The Dough Roller | Money Management and Personal Finance
Founded in 2007 by Robert Berger, the Dough Roller has become a popular personal finance blog read by millions each year. They bring you the best tips, resources and news to help you make the most of your money. Their content has been featured by the likes of MSN Money, Yahoo! Finance, Business Insider, and U.S. News.
Troops face unique situations and opportunities that can affect their finances. To help, here are 5 financial tips for members of the military.
Financial tips for members of the military are similar to what they are for anyone else. The complication of course is that as a member of the military there are times when you’ll have less direct control over your finances. You may even find yourself getting into certain uncomfortable financial situations as a result of that separation.
Here are five ways you can avoid that outcome.
1. Avoid Debt Like the Plague
Debt is a problem for millions of Americans. But it can be a specific problem for members of the armed forces, who may be looking to fix a short-term money problem.
Credit cards are an obvious issue. The revolving nature of these debts, as well as the very low monthly payments–usually only about 2% of the amount owed–makes them very easy to use in a pinch.
But that’s one of those treadmills that once you’re on it, is very difficult to get off. If you borrow too much on credit cards, you may eventually find yourself borrowing even more to help you make the monthly payments. You generally can’t use one credit card to make the monthly payment on another. But you can use one credit card to pay a bill for living expenses, so that you can use your paycheck to pay for another credit card.
That’s the Catch-22 that leads people straight into bankruptcy court.
The Payday Loan Trap
It can be tempting to sign on for payday loans to cover expenses. But the loans are short-term and the interest is sky-high, and that’s the problem. Payday loans typically charge in excess of 300% per year.
In a typical payday loan scenario, you might borrow $500, with the understanding that you will pay it back when you get paid in two weeks. But with an interest rate of about 1% per day, when payday comes in two weeks, you’ll have to pay back $570.
That will leave you $570 short on your next paycheck, which might create the need for yet another payday loan.
People get into that trap all the time. Each loan requires the repayment of a slightly higher amount. Eventually there’s no pay left in the paycheck, and you end up in default. That creates all kinds of ugly outcomes and should be avoided.
It’s not just a problem of getting too deep in debt. Heavy credit card debt and payday loans can destroy your credit. That can become an even bigger obstacle once you’re out of the military, and looking to establish yourself in civilian life.
2. Don’t Be in a Hurry to Buy a House
The so-called American dream isn’t always the best strategy for active members of the military. Transfers and deployments can make homeownership problematic, as well as causing a large number of unanticipated expenses for repairs and maintenance.
There’s an especially big temptation to buy a house for members of the military. You’re eligible for VA mortgages, which allow you to borrow up to 100% of the purchase price of a home. That means a zero down payment arrangement, making VA mortgages just about the best deal available in the mortgage universe.
Unless you’re in a very long term basing assignment, it’ll probably be better for you if you hold off buying a home until after you’re discharged.
3. Maximize Your Retirement Contributions
As a member of the military, you have the defined benefit plan allowing you to retire after 20 years. But that will give you a monthly pension benefit, not a lump sum retirement portfolio that you can use at your discretion.
Under either plan, you can contribute up to $18,500 per year, or $24,500 per year if you’re 50 or older. That will not only enable you to save a lot of money for retirement, but it will also greatly reduce your taxable income.
But even if you can’t make the maximum contribution, plan to contribute at least 5% of your income to either plan. At that level of contribution, the military will make a matching contribution of 5%, giving you a total contribution of 10% of your pay.
Though you may have other uses for the money you would contribute to the TSP or BRS, it’s important to begin saving for retirement at any age. That way by the time you get out of the military, you’ll already have a head start. And when you go into civilian employment, you can join whatever retirement plan is available there, and continue building your retirement nest egg throughout your life.
That will give you many more options as you move toward retirement age.
4. Learn What You Can About All Things Financial
When you’re in the military, the financial world can seem like it’s a million miles away. But rest assured it isn’t. There are heaps of financial entanglements you can get into while you’re in the military. What’s more, one day when you are discharged, you’ll hit the financial world head-on. The more you can learn about it in advance, the better prepared you’ll be for civilian life.
Sure, you’ll have plenty of time to tackle those subjects when you get out. But things happen quickly when you transition from military life to civilian life. Finances will be a big part of that transition. The more you can learn while you’re still in the service, the better prepared you’ll be when that day comes.
5. Set Your Finances on Automatic Pilot in Case of Sudden Deployment
As a member of the active military, plan to keep your financial life as simple as possible. You can never know when you’ll get orders for a sudden deployment. There may not be much time to reorganize your finances for a prolonged period of absence. For that reason, plan to automate your finances.
If you’re participating in either the TSP or the BRS, that will already be happening through payroll deductions. But you can do something similar with virtually every other area of your finances.
For example, you should have a payroll deduction going into basic savings. That will ensure emergency funds are available either for your family, or for you when you return from deployment.
Another big one is setting up automatic debits for bills. You can do this for loan payments, services (like insurance or subscriptions), utilities, or any other expenses you have.
The idea is to create a system in which your finances will continue to function smoothly even in your absence. And most likely, when you return from deployment, you’ll want to keep it all set up the same way. Putting your finances on automatic pilot is the easiest, most stress-free way to manage your finances. That’s true whether you’re in the military, or in civilian life.
And just as important, the financial strategies you implement during military service will benefit you in civilian life. You’ll already have your finances organized, retirement savings in progress, and debts minimized. That will benefit you for the rest of your life.
Want to maximize your Airbnb income? Here are 13 tips for Airbnb hosts that cover some details you might be overlooking.
Since I first wrote this article on Airbnb hosting in late 2017, my family has hosted an Airbnb guest nearly every night. We’ll have maybe three nights a month that don’t book out. We’ve hosted interesting people from all over the country and all over the world. And we have excellent reviews that keep the bookings coming.
This is great for us, since Airbnb really does pay our mortgage more months than not. But during our time, we’ve learned our share of lessons. I’m here to share them with you. Whether you’re interested in hosting within your home or even listing out a carriage house above your garage, Airbnb can be an excellent way to bring in extra money. Just be sure to follow these tips to make it easier for you:
1. Get familiar with laws in your area
As Airbnb becomes more popular, more cities and states are trying to regulate it. In our native Indianapolis, the rules are fairly loose. But some outlying nicer neighborhoods, like Carmel, Indiana, are trying to ban Airbnb hosting altogether. Be sure you understand the rules and regulations in your local area so that you don’t run afoul of the law.
2. Decide up front how often you want to host
One of the best things about Airbnb for hosts is that it lets you set up rules for bookings ahead of time. For instance, you can set minimum and maximum stay limits. And you can automatically block out the calendar the day before and/or after a booking.
These rules are great if you’re listing out a larger space that will take longer to clean. It’s not worth your time to list a whole house, kitchen included, to a messy guest for a single night. So think about your capacity for cleaning up the space, and set your rules accordingly.
For our family, our single-ensuite Airbnb room takes about 20 minutes to clean. Because it takes so little time, we have no minimum booking requirement, and we don’t block out a night before or after a stay. Sometimes it gets hectic when we have a different guest every night of the week. But we can manage because the space itself is so easy to clean. I just have to stay on top of all that laundry!
3. Be completely honest in your listing
To get good reviews, it’s absolutely essential that you’re honest in your listing. For me, this means making clear that our space is in a developing neighborhood. Yes, there are abandoned homes on our block. And, yes, we live in a lower-income area with all that this entails. Generally, though, we’ve always felt safe here, so we are comfortable hosting guests. We’re also honest about what they’ll see when they get here.
In all, we’ve had just two guests refuse to stay after they arrived because they were uncomfortable with our neighborhood. And we’ve only had a couple of negative comments in reviews about our area. That’s because we are up front about what guests should expect.
You should also be very up front about your home’s feel and any rules you expect guests to follow. We have young children, and our guest room is right next to the kitchen and their play area. So I tell guests more than once that they can expect noise in the mornings as early as 6:30 AM. I try to keep the kids upstairs a little later on the weekends, but that doesn’t always happen.
Again, we’ve only had a couple of complaints about this because guests know what to expect from our detailed listing.
You don’t have to be a Negative Nancy that nitpicks every aspect of your space or your location. Just tell guests what they can expect, and they’ll give you credit for that in their reviews.
4. Find your niche in your area
If Airbnb is already popular in your area, you might have some steep competition to get started. People are more likely to book a place that already has a wealth of good reviews. You can overcome this issue, to a point, by finding your niche.
For us, our niche is that we are a little further from downtown, but we also list a private space for much less than downtown offerings. We generally list for $18 to $35 per night, depending on the day. Our guests sacrifice walkability to downtown. They have to Uber, drive, or take the bus to most of the city’s main attractions. But they also get a private space with its own bathroom and entrance for a very low price.
At downtown Airbnbs in Indianapolis, that same rate will put you in a spare bedroom in someone’s home, where you’ll share an entrance, living spaces, and bathroom. Either that, or you’ll just pay a whole lot more for a private space.
That’s our niche. You need to find yours as a host. Look for ways that you drive a particular value for your guests. That could be access to specific locations in your city. It could be extra amenities and perks. Or it could be monetary value in providing a similar space for a lower price. Whatever it is, be sure you advertise that particular selling point in your listing.
5. Look at Airbnb’s pricing rules, or set your own prices
We have used Airbnb’s auto-pricing rules for a while, simply because I don’t have the time to stay up- to date on the latest listings in town. They work well for us most of the time. Sometimes if I know there’s a big weekend–like the Indy 500 weekend, for instance–I’ll bump up the price manually. Airbnb doesn’t stay on top of local events well enough to account for this type of major bump.
If you have a higher-value place to list, though, you might consider setting your own prices based on market research. This takes more time, of course. But it can be worth your while if you’re listing a whole home that goes for hundreds of dollars per night.
6. Keep your calendar current
One of the criteria for earning a Superhost badge, which is valuable in driving more bookings, is to never cancel a visit once a guest has booked. This means you have to keep your calendar up-to-date. Otherwise you risk a guest booking during a time when you actually can’t handle the booking. Then you have to cancel, and it’s a big mess for everyone involved.
If you struggle with this piece, consider restricting how far out guests can book. You can set the limit to three months instead of six. Then you can also block out dates that are not even available for guests to book yet. It’s a good idea to do this for dates you think you may be unavailable. You can then unblock those dates if your own plans fall through.
7. Have backup for emergencies and when you’re out of town
One way to avoid canceling bookings is to have a backup. We have a full-time roommate and a plethora of neighbors who can help with our listing in a pinch. For instance, last summer on our family vacation, the couples who checked in asked for a few random items after check-in. We were hours away, but quickly found a neighbor who has access to our whole home (Airbnb guests do not unless we are at home) to gather up the necessary items and run them over.
We also have high schoolers that we can pay to flip the room for us if we’re going to be out of town. This can really eat into our profits since we’re only listing for $20 a night or so. But it’s worth paying instead of cancelling a guest’s visit because we were unexpectedly out of town.
8. Be prepared for misunderstandings
As I said above, even with as up-front as we are in our listing, we’ve had people complain about things that are out of our control, such as our neighborhood or the noise our kids make in the morning. It’s just going to happen.
You should also be prepared for misunderstandings as guests arrive. Our standard check-in time is 5PM. That’s because we often need time to get home from work and turn the room around when we have back-to-back bookings. But many guests will book the room and tell me they’re arriving at noon. I just have to message back to remind them, gently, that our listing sets a check-in time of 5PM and that I’ll let them know if I can have the room ready earlier.
We also have issues with guests not fully reading check-in directions. The key to the Airbnb room door is at the back of the house in a coded key box. So if we are going to be busy during check-in, I send guests clear directions of how to park, get the key, and let themselves in. It’s astounding the number of people who come to the front of our home and root around in the mailbox looking for a key.
We’ve had neighbors call asking if someone was trying to break into our house as a guest tries to get into the front door. So prepare for these types of misunderstandings by letting your neighbors know what you’re doing. And always be sure to keep your phone available for guest questions around check-in time.
9. Get at least two of everything
At first, we thought we’d host with two sets of sheets but only one set of bath mats and one comforter. Unfortunately, bath mats and comforters take forever to dry, so that wasn’t working with back-to-back bookings. Now we have at least two of everything so we can easily turn the room around.
Even if you block out time around your booking, keeping extras on hand is wise. That way if something gets ruined during one stay, you’re not scrambling to replace the item before your next booking.
10. Stay in communication with your guests
Come up with a routine for communicating with your guests in a timely fashion. I typically thank guests right after I get a notice of their booking. Sometimes their booking message will include questions and I answer those right away, too.
I also check our upcoming Airbnb calendar every Monday morning. This allows me to send out check-in instructions and find out guest arrival times for the week. I also send the list of guests and check-in times to my husband, since we co-manage the room.
Sometimes fielding inquiries and booking messages is a pain. I can get several messages on my phone’s app as I sit in a meeting at work. But prioritize guest communications, and you’ll get better ratings and more bookings.
11. Don’t sweat a few negative reviews
Some people are just going to be annoyed about things, even if they’re things you can’t help. We’ve had guests complain about our neighborhood, noise levels, or the mattress in the room. While we did eventually upgrade the mattress, we can’t do much about the other factors. So we don’t sweat it when we get a few negative reviews about those things.
If you need to, you can always respond to a negative review. You can’t change it, but you can at least add context to the review for other potential guests to see. Whenever possible, point back to your listing and guest handbook. For instance, if guests complain about the kids’ noise at 7AM, I apologize but then refer them to our handbook, which warns of this particular issue.
12. Leave reviews for great guests
At first, I tried to leave an individualized review for every single guest. But we have seven guests some weeks, so this just isn’t possible. Now, I make a habit to at least leave reviews for exceptional guests who communicated well and left the room really tidy. I also always leave reviews for guests who review us.
Again, get into a habit here of going through and doing reviews once in a while. Airbnb will send you reminders to review guests. So try to get into the habit of responding to those reminders for at least most of your guests.
13. Keep track of your income and expenses
Finally, be sure you understand how taxes will work for your Airbnb income. And know that you can write off expenses directly related to this income. One good option is to keep a credit card just for Airbnb expenses, including any cleaning supplies, linens, towels, and other supplies for your guests. Keep those expenses separate, and document the receipts. That way you can recoup at least some of your costs come tax time.
Though it is taxing work to keep up with the duties that come with opening your home to guests, the financial gain you receive is well worth the time invested. For current Airbnb hosts, these 13 tips should help elevate your listing, bring in more bookings and increase your income. For brand new or future hosts, this may be a hefty amount of information to take in but it will serve as an excellent guide to Airbnb success.
If you’re looking to make more money and have an extra room in your house that you could list, Airbnb might be a great opportunity to turn that spare bedroom into real money.
If you’re banking on your savings to swell sitting in a traditional account, you might also be banking on disappointment. We’ll tell you about 7 alternatives to a traditional bank account that could bring you quicker and better results.
The stock market may be on a nine-year bull run, but few would argue that traditional bank account interest rates are deep in the basement. Most pay only a fraction of 1%. If you take inflation into account, you’re losing money keeping your funds in a traditional bank. For that reason, it’s become practically a necessity to find alternatives. Here are seven we recommend.
1. High-Yield Online Savings Accounts
Local banks pay close to nothing in interest on savings. You can get much higher rates from online banks. Two that are particularly strong in this area are Synchrony Bank and CIT Bank. They pay rates on savings, money markets, CDs, and even checking accounts that are well above 1%.
The disadvantage of online banks is that they don’t usually offer full banking services. For example, some don’t have checking accounts or ATM access. Others don’t offer loans.
Online high-yield savings accounts are best for pure savings. It will generally be necessary to keep the relationship you have with your local bank, but earn more money on your savings online.
Using CDs and CD Ladders with Online Savings Banks
CDs generally pay higher rates than savings accounts. But you might be hesitant to tie up your money in CDs. There is a way around that, using what is known as a CD ladder. That’s a strategy where you use multiple CDs with varying maturities. It’s a way of making sure some of your money is liquid, but still earning higher rates of return.
Each month going forward, you invest $2,500 in a 12-month CD paying about 2%. After 12 months, your entire savings of $30,000 is invested in 12 different CDs.
This means one CD will be maturing every month, giving you a strong measure of liquidity. The maturing CD can even be rolled over into a new 12-month certificate. This strategy enables you to take advantage of rising rates in the future.
Still another variation is to invest in CDs of different maturities. For example, if you want to invest the entire $30,000 in savings today, you could put five equal shares into different CDs with maturities of one year, two years, three years, four years, and five years. You’d be tying up your money longer, but the return will be higher.
Most people are at least remotely aware that Treasury securities exist, but very few individuals invest in them. That’s unfortunate, because certain types of U.S. Treasury securities pay high rates of interest. What’s more, since they’re issued by the US government, they’re considered to be the safest of all investments, virtually impervious to default.
US treasury securities come in various terms. They can range from 30 days to 52 weeks for treasury bills, two years to 10 years for treasury notes, and 30 years for treasury bonds.
Treasury bills, being short-term, pay lower rates, but still much better than a traditional bank. But if you’re willing to invest for a longer term, you can get higher returns on treasury notes.
They can be purchased in denominations of as little as $100, and pay interest every six months. Current rates are around 2.5% for two-year notes and about 2.8% for five-year notes. You’ll be tying your money up for longer than you would with a savings account, but the higher interest may be well worth it.
You can purchase, hold and sell US treasury securities through Treasury Direct.
3. High Dividend Stocks
Stocks are of course more risky than traditional savings. They’re not really suitable if your primary purpose is creating an emergency fund. But if you’re looking for a higher yield on your savings–as well as a chance at price appreciation–there are plenty of good high dividend stocks.
Many of these companies are well-established, and tend to be less volatile than the overall stock market. In fact, high dividend yields tend offer a measure of protection during market declines.
There’s a bonus here, too. If the dividends paid by the company are considered qualified dividends, there may be no tax liability on them.
To get started buying dividend stocks (and any other kind of investing in financial markets) we recommend checking out Ally Invest, an online discount broker. They have low fees and no minimum deposit, so it will be simple and easy to get started.
4. Municipal Bonds
Morningstar reports that the average annual return on municipal bond funds is about 3.5% over the past five years. That’s a lot higher than yields on traditional bank accounts, and even many of the alternatives included in this article.
But the best part of all is that the interest paid on municipal bonds is exempt from federal income tax. And if your own state has an income tax, and the bonds are issued by an agency within your state, the interest will also be exempt from state income tax. This is referred to as double tax-exempt.
Since they’re tax-exempt, if you’re in a combined marginal tax rate of 25%, a bond yielding 3% will be the equivalent of a 4% return on a taxable investment.
For small investors, it’s usually best to invest in a municipal bond fund. That’s because the fund can diversify between various bonds issued. They may even be sorted by state, so you can take advantage of double tax-exempt status.
Individual bonds usually sell in denominations of $1,000. Some may even require a minimum purchase of $10,000 (10 bonds), making it hard for small investors to diversify. A better alternative may be a high-yield bond fund. For example, the iShares 0-5 Year High Yield Corp Bd ETF has a one-year return of about 3.5%, and that fund is comprised of bonds with maturities of not more than five years, making it lower risk than long-term bonds.
6. Real Estate Investment Trusts
Not many people think of real estate when it comes to savings. But there’s a way you can use real estate as a form of high-yield savings. Real estate investment trusts, or REITs, are something like mutual funds that invest in real estate. It’s primarily commercial real estate, like retail space, office buildings, warehouses, or large apartment complexes.
REITs pay dividends. In fact, they’re legally required to pay 90% of their revenues in dividends to their shareholders. Returns over the years have been generous, on the order of 10% annually.
REITs are also publicly traded funds, so you can buy and sell any time you want.
There is some risk of losing invested capital with REITs, so make sure you’re aware of this fact, and fully prepared to invest for the long term. But it’s a way of earning high dividend yields without being so dependent upon price fluctuations of the underlying investment.
7. Peer-to-Peer Lending
This is another form of investing that does involve some degree of risk. With P2P lending, you’re investing in personal loans issued to consumers. There is always the risk that a loan can default. However, when you invest in P2P lending, you’re only purchasing notes, not entire loans. The notes represent $25 slivers of individual loans. That means that you can invest in 40 different loans with an investment of $1,000. That will help to minimize your risk.
Allocating your investments in stocks and bonds is a critical investing decision. In this article, we look at several rules of thumb that can help you make the stock vs. bond allocation decision.
The allocation of your investments between stock and bond mutual funds is one of the most important asset allocation decisions you’ll make. Fortunately, there are some really easy to apply rules of thumb to help us make a reasonable decision.
Before we get to how much to invest in stocks vs bonds, however, here are several things to keep in mind:
Your Allocation Will Change Over Time: The allocation between stocks and bonds typically changes as your investing horizon draws closer. Somebody with 40 years to go before retirement will likely want far more invested in stocks than somebody who will retire in 5 years. When I began investing in my mid-20s, I didn’t own any bond funds. I didn’t buy my first bond fund until my late thirties, and at 40, my allocation was 80/20 in favor of stock mutual funds.
There is No One Right Answer: Although the rules of thumb discussed below are helpful, there is no one right allocation between stocks and bonds. As I discussed in the article about why asset allocation is important, understanding your tolerance for risk and desired returns will influence your allocation between stocks and bonds, and these decisions vary from one individual to another.
Your Tolerance For Risk Changes Over Time: In your 20s when you first start investing, you may not be concerned with a 30% drop in the market. In your 40s with 3 kids and a 5 or 6 figure portfolio, a 30% drop in the market will take on a whole new meaning (trust me).
Investing is a Learning Process: I’ve learned a lot in the 15 years I’ve invested, and my opinions about asset allocation and a lot of other financial issues have changed over that time. The point is not to approach these decisions rigidly, recognizing that your views will change.
Rules of Thumb
Enough with the philosophical happy talk, what’s the proper allocation? Well, good question. As a starting point, many view a neutral allocation between stocks and bonds to be 60% stocks and 40% bonds.
If you read a lot of the literature on asset allocation, you’ll see the 60/40 split used frequently. According to one report published on FundAdvice.com, a 60/40 allocation produced a compound annual return of 10.4% from 1970 to 2006.
Now that doesn’t mean that a 60/40 split is right for everybody, which brings us to an oft-repeated formula for determining a reasonable allocation: 120 – your age = the percentage to invest in stocks, with the remainder allocated to bonds.
At 40, according to this formula, I should invest 80% in stocks (120-40=80) and the remainder, or 20%, in bonds. As it turns out, the 80/20 split is what I use. Whether the formula is right for you, only you can decide. A more conservative approach is to allocate a percentage to bonds that equals your age. In my case, that would result in a 60/40 split (boy do I feel old right now).
Variations of the Same Formula
120 – your age is actually on the more aggressive side of the scale. But there are different variations on the formula.
A more conservative variation is 100 – your age. By using that formula, a 40-year-old would have 60% invested in stocks, and 40% in bonds.
And in between version is 110 – your age. That would see a 40-year-old with 70% in stocks (110 – 40), and 30% in bonds.
Whether you use 120, 110, 100, or some other base number, it’s just a rule of thumb, and nothing more. You should use it only as a starting point.
Everyone has different investment goals, time horizons, and risk tolerances. You can start with whatever number a basic formula produces, but then modify it based on personal circumstances and preferences. As written earlier, there’s no one right way to determine the stock/bond allocation of your portfolio. You have to go with what is a comfortable fit for you.
For example, a 25-year-old may not be comfortable with the 95% stock allocation that 120 – your age would produce (120 – 25). By contrast, a 60-year-old may decide that the 60% stock allocation that the same formula would produce is far too conservative to fund a retirement that can easily last for 30 or 40 years.
I can tolerate losing ______% of my portfolio to earn higher returns:
Recommended percentage to invest in stocks:
Of course, in answering how much you can tolerate to lose, you must be brutally honest with yourself. If your like me, you won’t really know how much you can tolerate losing until you experience it. That said, Bernstein’s chart is certainly a good place to start in determining your proper allocation between stocks and bonds.
The Bond Complication All Investors Need to Be Aware Of
As if deciding on an appropriate stock/bond allocation isn’t complicated enough, there’s an added wrinkle.
Most people think of bonds as a single type of investment. The general perception is that they are interest-bearing securities that offer safety of principal. That’s precisely why they’re favored as a counter allocation to stocks. Stocks produce growth–and add risk to a portfolio–while bonds provide capital preservation, and reduce portfolio risk.
What that actually describes however are interest-bearing cash equivalents, and short-to-intermediate term interest-bearing securities.
But generally speaking, bonds are securities that have terms greater than 10 years. More commonly, they run between 20 and 30 years.
The complication is that long-term securities–even interest-bearing ones–can be more volatile in price than short-term securities. In fact, long bonds can have volatility levels comparable to stocks.
This has to do with the inverse relationship bonds have with interest rates. When interest rates fall–as they have been for the past 35 years–bond values generally increase. But when interest rates rise, bonds can fall in value. During the 1970s and early 1980s, when interest rates rose dramatically, long bonds got hammered.
The bonds can still be redeemed at full face value when they reach maturity. But market values can rise and fall between now and then.
As well, there are different types of bonds. US Treasury bonds are considered have virtually zero default risk. But corporate bonds, international bonds, and even occasionally municipal bonds, do have default risk.
The point is, in determining your bond allocation, be sure you understand how bonds work, and what type of bonds you’ll hold. Shorter-term bonds are more likely to provide the capital preservation investors expect. Long bonds, however, can be no safer than stocks.
You don’t have to graduate with bad credit. In fact, with a few simple steps, you can build good credit in college. Here’s how to do it.
According to Credit Karma, the average credit score for people 18 to 24 is about 630. The 25 to 34 crowd fares even worse, with an average of around 625. And that’s for individuals who likely care about their credit scores more than average, since they’re members of Credit Karma.
This isn’t a great credit score. When you’re dealing with that kind of credit and brand new student loan payments, things can get tough.
But here’s the deal. Just because you’re young doesn’t mean you have to have a low credit score. Sure, some factors, like the average age of your credit accounts, you can’t do much about. But you can take steps to understand and improve your score so that when you graduate college, you’re off to a great start.
Your credit score is based on your credit history, also known as your credit report. Your creditors, including student loan companies, credit card companies, and collections companies, report to the credit reporting bureaus. These bureaus pull together the information in a file.
Then, credit scoring companies, such as FICO, apply an algorithm to the data in your credit history. That algorithm weights different aspects of your history more heavily than others. But it spits out the number that is your actual credit score.
Scoring Models are Different But Similar
Different credit scoring companies all have their own credit scoring models. So your score might look different if you get it from FICO versus VantageScore. But they do look at most of the same information, and they tend to weight things similarly.
We operate on the idea that when it comes to your credit score, the main factors, in order of importance, are:
Payment History: Making payments on time lends itself heavily to a good credit score. Having late payments on your record can tank your score pretty quickly.
Amounts Owed: If you owe a lot of money, particularly on revolving accounts like credit cards, compared with the amount of credit you have available, you’ll harm your score.
Length of Credit History: The longer you’ve had credit, the more your score can rise.
New Credit: Getting new credit, especially lots of if very quickly, can ding your credit score.
Credit Mix: Having a mix of different types of credit accounts is, overall, good for your credit score.
Again, different scoring models weight these things in slightly different ways. But, generally, the two most important pieces of your credit score are your payment history and debt-to-credit ratio. Understanding that means you can tackle your credit score with the right plan to build it well.
Get into the Habit of On-Time Payments
If you’re like many college students, you already make some payments on debts. Maybe you have a low-balance credit card. Or maybe you have a car loan with your name on it. Even if you don’t make payments on debts, you likely have other accounts open in your name, such as a cell phone plan or utilities.
It’s essential that you make payments on these accounts on time, every time. Most creditors don’t report a payment as late unless it’s 30 days past due. But some report sooner than that. And even late utilities payments can go against your credit score if they become late enough to be reported to the credit bureaus.
Your best bet is to avoid this at all costs by making payments ahead of time whenever possible. If you can, put your payments on auto-pay so that you never miss one. If your income fluctuates too much to make this possible, keep a calendar or app with all your due dates, and do whatever it takes to make those payments on time.
Get a Credit Card, and Use it Wisely
Contrary to what you might think, having a credit card won’t hurt your credit score. In fact, responsible credit card use over time is a great way to keep your credit score looking up.
The key here is to use it responsibly. Ideally, this means paying off the entire balance in full every month. If you struggle with overspending, consider only using the credit card for specific expenses, such as gas or utilities. Then pay it off each month, and you’ll watch your credit score rise.
Along this note, having more available credit is better for your credit score. As your score climbs, you might consider asking for a line of credit increase or applying for a second card. Again, just make sure your spending stays the same and you make any payments on the cards on time.
Use an Installment Loan if You Need To
Having a mix of different credit accounts can be helpful, but you should only apply for accounts you actually need. So if you need an installment loan to buy a car, for instance, shop around for one and sign up. Again, just be sure to make all those payments on time. (Sounding repetitive? I know, but it’s the most important thing!)
Some people will tell you to get an installment loan just for the sake of increasing your credit score. But this is generally not the best option. Chances are you’ll eventually need a loan, even if it’s just your student loans. So don’t sweat this piece until the need actually arises.
Keep Track of Your Score Over Time
Studies show that people who look at their credit scores on a regular basis are more likely to watch them increase over time. Keeping tabs on your increasing score helps you continue to make good credit decisions.
Luckily, the internet abounds with free ways to keep an eye on your credit score. Credit Karma and Quizzle are two good options. And more and more credit card companies are offering their users access to a free monthly credit score.
These scores are likely to be educational scores, so they may not be the real FICO that potential lenders will see. But they are generally fairly accurate and can keep you on the straight and narrow when it comes to increasing your credit score.
There Are Limitations
You can graduate college with a good, or even an excellent, credit score. But you may not be able to graduate with a perfect score. That’s because part of your score has to do with the length of time you’ve had credit history. Leaving your oldest accounts open will improve this portion of your score over time. But just keep in mind that you probably won’t graduate college with a score of 800 if your oldest accounts are only a few years old.
However, by taking these steps and staying consistent, you can graduate college with a good score.
A number of impacts from the 2017 Tax Cuts and Jobs Act have attracted more press coverage than others, including the 529 plan expansion. Here, we’ll talk about that expansion and what you need to consider before making any withdrawals.
As you may already know, section 529 plans, usually referred to as simply 529s, offer parents federal (and often state) tax benefits to incentivize saving for college. These accounts grow tax-free and offer tax-free withdrawals to pay for education-related expenses.
Qualified withdrawals used to be related only to higher education expenses. But the new tax law expanded qualified expenses to include private K-12 educational expenses. Parents can now spend up to $10,000 per year from their 529s to cover K-12 private school tuition, without having to pay taxes or penalties on their account growth.
This seems like a pretty great idea for private school parents facing hefty tuition bills. But is it the right move for your family? Here, we’ll discuss some of the pros and cons to help you decide whether you actually should use your 529 to cover private K-12 expenses.
How it Works
First, you should know a few things about how a 529 works and what its basic benefits are.
A 529 plan is sort of like a Roth IRA, but it’s specifically for educational expenses. You put in after-tax money. There are now no limits to how much you can contribute, though your contributions could be subject to gift taxes. Then the money grows federal income tax free. This means more money stays invested over time, allowing your account to increase. Unlike Roth IRAs, though, 529 plans are mainly administered at the state level. And each state treats its plan a bit differently. The majority of states also allow your money to grow state income tax free, even if you invest in an out-of-state plan. However, taxpayers may still choose to invest in their state’s 529 in order to receive up-front tax benefits on contributions.
You can get more information about which states offer which benefits in this article. For now, it’s enough to know that each state has its own rules surrounding 529s and how they can be used.
We Don’t Know What All States Will Do
When the federal government opened up 529s to allow for up to $10,000 per year in spending on private K-12 tuition, not all states were wild about the move. Since 529s are a federal program, a state can’t prevent taxpayers from leveraging their savings for K-12 expenses. However, they can disallow these expenses at the state level.
What that means is that if your state doesn’t want to honor the federal rule, a withdrawal for private K-12 expenses could cost you state taxes, even if you don’t pay federal taxes or penalties. Also, some states are considering making taxpayers pay back some of the credits or deductions they received for spending 529 money on K-12 expenses.
We’re still waiting to see how many states will incorporate these new rules. If you live in one of the states with no personal income tax, the rules are irrelevant. But if your state incentivizes 529 contributions, you need to know the rules exactly before you make a withdrawal for K-12 expenses.
Powerful Benefits Over Time
Savings plans like the 529 may not seem to be a huge advantage, especially to taxpayers in low- to middle-income tax brackets. But over the course of years, the benefit will really pay off. This calculator can let you run some scenarios to figure out how much you could save by investing in a 529.
Let’s say you have an initial investment of $500, and you put in $2,000 per year from your child’s birth to their 18th birthday. We’ll assume a steady 8% rate of return.
If you’re in the 22% marginal tax bracket, your account could accumulate $82,891 in a 529 plan, versus $68,667 in a taxable account. That’s a savings of over $14,000.
And the savings are even bigger for those in a higher tax bracket. Let’s say you have the same savings scenario, but you’re in the 35% tax bracket. In this case, you’ll still end up with the $82,891. But you would have saved just $61,552 in a taxable savings account. So a 529 could save you more than $21,000 over 18 years!
Now, keep in mind that this calculator is very stripped down. You won’t receive a constant rate of return over the life of your 529, of course. And taxes on investments are more complicated, especially when you count on capital gains taxes and the like.
But with that said, it’s clear from these simple calculations that a 529 account can be a powerful tool to save for your child’s education. But the question remains: when, exactly, should you use that money?
More Time to Grow is Better
The bottom line here is that the most powerful investing factor isn’t how much you put in or even the growth rate. The most powerful factor for investors is time. That’s why it’s always best to start saving early and push your withdrawals as late as you can. This applies to retirement, and it also applies to saving for your child’s education.
Let’s say that instead of saving for 18 years in this tax-advantaged account. You put in $2,000 per year, but you only save for 13 years, until your child enters high school. Then you decide to withdraw $5,500 a year for private high school tuition.
What’s your balance when your kid starts high school? It’s only $32,370.
Then, if you withdraw $5,500 a year for the next four years to cover high school tuition, you’re left with well under $30,000 in the account–just in time for your child to start college.
That’s not a great situation to be in, when instead you could have ended up with over $80,000 in the account by waiting and contributing faithfully.
The principle that time is essential for investors should make you think twice before withdrawing that money to pay for anything other than college. With that said, there are some situations where using your 529 to pay for K-12 expenses could make sense, including:
You Have More Than Enough
If you’ve contributed a lot of money to your child’s 529 over time, you may find that you have more than enough to cover college and supplement K-12 expenses. If you get to your child’s freshman year of high school and see that they’re already set for college, you can justify taking some money out of the account to pay for private school tuition.
Again, though, be cautious here. If you’re not absolutely sure you have plenty to cover college expenses, you’re probably better off waiting it out.
Your Child Has Guaranteed College Tuition or Scholarships
What if you started saving a hefty amount for college but then took a job at a college that will now get your child free or heavily discounted tuition? Or maybe your child has already qualified for some major college scholarships that will cover the bulk of their tuition? In this case, using 529 funds for K-12 expenses could make sense. Just be sure that money is guaranteed and that your child will actually choose the scholarshipped school before you drain those funds.
Your Child Won’t Go to College
College isn’t for everyone. And if your child gets into high school and decides that he or she has other plans, use the money on something else if you need to. Just remember that you can always change the beneficiary on a 529 account. So if your older child goes into a trade but your younger child has his or her eyes on the Ivies, feel free to leave the money to grow but name a new beneficiary.
Talk to Your Tax Professional
At core, 529 decisions are very personal. What works well for one family may not work well for the next.
For the majority of families, waiting to withdraw from a 529 until college makes the most sense. This move gives your money the most power, as it grows over time. But for some, using a 529 to pay for some private K-12 expenses could also make sense. This is especially true in states with a hefty state tax benefit that adopt the federal rules.
Also, be sure to consult with a tax professional who understands the tax laws in your particular area. You’ll need to be sure how your state is treating K-12 529 withdrawals before making any major decision. This will keep you from getting penalized with unexpected fees and taxes while trying to do what’s best for your child.
A step-by-step guide to using the debt snowball to get out of and stay out of debt. Our guide also covers which debt to pay off first and the debt avalanche.
Welcome to our series on crushing your credit card debt. In this third of five articles, we look at how to supercharge your get out of debt program with the Debt Snowball.
We’ll cut right to the chase: using the debt snowball method can save you thousands of dollars in interest payments. On top of that, it can also significantly reduce the time it takes you to get out of credit card debt.
The debt snowball is a method for paying down any debt–not just credit cards–and it’s extremely easy to use. Let’s take a look at how it works.
What is the Debt Snowball?
The concept behind the debt snowball is really simple. You’ll focus on one debt at a time until it’s paid off. Once you close out that first balance, you’ll “snowball” the amount you were paying into the payment for the next debt in line.
There are a few steps to follow to get the ball rolling, though (pun intended).
Step 1. Figure Out Your Total Debt
Before you can determine where your debt snowball should focus–and what you can expect from the process–you need to know where you stand.
First, make a list of all of your credit card debts. You can include other debts as well, such as school loans, auto loans, and home equity loans. The goal is to get all your balances in one place, where you can see your total debt. If you don’t have a comprehensive list of all your debts, check your credit report. It should include any debts with an outstanding balance.
Step 2: Figure Out the Specifics
For each debt, you’ll then want to figure out the specifics of the account. You should list the creditor, the outstanding balance to date, the monthly minimum payment, and the current interest rate. If you’re paying an introductory rate on the debt that will change after a certain time period, write that down, too.
Even though you’ll focus on one account at a time with the debt snowball, you can’t simply neglect the others. Each debt will have its own unique minimum monthly payment. This amount is due each and every month in order to keep the account in good standing.
You’ll want to add up the minimum monthly payments due across all of your accounts. You will continue to pay at least this amount until all of your debts are paid in full. That means that when the first debt is paid in full, you’ll take the money you were paying toward that debt and focus it toward the next debt. For all other accounts, continue paying the minimum monthly due.
Step 4: Order Your Debts
The classic debt snowball order is to pay off your lowest-balance debt first. Start with the lowest balance and work your way up. This is a psychologically effective method because it gives you a few quick wins up front. In fact, some research shows that this option gets people to stick with their debt repayment plan for longer.
The other method of ordering your debts is known as the debt avalanche. This has you start with your highest-interest debt first. This plan saves you more money over time, since you knock out the debts with the heftiest interest first. But this may mean it takes longer to pay off the first debt on your list.
Either method can work well as long as you stick to it. But the key is to tackle your debts with a plan, and to always know which debt you’re planning to pay off next.
Step 5: Put Extra Money into the Snowball
If you have any extra money to put towards paying off your debts, add that to the minimum payment on the first debt each month. Once that debt is paid off, put both your extra money and the original debt’s previous minimum payment towards the next debt. This way your payments snowball, building momentum as you pay off each debt.
Why Does it Work?
Two things make the debt snowball a powerful tool. First, the minimum payment on a credit card goes down as the balance goes down. Most credit cards calculate the minimum payment as a percentage of the outstanding balance. While the actual percentage applied by credit cards varies, a range of two to four percent is common.
That means that after just one payment, your minimum payment will go down the next month (assuming you haven’t added any charges to the card). By keeping your payments constant, however, more and more of each month’s payment will go toward your balance instead of interest.
Second, as one loan is paid in full, you put the extra money toward anotherbalance. This further accelerates the paying of your total debt, without actually requiring any additional funds from your end.
When the next account is paid in full, you will take the extra cash each month and put it toward your third card. Keep following this approach until all of your debt is gone.
How Much Does the Debt Snowball Really Save?
To see the power of this approach, let’s look at an example. We’ll assume that you have the following three credit cards with balances:
We’ve also assumed that the minimum payment is calculated by taking 2% of the outstanding balance. With these assumptions, the current minimum payment for all three cards combined is $340.
Minimum Payment Approach
Now, if you continue to make just the minimum payment each month, that amount will slowly go down as your balances go down. With that approach, how much will you pay in total interest and how long will it take to pay off the balances in full? I hope you’re sitting down for this:
In this scenario, you continue to make the initial minimum payment of $340 until all debts are paid. Then, you apply the extra cash to the card with the highest interest rate, and the results change dramatically:
Total Interest Payments: $12,365.57
Years to Debt Freedom: 7 years and 3 months
The numbers speak for themselves.
Debt Snowball on Steroids
So far in our examples, we’ve calculated the current minimum payment and assumed you’ll continue to pay this amount until the debt is gone. Using the same example above, let’s now assume that you can throw an extra $50 a month at the debt. So instead of paying $340, you’ll pay $390 until you’ve killed your debt entirely.
How will this affect total interest paid and time to debt freedom? Here are the numbers:
Total Interest Payments: $8,979.83
Years to Debt Freedom: 5 years and 7 months
In other words, an extra $50 a month will shave nearly two years off your time to debt freedom and more than $3,000 in interest payments. Here’s a screenshot from the calculator I used to get these results:
Which Debt Should You Pay First?
You may have noticed in the above examples we’ve been applying extra cash to the credit card with the highest interest rate. Not everybody, however, recommends this approach.
Dave Ramsey is well-known for his advice to pay the loan with the lowest balance first. He recommends this approach even if you have other loans with much higher interest rates.
The rationale? By picking the debt with the lowest balance, you’ll get it paid off faster and provide yourself with additional motivation to continue. The road to becoming debt-free can be long and, well, quite boring. But paying off small loans quicker, it may encourage you to keep on keepin’ on.
I don’t want to get into whether Dave Ramsey is right or wrong. But it is important to realize that following Dave’s approach may cost you thousands of dollars in extra interest payments and take you longer to get out of debt.
Using our example from above, let’s assume that you continue to pay $340 a month until you’ve extinguished your debt. In this example, however, any extra cash goes to the card with the lowest balance. With Dave’s approach, here are the results:
Total Interest Payments: $13,934.00
Years to Debt Freedom: 7 years and 7 months
Now the difference may not seem like much. Compared to paying the cards with the highest interest rate first, Dave’s approach takes just 3 months longer. But his approach costs about $1,500 more in interest payments.
However, if this plan helps you stick to paying off debt, it can be the best one.
In some cases, the best approach is a combination. Maybe you start by paying off a couple of low-hanging-fruit debts with very low balance, regardless of their interest rates. Then you transfer some of your credit card balances to 0% APR cards. You pay those minimums while you pay off debts carrying a much higher interest rate.
Debt Snowball Gotchas
As easy as this debt repayment method is, there are several ways to go wrong:
Watch out for more debt. The most important part of getting out of debt is to stop going into more debt. We’ve talked about this previously but it truly can’t be stated enough. While sometimes debt is outside of your immediate control, oftentimes debt is the result of bad choices. Do everything in your power to avoid new debt.
An emergency fund is a must. Having some money set aside for the unexpected bills will help you avoid more debt.
Work on your credit. With an improved credit score, you can often get interest rates on your debt lowered. In the case of a credit card, it can often be as simple as a phone call to your issuer. With auto loans and home equity lines, it will likely require a refinance; however, the savings can be substantial and often worth the effort.
In the next article in our crushing credit card debt series, we’ll look at Ways to Free Up Extra Cash that you can then put toward your debt.
Earning extra money while in school can help with tuition and spending money. Too many hours, however, can hurt your grades. So here are the best paying part-time jobs for college students.
Most of us know that being in college is synonymous with being broke. But just because you’re taking 18 hours of classes, doesn’t mean that you can’t still find excellent sources of income in your spare time. In fact, we’ve compiled a list of 12 of the best-paying side hustles, all of which are perfect for college students.
Let’s take a look at where you can find these part-time gigs, how much you can expect to earn, and where to sign up.
You are deep into the world of academics at this point in your life. Why not turn your knowledge into income as a tutor?
Whether tutoring young children or fellow students, you can earn some serious cash by helping others in various subjects. If you’re an A student, talk to your professors and let them know that you are offering tutoring services. Then, when they have a struggling student come by, they can refer them to you for help.
You can also find jobs on websites like Upwork and Freelancer or even Care.com if you want to work with kids. Pay varies by subject level, but you can expect to earn up to $40 an hour for academic tutoring, according to Payscale.
Have experience with the GRE or GMAT, and want to offer tutoring in these subjects? You can earn closer to $50 an hour by helping with GMAT prep, according to Glassdoor.
Bloggers are typically paid by the article or on a per-word basis. On average, though, you can easily earn $20-30 an hour or more. Pay will depend on the client, the quantity of work, and the subject matter.
To find blogging jobs, try looking on Upwork or FreelandWritingGigs.com. You could even reach out to your favorite blog with some of your writing samples and see if they are looking to hire on new freelance writers.
If you have your own vehicle, you could consider becoming a ride-share driver through a company like Uber or Lyft. If your school is in a metropolitan area or near an airport, this can be particularly lucrative.
Not only can you set your own hours (you can even pick up a few fares if you have a break between classes), but if you choose to work during peak times (like Friday and Saturday nights), you can earn even more.
If you want to learn more about Uber versus Lyft, and how much money you can actually make, check out this article.
If you have a flexible schedule and don’t travel much on the weekends, pet-sitting or dog-walking is a great way to earn extra cash.
Apps like Wag work a lot like Uber. Simply download the app, set up an account, and activate your availability. Then, when dog owners need their pets walked, they can choose from available walkers nearby. You get to walk some friendly pups and earn a paycheck at the same time.
If you’d rather pet-sit, companies like Rover will match excellent sitters with pet owners who need help. You can set your own hours, choose the animals you’d most like to work with, and choose job that range from a quick drop-in during the day to holiday weekend-long care.
Pay ranges based on the services provided, your experience, and your area. However, you could easily earn as much as $45 a night by pet-sitting in your own home or $20 an hour for dog walking.
Do you like grocery shopping or running other small errands? Then you can help a busy parent, professional, or small business owner by being an all-purpose helper.
Sites like TaskRabbit allow you to offer services that range from housework, yardwork, dropping off dry cleaning, and even assembling that impossible Ikea furniture. You set your own rates and availability, and can earn as much as you want on your time.
You can also use sites like Care.com to offer your services as a mother’s helper. Parents can even hire you to pick kids up from school in the afternoons and take them to extracurricular activities. Earnings range based on many factors, but you can easily earn $20 an hour or more, depending on experience and your area.
If you have design experience, logo and website creation on a freelance basis can be a good source of income. Sites like Upwork, Fiverr, and Freelancer.com allow you to post your experience, interests, and rates. Then, you can get hired whenever your schedule allows.
According to Payscale, freelance graphic designers make an average of about $30 an hour, but rates range all the way up to $60+. That’s great money, especially if you’re working from your dorm room on your own time!
Have an eye for photography and experience with a DSLR? Then photography can be the perfect side hustle for you.
You can find a part-time job in your area as a photographer’s assistant. You’ll tag along to weddings and other events as a second (or third) photographer, and may even get to exercise your editing and digital finishing skills. Since these events are typically on the weekends or evenings, it won’t even interfere with classes.
If you have the time and experience, you can even start your own photography business. Whether you offer wedding photography on the weekends, family shoots in your spare time (and around holidays), or even start a company that specializes in senior portraits on campus, it’ll allow you to earn great money and work on your own time.
Ah, babysitting… the oldest side hustle in the book.
You may think babysitting is for teenagers, but you’d be wrong. Many parents would rather find a caregiver who is older, more responsible, and has years of driving experience under their belt. In fact, you could easily earn $15-30 an hour by watching kids in the evenings, over the weekend, or even just picking them up from school.
If you aren’t taking summer classes or going anywhere over winter/spring break, think about this side gig. Babysitting and nannying can net you hundreds (if not thousands, depending on your area) of dollars a week. Parents are always looking for responsible child care, especially when their little ones are out of school.
Care.com and SitterCity are good places to start. You might also check to see if your local area has its own network, as well as check the classifieds for seeking parents.
Campus Library Assistant
Want to earn an income on campus while also snagging yourself some potential study time? Then look into being a campus library assistant.
Whether organizing books, running the front desk, or helping students with their research, you’ll enjoy earning money in a quiet, calm environment. The pay for work-study jobs like this is usually around $15 an hour, but if you can earn cash while also having the possibility of study time at the desk, it’s an excellent deal.
Are you going to school in your hometown? Do you know all of the secret spots and cool restaurants off the beaten path? Are you well-versed in the architecture of your town or know the best hiking vantage points? Then consider being a tour guide in your spare time.
Through your school as a campus guide or in your town through a site like Airbnb Experiences, you can get paid to share fun experiences with others. Whether taking tourists to a fun speakeasy, guiding a canoe trip, or setting up a delicious restaurant tour, you can have fun with new people and earn cash at the same time.
Book Store Employee
College textbooks are ridiculously expensive these days. So, what if you could earn income while also getting a discount on things like books?
By working at your campus bookstore, you’ll have the opportunity to make a good income and also get an employee discount on your spirit apparel, computer software, and even school books. You’ll probably make $12-20 an hour, but the discount on your class materials will more than make up for that.
Social Media Assistant
Today’s college students are well-versed in social media channels, like Instagram, Snapchat, and Facebook. Why not use those skills to earn extra cash?
You can be hired on as a social media assistant for any number of companies. This may mean creating social media content, posting throughout the day, answering questions through the social channels, or even seeking out new followers. You can easily earn $15-25 an hour, for simply doing the things you may do on your phone anyway.
Being a college student doesn’t have to mean being flat-broke, but it also doesn’t mean you have to spend every waking moment in class or at a job. By finding the right part-time job that pays well, you can earn extra cash, start paying down those student loans, and still get your studying in on your schedule.
Auto insurance companies use many factors to set cost of to insure a car. Here is a list of 22 Factors That Affect Auto Insurance Premiums. Some of these factors may surprise you.
When it comes to car insurance, two people who may look similar on the surface could pay wildly different premiums. This is because so many different variables affect our car insurance rates. Some of these factors are in your control, but others are not.
So why do car insurance rates vary so much? And which factors have the most influence on those rates? First, we’ll talk about how car insurance companies set their rates. Then we’ll talk about some factors that can influence how much you pay for car insurance.
Car Insurance Underwriting
Underwriting is the process by which any insurance company decides how much to charge its customers. Basically, the insurance company needs to figure out how not to ultimately lose money on you. The riskier you are to insure, the more you’ll have to pay for the privilege of insurance coverage.
Sometimes, risk is fairly easy to assess. If you’re a 16-year-old boy with a shiny new driver’s license and a sports car, you are statistically more likely to make risky choices. And those choices often lead to accidents, which are both tragic and expensive.
In fact, the Insurance Institute for Highway Safety Loss Data Institute says that the fatal crash rate for 16-to-19-year-olds is nearly three times the rate for those over the age of 20. So it goes almost without saying that teenagers are among the most expensive people to insure.
But outside of these cut-and-dry facts driven by hard statistics, insurance companies are somewhat free to set their own underwriting criteria. Sure, regulators tell them some things they cannot count in their list of factors. In some states, insurance companies can’t, for instance, look at your credit history when setting your insurance rates. However, insurance companies are generally able to look at a broad swath of personal data when determining whether to offer insurance and what rates to offer.
And insurers look at different factors differently. Some will count location against or for you more heavily. Others will take a closer look at your credit history.
This variation is why it can be so hard to say exactly what factors will affect your insurance rates. With that said, we do know many of the factors that most insurers will look at if they’re able to do so. Here are the top factors insurance companies will consider:
Factors Car Insurers Consider
1. Age: In many of our state-based auto insurance reviews, we’ve found that age is the biggest determining factor in insurance premiums. And that holds with the data we cited above. Teenagers are the most expensive people to insure, followed by the 20-to-25 crowd. Once you are over 25, your rates will generally drop, but then they’re likely to go up again as you get into older age, where accidents are again more common.
2. Gender: It may seem discriminatory, but men almost always pay more for car insurance than women. Some studies have questioned this bias, but many still show that men drive more miles than women and make more risky driving choices. For instance, they’re more likely to get a DUI. So they’re more expensive to insure.
3. Marital Status: Married people are statistically less likely to get into car accidents, so they’re typically cheaper to insure.
4. Personal Credit History: There’s a common misconception that insurance companies look at a credit score like the one your mortgage lender sees. This isn’t quite the case. Instead, insurers use your credit history to create a credit-based insurance score, which can be a factor in how much you pay for car insurance. (Note that this factor is limited in some states and is outright banned in Massachusetts, Hawaii, and California.)
5. Criminal History: Those with a criminal history can look more risky to insurance companies, so they’ll typically pay higher premiums. Particular types of criminal behavior, especially driving-related behavior, are big red flags.
6. Driving Record: This one is fairly obvious. If you have a history of poor driving decisions, especially in the last couple of years, you’ll pay more for car insurance. Even small fender benders can make insurance companies jack up your rates.
7. Occupation: Insurance companies are allowed to consider what you do for a living when setting your rates. Again, this is based on statistical data that shows people in certain careers are less likely to file car insurance claims. This particular rating factor is being disputed, though.
8. Level of Education: Again, this particular rating factor is under dispute in some states. But statistics show those with more education are less likely to get into accidents. So that college degree could come in handy when you apply for car insurance.
9. Grades: This is mostly a factor for younger drivers, and it typically comes in the form of a discount. Many insurers run discount programs for students in high school and college who maintain a certain grade point average. If you have teenaged drivers, this is definitely a factor to pay attention to.
10. Years of Driving Experience: This seems intuitive, given our age-related factor above. But if you got a driver’s license later in life, you could end up paying premiums like a younger driver because you’re less experienced. This is why many insurance companies will ask at what age you were first licensed to drive.
11. Courses Taken: Insurance companies may provide additional discounts for defensive driving classes or for teenagers who took formal driver’s education courses. Seniors can also sometimes get discounts for defensive driving classes geared towards their age bracket. It’s worth checking out, for sure.
12. Claims History: The more insurance claims you’ve made, the riskier you’ll look to insurers. So you’ll pay higher premiums. This is why it can sometimes be a good idea to pay for damages out of pocket rather than making a claim against your insurance.
13. Type of Vehicle: Some cars, like sports cars, can be more expensive to insure because their drivers are more likely to show risky behavior. Others, like mini vans, are less expensive to insure because they aren’t involved in accidents as often. Also, really expensive vehicles can cost more to insure because they’re more expensive to fix after an accident. Vehicles that are often stolen are also prime for higher premiums. Check out the most and least expensive vehicles to insure here.
14. Age of Vehicle: As your vehicle’s value drops, so will your car insurance premiums, particularly for comprehensive and collision coverage. However, you may lose out on some safety-related discounts for features your older car is missing.
15. Safety Features of Vehicle: These often play into discounts. Vehicles with safety features like antilock brakes and airbags will be cheaper to insure than cars without these. Newer safety features like lane-change alerts can also net you discounts these days.
16. Car Alarms: Anti-theft devices in your vehicle, including car alarms and other devices, can make your premiums go down quite a bit for comprehensive coverage, especially.
17. Where You Live: If you live in a more expensive state, you’ll likely pay more for car insurance, too. Your state’s minimum insurance requirements will also factor in, as you’ll pay more for minimum liability insurance in a state that requires higher levels of coverage. But, also, your costs can vary from one neighborhood to the next based on data like the number of vehicle thefts and accidents in your area.
18. Miles Driven Each Year: You’ll pay less for car insurance if you drive fewer miles, since that means you’re less likely to cause an accident. More car insurance companies are even offering the option to track your mileage with apps so they can more easily base your rate on your miles driven. Some companies are even offering the option to pay car insurance by the mile.
19. Miles Driven to Work: Most insurance companies will ask both how far you live from work and how many miles you drive per year. If you live close to work, your premiums may go down a bit.
20. Other Insurance Coverage: Carrying insurance on your home and your car with the same insurer can net you some big discounts.
21. Multiple Policies: Adding multiple cars to the same policy will typically reduce the per-policy rate. And having multiple drivers on the same policy is typically cheaper than each driver having his or her own policy. However, this can get tricky when it comes to insuring high-risk drivers like teenagers. It may make more sense to kick Junior and his old beater over to a separate policy so that the costs of insuring the newer, nicer family cars don’t go up.
22. Insurance History: Insurers prefer that you are continually insured, as driving uninsured–or even leaving that possibility open–is a big risk factor. So when switching companies, they’ll typically check out your current insurance information to ensure continuous coverage.
How They Work Together
Setting car insurance premiums is even more complicated than figuring out credit scoring factors. At least we know the general weight each factor in your credit score has! With car insurance premiums, we do know a few of the heavyweight factors, including age, driving history, and location. But, again, underwriting can be a bit of a mystery to those of us on the outside.
This is why you always want to get multiple quotes before choosing a car insurance company. One company may ding you heavily for a 5-year-old fender bender, while another practically ignores it. Some companies look at your credit history while others don’t. And that doesn’t even cover the myriad of discounts–some of which probably didn’t make it onto our list–that different companies offer.
So do what you can to maintain a clean credit history, criminal record, and driving history. And then just shop around for the best insurance rates you can find.
Mother’s Day is right around the corner. Last minute shoppers may be stressed out trying to find the perfect gift. The good news is the gift doesn’t have to be perfect for Mom to love it. Here are 25 great Mother’s Day gift ideas under $50.
On Sunday, May 13th, we will celebrate the 107th official Mother’s Day. Once a year, mothers across the country are recognized as the most important people on the planet. Even though any mother will say it’s the thought that counts, you and I both know that’s not how it really works.
Buying something for Mom can be tricky, especially if you stick with the same song and dance routine year after year. Sometimes, traditional is the best way to go but you never want Mom to know what she’s getting before you give it to her. To help you out this year, we’ve compiled a list of 25 great Mother’s Day gift ideas for under $50. The beauty of this list is that you’ll find a little bit of traditional mixed with a few outside the box ideas.
1. A Nice Floral Arrangement: Probably the most common of all the Mother’s Day gifts, a nice vase or bouquet of flowers can really brighten up mom’s day. There are dozens of reputable flower delivery outfits, like 1-800 Flowers, ProFlowers.com and JustFlowers.com that will deliver a fresh, uniquely designed arrangement of flowers for under $50. Make sure you order a few days ahead of time because next day shipping can bring the total cost of your gift well over the $50 mark.
2. Candles, Incense, or Potpourri: f you’re looking for a gift that keeps on giving, you can find inexpensive scented candles, incense or potpourri. Mom will also love the added decor element they bring to a home and there’s no better way for her to remember your gift than to smell it everyday.
3. Chocolates: Rounding out the standard gift giving ideas, mothers love chocolate. Milk, dark and white chocolate comes in a variety of additional flavors and shapes and even though this gift isn’t original, it’s a crowd-pleaser. If you’re looking to get fancy, a mix of numbers 1,2 and 3 gives great variety.
4. Schedule a Day for the Family: The reason that mom is so great is because of the sacrifices she makes for her family and if you can schedule it, a family activity is something she will always remember. Whether it’s a trip to a theme park or just the local park, mom will love it all the same.
5. Fancy Soaps: One of the best gifts I’ve given to my wife (which is to say one of the ones she’s actually kept) was a few bath bombs and uniquely handmade soaps from a store called “Lush”. They’re not too expensive; about $7-$8 per bar and they come in a variety of colors, shapes and scents. If you check around the holiday’s, they usually have a handful of specials going on, even scent specific ones for mother’s day.
6. Take a Family Portrait: This one is kind of difficult to keep a surprise but when you tell your mother that you’re organizing a family picture, she’ll pitch in to help you out. One thing I regret is not having more pictures with my family, so make sure you work this gift idea in at least once in your Mother’s Day gift giving life.
7. A Good Book: Some mom’s enjoy reading and enjoy the rare moment of down time with a good book. Amazon.com is the best place to shop for books if you really want to bargain shop, spending a weekend hoping to tag or garage sales can net you a lot of books for just a few bucks.
8. Give Mom a Day Off: When you add up the time it takes to cook, clean and maintain a home, it’s a full time job with overtime and then some. Offer to take care of everything, at least for one day and let Mom sit on the couch and watch T.V. or spend all day in bed.
9. Hand-Make Mom a Bird House: This gift idea is usually reserved for smaller children but if you’re good with your hands, it would be a shame not to use it to your advantage. Every mother needs a bird house or a spice rack and if it comes from you, she’ll love it even more.
10. Pampering: This is the most expensive item on our list but it’s one that mom will certainly love. Manicures, pedicures, facials, massages … the list goes on and on of the things you can buy. Book her an appointment at the spa because she needs a day to relax! You may have to couple this gift in with giving Mom a full day off, so make sure you leave a day open for her to enjoy your gift.
11. Breakfast in Bed: If you live with your mother or are close enough to stop by early in the morning for a surprise, breakfast in bed can be a welcomed surprise. Stick with the basics of pancakes, waffles, eggs, toast and orange juice unless you know she’ll love something else and I promise you it will make her day.
12. A Thoughtful Card: Okay, so this may not be the greatest gift idea you’ve ever seen but if you can take the time and write something from the heart, a greeting card can stand alone. Feel free to buy a card that has humor written on the inside but there’s a reason that one side is always left blank. Sit down, take out your pen and think about all of the reasons why you’re celebrating Mother’s Day. In just five minutes, you’ll have enough ideas to write a book, let alone a greeting card.
13. A Cooking Class: If your mom loves to cook, this is ideal. With the variety of cooking schools and different classes to choose from, this could be an perfect gift for a mom who cant stay out of the kitchen. Indian, Italian, and healthy eating are only a few of the newest additions to cooking classes. This is a lovely way for mom to spend an evening or an afternoon and the skills that she takes away can be used long after the class is over. It would be doubly nice to tell her closest girlfriend what you are planning in case she is interested in joining. Simply check out the cooking classes available in your area and sign her up.
14. Wine: My wife is the proud mother of two; a 4 year old and an 18 month old and I’ve noticed that while she rarely drank when we met (or at the time we were married), she’s into wine a little bit more with each passing day. Only works out to a couple of glasses a week, but when my daughter is being “herself”, the wine glass comes out. Used to come out after we put the kids to bed, then after dinner, and now, I see it out before dinner starts! Find a few bottles you know she’ll like and perhaps add an engraved wine glass.
15. Personalize A Gift: Personalized gifts can go from simple to lavish. No matter what the price, personalized gifts are always thoughtful and classy. A personalized key chain with your mom’s initials or beautiful frame, or even some monogrammed towels that she can take to the gym is a sure fire way to make her smile. For a mom that loves to write letters, personalized stationery is an excellent idea. You can choose the type of stationery, color and style of personalization. This is sure to wow her and be very useful.
16. Gift Certificates: Some people think that gift certificates are impersonal, but they can actually be an ideal way to let the gift recipient choose something that she actually wants. For instance, a gift certificate to your mom’s favorite restaurant or beauty counter at the mall. Mom will then have the ability to enjoy the gift based on her own schedule and needs. Or what about a gift certificate to the local movies theater? One $50 gift certificate will allow mom and perhaps even a friend of her choice go to the movies whenever she wants. The great thing about gift certificates is that they can be personal while still giving the recipient some discretion over what they ultimately buy/purchase.
17. An Afternoon with Mom: Sometimes all a mother wants is time with her child which is so difficult to get when everyone is on their own schedule and running around. Offering to spend the afternoon with your mom could be just what the Doctor ordered. Tell her you are happy to do anything she wants whether that means taking a nice walk, going to lunch or to the movies, getting manicures and pedicures together. The main point is to just be together and talk. This gift is free and priceless at the same time.
18. Volunteer Together: Is your mom passionate about a specific cause or charity? If she is, mother’s day can be a great time to join her in giving back to an organization of her choice. Perhaps she is fond of helping the homeless or finding homes for animals or even fighting breast cancer. Whatever her interest, offer to take part in an activity with her. This way, you can see what interests your mom and at the same time give back together.
19. Do It Yourself: Use mother’s day an an excuse to unleash your inner artist. Write mom a poem, one that is heartfelt or draw something for her and frame it. Your local craft store is bound to have a bunch of ideas that you can implement. You can even visit a local do-it-yourself pottery store and create a vase or a decorative object for the home from clay. The store will ensure the object is baked in the kiln and even let you paint and decorate afterward. Your mom will have a permanent reminder of your craftsmanship for all time.
20. A Camera: Most mom’s want to capture memories. What better way to facilitate this then to buy her a camera. As time passes and technology develops, cameras have become less expensive. Although $50 may not purchase a top of the line digital camera, dad is bound to chip in or a gift certificate to an electronics store will help your mom with the big purchase. This way, she can capture family outings and memorable events.
21. A Family Tree: Take some time to research your family and your ancestors, where they came from, etc. There are now a variety of websites which help you trace your family roots like Ancestry.com and MyHeritage.com. You can even go as far as to find your ancestors signature in the books of Ellis Island. Presenting your mom with a family tree and family artifacts is sure to touch her heart. Alternatively, this could be an activity you do together as you may need your mom’s help in your search. One great idea is creating a PBS Style documentary about your family or your mother. While the time may be short for this year, having a documentary made for your mom is an excellent Mother’s Day gift idea. Family Voice Media, a company based in New York, makes documentary films about families and ancestors. This gift will take some planning so keep it in your archives.
22. A Coupon Book: This gift works well for kids and husbands. Create a coupon book with “coupons” Mom can redeem for things such as cleaning your room, washing dishes, vacuuming, or even a massage. This way, you can feel as if you’ve added your own personal touch to the gift and given mom the opportunity to use her gifts at some time in the future.
23. Put On a Show: This is an ideal gift for much younger children who like to entertain and have a special talent. Do you like to dance, play an instrument, sing, do stand-up comedy? Nothing makes a mom more proud than seeing her child do something that he /she is good at. Set up a room in the family home for a special performance, print a program guide, seat the audience and go to town. This is guaranteed to warm your mother’s heart.
24. Knit a Quilt or Blanket: I’m 33 years young, and I still own a blanket that my grandmother made me in 1989. It’s blue, heavy and living in Connecticut, it keeps me warm when I’m watching TV for like 10 months out of the year. Consider adding things to the quilt that you know your mother will love including floral patters of her favorite flower, pictures of her family and always be sure to use her favorite colors!
25. A Family Dinner: Mom is usually responsible for putting your meals one the table, so take the day and plan a nice 3 or 4 course meal for her. You don’t want to make something she’s never had before and you probably don’t want it to be heavy either. Stick to what you know, and see about adding a small twist here or there.
Mother’s deserve the absolute best that money can buy but sometimes, there just isn’t any money to spend. The lack of money can be a real obstacle in buying a Mother’s Day gift. But you shouldn’t let it get in the way of showing mom just how much you care. Waiting until the last second to shop for mom on Mother’s day can be stressful and pricey. This year, get a head start by picking out one of the ideas on our list.
For those looking for even more great Mother’s Day gift ideas, be sure to check out Amazon.com and their Mother’s Day gift page.