even on the money earned during the years while you had that account.

That’s really all you need to know – they both just help with taxes, but to get that tax help, you have to leave the money in the account because there are penalties for taking it out before retirement. If you’re not sure which is better, honestly, don’t worry about it – they’re both beneficial and they’re both way better than having no tax benefits at all. They’re both going to help you pay less taxes – the 401(k) helps out now, while the Roth IRA helps out later on in life.

So, don’t sweat that part.

If your work offers a 401(k) plan, that’s probably your best bet. It’s the easiest route to start saving for retirement. Just go in, sign up for that plan, and when you have investment options, choose to put everything in a “target retirement fund.” That simply means that you’re choosing to have your retirement money put into something that is higher risk the further you are away from retirement, and the risk lowers as you get closer to retirement, which is exactly what you want. It’s basically a big collection of different investments in one package, so you don’t have to worry about “putting your eggs all in one basket.”

If you don’t have a plan at work, sign up for a Roth IRA on your own. There are a ton of companies that offer Roth IRAs – I personally use Vanguard because I like how they operate. The advice is the same – choose a “target retirement fund” with a year that’s close to the year when you turn 67 or so.

Contribute as much as you feel you can handle, no matter which option you choose. You can always dial it down – or dial it up – later.

How Do I Invest for Buying a House?

The logic for buying a house is much the same as for having an emergency fund.

The first question you should ask yourself about any investment goal is whether it is a long term goal or a short term goal. Is there a significant chance that you’ll use the money in this goal in the next ten years? If the answer is yes, think of it as a short term goal. Clearly, the answer here is yes.

The second question you should ask yourself is whether or not you will need to pull out the money quickly. That’s perhaps not quite as important.

So, what you want is something that doesn’t have a whole lot of risk. You won’t need to take the money out instantly. You want the best return you can get with that low risk.

In that case, your best option is still probably a savings account. CDs (certificates of deposit) are available from banks as well and they’re an option here, too. A CD is kind of like a savings account that earns more interest but you agree to not withdraw the money for a while – say, a year. The problem with CDs right now is that the rates are pretty low and don’t really beat a savings account by all that much. So, unless the rate on a CD is quite a bit higher (at least a percentage point) than the savings account, don’t bother and just use a savings account.

Again, automate it. Your bank should allow you to automatically transfer a little bit each week from your checking account to your savings account. Do it. That’s the most effective way to invest.

How Do I Invest for Sending My Kids to College?

This is the other common goal that many people have, and it actually has more in common with retirement savings. In fact, the advice here is very similar to that for retirement savings.

With saving for college, the best route is to sign up for a 529 college savings plan in your state. Most states offer them and they usually offer a small benefit for state income taxes when you contribute. If your state has income taxes and your state also offers a credit or deduction for contributions to your state’s 529 program, then that’s the way you should go. If that’s not true, then you can shop around, but many state 529 programs are pretty similar at this point.

A 529 college savings account is one that your child benefits from. You (or other interested people) put in money now, it grows until your child is ready for college, and then, if they use the money for educational purposes, they don’t have to pay any taxes on it, not even on the money that was earned while it sat there in the account. Sweet!

You can sign up for a 529 account online – it’s quite easy – and then you’ll have investment options, just like with your retirement plan. Make sure you set up an automatic contribution of some kind. Then, among the investment options, just choose the one that targets the year you expect your child to go to college (almost every plan has a “target” fund for college that sets them up perfectly for that year). That’s all you have to do.

Final Thoughts

For most people, that’s all you really need to know about investing. There are already tools in place for you that are easy to use and help you out with whatever your goal might be, and it’s all simple enough that you can do it yourself.

The key thing to remember is this: the big risk with investing is putting all your eggs in one basket (if you don’t know exactly what you’re doing). The options above all avoid that mistake entirely, and they’re simple to boot.

If you’re in doubt about anything, educate yourself. Read as much as you can on the topic. Just remember that financial advisors often make money by making something simple into something confusing. Even if the terms seem complicated, none of it actually is complicated unless you’re a multi-millionaire. Just keep it extremely simple and you’ll do fine.

Good luck!

The post What Is Investing? How Do I Start? appeared first on The Simple Dollar.

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Friday, October 21, 2016

Making Today a Part of Your Meaningful Life

“Modern man is conditioned to expect instant gratification, but any success or triumph realized quickly, with only marginal effort, is necessarily shallow. Meaningful achievement takes time, hard work, persistence, patience, proper intent and self-awareness. The path to success is punctuated by failure, consolidation, and renewed effort.” – Mark Twight

As my children grow older, I’ve been having more and more conversations with them about life. What does it mean to be an adult? What does it mean to be a good person? What kind of life do you want to have?

Often, those conversations end up running around in my head for days and weeks afterward. Sometimes, they end up forming articles for The Simple Dollar, because they end up making me think about my own personal choices about how I spend my money and my time.

About a week ago, I told my children that the best life you can live is one where you work hard to achieve something or make real progress on something that’s important to you and to the world and, along the way, do some things that are truly meaningful to you personally. Naturally, my oldest wanted to know my own answer to that question. What do I work on that helps me make progress or achieve something that’s important to me?

I actually had an answer to that. For me, the thing I’ve achieved is putting out a ton of useful advice written in an earnest and friendly way for people struggling with different phases of their financial life, from people struggling even to get food on the table, from people trying to figure out their debts to people unhappy with their careers to people wanting to retire early. That’s something that’s meaningful to me in a very deep way. The messages I’ve received from readers over the years have made my work feel truly meaningful.

What else in my life is truly meaningful? My family. I chose my career path so that I could spend more time with my children as they grew up. My community. I also have a ton of internal things that bring meaning into my life – learning new things, understanding the world better, and exploring the world (particularly nature) are all deeply meaningful to me.

So I talked to them about those things. Helping people make their lives better through their own actions is incredibly meaningful and also beneficial to the world. Spending time with my family and community is incredibly meaningful to me personally. I get a ton of personal value out of learning new things, out of exploring the world around me, and out of intellectual challenges.

At the end of my life, if I can look back on it and say that I did my best to help other people with my words, that I did my best to be a good father and husband, that I did my best to raise the quality of my community, that I did my best to explore and understand the world and to share the fruits of that exploration, and that I spent my extra time on intellectually challenging and meaningful things, I’ll be happy with my life.

The things I spend my money or time on that fall in line with those goals are things that I won’t regret. The things I spend my time or money on that don’t fall in line with those goals? I’m going to regret them.

In an effort to try to relate all of this to my children, I talked about my day a little bit. I told them of the things I did that day that were in alignment with those things. I wrote a really good article. I exchanged some Facebook messages with readers who were struggling with their financial life. I spent a few hours at the park with my children, getting some exercise and exploring a little bit. I read a couple chapters of a really challenging book that forced me to think about the world. Those were all right in alignment with my goals.

But what wasn’t in line with those goals? I played some mindless computer games that were what I call “empty fun” – enjoyable in the moment but forgotten shortly thereafter. I spent more money on food than was necessary. I spent some time reading a bunch of websites that were, in the end, forgettable and pointless as well. None of that helps me with anything that actually matters to me in my life.

Since then, I’ve asked my children these four questions each night before bed – and I’ve challenged myself to answer the same things.

What do you want to do or achieve in your lifetime? Yes, this question gets repetitive, and it’s easy to settle into a repeated answer given without thought. The purpose isn’t the answer, though. The purpose is to think about it every single day so that you can sometimes have deeper insights and so you’re aware of your own changing values.

My children give interesting answers here. At first, they didn’t really know what to say and their thoughts were all over the place, but I’m finding that by asking this over and over again, they’re beginning to chip out some real truths about what they value. I see the same thing in me, though to a lesser extent because I’ve thought about these issues.

What have you done today toward those things? Actions. Today. Those are the key elements here. It’s not things you thought about doing. It’s not things you might do tomorrow. It’s today. What did you do today toward making your life achievements happen?

For me, some things are routine. Writing is part of my daily routine, for example. Where I’m challenged is both in making sure I’m moving forward in other areas and also in areas that provide a foundation for all of that stuff, like personal health and personal finance.

What did you do today that didn’t guide you toward those things? This question makes me face my spending mistakes and my time use mistakes. I usually know what they are, and reflecting on them again outside of the moment helps me weed them out. My goal is to minimize the stuff in life that doesn’t add up to anything meaningful and the best way to do that is reflect on it daily.

What can you do going forward to maximize the valuable things and minimize the useless things? In other words, what needs to be done tomorrow to make it more successful than today in terms of those lifelong things?

These four questions have provided the foundation of almost-daily family conversations ever since. While I don’t typically talk about every cent that Sarah and I spend, I do reflect on them, and I’m extremely open about my time use.

If I can’t look at myself honestly, who can? Who will? The truth is that no one will. Although these conversations are useful, it’s my careful consideration of my own life that will make my life better.

I want to teach my children to be able to look at themselves and their choices honestly, too. It’s something that’s useful for any person to have in their life, as it helps you to shape a life that’s meaningful and rich rather than an empty treadmill.

What if those steps toward the things that have meaning seem dull and unenjoyable? Anything worth achieving in life isn’t easy, and often those individual steps are hard. They don’t provide easy pleasure, but what they do provide is meaningful pleasure. Exercising until you’re completely worn out might not feel fun, but there’s going to be this deeper sense there that you’ve actually done something real, and then that hard work pays off the next time you do something that requires physical exertion (like playing soccer with your kids or simply taking on the tasks of everyday life).

If you can’t find that deeper meaning in the challenging steps in life, perhaps you haven’t yet figured out what it is that you want to achieve in life. Without that central guiding sense of where you want to go, it can become even harder to really challenge yourself, because it’s from that central sense of where you want to go that the deep feeling of joy in doing something challenging today comes from.

Every time you spend an hour or you spend a dollar, you have an abundance of choices. Will you spend it on something that’s transient – something that’s perhaps immediately fun but is forgotten in the next hour? Or will you use it on something that’s meaningful, something that lasts? We’re faced with that choice again and again. I’ve found that spending it on something meaningful is virtually always the right choice, because it lifts up everything else in life. It guides my money use, my time use, and my energy use. I’m far from perfect at it, but the better I do, the better life seems.

If you’re finding this to be a challenge in your own life, ask yourself those four bolded questions from above.

What do you want to do or achieve in your lifetime?
What have you done today toward those things?
What did you do today that didn’t guide you toward those things?
What can you do going forward to maximize the valuable things and minimize the useless things?

Ask yourself those things again and again, about every dollar you spend, about every hour you spend, about every ounce of energy you spend. Use those questions as motivation to get up and do something meaningful.

You will never, ever, ever regret it.

The post Making Today a Part of Your Meaningful Life appeared first on The Simple Dollar.

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401k Contribution Limits for 2016

If you work for a traditional employer, there’s a good chance you’re saving for retirement in a 401k (or some variant, such as a 403b for employees of nonprofit organizations). While this type of account isn’t as meaty as the defined pensions offered to previous generations, you can still leverage your 401k’s benefits to invest for a comfortable retirement.

The good news is, 401k contribution limits are quite high — more than triple the contribution limits for IRAs — allowing you to sock away a significant amount of money for retirement every year. The rules change often, however, so it’s important to stay up to date with changes if you want to max out your contributions each year.

Since your 401k contributions are tax advantaged, you may also save on your tax bill by contributing as much as you can. As an added bonus, many companies offer an employer match – meaning they’ll match any contributions you make, up to a certain percentage of your salary. While you need to save some of your own money to receive the match, it’s one of the closest things to free money you’ll ever find.

Below we’ll look at the 401k contribution limits for 2016, plus the benefits and drawbacks that come with these common retirement plans.

401k Contribution Limits for 2016

Before we dig in any deeper, let’s look at the contribution limits for this year — the maximum amount you can dump into your 401k for tax year 2016. These limits do not include any funds you receive as an employer match, however.

Age Bracket Maximum Contribution for 401(k)
Under 50 $18,000 in 2016
Ages 50 and over $24,000, including base maximum and $6,000 as an annual "catch up contribution"

How Much Should You Contribute?

Now that you know the maximum allowable contribution limits for your 401k, you need to figure out the right amount for your own financial situation. Obviously, contributing more to your 401k plan or even maxing it out can help you grow your nest egg faster and retire sooner. On the other hand, you still need to have enough cash in your take-home paycheck to live and cover your monthly expenses.

A lot of workers base their 401k contribution on a percentage of their income. Most financial advisors suggest contributing at least 10% of your income to your tax-advantaged retirement plan, although it’s smart to boost that percentage incrementally if you can afford it.

At the very minimum, you want to make sure you’re contributing enough money to get your full employer match. If your company matches contributions up to 5% of your salary, for example, you should consider a 5% contribution to be your bare minimum. Remember, your employer match is essentially free money. With the help of those matching funds, your nest egg can grow and compound much faster than it would otherwise.

Your 401k: Downsides and Drawbacks

While saving for retirement in a tax-advantaged 401k plan is certainly better than nothing, there are some notable downsides to consider. These drawbacks can vary from plan to plan, which is why it’s crucial to explore each of these issues before you start contributing more to your company’s plan.

First off, some 401k plans often come with limited investment options. We intentionally say “some” investment plans work this way, because each plan is different, and yours might be great. Where some plans offer an array of investments to choose from, others only offer a small sampling of high-priced mutual funds. And if you don’t like those options, you’re mostly out of luck – unless it’s a very small company and you can convince the top brass to change the investment options. Remember, investing in an employer-sponsored 401k plan means you’re stuck with the options your employer chooses.

Second, some 401k plans are expensive to use and operate. These expenses are passed down to you, the consumer, in the form of expense ratios and administrative fees. Unfortunately, these higher fees can methodically chip away at your earnings over time, leaving you with a smaller 401k balance in the end.

If you find your 401k offers limited or expensive investment options, it might be smart to consider contributing enough to your 401k to get your employer match, but stashing the rest of your retirement funds elsewhere.

Other Retirement Accounts that Make Sense

If you’re not in love with your work-sponsored 401k due to minimal options or high fees, it can make sense to invest at least part of your retirement savings elsewhere. Two different types of accounts – the Roth IRA and the traditional IRA – make it easy to save for retirement with any combination of investments you choose.

With a traditional IRA, your contributions are tax-advantaged in the same way as your 401k contributions are. You can take the tax deduction in the same year your contribution is made, up to certain limits. The best part is, you get to choose a brokerage account and the type of funds to invest in when you open your own traditional IRA. This includes the option to stash your money into low-cost index funds and call it a day.

With a Roth IRA, you also get to choose a brokerage account and your own investments. The big difference is, the tax break comes in retirement, not this year. When you invest in a Roth IRA, you use after-tax money to fund your account. On the upside, you won’t have to pay taxes on your distributions once you reach retirement age. As an added bonus, you can withdraw your contributions (not your earnings) from a Roth IRA at any time without paying a penalty or taxes.

The Best Way to Save for Retirement

No matter how you fund your retirement, the best time to start saving is now. For every year you fail to save, you could miss out on significant gains and compounding that might make retiring easier.

Even if you need to start with small contributions at first, you can always boost your contributions as you mature in your career and your income grows. The most important lesson to remember is that you have to start early if you want to give your money time to grow.

At the end of the day, the best way to save for retirement is slowly and over a lifetime. A 401(k) won’t help you get rich overnight, but it can help you grow wealthy if you have enough time on your side.

Related Articles:

How much did you contribute to your 401(k) last year? How do you plan to boost your earnings next year?

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Five Jobs Where You Can Dress Like a Slob

A long time ago when the earth was green and internet startups were the newest thing, I had a boss who preferred a casual dress code. Perhaps “preferred” is putting it too mildly: I once heard him threaten to cut a reporter’s tie in half if he didn’t remove it immediately. He was holding scissors at the time, so we all took him very seriously. That was the last time I saw a coworker wear a tie at that office.

In fact, it’s only a small exaggeration to say it’s the last time I saw a writer wear a tie, in general. Thanks in part to the tech industry and its focus on creativity over conformity, it’s now pretty rare to see so-called knowledge workers wearing a suit … or clothing that’s seen an iron. In other words, outside of a few industries like finance and law, today’s white-collar workers are often more likely to be collarless, wearing a t-shirt, and wiping their Cheeto-dusted hands on their cargo shorts. You’re lucky if we’re wearing shoes.

That’s not just a liberating development to workers who dread dressing up – it can be a big money saver. The average American household spent $1,846 on apparel in 2015, and those in the prime of their career, aged 35 to 54, spent about $2,600 on clothes plus another $500 on footwear — more than $250 a month. It’s not hard to imagine that figure dropping dramatically if you could just wear jeans and t-shirts every day.

Of course, not every job allows this kind of latitude when it comes to attire. If you’re really committed to getting some use out of your collection of band t-shirts, you need to target the right occupations. At these jobs, it’s A-OK to dress like a slob almost all the time:

1. Writer

Whether your official job title is reporter, blogger, copywriter, or contributing editor, if you work with words – especially in an online environment – you probably don’t need to worry about keeping that suit pressed. Generally speaking, creative jobs are more likely to allow you to wear super-casual office attire. When your thoughts matter, your appearance often doesn’t.

2. Software Engineer

Highly technical jobs are also likely to be perfect for folks who proudly fly their slob flag. Software engineers, analysts, and developers are famously lax about their personal dress code. They can afford to be: companies who rely on the smarts and skills of these workers can’t afford to be picky about what they’re wearing. They’re lucky they can afford them at all – unlike most of the other jobs on this list, these super-techies command salaries that easily reach six figures.

3. Graphic Designer

At the intersection of technology and art, we find these creative workers. While their attention to aesthetics can make them more appearance conscious than, say, your average software engineer, they’re still unlikely to turn up at the company picnic wearing a tie – and, more importantly, not expected to.

4. Tech Support Specialist

Quick: Who’s the one person in the office everyone has to suck up to, no matter how imperious they are with everyone else? If you said tech support specialist, you’ve probably recently seen your sharply dressed CEO groveling in front of an IT person wearing Tevas with socks. When you’re the person who knows how to get things working again (as well as everyone’s browser history and chat transcripts), you can command respect, even when dressed for gym class.

5. Telecommuter

Perhaps the ultimate job type for people who don’t want to dress up for work, telecommuter has the added advantage of being an entire category of gigs as opposed to one specific job. You can work from home full-time in nearly any field that requires workers to spend the bulk of their hours on the computer or on the phone.

In fact, FlexJobs, a job search site for telecommuters and part-time workers, says that work-from-home jobs are now available for workers at every point in their career, from entry-level to executive. The industries with the highest concentration of telecommuting gigs in 2016 were medical and health, HR and recruiting, computer and IT, and education and training, according to the service.

In other words, it’s not all customer service and virtual assistant jobs. So, if you like what you’re doing at work, but would prefer to do it in pajama pants, now’s the time to see if you can trade up. You could score a full-time work-from-home job – or at least convince the boss to let you try a day or two a week from your home office.

Related Articles:

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Thursday, October 20, 2016

31 Days to Financial Independence (Day 10): Trimming Your Spending – Utilities

“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!

Last time, we started looking at the average American family budget, going through each category and examining how one could trim the cost of typical expenses in that category. Here’s the “average American family budget” that we’re looking at, along with links back to the earlier entries on those specific areas:

Housing – $10,080
Transportation – $9,004
Taxes – $7,432
Utilities – $7,068
Food – $6,602
Insurance (including things like pensions) – $5,528
Debt Payments – $5,252
Healthcare – $3,631
Entertainment – $2,564
Cash Contributions – $1,834
Apparel and Services – $1,604
Education – $1,138
Vices – $775
Miscellaneous – $664
Personal Care – $608
TOTAL – $63,784

For now, we’re going to skip taxes and take a look at utilities, the next item on the list.

What’s included in “utilities,” you might ask? Utilities covers the monthly bills for maintaining many basic home services: electricity, water, heat, trash pickup, gas, heating oil, cable, internet, and telephone. If you pay a bill regularly for a basic home service, it’s probably part of this “utility” category.

The best part about utilities is that there are many, many ways to cut back on your spending in this area, both large and small.

Exercise #10 – Cutting Back on Utilities Spending

The rest of this article consists of a long list of specific tactics that you can use to trim your annual utility costs. Given that everyone lives a somewhat different life, some of these tactics are going to seem useful and sensible to you, others will seem like a stretch to you, and still others won’t apply at all. That’s okay. Ignore the ones that don’t apply. Make an effort to adopt the most sensible ones. Then, give the others a trial run and see if it’s something that can work for you. Commit to some of the challenging ones for thirty days and see if they work, or apply them during the relatively rare situations when those costs come up.

Remember, your overall goal is to cut back hard on the areas of life that are less important to you – the shallows – so that you can afford the “deep” areas of your life both today and tomorrow. Keep that in mind as you read each tip. Is this tip cutting back on something that’s really important to me, that amounts to a core life value? If not, why not cut it so that I can afford those things that really matter?

Let’s dig in.

Cut your cable or satellite. A combination of free over-the-air television that can be picked up by a normal inexpensive antenna plus the wide variety of offerings on Netflix and free video services like YouTube can provide almost infinite television programming for less than $10 a month (provided you have internet access). Given that the average cable bill is over $100 a month, that means that such a switch will literally save you almost $100 each and every month on average.

When looking at changes like this, it’s easy to get fixated on the things you’re giving up, but instead look at the things you’ll have in abundance. Even the most avid television watcher doesn’t have enough time to make it through the abundance of great series on Netflix, both the original ones and the others that they provide. You’ll also have the over-the-air networks like CBS, NBC, ABC, Fox, and PBS, and often several different versions of those with different programming. This can provide you with a ton of sports and news programming, especially during key news moments. Focus on what you get for $9 a month instead of what you’re losing by saving $90 a month.

Cut your landline phone. If you live in an area with good cell phone coverage, there’s no real reason to keep a landline phone. (In fact, the only reason we have a landline phone is that it’s literally free with our internet service and we don’t save anything by cutting it.)

Simply eliminating this service and relying on your cell phone for phone service can easily save you quite a bit of money each month, depending on the services and packages available to you.

Install energy efficient light bulbs. LED light bulbs that replace 60-watt incandescent bulbs use only 13 watts of energy to produce the same light and last 20 times as long. Over the course of that bulb’s lifetime, you can easily save as much as $150 via saved energy costs and fewer replacements, even with the higher initial bulb cost.

Even other bulb alternatives like CFLs can produce a significant savings over incandescent bulbs by using less energy and lasting longer.

Install (and program) a programmable thermostat. A programmable thermostat will automatically turn off your furnace and air conditioning during the weekday hours when you’re not at home and the nighttime hours when you’re asleep, saving you money on the cost of running those expensive appliances. This can easily save you a large fraction of your energy bill during the peak of winter and summer (though the savings are much smaller in the spring and fall).

The device is simple. It simply adjusts the temperature of your house – and turns the furnace and air conditioning on and off – according to the instructions you give it. Many programmable thermostats have a weekday and weekend setting, allowing you to set different programs for each, so you’ll just set a weekday program where the air conditioning and furnace are off from 8 AM to 4 PM (for example) and from 11 PM to 5 AM (for example). Your weekend program might just include the 11 PM to 5 AM stretches. That way, you’re not paying for your furnace or AC to run during those periods when you’re not at home or asleep.

Air seal your home. Air sealing your home means making sure that there aren’t any gaps around the edges of windows and doors through which air can flow. Air flowing through those gaps can cause you to lose the coolness of your home in the summer and the warmth of your home during the winter, and since you’re likely running your furnace or air conditioning, that means you’re watching money flow out of those cracks.

The procedure is pretty simple. Just look for places where you can feel air flowing in your home out of a window or a door frame, then caulk the edges of the window where air is flowing and install weather strips around your door to keep air from flowing there. Those two steps alone can significantly reduce your energy bill if your home is drafty.

Another useful strategy for reducing the loss of warm air in the winter is to improve attic insulation. It’s incredibly easy to add a few sheets of insulation up there if you don’t have much, and doing so can prevent a lot of warm air from escaping through your attic. (This is a great strategy in the northern United States and Canada, but perhaps less useful in the South.)

Make a nightly “energy sweep” part of your bedtime routine (and maybe a similar sweep before you go to work). Before you go to bed (and, maybe, before you go to work as well), walk through your house and make sure everything that should be turned off is turned off. Turn off light switches, fans, electronic devices, and anything else that makes sense as you go through the house before bed.

Any device that you leave running for no real purpose ends up draining electricity, which adds to your energy bill. A single light bulb left on overnight can add a quarter to your energy bill, which you can save with just a flick of a switch. Other devices left on to gobble power can devour even more. A simple house walkthrough where you turn off several devices and hit a few light switches can actually save you several dollars each time.

Set your water heater at 120 F. This is such a simple move that saves a ton of energy and will cut your electric or gas bill by a surprising amount. Simply go to your hot water heater and set it to 120 degrees Fahrenheit. Most hot water heaters have a simple temperature dial; all you have to do is turn it.

Doing so means that your hot water heater will burn a lot less energy keeping the water in that tank hot for your use. You’ll likely have to change how you typically mix water in the shower, for example (you’ll need more “hot” water now), but during all of that time where water just sits there in the tank being kept hot by the heater, the heater will use far less energy and that will save you money.

Get a reusable HVAC filter and clean it regularly. In order for your furnace and central air condition to run properly, you need to keep a fresh filter in place and change it according to the life of the filter. While it does add to the long term health of your HVAC and improves how efficiently it will run, replacing that filter constantly can really add up.

The solution is to buy a reusable filter, one that you simply clean once a month and slide it right back into place. The initial cost can be a little pricy, but after that, there’s no more expense. Just mark one day a month on your calendar as the day to clean your HVAC filter and you’ll never spend another dime on it again, while keeping it clean will maximize the efficiency of the air flow in your home. You’ll save on the filters and save because your heating and cooling systems aren’t running as much.

Keep your ceiling fans running in the right direction. Having your ceiling fans running in the correct direction for the season can allow you to run your thermostat a few degrees lower in the winter and a few degrees higher in the summer. Proper ceiling fan direction pushes warm air down from the ceiling in the winter while gently moving air around the room to provide a cooling effect in the summer.

How do you do this? When the weather starts to get cold, turn on your ceiling fan and stand right underneath it. If you feel air blowing gently down on you, you’re already in the correct winter mode so you don’t have to do anything. If you barely feel anything moving at all at first, then it’s in summer mode, which means you need to look for the directional switch on your fan and flip it. The reverse is true for the summer – you’ll want the more subtle air flow around the room rather than having warm air pushed down in the middle of the room.

Hang your laundry outside. Running a dryer eats up a lot of energy, even with an energy efficient dryer. This is especially true during the summer months, when the heat produced by the dryer adds to the heat in your house, causing your air conditioning to run more frequently. You can solve both problems by simply hanging up your laundry outside.

For a single person, a simple line strung across your balcony can easily do the trick. If you have a larger family, you may need to permanently install a line in your backyard. In either case, hanging out clothes for a few hours, especially whenever there’s a breeze, will dry your clothes incredibly well.

Run your dishwasher and/or dryer and/or oven in the evening before bed. Regardless of the season, the truth is that the temperature outside is lower in the evening and night time. That means that, if you’re trying to cool your house because it’s summer, your air conditioner will do less work during the night, but if you’re trying to heat your house because it’s winter, your furnace will do more work during the night.

In the summer, then, you don’t want to add extra heat to your house during the hot daytime hours, and during the winter, you do want to add extra heat to your house during the cold nighttime hours. In both cases, it makes a lot of sense to run your dishwasher and/or dryer and/or oven in the evening when you need to use them so that the excess heat that they produce actually helps with nighttime heating during the winter and doesn’t negatively impact daytime cooling during the summer.

Wash your clothes on cold water mode. Almost all garments that you put in the washing machine clean up perfectly well when you use cold water instead of warm water, so set your washer to do just that. The only difference that you’ll notice is that the clothes are perhaps a little colder when you pull them out of the washer and either hang them out to dry or put them in the dryer.

Using cold water means that you’re not spending energy to heat that water, which can save you money on the energy used to heat it with no real drawbacks.

Dust the back and underside of your refrigerator each year. Your refrigerator is one of the biggest energy-guzzling appliances in your home. One of the biggest reasons for that is dust on the coils, which drastically reduces the energy efficiency of your refrigerator. Refrigerators work most efficiently when their coils can efficiently exchange heat with the outside air, and when those coils have dust on them, the dust acts like an insulator, which means that the coils are far less efficient. The end result? Your refrigerator runs a lot more and it’s an energy hog.

Once a year, slide your refrigerator out and dust the coils off on the back. If there aren’t any coils back there, you may have to look underneath it and dust off the coils on the bottom. Regardless of where the coils are, simply cleaning them off can cause your refrigerator to run far less, which not only will notably benefit your energy bill, but will also extend the life of your refrigerator.

Stick a thermometer in your refrigerator and freezer. Put a thermometer in a spot in your freezer and refrigerator that’s nowhere close to the air vent and let it sit there for a while to get an accurate gauge of the temperature. Your refrigerator should be somewhere around 38-40 degrees Fahrenheit, while your freezer should be around 5 degrees Fahrenheit. Anything colder than that is a waste of energy; your refrigerator and freezer are simply running more than they need to be, gobbling down energy.

So, after that simple test, adjust your temperature dial accordingly in your freezer and refrigerator. You want to shoot for those target temperatures to keep your food cool without wasting energy. The first time I did this with our refrigerator, for example, I discovered that it was running at about 34 degrees Fahrenheit, which explained why items would sometimes freeze near the vents. Adjusting the temperature a bit caused the fridge to not run quite so much, which saved us some cash.

Use the microwave instead of the oven or stove top when possible. Your microwave is far more efficient at cooking tasks that center around boiling water than your oven or stove top is. If you need to boil water, do it in the microwave. If you need to simply heat something, do it in the microwave.

Save the stove top for things that don’t work in the microwave (like caramelizing onions) and save the oven for deep baking that also doesn’t work in the microwave. Those are tasks that need actual heat, not just hot water.

Never run partial loads. When running a washer, a dryer, or a dishwasher, make sure that you’re running a full load instead of a partial load. Those machines are designed to be maximally efficient with electricity, heat, air flow, and water usage when you run a full load, so do everything you can to make sure that you’re washing a lot of things at once.

This can be difficult at times if you’re a single person, so use your smarts. Wash bed sheets or towels in with other items to fill out your laundry loads. Wash things like dog toys (in the top rack) or toothbrushes or rubber boots or golf balls in the dishwasher to fill up a load.

Again, the key thing to remember when considering all of these options is that your overall goal is to cut back hard on the areas of life that are less important to you – the shallows – so that you can afford the “deep” areas of your life both today and tomorrow. As you consider each tip, give some serious thought as to whether or not that particular tip affects something that’s truly one of the “deep” areas of your life or whether or not you’re just acting reflexively. Is this thing really important to you, especially when compared to the things that are most important in your life?

Next time, we’ll keep digging through the categories in that average American budget.

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What’s the Difference Between a Conforming Loan and a Nonconforming Home Loan?

Before you buy a home, it’s important to choose a mortgage that gives you the best possible terms, based on your credit history, income, and the size of your down payment. Finding the right loan can save you tens of thousands of dollars over the lifetime of a mortgage. And generally, buyers are better off if they can find and qualify for a conforming loan.

A conforming loan meets a set of guidelines established by Fannie Mae and Freddie Mac, explains Joe Parsons, a branch manager at Caliber Home Loans in Dublin, Calif. Conforming loans typically have lower interest rates, which means lower monthly payments and less interest paid over the life of a mortgage.

What Do Fannie and Freddie Have to Do With It?

You’ve probably heard of Fannie Mae and Freddie Mac — these are government-sponsored enterprises initially created by Congress to bring affordability, stability, and liquidity to the home mortgage market, according to the Federal Housing Finance Agency (FHFA).

Fannie and Freddie create a secondary mortgage market by purchasing loans from lenders and holding them in their own portfolios or repackaging them into mortgage-backed securities that are sold to investors, says Don Hensel, the president of North Coast Financial, a private-money mortgage brokerage in Oceanside, Calif.

By purchasing loans, Fannie Mae and Freddie Mac help ensure that there’s a continuous supply of mortgages for home buyers. After selling loans to Fannie Mae and Freddie Mac, lenders are able to remove the loans from their own books. This frees up money for them to make new loans.

Conforming Loan Requirements

If a mortgage doesn’t meet the federal guidelines of a “conforming loan,” however, it can’t be sold to Freddie Mac or Fannie Mae – which makes it less appealing to a lender. Some of the main criteria used to determine whether or not a loan is conforming include (but are not limited to):

  • The size of the mortgage: A conforming loan can’t exceed the maximum value set by the FHFA, which is currently $417,000 nationally for single family homes, says Parsons. However, the conforming loan limit can be higher – up to $625,000 – in certain high-cost housing markets, such as counties in California, New York, Massachusetts, and Washington, D.C., among others. To qualify for a conforming loan, consumers must make sure the amount they borrow is less than the conforming loan limit for their community.
  • Loan-to-value ratio: This has to do with the size of your down payment relative to the price of the house. While a down payment equal to 20% or more of the home’s value is standard, first-time buyers can qualify for a conforming loan through Fannie Mae with as little as 3% down.
  • Credit score: Generally, to qualify for a conforming mortgage that meets Fannie Mae and Freddie Mac’s guidelines, you’ll need a FICO credit score of 620 or better. However, there are other government-insured mortgages (such as FHA loans, discussed below) available to borrowers with lower credit scores.
  • Debt-to-income ratio: This refers to how much of your monthly income is devoted to debt repayment. In a conforming loan, Fannie Mae wants your debt-to-income ratio to be no more than 36% (or up to 45% in some cases). So if your gross income is $5,000 a month, your total monthly debts — including car payments, student loans, credit card minimums, and your potential mortgage – cannot exceed $1,800 (or $2,250 using the 45% limit).

Jumbo Loans

Some borrowers must seek nonconforming loans, which typically have higher interest rates. Nonconforming mortgages may also require greater upfront fees and have more stringent insurance requirements.

When you borrow an amount greater than the conforming loan limit for your area, it is called a “jumbo” loan. The loan terms for jumbo mortgages vary widely from lender to lender, but they’re typically more expensive than conforming loans.

“A jumbo can still be a great loan, but it will be priced a little higher,” Hensel says. “That’s because lenders have more trouble selling these loans on the secondary market.”

Generally, the down payment for a jumbo loans is 20% or greater, Parsons says. In addition, lenders examine the borrower’s credit history and income with even more scrutiny.

“The standards for a conforming loans are more forgiving than for a jumbo loan,” Parsons adds. “The bank that is making that jumbo loan in all likelihood will keep it in their portfolio.”

Why Get a Nonconforming Loan?

Jumbo loans aren’t the only nonconforming mortgages out there. Mark Goldman, a loan officer with C2 Financial, says there are a variety of reasons borrowers must seek nonconforming loans, in addition to exceeding conforming loan limits. They include:

  • A low credit score. Non-conforming borrowers may have had a bankruptcies or foreclosures in their credit histories. The three major credit bureaus, Equifax, Experian, and TransUnion issue credit scores based on the perceived default risks that consumers represent. Each credit bureau is required to provide consumers with a free copy of their credit report once a year. You can find more information on AnnualCreditReport.com.
  • Poorly documented finances. To qualify for a conforming loan, you must be able to document proof of your income, your employment, and your assets.
  • A short employment history. Lenders are looking for conforming loan borrowers with steady incomes. A brief employment history or recent changes in job status could hurt your ability to qualify for a conforming loan.

FHA Loans

Goldman says people who can’t qualify for conforming loans may be able to obtain loans insured by the Federal Housing Administration (FHA). FHA-insured loans allow low- and middle-income borrowers to buy homes with down payments as low as 3.5%, he adds.

FHA loans generally have lower down payments and closing costs than conventional loans. Also, unlike conventional mortgages, an FHA loan allows you to use a financial gift from a family member, employer, or charitable organization for your down payment.

Related Articles

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Wednesday, October 19, 2016

High Protein, Low Budget

Daniel writes in with one of those reader mailbag questions that had an answer that kept growing and growing and growing until it became clear that it deserved an article of its own. Here’s the question:

Hi! Struggling a bit with changing around my food budget and thought you might help. I have a “side gig” as a mixed martial artist. I’m pretty much constantly training and eat 5-6K calories a day and try like crazy to eat a high protein diet. I drink protein shakes and such but I try to eat a lot of protein dense foods like steak.

Realized recently that I need to get my financial life in order so I started budgeting and realized I was spending $1,500 a month on food and barely eating out. I eat almost everything at home or else make it and take it with me.

I need some advice on how to keep up a high calorie and protein diet without spending so much money. I asked for some dietary suggestions at the gym and no one offered any useful ideas for really cutting costs.

That’s a lot of calories! I’m assuming that you have a good understanding of how to count calories and protein on your own without my help by using other tools and that you’re mostly just looking for high-protein foods with at least decent calorie density that are also inexpensive. I’m also assuming you understand your protein powder needs and know how to shop around for those.

Here are my suggestions for what foods to include in your diet.

Chicken A single cup of chopped cooked chicken meat contains 38 grams of protein. You can also often find a whole chicken on sale at the grocery store for less than $2 per pound. Put those two things together and you have yourself a spectacular bargain, probably the best food bargain on this list.

There are many, many ways to prepare a whole chicken. You can roast the whole thing. You can cut it into individual pieces and fry it or cook it in a slow cooker. You can de-bone the whole chicken and use the de-boned meat in countless other recipes. You can mix and match these things – remove the breasts and legs and cook them one way, then cook the rest of the meat for a soup or stew, for example.

You can, of course, get your chicken in other ways. You can buy specific parts at the grocery store at a bit of a premium price. It’s also quite easy to get whole rotisserie chickens at a pretty solid price – you can just take them home and eat them immediately. Still, you’re going to be hard-pressed to find a high-protein food bargain that beats a whole uncooked chicken.

Lentils and other beans A single cup of boiled lentils contains 18 grams of protein. You can get a one pound bag of dried lentils (which is about 2 1/3 cups) for less than a dollar at many grocery stores. Lentils double in size when cooked, so you’ll end up with just shy of five cups of cooked lentils for $1 and they’ll provide 90 grams of all-natural protein. That’s a very good bargain.

Lentils are incredibly flexible. They take on the flavor of almost anything you mix with them, so try things like chicken broth (you can actually make chicken broth really easy by just putting the chicken bones and scraps from your whole chicken in a slow cooker with several cups of water and letting it cook all day) and onions to add a ton of flavor to the lentils.

While lentils are probably the best bean bargain, almost any type of dried bean packs a protein punch at a nice price. I’m personally a huge fan of black beans; I love to cook them up with some onions and serve them as a side with almost anything, and I can get a pound of dried black beans for less than $2. Black beans roughly triple in size when you cook them, so you can get quite full on just a small portion of a bag of dried black beans.

Canned tuna and other fishes (like sardines, smelt, and salmon) A single 3 ounce can of tuna contains 25 grams of protein and, at my local grocer, you can buy a three pack of them for $1. That’s 75 grams of protein right there for just $1, served up naturally in your food.

Tuna is another very flexible food item. You can eat it straight from the can, serve it with crackers, mix it with mayonnaise to make a sandwich, put it on a salad – the possibilities are endless. It’s also incredibly convenient, since all you have to do is pop open the can.

The primary concern about tuna is that it does contain some amount of mercury in it. The EDF recommends eating canned light tuna once a week and canned white tuna a bit less frequently. They also encourage eating other canned fish, particularly salmon and sardines, as a replacement. While they do tend to be a bit more expensive, they’re still not pricy and they do add some variety to the mix.

Eggs Eggs are easily my favorite food on this list. You can get a dozen eggs at the store for $0.99 and each one contains 6 grams of protein, adding up to 72 grams across a full dozen. Again, that’s a cheap source of protein!

The thing I love about eggs is that there are nearly infinite ways to prepare them. You can hard boil them. You can poach them. You can scramble them. You can fry them with a bit of butter, a dash of salt, and some pepper. You can make them into an omelet. You can make a pretty mean egg salad. All of those things have vastly different flavor profiles and mix wonderfully with different foods to create a huge variety of meals.

I regularly eat a couple of poached eggs on an open-faced English muffin for breakfast, as it takes only a few minutes to prep and provides a very good protein boost in the morning for just a quarter or two. Put a little bit of salt and pepper on that (or a bit of cheese) and you’re talking a delicious hit of protein for breakfast.

Cottage cheese Cottage cheese is probably my second favorite item on this list. An ounce of cottage cheese has 3 grams of protein and you can get a 16 ounce container for about $1.50 to $2 depending on the local price, which provides 48 grams of protein.

Cottage cheese works as a simple side dish for many meals, with just a dusting of black pepper on top to flavor it. You can use it as an ingredient in lasagna, add fruit to it for a sweet treat, or use it instead of mayo in a tuna salad to make that tuna salad have enormous protein content.

A similar bargain in the dairy section comes from yogurt, which varies significantly in protein content but comes in a variety of flavors at a very low price for a good protein-rich snack. Yogurt containers are a very regular snack around our house, plus you can make pretty good homemade yogurt in the slow cooker overnight.

Peanut butter Peanut butter can be a little more expensive per gram of protein than other items on this list, but it’s still very inexpensive for the protein you get. An ounce of peanut butter contains 7 grams of protein and thus a 28 ounce jar – which can be had at my local grocer for $3.88 – contains 196 grams of protein. If you look at protein per dollar, that’s not much more than the other options on this list.

Peanut butter is another very flexible protein-rich item. You can use it on sandwiches, in stir fry, as an ice cream topping, as an additive to pancake batter, as a smoothie ingredient… the list goes on and on and on.

Other nut butters provide a similar protein boost, so if you can find them at a similar price as peanut butter, don’t be afraid to enjoy some almond butter or hazelnut butter as well.

These ingredients come together to form the backbone of a pretty inexpensive and pretty protein-rich diet. Many items on this list can be combined in various ways as well, creating distinct flavor combinations and the backbone of full meals. Try them all and see what works best for you. Good luck!

peanut butter – 28 oz jar for $3.88

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How Do Credit Card Balance Transfer Checks Work?

If you have an unsecured credit card of any kind, you’ve probably received those nifty balance transfer checks in the mail. From a distance, these checks appear harmless, and even helpful. Just write a check to yourself and deposit it in your own bank account. From there, you can use this money to pay off bills, make a purchase, or save up for an emergency.

Sounds good, right?

Unfortunately, the devil is in the details when it comes to balance transfer or “convenience” checks. While having the ability to write yourself a check for any amount might sound ideal, doing so means taking on more debt. Worse, balance transfer checks tend to tack on fees that make borrowing this money especially expensive.

Keep reading to learn more about balance transfer checks, how they work, and the pitfalls to avoid.

How Do Balance Transfer Checks Work?

While credit card checks tend to look the same, they can come with very different offers. Certain credit card checks you get in the mail come in the form of a true balance transfer offer, for example. When that’s the case, writing yourself one of these checks means scoring 0% APR on those funds for anywhere from 12 to 21 months.

If you read all the details, however, you might find a nasty surprise. Where some balance transfers may be fee-free, others charge a balance transfer fee of up to 5% of your transferred balance upfront. If you write yourself a check for $5,000, for example, you’ll owe up to an additional $250 on top of the money you borrowed.

In certain cases, the checks you’ll receive in the mail don’t come with a 0% APR offer at all. Disguised as helpful balance transfer or convenience checks, they may actually just represent a cash advance. If you read the fine print on the offer, you may find you’re required to pay a cash advance fee of up to 5% to use your checks, then pay a higher interest rate to boot. Worse, credit card checks meant for a cash advance don’t offer a grace period at all. If that’s the case, interest will begin accruing on your balance the moment you deposit the check in your account.

Consumer Warnings Against Credit Card ‘Convenience Checks’

The Consumer Financial Protection Bureau (CFPB) has warned of deceptive marketing practices with both balance transfer checks and cash advance checks in the past. These warnings are the result of concerns around “the marketing of credit card interest-rate offers such as balance transfers, deferred-interest offers, and convenience checks,” the CFPB says.

“Under these promotions, consumers are often charged a fee to transfer a balance or make a purchase with their credit card in order to receive a promotional interest rate on that amount for a set period of time,” writes the CFPB. “While consumers pay no interest or a low interest rate for balances subject to the promotion, any additional purchases consumers make with the credit card may incur interest charges right away.”

This is why it’s crucial to read the fine print on any offer you’re considering. No matter what, you should remember that 0% APR offers won’t last forever, and that every dollar you borrow must be repaid. In the case of cash advance checks, you’ll want to figure out exactly how much this loan will cost you. A lot of times, cash advances are incredibly expensive when you factor in upfront fees and ongoing interest charges.

Alternatives to Convenience Checks

If you truly need access to cash, a balance transfer check might not be the worst idea out there. Still, it’s important to read the fine print to figure out your interest rate and new loan’s terms before you sign on the dotted line. You should also determine whether you’ll pay an upfront fee to use a convenience check in the first place.

Also consider other loan alternatives that might leave you in a better spot once you factor in all interest charges and fees. In some cases, a personal loan from a bank or credit union might offer a better interest rate and terms.

If it’s a 0% balance transfer offer you’re after, you might do better signing up for a new balance transfer credit card with minimal fees and zero interest for the first year or more — it’s at least worth checking whether the offer you received in the mail is as good as other options out there. As always, you should compare offers, fees, and interest rates to find the best option for your needs.

Final Thoughts

A blank check in the mail might seem like a dream come true, but the charges you’ll pay can easily become a nightmare. Before you fill out a convenience check and cash it, ask yourself if it’s possible to avoid borrowing money altogether. Do you really need this cash, or could you make your finances work some other way?

If it’s possible to get by without taking on more debt, you should steer clear of convenience checks altogether. Remember, there’s nothing convenient about taking on more debt.

Have you ever used a convenience check? Why or why not?

Related Articles:

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Tuesday, October 18, 2016

Handling Financially Irresponsible People

One of the greatest challenges for people attempting to adopt or maintain a life of financial responsibility is the presence of financially irresponsible people in their lives. You have people who leverage social pressure to convince you to make bad spending choices or adopt bad financial habits. You have people who leverage their relationship with you in order to convince you to give them money. You have people who will ask to borrow money and never repay it. You might even have people who will directly access your funds and use them for unwanted things.

Regardless of how diligent you are about your own good financial choices, these things can seriously disrupt your financial progress. That’s because, in each and every case, financially irresponsible people can leverage aspects of your life beyond your finances to encourage you to make poor financial choices. They can leverage family, romantic, social, and even professional areas of your life to subtly (and not-so-subtly) push you toward poor money behavior.

The dilemma that many people feel in these situations is that they feel as though they’re having to choose between money and people and that it feels wrong to choose the money. Here’s the thing: the money you have is almost always the result of your personal hard work and hard choices. You made a lot of sacrifices to earn that money. If you had spent it foolishly, you wouldn’t have that money. By using it in a foolish way or giving it to someone who would spend it foolishly, you’re not wasting your money, you’re wasting your life. You’re sacrificing all of the hard choices and hard work that it took to improve your financial state.

I should know – I’ve made many of those kinds of mistakes. I’ve spent money to “keep up” with friends. I’ve given money to friends and family, knowing that it would never be paid back (and sometimes hoping that it would, only to be disappointed). I’ve had my spouse spend more than I expected (and, honestly, I’ve done the same to my spouse in the past, I’m sure). I’ve had people tap my personal relationship with them to ask for money or to invite my wife (it’s always my wife) to a “party” where social pressure is used to convince her to buy overpriced goods.

Every single one of those things was a mistake. Every single one of those things happened as a result of letting financially irresponsible people have too much of a stake in my life.

So, I started limiting that stake. In general, I took one of two approaches: I either found ways to minimize the ability of financially irresponsible people to affect my finances or I gently minimized their role in my life. Here are some of the specific strategies I’ve used or that I recommend for people in those situations.

Financially Irresponsible Spouses

Many financially responsible people are stuck with financially irresponsible spouses. This can happen in several ways, but the most common routes include a person having a financial epiphany after marriage that isn’t shared by the spouse or someone getting married while believing that he or she can change their spouse. Both are problematic and both require difficult solutions.

First and foremost, the two key elements to any rough edge in a marriage is communication and compromise. You have to be willing and able to talk about the subject and to do that without anger or personal attacks. If you can’t have a civil discussion about a rough edge in your marriage without resorting to a screaming match with personal attacks being thrown back and forth, you need to seek a marriage counselor who can help you reach a point where you can have civil conversations with the type of communication that a healthy marriage needs.

Once you’re able to sit down and discuss the issue in a healthy fashion, the thing to realize is that this isn’t an issue of “right” or “wrong,” but differing values. A person who is financially minded simply values things in a different way than someone who is not, but that’s not to say that either person is inherently wrong. The solution is to find a compromise that works well for both of you. One good solution is to set up a budget that allows each partner to have money that they can freely spend on personal things, gifts, hobbies – whatever he or she wishes – but said money has a monthly cap so that there can still be positive financial progress made.

The main issue that can undermine this is trust. If one partner or the other willfully and repeatedly violates an agreement that the two of you have, then there is a deep trust issue in the relationship, one that is likely a sign of some deeper relationship issues. Again, I recommend speaking to a marriage counselor before jumping to any further steps, but lack of trust between partners is something that needs to be fixed as soon as possible before it can completely corrode the relationship.

Financially Irresponsible Parents

Some people unfortunately find themselves in a situation where their parents are financially irresponsible. In some cases, the parents directly ask for financial assistance from their children; in many other cases, parents will overspend and just have an unspoken assumption that if the worst case results happen, their children will take care of them.

Many children go along with this out of a sense of not being ungrateful to their parents, who raised them and (hopefully) protected them through their childhood. Still, it places a real financial burden on the children as they have to deal with the financial demands of their parents while still keeping their own financial ship afloat.

Communication is absolutely vital here. If you don’t communicate, both sides will continue to operate with unspoken assumptions and such assumptions will eventually come to bear, resulting in a very nasty conflict that can easily damage relationships. If your parents tell you to your face that they are not expecting to rely on you in any way, then follow through with it.

Even with that type of communication, however, many children face intense guilt if their parents are struggling financially. What do you do in that situation, where their struggles aren’t just an imagined future, but today’s reality?

First of all, look for non-financial ways to help. Help them with household chores. Help them with budgeting. Help them with running errands and shopping. You may even go further and help them by cohabitating. Those are ways you can help without simply throwing money at the problem.

If you decide that you do wish to help, budget for it. Figure out carefully how much you can afford to give them and then plan for it. Don’t simply open your wallet on the spur of the moment unless that money is coming from the flexible spending part of your budget. If you’re going to consistently help, you need to plan for it starting right now.

I also strongly discourage loans, which is something that’s going to pop up a few more times in this article. Don’t lend money to family members or friends, ever. If you’re going to open your wallet and hand over money, do it as a gift, not as a loan. Acting as a lender to people in your life makes your relationship into a lender-borrower one and no one has warm feelings for their banker.

The most important thing to remember is that you do not have to help. Sometimes, relationships can become demanding and controlling and negative and those are things you never need in your life, even if it is your parents. Don’t be afraid to walk away from a negative situation.

Financially Irresponsible Adult Children

What if it’s your children that are financially irresponsible? Perhaps they ask for money constantly or even have a regular stipend from you. Maybe they even live at home without adequately contributing to the finances of your household. How can you handle this?

For starters, it’s important to remember that they’re the young ones with many years of life ahead of them. They’re the ones with energy and with lots of earnings potential. They also have the capacity to take a low-wage job – they don’t have to keep holding out for some kind of perfect job. (I certainly didn’t – one of my first jobs was literally shoveling dirt.)

In other words, you can cut them off. Young people have the energy to find a way to make things work in their life. They can find an entry-level job or two. They can find an apartment for themselves. They can balance their own budget. They can find resources to help them make ends meet if needed. In fact, they need to do such things, as it’s part of learning how to live.

I recommend giving your children a cut-off date. Let them know that financial changes are coming in the fairly near future and that they need to take action to deal with the changes. They need to find a job. They need to find an apartment. They need to adjust their budget to live without that deposit into their checking account.

At the same time, offer as much non-financial support as you can give. Ask them if they want help, and if they do, dive in. Help them find an apartment if they want that help. Help them seek a job if they want that help. Help them move out. Offer as much advice as you can if they ask and give them an open door for that advice. Some children will want this; others won’t. Just make sure you’re available.

Often, children need that final push to finally get out of the nest and find their own path to financial responsibility.

Financially Irresponsible Extended Family Members

What about the uncles and cousins and adult siblings and other people in your life that might have a financial impact on you? What do you do when your brother or your niece knock on your door, asking for a loan or some other help?

First of all, don’t loan money to family members. Don’t. Ever. Avoid it. You do not want a lender-borrower relationship with extended family members. For one, there’s a good chance you won’t be able to get them to pay you back. For another, that lack of payback is going to cause a family rift that will cause problems for many years to come. It’s a story that happens over and over and over again, and it’s never worth it. Don’t lend money to extended family members. Don’t.

Instead, openly offer non-financial help. Give that person a ride to work. Give that person some advice. Help that person find a job. Invite them over for dinner. Provide an ear for them to talk to and a shoulder for them to cry on.

What about when extended family members do things that encourage overspending, like maintaining an expensive gift-giving tradition or suggest expensive trips together? As is always the case, communicate, but do it outside of the framework of those expensive situations.

For example, if your family has an expensive winter holiday gift-giving tradition, the correct time to talk about it is in the spring or summer, not in the late fall or winter. If you do it right on the precipice of that event, you’re likely to cause hard feelings as people have already begun to plan for it. Instead, do it far away from any such planning. Similarly, if expensive trips happen in the summer, talk about it instead in the winter.

When you talk about such things, suggest a reasonable compromise. Instead of expensive gifts for everyone, do a gift drawing or perhaps put a cap on the cost of the gifts. Instead of expensive travel, do a more modest trip together (for example, I’m a huge fan of our national parks, so that’s a modest vacation that I want to go on). Don’t just say that you don’t want to continue the tradition because that appears as though you’re rejecting them and not rejecting the expensive routine.

Financially Irresponsible Romantic Interests

You’re dating someone and you find that they’re much looser with their spending than you are or have been that way in the recent past. That person spends money with almost frightening ease, particularly when that person’s income seems to be unable to support it. You notice a lot of envelopes from Chase or Bank of America in their apartment. Those are things you’ll notice as you grow close. But, aside from that financial concern, the match seems great. What do you do?

My honest suggestion is to be very wary of this relationship. I don’t mean that you should break it off immediately, but that you should apply more of a critical eye to the whole relationship. A drastically different view about spending can be something that becomes a major problem in marriage as you’re combining your financial lives together (whether you keep accounts separate or not), and drastically different levels of financial responsibility is going to result in some issues down the road.

This is also a good opportunity to start to learn how to communicate about such issues. The key to a good marriage is good communication, and there are few issues that rely on good communication more than money issues. If you can have a healthy money discussion about your differences in spending and can come up with a good strategy that has some compromise in it for both of you, then that’s a good sign for your long term relationship. If this conversation is difficult or impossible, then that’s another strong negative sign.

Once you have a compromise in place, does your partner stick to it? This is a trust issue, as you’re trusting your romantic partner to be able to stick to the things you’ve promised. Again, if you’re able to talk about a compromise and then your partner doesn’t stick with it, then there’s a trust issue. (There’s also a trust issue if you don’t stick with it, too.)

Financially Irresponsible Friends

Let me be blunt here: there are many, many financially responsible people in the world that I could be friends with, so I don’t really have the inclination to maintain friendships with people who encourage me to overspend. Period. I just don’t put effort into maintaining friendships with people with whom it is expensive to maintain friendships.

That doesn’t mean I don’t have friends with expensive tastes. It just means that when I do things with those friends, there’s no expectation whatsoever of spending money and that we do things together that are usually really low cost.

The vast majority of my close friends simply invite each other over for social things. We have dinner parties, game nights, movie nights, and binge-watching marathons. When we do other things, we usually talk it over and have the two best bargain hunters (me and one other person in the group) search for discounts and coupons and plan out the cheapest way to do it.

What do you do if your friends seem to have expensive tastes? Suggest less expensive options at least some of the time, for starters. Very few people will object to sometimes doing things that don’t require as much spending. If they do, then there’s a deep value disconnect between you and that other person. It’s okay to occasionally do something expensive with friends, but it should not be the norm.

You should also never accept negativity and criticism from “friends” because of your inexpensive tastes. If a “friend” is ridiculing your car that you bought out of an intentional strategy to save money, not only are you seeing a values difference, you’re also seeing an abandonment of kindness between friends. That’s a friendship that it’s perfectly okay to walk away from.

Another strategy is to choose social events for yourself that are low-cost and try to meet people there. Many of my closest friends over the last few years have been ones I’ve met at community game nights and at volunteer events. Almost all of those friends are pretty frugal people and our social activities are usually really inexpensive. If you follow this strategy, you’ll find that your social calendar becomes more and more filled with inexpensive events.

Financially Irresponsible Coworkers

In the workplace, you’ll sometimes find social pressure to do things like go out for expensive lunches or dinners or to buy expensive things like watches or gadgets. That pressure to “fit in” at work and build strong relationships can cause you to spend a lot of money that you might not otherwise spend.

Here’s the truth, though. The most lasting workplace relationships are built out of other things, like reliability and kindness and healthy candor. They aren’t built out of spending $50 on lunch. They’re built by being a great coworker, taking care of things that you promise to take care of, stepping up to challenges, not backstabbing people, and being an active participant in workplace conversations.

Another strategy is to intentionally spread out your lunches across a lot of dining companions. Bring your lunch in some days and eat with people who stay in the office for lunch eating leftovers. Get to know them. Go out to eat sometimes with the expensive crowd, too, but sometimes grab a bite with the cheap lunch crowd. Not only does this cut down on your lunch spending, it lets you interact with a lot of people and perhaps get to know people you didn’t know as well.

Simply going out with the expensive crowd isn’t going to do much to secure your spot at work. Being a good coworker will secure that spot more than anything else.

Final Thoughts

The strategies in this thread all boil down to a few key principles. Don’t lend money personally to people. Seek out lower-cost social activities and cherish the relationships with people who share those activities with you. Communicate clearly if you desire lower-cost obligations (and do it out of the context of the situation). Don’t be afraid to update your social circle. Communicate, communicate, communicate with your loved ones.

It’s only through those strategies that you’ll be able to maintain healthy relationships with some less financially responsible people in your life without going down a financially irresponsible road yourself.

Good luck!

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